A key indicator shows Americans' financial stress is mounting

• LegalShield's Consumer Stress Legal Index showed consumer financial stress is continuing to rise.
• It measures upticks tied to bankruptcies, foreclosures, and other money issues.
• The gauge increased for the 10th month in a row in December, reaching its highest point since November 2020.

Wall Street might have turned more optimistic to start the year, but Americans' financial troubles continue to mount. 

LegalShield on Tuesday said its Consumer Stress Legal Index rose to 66.7 in December, up by 0.4 points from the prior month, showing that US consumers' financial stress is at its highest level since November 2020.

The gauge, which accounts for calls for assistance tied to bankruptcies, foreclosures, and other money problems like car repossessions and loan defaults, has climbed for 10 consecutive months.

Going back to 2002, the index includes more than 35 million customer requests for legal assistance and has been a leading indicator for Consumer Confidence, according to LegalShield.

"The CSLI data is showing that consumers are stretched financially thin — from holiday shopping to making a car payment," said Matt Layton, the group's senior vice president of consumer analytics. "The rise in consumer stress in contrast to increased spending may point to an even sharper rise in household debt in the coming months."

The increase in consumers' financial stress comes even as GDP growth has stayed strong, the labor market remains robust, and holiday retail spending was high. What's more, a survey this week from the National Association of Business Economics found 91% of respondents assign a probability of 50% or less for a recession in 2024.

Meanwhile, the Federal Reserve Bank of New York reported that US household debt climbed 1.3% in the third quarter of 2023 to hit a record $17.29 trillion, fueled by mortgage and auto payments as well as student debt and credit cards.

The Federal Reserve's 11 interest rate hikes since 2022 have made borrowing costs more expensive, and even if policymakers cut interest rates soon, which markets expect, the benchmark rate will still be well above the near-0% of the last decade.

"Continued year-over-year increases in inflation, sustained high interest rates, and the resumption of student loan repayments are key contributors to not only our current consumer stress readings, but are leading indicators that consumer stress will continue to rise in the near term," LegalShield's report said.