We have been tracking trends in consumer debt for our clients for some time now. As a licensed debt collection agency, we feel it important to pass along information regarding the state of consumer credit so our clients can remain vigilant and proactive in the timely pursuit of their debts.
You may recall that, based on last the last “Quarterly Report on Household Debt and Credit” from the Federal Reserve Bank of New York, aggregate household debt is at an all time high–nearly $13 trillion dollars! This was the 13th consecutive quarter that debt balances increased. There is little to indicate this trend is abating.
An economy which continues to expand, featuring steady job growth and low unemployment, and a potential positive impact on wages and hiring from tax cuts in 2018, supports the ability (and willingness) of the consumer to take on and pay for this debt.
So, did you spend a little more than usual this holiday season? Did your credit card balance jump as a result?
If so you are not alone.
Recently, the firm MagnifyMoney published their annual survey on consumer spending during the holidays (read the full article here). Their survey, reflecting spending in 2017, found that “Consumers who said they went into debt over the holiday season racked up an average of $1,054 of debt…That’s not only an increase of 5% over last year, but we [sic] also found more shoppers put that debt on high-interest plastic.”
That most holiday shopping was paid for by credit card is not surprising. What was surprising was the fact that “…the percentage of consumers who pulled out the plastic for holiday gifts and other seasonal spending was significantly higher in 2017. When asked where the holiday debt came from, 68% of shoppers said that credit cards were responsible, up 8 percentage points from 2016.” Retailers apparently had some success with low interest financing offers and 17% of shoppers reported using a “store” card. Somewhat amazing is that 9% reported they took out a personal loan to pay for their spending.
MagnifyMoney also points out that the amounts financed were not trivial:
- 44% incurred additional debt of more than $1,000
- 5% more than $5,000
- Among those surveyed, half of them said it will take more than three months to pay off.
This trend may spell trouble for many consumers. The report goes on to say “For most shoppers, going into debt wasn’t the plan. According to the survey, 64% of those who have holiday-related debt didn’t plan to incur it.”
The word “Yikes” comes to mind at this point. Didn’t plan on it?
Not only did they not plan to incur that amount of debt, it appears they are in no rush to pay it off either. “Only half of those surveyed said that they expected to pay off their spending in three months or less. Of the remaining half, 29% said they’ll need five months or longer…”
Carrying this debt, of course, comes at a price: “An additional 10 percent of people who took on holiday debt said they would only make minimum payments. Assuming that shopper spent the average of $1,054, and paid a minimum payment of $25 each month, he or she would be paying down that balance until 2023. That is nearly as painful as the $500 in interest fees they would pay over that time, assuming an annual percentage rate (APR) of 15.9%.”
Yikes once again.
Why is this important to our clients?
As we reported in a previous blog, the New York Fed survey also found that aggregate rates of delinquency went up slightly in the third quarter of 2017 to 4.9%. Of the $630 billion that is delinquent, $408 billion is in a serious stage of delinquency (more than 90 days past due).
Given this trend we encourage our clients to review their delinquencies and let us get started on collection activity at the earliest possible moment. Consumers will no doubt be significantly encumbered by holiday debts. Speed in recovery now before holiday bills hit, especially with tax refund season fast approaching, can help us serve you even better.
A. Alliance Collection Agency, Inc. is a full service, licensed accounts receivable management and debt collection agency providing highly effective, customized one on one management and recovery solutions for our business partners. Founded in northern Illinois in 2005, we have been proudly improving the bottom-line on behalf of our business partners in and around Chicagoland for over 12 years