To you, oh faithful readers, I suspect I am beginning to sound like a broken record. You remember what a broken record sounds like, right? Perhaps not. Well, so you know, the ‘needle’ (or stylus) of a record player would sometimes get caught on a scratch on the record and skip back to a previous part of the recording and play over and over and over again. Pretty annoying if you were in the middle of the album versions of “Free Bird” or “In-A-Gadda-Da-Vida.”
Gosh if that does not make me feel like a ‘man of a certain age…’
At all events, I am beginning to think the repetitive messages of ever increasing, historic levels of household debt may have become a normalized part of everyday life. That is, this data is no longer a surprise, or a source of alarm. In fact, I rarely see any alarming headlines about it in the financial press, or if so, the stories fade to the background pretty fast. We may simply have become used to the fact that heaping debt onto our lives is a normal thing and no big deal.
Until it isn’t.
So, here is some data from the last quarter of 2019 courtesy of the New York Federal Reserve (read the press release here):
- Total household debt increased by $193 billion (1.4%) to $14.15 trillion.
- This is 22 consecutive quarters with an increase in household debt.
- This new mark is $1.5 trillion higher than the previous peak of $12.68 trillion in the third quarter of 2008.
- Mortgage balances rose by $120 billion in Q4.
- Auto loans increased by $16 billion
- Credit card debt increased by $46 billion
- Student loan debt increased by $10 billion.
- Of particular note is that transitions into delinquency for credit card debt deteriorated again in Q4, a trend that has been ongoing since 2016.
- The Fed noted in particular a jump in credit card delinquencies owed by younger borrowers.
These numbers are significant, but when we look at the total increase in 2019 the trend is breathtaking:
- For the year, the aggregate increase in household debt was $601 billion. That is the largest annual gain since 2007!
- The main component in this increase was a $433 billion increase in mortgage balances.
- Credit cards and auto loans increase by a $57 billion each.
- Fortunately, student loan debt showed a smaller rate of growth, but it was still a robust $51 billion.
Often a picture is worth a thousand words (or in this case about 700!). This is a chart provided by the Fed showing the growth in household debt since 2003:
Really a pretty astounding picture when we look at it like this. Yes, much can be credited to the improving economy beginning in 2013. As we went back to work, and wages increased, it was only natural that we could take on more debt and pay for it. Yet this trend simply cannot continue forever. Economic expansion has its limits, particularly when unemployment is so very low. Global events can trip things up very quickly, as we have seen recently with the Coronavirus outbreak.
What to do? As always, we urge our clients to use their best judgement when issuing credit. When receivables increase, and aging of debt increases, we encourage you to turn your debts over to us at the earliest possible moment to begin the collection process. Now is the best time to do so as it is tax season and tax refunds are a great source of debt recovery.
And, as always, we are here to help. Let us know how we can help 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 15 years.