Con­sumer debt at all-time high

The Buffalo News - - REAL ESTATE NEWS -

af­ter a med­i­cal emer­gency? A di­vorce? A job loss? Some of the U.S. eco­nomic num­bers, no doubt, give one rea­son to pause. Con­sumer debt in to­tal hit a lit­tle more than $4 tril­lion – the largest amount ever – as of De­cem­ber 2018, ac­cord­ing to the lat­est data from the Fed­eral Re­serve. That in­cludes auto loans, stu­dent loans, per­sonal loans, credit cards but not mort­gages. A record num­ber of con­sumers – some 178.6 mil­lion at the end of 2018 – now have ac­cess to a credit card, ac­cord­ing to a new re­port by Tran­sUnion. Nearly 430 mil­lion credit cards are in cir­cu­la­tion – up nearly 13 per­cent from the end of 2015.

The av­er­age credit card debt per bor­rower is $5,736 – up about 7.5 per­cent from 2015, ac­cord­ing to Tran­sUnion.

In the past year or so, 4 mil­lion more peo­ple gained ac­cess to a credit card.

Paul Siegfried, se­nior vice pres­i­dent and credit card busi­ness leader at Tran­sUnion, called the uptick a sign of de­lib­er­ate growth in a fiercely com­pet­i­tive credit card in­dus­try.

“Is­suers are very de­lib­er­ate in how they ex­tend credit based upon the mar­ket com­pe­ti­tion,” Siegfried said.

More sub­prime bor­row­ers have credit cards

Much of the growth has been driven by a pickup in con­sumers with sub­prime credit – those with credit scores of 600 or lower – gain­ing ac­cess to a credit card. Some of that growth in­volves younger con­sumers, in­clud­ing mil­len­ni­als, who are open­ing credit cards and have lower credit scores be­cause they have lit­tle credit his­tory.

But Siegfried noted that bal­ance growth was high at the op­po­site end of the spec­trum, too, in­clud­ing con­sumers with “su­per prime” credit scores of 781 or higher un­der the Van­tageS­core 3.0 credit scor­ing model.

While se­ri­ous delin­quency rates for credit card debt – de­fined as 90 days past due – rose to 1.94 per­cent, the rates are well be­low delin­quen­cies dur­ing the Great Re­ces­sion, ac­cord­ing to Tran­sUnion.

Go­ing back to the fourth quar­ter of 2009 – a peak time for fi­nan­cial trou­bles – the delin­quency rate for credit cards was 2.97 per­cent.

Siegfried said he wouldn’t call the growth good or bad at this point.

He noted that year-end delin­quen­cies tend to go up for credit cards, as peo­ple are jug­gling var­i­ous bills dur­ing the hol­i­days.

In gen­eral, Tran­sUnion sees con­sumers con­tin­u­ing to have a strong ap­petite for credit, as well as an over­all strong record when it comes to re­pay­ing their debt.

Clearly, though, some con­sumers are feel­ing more fi­nan­cial pres­sure.

Mil­len­ni­als most likely to carry a bal­ance

About 35 per­cent of those who carry credit card debt said it’s be­cause of emer­gency ex­penses like car re­pairs, med­i­cal bills or home re­pairs, ac­cord­ing to a re­port by Cred­

About 56 per­cent of those who are car­ry­ing bal­ances have been do­ing so for more than a year, ac­cord­ing to that same sur­vey.

Mil­len­ni­als are most likely to carry credit card debt. The sur­vey said 65 per­cent of those be­tween the ages of 23 to 38 are most likely to be car­ry­ing bal­ances, mainly for day-to-day ex­penses.

Many times, those who run into fi­nan­cial prob­lems start un­rav­el­ing be­cause of some un­ex­pected per­sonal prob­lem – not al­ways a big macroe­co­nomic shift.

Some 40 mil­lion Amer­i­cans – or 16 per­cent of adults – think they will miss at least one credit card due date in 2019, ac­cord­ing to a Wal­letHub credit cards sur­vey.

