After several years of tight credit, reductions in credit card debt, and stagnation of the economy, several reports in 2014 suggest that debt is growing again for Americans and that it's growing in a significant way. From mortgages to student loans to credit cards, Americans are opening their wallets again to pile on the debt.
However, not all debt is equal, and recent statistics suggest positive movement in some areas with negative activity in others. Consumer debt is increasing, but it's a complicated issue.
Good News & Bad News
According to "The Washington Post," the U.S. economy has been expanding at a glacial pace for the last several years. A blog entry last year from Neil Irwin looked at the data from the New York Federal Reserve Bank and found that overall debt levels were coming down as of the second quarter of 2013.
Not surprisingly, the blog found that student loans were one of the outliers in the overall debt reduction seen by Americans since the recession.
Of the major types of household debt, the rate of delinquent payments is highest among student loans, and the rate has risen over the last two years even as the proportion of people behind on their payments has fallen for most other types of debt.
More college students mean more degrees, but it also means that millions of Americans are loading up on significant debt before they've even had a chance to start their life. One of the biggest complications from this type of debt is that paying it for several years forces graduates to put off activities like buying a house, getting married, and having kids.
It's those standard life steps that keep the economy growing, and right now millions of people aren't taking those steps.
Shoppers Start Using Credit Cards Again
The "Great Recession" led to banks cancelling millions of credit cards before accounts had ever become overdue, unpaid, or delinquent, which reduced the available credit, credit scores, and purchasing power of many citizens during the toughest economic years this country has seen in two decades.
An interesting article from "The New York Times" recently revealed that total household debt rose by 2.1 percent in the final quarter of 2013. Referred to as "deleveraging," American households had been reducing or maintaining their debt loads for several years in an effort to get through the financial crisis.
According to the article:
American households took on $241 billion in additional debt in the fourth quarter of last year, signaling the end of an extended period of hunkering down. Total household debt increased 2.1 percent, the largest quarterly increase since before the recession, according to a new report from the Federal Reserve Bank of New York.
However, the increase in debt isn't always easily understood. Depending on the type of debt, an increase could be a good sign or a bad sign. For example, more mortgage debt tends to be a good since home ownership boosts the economy. In some cases, more credit card debt even improves the economy because more spending means more jobs.
Interestingly, the article also said:
The debt increase in the fourth quarter was driven primarily by new mortgages, which grew by $152 billion; car loans, which grew by $18 billion; and student loans, which grew by $53 billion and had the biggest percent increase at 5.2 percent.
Most Recent Credit Card Debt Statistics
Although the number doesn't offer a complete picture of consumer economic health in the United States, one of the most interesting figures regarding debt is how much the average household owes on credit cards.
Numbers published by NerdWallet peg average credit card debt in the U.S. at $15,191. That figure counts indebted households with outstanding balances. However, overall, the average household owes $7087 on their cards.
Some of the overall numbers for total consumer debt in the United States are shocking. Further figures published by NerdWallet include:
- $11.68 trillion total debt
- $854.2 billion owed on credit cards
- $8.15 trillion of mortgage debt
- $1.15 trillion of student loan debt
The most shocking of these numbers is the amount of student loan debt. $1.15 trillion represents a jump of 13.9% in just one year.
The amount of credit card debt held by Americans is a tough subject to decipher. NerdWallet suggests:
On the one hand, higher consumer spending would put the economy on a positive track. Higher spending could also lead to more jobs and higher incomes, which can in turn lead to even higher spending, a sign of the good times. However, if wages and employment aren’t keeping pace, higher debt might well be an indication that families are borrowing to make ends meet rather than a reflection of a well-founded increase in consumer confidence.
The economy is a complex beast, and hard numbers don't always yield a clear picture of where the country's fortunes are headed. The one thing that many economists and financial experts can agree upon is that economic growth and wealth building for most Americans remains an elusive target.
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