MONDAY, JULY 10, 2017
by Robert Cardworthy, Editor-in-Chief, CardBuzz.org
Gloom & Doom Credit Card Debt Talk is Hogwash Except for the Bad Credits
The ratio of debt payments to disposable personal income and the overall financial obligations ratio among American consumers remain at the lowest levels in more 35 years.
U.S. consumer revolving credit, 95% of which is credit card debt, is growing by only 3.5%, year-on-year, recently passing the $1 trillion milestone in late 2016.
All the “doom and gloom” talk of Americans drowning in credit card debt or “struggling” with rent and car payments is pure “bull butter.”
As always the exception is the “sub-prime” market, or consumers with credit scores below 660. The most recent credit industry data from private (i.e. CardData) and governments sources reveal late payments for credit cards and auto loans are creeping up in 2017, but it is entirely driven by consumers with low credit scores who signed up for auto loans and credit cards with ungodly interest rates, and/or fees.
The Financial Obligations Ratio (FOR) and the Debt Service Ratio (DSR) for the first quarter (1Q/17) edged upward.
According to the Federal Reserve, on a seasonally adjusted basis, the FOR slightly increased to 15.47% in 1Q/17, compared to 15.46% in 1Q/16 and 15.41% in 1Q/15. The DSR slipped up to 10.04% in the first quarter of this year, compared to 10.02%% in 1Q/16, and 10.02% in 1Q/15.
The FOR peaked at 18.13% in the fourth quarter of 2007. Since peaking at 13.18% in the fourth quarter of 2007, the beginning of the Great Recession, the DSR has declined steadily since, dipping into single digits for the first time in the fourth quarter of 2012 (9.87%).
Consumers of late have been taking on more debt, but the growth rate is nearly half of the annual growth rate of the prior year. U.S. revolving consumer credit is now growing at a 3.5% year-on-year (YOY) or annual rate, compared to a 6.6% annual growth rate of the prior year.
According to the Federal Reserve, revolving consumer credit outstanding stood at $1000.2 billion for end-of-year (EOY) 2016, compared to $938.8 billion for EOY 2015, and $891.5 billion for EOY 2014. At the end of the first quarter of 2017, revolving consumer credit stood at $1003.7 billion.
The household DSR is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.
The Financial Obligations Ratio is a broader measure than the Debt Service Ratio. It includes rent payments on tenant-occupied property, auto lease payments, homeowners’ insurance, and property tax payments.
U.S. FINANCIAL OBLIGATIONS RATIO
U.S. CONSUMER DEBT SERVICE RATIO
Revolving Consumer Credit Historical
2012: $845.2 billion
2013: $857.1 billion
2014: $891.5 billion
2015: $938.8 billion
2016: $1000.2 billion
2017: $1003.7 billion
Source: Federal Reserve; CardData.com
NOTE: All Figures Revised & Updated as of 06/30/17