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Household Debt Rises in Q4 2017

The total household debt in the United States advanced 1.5% in the last quarter of 2017. Total household debt climbed $193 billion to reach $13.15 trillion, a new record. The figure closed 2017 as the fifth consecutive annual increase in debt growth.

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A rise was seen across almost all loan types. Mortgages rose a significant $139 billion quarter over quarter, even as the median credit score shown by new applicants dropped. Auto loan and student loan balances also increased. Auto loan balances have now gone up steadily for the sixth consecutive year.

The only type of household debt that did not register an increase was home equity lines of credit (HELOC), but the decline, at less than 1%, was minimal.

Delinquency Picture Mixed in Final Quarter

Rising consumer debt loads often mean increased delinquencies, as consumers struggle to pay their monthly loan installments. This proved true in auto loans and cred card delinquencies, both of which climbed versus third-quarter levels. Credit card delinquencies rose by $26 billion.

But rising consumer debt didn't prove to mean rising delinquencies in the overall debt or mortgage categories. Just 4.7% of total outstanding debt was delinquent versus 4.9% in the previous quarter. Mortgage delinquencies were also better than prior figures, at 1.3% at 90 days or more delinquent.

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The rising debt levels in the last quarter of the year continued a trend also seen in the third quarter, when outstanding household debt rose 0.9 percent to hit $12.96 trillion — a record at that time and more than 16% higher than the low reached during 2013.

Implications for the Financial Industry: Will Consumers Become Overtaxed?

These figures have some sobering implications for the financial industry. While rising debt has some positive implications for lending institution business, as consumers continue to apply for and receive loans, a consistently increasing debt burden combined with generally rising delinquencies, may mean that consumers are becoming too indebted to continue payments.

These figures, occurring during a generally robust economic period, indicate that a downturn might have more severe impacts on lenders. Consumers may well become less able to pay down their loans if they suffer economic consequences in a downturn, such as job loss or pay reductions.

Despite this possibility, however, some observers are pointing out that, in some credit cards, household debt increases are the result of changes in purchasing methods, not actually higher debt.

The Consumer Financial Protection Bureau (CFPB) points out that household credit balances reached more than $4,800 at year-end 2016, the highest since the Great Recession. Credit card debt has risen 9% in a two-year period and is now approaching pre-Great Recession levels.

The CFBP maintains, however, that the increase has been driven by superprime consumers — with credit scores 720 or above — placing more of their typical household purchases on a credit card. Utilities and standard monthly purchases are paid more and more via plastic than checks or cash, partly due to convenience and partly due to consumers reaping rewards from credit cards.

If so, rising credit card debt levels may not be such bad news. But though ever-rising debt levels may be good for loan originations, they may not be ultimately good for the financial industry.