People are taking out loans to pay loans, survey finds
For many Americans making ends meet has become so tough that they are taking out loans to help to pay their credit-card debt.
In other words, they are piling on debt in order to pay for debt. The result is that they are significantly increasing their monthly costs because these loans carry high interest rates.
Read More »Others are borrowing money to pay bills or for emergencies. They, too, are adding to the monthly costs that they will incur as a result of paying off the loans at high interest rates.
This situation is revealed in a survey by ScoreSense, a company that monitors credit scores. The survey focused on consumer loan and credit activity for the third quarter of 2022.
Overall loans are down
On the one hand, fewer people are taking out loans because of higher interest rates. This trend is shown in the number of new loans being issued. They are down 18% in just the last quarter.
On the other hand, however, many are taking on increased debt in order just to stay on top of their bills, the survey finds.
As a result, spending on credit, late payments, and overspending are all increasing as people struggle to come out on their monthly income.
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For many, the situation has become highly stressful.
Older adults more affected
The trend toward piling on more debt is most pronounced among older adults who live on a fixed income. The ScoreSense survey showed that adults over 65 are more likely to take out loans for emergencies than younger adults. The reason is that those who live on fixed incomes are especially hard hit when they face an unexpected cost, such as a high medical bill. If they have no savings on which to fall back, they are forced to turn to obtaining a loan to cover the costs.
Although older Americans are hard hit, the survey and credit analysis by ScoreSense finds that the trend toward taking out loans to meet monthly expenses spans all age groups.
Prices remain high
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Ongoing inflation means that prices not only remain high, but they also are continuing to become higher, says Carlos Medina, senior vice president at One Technologies, whose products include ScoreSense.
In order to cope as they struggle to make ends meet, many Americans are turning to obtaining even more credit to meet their regular expenses. At the same time, rising interest rates are making it harder for many to pay off their debt.
It becomes a vicious circle.
Survey findings
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The survey found:
• A quarter of all adults are using loans to pay toward credit-card debt.
• Those older than 65 are more likely to take out a loan to pay for an emergency than younger adults.
• Almost a quarter of those who responded to the survey said they took out a loan to cover personal projects.
• One in every five respondents said they borrowed money to remodel their homes.
• Two in every 10 respondents used their loans to buy a car.
• Of those aged 25 to 34 about a quarter were more likely to use a loan to buy a new home or to cover expenses related to such a purchase.
Delinquencies are rising
The results of taking on increased debt is showing up in two ways:
• Delinquencies grew by 21% from the third quarter of 2021 to the third quarter of 2022. They grew 14% from the second quarter to the third quarter of 2022.
• Spending that exceeded the limit on credit cards grew by 11% from the second quarter to the third quarter of 2022.
