Consumers Taking on More 'Bad Debt'

Summary

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WSJ Your Money Briefing — Consumers Taking on More 'Bad Debt'

Host: J.R. Whalen
Guest: AnnaMaria Andriotis, Wall Street Journal reporter
Date: February 15, 2018

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Episode Overview

This episode of WSJ Your Money Briefing examines rising trends in consumer debt, with a focus on the distinction between "good" debt and "bad" debt. Reporter AnnaMaria Andriotis joins host J.R. Whalen to discuss what's fueling the surge in borrowing—particularly on credit cards, auto loans, and personal loans—and highlights warning signs that Americans may be overextending themselves even as the economy appears robust.

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Key Discussion Points and Insights

1. Resurgence of Consumer Borrowing

• Confidence in Borrowing

  • Americans are returning to borrowing, reversing post-recession caution.

  • Quote:

    “That is, after being scared away by the recession of last decade, Americans are back to piling on debt.”
    — J.R. Whalen [00:25]

  • All major consumer debts—credit cards, student loans, personal loans, auto loans—are rising.

  • Consumers "feel more and more confident to take on more debt."
    — AnnaMaria Andriotis [00:48]

• Economic Context

  • Low unemployment and improved credit scores fuel this confidence and make borrowing accessible.
  • Consumers feel stable and see little issue borrowing for major purchases.
  • Quote:

    “We are in an environment where the unemployment rate is very low. These consumers who are borrowing are working. They feel like they have a stable income… their credit scores have improved… so overall, there's this positive feeling that income is good, job is stable. Why not borrow and buy that new car or whatever else it might be.”
    — AnnaMaria Andriotis [01:08]

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2. Early Signs of Debt Stress

• Strain Emerging Beneath the Surface
  • Despite positive economic conditions, missed payments and charge-offs are starting to rise.
  • These signs appear across credit cards, personal loans, and auto loans.
  • Losses are increasing, albeit from very low levels.
  • Quote:

    “We are in what appears to be sort of the early stages of people once again having trouble paying their bills.”
    — AnnaMaria Andriotis [01:47]

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3. Shifting Patterns in Types of Debt

• Non-Mortgage Debt on the Rise

  • After the recession, strict rules for mortgages have led consumers to favor other loan types.
  • Student loans now constitute the largest debt category, followed by mortgages.
  • Quote:

    “Student loan balances are the largest form of debt consumers own, followed by mortgages. And there's been a shift toward other forms of non-mortgage debt…”
    — J.R. Whalen [02:23]

• Longer Repayment Periods and Larger Loans

  • Car loan terms reach record highs: average new car loan spans 69 months.
  • Personal loans are growing in size—averaging nearly $6,300, up 8% year over year (TransUnion data).
  • National credit card balances have hit ~$1 trillion, a level last seen approaching the Great Recession.
  • Quote:

    "We're seeing consumers not only taking on more debt, but carrying it for longer periods of time."
    — AnnaMaria Andriotis [03:40]

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4. Why the Shift Away from Mortgages?

• Stricter Mortgage Standards

  • Mortgage underwriting remains more rigorous post-recession, requiring more paperwork and documentation.

  • Easier access to credit cards and auto loans by comparison.

  • Quote:

    “The credit score requirements and other underwriting requirements for mortgages still remain much stricter than they do for the other loans… it is a lot easier to get credit cards, auto loans, etc.”
    — AnnaMaria Andriotis [04:10]

  • Lingering fear from the housing crisis means some consumers avoid homeownership, turning instead to other forms of debt.

• Numbers in Context

  • Latest Federal Reserve data: Non-housing consumer debt reached $3.8 trillion in Q4, comprising 29% of all consumer debt—the highest share since 1990.
  • Quote:

    “Non-housing debt… totaled $3.8 trillion in the fourth quarter. And it accounted for just over 29% of consumers' overall debt load—the highest they’ve been on record since this data has been tracked back to 1990.”
    — AnnaMaria Andriotis [05:08]

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5. "Good Debt" vs. "Bad Debt"

• Defining Debt Quality
  • Mortgages are usually considered "good debt" because they’re tied to appreciating assets.
  • Most consumer borrowing now is "bad debt"—credit cards, personal loans, and longer-term auto loans do not provide assets that appreciate.
  • Quote:

