%1

Connecticut Gov. Ned Lamont (D) unveiled a plan Friday to cancel medical debt for residents of the Constitution State in what would be a first-of-its-kind initiative. The plan was first unveiled on ABC’s “Good Morning America.” According to ABC, the plan includes using $6.5 million in funds from the American Rescue Plan Act to cancel $1 billion of medical debt in collaboration with a nonprofit that buys and eliminates debt, The Hill reported. Those who are eligible for the cancellation include families that have debt equivalent to 5 percent or higher of their annual income. “This is not something they did because they were spending too much money. This is something because they got hit with a medical emergency,” Lamont said of those struggling with medical debt. “They should not have to suffer twice — first with the illness, then with the debt.” About 250,000 Connecticut residents are expected to have their medical debt erased, according to state officials.

About four in ten U.S. student-loan borrowers who had to resume payments last year said they cut spending on other things as their main response, according to a University of Michigan survey, Bloomberg News reported. The resumption of payments in October affected about 15% of all U.S. consumers. Out of that group, the biggest share — around 40% — said they mostly adapted by spending less, according to the study. Roughly 30% said they responded by saving less, and 20% said they borrowed more. The numbers show that only a relatively small share of U.S. households trimmed outlays to cope with student debt payments — one reason why the economy was able to power ahead in the fourth quarter of last year, even as the bills were coming due again after a 3 1/2-year pandemic freeze. The UMich data shows that more financially vulnerable borrowers “have resorted to spending on additional credit to maintain their spending,” which could add to the uptick in consumer-credit delinquencies observed last year, said Joanne Hsu, director of the survey. But she said that group is small enough that “any increase in financial systemic risk that might arise is unlikely to be substantial.” The UMich survey was conducted between late September and mid-January among 2,242 respondents.

An uptick in bankruptcy assistance among Generation X and Millennials signals a burgeoning debt crisis, overshadowing recent economic optimism, legal experts told Newsweek. In contrast to recently issued positive economic data showing a 29 percent surge in consumer confidence since November, LegalShield's December Consumer Stress Legal Index (CSLI) documents a relentless rise in financial duress, reaching a three-year peak as consumers seek legal help for bankruptcy and other legal assistance. The data, drawn from over 35 million legal service requests, is forecasting a dip in that consumer confidence, and exposes a groundswell of fiscal challenges. The trend, disproportionately impacting younger generations, points to a latent economic strain that macroeconomic figures may not fully capture, which hints at a potential credit reckoning on the horizon. It's reflected in broader economic data. U.S. household debt has seen an increase, rising 1.3 percent in the third quarter of last year to a record $17.29 trillion. The uptick was propelled by increases across mortgage, auto loan, credit card, and student loan balances, according to the Federal Reserve Bank of New York.

A $1,000 unexpected emergency expense could derail the lives of more than half of all Americans, according to a new survey, The Hill reported. The survey was conducted by Bankrate, a financial analysis and comparison site. Bankrate found that only 44% of Americans surveyed could afford a $1,000 emergency expense. That number is actually up one percentage point from the previous year, the company said. Those 56% of Americans who couldn’t weather the storm said they would address that unexpected emergency charge in other ways. Most (21%) said they would use a credit card, 10% would borrow from loved ones and 4% would take out a personal loan. Only 16% said they would reduce their spending to address an unexpected emergency expense, Bankrate said. Nearly two-thirds (63%) of Americans said inflation was causing them to save less for emergencies. On the flipside, however, 19% said they were actually saving more for emergencies specifically because of rising interest rates which are friendly to those putting extra away into their savings accounts.

Many measures of credit performance for things such as credit-card or auto loans are moving in the wrong direction, like the percentage of payments that are late, or the share of debts being written off, the Wall Street Journal reported. For example, in Discover Financial Services latest quarterly report, the lender guided toward a jump in net charge-offs from 3.42% in 2023 to a range of 4.9% to 5.3% in 2024. Discover shares tumbled more than 10% on Thursday. At the same time, though, there are many other indicators suggesting strong consumer health, such as buoyant spending numbers. And the biggest banks, with detailed insight into the day-to-day finances of millions of people, haven’t sounded alarm bells, either. “The consumer still has plenty of firepower,” Bank of America Chief Financial Officer Alastair Borthwick told reporters. Higher net-charge offs in 2024 may in part be a reflection of a unique growth in credit that happened in the aftermath of the COVID-19 pandemic. During the pandemic, some Americans saw improved finances. They spent less, received government stimulus and enjoyed forbearance on some payments. Measures of creditworthiness improved. According to Charlie Wise, senior vice president of research and consulting at TransUnion, “many consumers migrated to better risk tiers during the period from 2020-2022.” As the economy reopened, lenders were eager to tap into the surge of potential spending, sending out waves of credit offers. In the period from June 2021 to June 2023, just over 12 million additional consumers who before that didn’t have a credit card got access to one or more, according to Wise.

New York City intends to wipe out more than $2 billion in medical debt for up to 500,000 residents, tackling a top cause of personal bankruptcy, Mayor Eric Adams announced yesterday, the Associated Press reported. The city is working with RIP Medical Debt, a nonprofit that buys medical debt in bulk from hospitals and debt collectors for pennies on the dollar. The group targets the debt of people with low incomes or financial hardships and then forgives the amounts. Under the program, the city will spend $18 million over three years. “For middle- and working-class New Yorkers, medical bills can be financially devastating,” Adams said as he announced the plan. “Working-class families often have to choose between paying their medical bills or some of the basic essentials that they need to go through life.” The mayor said medical debt is the No. 1 cause of bankruptcy in the United States, disproportionately burdening low-income households and people with inadequate insurance. He called the debt relief program the largest municipal initiative of its kind in the country, though RIP Medical Debt has worked with other municipalities.