Millennials are building up a mountain of debt in pursuit of the middle-class American dream — and they're starting to miss credit card payments at an alarming rate

Concerned homebuyers looking over bills.
Concerned homebuyers looking over bills.Getty Images
  • Millennials are taking on debt at a faster rate than any other age group. 

  • Many of them are looking to finally buy a home, a car, and start a family.

  • Going into significant debt may be the only way millennials can afford a middle-class lifestyle

After delaying marriage, homebuying and kids longer than any other generation, some millennials are finally opting for the traditional middle-class lifestyle — but they're piling up a mountain of debt to make it happen.

Since 2019, American millennials in their 30s have seen their total debt load rise 27% to $3.8 trillion as of the fourth quarter of last year, according to the New York Fed. This was the largest increase of any age group measured over this time span, and marked this cohort's fastest pace of debt accumulation over any three-year period since 2008, The Wall Street Journal reported.

This debt load is beginning to takes it toll — the NY Fed's report found that millennials are missing credit card and auto loan payments at rising rates.

With inflation and interest rates elevated, it's become nearly impossible for some millennials to afford a home, a car, or even kids — all markers of the traditional middle-class lifestyle — without taking on a huge debt load.

Even before the pandemic, millennials were reaching these life milestones at later ages than prior generations. While recent affordability concerns have led some to postpone these milestones even further, others — evidenced by their growing debt burdens — have decided to bite the bullet and jump in anyway.

Millennials are starting to miss credit card payments

After falling over the last few years as borrowers paid down their balances, US credit card debt rose $61 billion in the fourth quarter, the largest increase in the history of the NY Fed's data, which dates back to 1999. This increase brought total credit card balances to $986 billion, surpassing the pre-pandemic high of $927 billion.

Inflation has caused many millennial consumers to spend more, save less, and ultimately turn to credit card debt as pandemic-era savings have run out. And while older borrowers continue to miss payments at below pre-pandemic rates, the share of Americans in their 20s and 30s doing so "surpassed their pre-pandemic rates" in the fourth quarter, the NY Fed said.

"It's gotten to a point where my payments cover the interest and not much else," 26-year-old Anthony Strain previously told Insider. "Both of my credit cards are maxed, with one actually surpassing the credit limit thanks to interest."

While there are surely several factors fueling credit card debt among millennials, the high cost of childcare and related expenses surely aren't helping.

National childcare costs average between $9,000 and $9,600 annually, per the advocacy organization Child Care Aware, a rate that's unaffordable for nearly two-thirds of working parents in the US — and the cost could shoot even higher over the next year.

That said, some millennials have decided to have kids anyway. Following a decline in the birth rate in 2020, women without children drove the "first major reversal in declining US fertility rates since 2007" in 2021, according to a National Bureau of Economic Research report published in October.

Prices for some cars are easing, but buyers still have to splurge to get one

Starting a family and car ownership often go hand-in-hand. And while there are some signs of car prices easing, affordability remains near as low as it's been in over a decade.

In January, new-vehicle affordability reached a record low, according to Cox Automotive's affordability index, which dates back to 2012.

Per Cox, the average new vehicle price reached a record-high $49,507, auto loan interest rates rose to a 20-year high, and the median number of weeks of income needed to buy the average new vehicle increased to 44 weeks, the highest level since 2012. In recent months, there's been an uptick in millennial car buyers missing their loan payments, though the share doing so remains below pre-pandemic levels.

Affordability only improved marginally in February. And even used car prices, which have fallen from their pandemic highs, might be on the rise again.

"New vehicle inventory might finally be improving, but the automotive industry is still on a long road to recovery because rising interest rates are creating a major barrier to entry for car shoppers," Jessica Caldwell, executive director of insights at Edmunds, previously told Insider in an email.

Despite these hurdles, Americans purchased vehicles in January at the highest seasonally adjusted rate since April of 2021, and auto loan balances increased by $28 billion in the fourth quarter of last year. One can presume that to at least some degree, millennials took part in the recent car buying spree.

Homes are still unaffordable, but buyers are coming back 

Millennials who didn't snatch up a low mortgage rate a few years ago have been left to contend with the higher home prices and interest rates today.

As of December, the median monthly US mortgage payment on the median US home was $1,959, according to the Atlanta Fed's home ownership affordability tracker. While this was down slightly from prior months, it was higher than any month between 2006 and 2021. Otherwise stated, the median US household would have to shell out over 42% of their monthly income to make the median December mortgage payment — in addition to taxes and insurance costs — higher than any month between 2006 and 2021.

These obstacles have kept many millennial buyers out of the market, but in recent months, it appears that some have decided to dive in anyway. In January, a slight dip in mortgage rates coincided with the largest monthly increase in pending home sales since June of 2020, according to the National Association of Realtors.

"They're scared they're not going to be able to ever afford a home. They're scared there won't be homes for them by the time they get there," Wendy Gilch, the founder of Selling Later Search and the host of the podcast "The Real Estate Replay," previously told Insider. "They just feel abandoned."

Despite the affordability concerns, Americans are continuing to make their mortgage payments, a sign that a repeat of the 2008 housing crisis isn't around the corner.

Correction: February 28, 2023  An earlier version of this story did not note that the rate of vehicle purchases in January was the seasonally adjusted rate, not the total number.

Read the original article on Business Insider