I think we would all agree that the economy is, by and large, better than it has been for much of the last decade. More jobs, less unemployment, and a bit more money to go around. That increasing stability means that lenders are also more comfortable lending money, which means more debt for all of us. That growing debt, in and of itself, isn’t necessarily a bad thing – it’s only a problem if consumers begin struggling to pay it back.
Well, about that…
According to a study from the American Bankers Association, delinquencies are back on the rise. In the third quarter of 2016, credit card delinquencies rose to 2.74 percent of all accounts. Auto loan delinquencies also increased appreciably.
Subprime reigns supreme
If there’s a single culprit to point out, it’s most likely the continued prevalence of subprime lending. The majority of new credit card borrowers are opening subprime cards, which come with higher fees and rates. Those high fees and interest rates are designed to offset the risk involved with lending to consumers with less than stellar credit scores. So while consumers are more easily able to obtain credit than they were just five years ago, that credit is costly and can be difficult to maintain.
Be cautious with credit
It’s a treacherous balancing act. Consumers need to use credit in order to build their credit profile and score, but that credit can be costly when they’re just starting out or attempting to recover from a significant financial setback.
The key is caution and careful planning. To the best of your ability, always strive to limit credit purchases to amounts that can easily be paid in full before you’re charged interest. Treat your credit cards like debit cards – as extensions of your available income, not as a supplementary source of funds. Subprime terms can be burdensome, but if you understand what you’re signing up for and use that credit wisely, eventually you’ll build your credit and find that you qualify cards and loans with significantly better terms.
Even with delinquencies trending upward, our overall level of delinquent debt is still well below the 15 year average of 3.68 percent. So we’re not in grave danger quite yet, but it is important to stay alert and cultivate positive money habits. Keep your accounts current. Try not to accumulate more debt than your income can sustain. Develop long-term plans and stick with them.
Most important of all, however – if you do begin falling behind on your payments, don’t forget that help is available and that almost all problems are easier to solve the sooner you address them. If you’re struggling to stay current with your debts, speak with a certified credit counselor and see what changes you can make to help you manage your budget and stay on top of your debt.