Are We About to Hit Our Heads on the Consumer Debt Ceiling?

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March 29, 2017 by Mark Hammerstrom

Have you ever hit your head on the ceiling?

For those of you I have not met, I am reasonably tall but lack the safety cushion the rest of you seem to enjoy in your abundance of hair. Yes, admittedly, I am ‘follically challenged.’  While not an issue for me (my Dad used to say God produced only a few perfect heads, and the rest he covered with hair) on occasion it provides a painful reminder I need to keep my wits about me, especially when working toward the ceiling.  The other day was a particularly painful reminder as I was doing some work on a ladder and came into abrupt contact with our basement ceiling.  Adding insult to injury is the fact that our house, being of a certain age, is blessed with an abundance of ‘popcorn ceilings’ and as a result left a number of painful indentations as well.  I sent a few choice words in the direction of the ceiling, but of course being my own dumb fault did not help my pain.

So where am I going with this?

The latest Federal Reserve Bank of New York report on Household Debt and Credit shows that as a nation we will bump our financial heads on a ceiling we have not seen since 2008.  This ceiling is the peak of all types of household debt, led by credit cards, and we are expected to reach or exceed the previous ceiling of $12.68 trillion sometime in 2017.

I don’t know about you but to me that number is pretty much unfathomable.

Our practice has been to keep our clients apprised as to significant changes in the credit markets so as to be prepared should economic conditions change and bad debt loads increase due to customer’s inability to cover their debt.

Some key findings in the report include:

  • Credit card balances continued to grow and increased by $32 billion in the fourth quarter of 2016.
  • Of note is that the aggregate credit card limit increased for the 16th quarter in a row.
  • Not surprisingly, student loan balances have increased in all of the 18-year history of the report. The last quarter was no exception, increasing by $31 billion.
  • A new annual record was set in 2016 for auto loan originations.
  • Auto loan balances increased by $22 billion in the fourth quarter as well.

Add all that up and total debt is just 0.8%, or $99 billion, below the peak in 2008.

So, how bad is this seemingly alarming trend?  Well, as I wrote in a previous blog on this same subject, that depends.

The Fed’s Research and Statistics Group points out that the key difference here is that the mix of debt is quite different.  In the ‘great recession’ much more of the debt was mortgage and home equity debt driven by rapidly rising home prices.

“Debt held by Americans is approaching its previous peak, yet its composition today is vastly different as the growth in balances has been driven by non-housing debt,” according to Wilbert van der Klaauw, senior vice president at the New York Fed. “Since reaching a trough in mid-2013, the rebound in household debt has been led by student debt and auto debt, with only sluggish growth in mortgage debt.”

This seems to indicate that this mix at least tends to temper concerns about the same triggers that caused the so called ‘great recession.’  While consumers are certainly not debt free, they do seem to be able to pay what they owe.

The Fed went on to note that, overall, delinquencies have remained stable, and in fact have declined in comparison to 2015.   The report states that 4.8% of debt was in some state of delinquency, with $412 billion of the $607 billion total at least 90 days late (“severely derogatory”).

Reasons for concern?  Reasons for vigilance?  No one can predict the future with any degree of certainty, but no doubt hitting our heads on this ceiling may hurt and not just a little should economic conditions change unexpectedly.

Founded in 1950, United Credit Service, Inc. is a full service, licensed revenue cycle management and debt collection agency in Wisconsin providing effective, customized one on one management and recovery solutions for our business partners. Visit our website at, call 877-723-2902, or check out our YouTube video.


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