U.S. Consumer Debt Reaches a Record $4 Trillion

Consumer debt continues to grow, and for the first time in U.S. history, the Federal Reserve says that it has exceeded $4 trillion collectively. Considering that the national debt is around $22 trillion, this $4 trillion number is quite massive — and it’s a figure that’s continued to rise steadily since the 1970s.

The Federal Reserve says the record $4 trillion debt number is largely triggered by an increase in fourth quarter spending. Specifically, the Fed cites a strong holiday spending season, where credit card debt added more than $40 billion total to this number. Other factors include auto financing, which the Fed says contributed around $80 billion to the $4 trillion. The other big contributor is student loan debt, which will only likely continue to be a major factor in consumer debt figures moving forward as college continues to get more and more expensive.

The Fed estimates that consumers are spending about 10 percent of their disposable income on non-mortgage related debts, which include things like credit cards, auto loans, student loans, personal loans and more. This isn’t necessarily a bad thing, as most economists and financial experts say spending at this spree is fairly manageable for average Americans. However, it’s when debt spirals that problems have the potential to arise.

Consumers and their Debt

Like we said above, it’s when debt spirals out of control that it tends to become a problem for American consumers. Managed debt can actually be a good thing, as it helps build credit and responsible debt management practices. But too much debt can cause major problems. For starters, taking on more than you can chew can cause your credit score to plummet. If you’re unable to dig yourself out of debt, you may have to turn to some last-ditch resorts, like bankruptcy or home foreclosure — which can stick with you for a long time.

Are you in financial trouble? Experts say the average American has a credit card balance of nearly $4,300 — which isn’t ideal. In fact, the experts say credit card debt accounts for more than $1 trillion of the total consumer debt figure, which is about 25 percent of it. Furthermore, surveys indicate that about one out of every three Americans say they worry about maxing out their credit card when making a large purchase, with a “large purchase” designated as anything that costs more than $100. That’s a bit of a worrisome trend that we’re on here, especially when you consider that credit card interest rates are the highest that they’ve ever been at around 17.4 percent.

Student loan debt is another big contributor to the total U.S. consumer debt figure, as experts say it’s responsible for about $1.5 trillion.

Managing Debt

Now, if you’re among the Americans that are in good credit standing and have no problem managing your debt, you don’t have much to worry about. But if you’re not, and your debt is beginning to spiral out of control, then you need to reign things in before they become insurmountable.

Here’s a look at some tips:

  • Refinance what makes sense: Talk to your bank or credit union about refinancing the things that make sense. Yes, you can save money on refinancing your home or auto loan, but you can also often shave some interest percentage points off by refinancing student loans as well. Anything that makes sense will only save you money in the long run.
  • Pay off high-interest loans first: If you can’t afford to make more than the minimum payment against some of your debts, focus on putting more toward the high-interest ones first. Paying these off before other, more manageable ones, will save you money long term.
  • Ask for help: If you don’t know where to turn, don’t be afraid to seek professional debt management help. Many will work with your lenders and arrange a more reasonable payment schedule.
  • Reassess your spending: In many cases, a lifestyle reassessment is necessary to curb excessive spending.

Consumer debt plunging further into the red isn’t necessarily a bad thing if you have a reasonable path of paying it off. If you don’t, however, there’s no time like the present to establish one.

Regards,

Ethan Warrick
Editor
Wealth Authority

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