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Good risk managers aren’t just good at mitigating the effects of delinquency and default. They excel at seeing risk coming. This gives them time to prepare and increases their chances of reducing loss severity. One of the places they look to assess the possibility of future risk is at consumer debt load.
They have a lot to look at right now.
Consumer debt in America has reached unprecedented levels, posing significant risks to both consumers and financial institutions. As of March 2024, total U.S. consumer debt stood at $17.39 trillion, a 2.6% increase from March 2023.
This debt can be broken down as follows:
Credit card debt has seen a particularly sharp increase, with outstanding balances on U.S. bankcards reaching $1.00 trillion, up 10.7% from March 2023.
Historical Comparison
While the debt level is staggering, the trendline also carries a lot of information. We see it clearly if we look back over the last few decades.
In Q1 1999, credit card balances stood at $478 billion. By Q4 2019 (pre-pandemic), credit card debt had grown to $927 billion. By Q4 2024, credit card debt had surged to $1.211 trillion.
This represents a 31% increase in credit card debt from pre-pandemic levels and a 153% increase since 1999.
Risks to Consumer Financial Security and FIs
Any risk manager will see the risks that these high debt levels pose in this economic environment. But to spell it out. Consumers face:
The risks to financial services companies are no less severe.
While increased consumer spending driven by credit can boost economic growth in the short term, the current high debt levels pose significant risks to long-term financial stability. Both consumers and financial institutions need to exercise caution and implement responsible borrowing and lending practices to mitigate these risks.
Now is the time for lenders to engage risk mitigation outsourcing firms with the expertise to get borrowers back on track. Sometimes, it just takes a knock on the front door to let borrowers know that their financial institution is a partner who cares about their success. This is one of our specialties. We welcome the opportunity to visit with you about your risk mitigation plans and share our best practices for success in any environment, even the one we’re in now.
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