Americans’ fears of missing a debt payment rise


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NY Fed survey shows third monthly increase in a row

Senior Reporter
Expert on consumer credit laws and regulations

Debt fears

Americans’ fears of missing a minimum debt payment rose in
June for the third month in a row, according to the Federal Reserve Bank of New

The New York Fed’s Survey of Consumer Expectations asks
consumers to estimate their odds of missing a payment at some point within the
next three months. In June, the average response was 12.41 percent, up from
10.72 percent in March.

Who is most likely to miss a payment? The survey found wide
demographic differences. People under age 40 put their chances at 18.5 percent,
while those age 40 to 60 said 14.3 percent, and people over 60 said just 5.5

As for education levels, people with a high school diploma or
less put their odds at 15.5 percent, versus 13.6 percent for people with some
college and 8.1 percent for people with at least a four-year degree.

Delinquencies are
rising, bank group says

The anxiety may be well-founded – late payments are already
on the rise, according to the American Bankers Association.

Delinquencies on bank cards – credit cards
issued by banks – rose more than one-half a percentage point to 3.06 percent of
all accounts, according to the ABA’s Consumer Credit Delinquency Bulletin for
the first quarter of 2018.

Are higher debt loads and rising interest rates putting a
chokehold on consumers’ finances?

The late payments come as credit card balances rise to new
heights. In May, balances
rose $9.7 billion
to a total of $1.04 trillion, according to the Federal

While it is true that credit card debt has passed its pre-recession
peak, economists say delinquencies are still modest, and are the natural result
of the long economic expansion.

See related: Household debt passes pre-recession peak, NY Fed finds

Late payments still
below long-run normal

“Delinquencies have been so low for so long that it is not
surprising to see them ease back toward more normal levels,” James Chessen,
ABA’s chief economist, said in a statement. The jump in delinquency came as growth
in credit card debt moderated during the first quarter, he said.

“Bank card delinquencies have been near historical lows for
five years as consumers have done a great job managing their levels of debt,”
Chessen said. The 15-year average delinquency rate on bank cards is 3.56
percent of accounts.

When you take income into account, household debt loads are still
low by historical standards, Chessen said. “The ratio of credit card debt to disposable
income remains low and is nowhere near pre-crisis levels,” he said. 

The debt-to-income ratio was 5.5 percent in
the first quarter, compared to levels above 8 percent before the financial

Rising rates make
balances more expensive

However, balances will continue to be more expensive to
carry, increasing the squeeze on household budgets. The Fed has raised
its benchmark federal funds rate
by seven steps of a quarter-point each
since 2015. Economists expect more to come as the central bank tries to keep
the economy from overheating.

The “Federal Reserve is likely to continue to raise rates
in a gradual but consistent fashion – 25 basis points once a quarter is a good
bet at least over the next year or so,” TD Economics chief economist James
Marple said in a recent analysis.

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