Delayed student loans, credit card debt could weigh on US growth


NEW YORK (Reuters) – More and more people in the United States appear to be struggling to meet their credit card and student loan debts, which could put pressure on one of the main drivers of the economic growth.

FILE PHOTO: The Federal Reserve Building on Constitution Avenue is pictured in Washington, United States, March 19, 2019. REUTERS / Leah Millis / File Photo / File Photo

Credit card balances in the United States reached $ 868 billion in the second quarter, up from $ 848 billion in the previous three months, and the proportion of those overdue balances is on the rise, according to Federal data. Reserve Bank of New York released Tuesday.

U.S. consumer debt continued to hit new highs, increasing $ 192 billion, or 1.4%, to $ 13.86 trillion in the second quarter. The figure is higher than the previous peak of $ 12.68 trillion before the 2008 global financial crisis, according to the New York Fed’s US Household Debt and Credit Report.

As total student loan balances edged down from $ 1.49 trillion to $ 1.48 trillion in the quarter, the share of those loans outstanding for several months increased.

Payments on some 9.9% of student loan balances started at least 90 days late in the three months ending in June, up from 9.4% in the January-March period.

(GRAPHIC – On the rise:

A comparable measure shows that credit card users are also lagging behind. Payments on about 5.2% of these balances were 90 days past due in the last quarter, compared to 5.0% in the first quarter. This figure has been increasing since 2017. Similar default rates have declined for auto loans, home equity lines of credit, mortgages and other categories of debt.

Consumer spending accounts for two-thirds of activity in the world’s largest economy, and a growing labor market and higher wages have allowed the longest-ever economic expansion in the United States to continue this year.

But fears that the US-China trade war and other issues could damage this economic image led the Federal Reserve to cut interest rates for the first time since 2008 late last month. . This could ease the pressure for some borrowers and cause consumers to take on more debt to make purchases, a short-term stimulus to the economy.

“We can see more consumers making a major purchase that they postponed because it seems relatively more affordable,” said Dieter Scherer, financial planner at Adaptive Wealth Solutions LLC.

“We will likely see credit card rates drop slightly in response to the lower target federal funds rate. However, direct debit rates have increased in recent years, which has also contributed to the rise in credit card rates among less creditworthy consumers. So I would expect the effect to be more muted in those with low credit scores. “

Reporting by Trevor Hunnicutt; Editing by Paul Simao

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