The Federal Reserve Bank of New York recently released a Household Debt and Credit Report. Through this report, the Fed wishes to provide “a quarterly snapshot of household trends in borrowing and indebtedness, including data about mortgages, student loans, credit cards, auto loans and delinquencies. The report aims to help community groups, small businesses, state and local governments and the public to better understand, monitor and respond to trends in borrowing and indebtedness at the household level.” These trends are relevant to debt collectors and collection agencies as well, so we’ll explore the relevant pieces in this blog post.
‘Household debt’ is an umbrella term that encompasses many types of financial obligations - credit cards, auto loans, mortgages and more. These debts are familiar to most Americans; there was a $117 billion increase in household debt during 2014: Q4.
Student loans topped the list, increasing every year since 2011. For example, in the fourth quarter of 2013 student loans were $1.08 trillion, and one year later they were at $1.16 trillion (fourth quarter 2014). That may seem like a small fraction, but for reference, a stack of $1000 bills would be more than 67 miles high if it were to equal a trillion dollars.
Auto loans came in second, but a long shot away from first place. For comparison, there was $0.86 trillion of auto loan debt in fourth quarter 2013, rising to $0.95 trillion one year later. Auto loans, like credit card debt, can fall under financial institution collections.
Here are the numbers from fourth quarter 2014:
Credit card debt: $0.70 trillion
Auto loans: $0.95 trillion
Other: $0.34 trillion
Student loans: $1.16 trillion
One of the categories not covered in this particular Household Debt and Credit Report is medical debt. With an increasing number of high-deductible health plans, medical debt is sure to heavily influence household debt in the future. Unlike credit cards and auto loans, however, medical costs cannot usually be planned or anticipated - read more about how medical debt is different and why medical collections require an extra degree of care.
So, how is this information relevant to those in the debt collection industry? For starters, if you’re a full service collection agency, you need to be familiar with the ins and outs of student debt; barring any legislative pardons, educational institutions and banks will be pursuing these loans for the foreseeable future. Secondly, being aware of trends in debt gives valuable information to your company in terms of where to direct your strategies and capabilities.
To read more, you can find the full report here.