Consumer debt in America has been steadily rising since 2012 and is slated to reach a new high of $4 trillion by the end of 2018.
The figure was reported by loan comparison site LendingTree, which analyzed data from the Federal Reserve on nonmortgage debts.
Americans now owe 26% of their annual income to nonmortgage debt, up from 22% in 2010. Credit card and auto loan debt are climbing more than 7% per year, while housing debt is increasing by a little more than 2% each year. Consumer credit has been increasing by 5-6% for the last two years.
The rise of online shopping and the ease of obtaining credit has helped fuel the rise in consumer debt.
Experts say that rising credit card debt, which comes with a high-interest rate, is concerning, but low-interest rate debt, like those on student and auto loans, is not as concerning.
Still, the Federal Reserve plans to raise rates several times this year, which will make debt more expensive. Some experts recommend that consumers refinance some of their debt. Moving credit card debt to a personal loan could save money on interest.
Rising rates coupled with slow wage growth could potentially lead to another consumer debt crisis.
The labor market added 223,000 jobs in May, more than expected, but wage growth was stagnant at 2.7% on an annualized rate.
Recent data suggests that more Americans are beginning to struggle financially. Experts speculate that some workers may have added to their debt because they expected to be earning more at this point.
Delinquencies in retail cards and auto loans are on the rise.
Consumers added another $63 billion in debt in the first quarter of the year. As of March 31, consumers owed a collective total of $13.21 trillion.
A survey from the National Foundation for Credit Counseling found that nearly 40% of Americans carry revolving credit card balances. About a quarter of these respondents said they don’t pay these bills on time. About 10% have debt in collections.
A Federal Reserve report showed that the number of people behind on credit card payments has increased significantly over the last year, and delinquencies on auto loan payments have been on the rise for more than five years.
Part of the problem, experts say, is that economic gains from the recovery have been equally shared by Americans. The historic tax cut for businesses has yet to produce the pay increases promised to workers. According to a survey from Morgan Stanley, just 13% of the corporate windfall is being put towards worker pay, benefits and other forms of compensation.