2016 Report: The State of US Consumer Debt
If you’re planning to finance a car in 2016, and even if you’re not, you should know that your debt ratios will have a lot to do with how much you can borrow and what terms you can secure.
Unfortunately for many Americans, the overall consumer debt load in the United States appears to be on the rise. According to the Federal Reserve Bank of New York, as of the third quarter of 2015, U.S. “non-household debt” (balances not associated with a home loan) sat at $3.31 trillion — the highest it’s ever been. Are you contributing to this statistic?
Consumer Debt Snapshot
The bank went one step further, breaking that non-household debt into four categories: student loans, credit cards, auto loans and other types. Automotive, in particular, has skyrocketed: In the third quarter, the country held $1.04 trillion in just these loans alone. And that number is steadily growing.
In August of 2015, The Consumerist reported on the quickening pace of a variety of loan types. Analysts discovered that, in a single quarter, Americans took on nearly $40 billion worth of new automotive loans. Mortgage debt is one of the only categories that saw a decline in the number and amount of new debt; like auto loan balances, credit-card and student-loan debt is on the rise.
Interestingly — and to the great relief of banks and auto finance companies — delinquency rates for non-household loans are either declining or are staying flat. For auto loans, the height of the delinquencies came in 2010, when 5.3% of all loans were at least 90 days past due. That rate is currently 3.4%, a figure which has held fairly steady for the last several years.
But how does that translate into real-world dollars? Nerd Wallet calculated that $1.03 trillion in automotive debt breaks down to about $26,000 per consumer. They also noted that, starting in 2008 and continuing to the present, the cost of living for the average household began to exceed the median income. The pace of growing debt versus income levels peaked in 2009, but then began to fall through 2013, narrowing the gap between what consumers were spending and what they were making. As the economy began to pick up some major steam in 2014, consumer debt kept pace.
Another interesting report comes from the Federal Reserve Bank of Philadelphia, which issues quarterly updates on a wide range of statistics related to consumer debt. In 2015, the average consumer was carrying $3,317 in debt, the majority of which is non-revolving. In 2007, on the eve of the Great Recession, that figure stood at a mere $2,615. The bank’s analysts also found that credit cards, student loans and auto loans have driven total consumer debt increases ever since the late 1980s, when the vast majority of borrowed dollars were for home loans.
One might assume that Millennials, who came of age during the most challenging economic climate in recent memory, might be more likely to save and less likely to go too far into the red. In fact, this generation is acquiring new debt at a faster rate than their parents, partially because of the rising costs of education.
Nationwide, student loans combined for $1.2 trillion worth of debt in the first quarter of 2015. The year-end figure will undoubtedly be higher. Student-loan balances began to spike in 2012 and continue to outpace all other forms of debt. Credit cards and auto loans are both on the rise as well, but at a much slower pace than student loans.
Consolidated Credit found that, while 3% of the oldest generations are still paying some kind of student loan debt, they only carry an average of around $10,000. Baby Boomers hold 14% of the student loan debt with a median amount owed of $19,000. Members of Generation X and Millennials both carry an average of more than $20,000 in debt, with one in four (26%) Gen Xers suffering under that debt load straight out of college. That number jumps to a whopping 41% of all Millennials.
As more college-age Millennials and recent grads enter the new- and used-vehicle market, they are expected to demonstrate less brand loyalty and more wariness of overspending than their forebears, and with good reason: Saddled with student loans, younger buyers are less likely to make an aspirational purchase and more likely to look for a competitive price on a reliable car.
With debt loads on the rise and income levels staying relatively flat, it’s important to have a clear picture of the factors that make up your creditworthiness before you start shopping for an auto loan. In future posts, we’ll take a look at ways to improve your credit standing and avoid the pitfalls inherent to loading up on debt.