For years, consumer debt has been a major burden for households across the United States. With the average credit card debt more than $15,000, one consumer would think that they should stay away from credit. According to the latest data, it has been quite the opposite for the credit market in the past month.
The Federal Reserve released statistics Friday that found U.S. consumer credit rose in April by $26.85 billion, up from an increase of $19.5 billion, to a grand total of $3.18 trillion. This means that consumer debt has been growing at an annual rate of 10.2 percent, which is the fastest rate since Jul. 2011.
The Fed did not insert mortgage debt or other loans secured by real estate into its calculations of total consumer debt.
Experts are arguing that this is encouraging data because it suggests that consumers are confident in the economy enough to borrow funds in order to acquire goods and services. Many are also pleased because the consumer represents more than two-thirds of the U.S. economy. However, it might offer a short-term boost to the overall economy, but on a long-term basis it can hurt.
Here is what SavingAdvice.com writes regarding the newest Fed data:
“The fundamental personal finance principle for credit card use is to never actually borrow money on the cards. That is, any purchases placed on a credit card should be paid off in full when the bill comes so that you don’t end up paying the double digit interest rates which come with credit card loans. While consumers racking up credit card debt might help the economy short-term, it hurts it long-term, as those consumers must pay money as interest to credit card companies rather than spending the money to buy other goods.”
When it comes to student loans, reports published in the past several months have explained that this immense burden on young adults has hurt the economy and has led to a number of negative factors, such as adults not accumulating assets, not obtaining a mortgage to purchase a home or not saving money for their retirement years.
In a separate central bank quarterly report, Fed economists have also noted that student loans have been a significant contributor towards consumer borrowing since the summer of 2009 as tuition rates continue to soar to new levels. The troubling issue in the student loan industry is the delinquency rate: the 90-day delinquency rate for student loans has reached 13 percent, and is more than all other forms of consumer debt (credit card 90-day delinquencies is 3.32 percent).
If mortgage debt is factored into total private debt then that figure becomes the astronomical sum of $16.5 trillion.