Consumers and the Federal Government continue to increase debt due to spending according to a new report out Wednesday.
Revolving debt, almost all of which is consumer credit card debt, increased by more than $16 billion in May, according to Lending Tree’s Consumer Debt Outlook for July 2018. That’s the largest-ever increase in revolving credit for that calendar month and the largest percentage increase since 1995. The average credit card APR is currently 15.54 percent, a full percentage point higher than a year ago which could make paying back the borrowed money more difficult.
Federal deficits continue to increase and are expected to continue rising to more than 5 percent of gross domestic product (GDP) within the next five years. The persistent annual federal deficits will likely elevate borrowing rates for consumers on big-ticket items like homes and, in the long term, force drastic spending cuts or massive tax increases to reduce the debt.
Credit card balances new record increase $16 billion
The $16.25 billion increase in revolving credit — now totaling a shade under $1 trillion, at $999.2 billion— is the biggest one-month increase in May. On a percentage basis, the 1.65 percent monthly increase is the biggest May jump since 1995, when revolving credit jumped a whopping 2.27 percent in a single month.
Meanwhile, non-revolving debt, which includes auto loans and student debt, also increased. Together, LendingTree analysts expect the $3.86 trillion in revolving and non-revolving debt to exceed $4 trillion by the end of 2018.
Auto loans back above 5 percent
The average rate to finance a new car is now above 5 percent for the first time since February 2012, according to Federal Reserve data, based on a 48-month loan.
The amount people are financing has also increased over that time. In 2012, the average amount financed was $25,430. Today, the average amount financed is $30,472 — a 20 percent increase. At the current average rate of 5.04 percent for 48 months, financing $30,472 of a new car means monthly payments of $702, according to LendingTree’s auto loan calculator. Over the life of that loan, the new car owner will pay more than $3,200 in interest.
Finally, the amount owed on all motor vehicles — both new and used — has increased by nearly 50 percent since 2012. Collectively, more than $1.1 trillion is owed on some sort of automobile financing.
Consumer income is keeping up (for now)
Despite the heavier lifts, Americans are, at least in the short run, keeping up. Delinquency rates on home loans are at 10-year lows, according to Federal Reserve data, and credit card charge-off and delinquency rates remain modest.