A Personal Credit Crisis Begins

Credit Card Debt just hit an all time high at the end of last year. In the final three months of 2022, it rose another $61B to a total of $986B.

This was the largest quarterly increase and the highest total ever recorded since the metric began in 1999.

Concurrently, the rate at which credit card holders missed their payments or became more than 90 days behind on their credit card bills was actually higher than before the pandemic. This is especially worrisome for younger borrowers who will again need to make payments on their student loans at the end of this year when the moratorium on these payments comes to an end.

This is all happening as interest rates on credits card debt continues to climb. Going in lock step with the Fed Reserve interest rate increases, the average rate paid on credit cards is now almost 20%.

This is at a 37 year high.

The report also showed that borrowers are having difficulties making payments on their auto loans. This isn’t due to interest rate increases given that these loans are normally done at a fixed rate.

The problem is that in the last couple of years, cars were selling at unheard of prices, making the monthly payments on these notes higher as well. The delinquency rates on these loans are also increasing.

Let me leave you with this.

The housing market weakened for the 12th straight month as higher interest rates continue to stop buyers from qualifying for home loans.

Sales of previously owned homes fell another 0.7% in January. On a year over year basis, sales were down 36.9%. January’s decline was the longest streak of monthly declines since the metric began in 1999. The current rate on a thirty year fixed-rate mortgage is hovering around 7%.

The problems in the credit and housing markets all add up to one thing. Inflation has increased faster than compensation and consumers are feeling the pinch.

These problems will probably get worse before they get better.

Given the numbers that came out last week, the Fed will probably continue increasing interest rates. This move will only exacerbate these already difficult situations.

Be conservative with your finances. Pay off your credit card debt. Paying 20% on money will do nothing but keep you poor for the rest of your life.

Interest rate increases will certainly decrease the cost of real estate in the next few years. The only way people will be able to afford homes is if sellers bring down their prices.

Live within your means. Our economy will probably recess sometime this year. The best time to get into a better place financially would be now, before it actually happens.

We’re all going to get through this. Let’s get through it together.

Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Employee Retention Credits, M&A Due Diligence, Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,

Sincerely yours,

Chris Amundson
Accounting Solutions Ltd.



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