NEW YORK (CNN/Money) -
The American consumer has long enjoyed a healthy dose of borrowing, but the sustained low interest rates of recent years have launched consumer debt to near-record levels.
The so-called financial obligations rate -- which measures minimum required debt payments as a percentage of disposable income -- rose to 18.4 percent in the second quarter. This is near the record of 18.8 percent in late 2001.
So the incomes of many American households are heavily tied up in monthly debt payments.
"Low interest rates and rampant house price appreciation have really been driving borrowing," said Scott Hoyt, Direct of Consumer Economics at Economy.com. "As long-term rates finally start to rise, the pace of debt accumulation will slow."
Freddie Mac's 30-year fixed-rate mortgage rate rose to an average 5.98 percent this week, and inflation fears could drive it even higher in weeks to come. In the year-ago period, the 30-year mortgage averaged 5.82 percent. (Full story)
Mortgage borrowing continued its sustained climb, increasing 13.4 percent in the latest quarter -- its seventh consecutive quarter of growth.
Credit cards: putting it on plastic
But it's not all about housing.
Americans' love affair with credit cards has continued unabated recently, with the average credit card debt per household reaching a record $9312 in 2004. That's up a whopping 116 percent over the past 10 years.
And it's expensive debt too: average annual percentage rates (APRs) for September rose to 11.84 percent, compared to 11.56 percent a month earlier. (Full story)
Americans paid over $127 billion in household bills on credit and debit cards last year, and that number is predicted to top $161 billion in 2005, according to CardWeb.com.
Many households have far more plastic than you could fit in a wallet. The average number of bank cards per cardholding household is 19.3 -- typically eight bank cards, eight retail cards and three debit cards.
Bank card delinquencies reached an all-time high in the past quarter, according to ConsumerFlow.com, with 4.81% of accounts missing minimum payments. The Web site's analysts attribute the increase to high energy prices as well as changes making it more difficult to file for personal -- or Chapter 7 -- bankruptcies.
But consumers have seen better interest rates elsewhere, and are increasingly using home refinancing and other fixed rate vehicles.
"They're moving away from bank cards and credit cards -- short-term installment debt -- into various forms of mortgage borrowing with lower interest rates and long terms," said Hoyt.
Auto loans: cars drive debt
Americans have been upgrading automobiles at an impressive clip in 2005. July sales climbed to 20.8 million units on an annualized basis, a sales rate not seen since 1986.
And auto loan maturities are growing in order to make payments more affordable. 88 percent of new car loans are now longer than 48 months, up from 85 percent a year ago, according to the Consumer Bankers Association. 45 percent of loans mature in over 60 months.
But auto loans look to shrink as a percentage of household debt in the near term because of slumping auto sales after Katrina. (Full story)
New vehicle delinquencies declined 18 percent in 2004, and used vehicle delinquencies fell by 3 percent, according to the CBA.
Student loans: schooling stays with you
University prices have escalated rapidly in recent years, with some private schools besting $40,000 a year for education, room and board. With prices like these, it's little surprise that student loans are also on the rise.
During 2002, more than 11 million student loans were made, and Sallie Mae reports that 61 percent of students depended on federal loans to get their bachelor's degrees.
Since 1997, the median in undergrad debt has soared 74 percent to $16,500, according to a 2002 Nellie Mae report, the most recent available.
Grad students have also faced off with higher debts, facing a 72 percent increase in their median debt levels, to $23,700 over the period from 1997 to 2002.
About the only thing looking good for students are the interest rates, which have kept payments lower than they might otherwise be -- $182 in 2002 compared to $161 in 1997.
With the Federal Reserve indicating that its upward march of interest rates won't be ending any time soon, the unique debt situation may not last long.
"The raises in interest rates will reduce the willingness and ability of consumers to continue their pace of borrowing," said Hoyt. "This is both directly -- through the cost of debt -- and indirectly -- because it's likely to slow house price appreciation."
Rising interest rates will soon make debt look a lot less attractive -- and induce consumers to initiate a technique that's been little-seen in recent years -- saving.
Consumer interest rates for credit card are way up in October -- read more here.