Americans Taking on Significantly More Debt, Much Of It Student Loans
Americans are back on the credit card wagon in a big way – and that’s both good and bad news, according to a recent CNN Money article.
The Federal Reserve Bank of New York's just-released Household Debt and Credit Report shows U.S. consumers took on $241 billion in new debt this past quarter, the biggest quarterly jump since 2007 – back before the Great Recession.
While debt still hasn’t reached its 2008 peak, it’s evident that consumers are tired of penny-pinching and ready to start spending again.
On the one hand, more spending is essential for stimulating our still-recovering economy. As more folks see their financial situations improve post-recession, they may feel comfortable using credit and borrowing again. And new debt – from credit cards to mortgages to business loans – mean more money flowing through more hands. That benefits all of us.
But not all debt is good debt, and it appears that those who are in most need of help – like consumers with the lowest credit scores and highest levels of existing debt – are unable to qualify for mortgages and other loans thanks to stagnant incomes, a history of foreclosure, and numerous other factors.
To make matters worse, the one category of debt that’s growing for those with the lowest credit scores is student loan debt. Unlike secured debts such as home loans and car loans, college debt doesn’t do much to build credit or boost the economy, at least not immediately – especially as fewer college graduates are able to find jobs. For most people these days, student loans seem to hurt more than they help.
Skyrocketing delinquency rates confirm that students are biting off more than they can chew when it comes to college loans. Because student loans typically cannot be discharged through bankruptcy, many young consumers are setting themselves up for a lifetime of debt.
We tend to categorize debt as either “good debt” or “bad debt” – but the truth is that any debt you can’t afford to pay off is a bad debt. When you have more debt than you can reasonably manage, it’s only a matter of time before you’ll be facing late fees, higher interest rates, calls from bill collectors and an uncertain financial future.
If you’re suffocating under the burden of debt, bankruptcy can offer a much-needed breath of fresh air. Filing for bankruptcy enacts an automatic stay, which bars creditors and collection agencies from contacting you, stops foreclosure and – in some cases – may be able to protect you throughout the entire bankruptcy process.
While bankruptcy can’t eliminate most student loans, it can relieve pressure from other common forms of debt – from credit card debt to medical bills to car loans. An experienced bankruptcy lawyer can identify your most beneficial bankruptcy plan, so you can maximize debt elimination and minimize loss of property no matter which form of bankruptcy you file for.
With less debt to weigh you down, rebuilding credit, paying student loans and qualifying for helpful loans like mortgages becomes much easier. With the right bankruptcy plan and bankruptcy attorney, you can pave the way for good debt while closing the door on bad debt. And that’s good for everyone.
To learn more about bankruptcy, contact DebtStoppers today to schedule a complimentary one-on-one debt consultation with one of our knowledgeable bankruptcy attorneys.
American debt explosion: The good, the bad, and the ugly, by Christopher Matthews, CNN Money