Digging Out of Debt: A Year-Round Challenge

Introduction

Traditionally, the start of the year marked a surge in credit counseling requests. However, this trend is shifting as borrowers grapple with significant debt levels throughout the year.

Changing Landscape

"The landscape has changed," says Bruce McClary of the National Foundation for Credit Counseling. "People are experiencing financial stress year-round."

Key Contributors

* Unaffordable car loans: Borrowers are facing high monthly payments due to increased auto loan amounts and longer durations.
* Credit card debt: Consumers have relied on credit cards to cope with rising inflation, leading to ballooning balances.

Rising Delinquency Rates

The share of borrowers 90 days or more behind on auto loans and credit cards is at 14-year highs, particularly among low and middle-income households.

Case Study

Credit counselors cite the example of an older man struggling to keep up with car payments and insurance premiums.

Car Loan Burden

Experts recommend allocating no more than 13%-14% of net income to car payments. However, the average payment for used cars is now $525, and for new cars, it's $734. Many borrowers exceed this threshold, leading to unsustainable payments.

Long-Term Loans

Auto loan terms have extended to 78 months, resulting in prolonged financial burdens for borrowers.

Credit Card Reliance

With auto payments taking a significant chunk of income, consumers are resorting to credit cards for basic living expenses. However, credit card interest rates are hovering around 20%, further exacerbating the debt crisis.

Outlook

Interest rates and inflation are not expected to decline significantly soon, posing additional challenges to borrowers.

Call to Action

Experts advise individuals to seek professional credit counseling sooner rather than later. "The longer you wait, the fewer options you have," says McClary. "Act now rather than wait and see how things pan out."