    “A lot of this, like credit cards and personal loans, it really is a quick consumption and then you’re left with that debt after you’ve consumed whatever it was. Auto loans… cars generally depreciate, right. Their value falls, but you still have the loan that you’re paying.”
    — AnnaMaria Andriotis [06:03]

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6. Lenders’ Perspective

• Market Conditions for Lenders
  • Lending activity is robust; loan originations and loan marketing are high.
  • Credit card balances grow about 6% annually; lenders are active in issuing new credit.
  • For lenders, it's "probably one of the best periods since the… run up to the last recession."
    — AnnaMaria Andriotis [06:43]
  • Quote:

    “Loan originations continue, solicitations to people in the mail are widespread. And for lenders, this seems to be a good time to be in this business.”
    — AnnaMaria Andriotis [07:04]

• Memorable Close:

  “Somebody’s always making money.”
  — J.R. Whalen [07:15]

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Notable Quotes & Timestamps

• On rising consumer confidence:

  “They have more access to different types of loans from banks and other lenders.”
  — AnnaMaria Andriotis [01:14]

• On early stress signals:

  “Missed payments and charge-offs… are on the rise…and now we're in what appears to be sort of the early stages of people once again having trouble paying their bills.”
  — AnnaMaria Andriotis [01:47]

• On total non-housing debt:

  “Non-housing debt… $3.8 trillion in the fourth quarter… just over 29% of consumers’ overall debt load—the highest…since this data has been tracked back to 1990.”
  — AnnaMaria Andriotis [05:08]

• On lenders' profits:

  “Somebody’s always making money.”
  — J.R. Whalen [07:15]

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Timestamps for Key Segments

| Timestamp | Topic | |-----------|-------| | 00:25 | Americans' renewed appetite for debt | | 01:08 | Why consumers feel confident borrowing | | 01:47 | Early signs of trouble (missed payments, charge-offs) | | 02:23 | Composition and trends in household debt | | 02:49 | Longer repayment periods, larger loan amounts | | 04:10 | Impact of stricter mortgage lending | | 05:08 | Record-high non-housing debt statistics | | 06:03 | The difference between 'good' and 'bad' debt | | 06:43 | The current favorable lending environment | | 07:15 | Lenders’ profits and closing remarks |

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Conclusion

This episode delivers a timely look at the shifting landscape of consumer debt. While Americans’ borrowing confidence appears strong, the move from mortgage debt towards so-called "bad debt" like credit cards and auto loans may mask underlying vulnerabilities. With non-housing debt at record highs and early signs of repayment trouble appearing, the lending environment is thriving, but the longer-term risks for consumers remain significant. As host J.R. Whalen notes, "somebody’s always making money"—but listeners are reminded to remain cautious about taking on debt that won’t pay off in the long run.

Transcript

[Deel Representative]

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[Anna Maria Andreotis]

this is yous Money Matters from the Wall Street Journal.

[J.R. Whalen]

Welcome to youo Money matters. Hi, I'm J.R. whelan in New York. Americans appetite is strong for consumer debt. That is, after being scared away by the recession of last decade, Americans are back to piling on debt. And Wall Street Journal reporter Anna Maria Andreotis is here to discuss. So Anna Maria, the strong economy has a lot to do with this, but consumers don't have much of an issue taking on debt. Even with interest rates moving higher.

[Anna Maria Andreotis]

Credit cards, student loans, personal loans, auto loans, all of these numbers are rising and are basically a sign that consum consumers are feeling more and more confident to take on more debt.

[J.R. Whalen]

And that's what you're hearing from consumers is their confidence is growing and in some cases remains strong that they can pay off their debts.

[Anna Maria Andreotis]

What economists and consumers alike are talking about is, look, we are in an environment where the unemployment rate is very low. These consumers who are borrowing are working. They feel like they have a stable income and in many cases their credit scores have improved so they have more access to different types of loans from banks and other lenders. And so overall there's this positive feeling that income is good job is stable. Why not borrow and buy that new car or whatever else it might be.

[J.R. Whalen]

There's a bit of a dark cloud here though, and that's that confidence is one thing, but consumers actually being able to pay down their debt is becoming a bit strained.

