According to data from a consumer credit reporting agency during the third quarter, personal loans and credit card debt reached record levels in 2022 due to financial strains caused by high inflation and rising interest rates.
According to TransUnion research, credit balances hit a record-breaking $866 billion in the third quarter of last year and are predicted to keep rising. Personal loan originations, meantime, have seen record growth over the past year and are expected to revert to pre-pandemic levels in 2023.
According to Michele Raneri, vice president of research and consulting at TransUnion, consumers are optimistic despite rising financial strains.
According to the credit bureau’s Consumer Pulse study, more than half of Americans felt confident in their financial situation in 2023. In addition, approximately two-thirds of Gen Z and Millennial consumers said they felt hopeful about their financial future, making them among the most upbeat.
Raneri opined, “I believe that is due to the wage aspect. They receive more significant raises and promotions more quickly than those who may be more experienced in the workforce.
According to a TransUnion news release from November, Gen Z and Millennial borrowers will also play a significant role in driving the debt surge in 2022. High inflation and more lending to “below prime consumers,” or those with worse credit scores, are two more causes.
With inflation, people who are stressed out financially become much more so, according to Raneri. And so, until circumstances improve, something like a credit card can be utilized as a bridge.
Below-prime consumers saw more significant growth in credit balances and debt repayments that were more than 60 days past due.
According to TransUnion, these delinquencies rose 54% year over year in the third quarter of last year to achieve the highest default rate since 2014.
TransUnion senior vice president Paul Siegfried says, “We predict card delinquency to climb in 2023 as consumers experience liquidity problems from the continued high inflation environment, decreasing wage growth, and expected increases in unemployment.”
These consumer credit market estimates are available even though 8 out of 10 Americans think the country is either already in a recession or will be by the end of 2023.