Consumer debt in the US increased by $52.4 billion in March 2022, which showed a YoY increase of 14%, according to a Federal Reserve report on debt levels. Spending using credit cards and other types of revolving credit increased 21.4%. The factors likely influencing the increase in consumer debt include the pent-up demand following the lockdown and some cash-strapped individuals using credit cards to pay for essentials.
According to GlobalData, personal loans in the US increased from $1,961 billion in 2020 to $2,013 billion in 2021, which marked a YoY increase of 2.65%. It shows a significant increase of 11% from 2017 to 2021.
Increasing Inflation and Interest Rates Affect Consumers
Despite a significant increase in pay, consumers are concerned about their gains being eroded by untamed inflation. According to the Bureau of Labor Statistics, food prices have increased around 9%, while fuel prices have increased 70% in March 2022, when compared to those in the previous year.
On May 5, 2022, as part of a series of measures aimed at addressing excessive inflation, the Federal Reserve announced an increase of 0.5% in interest rates. Following an increase in federal fund rates, the prime rate and credit card rate will also increase. As a result, interest rates on everything from credit cards to vehicle loans will increase, exerting greater strain on household budgets.
Status of Consumer Debt in Other Countries
According to the IMF, China and South Africa recorded the largest increase in household debt. China reported a huge increase in the number of loans among lower-income households, whereas higher-income households accounted for most of the increase in debt in South Africa. Low-income households in Germany and the UK accumulated more debt than low-income households in France and Italy, where leverage decreased for poorer households.
Investors and consumers need to be cautious about the increasing consumer debt. Investors remain hesitant about bonds backed by consumer debt, apprehensive that increasing inflation and sluggish GDP will likely lead to an increase in the number of low-income borrowers defaulting on credit-card and other payments, while an increase in interest rates would increase the cost of debt to consumers.
Don’t wait - discover a universe of connected data & insights with your next search. Browse over 28M data points across 22 industries.
Access more premium companies when you subscribe to Explorer