Total consumer debt is on track to reach $ 4 billion by the end of 2018, according to a analysis of Federal Reserve data. That is an amount with twelve zeros. Collectively, Americans owe 26 percent of their income to this debt and spend 10 percent of their individual monthly income on non-mortgage debts such as car loans, credit card accounts and student or personal loans.
Americans have accumulated more and more debt since 2013 and disposable income has also increased. Although revenues are increasing, American consumers are borrowing more money more frequently.
So what is causing these changes in behavior? Recent studies have shown that Americans are losing their financial education at an alarming rate. These studies, which cover topics such as basic finance and investment, show that Americans lack fundamental knowledge in these areas. Perhaps that explains the marked increase in consumer indebtedness.
To deepen consumer debt and learn how to manage it properly, let's first understand exactly what it is and how it works in our financial systems.
What is consumer debt?
Consumer debt is a personal debt that an individual owes to another entity, usually a bank or credit union. Consumer debt often involves purchases and family transactions independent of a commercial or government operation. It does not include the debts of a company or corporation with another entity.
These purchases are typically consumable and include items that do not depreciate in value. Purchases such as this allow consumers to improve through a purchase without the requirement to pay the full purchase price in advance. For example, consumer debt can come in the form of loans for cars or students.
Also known as credit debt, there are generally two types of consumer debt: revolving and non-revolving.
Revolving consumer debt
The most common example of this type of consumer debt is credit card debt. This type of debt is known as revolving because it must be paid frequently, usually within a month. Revolving credit It fluctuates with consumer use and generally comes with a variable interest rate.
Non-revolving consumer debt
On the contrary, the non-renewable consumer debt is not in a particular payment schedule. Instead, payments can be seen as "fixed" and are generally active during the life of the underlying asset. This type of consumer debt can include long-term loans for cars and education. These debts generally include a fixed payment plan with few changes in the amount collected. Consumers may choose between fixed and variable interest rates for these debts in some cases.
Consumer Debt Statistics
The following statistics come from the Federal Reserve Launch of Consumer Credit G.19:
- Total consumer debt totaled $ 3.898 billion in 2018, an increase of 7.6% over last year.
- The average consumer debt per capita is approximately $ 11,880 (total consumer debt /total US population UU. as of July 4, 2018).
- Total revolving consumer debt was $ 1.039 billion in 2018.
- Total revolving consumer debt increased 11.4% annually in 2018.
- The average revolving debt per capita is approximately $ 3,167 (total consumer revolving debt /total US population UU. as of July 4, 2018).
- Credit card debt in May 2018 broke the previous record of $ 1.02 billion set in 2008.
- Credit card debt was 27% of total consumer debt in 2018, compared to 38% in 2008.
- Two out of ten adults say they transfer more than $ 2,500 or more per month in credit card debt (Source: NFCC)
- Total non-renewable consumer debt was $ 2.858 billion in 2018.
- Student loans totaled $ 1.524 billion in 2018.
- Car loans totaled $ 1,113 billion in 2018.
- Average loans per student equal approximately $ 76,468 (total student loans /total students enrolled in public or private universities in 2018) *
* Total enrollment based on a 2016 projection of students in public or private universities.
With the exception of two recessions, a small event in 2001 and the well-known real estate market collapse of 2008-2009, consumer debt has steadily increased overtime. It is possible that the total consumer debt will break four billion dollars in the next decade.
If you are not sure how to start addressing your personal debt, there are many resources available to help you. Paying your monthly installments on time and maintaining your credit can also help you reduce your loan amounts over time.