According to new research by the Financial Health Network, Americans paid 14% more for financial services last year due to rising interest rates on loans, increased borrowing, and, to a lesser extent, higher fees on deposit accounts.
Meghan Greene, senior director of policy and research at Financial Health Network, stated that the weakening state of consumer credit has persisted in 2023, with indicators showing a concerning trend. Delinquencies on credit cards and auto loans have either reached or surpassed their levels before the pandemic, suggesting Americans are losing the financial stability they had enjoyed in recent years. This return to pre-pandemic credit quality also signifies that consumers are now paying off their debts at a more typical pace, compared to the rapid rates observed until recently.
From 2020 to much of 2022, consumer credit remained robust, thanks to pandemic-related measures that assisted individuals in meeting their loan obligations, such as flexible payment timelines and government stimulus payments. However, a Financial Health Network report points out factors currently straining consumers' financial resources. The report reveals a 20% increase in total fees and interest on credit cards in 2022 compared to 2021, amounting to $113.1 billion. Approximately a quarter of this increase was driven by higher interest rates, while the remainder was attributed to elevated card balances.
These findings align with other data indicating that consumers are accumulating credit card debt at an unprecedented pace, with balances reaching $1 trillion by the end of March, marking a 17% surge compared to the previous year, as the Federal Reserve Bank of New York reported. Moreover, the report highlights that the personal savings rate in the United States, which had surged during the pandemic, hit historic lows in the past year and has only experienced a slight increase thus far in the current year.
Financial Advisor Transitions consults advisors nationwide to explore employment transition options and to preserve and protect their practice in any transition that they make.
