Not long ago I went in to see my doctor for my annual medical checkup. As usual, the intake nurse took my vitals including blood pressure, pulse, oxygen level, height and weight. All good; a little high here, a little low there. But good results nonetheless.
One thing that has thrown me the last couple years is that rather than discussing my weight, the doctor now refers more often than not to my BMI: Body Mass Index. BMI is not new, of course, but yet another way to asses whether or not our health is as good as it should be.
In the interests of candor, mine was a bit higher than optimal. Yet I have come to find out that a lot goes into consideration of whether or not a particular BMI is good or bad for a particular person. If you exercise regularly, have blood pressure in the acceptable range, have cholesterol readings that are good and don’t smoke, a slightly high BMI is not much of a worry.
At all events, it occurred to me that in the debt collection world there should probably be a corresponding measurement which our clients should use to ensure their debt waistlines don’t get out of control.
So, what is your DMI? That is, your Debt Mass Index?
No, there is really not such a thing (at least until now!), but in this business, when debt gets out of control, belt tightening often comes too late. So, it is important to stay on top of receivables, especially when the economy may be showing signs of critical levels of unsustainable debt.
So how tight is the belt of national household debt these days?
The Federal Reserve Bank of New York has recently released its final report for 2018, the fourth quarter, and once again debt has hit record levels. More importantly some types of debts are showing signs of reaching critical tipping points (read the press release here).
No doubt there is a need to put another notch in our debt belt.
- For the 18th consecutive quarter, total household debt reached record levels.
- At the end of 2018, total household debt reached a massive $13.54 trillion.
- That was an increase of $32 billion from the third quarter of 2018.
- It is also $869 billion higher than the previous peak reached in the third quarter of 2008.
Some of the other highlights of the report include:
- Warning signs about auto loan delinquencies: Joelle Scally, Administrator of the Center for Microeconomic Data at the New York Federal Reserve said “Auto loan originations for 2018 reached an all-time high in our dataset…Despite auto debt’s increasing quality, its performance has been slowly worsening…Growing delinquencies among subprime borrowers are responsible for this deteriorating performance, and younger borrowers are struggling most acutely to afford their auto loans.”
- Student loan debt continue to grow, now a whopping $41.46 trillion.
- Credit card balances rose by $26 billion to $870 billion. While the Fed notes this is in line with seasonal patterns, nonetheless this is the first time since 2008 that it has hit this peak.
Do we need to go on a ‘debt diet’? So, it would seem. This level of debt is certainly not sustainable as the economy cools, as it eventually will.
To some, the increasing delinquency in auto loans is the real warning sign. Writing in the Washington Post (“Experts: Late car loans a red flag for the economy”), Heather Long says that “Economists warn [auto loan delinquencies are] a red flag. Despite the strong economy and low unemployment rate, many Americans are struggling to pay their bills.” She points out that “A car loan is typically the first payment people make because a vehicle is critical to getting to work, and someone can live in a car if all else fails. When car-loan delinquencies rise, it is a sign of significant duress among low-income and working-class Americans.”
This is not a good sign and may be a significant warning of things to come.
Given all this, how does your own debt belt feel these days? Do you have a feel for your DMI and is it where you want it to be?
Figuratively speaking, we suggest our clients do a DMI check regularly. That is, has your volume of receivables increased as of late? How about dollar amount, and is your aging gradually creeping up? Have you taken steps to turn over your past due accounts to us so that we can help keep that DMI in check?
Stay debt fit and be sure to keep a close watch on your DMI!
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 14 years.
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