When it comes to debt, it's nice to be below average.
Do your credit card balances fall below the national mean of $16,000 for households with debt? Is your total household debt, including mortgages, shy of the $132,500 mark?
If so, good. Just how good depends on your income, savings, and other parts of your financial picture.
The household debt numbers, in a new Nerdwallet report, come as paying off debt is set to become more costly. The Federal Reserve on Wednesday raised U.S. interest rates for just the second time since they were cut to near-zero in the wake of the 2008 financial crisis, and several more increases may lie ahead in the new year. Growth in four of eight major spending categories has outpaced growth in median income, according to the report. With medical expenses up 57 percent since 2003 and median income up 28 percent, for example, people with chronic health problems or who live in expensive cities may find the cost of living outpaces their cash flow and have to take on debt.
Here's where Americans' debt levels stand at year end, and a look ahead, based on new studies and forecasts from TransUnion and NerdWallet.
Household credit card debt, at $747 billion in 2016's third quarter, remains below where it was at the start of the Great Recession. In December 2007, Americans had $839 billion in credit card debt. NerdWallet projects that the tally may surpass that to reach $842 billion by 2019, based on data from the Federal Reserve Bank of New York. TransUnion's forecast has the average credit card balance per consumer rising $100 from the fourth quarter of 2015 to year end 2016, to reach $5,437. By the close of 2017, the forecast is $5,509.
As interest rates rise, so will monthly payments on revolving debt. Anyone fortunate enough to get a raise or bonus at year end undoubtably has many uses for the extra cash. One particularly smart move is buying greater financial flexibility by paying down high-interest debt. Where else can you get a 15.2 percent return-the national average credit card rate, according to creditcards.com-on your money? If you do have to use your card, remember that you can send payments in at any point before the bill, plump with interest, is due.
These have seen double-digit growth in 2016, boosted by financial technology companies like Prosper and Lending Club. Fintech has taken some of the stigma out of unsecured personal loans for more-creditworthy borrowers looking to consolidate their debt. Average balances on these loans will increase to about $8,000 by the end of 2017, TransUnion predicts. In 2016's fourth quarter, the average balance stands at $7,729.
The annual interest rate on a three-year, $10,000 personal loan often ranges between 6 and 10 percent for people with good or excellent credit (a score of 720 and up), according to bankrate.com. One benefit of using a personal loan to consolidate credit card debt: Your credit score may rise, since you are now using less of the available credit limit on your cards. The key is to avoid adding back credit card debt. Some people manage that with the old trick of putting their cards in a glass of water and sticking it in the freezer.
TransUnion forecasts that the delinquency rate on these loans will reach 3.66 percent at the end of this year and 3.72 percent at the end of 2017. That's lower than the delinquency rates in the fourth quarters from 2009 to 2015.
Lending to subprime borrowers, those with poor or scant credit histories, should continue to rise in 2017, according to TransUnion. That, along with the expectation of more interest rate hikes from the Federal Reserve, should also push up delinquency levels for the auto finance and credit card markets. An increase in credit card delinquencies "reflects more normalcy in the market, and the access that prime and nonprime consumers are getting again to revolving card products, " said Jason Laky, automotive and consumer lending business leader for TransUnion.
The last time delinquencies in automotive finance were higher than they are now was at the end of 2009, Laky said. He figures "there's probably a little more hype than reality " to current concerns about a subprime bubble in the automotive finance market, partly because of how important cars are to Americans. Car payments rank high in the hierarchy of consumer debt payments.
Mortgages and student loans:
The average mortgage debt level is expected to increase by about $4,000 in the fourth quarter of 2016, to $194,875. By the fourth quarter of 2017, TransUnion expects, that number will reach $198,435. Mortgage loan delinquencies, which have been falling since 2013's third quarter, are projected to keep dropping. That makes sense. The creditworthiness of borrowers in the mortgage market is higher than in other consumer loan areas.
While student loan debt is still rising, the pace has slowed in recent years, according to NerdWallet. "In addition to the apparent plateauing of education costs, it's possible that student loan growth has slowed because of lower college attendance, specifically in the for-profit sector," according to its report. Student loan debt rose by 6.3 percent from September 2015 to September 2016, NerdWallet found. Over the past 10 years, it's up 186 percent.