US economy masks credit crisis as debt hits 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 most people in financial distress, according to a new report from the personal finance site WalletHub.
The analysis ranked 100 large cities on several metrics of financial duress, including bankruptcy filings, credit scores and accounts in forbearance over money troubles.
Researchers also tabulated how often people in each city searched the internet for “debt” or “loans,” a measure of financial concern.
“The search index is a good indicator of people who are struggling but maybe haven’t taken action to try to get out of debt just yet,” said Cassandra Happe, a WalletHub analyst.
Chicago, Houston, New York and Los Angeles rank highest for citizens in financial duress
New York and Los Angeles ranked third and fourth on the financial distress list. Boise, Idaho, ranked last − which means that city has the fewest citizens in financial peril.
To control for each city’s size, the ranking emphasized rates of distress over raw numbers.
The report comes at a moment when Americans are spending more, borrowing more and saving less.
Credit card debt, an increasingly perilous form of borrowing, reached a record $1.13 trillion at the end of last year.
The personal savings rate, the share of income that savers sock away, was 3.8% in January, down from about 7% before the COVID-19 pandemic.
People are falling behind in their finances amid a surge in interest rates and consumer prices.
“As inflation kicked in, people spent more,” said Mike Croxson, CEO of the National Foundation for Credit Counseling. “But they didn’t have free cash flow anymore, so a lot of people began using unsecured debt,” borrowing on their credit cards.
Inflation peaked at a 40-year high of 9.1% in summer 2022. Prices continue to creep up.
In an aggressive campaign to tamp down inflation, the Fed raised its key short-term interest rate from near zero to a 22-year high of 5.25% to 5.5% between March 2022 and July 2023.
Inflation and rising interest rates are pinching urban consumers
Inflation is vexing consumers in several cities that sit near the top of the new WalletHub ranking, researchers said.
“The rise in inflation, and just cost of goods in general, has been playing a big role in what we’ve been seeing in the past 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 most citizens in financial distress, ranked 6th on another recent WalletHub list of cities with the biggest inflation problems. Houston ranked 10th on that list, among 23 metropolitan areas. Houston prices rose 4.5% in the past year, and Chicago prices rose 3.3%, the report said.
Of the 100 cities WalletHub studied, Chicago had the largest increase in the share of citizens with credit accounts in distress, a nearly 30% bump from the fourth quarter of 2022 to the fourth quarter of 2023.
That means a growing number of Chicagoans were allowed to skip payments because of financial difficulty, with their accounts placed in forbearance or deferral.
Chicago also had one of the highest rates of search interest in “debt” and “loans,” a sign that residents are already in debt, seeking to borrow or searching for debt counseling.
“The good news is, people are raising their hand and looking for help,” said Croxson of the National Foundation for Credit Counseling.
Houstonians, too, are spending a lot of time online searching for loans or debt relief. Houston ranked relatively high for its share of residents with accounts in financial distress, more than 8% of the population.
Recession risk? Americans are saving less and spending more.
Which are the top 10 cities for residents in financial trouble?
Here are the other cities ranked in the top 10 by WalletHub for citizens in financial distress:
3. New York. The city tied for first (with Chicago, Houston and Los Angeles) for search interest in “loans” and debt.” New York ranked sixth among large cities for rising bankruptcy filings between 2022 and 2023.
4. Los Angeles. Angelenos are spending a lot of time searching online about debt. The city also ranks poorly on credit scores, meaning many Angelenos have weak or weakening credit.
5. Dallas. The city ranks high for a year-to-year rise in bankruptcy filings and for search interest in debt and loans. In an earlier report, WalletHub ranked Dallas first in the nation for rising inflation.
6. Las Vegas. Sin City ranks high on several measures of consumer distress: weak credit scores, residents with accounts in distress, rising bankruptcy filings and people searching online about debt.
7. San Antonio, Texas. The city ranks high for residents with accounts in distress and for year-to-year rise in bankruptcy filings.
8. Atlanta. The city is tied with Dallas (and other cities) for fifth place in the ranking for frequency of online searches about debt and loans.
9. Riverside, California. Riverside ranks high for online searches about debt.
10. Jacksonville, Florida. Many residents have credit accounts in distress. The city ranks high for internet searches about debt.
