Household Budgets Facing Breaking Point
Roughly 24% of people with a credit record are behind on payments for medical bills, student debt, or auto and retail loans, according to a new analysis from the Urban Institute.
Rising costs and interest rates have pushed household budgets to a breaking point as consumers deplete their savings to cover daily expenses.
The median balance owed across these delinquent accounts sits at $2,913, CBS News reported. In communities of color, 30% of people are behind on payments, with a median debt in collection reaching $3,009.
Rising Costs Fuel Debt Surge
Consumer prices have risen by an average of 30% since 2019, forcing Americans to deplete their savings and finance their daily expenses with debt. Outstanding credit card balances have surged to a record $1.29 trillion, marking a nearly 70% increase over the past five years, according to data from the Federal Reserve Bank of New York.
Breno Braga, senior fellow in the family and financial well-being division at the Urban Institute, told CBS News that rising interest rates enacted by the Federal Reserve to tame inflation are compounding the pressure. “The increasing cost of living makes it harder for people to make payments on basic needs,” Braga said, adding that the numbers reflect the current financial reality for many households.
Ted Rossman, principal consumer finance analyst at Money Management International, noted in an email to CBS News that years of elevated prices have driven household budgets to a breaking point. The share of Americans with debt in collection has risen by about one percentage point compared to the previous year, based on Urban Institute findings drawn from more than 10 million credit records and U.S. Census data.
Student loan delinquencies vary by geography
Student loan delinquencies affect roughly one in six, or almost 16%, of student loan borrowers, though geographic disparities are stark. Louisiana records the highest share of people with debt in collections, including a student loan delinquency rate of approximately 22%.
Braga attributes these regional disparities to lower incomes and higher poverty rates in specific parts of the country. “People there tend to have lower credit scores, so when they get a credit card or take out an auto loan, they tend to pay higher interest rates,” Braga explained to CBS News.
Medical debt also persists despite health insurance coverage, driven by high deductibles and the cost of care. Three percent of Americans carry unpaid medical debt in collections with a median balance of $1,492, a figure that excludes credit card charges used to pay for health care costs.
“People without health insurance are more likely to have medical debt, but having coverage does not protect you at all from having medical debt, especially not now with the high deductible plans we are seeing,” Braga stated.
States prohibit reporting medical debt to credit agencies
Fifteen states have enacted legislation prohibiting health care providers from reporting medical debt to credit rating agencies. While this shields consumer credit records from immediate damage, the underlying debt remains.
“It’s good for patients that it’s not reported to the agencies, but that doesn’t mean it disappears. It just isn’t reported anymore,” Braga noted.
Financial Strain FAQ
Why are more Americans falling behind on bills despite having jobs?
Consumer prices have risen by an average of 30% since 2019, forcing Americans to deplete their savings and finance their daily expenses with debt. Federal Reserve interest rate hikes have also increased borrowing costs on variable-rate credit cards and loans.
Which debt category shows the highest regional distress?
Student loan delinquencies vary by geography; Louisiana's rate is roughly 22% due to lower local incomes and higher poverty rates.
Does health insurance protect consumers from medical debt?
Insurance does not fully protect against medical debt due to high-deductible health plans. The Urban Institute reports that 3% of Americans still carry unpaid medical debt in collections with a median balance of $1,492.
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