Consumers Taking on More 'Bad Debt'
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This is Your Money Matters from The Wall Street Journal. Welcome to Your Money Matters. I'm J.R. Whalen in New York. Americans' appetite is strong, for consumer debt, that is. After being scared away by the recession of last decade, Americans are back to piling on debt, and Wall Street Journal reporter Anna Maria Andriotis is here to discuss.
Why are Americans piling on more consumer debt despite higher interest rates?
So, Anna Maria, the strong economy has a lot to do with this, but consumers don't have much of an issue taking on debt, even with interest rates moving higher.
Credit cards, student loans, personal loans, auto loans, all of these numbers are rising and are basically a sign that consumers are feeling more and more confident to take on more debt.
And that's what you're hearing from consumers is their confidence is growing and remains, in some cases, remains strong that they can pay off their debts.
What economists and consumers alike are talking about is, look, we are in an environment where the unemployment rate is very low. These consumers who are borrowing are working. They feel like they have a stable income. And in many cases, their credit scores have improved. So they have more access to different types of loans from banks and other lenders. And so overall, there's this positive feeling that, you know, Income is good, job is stable, why not borrow and buy that new car or whatever else it might be?
There's a bit of a dark cloud here, though, and that's that confidence is one thing, but consumers actually being able to pay down their debt is becoming a bit strained.
There are some signs of confidence. cracks here in consumers' ability to pay back their debt. For example, the missed payments and charge-offs, those are the losses that lenders write off when people don't pay back their debts. Both of those things are on the rise, and that's across the board for credit cards, as well as for personal loans, auto loans. They're rising slowly, and they're coming off of low lows, so these losses aren't high. But we are in what appears to be sort of the early stages of people once again having trouble paying their bills.
We're speaking with reporter Anna Maria Andriotis and you're listening to your Money Matters from The Wall Street Journal.
How is rising consumer confidence linked to credit-card, auto and personal loan growth?
Welcome back, everybody. So, Anna Maria, as you write in your story, student loan balances are the largest form of debt consumers own, followed by mortgages. And there's been a shift toward other forms of non-mortgage debt, like we've talked about, credit cards and personal loans. But traditionally, that debt has been temporary. And now we see a lot of consumers have made that a way of life.
car loans, the repayment periods on these loans continue to get longer. So in the third quarter of last year, based on the latest data from Experian, the repayment period for new cars, people who got new car loans, was 69 months. So that is a record high. We're also seeing personal loans getting bigger in size, averaging about nearly $6,300 for the personal loans that were given out in the first half of last year. And that's from TransUnion, another credit reporting firm. That $6,300 is about 8% higher from what it was a year prior. So we're seeing loans that are being given to consumers getting larger in size. repayment periods getting longer. And then on the credit card front, I mean, this is really a booming market where total balances nationwide are at around a trillion dollars right now.
And the last time they were there was during the last recession as we were coming off of highs and dipping below a trillion. So yeah, across the board, we're seeing consumers not only taking on more debt, but carrying it for longer periods of time.
Is taking on this non-mortgage debt, is it in any way a function of the stricter rules in place for mortgage debt that we're seeing since the recession?
There's no question that the credit score requirements and other underwriting requirements for mortgages still remain much stricter than they do for the other loans that we've been talking about. Not to mention the fact that with most mortgages, you still need to show your income.
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