Page 26 - BusinessWest October 27, 2021

ing. So, for the most part, consumers have been in a good position, but then, when all these debts start to come due again, it’s going to be a very dif- ficult time.”
And that’s what economic leaders — and peo- ple like Viale, who help families get out of debt
— worry about. The increased spending in 2021 has coincided with an end to loan-deferment pro- grams launched at the start of the pandemic, and if they haven’t been paying attention to their bud- get, many families might be in for a shock.
“It really is a perfect storm,” Viale said. “Con- sumers have had the ability to not pay their rent or mortgage or credit-card payments. Most, if not all, of that has ended, except for the 800-pound gorilla, which is student loans.”
Those will continue to be in moratorium until Feb. 1, which is when $1.3 trillion of debt will start to be drafted back out of consumers’ checking accounts. “Yes, they are being alerted and warned to be ready, but after not paying on these loans for almost two years, it’s going to be a shock for many.”
All of this has banks — with whom Viale talks all the time — worried about huge loss rates due to credit defaults starting in late 2022 and early 2023. In short, we may be heading into perilous times for household debt.
Change of Plans
According to a recent CreditCards.com survey, 44% of respondents they are willing to take on debt in the second half of 2021 for non-essential purchases, such as dining out.
That marks a dramatic change from savings- happy 2020. Even after that temporary dip in debt in 2020, 42% of U.S. adults with credit-card debt
have increased those balances overall since the pandemic began in March 2020, according to a Bankrate.com survey conducted in September.
“It’s been an upside-down credit environ- ment,” Stephen Biggar, who covers financial insti- tutions at Argus Research, told CNBC this month. “If you told me the market was going to crash 40% and we would have 20% unemployment, you would have also said card delinquency rates would go through the roof, particularly for the lower-end consumer.”
But instead, the savings rate spiked to lev- els not seen in 70 years, as consumers curtailed spending — and were allowed to halt payments on student loans and mortgages — and started paying back other debt, notably credit-card bal- ances. Now, the tide has completely turned. Meanwhile, most of those deferment programs no longer offer last year’s safety net.
“People haven’t had to pay their bills for a long time,” Viale said. “Mortgage, rent, student loans, even credit cards allowed a period of time when people didn’t have to make payments.”
Unlike payment deferment for credit cards, in which interest keeps accruing, “student loans are very different because that was a true moratori- um; no one was being charged,” he explained. “So whatever status someone was in with their stu- dent loans when the pandemic started is where they’re going to be in February when they have to start paying again.
But on Feb. 1, those autodrafts will begin again. “And that’s going to be a shock for consum- ers because they haven’t made these payments in 18 months or so.”
Politico reported that the U.S. Department of Education is considering providing student-loan
relief to borrowers who miss a payment during the first 90 days after payments resume, so credit scores won’t be adversely impacted.
According to Forbes, U.S. Sen. Elizabeth War- ren wants to go even further; fretting about a surge in student-loan delinquency and default once payments resume, she and other mem- bers of Congress have repeatedly asked the Biden administration to postpone the restart of payments.
“Yes, they are being alerted and warned to be ready, but after not paying on these loans for almost two years, it’s going to be a shock for many.
The average monthly payment for student- loan debt is between $400 and $600, Viale noted. “That’s a pretty big-ticket item they haven’t had to pay for a long time, and now, out of nowhere, they’re going to have to start paying it again.”
This will only exacerbate what seems to be a looming credit crisis, Viale said, one that makes programs like Cambridge’s — which manage and pay down a client’s debt payments in a way that reduces interest costs and protects their credit rating — even more critical.
Because of concerns about consumer debt
next year, the Federal Reserve is allowing such
relief programs to be extended to offer consum-
ers even more con-
cessions if they are Debt
struggling to keep up Continued on page 28
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