In Over Your Head? There is Help at Hand

Debt is more than a bugbear, it’s a reality that too many of us are well familiar with.

In Over Your Head? There is Help at Hand

Debt is more than a bugbear, it’s a reality that too many of us are well familiar with. In February 2018 US household debt topped out at $13.15 trillion, an all-time high. The New York Federal Reserve Bank recently released data from Q4 2017 (October, November, and December) showing that it is indeed a major concern for many American households. According to the stats, this is the fourth successive quarter of growth in household debt, and there was near unanimous upward movement in all categories, save one.

Consider that delinquencies in credit card repayments rose to 7.55%, indicating that payments have not been made for the past 90 days +. This is a concern, given that it is the highest figure since Q1 2016. Credit card borrowing also increased, this time by 3.2%, marking the second biggest growth rate since the pre-global crisis era. Automobile loans also grew, and the delinquency rate in this sector rose to 4.05%. However, student loans and mortgages reported declines of 3.19% and 3.12% in delinquency rates overall.

What Are the Components of Household Debt?

The Center for Microeconomic Data and the Federal Reserve Bank of New Yorkregularly publish information about the total household debt balance. As at Q4 2017, housing debt was last reported at $9.33 trillion, while non-housing debt was sharply up at $3.82 trillion. That amounts to a figure of $13.15 trillion in total household debt – the highest on record. Since 2004, there has been a long-term trend of increasing debt. The total debt at that time was $8.29 trillion, and it has increased by $5.21 trillion, or shown a 62.85% increase in just 13 years. This is certainly well above inflation, and points to a much broader trend of increased spending, increased lines of credit, and a growing economy.

While it is easy to look at overall household debt as a bad thing, it is important to note that GDP is built on consumer expenditure in the US. The more important economic indicators are those related to delinquency rates on household debt. Currently, automobile loans, student loans, mortgages, credit card loans are well within acceptable limits. Nonetheless, for those who are experiencing problems repaying debt, help is at hand.

But first, it’s important to understand the components of debt to make sense of your debt repayment strategy. Mortgage loans increased by $139 billion between Q3 2017, and the end of Q4 2017. This indicates that more housing growth is taking place in the markets, and more borrowing is financing it. Overall, household debt was up $193 billion over Q3 2017.

By the end of the winter holiday season, US households had added an additional $26 billion to their credit card balances. That marks a 3.2% uptick over Q3 2017. However, credit card balances account for just 6.34% of overall household debt. The next biggest category of debt is home equity lines of credit. Many people mistakenly believe that credit card balances are the same as credit card debt.

However, approximately 78 million US credit cardholders pay off their bills in full every month, and they have credit card balances. Only those who don’t pay off all their balances in full are designated as people having credit card debt. Of the 200 million+ US credit cardholders, some 122 million, or 61% currently have credit card debt.

Effective Ways to Get Out of Debt

Debt is perhaps one of the most offensive 4-letter words that we can imagine. It has a lasting sting that festers if we don’t manage it correctly. That’s why it is important to get on top of things as quickly as possible. If you’re seeking debt relief options , be sure to check out things like debt consolidation as a means of paying off outstanding credit card debt at a lower rate of interest than the APR you are currently being billed.

Debt consolidation has gained favour in recent years, and rightly so. Debt holders are able to shift their debt burdens around by employing a variety of techniques such as credit transfers from high interest credit cards to 0% APR credit cards for 6 months – 12 months +. As always, it’s important to read the fine print to ensure that you are not going to be sideswiped by transfer fees.

Other debt relief options that you may wish to consider include credit counseling where credit experts can help you with debt reduction strategies and tactics. The first step in determining whether credit counseling is a good fit is providing details of your debt burden. Unfortunately, too many people see credit cards as easy money, whereas they really are anything but. They are convenient means of paying for goods and services, but they come at a hefty price.

When you seek lines of credit, it’s important to understand the plus and minus points of each option. US economic prosperity is dependent on the individual prosperity of citizens. Unfortunately, home ownership has plunged spectacularly since 2004 when it was around 69.2%. Today, the figure is hovering between 63% and 64%. Have an earnest discussion with a credit counselor and understand exactly where you fit in the broader scheme of things. You may need to restructure your debt repayment plan, curtail expenditure, and work towards debt minimization and ultimately eradication. Debt and work are both four letter words that can work in unison to relieve your financial burden when your repayment efforts are structured correctly.

Updated Date: 05 March 2018, 16:36

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