Consumer borrowing rose from non-revolving credit sources, as fewer people are borrowing money by using credit cards. Photo Credit: MoneyBlogNewz/Flickr/CC-BY-SA
An increasing number of people are borrowing money, but more people are getting personal loans rather than using credit cards. The Federal Reserve released data that show consumer borrowing rose by several billion dollars in January, but it was from non-revolving credit sources. Credit card use dropped at the same time.
Debt levels rise as consumer borrowing increases
Americans are borrowing money from loan lenders again, and it is reflected in the recently released report by the Federal Reserve detailing economic activity from January of 2011, according to Business Week. The increase in consumer debts in January was fueled by non-revolving credit sources, such as personal loans or auto loans, instead of revolving lines of credit or credit cards. Non-revolving debt increased by $9.26 billion, but consumer debts increased overall by an estimated $5 billion, in the fourth straight month of increasing numbers of people going to loan lenders for credit. The increase was fueled by strong auto sales, according to MSNBC, as the amount of money lent for auto purchases increased for the sixth straight month.
Credit card use falls
Credit card use has been plummeting for some time, as the amount of debt held by Americans on credit cards declined by $4.25 billion. Credit card debt has fallen in 28 of the past 29 months, but it increased in December 2010 for the first time since December 2008. Credit card charge-offs, or debts written off by credit card companies, declined to 7.45 percent for January 2010. Delinquencies and charge-offs have been declining for the past five consecutive months. Consumers appear to have used their plastic to cover a December shopping spree but paid down the balance quickly. Credit card interest rates have been steadily rising as new regulations prevent banks and card companies from applying fees surreptitiously, forcing them to raise fees and interest rates up front.
Student borrowing increases
Part of the increase in non-revolving debts for the month of January 2011 was a $24.9 billion increase in student loans from the federal government. However, students are likely to begin borrowing more from private lenders than from the government in coming years, as the looming federal budget cuts are likely to decrease available capital. The federal budget recently submitted by the House of Representatives cut more than $5 billion from the Pell Grant program, according to the Christian Science Monitor, though the Pell Grant program is expected to run a $20 billion deficit starting next year. A college education is still viewed as one of the most worthy investments a person can make, though the cost has been rising dramatically for years.
