Consumer Borrowing Reaches Record High
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UPDATED: Nov 8, 2012
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Consumer borrowing reached record levels due to increases in student and auto loans in September. Yesterday the Federal Reserve reported that total consumer borrowing increased $11.4 billion in September compared with August findings. Americans cut back on credit card borrowing, a sign that borrowers are wary of high-interest lending.
The total amount of outstanding consumer debt currently stands at $2.74 trillion. This record high does not include mortgages and other real estate financing. The consumer increase was fueled by a sector of student and auto loans which accounted for a $14.3 billion increase. This student and auto loan sector was 21.2 percent higher than during the 2008 financial crisis.
Other sectors of the economy prospered. New car sales and retail sales increased during September. The Federal Reserve links these results to a higher consumer confidence in the market.
Although auto loans were a significant part of the increase, the majority was from student loans. August and September mark the period when most universities and college begin a new year. Federal student loans increased $13.8 billion. During the April to June quarter, student loans in total reached $914 billion, a 50 percent increase from the July to September quarter of 2008.
Conversely, a major form of high-interest lending, credit card borrowing, fell $2.9 billion, which is the third drop in four months. Due to high unemployment rates and an overall weak economy, consumers are less likely to charge purchases on credit cards, which carry higher-interest rates. Since 2008, credit card usage has decreased. In 2008, Americans had $1.03 trillion in credit card debt, compared with September’s figure of $853 billion.
Besides a gained confidence in the economy, lower interest rates have assisted improvement in American finances. Americans are currently spending 10.7 percent of their after-tax incomes to pay for debt interest, as compared with 14 percent seen at 2007’s year end.