[Anna Maria Andreotis]

There are some signs of cracks here in consumers ability to pay back their debt. For example, the missed payments and charge offs, those are the losses that lenders write off when people don't pay back their debts. Both of those things are on the rise and that's across the board for credit cards as well as for personal loans, auto loans. They're rising slowly and they're coming off of low lows. So these losses aren't, you know, high. But we are in what appears to be sort of the early stages of people once again having trouble paying their bills.

[J.R. Whalen]

We're speaking with reporter Anna Maria Andreotis and you're listening to your Money Matters from the Wall Street Journal. Welcome back everybody. So Anna Maria, as you write in your story, student loan balances are the largest form of debt consumers own, followed by mortgages. And there's been a shift toward other forms of non mortgage debt like we've Talked about credit cards and personal loans, but traditionally that debt has been temporary. And now we see a lot of consumers have made that a way of life.

[Anna Maria Andreotis]

Car loans, the repayment periods on these loans continue to get longer. So in the third quarter of last year, based on the latest data from Experian, repayment period for new cars, people who got new car loans was 69 months. So that is a record high. We're also seeing personal loans getting bigger in size, averaging about like nearly $6,300. For the personal loans that were given out in the first half of last year. And that's from TransUnion, another credit reporting firm, that $6,300 is about 8% higher from what it was a year prior. So we're seeing loans that are to consumers getting larger in size, repayment periods getting longer. And then on the credit card front, I mean, this is really a booming market where total balances nationwide are at around a trillion dollars right now. And the last time they were there was during the last recession as we were coming off of highs and dipping below a trillion. So yeah, across the board we're seeing consumers not only taking on more debt, but carrying it for longer periods of time.

[J.R. Whalen]

Is taking on this non mortgage debt, is it in any way a function of the stricter rules in place for mortgage debt that we're seeing since the recession?

[Anna Maria Andreotis]

There's no question that the credit score requirements and other underwriting requirements for mortgages still remain much stricter than they do for the other loans that we've been talking about. Not to mention the fact that with most mortgages you still need to show your income. There's a lot of paperwork involved. So, so yes, it is a lot easier to get credit cards, auto loans, et cetera. And that is playing a factor here. But there's also, look, you know, a lot of people really got scared by mortgages and homeownership during the last recession. That has lingered for a while. So there have been people who've stayed on the sidelines. And so as appetite for homeownership mortgages pulled back, consumers are sort of shifting into this other type of debt. And so one number I think really sort of gets to all of this here, which is that based on the latest data from the Federal Reserve bank of New York, this non housing debt, this consumer debt we've been talking about totaled $3.8 trillion in the fourth quarter. And it accounted for just over 29% of consumers overall debt load. Now both of These numbers, the 3.8 trillion that's owed on this consumer debt and the share amount are the highest they've been on record since this data has been tracked back to 1990. And it's interesting because as the shift has been happening, really what got my attention here is that there's things like good debt and bad debt. So you get a mortgage and that is tied to an asset that is supposed to appreciate in value over time. So sure, you do get into a good amount of debt, but you're living in the home, you're raising your family in the home. The property's hopefully appreciating in value. With this other debt, though, that consumers have increasingly been taking on a lot of, it is, would not be defined as good debt. You know, with a lot of this, like credit cards and personal loans, it really is a quick consumption and then you're left with that debt after you've consumed whatever it was. Auto loans, you are buying an asset, you're buying. Cars generally depreciate, right. Their value falls, but you still have the loan that you're paying. And now Americans are sort of taking that debt on for long periods of time.

[J.R. Whalen]

And whether it's good debt or bad debt, lenders are happy enough to line up and tell the consumer, hey, let me help you start the paperwork.

[Anna Maria Andreotis]

Yeah, I mean lenders for the most part are having probably one of the best periods since the last, the run up to the last recession. I mean, loan balances for auto credit cards, well, for auto and student loans are at record highs. Credit card balances are continuing to grow at about a 6% rate annually. So yeah, loan originations continue, solicitations to people in the mail are widespread. And for lenders, this seems to be a good time to be in this business.

[J.R. Whalen]

Hmm. Somebody's always making money. That's Wall Street Journal reporter Anna Maria Andreotis joining us here in our studio. Anna Maria, thanks for being with us.

[Anna Maria Andreotis]

Thank you.

[J.R. Whalen]

And thank you for listening to your money matters. I'm JR Whalen in New York for the Wall Street Journal.

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