As we reach mid-2017, the economy shows signs of slight improvement, but in some key areas, we’re falling behind.
Household debt in the U.S. has risen to 12.73 trillion dollars, according to the New York Federal Reserve.
Nine years ago, when the financial crisis of 2008 erupted, household debt peaked at 12.68 trillion dollars. It has taken almost a decade, but we’ve gotten ourselves deeper into debt than ever before.
Now, for eleven straight quarters, household debt has risen, bringing us to this new peak. The Federal Reserve’s report cautions that this development is neither cause for celebration nor alarm—we agree there is both good news and bad news in their report—but for us, rising debt levels should always be taken seriously.
At credit.org, we were encouraged by the reaction to the housing crisis in 2008. That event, as painful as it was, seemed to inspire Americans to borrow less and be more careful with their finances. With this year’s news about rising household debt, we hope the important lessons of the 2008 crash have not been forgotten.
One good sign is that the debt that has increased the most in recent years is mortgage debt. That means many more people feel ready for homeownership and are confident they can take on this debt. That means more people building wealth and preparing for a strong financial future. But foreclosures are up, too, and that’s something we’re committed to preventing any way we can.
A positive sign here is that the delinquency rate hasn’t gone up much for housing-related loans. The Fed considers loans 90 days or more late to be delinquent. Mortgage debt went from 1.6% delinquent in 2016 to 1.7% delinquent in 2017. We want that delinquency rate to go down, of course, but that statistic could be a lot worse, especially considering mortgage debt is on the rise.
The one kind of debt in the Fed’s survey that decreased from 2016 to 2017 was Home Equity Lines of Credit. Americans borrowed $29 billion less against their home equity this year. We think that’s a positive sign. And the delinquency rate on HELOCs remained steady.
We would urge anyone who is in danger of becoming delinquent on any kind of housing loan to get free housing counseling right away. It’s never too late to reach out for help, but the earlier homeowners do so, the more options they will have.
Student loan debt continues to rise, year after year. From 2016 to 2017, we added $83 billion in student loan debt. When it comes to delinquencies, student debt has the highest delinquency rate, with 11% of student loans identified by the Fed as “seriously delinquent”.
Just because we’re credit.org, we don’t focus solely on credit card debt. We help with everything we can, including offering student loan assistance. The high delinquency rate among student loan borrowers is deeply troubling, especially since the Fed’s 11% statistic doesn’t include student loans in deferment or forbearance. Including those loans, plus those still in their grace period, could double the delinquency rate of student loans overall.
Auto loan debt is on the rise as well, the Fed reports that auto loan delinquency rates have trended up since 2012. However, the delinquency rate on auto loans didn’t change from 2016 to 2017.
One factor the Fed highlights is that the median credit scores for auto and home loan borrowers has gone up. This suggests one needs better credit to get approved for a loan right now, so loan originators are tightening up their lending and being more careful to whom they lend. This isn’t a good indicator for the economy overall, but the fact that auto loans have risen means more people can meet the current stricter lending standards, which is a good sign.
Credit card debt actually declined in the last quarter of 2016, but for the full year (2016-2017), this debt is up overall. It’s not the most troubling area in the report—we’d hand that title to student loan debt—but there is some cause for concern when looking at delinquency rates.
Of all of the debt types tracked by the Fed in this report, credit card delinquencies went up the most, from 7.1% last quarter to 7.5% this quarter. That may seem like a small increase, but the other categories held steady, with only one category going up by .1%. We’re concerned about this rise in credit card delinquencies, especially since overall credit card debt declined by $15 billion during the same quarter.
Credit card debt is something we’re focused on helping people overcome. Anyone who has had late payments or is struggling to keep up with their credit card debts should contact us for credit counseling right away.
Bankruptcy rates declined 1.7% from late 2016 to 2017, which is another encouraging trend. The fed reports this is the lowest bankruptcy rate since they started performing this quarterly survey 18 years ago.
Anyone considering bankruptcy has to get pre-filing counseling, which can help explore alternatives and make sure bankruptcy is truly necessary. Get a pre-filing bankruptcy counseling session before making a final decision about declaring bankruptcy.
Another bright spot here was a decline in credit inquiries for the quarter. That means fewer people applied for credit, leading to fewer credit checks by lenders. Some might argue this indicates a weakness and lack of confidence in the larger economy, but we are pleased when fewer people see the need to borrow money with credit cards—whatever the reason. Even if people eschew credit cards because they’re worried about their financial future, at least they’re taking a wise and rational step by not applying for new credit.
And while we’d like to see more homeowners, not everyone is financially ready. Fewer credit inquiries means borrowers are being more careful and waiting to apply for loans until they’re more confident they can afford them.
You can download a .pdf of the Fed’s quarterly report here and see all of the stats for yourself.
We’re hoping to help people continue the more carful borrowing habits they learned from the 2008 crisis through 2017 and beyond. We’re here to help everyone who needs it, whether it’s credit card debt, student loans, mortgages, or even just personal budget advice. If you think you might need help, call us for debt counseling today.