One sure-fire prediction for 2018: Americans will take on even more debt

Consumers have an increasingly complex relationship with credit.

  • By Maria LaMagna,
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Perhaps Americans should add "paying off debt" to their New Year's resolution lists. This year marked an unwelcome milestone for consumers, with credit card debt reaching a new high. As of June 2017, Americans owe a record $1 trillion on their credit cards.

To make matters worse, many American households are having trouble paying off that credit-card debt, according to a new study from credit reporting agency TransUnion.

Here's what else to expect in 2018:

Credit-card debt will increase for the fifth consecutive year

The average credit-card balance per consumer will rise about 1% next year, according to TransUnion. This would be the fifth year in a row that the debt level would increase. Today, households that have credit-card debt each have about $15,654, according to NerdWallet, so their balances could rise about $156 next year.

The rise in debt is partially because of consumers making unnecessary purchases, Palmer said; some 41% of the 2,000 consumers NerdWallet surveyed in November said they spend more than they can afford on items they don't need.

But there are other factors at play. Expenses like food and housing are "skyrocketing" faster than income, she said. That leaves little money for other essentials and emergency funds for expenses like medical bills.

The state of the American wallet

Data portraits of how the average American family is faring financially. Click on the image below to see the full dashboard.

Credit card debt

More consumers with good and bad credit have access to credit cards

Another reason credit-card debt is rising: More consumers have access to credit, said Paul Siegfried, senior vice president and business leader for TransUnion's credit card division.

More than 171 million consumers had access to credit cards backed by major banks and issuers in the first quarter of 2017, the highest number that had access since 2005, when 162.5 million people had access, according to the New York Federal Reserve.

That includes giving access to more consumers with lower credit scores, Siegfried said: For example, subprime borrowers now make up about 10.6% of all credit card accounts, up from 9.9% in 2016. During the recession, 13.4% of credit cards went to subprime consumers by the third quarter of 2009.

There's some evidence that may not be a good idea for some consumers. Severe delinquencies — balances later than 90 days or more — are expected to increase to about 2% of balances in 2018. It would be the fourth year in a row those delinquencies have increased, but they are still below recession levels of 3%, Siegfried said.

On the plus side, lenders have also been "very deliberate" in giving those risky borrowers access to lower amounts of credit than they did in the past, he added.

…but subprime borrowers are opening fewer personal loans

And the good news: The share of personal loans issued to subprime borrowers was about 26% in the third quarter of 2017, down slightly from 27.6% in the third quarter of 2016 and 29.7% in 2012. Consumers are also less delinquent on those loans. In 2017 about 3.4% of personal loans became delinquent, compared to 3.8% in 2016. Unlike credit-card debt, the delinquency rate on personal loans is expected to drop slightly but remain around 3.4%.

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