As the United States recovered from the Great Recession, a lot of people paid down personal debt and increased their savings. As the economy has improved, Americans have gone back to spending.
According to the Federal Reserve Bank of New York, personal debt rose in the 4th quarter of 2017, marking the 14th consecutive quarter with an increase. As of the end of 2017, Americans owed $13.15 trillion to creditors. By comparison, the Bureau of Economic Analysis said the national Gross Domestic Product (GDP) for 2017 was $19.39 trillion.
One interesting note in the New York Fed’s report is that the level of household indebtedness surpassed the record high in 2008. The consistently rising amount of obligations, combined with new records being set has caused some to wonder if we’re in a personal debt bubble. So, are we in a bubble? The answer is “maybe, but probably not.”
It’s definitely worth being concerned about the amount of personal indebtedness, since it can create bad situations during an economic downturn as people aren’t able to pay their creditors. However, reading between the lines, there are some reasons to not sound the panic alarms just yet.
For one, almost two thirds of that $13.15 trillion is in mortgages, which is usually considered “good” debt to have. Further, the delinquency rate on home loans is declining. Another good sign is that the number of bankruptcies has declined. And looking away from debt, the average American’s wages went up in 2017 by the biggest margin in eight years. This means people can afford more credit.
Of course, not everything paints a rosy picture. Non-housing balances (credit cards, student and auto loans) have been climbing for six years. People have been predicting student loan and auto loan crises for years now, and rising indebtedness doesn’t do anything to ease those concerns. The fact credit card balances continue to increase is particularly troubling, since they carry high interest rates.
The bottom line is that while it’s not a good sign the American debt load continues to rise, we’re also in better shape to handle it than we were 10 years ago. Unfortunately, “bad” debt continues to mount. We continue to advocate the reduction of debt from student loans, auto loans and credit cards.