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5 Troubling Trends in American Families’ Debts

Finances are one of those things that need frequent attention in order to keep checks and balances in order. No matter what stage of life you’re in, chances are you have to watch your finances carefully, so you make wise decisions on spending and saving. I’m one who cannot stand being in debt because it makes me feel very trapped and suffocated. This year has been the hardest year for me, in the way of debt. So many medical bills and unforeseen expenses. I thought it would be fun and educational to share a post regarding 5 troubling trends American families’ debts. You may find it illuminating. The post is sponsored by Credit Sesame.

Rising personal debt is a national problem. Not only does living with high credit debts put extreme stress on an individual and threaten their personal financial security due to fears that an unexpected dip in income can have disastrous effects, but it also poses a threat to the country as a whole. When a large percentage of the population is saddled with high or even unmanageable debt levels, it serves as a warning sign of a potential crisis if the economy begins to slow down. 

The good news when it comes to the looming debt threat is that we have never lived in a time where detailed research has never been more readily available. Financial experts and data analysts have performed many surveys into the state of our economy and that information can be used to get a better understanding of the concerns which exist around American credit debt. Here are some of the most important takeaways about American debt.

Student Loan

The rising burden of American student loan debt quickly became a key point of discussion in Democratic primaries for the 2020 United States presidential election, with several candidates proposing dramatic plans to address student loan debts. When you begin to look at the numbers behind student loan debts it’s easy to see why it has become an issue worthy of national discussion. Debt levels have skyrocketed over the last decade and it is now believed that debt totals are at $1.47 trillion owed by over 44 million Americans.

The student loan debt boom has been driven on two fronts. First, the cost of higher education has been steadily and quickly rising for decades. Second, many recent college graduates exited college into an economy that was either in or freshly recovering from a recession, which caused many borrowers to fall behind on their payments. This leads to a dangerous combination of borrowers who compiled large debts and found themselves unable to find work capable of handling the expenses of student loan payments which often total over $200 per month. Getting student loan debts under control will be a key goal for improving the United States’ credit health.

Rising in All Industries

Although student loan debt is often the beneficiary of the most media coverage, that doesn’t mean that it is the sole driver of the American debt crisis. When you take a dive into the debt data it becomes clear that debts are on the rise across nearly all major borrowing industries. In 2018, home mortgage debt increased by $407-billion dollars to a total of $9.4 trillion. Credit card debt exceeded $1 trillion for the first time, and auto loans reached $1.3 trillion after increasing by $59 billion.

Some of the rising total debt levels can be attributed to two natural factors. First, inflation means that debt levels today are not directly comparable to debt levels five, ten or more years ago. Additionally, improvements in healthcare have extended our lives, meaning every year there are more adults of legal borrowing age than the year before. Despite these qualifiers, however, the rise can not be entirely explained away, and continued increases should be cause for concern for the American consumer.

Millennials

One demographic which had been excelling at avoiding the pitfalls of credit card debt is Millenials. Having completed college during the depths of the recession which hit the United States in the late 2000s and 2010s made Millenials more hesitant as a generation when it came to taking on high credit card debts. In early 2019, however, there were indicators that that was changing. For the first time, the percentage of accounts held by Millenials that were 90 days or more behind on payments exceeded 8-percent. Experts believe that the burden of student loan debts plays a part in this rise, but that it can also be attributed to Millenials signing up for more credit cards in general, taking the opportunities presented by seemingly advantageous rewards programs.

Coasts vs. Heartland

Although there is nowhere in the country where there are not individuals who are struggling under the onus of credit debts, that doesn’t mean that it is a burden that is evenly distributed around the country. Although income does not directly factor into an individual’s credit score, having more spending money does improve your ability to stay ahead of your credit responsibilities. As a result, there is a strong correlation between the wealth of a community and its average credit rating.

One area where this is most openly notable is in the split between coastal regions and the heartland. With many industries, most notably technology, tending to focus their development around coastlines, this leads to significantly stronger credit on the coasts. In the south and midwest, on the other hand, there is more credit duress and a higher percentage of individuals struggling with their credit obligations. 

High Utilization

Credit Card and online shopping

Perhaps the most alarming look at the state of credit usage in the United States comes from this credit health research that includes concerning information about the state of credit card utilization in America. An individual’s credit card utilization, which represents the percentage of their available credit card limit that is outstanding, is a critical indicator in a credit score. The percentage should ideally be kept below 10-percent, and anything over 30-percent begins to have seriously detrimental effects as a negative sign that may indicate credit problems on the horizon. Those targets are being hit by just 18.6- and 28.6-percent of Americans, respectively, while a staggering 56.5-percent of Americans have utilization over 70-percent. This shows that Americans are currently highly overextended on their credit cards, which is cause for serious concerns.

While the high level of debt that many Americans face is cause for concern, the good news is that we are also more aware than ever about the state of our credit health. Modern data allows experts to examine financial data to a granular level in search of potential problems and solutions for them once found. This puts individuals and the country as a whole in the best possible position to find better paths forward and to follow those paths to a brighter financial situation.

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