We have been reporting on the increasing amount of consumer debt in the United States, and it now pains us to report that the trend has not slowed down; in fact Americans are now in a record amount of debt to the tune of $12.84 trillion dollars.
This level surpasses what it was before and during the great recession from 2007 to 2009. It is the highest amount of debt ever recorded in American history according to the Federal Reserve Bank of New York. While of course the economy is larger than it was 5, 10, 20, etc. years ago, the increasing amount of indebtedness is still very concerning to both the economy overall as well as each American family.
Forms of outstanding debt as of June 2017
Consumers are borrowing money hand over fast in a number of categories. Mortgages are by far the largest, with a 4% increase year over year to almost $8.7 trillion dollars. While mortgages rates are still at historically low levels, with the federal reserve planning to stop reinvesting money into the market towards the later part of 2017, this could cause rates to increase; which would be bad for homeowners.
The amount of outstanding auto loans has increased about 5% year over year to $1.2 trillion dollars. Delinquencies are also increasing, especially in the subprime market and for people that are taking on 6, 7, or even 8 year auto loans. In some categories of auto loans, the past due percentages now stand at the high single digits.
Student loan debt is the fastest growing category, and it clocks in at about 7% year over year growth. Americans, most of them college students or their parents/guardians, owe over 1.3 trillion dollars on often variable rate student debt as of June 2017. Over 11% of them are delinquent. Not only may the rates increase (with the current Federal Reserve tightening cycle) but that amount of borrowing also is difficult for a graduating student to overcome.
Credit cards as well as other so called resolving debt now stands at $1.021 trillion dollars as of June 2017. This too is a record high. Not only is the amount due at a record, but more and more payments are being missed; delinquencies now stand at about 6% according to the Federal Reserve.
Other types of borrowing push the number up close to the $13 trillion dollar mark. That may be payday loans, debt to pay for nursing homes, medical bills, and more. Those categories, while small in the grand scheme of things, still can cause problems for millions of households.
Now the employment market is very strong. Employers have been aggressively hiring people for years now, with the job market creating on average 200,000 jobs per month for a few years now. That has brought unemployment down to the low 4% range. So while more Americans are working, they should not forget the risk of taking on excessive debt.
What could, and more than likely will happen, is when the next economic cycle starts (which will be a downturn in the economy/job market) families will find themselves exposed to the record borrowing they have done. This happened in the late 2000s, and it will happen again. It is the cycle of life and the economy.
Watch your spending, and get help. Be cautious, and do not be “tricked” into believed that all will be fine and dandy forever with no economic slowdown. Things go in cycles. Do not forget the financial crisis/recession of 2007. While that is probably a once in a lifetime event, do not forget the lessons from back then and do not take on excessive amounts of debt; especially at a time when interest rates are increasing.