Living Large on Credit Cards

by Brian Riley 0

Another record; US debt rose 5.5% in 4Q17, to a total of $3.82 trillion (..with a “t”), with non-housing debt representing a record 29% of total debt. Households are spending 5.8% of their disposable income to stay current, and there is no sign of revolving debt slowing down.

  • The boom in consumer debt outside the home is in part the result of lingering effects of the last recession that have kept many consumers from buying homes out of fear of foreclosure or because underwriting requirements remain stricter than other types of loans.

  • Many observers aren’t worried yet. “In good times, people tend to take on a little more consumer credit because they think ‘Well, my income looks good, my job looks very stable,’ and when the economy turns down, they dial that back,” said Tom Miller, professor of finance at Mississippi State University.

But not all is rosy.

  • Despite the strong economy, missed payments and losses that lenders are taking after borrowers fail to get back on track with their bills are increasing, raising concerns among some banks and their investors. The average charge-off rate for eight of the largest U.S. credit-card lenders by purchase volume was 3.25% in the fourth quarter, up 0.36 percentage point from a year earlier, marking the seventh straight quarter of year-over-year increases, according to Fitch Ratings.

It is not just cards.

  • Already, the average repayment period for loans issued to buy new cars hit an all-time high of 69 months, according to third-quarter data from credit-reporting firm Experian. Personal loans extended to consumers during the first half of last year averaged $6,285, according to the latest data from credit-reporting firm TransUnion, up 7.8% from a year earlier.

Imagine.  Student loans extending 25 years. Car loans running almost 6 years.  Credit cards perpetuating debt.  Anyone considering the future?

Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group

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