The economic recovery has been ongoing for some time now, and many of the most meaningful improvements have come within the last year or so. That, in turn, may have led more consumers to feel comfortable in dealing with debt.
Over the last few quarters, borrowing for numerous reasons, on a number of different account types, has slowly been ticking upward, according to a report from the New York Times. For instance, in two of the last three quarters alone, borrowing across most balance types, such as credit cards, home loans, auto financing, and so forth, has gone up. This stands in stark contrast with the previous trends, which led to debt declines in 14 consecutive quarters.
A deeper look
All this declining debt in the previous few years, particularly those immediately following the end of the recession, may have played a particularly large role in improving consumers' attitudes toward borrowing in general, the report said. During the recession, millions may have faced many tough decisions about their finances as a result of high debt loads and dwindling incomes, and many experts believe these hardships fundamentally changed consumers' attitudes toward dealing with debt. As a result, many may have made greater efforts to free themselves of some of their debt obligations by taking the last few years to pay down most of their larger outstanding balances if they could, and many focused on slashing their high-interest credit card debt.
However, it should be noted that many consumers also saw their debt obligations fall only unofficially, as many lenders might have sold balances they considered uncollectable to collections agencies, which wipes debt from their books but doesn't mean the consumer is free of the obligation, the report said. Foreclosures, delinquencies, and charge offs are still problems across the country even as the rates for them fall near all-time lows. Experts also believe that these must bottom out at some point, but largely haven't done so yet.
Where we stand
Nonetheless, these smaller balances might have put consumers in a better position to begin dealing with new debts, as they may feel that given their improving personal finances and greater knowledge of the inherent risks of borrowing heavily, that they can approach the issue more wisely, the report said. Recent data indicates that consumers are simply more confident now than in the past few years, and there has been additional economic growth as households begin to spend more once again. That, in fact, may be the most important part of the recovery.
"Consumer spending still drives 65 to 70 percent of GDP growth," Susan Lund, the director of research at the McKinsey Global Institute, told the newspaper. "When deleveraging is over and housing picks up a bit, those two factors are going to be strong engines for the United States economy."
Understandably, the most considerable outstanding debt burden most consumers have is their mortgages, the report said. Even with gains in the housing market seen in the last several months, foreclosures remain problematic nationwide and many government initiatives have made it a priority to make housing more affordable for the average American family. It's generally agreed among experts that a more significant housing recovery in general will only spur more consumer confidence, as it will get many homeowners out from their underwater mortgages, which remain extraordinarily problematic.
The outlook for the future
The easing of outstanding debts is expected to continue for some time, the report said. Even the most conservative estimate,s for when balances will begin growing again more earnestly, say that it's still at least a few months off and will come around the middle of next year. Others believe it could last until as late as the end of 2015.
But when consumers begin to borrow again at rates at least resembling what was seen prior to the recession, it will likely come quickly, and auto loans might lead the charge, the report said. Data earlier this year shows that the average car on the road today is older than at any other point in history, and continued economic recovery will likely entice many drivers to upgrade their vehicles. Many also believe that student financing will continue to be one of the few types of credit that grows substantially relatively unabated throughout the next several months or more.
If you're looking to increase your borrowing efforts once again, you may want to first order a copy of your credit report. Doing so may help you to identify any potential unfair markings that can mar your credit score, and make borrowing more expensive. Fortunately, working with a credit repair law firm may help to clear up this type of issue.