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American debt is set to hit $4 trillion—here's why one expert isn't worried

A shopper makes her way past the Louis Vuitton store at South Coast Plaza shopping center in Costa Mesa, California.
Orange County Register | Digital First Media | Getty Images

It's only been five years since Americans hit a grand total of $3 trillion in consumer debt and yet, by the end of 2018, that figure is expected to jump by another trillion. 

In the first nine months of 2018, Americans had a cumulative $3.93 trillion in debt, excluding mortgages, with $1 trillion of that from credit cards and $2.93 trillion from other sources such as student loans and auto loans. With holiday shopping underway, Americans' credit card bills are set to increase by at least 5 percent, according to mortgage site LendingTree. That $600 million or so in extra spending is likely to bring consumer debt to a new high of $4 trillion.

Still, LendingTree's chief economist Tendayi Kapfidze says consumers shouldn't worry. "It's a big number, but it's actually not that concerning, because of the income growth we've seen since the crisis," Kapfidze tells CNBC Make It.

One reason he's not too worried, Kapfidze says, is that the economy is more stable in 2018 than it was in 2008, and real estate values and consumer bank deposits have grown more than debt has. "Deposits have grown by $2.5 trillion more than consumer debt, and homeowners have nearly $10 trillion more in home equity than they did a decade ago," he says.

Also, incomes have been growing at a faster rate than debt, he points out: "The net indebtedness of [individual] consumers is actually declining even though the total balance of debt is increasing."

Delinquency rates, or the number of people defaulting on their debts, remain low, too, LendingTree reports. The rates for all types of debt, including mortgages, are at below-average levels, and nowhere near the levels seen during the Great Recession.

That may change if interest rates continue to climb, though. Credit card APRs have jumped more than 3 percentage points over the past two years: The average rate is now 16.6 percent.

"A consumer carrying a $4,000 credit card balance two years ago would pay $540 in interest, based on the average APR in 2016 of 13.3 percent," reports LendingTree. "But now, with interest rates at 16.6 percent, a $4,000 balance means an additional $120 in interest payments annually," for a total of $660. That's significant given that 57 percent of Americans have less than $1,000 in their savings accounts

"You just want to make sure you're keeping an eye on your personal level of debt and how much it's costing you," Kapfidze says. Make sure you're also keeping tabs on what your credit cards' interest rates are, he says, because most people don't even realize when their rates go up.

Don't miss: This 28-year-old unintentionally accrued $50,000 in debt—here's how he's paying it off

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A shopper makes her way past the Louis Vuitton store at South Coast Plaza shopping center in Costa Mesa, California.
Orange County Register | Digital First Media | Getty Images
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