Debt Consolidation

LendingTree Debt Report – October 2018

  • With 5 more months of data to report in 2018, Americans are still on track to amass more than $4 trillion in debt that isn’t related to residential mortgages. As of August 2018, total balances are $3.92 trillion, with $1.01 trillion in credit card and other revolving debt.
  • October is usually the slowest month for credit card balance growth. Apart from the post-holiday debt consolidation in January and February, Americans tend to grow their balances the least in October, at an average monthly increase of 0.67 percent.
  • According to Federal Reserve data, the average APR increased by a staggering 0.92 percentage points this past summer, to 16.46%.
  • While mortgage balances are increasing, mortgage delinquency rates are at historic lows. New borrowers are now taking on 30-year mortgages at rates above 5%, on average, the highest they’ve been since 2011. Meanwhile, mortgage delinquencies have fallen to 4.1 percent, a 12 year low.
  • One major difference between 2018 and 2008 — real estate values and consumer bank deposits have grown more than mortgage and consumer debt. Deposits have grown by $2.5 trillion more than consumer debt, and homeowners have nearly $10 trillion more in home equity than they did a decade ago.

As of August, total balances are $3.92 trillion. $1.01 trillion of that is located in credit card and other revolving debt, while the the remainder is non-revolving debt that includes auto loans, student loans and personal loans.

Consumers who carry balances on their credit cards from month to month are starting to pay much more for the privilege. According to a Federal Reserve survey of banks and credit unions, the average annual percentage rate (APR) jumped 0.92 percentage points, to 16.46%. Higher interest rates will grow holiday credit card balances — and minimum monthly payments — even faster than last year, when the average APR was 14.99%

But there will likely be a calm before the holiday frenzy. Based on more than 40 years of data,  history suggests that credit card borrowing won’t be increasing much in October. Apart from the beginning of the year, when consumer pay down their holiday balances, October is the slowest month of the year following the post-holiday season consolidation months.

The average rate for a 30-year fixed-rate mortgage rose to 4.9% in early October, and is poised to be higher than 5% for the first time since 2011. However, borrowers currently servicing a mortgage that was either originated or refinanced between 2011 and 2017 are likely paying less than that in interest. It also may partially explain why delinquency rates are at record lows, according to data from the Mortgage Bankers Association and other industry groups.

Finally, although debt levels and rates are increasing, so are the values of primary assets of Americans. Total deposits have grown by nearly $4 trillion since 2010, while consumer debt has grown by just $1.5 trillion.

On the real estate side, residential real estate values have increased by nearly $10 trillion since their 2011 lows, while mortgage balances have remained steady over that period.

In addition, Americans currently seem to have the income necessary to serve these levels of debts. According to two measures of debt servicing, the percentage of income needed to service both mortgage and consumer debts remain relatively modest. Mortgage debt payments, which used to tie up more than 7 percent of household disposable income, has steadily fallen to a more manageable 4.24% in 2018. Meanwhile, other consumer debt payments — credit cards, auto loan payments, and other fixed-rate loans like personal loans — are at about 5.60%, roughly in line with the long-term average since 1988.

 

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