One of the several data streams we watch as part of our Middle-class Squeeze investing theme is consumer debt levels. According to a new report from Lending Tree, consumer debt is slated to top $4 trillion at the end of 2018. That’s worrisome for several reasons as the costs of servicing that debt have climbed over the last several quarters, eating away a disposable income that is used to power our consumer spending related economy. That pain point is a tailwind for our Middle-class Squeeze investing theme and those companies that help consumers stretch the disposable dollars they do have.
Another concern is the speed at which the last $1 trillion dollars of debt has been amassed – roughly 5 years, which is less than half the time it took for consumers to pile on the prior $1 trillion of debt.
LendingTree said in its debt report for the month of November that based on recent holiday shopping and credit card spending, credit card balances will swell by about 5 percent through the end of the year to more than $1 trillion.
That would mean that the $4 trillion level of debt is approaching for U.S. consumers, said the report.
The company said that into the first nine months of this year, the nearly $4 trillion in debt included $2.9 trillion in non-revolving debt tied to student loans, fixed loans and auto loans.
According to LendingTree, credit card APRs are more than three percentage points higher than had been seen only a few years ago, which of course translates to higher payments on that debt, and where the current average APRs are at more than 16 percent.
The data as analyzed by LendingTree shows that in just five years, in the U.S., debt holders will have increased outstanding debt by $1 trillion, having moved past the $3 trillion level in 2013. The previous $1 trillion shift, from $2 trillion to $3 trillion, took more than a decade.