There are a lot of types of debt consumers can get into. As they look for a new house, they will most likely opt for a mortgage loan. For new car purchases, most of them will be looking at a car loan. Students trying to get through college will rely heavily on student loans and most consumers will use their credit card for just about anything.
With all these, it is an advantage to understand the bigger picture. Yes, most of the consumers would focus on due dates and payment amounts. But taking a step back and seeing the whole industry from another point of view could help everyone understand debt better. The main reason for you to achieve this is to help with future decisions that will keep you from making financial mistakes.
Consumer debt statistics is something that is readily available but not everyone is concerned with. We are all focused on our own debt situation that we fail to realize that what happens in our personal finances is a direct result of the national scenario.
5 reasons to watch the rise and fall of consumer debt
The main reason why you want to make sure that you keep tabs on the consumer debt statistics, if possible on a monthly basis, is to watch the general health of the economy. For instance, when credit is low, it could mean credit confidence is down or people are just simply paying their dues on time. It could mean stronger employment conditions.
On the other hand, when the overall consumer debt level is high, it could mean growing confidence in the economy. At least, that is true if the increase is caused by new debt. But if the debt amount is caused by a lot of defaults that left monthly credit unpaid, that means a lot of people are struggling financially. That is not a good picture.
There are 5 different reasons why you want to understand the health of the economy, specifically the effects caused by consumer debt.
For your job security. You want to know if your job is secure or not. Most of us hold 9-5 jobs that serves as our main source of income. We have all accepted the painful fact that none of us are indispensable. We can all lose our jobs anytime. Even if we spent the last few decades building it up, that will not mean a thing if the economy fails and companies have to cut back. But what does the consumer debt statistics have to do with your job? Simple, when the consumer debt statistic is up, you need to check if that is caused by consumer confidence or defaulting on payments. If it is the latter, that does not bode well for the economy. It is starting to get shaky.
For your interest rates. The debt statistics will also help you understand what to expect with your interest rates – whether it is for your loan or credit card. Usually, when consumers everywhere are starting to default on their payments, credit card companies and lenders start to lose money. To compensate for the loss, they will decide to raise your interest rate. Although the law states that creditors must respect your decision to refuse this increase and maintain a lower credit card interest rate, an advanced warning will make you more vigilant. You will have a fair warning when the rates could climb and you can make bigger contributions towards your debts.
For the net worth of your personal assets. Another reason to watch consumer debt statistics is to determine the value of personal assets like your home or your business. When the debt information shows that the economy is rising, you can be sure that the value of your assets are improving too. Looking at mortgage debts specifically will help you determine if the housing market is improving or not. By analyzing the local market, you can see if your home has a higher value or not.
For your investment options. The fourth reason to monitor consumer debt levels is for your investment options too. Again, this is an indirect way of getting information since it is the economy that should be the driving force of your investment choices. But if the debt is high, and the reason points towards a higher consumer confidence, then it could indicate a stronger economy. And we all know that a strong economy is a great time to make a couple of investments decisions.
For better financial decisions. Overall, you want to pay attention to consumer debt statistics so you can use it whenever you are making financial decisions. For instance, if you want to buy a car, it pays to take a look at the general debt scenario in the country. If a lot of people are taking out car loans, that could mean the interest rates are down and it is a great time to buy a car. The same is true for home buying. Even credit card spending is something that can be affected. If a lot of people are defaulting, creditors may just increase the interest across all accounts. That means you might have to start cutting back on your credit card expenses.
What is the latest news about the debt of consumers?
Now that you are hopefully convinced that you need to keep tabs on the consumer debt statistics, let us take a look at the current data and try to analyze it together. One of the best sources of these statistics can be found on the website of the Federal Reserve.
To see this data, you can go to the federalreserve.gov. But in terms of our interpretation of this information, here are some of the details that we thought you should know.
The total outstanding debt last September 2013 is at $3,051.7 billion. It is higher than the $3,038B in August.
Total revolving credit is at $846.9 billion – a figure that is steadily going down compared to the $849.8B in July and $848.9B in August.
Total non-revolving debt is at $2,204.8 billion. This is seen to be steadily improving from $2,174B in July and $2,189B in August. The increase is approximately $15.8 billion from August to September.
The leading holder of consumer credit are depository institutions. These are financial institutions that is allowed by the US government to accept deposits. Examples are banks. The amount that people owe these type of institutions is now at $1,222.5 billion. It went down from $1,224.6B in August. The revolving credit went down from $659.7B in August to $655.3B in September. The same cannot be said for non revolving though. There is an increase in the debt from $564.9B in August to $567.2B in September.
The federal government come in second with $716B in September. A high increase from $702.4 from August. The Federal Reserve notes that loans taken from the government are mostly student loans – which are non revolving debts.
The third holder of consumer credit are finance companies. There is an increase from $676.7B in August to $678.5B in September. This figure is divided into two: revolving debt that decreased from $67.4B (August) to $66.9B(September); and non-revolving debt that increased from $609.3B (August) to $611.5 (September).
This is not the whole data that is currently presented but we can make a couple of assumptions about it already. With the rising loans from the federal government, one can assume that student loans still continue to rise. We can also see that revolving debt is generally decreasing while non revolving continues to grow.
With this information, you can assume that the economy is holding a but steady – with consumer credit rising. This rise could mean that a lot of people are gaining confidence – enough to make them rely on a future income that they know will come no matter what.
To look over more consumer debt statistics, visit the Federal Reserve website.