Dark days are coming for U.S. consumers, as total consumer debt is expected to touch $4 trillion in December 2018. Consumers are spending around 10% of their income on credit cards, student loans, car loans, and personal loans every month. They are on a complete shopping spree.
US Consumer debt is expected to reach $4 trillion
Let’s have a look at the statistics provided by the US debt clock. The total US national debt is $21,161,363,000,000. The average debt per taxpayer is $174,031. The total US debt is $70,472,755,990 and the total debt per citizen is $214,899. The total debt per family is $840,99 but the total savings per family is only $5,263.
The total personal debt is $18,967,288,400 whereas the total student loan debt is $1,538,093,388. The total credit card debt is $1,034,320,579 and the total personal debt per citizen is $57,839.
Credit card debt and auto loan debt are increasing by more than 7% annually. Housing debt is increasing more than 2%. In the last 2 years, consumer credit has increased by 5% to 60%.
Lending Tree forecasts that total consumer debt will cross $4 trillion by the end of 2018.
The scenario is grave but this kind of growth is not surprising.
Consumers owe almost 26% of their annual income towards debt. That is 4% higher than in 2010. It’s more than the debt level in the mid-2000s when credit availability increased.
Still, the credit card default rate is 2.4%, which is low. Consumers can manage this level of debt. But there are a few steps you should take when your credit card debt is rising. Here are a few of them:
Attend a credit counseling session to know about the budgeting techniques and money management strategies. A non-profit credit counseling agency can give you a personal budget plan at nominal fees.
You can enroll in a debt management plan to pay off your debts at low-interest rates. Just make sure you choose an accredited debt management company with a good success rate.
You can enroll in a debt settlement program to reduce your outstanding balance substantially. The debt settlement companies can help to lower your debt amount and eliminate penalties in exchange for a lump sum payment. Try to work with a settlement company that doesn’t charge any advance fee and follows all the FTC rules.
Lead a frugal life and stop wasting money on unnecessary expenses. Shop seasonally, use your leftovers to make another meal, walk to work, and grow your own veggies.
Use a debt snowball method to pay off your debts. Pay your credit cards from smallest balance to highest balance gradually. Make extra payments on the credit card with the smallest balance while making minimum payments on the others. The goal is to get rid of the credit card with the smallest balance first.
Use a debt avalanche method to pay off your debts from highest interest rates to lowest interest rates. Here you pay an extra amount on the credit card with the highest interest rate while making minimum payments on the others. Your target is to eliminate the card with the highest interest first.
Find out where your money is going. If you’re paying 10% of your monthly income towards your credit cards, you should know how those debts are allocated. If your highest interest credit card debt is increasing every month, then you should be concerned. However, the lower interest debt like an auto loan or student loan may not be a matter of concern.
Why consumer debt is expected to increase
The Federal Reserve is expected to increase interest rates this year. This will make consumers’ debt more costly. Consumers have to pay around $2.2 billion on the credit card interest rate alone. If the Federal Reserve increases interest rates 2 more times, then consumers will pay $10 billion on interests in 2019.
At the end of the first quarter of 2018, the average credit card interest rate was 15.32%, an 18-year high. This figure is all set to go up to $15.57% in the next 2 billing cycles.
Consumers can consider consolidating some of their debts. They can take out a consolidation loan at 60% or 8% and pay off a 16% interest credit card. It could also mean consolidating student loan at a fixed low-interest rate.
You should always calculate how much you’re spending and how much you’re earning every month. This is irrespective of how much debt you have.
Shop less and cut unnecessary expenses if you’re living beyond your means.
If your credit card debt is increasing, switch to a debit card. Use the debt avalanche method to kick out your highest interest cards. You can also settle all your credit cards to save money. The choice is yours.
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