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New year could see skyrocketing credit-card debt; growing economy predicted

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OKLAHOMA CITY -- Jim Couch, a network engineer in Oklahoma City who also lives in this city, along with his wife, learned early that if they ever wanted to switch their careers from information technology to their passion for counseling, they would have to reduce the amount of money going out every month.

The couple learned about debt reduction through a program, and in early 2017, they lined up all of their credit cards from smallest debt to largest.

“We began paying off the smallest ones first. We currently just have the largest left - about $7,000,” Couch said.

“Our goal is to have cards and cars paid off before 2018 is over. The most difficult thing for us is that it is like running a marathon. It is easy to get defeated especially when bumps in the road come along and you have to temporarily get into a little more debt.

But, we just look at the long term goal and try to not allow that to happen as much as possible.”

While the Couch family is steadily working down their credit card debt, most Americans will be even more in debt in 2018, according to a new survey of finance experts. In the newly released report “2018 Financial Predictions” by WalletHub, credit card debt will break all-time records, topping $1 trillion owed.

In Oklahoma, economists say that prediction is online for this state too, but Oklahoma should expect a strong year.

“I think Oklahoma will see a strong year in 2018, but it will be a year worth watching, so keep your eyes open for the unexpected,” said Russell Evans, executive director, Economic Research and Policy Institute for Oklahoma City University.

“A lot of things can happen in a year.”

AN OVERVIEW

As the new year looms, the WalletHub survey also shows some growth in the investment sphere, the housing market and auto sales, but warns the Fed will raise rates three times, which will cost borrowers billions.

What can the average Oklahoman expect?

“The total U.S. household debt-to- gross domestic product ratio is around 80 percent ow, which is much lower than 99 percent in 2008’s first quarter, the eve of the financial crisis” said William Yu, economist at UCLA’s Anderson Forecast.

“‘That said, as a whole, the financial health of the average American is in a much better shape now. However, student loans have been increasing to almost $15 billion now, upfrom $600 billion.”

Evans said the average Oklahoma can also expect interest rates to raise and should adjust accordingingly.

“Three rate increases is a good expectation, and every time the Fed moves things around, like raising the rates, that move will affect interest rates on credit cards, adjustable rate mortgages and the like,” he said.

“I also think a story worth following is how the Fed will try to retire the principal off bonds after they mature and get those off the balance sheet. How that will affect long-run interest rates is unknown. Can the Fed unwind their balance sheet without affecting the long range investment rates?”

U.S. and OKLAHOMA GDP

Experts predict that the U.S. GDP growth will remain near 2.5 percent in 2018. The U.S. economy gained steam throughout 2017, with GDP growth rising from 1.6% in 2016 to a projected 2.5% this year, according to the Federal Reserve. And economic expansion is expected to continue through 2018. But how high we fly largely depends on the fate of Congressional tax reform efforts.

“The U.S. economy has greater momentum than it has had in several years,” Richard E. Sylla, professor emeritus of economics at New York University, said in the report. “Tax cuts will add fiscal stimulus to a near-full- employment economy.”

The GDP isn’t as important on a city and state level as it is on a national level when determining economic health, Evans noted.

“In the U.S. everything points to a strong 2.5 percent growth, but this is also one of those years with a lot of unknowns, like how tax reform will affect that. With GDP growth, we will see stronger than 2.5 percent growth in Oklahoma, but the GDP numbers overstate our true economic state. But I think 2018 will be a good year. 2017 was a recovery year, but it feels like we are almost to full health. People don’t feel like we are facing a bad economy.

UNEMPLOYMENT

Oklahoma has traditionally seen lower unemployment numbers than the U.S. average, but experts say unemployment will crack 4 percent in 2018 with a boost in hiring.

At 4.1 percent as of November 2017, the national unemployment rate is at its lowest point in 17 years. But the Federal Reserve projects a 3.9 percent rate in 2018, which seems to be the general consensus among investment banks and the economists WalletHub surveyed.

“The unemployment rate will be below 4 percent at the end of 2018, perhaps as low as 3.5 percent,” said Robert J. Gordon, the Stanley G. Harris professor of Social Sciences at Northwestern University. “This would mean the lowest unemployment rate since 1968-69.”

RAISING RATES

The Federal Reserve Open Markets Committee has increased its target interest rate, the so-called federal funds rate, five times since 2006, including three times in 2017.

The Fed projected that the rate will rise two to three more times in 2018, and experts surveyed also seemed to agree.

“My best guess is for three rate hikes to take the target band to 2-2.25 percent,” said Paul J. Shea, assistant professor of economics at Bates College. “This matches the FOMC’s current forecast, they are the ones making the decision.”

For the average American, rising rates means paying off as much of record credit card debt as possible. Each quarter-point increase in the fed’s target rate costs people with credit card debt roughly $1.4 billion in extra interest per year, according to WalletHub research.

Additionally, delinquency rates are creeping up from record lows as debt levels reach record highs. A third rate hike in 2018 could be the straw that breaks the camel’s back, according to WalletHub, causing a significant rise in defaults, a corresponding decrease in credit quality and stricter lending standards.

MASSIVE CREDIT CARD DEBT

The bad news is that by the end of 2017, Americans will likely have the highest credit card debt in history. The current end-of- year record, set in 2008, was roughly $984 but experts say consumers will reach $1 trillion mark, especially in 2018.

According to the report, the percentage of people who are 30 days past-due on their credit card payments has increased by 26 percent from the first quarter of 2016 through the third quarter of 2017, according to the most recent data available from Equifax.

Those who are 60+ days past-due rose by 14 percent over the same time period.

“It’s definitely a little cocnerning,” Evans said. “It’s concerning that spending is growing faster than income. That tells us people are borrowing on credit cards and other debt. Oklahomans who carry over debt month by month or year by year are carrying debt into a situation where the cost of debt goes up.”

CREDIT SCORES COULD IMPROVE

While credit card debt is expected to skyrocket, credit scores continue to rise, according to WalletHub. The average credit score rose 10 points during 2017, from 669 to 679, according to data from TransUnion.

For Evans, the rise of credit scores could be heavily based on the fact that the 10-year bad credit events from the 2008 depression are coming off the credit reports.

“My gut says that a lot of that is from the lingering impact of the financial crisis,” he said. “Those are coming off the credit scores this year.

Low unemployment and continued economic growth are also major tailwinds for credit scores, and 2018 is looking good in both regards, experts said.

“I think Oklahoma will have a strong year,” Evans said. “But, keep your eyes wide ope and be careful.”

Other predictions included:

● Auto sales will top $17 million for the fourth straight year

● Existing home sales will top $5 million, despite higher rates

● The S&P 500 will top 2,900 & finish at 2,838. Barring any unforeseen surprise, the S&P will end 2017 with its biggest gain since 2013 and should continue to be strong.

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Heide Brandes

Heide Brandes is an award-winning journalist and editor with more than 18 years of experience....

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About Red Dirt Report

Red Dirt Report was launched July 4, 2007 as an independent news website covering all manner of news, culture, entertainment and lifestyle stories that affect and interest Oklahoma readers and readers outside of our state. Our mission is to educate, promote civic engagement and discourse on public policy, government and politics. Our experienced journalists provided balanced in-depth coverage of news stories that affect Oklahomans. Our opinion/editorial stories come from a wide range of political view points. We carry out our mission by reporting, writing, and posting news and information. read more

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