Managing Debt

Consumers Continued to Borrow in 4th Quarter

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While many Americans may want to be more cautious about their finances in general these days, it seems that many continued to take on additional debt during the final quarter of last year.

The total amount of money owed by consumers to lenders nationwide rose 0.3 percent – or $31 billion – in the final three months of last year, climbing to a total of $11.34 trillion, according to the latest Household Debt and Credit Report issued quarterly by the Federal Reserve Bank of New York. However, it’s important to note that despite the increase, consumer balances are still well below the all-time high of $12.68 trillion observed in the third quarter of 2008.

Meanwhile, the amount of debt not directly related to consumer housing also increased significantly in the final quarter of last year, the report said. Obligations on those balances rose 1.3 percent to $2.75 trillion, with all major loan types observing increases of some kind; auto loans rose $15 billion, student financing increased by $10 billion, and even credit card debts ticked up $5 billion. Now, student loan debt stands at a total of $966 billion, and the rate of delinquency of 90 days or more on those accounts increased once again as well, to 11.7 percent of all such balances.

“The data provides early evidence that consumers may be reaching the end of the four year deleveraging cycle, though we’ll need to see if this is sustained in upcoming quarters,” said Andrew Haughwout, vice president and economist at the New York Fed. “At the same time, we observed mixed developments, mortgage originations increased and fewer accounts entered the foreclosure pipeline but delinquency rates remain considerably higher than pre-crisis levels.”

Overall, just 8.6 percent of all debt was in some stage of delinquency, down from 8.9 percent in the third quarter, led mainly by late mortgage payments slipping to just 5.6 percent from 5.9 percent. In addition, 210,000 homeowners nationwide saw foreclosure notices posted on their credit reports, down 13.3 percent.

One potential reason for so much indebtedness being added over the course of the fourth quarter is that the final few months of the year typically see seasonal increases in debts overall, driven largely by holiday shopping efforts that lead some to prioritize gift-giving over their normal financial plans. These increases generally tend to recede somewhat over the course of the first few months of the new year.

Image: iStockphoto

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