For many, higher debt no cause for concern

Amount owed climbed 40 percent since 2008

Americans certainly know how to let the good times roll. Consumer debt topped $3.83 trillion in November, according to the Federal Reserve, up more than 40 percent from where the debt burden stood entering the Great Recession in 2008.

All of the increase stems from student, car and personal loans and other types of debt that carry fixed monthly payments. This nonrevolving consumer debt has jumped from $1.65 trillion in July 2008 to $2.8 trillion in November, according to the Fed. Credit card — or revolving — debt currently stands at $1.02 trillion, a level last seen in mid-2008.

Several key economic indicators — including a lower unemployment rate, rising wages and greater consumer confidence — support the contention that Americans are in a better position to take on more debt. Credit card delinquency rates are about half of what they were entering the last recession. And consumer debt, mortgage or rent payments, and other types of fixed monthly payments account for less of a household’s disposable income than they did back then.

“That would indicate that, at least in terms of payments, people aren’t stretched,” said PNC Financial Services chief economist Gus Faucher.

Year-end statements for their IRA and 401(k) accounts will make many consumers feel even more confident.

“People are definitely more willing to spend because of the wealth effect. You see it on paper and you’re more likely to spend,” said Steven Sivak, a certified financial planner and owner of Innovate Wealth in Lawrenceville.

The prospect of tax cuts adds to that wealth effect, Mr. Sivak said.

An important thing to note about the Federal Reserve’s debt data is that it is not adjusted for inflation. That means 2008 debt

would be higher if it was expressed in current dollars. Moreover, household income and wealth have also grown over that period, providing more means for consumers to manage their debt. Mr. Faucher said that is reflected in low delinquency rates on loan payments.

“I don’t think that overall consumer indebtedness is a concern,” he said.

Still, some are worried about how the Fed’s slowly ratcheting up of interest rates will affect consumers’ ability to borrow and to repay what they already owe. The realization that another recession is inevitable also causes some of the unease.

“When you have a lot of debt when times are good, you’re probably not saving enough for when times are bad,” said Matt Schulz, senior industry analyst for CreditCards.com.

Mr. Faucher said consumers with existing debt will, for the most part, be insulated from interest rate hikes because they have fixed-rate loans.

“There’s less exposure to variable rate debt now than there was before the recession,” he said.

Credit card users won’t be as well-protected.

The Federal Reserve has raised short-term rates five times since December 2015 and rates on credit cards have gone up pretty much in lockstep since then, according to Mr. Schulz. Credit card issuers were offering rates of 14.99 percent to new cardholders at the time of the Fed’s first rate increase and they are currently offering an average rate of 16.32 percent, he said.

Higher rates can be costly if you’re making monthly payments that cover only interest and 1 percent of your balance. At today’s higher rates, a consumer with $10,000 in credit card debt would pay $1,065 more in interest to pay off the debt, according to CreditCards.com payoff calculator.

With a few exceptions — Mr. Schulz cited credit card borrowers at the lower end of the credit rating spectrum — obtaining new credit won’t be an issue for many.

“In 2018, it might be harder to get a credit card if you have crummy credit. But if you have good to great credit, you’ll be just fine,” he said.

For those looking to shed credit card debt, there are a lot of attractive balance transfer offers, Mr. Schulz said. The best is Citi’s Diamond Preferred card, which offers 21 months free interest on purchases and balance transfers.

“There are plenty of others that are 12 months, 15 months, and even 18 months [interest free],” Mr. Schulz said. “If you still have decent credit, you’re doing yourself a disservice if you don’t look into one of these cards.”