More Consumers Struggling with Debt: Should We Worry?
According to a recent article in Bloomberg, more American families are incurring debt at a particularly high rate than most of us would assume. As the article suggests, we have not seen the current rates of consumer debt in which individuals are late on payments for auto loans and credit cards since 2008.
In some cases, reports about more consumers using credit cards and buying new automobiles can actually suggest that the economy is improving or is thriving; people would not necessarily be making purchases if they were not employed and in a position to do so. However, when reports indicate that consumers are tending to fall behind on debt payments, such reports could intimate that we are heading toward another financial crisis. What else should Oak Park residents know about consumer debt and the risks of falling behind on auto loans and credit card payments?
Higher Charge-Off Rates Reflect Consumers’ Inability to Pay
Among the first indications of unpaid auto loan debt is financial companies writing down “a growing amount of auto debt in recent quarters,” according to the article. Credit card companies, too, are writing down more consumer debt. Charge-off rates for auto loans have risen from an average of less than 1.0% in the prior year to 1.6% in December 2016 and nearly the same level in March 2017. As the article clarifies, the problem is not only associated with auto loans. To be sure, “Capital One and Synchrony recently raised their forecasts for net credit-card charge-offs in 2017, citing weakness among subprime customers rather than their previous rationale of portfolio growth and aging.”
To give you a better sense in terms of credit card charge-offs, Capital One had credit card losses of just over $1 billion in the first quarter of 2016. By the end of the fourth quarter of 2016, that number had risen to $1.3 billion. By the end of the first quarter of 2017 at the end of March, Capital One’s credit card losses had reached $1.7 billion. In anticipation of even greater losses to come, the company has “boosted reserves for loan losses.”
Americans are Buying More Cars, Using Credit Cards More Frequently, and Going into More Debt
Auto loan debt has grown, and what is particularly troubling to consumer debt analysts is that borrowers are not paying down those loans. Rather, many consumers apply for an auto loan to purchase a new vehicle, and before they have paid off the debt, they obtain a loan for another automobile. Outstanding credit card debt is not too much different. Instead of charging items and then paying them off, the amount of revolving consumer credit—the balances that consumers are carrying without paying off what they have purchased—has grown enormously. As of March 31, 2011, the amount of revolving consumer debt outstanding was at $0.8 trillion, and that was at a peak of the financial crisis. Six years later, at the end of March 2017, that number had risen to $1.0 trillion.
There is some overlap among consumers with extensive auto loan debt and revolving credit card debt. What is the reason these figures have risen? Some suspect that consumers are prioritizing other payments such as medical costs— ver auto loans and credit card debt. Other analysts suggest that consumer fraud has played a role.
Contact a Bankruptcy Attorney in Oak Park
While we do not know whether the rising consumer debt could trigger another financial crisis, it is important to learn more about managing debt if you are one of these consumers. In some cases, filing for consumer bankruptcy may be a way to relieve the anxieties of debt. An Oak Park bankruptcy attorney can discuss your options with you. Contact the Emerson Law Firm today.
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