Increased Credit Card Debt Boosts Overall Household Debt in America
Household debt in the United States increased to $12.29 trillion in the second quarter of 2016, up 0.3% from the previous quarter, according to a report from the Federal Reserve Bank of New York. The organization attributes the growth to a rise in credit card and auto loan debt.
Total household debt increased by $35 billion. Auto loan debt rose $32 billion on its own, and credit card debt jumped $17 billion. These increases were offset by a drop in the mortgage sector, down by $7 billion. Student loan debt remained fairly even during those two quarters.
With regards to annual changes, credit card debt rose $26 billion compared to a year ago. Mortgage debt increased $246 billion, even though it dropped during the last quarter. Auto loan debt jumped $97 billion, and student loan debt rose $69 billion.
One of the causes of the increased credit card debt could be an expansion of options for subprime borrowers. Currently, almost half of people with a credit score below 620 have a credit card, very close to the 60% of subprime borrowers who had a credit card in 2007. The number of cardholders with low credit scores is beginning to reach pre-recession levels, and that’s not necessarily a good thing.
The good news is that delinquency rates are continuing to improve. The delinquency rate for outstanding debts in the second quarter was 4.8%, down from 5% in the first quarter of 2016 and 5.6% in the second quarter of 2015. This continues a multi-year decline that has taken place since 2010.