Consumer Debt Rises to Record Levels as 2012 Comes to a Close ...

By John Clark

Total consumer borrowing rose to $2.75 trillion towards the end of 2012, which represents a record amount of debt, according to a report from the New York Times.

Figures released last week by the Federal Reserve show that consumers increased their borrowing by $14.2 billion in the early days of winter, signaling an increase in consumer health but portending possible financial troubles in 2013.

The numbers represent a mixed bag for consumers. On one hand, access to credit appears to have improved over the past year. On the other hand, rising levels of debt could lead to another jump in the number of people filing for bankruptcy protection.

Credit Card Debt and Student Loans Lead Spike in Borrowing

According to sources, the primary forms of borrowing that led the recent spike included credit card debt, student loans, and car loan.

In the category of debt that includes student and car loans, sources say that borrowing increased by a remarkable $10.8 billion. In addition, credit card debt increased by $3.4 billion, as consumers increased their credit card spending for only the second time in the last five months.

Analysts say the rise in credit card debt was particularly surprising, given the reluctance of most consumers to use their credit cards in the wake of the recent recession.

Sources note that credit cards usually have higher interest rates than other types of loans. As a result, when the economy goes south, many shoppers turn towards other types of loans.

For the last few years, consumers have followed this theory, cutting their credit card spending dramatically. This October, for example, the total amount of credit card debt was 17 percent lower than the same figure in 2008. But total credit card debt still saw a relative jump in the latter part of 2012.

Rise in Debt Accompanied by Decrease in Consumer Spending

Despite the rise in overall debt, consumers are still spending less than they did in the days before the recession struck, according to financial analysts.

Sources pose a few reasons for this dip. First, many shoppers may be cutting back on their spending because they fear potential tax increases in the early part of 2013. If Congress fails to reach an agreement with President Obama on a budget deal, these fears could prove valid.

In addition, sources note that Hurricane Sandy, which devastated several eastern states, played a significant role in lowering consumer spending. And as those states recover from the terrible storm, many experts believe consumer spending will slowly rise to normal levels.

Source: http://www.clearbankruptcy.com/blog/consumer-debt-rises-to-record-levels-as-2012-comes-to-a-close/

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