While millions of Americans shied away from taking on debt during and even after the recent recession, and many more actually made attempts to reduce their outstanding balances significantly, that trend has largely reversed itself in the last several months as the economy continues to improve.
The amount of money owed to lenders on all loan types, excluding mortgages, rose 7 percent nationwide in January after comparable increases in the final two months of last year as well, according to the latest statistical release from the Federal Reserve Board. This trend was driven largely by consumers taking on more debt in the form of installment loans like auto loans and student loans, rather than credit card balances.
In all, the amount of revolving debt – balances that can be added to and subtracted from over the life of the account, made up almost entirely of credit cards – ticked up just 0.1 percent in the first month of the new year, following a 4.4 percent decline in December, the report said. Now, consumers owe a total of $850.9 billion on these balances, up from $850.8 billion but still down from the $853.9 billion observed in November. The slight uptick in January after a decline in December is generally not in keeping with seasonal norms, which see borrowers put more debt on their cards to finance holiday shopping, and typically instances of late payments on those accounts rise once the new year begins.
Instead, the jump was driven by a 10 percent increase in the amount of non-revolving credit — that is, installment loans not including mortgages – which rose to a total of more than $1.94 trillion in January. However, it should be noted that the growth was actually down from the previous month’s increase of 11.5 percent. Much of this increase was spurred by student loans from the federal government, which issued $25.9 billion worth of this type of financing over the course of the month. Now, total outstanding loan obligations stand at $552.7 billion, up from just $521.3 billion seen at the end of November and $526.8 billion in December.
Many consumers may be feeling better about their ability to handle debt as unemployment continues to recede, albeit slowly, and finances generally improve. However, it may take some time for balances to even begin approaching the levels seen prior to the recession.