Beware: Credit Card Debt Increasing
Consumers are once again
relying on credit cards to fund their expenditures, as the number of people who
have a credit card have spiked to their highest level since 2005 during the
first quarter of 2017, according to TransUnion, the Chicago-based credit bureau
company.
Why is this important? Interest rates are expected to be on the rise.
Whether this is a sign
that consumer spending is headed towards a crisis again is hard to determine
yet, but more people have credit cards now. In the first quarter of 2017, 171
million consumers reported having at least one credit card, including 16
million subprime consumers.
A rise in consumer
confidence because of a healthy economy and low unemployment could have led
consumer borrowing to rise to $18.4 billion in May, according to the Federal
Reserve, which is the largest gain since an increase of $25.1 billion in
November.
While consumers who had
trouble obtaining access to credit are able to get approved for credit cards
now and do not have to rely on alternative lenders such as payday lenders with
offering usury, some consumers are starting to accrue more debt once again.
Lenders have loosened their lending requirements, giving consumers with lower
credit score the ability to borrow at more affordable interest rates.
"People who don't
have pristine credit now have access to credit, which is a good thing,"
said Jim Triggs, a senior vice president of counseling and support of Money
Management International, a Sugar Land, Texas-based non-profit debt counseling
organization. "Consumers with subprime credit scores in the past recently
had to rely on payday loans or pawn shop loans to borrow money."
Delinquencies for credit
cards remained in the first quarter of 2017, but rose to 1.69% of borrowers who
are 90 days overdue on their payments compared to 1.5% in the first quarter of
last year.
Access to credit will
likely not tighten up unless delinquency rates rise substantially, Triggs said.
A stronger economy has
lead to improved consumer confidence and higher credit card originations, said
Jeff Golding, chief growth officer at IRH Capital, a Northbrook, Ill.-based
financial company. Personal judgements from creditor or tax liens are no longer
reported on credit histories, increasing the scores for many consumers.
"There is a change
occurring on what is being reported at the bureaus and there is less of an
impact," he said. "It can raise people's scores."
The increase in some
people using their cards may not emerge into a negative trend, Golding said.
"That remains to be
seen," he said. "We will know in six months whether this becomes an
issue or if people are utilizing credit as they should be — obtaining the float
on the money and paying it off each month."
One caveat is that as
interest rates rise, consumers saddled with large amounts of debt will face
higher payments. A consumer who has a $10,000 balance with a 15% rate and is
only making minimum payments will not pay off that debt for 17 years and will
pay nearly $7,000 in interest.
Excerpt from https://www.thestreet.com/story/14249554/1/consumer-debt-rising-in-a-scary-fashion-as-shoppers-rely-on-credit-cards-more.html