“It’s peo­ple that have been liv­ing pay­check to pay­check and there is this fi­nal blow or shock,” said Donna McNeill, chief op­er­at­ing of­fi­cer for GreenPath Fi­nan­cial Well­ness, a na­tional non­profit based in Farm­ing­ton Hills.

Liv­ing pay­check to pay­check

While peo­ple may be mak­ing min­i­mum pay­ments on time, they’re still not on a sta­ble fi­nan­cial foot­ing. The debt keeps build­ing.

“Peo­ple can get in the cy­cle of mak­ing the min­i­mum pay­ments and still get­ting deeper and deeper in debt,” McNeill said.

If a credit card bor­rower only made the min­i­mum pay­ments on $5,000 of debt, for ex­am­ple, they’d be in debt for more than 18 years and would end up pay­ing $6,372 in in­ter­est based on na­tional av­er­age in­ter­est rates, ac­cord­ing to Ted Ross­man, in­dus­try an­a­lyst for Cred­

Since mid-2018, GreenPath said it has seen an in­crease in client calls and a need for debt man­age­ment as­sis­tance. The av­er­age GreenPath client is man­ag­ing about $25,000 in debt. Un­der a GreenPath debt man­age­ment plan, clients re­duce in­ter­est, pay off prin­ci­pal faster, and aim to get out of debt in four to five years. Plan fees vary, de­pend­ing on the amount of debt. The av­er­age fee is $35 a month. But GreenPath said of­ten the re­duc­tion in in­ter­est paid makes up for the fee.

Trouble might be trig­gered by a change in job and in­come, the fed­eral govern­ment shut­down, lay­off, med­i­cal sit­u­a­tion or life­style change.

“The per­sonal fi­nan­cial cri­sis is what’s driv­ing folks seek­ing as­sis­tance,” said David Flores, direc­tor of client ser­vices for GreenPath.

Many times, peo­ple can­not just look only at one type of debt, such as credit cards.

Peo­ple ages 18 to 44 are most wor­ried about miss­ing credit card pay­ments, ac­cord­ing to Wal­letHub.

The 45-year-old to 59-year-old de­mo­graphic is most con­cerned about their mort­gages, ac­cord­ing to Wal­letHub’s re­search, while those over 59 put tax pay­ments as their big­gest worry.

Yet one needs to take into ac­count the en­tire fi­nan­cial pic­ture – in­clud­ing stu­dent loans, auto loans, per­sonal loans, credit cards, tax bills, as well as a mort­gage.

“Some­one may call us with a ‘pain-point’ but we’re al­ways go­ing to look at the full fi­nan­cial pic­ture,” Flores said.

How to get on bet­ter fi­nan­cial foot­ing

About 35 per­cent of those who carry credit card debt said it’s be­cause of emer­gency ex­penses like car re­pairs, med­i­cal bills or home re­pairs, ac­cord­ing to a re­port by Cred­

A good start­ing point is to care­fully re­view how much money is com­ing into a house­hold and how much is be­ing spent each month – and look se­ri­ously into any short falls.

Try to pay off credit card bills with high in­ter­est rates – or see if you can ne­go­ti­ate a lower rate. Re­tail store cards tend to have higher rates than other cards, so pay at­ten­tion to how you charge pur­chases.

You want to make sure you pay all bills on time in or­der to main­tain a higher credit score and ac­cess to lower rate loans.

McNeill said con­sumers should con­tact cred­i­tors be­fore pay­ments are missed, ask for op­tions to re­duce in­ter­est rate, and look into any short­term hard­ship pro­gram.

If all your credit card bills and loans are due on the 15th ev­ery month, it may be wise to ask that a lender change a pay­ment date to make your bills more man­age­able.

It’s also pos­si­ble to suc­cess­fully re­quest to get a late fee waived, es­pe­cially if that’s a first-time ex­pe­ri­ence.

There also may be pay­ment as­sis­tance pro­grams – such as in­comedriven re­pay­ment plans – to deal with stu­dent loans as well.

While many study the big head­lines – such as lay­off news out of Gen­eral Mo­tors or the fed­eral govern­ment shut­down – it’s im­por­tant to fo­cus on your own fi­nan­cial out­look, too.


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