December 7, 2024

Consumer Debt in U.S. Fell by 0.7% Last Quarter

Americans trimmed their overall indebtedness in the latest quarter, continuing a nearly five-year trend as mortgage balances fell further, data from the Federal Reserve Bank of New York showed on Wednesday.

Total consumer debt stood at $11.15 trillion in the second quarter, down 0.7 percent from the previous quarter, the New York Fed said in its quarterly household debt and credit report.

While student debt and auto loans rose, the country’s postrecession deleveraging cycle appeared intact as household delinquency rates dropped to 7.6 percent in the three months to June, from 8.1 percent in the first quarter of the year.

Americans have consistently deleveraged in the years since the housing collapse and financial crisis, and credit is now well below the peak of $12.68 trillion in the third quarter of 2008.

The Fed bank acknowledged the overall trend but highlighted a $20 billion increase in auto loan balances, the ninth consecutive quarterly rise, reflecting a rebound in a crucial sector of the American economy. Loan originations in this area reached $92 billion, the highest level since 2007.

“Although overall debt declined in the second quarter, households did increase nonhousing debt, led by rising auto loan balances,” Andrew Haughwout, a New York Fed research economist, said in a statement. “Households improved their overall delinquency rates for the seventh straight quarter, an encouraging sign going forward.”

Reflecting another national trend, student debt rose again, with outstanding balances up $8 billion to $994 billion in the second quarter. Still, student loan delinquency rates improved with 10.9 percent of loans behind by 90 days or more, down from 11.2 percent in the first quarter.

The report also showed outstanding mortgage balances fell by $91 billion to $7.84 trillion, while 1.5 percent of existing mortgages fell into delinquency. Mortgages are by far the largest segment of consumer debt.

Lenders made more mortgages, with originations rising to $589 billion.

Elsewhere, credit card balances edged up by $8 billion, while the number of credit account inquiries over six months, an indicator of consumer credit demand, was flat at 159 million.

Article source: http://www.nytimes.com/2013/08/15/business/economy/consumer-debt-dropped-in-the-second-quarter.html?partner=rss&emc=rss

Bucks Blog: The Risks of Transferring a Car Loan to a Credit Card

The credit card site CardHub.com recently reviewed current zero-balance credit card transfer offers and found that many cards let consumers transfer all sorts of debt — not just credit card debt — onto the new cards.

The site’s founder Odysseas Papadimitriou, writing about the findings for The Christian Science Monitor, said several major card issuers let you transfer car loans to their credit cards — in effect, letting you trade secured debt (the car is collateral for the loan) for unsecured debt. Some cards have introductory zero interest rate periods of up to 18 months. If you use such transfers strategically,  he says, you can lower the rate on your car loan, saving as much as $1,000 in interest charges.

If you have just one to two years left on your auto loan, he says, that means the credit card pays off your car loan, getting you the title to the car sooner than expected, and “ensuring that payment difficulties won’t result in your car being repossessed.”

The catch, of course, is that you actually have to pay off the loan before the zero interest period expires. Otherwise, you’ll end up paying double-digit interest on the balance, negating any advantage from transferring the loan.

There are all sorts of potential downsides to such a move, says John Ulzheimer, a credit expert who writes for several financial Web sites. “It’s very dangerous for a variety of reasons,” he said.

First, he said, your credit score may take a hit simply because you’ve applied for new credit. In addition, you’re trading installment debt for revolving debt, which also tends to have a negative impact on your credit score. Installment debt has much less of an effect on your credit score than revolving, or credit card debt, because its typically secured by something and is less risky for the lender. Revolving debt is riskiest for the lender, so it has more impact on your score.

“Unless you’re financially capable of writing a check at the end of one year, you shouldn’t do it,” he said. And if you’re capable of doing that, he said, why not just write a check to pay off the car loan yourself?

Another potential flaw in the plan, he said, is that most zero percent interest offers are made only to people with sterling credit. And if your credit is that strong, you likely aren’t in a bind that would require transferring debt onto another card.

In short, it sounds interesting, “but if you think through the impact, it’s not really a good idea,” he said.

Have you ever transferred a car loan or other type of loan to a credit card? How did it work out for you?

Article source: http://bucks.blogs.nytimes.com/2013/03/18/the-risks-of-transferring-a-car-loan-to-a-credit-card/?partner=rss&emc=rss