US economy hides credit crunch as debt runs into millions
Despite the overall health of the US economy, there are growing concerns as Americans face record high credit card debt.
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Chicago and Houston rank as the cities with the highest number of people experiencing financial distress, according to a new report from the International Finance Corporation. Personal finance website WalletHub.
The analysis ranked 100 large cities based on several metrics Financial coercionincluding bankruptcy filings, credit scores and accounts of forbearance regarding financial problems.
The researchers also tabulated the number of times people in each city searched online for “debts” or “loans,” a measure of financial anxiety.
“The research index is a good indicator for people who are struggling but may not have taken any action to try to get out of debt yet,” WalletHub analyst Cassandra Happé said.
Chicago, Houston, New York, and Los Angeles rank first for citizens under financial stress
New York and Los Angeles ranked third and fourth on the financial distress list. Boise, Idaho, ranked last — meaning the city has the fewest citizens at financial risk.
To control for the size of each city, the classification emphasized distress rates compared to raw numbers.
The report comes at a time when Americans are spending more, borrowing more, and saving less.
Credit card debt, an increasingly risky form of borrowing, reached a record high of $1.13 trillion at the end of last year.
The personal savings rate, the share of income saved by savers, was 3.8% in January, down from about 7% before the Covid-19 pandemic.
People are falling behind in their finances amid rising interest rates and consumer prices.
“As inflation set in, people spent more,” said Mike Croxon, CEO of the National Foundation for Credit Counseling. “But they no longer had free cash flow, so a lot of people started using unsecured debt,” borrowing on their credit cards.
Inflation reached a 40-year high of 9.1% in the summer of 2022. Prices continue to rise.
In an aggressive push to lower inflation, the Fed raised its key short-term interest rate from almost zero to a 22-year high of 5.25% to 5.5% between March 2022 and July 2023.
Inflation and high interest rates are putting pressure on urban consumers
Inflation is puzzling consumers in several cities near the top of WalletHub's new rankings, researchers said.
“Rising inflation, and the cost of goods in general, has played a big role in what we've seen in the last year or so,” Happe said. “A lot of people have turned to credit cards and loans just to fill that gap.”
Chicago, the city with the largest number of cash-strapped citizens, ranked sixthy In another recent WalletHub list of cities with the The biggest problem is inflation. Houston is in 10th placey On that list, out of 23 metropolitan areas. Houston prices rose 4.5% last year, and Chicago prices rose 3.3%, the report said.
Of the 100 cities WalletHub studied, Chicago saw the largest increase in the share of citizens with credit accounts in distress, up nearly 30% from Q4 2022 to Q4 2023.
This means that a growing number of Chicagoans have been allowed to skip payments due to financial hardship, with their accounts placed on hold or deferment.
Chicago also has one of the highest rates of search interest for “debts” and “loans,” a sign that residents are already in debt, seeking to borrow or seeking debt counseling.
“The good news is that people are raising their hands and looking for help,” said Croxon of the National Foundation for Credit Counseling.
Houston residents also spend a lot of time online searching for loans or debt relief. Houston ranked relatively high for its share of cash-strapped residents, more than 8% of the population.
Risk of recession? Americans are saving less and spending more.
What are the 10 best cities for residents with financial problems?
Here are other cities that WalletHub ranked in the top 10 for cash-strapped citizens:
3. New York. The city ranked first (with Chicago, Houston, and Los Angeles) in search interest for “loans” and debts. New York ranked sixth among major cities in terms of the increase in bankruptcy filings between 2022 and 2023.
4. Los Angeles. Angelenos spend a lot of time searching online for debt. The city also ranks poorly in credit scores, meaning many Angelenos have poor or weak credit.
5. Dallas. The city ranks highly in terms of annual rise in bankruptcy filings and interest in debt and loan searches. In a previous report, WalletHub ranked Dallas first in the country for high inflation.
6. Las vigas. Sin City ranks high on several measures of consumer distress: poor credit scores, residents with accounts in distress, high bankruptcy filings, and people searching online for debt.
7. san antonio, Texas. The city ranks high for residents with accounts in distress and for annual increases in bankruptcy filings.
8. Atlanta. The city ties with Dallas (and other cities) for fifth place in frequency of online searches about debts and loans.
9. Riverside, California. Riverside ranks highly in online searches for debt.
10. Jacksonville, Florida. Many residents have credit accounts in distress. The city ranks highly in online searches for debt.
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