4 Positive Signs More People Are Conquering Debt

For many Americans, the past few years have been a rough ride: a pandemic, nations at war and rampant inflation have caused a lot of pain, including financial pain.

But there are a few silver linings to be found in the latest Survey of Consumer Finances from the Federal Reserve. The survey, conducted every three years, examines changes in family finances from a variety of angles, including income and debt. In several ways, our financial outlook has improved since before the pandemic.

Following are some of the positive changes in family finances between 2019 and 2022.

Fewer late payments

In 2019, 12.3% of families were late on at least one payment for some kind of debt in the preceding year. In 2022 — despite all the tumult — 12.2% of families were behind. Even a 0.1% improvement is notable for a time when inflation was at a 40-year high.

It is possible that federal and state economic stimulus payments were a factor in keeping families on track, but not everyone received them, and they certainly were not enough to cover a year’s worth of higher bills. Rather, this decline continues a trend since at least 2010, when 17.3% of families were late on payments. Improved finances and wider adoption of autopay features may play a role in the improved numbers.

Fewer bankruptcies

In 2019, 2.0% of families had experienced a bankruptcy in the previous five years. While bankruptcies provide relief from overwhelming debt, they make things like getting a credit card more difficult.

By 2022, that number had declined to 1.3% of families. A report from the American Bar Association suggests the change in this statistic, more than late payments, has something to do with pandemic-era policy:

“Economists have argued that reasons small-to-medium businesses (and households) have filed for bankruptcy less frequently than might have been expected include policy responses to the pandemic, trouble accessing bankruptcy courts, difficulty paying fees with constrained liquidity, and uncertainty.”

The Federal Reserve, too, notes “pandemic-related debt relief and foreclosure protections” may have been a factor.

More manageable payments

The ratio of your total debt relative to your income is called a debt-to-income ratio, and it’s an important figure for lenders. Generally, they like to see a ratio lower than 35% — meaning less than that percentage of your money goes toward paying debts — and the lower, the better. Any higher, and it’s reasonable to say you’re in over your head.

The typical amount of family income dedicated to debt payments — called the payment-to-income ratio by the Federal Reserve — declined from 15.3% in 2019 to 13.4% in 2022.

Fewer people are overwhelmed by debt

As mentioned previously, a debt-to-income ratio that gets too high is bad news for your credit and your financial outlook in general. So the Federal Reserve tracks the number of families with debt-to-income ratios higher than 40% as “an important indicator of potential financial distress.”

This figure declined between 2019 and 2022 from 7.4% to 6.5% after having risen between 2016 and 2019. In fact, the Fed says, 6.5% is “the lowest value on record.”