Why Americans Are In So Much Debt

Picture of a couple stressing out over their financial debt.

Feeling like your debt is higher than ever? You’re not alone. The Federal Reserve reports on consumer debt each month, and recent stats show that consumer borrowing has reached a new milestone. Americans are diving deeper and deeper into the red as consumer debt just crossed the $4 trillion mark for the first time ever.

Just what type of debt are we referring to?

Consumer debt consists of non-business debts that are owed as a result of purchasing goods that are considered consumable (vs. an investment). These are voluntary personal debts created to buy things that can be consumed and/or do not appreciate in value. Think credit cards, student loans, auto loans, and payday loans.

Why the increase?

A relatively strong holiday spend together with increasing credit card debt added more than $41 billion in outstanding balances as 2018 closed out. Additionally, a steady rise in student loan balances along with an increase in the cost of automobile financing in the fourth quarter contributed another $80 billion.

Give me more stats

According to LendingTree, consumers are spending about 10 percent of their disposable income on non-mortgage debts that include credit cards and auto, personal and student loans. And Experian reports the average American has a credit card balance of $4,293. As people are turning to credit cards to pay their bills, total credit card debt is also at its highest point ever, more than $1 trillion, the Federal Reserve observed. Much of this debt covers unexpected medical bills, resulting in health care costs now being one of the number one causes of bankruptcy.

Simultaneously, credit card interest rates have never been higher. The average rate is currently 17.41 percent, up from 16.15 percent a year ago and 15.22 percent two years ago. Meanwhile, outstanding student load debt has tripled in the last decade and is currently $1.5 trillion. A college education is now the second largest expense an individual is likely to make in a lifetime – right after the purchase of a home.

Who should be concerned?

Even though consumer debt benefits the economy, if mismanaged, debt can be devastating. If the economy goes into a recession, you lose your job, or you’re surprised with unexpected medical expenses, you may find yourself in default. It is not always due to poor spending habits.

In Conclusion

It seems as though consumers continue to borrow as the Fed continues to raise interest rates. This could be a recipe for trouble for those who have been unable to build up an adequate savings, or those that lack the ability to make their debt payments, leaving them vulnerable to delinquency.

Bankruptcy protection is often an excellent way to get out from under unmanageable debt, clear the financial slate and obtain a fresh start. However, before you make a final decision about filing for bankruptcy protection, it’s important to understand your options.

As an experienced debt relief lawyer, Attorney Joel R. Spivack has helped countless families throughout South Jersey get their financial state in order through bankruptcy, and debt relief alternatives to bankruptcy. I will review your specific circumstances and explain your rights and options.  Call me today at 856-488-1200.

We are here to help you.

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Attorney Joel R. Spivack is an experienced bankruptcy and residential real estate transactions lawyer in Cherry Hill, New Jersey. Clients come to us for legal services, but what we really provide is peace of mind. For more than 30 years, Attorney Spivack has helped people make wise, informed decisions about bankruptcy filings, debt relief options and residential real estate transactions.
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