American graduates may be struggling to repay their student loans, but consumers as a whole are managing debt better than they did in the past.
The American Bankers Association announced on October 8 that loan delinquencies dropped by a significant level in the second quarter of 2015. A delinquency is a late payment that is at least 30 days overdue. The decline was driven by a lower rate of home equity loan delinquencies.
The ABA uses a composite ratio to measure loan delinquencies, and it fell in Q2 by 17 basis points to 1.36 of all loan accounts. This is substantially below its 15-year average of 2.27 percent and continues a three-year trend.
The fall in delinquencies reflects a steady strengthening of the U.S. economy. The result has been better debt management by American consumers, helped in part by lower energy prices.
The category of delinquencies on loans for two- and three-home properties extended its downward trend in Q2, with a 22 basis point drop in home equity loan delinquencies, to 2.90 percent.
Delinquencies for home equity lines of credit registered at 1.34 percent, a decrease of 8 basis points for the quarter. Property improvement delinquencies bucked the trend with a one-basis-point rise to 0.91 percent.
ABA notes the strong correlation between declining home-related delinquencies and increasing home prices. As the housing market continues to strengthen, home equity loan delinquencies are expected to slide further.
Other results for closed end loans are:
- Personal loan delinquencies dropped 7 basis points to 1.41 percent.
- Direct auto loan delinquencies increased by one basis point to 0.72 percent.
- Indirect auto loan delinquencies dropped 13 basis points to 1.45 percent.
- Mobile home delinquencies increased 3 basis points to 3.55 percent.
- RV loan delinquencies decreased 6 basis points to 0.95 percent.
- Marine loan delinquencies declined 8 basis points to 1.09 percent.
In addition to the drop in home equity line of credit delinquencies, the ABA reports mixed results in the two remaining open-end loan categories:
- Bank card delinquencies jumped 3 basis points to 2.52 percent.
- Non-card revolving loan delinquencies dropped 11 basis points to 1.80 percent.
Although bank card delinquencies rose in the second quarter, they are still substantially below their 15-year average of 3.74 percent. This delinquency rate has remained in a narrow 14-basis point range since the last quarter of 2012.
The take-away is that credit card consumers are focused on maintaining reasonable debt levels.
Despite rising incomes and a strong job market, the outlook is not completely devoid of challenges. The strong economic conditions in the U.S. stand in contrast to those in many developing economies and especially China. These uncertainties may have a negative impact on further economic growth in America.
The best advice for consumers is to keep a sharp eye on their debt levels and follow some common-sense tips, including:
- Maintain good communications with creditors, especially if you are having trouble making your payments.
- If you are having financial problems, abstain from further purchases on credit until you have resolved the situation.
- Do what it takes to avoid bankruptcy, which has lasting negative consequences.
- Contact an accredited consumer credit counseling service if you need more information or advice.