Do you ever feel like you have been put in a blender and someone hit the ‘frappe’ button?
Or as a good friend of mine is fond of saying, sometimes life feels like “being in a cow pasture in a tornado with a thimble for an umbrella.” His language is a bit more colorful, but since this is a family blog, I have rephrased a bit to reach a ‘G’ rating.
At all events, if you are feeling like this you are not alone. The last month or so has been a really wild ride in politics, finance, the economy, and consumer spending. And then let’s just throw in the holidays for good measure!
If you are an investor, or even have your retirement savings in the stock market, you could not have missed the wild drop and subsequent swings in market value. Rising interest rates and concern about trade policies and the impact on the world economy seemed to be the fundamental finger that hit the ‘frappe’ button.
And yet the consumer remains pretty confident. While the most recent trends in consumer confidence have tempered a bit, they are still high and no doubt are reflected in the continuing record setting levels of household debt.
The Federal Reserve of New York released their latest report on household debt, this time for the 3rd Quarter of 2018, and noted once again we hit another record at $13.51 trillion (read the report here) Among some of the findings are:
- This was the 17th consecutive quarter with an increase, up 1.6% from the second quarter of 2018.
- Total household debt is now $837 billion higher than the previous peak in the third quarter of 2008.
- Mortgage balances continue to grow and now stand at $9.1 trillion, an increase of $141 billion from the previous quarter.
- New auto loans grew by $158 billion, which is the highest seen since 2004.
- Credit card balances hit $844 billion (a $15 billion increase).
- The aggregate credit card limit rose for the 23rd consecutive quarter, a 1.3% increase.
Of interest is that the median credit score for housing loans was 758 which the Fed suggests means that since the housing loans are primarily going to those with high credit scores, availability of mortgage loans is actually pretty tight.
In contrast, those with subprime credit scores were given a much greater percentage of auto loans.
There is some not so good news in the report, at least if one is concerned about the consumer’s ability to repay their debt:
- Aggregate delinquency rates increased in the third quarter.
- 7% of outstanding debt was in some state of delinquency, an uptick of .2%. While that does not seem like much, that was the largest uptick in seven years.
- Of the $638 billion that is in delinquency, $415 billion is seriously delinquent.
- Much of this shift is due to a large increase into delinquency for student loans.
- That said, credit card delinquencies (greater than 90 days) have continued to rise, and have been doing so for more than a year. They remain elevated when compared to historic levels.
- Auto loan delinquencies have continued to increase and have been doing so since 2012.
Some additional interesting data has been published recently in a blog by Wallet Hub. Alina Comoreanu, writing “Credit Card Debt Study: Trends & Insights” for the company (read the blog here) points out the following:
- Although the consumer has been able to repay their debts to this point, the rise in additional credit card debt has now countered these repayment efforts.
- Debtors repaid $40.8 billion in credit card debt in the first quarter of 2018, but then accumulated $38 billion in new debt.
- Wallet Hub says they also see an additional $70 billion in new credit card debt by the end of 2018.
Of particular interest is Wallet Hub’s observation that “Looking at the average credit card debt per household, it increased 2 percent from $8,107 in the third quarter 2017 to $8,284 in the third quarter 2018. The third quarter balance is approximately $177 from being ‘unsustainable’ for consumers…”
Things to worry about? Certainly. We always encourage vigilance by our valued clients, and in particular to take a few steps to ensure your outstanding debts are collected promptly:
- Turn over your placements to us for collection at your earliest possible convenience. The old saying that ‘the older they are the farther they go’ is quite true.
- Review your year-end receivables now and turn them over to us as soon as possible. With tax season fast approaching this is the optimal time to initiate collection activity.
- If you do not have a consumer financial agreement in place with your customers, strongly consider using one. This type of payment agreement (where the consumer agrees to your terms for payment) is a powerful collections tool. Put one to work for you.
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 13 years.