Consumers once again borrowed more in November

Though many Americans have tried to curtail the amount of borrowing they do on various account types in the last few years, still more are borrowing at greater rates these days, leading to another uptick in consumer credit owed in November.

The total amount of debt carried on both revolving and nonrevolving loans climbed 7 percent in November after increases of 6.2 percent and 5.3 percent in October and September, respectively, according to the latest monthly statistics released by the Federal Reserve Board. Much of this change was driven by a sharp rise in nonrevolving consumer debt, though revolving debt rose for the second consecutive month as well. Through the end of the month, borrowers owed a total of nearly $2.77 trillion on these balances.

How much people owe on credit cards
Though the holiday shopping season was certainly in full swing by the end of the month, the typical increase in borrowing on revolving debt — that is, balances like those for credit cards, which can be subtracted from and added to from one month to the next — did not happen as precipitously as some might have expected, the report said. In fact, credit card balances rose just 1.1 percent to $858.4 billion, after an increase of 4.8 percent in October. That’s the highest revolving debt has climbed since May, when it stood at nearly $858.8 billion.

Overall, outstanding revolving debt has been fluctuating between the mid $840 billions and high $850 billions for more than two years, the report said. The last time it climbed into the $860 billion range was October 2010, when the recession was still winding down.

Meanwhile, the amount consumers paid on these accounts slipped somewhat in the latest survey. In November, the amount of interest charged on the average credit card account declined to 11.88 percent from the 11.95 percent seen at the end of the third quarter, making credit more affordable for qualified borrowers. And at the same time, the average interest rate on accounts that were actually assessed interest charges during that time fell to 12.81 percent from 13.21 percent.

Nonrevolving credit sees huge boost
Even as consumers kept the growth of their credit card obligations somewhat constrained in November, they once again flocked to nonrevolving debts — such as installment loans for education and auto financing, but excluding mortgages — the report said. In all, debts for this type of borrowing rose 9.6 percent in one month, after increases of 6.8 and 9.1 percent in the previous two, respectively.

Total outstanding balances on those accounts increased to more than $1.91 trillion, up from October’s slightly less than $1.9 trillion, the report said. Further, this increase marked yet another high in a year full of them, and debts on this type of account have risen from just $1.76 trillion in the last year alone.

Much of that change has been the result of students taking on debts through the federal government as a means of helping to cover the cost of their college educations, the report said. The amount owed on these balances rose to $521.3 billion in November from $516.4 billion the month before, and are up from $509.5 billion in September as well.

On an annual basis, the increase was even more precipitous, the report said. Student loan balances have grown more than $100 billion in the last year, from $408.7 billion in November 2011.

What does this mean for borrowers?
Experts generally agree that rising debts aren’t always a bad thing for consumers. Given the recent improvements in the national economy, it could be a sign that Americans are once again feeling better about their finances and therefore think they are in a position to borrow effectively. However, with rising debts comes the increasing likelihood that consumers fall into delinquency and default on their outstanding loans, which obviously can lead to severe financial problems.

Another issue that some accountholders who begin to lean too heavily on their credit cards might encounter is that their debt loads could become too heavy. It’s generally recommended that keeping balances to about 30 percent or less of the lender’s maximums is the best way to maintain a healthy credit standing.

Payment history and debt-to-limit ratios make up 65 percent of a person’s credit score alone, and therefore it’s important for consumers to be mindful of when they’re sending in their payments and how much they’re carrying from one month to the next. However, it’s also vital that borrowers take the time to check their credit reports every once in a while to determine if there are any unfair markings on these documents. If so, working with a credit repair law firm may help to correct the issue.