Student Debt and Auto Loans Growing Faster Than Credit Card Debt

Consumer borrowing is at a record high, and it’s not credit cards that are driving it – cars and college are.

“Through October, the measure of auto loans and student loans has risen 6.2 percent from a year ago and has increased in every month but one since May 2010,” The Associated Press reported. “But credit card debt is up just 1 percent from where it was a year ago.”

One reason for the surge in student loans might be that many people are heading back to school for new skills in a weak economy. As for auto loans, those struggling Americans may not be able to put off a car purchase any longer, but they still need to get to class somehow.

For October, consumers increased their borrowing $18.2 billion – more than three quarters of it auto and student loans – to a seasonally adjusted $3.08 trillion, the AP said.

There’s nothing necessarily wrong with taking out a loan if you can pay it back, and people are proving they can, at least with car loans. A recent Experian Automotive analysis found late payments are down 3.4 percent from last year. But if consumers can avoid the extra fees and interest that come with a loan, they definitely should.

Consolidated Credit advises consumers to consider the total cost of loans carefully before applying. The annual percentage rate and other fees will balloon the price over the period that you have decided to take the loan. Taking a four- or five-year loan will add thousands to the original price.

To make sure you can handle new loans, use Consolidated Credit’s debt-to-income ratio calculator. Your DTI ratio can serve as a benchmark of your financial well-being and keep you away from debt you can’t handle.