Digging Out of Debt: A Year-Round Struggle for Americans

Debt reduction has traditionally been a New Year's resolution, with credit counselors experiencing peak demand in the first quarter. However, this trend is shifting as Americans grapple with mounting debt throughout the year, driven by soaring car payments and credit card balances.

"The landscape has changed," says Bruce McClary, spokesman for the National Foundation for Credit Counseling. "Financial stress has become a year-round phenomenon."

Unmanageable Car Loans and Ballooning Card Debt

Many borrowers are struggling under unaffordable car loans, while others have relied on credit cards to cope with rising costs. This trend is exacerbated by persistent inflation.

Household debt reached a record high of $18.04 trillion in Q4 2022, with a significant portion attributed to credit card debt ($1.21 trillion).

Delinquency Rates on the Rise

Concerningly, serious delinquency rates are at 14-year highs for auto loans and credit cards. "Automobile loan payments are causing stress and increasing reliance on credit," says Victor Russell of Apprisen, a nonprofit credit counseling agency.

Indebtedness spans income levels, as rising auto loan delinquencies have been observed across credit scores and earnings.

Financial Strain Impacting All

Credit counselors report assisting clients from various backgrounds, including an older gentleman facing both high car payments and insurance premiums. "That was a tough situation," says Alexandra Nicosias-Kopp of CCCS.

"A car payment should not exceed 13%-14% of net income," Russell notes. However, with average used car payments reaching $525 and new car payments at $734, this guideline is becoming unrealistic.

"Some individuals are allocating 21%-22% of their income to car payments," says Russell. "That's unsustainable."

Unmanageable Loan Terms and Credit Card Woes

Loan terms have also extended to 78 months, leaving borrowers with hefty payments for over six years. "This has forced many to turn to credit cards for basic expenses," Russell explains.

"Credit card interest rates are not going down anytime soon," warns McClary. The Fed's decision to raise rates further dims the prospect of rate cuts.

Consumer Price Uncertainty

Consumer price uncertainty remains a concern, with economists suggesting that tariffs may drive up prices further.

Seek Help Proactively

Americans who anticipate financial strain are encouraged to seek counseling early. "The longer you wait, the fewer options you have," says McClary. "Act now rather than risk a worsening situation."