Americans celebrate economic recovery with debt — lots of debt

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Shopping in downtown St. Pete.

Two new reports highlight the dual financial personalities of American consumers today — one half savvy saver, the other half recovering debt-aholic.

In the last quarter of 2013, consumer debt soared by $241 billion, the sharpest quarter-to-quarter spike since 2007, according to the New York Fed’s recent household credit report.

Americans added $152 billion worth of mortgage debt loads in the fourth quarter of 2013 alone, followed by $53 billion in student loan debt, $18 billion in auto loans, and $11 billion in regular credit card debt.

If credit consumption signals our confidence in the overall economy, then it looks as if Americans are getting their mojo back. And if you take a closer look at the data, consumers are actually managing their debt slightly better today than in years past. For example, fewer consumers were delinquent on their debt (7.4%) in Q4 2013 than the quarter prior (7.1%), according to the Fed.

Helping matters, mortgage delinquency rates continued to fall, dropping from 4.3% at the end of 2012 to 3.9% at the end of 2013, while foreclosures now stand at their lowest levels since the end of 2005.

About 332,000 consumers had a bankruptcy notation added to their credit reports in Q4 2013, about the same number as Q4 2012, according to the report.

Student loan debt continues to burden borrowers both young and old, with a delinquency rate of 11.5%, the highest of any type of debt. It’s still nearly impossible to discharge student debt in bankruptcy, which helps to explain why people are four times as likely to fall behind on these payments as they are their car payments (3.4% delinquency rate). 

These two charts offer a nice comparison of how much debt consumers took on between 2012 and 2013 to the consumer debt levels in 2005-2006, the year before the recession hit. As you can tell, we're continuing to add new debt but at much slower rates today.

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Photo: New York Federal Reserve Bank

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Photo: New York Federal Reserve Bank


With all this new debt to handle, the question is how likely consumers are to get in over their heads again. Higher debt loads and lower savings rates often go hand in hand, and a new report by Bankrate shows many Americans are still struggling to shore up their emergency funds.

The number of people who admit they have more credit debt than they have cash in their savings accounts has increased over the past four years, according to Bankrate's Financial Security Index — up from 23% in 2011 to 28% in 2013.

Unsurprisingly, parents and low-income earners were more likely to struggle with their savings. One in three parents said their credit card debt surpassed their savings, compared to one in four kid-free consumers.

And college degree-earners continue to out-save their peers, with 62% reporting more money in their savings accounts than on their credit card, versus 44% of those who didn’t go to college.

Luckily for some, tax season at least will bring some sort of reprieve.

More than 30% of respondents in a recent Fidelity survey said they’re using their tax refund to pay off debts and another 15% said they’ll pad their retirement savings. In fact, just 2% said they’re using the cash for vacations.

Perhaps Americans are feeling more confident in their credit capabilities. But time will tell how well we’ve remembered the lessons of the recession.

Read more:

Want to beef up your savings? Check out 5 ways you've been doing it wrong

Suze Orman's new credit score idea won't hold water

Why you're better off graduating in a recession

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