The Latest Personal Finance News for September 2023

U.S. Credit Card Debt Reaches $1 Trillion for the First Time

According to data from the Federal Reserve Bank of New York for the second quarter of 2023, Americans owe more than $1 trillion in credit card debt. It’s the first time U.S. consumers have reached the threshold since the central bank began tracking household debt.

The figure was on track for the $1 trillion mark before the coronavirus pandemic, reaching $930 billion in the fourth quarter of 2019, according to Fed data. However, it dropped to as low as $770 billion in the second quarter of 2021 as households tightened their budgets before increasing again.

While it may be tempting to blame consumer spending, the Bureau of Economic Analysis reported that personal consumption expenditures increased by just 0.5% in June 2023 from the previous year. Record-high interest rates and persistent high inflation are likelier culprits for the rapid rise in credit card balances.

Why It Matters

As your credit card balances climb, keeping up with monthly payments can become increasingly difficult. A rising credit utilization rate can also damage your credit score. If you can’t afford to pay more than the minimum amount due each month, you may risk further damage to your credit and financial health.

What You Can Do

• Learn about how much credit card debt is too much.
• Research ways to pay off credit card debt.
• Decide whether to save or pay off debt.
• Consider whether you should use savings to pay off debt.

Interest Rates Reach Their Highest Level in 22 Years

After a brief pause, the Federal Reserve hiked its federal funds rate again in July, pushing it to a range of 5.25% to 5.5%—the highest the rate has been since early 2001. The federal funds rate directly impacts the prime rate, which has also reached a 22-year high.

Lenders use the prime rate as a reference to help determine interest rates on different types of loans, including credit cards, personal loans, auto loans, home equity loans, mortgage loans and more.

According to Freddie Mac, the average interest rate on a fixed-rate 30-year mortgage reached its highest level in more than 20 years in late August. And while the most recent Federal Reserve data for auto loans, personal loans and credit cards is from the second quarter of 2023, interest rates on those loans are at or near record highs since the central bank began tracking them.

Why It Matters

As interest rates continue to rise, borrowing becomes increasingly expensive. These record interest rates are a part of the Fed’s monetary policy—more expensive debt typically translates to lower consumer spending, which can help curb the inflation rate.

But for individual households, high interest rates simply mean higher monthly payments and tighter budgets.

What You Can Do

• Learn how the Fed interest rate hikes are impacting consumers.
• Read up on how to deal with high mortgage rates.
• Consider what rising interest rates mean for your savings.
• Find out how to negotiate a lower interest rate on your credit card.

More Americans Are Falling Behind on Payments

As interest rates and balances grow, so are delinquencies. According to the Federal Reserve Bank of New York, 5.08% of credit card balances were 90 days or more delinquent in the second quarter of 2023, an increase from 3.35% from the same period last year.

Mortgage loans, home equity lines of credit, auto loans and other debt also saw spikes in serious delinquencies. Only student loans saw a decrease in delinquencies, likely due to the federal student loan payment moratorium.

Why It Matters

Missing a debt payment by 30 days can have a significant negative impact on your credit score. The longer your payment remains past due, the more damage to your credit score, and it could lead to even more drastic consequences, including default and collections. Because delinquencies remain on your credit report for seven years after your first missed payment, it’s important to take steps to avoid them.

What You Can Do

• Read about how to avoid late payments.
• Learn what you can do when you’ve missed a credit card payment.
• Consider whether to seek advice from a credit counselor.
• Research how to negotiate with debt collectors.

New SAVE Plan Will Help Struggling Federal Student Loan Borrowers

Federal student loan interest will resume accruing this month, and monthly payments will continue in October after a three-and-a-half-year pause. If your budget is tight and you’re unsure whether you can afford to start making payments again, the new SAVE income-driven repayment plan can help.

The plan reduces your monthly payment to 5% of your discretionary income, which is the difference between your household income and 225% of the federal poverty guideline for your household size. For some borrowers, the resulting monthly payment will be $0, and if your payment isn’t enough to cover accruing interest, the remaining interest won’t be added to your balance.

The plan also provides for forgiveness of your remaining balance as soon as 10 years.

Why It Matters

After several few years of no student loan payments, it’s understandable if your budget no longer accommodates that expense, especially with persistent high inflation and interest rates on other debt. The SAVE plan can be a great way to make your student loan payment more affordable and potentially even help you achieve loan forgiveness more quickly.

What You Can Do

• Learn more about the SAVE plan.
• Prepare yourself for student loan payments to resume.
• Consider other ways to extend your student loan payment pause.
• Understand how student loans can affect your credit.

Good Credit Can Contribute to a Healthy Financial Plan

While there are aspects of your financial situation that are outside of your control, building and maintaining a good credit score can help you weather challenges and save money in the long run.

With Experian’s free credit monitoring service, you’ll get access to your FICO Score and your Experian credit report. With this information in hand, you can gauge your credit health and target areas of your credit profile that you can improve over time. And with real-time alerts whenever your report is updated, you can spot potential issues and fraud and address them quickly.