What is causing consumer debt to keep climbing in the United States? According to the Federal Reserve Bank of New York, combined consumer report household debt has reached a peak of $12.96 trillion dollars, which as of September 30, 2017 is an increase of $116 billion dollars between the second and third quarters of 2017 and continues to climb. The housing crisis in 2008 caused a decrease in spending and a decrease in borrowing.
The economy, or savings account of the world, depends on consumer spending. A roof over our head, food on our table and clothes on our back should be the necessities, but far too many people go beyond these to engage beyond our spending limits. The American Dream used to be the pursuit of happiness, but now we tend to buy our happiness, which when we are covered by a mountain of debt washes the happiness down a temporary drain.
We over-extend our means by paying for entertainment in our home (costly electronic services), lavish meals outside our home, the best vehicle money should be able to buy or even vacations that may exhaust our budgets or even blow our budget. We see things we like and find a way to own them without giving a second thought as to where the money will be coming from to pay for these luxuries. It is really easy to find ourselves “robbing Peter to pay Paul” as the old expression states.
Our consumer debt comes from the use of mortgage loans, refinanced mortgages, auto loans, student loans and credit cards. We gain credit from lenders based upon our credit scores. Lenders are always sending advertisements in the mail, e-mail and various social media routes sharing the benefits of what they have to offer. We are now able to “buy-here-pay-here” at various car dealerships or even rent-to-own home furnishings, electronics and accessories.
A household budget factors many aspects of consumer debt that extend a line of credit: mortgage loans, refinanced mortgages, auto loans, student loans and credit cards. Of the climbing consumer debt, mortgage debt is the largest chunk of our budget when we look at household debt.
Consumer credit reports reflect the increase in mortgage balances. The fact that mortgage debt is increasing is a good indicator that consumers are ready to become homeowners after the scare 2008 left its mark. Mortgage debt is sitting around $8.74 trillion dollars.
Among the mortgage debt figures includes those that have been refinanced. When combined with new credit approvals, the debt stands at $479 billion dollars. Credit score plays a role in new credit extensions. The new score lenders looked for had increased to 760.
Auto loan debt is also increasing. One factor the FRBNY indicates is that the median credit scores for auto and home loan borrowers has increased. The increase to 705 would indicate that loan originators are not just lending to anyone. They are being more careful as to who they will lend to. In conjunction with the credit score increasing, the fact that auto loan debt is also increasing is a good indicator that consumers appear financially stable enough to be able to meet the current, more strict lending standards.
Student loan debt continues to rise, year after year. As enrollment increases, the student loan debt will increase. Student loans increased by $13 billion dollars in the third quarter of 2017, and was standing at $1.36 trillion dollars in September 2017. When it comes to delinquencies, student debt has the highest delinquency rate, with 11.2% of student loans identified in default by 90 days or more.
A big issue with student loans is that although there is a borrowing limit, the limit is per year. A student attending a two year community college may obtain a loan each year, then proceed to obtain more loans when enrolling in a four year university. Or, if a student were to change his or her course of study at the two year level another loan can be obtained. One benefit of recent is that there has been an hourly cap placed on student loans.
The downfall to a student loan is that although it is specified for educational purposes, many students find themselves in the situation of obtaining a loan for living expenses, especially if one is living off campus. Attending school and working a job with flexible hours for a student may not be enough to make ends meet. Students strive to be successful toward career goals, not realizing the budgetary constraints he or she will face if the perfect career is not ready for us to walk into upon obtaining that diploma it took years to obtain.
Credit card debt increased by $24 billion dollars in the third quarter of 2017. Credit cards can be useful when used responsibly. However, a credit card company is in the money making business. If your balance is not paid or even if your payment is not paid on time, there is an interest fee associated with the credit that was extended and not to mention late fees. It is possible to think money is being saved on a purchase and get that good deal, but does it save money when there is a hidden fee, or a known interest fee to be paid at a later date.
In order to reduce debt, it is going to take discipline in spending. Rather than accepting that approved credit card, begin saving money and wait patiently for the ability to make a cash purchase. The time it would take to save for that want or need may prove that we no longer have a want or need for it, but see the funds can be put to better use. The lack of planning in regards to spending could cause a breakdown in relationships and our health status if we are always trying to fight the love of money or lack thereof.
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