Rising Debt Burden: Car Loans and Credit Card Debt Fuel Year-Round Financial Stress

Americans are facing increasing financial challenges throughout the year as they grapple with unaffordable car loans and ballooning credit card debt.

Changing Trends and Growing Concerns

Traditionally, the first three months of the year were peak season for credit counselors as individuals sought relief from holiday spending. However, this trend is waning due to the ongoing financial strain experienced by borrowers.

"The landscape has changed," said Bruce McClary, spokesman for the National Foundation for Credit Counseling. "We are hearing more from people feeling financial stress year-round."

Unaffordable Car Loans

Many individuals have become trapped in subprime car loans with excessively high payments. The average payment for used cars has reached $525, while new car payments average $734, according to Experian.

"We're seeing individuals paying 21%-22% of their income towards car payments," said Victor Russell, operations manager for Apprisen. "That's not sustainable."

Credit Card Debt and Inflation

Individuals have also turned to credit cards to cope with rising expenses such as groceries and gas. As inflation remains elevated, this debt is adding to financial burdens.

The Federal Reserve Bank of New York reported that credit card balances increased by 4% to a record $1.21 trillion in the fourth quarter of 2022.

Delinquency Rates and Affordability

Delinquency rates on both auto loans and credit cards are at 14-year highs. This indicates that borrowers are struggling to keep up with payments as debt levels rise.

"I really see a trend of automobile loan payments being very high and causing a lot of stress on how people pay for living expenses," said Russell.

Rising Insurance Costs

Compounding the financial challenges, motor vehicle insurance premiums have also surged, increasing by 12% over the past year.

Impact on Individuals

Credit counselors are struggling to assist struggling clients, such as an older gentleman who can no longer afford his car payment and insurance.

"He cut expenses all across the way, but the car was the biggest expense," said Alexandra Nicosias-Kopp, director of operations at CCCS. "That was a really tough situation that we're still figuring out."

Need for Proactive Action

To avoid exacerbated financial difficulty, individuals who are experiencing financial stress are advised to seek guidance from nonprofit credit counselors.

"The longer you wait and the worse things get, the fewer options you have, and it becomes more difficult to turn things around," said McClary. "Act now rather than wait and see how things pan out."