Terry’s Columns Buried in Debt . . . Again?

Buried in Debt . . . Again?

By Terry Savage on March 06, 2017

You would think Americans had learned their lesson about borrowing, but debt levels are creeping up again. That isn’t a worry when the economy is strong, unemployment is down and confidence is high. But if — and when — the next recession occurs, the consequences could be even more devastating than the last go-round.

This is the perfect time to make a list of all your debts and start thinking about what would happen if you or your spouse lost your job or if your pension benefits were cut (yes, that’s happening now) or even if your stock portfolio declined, impacting your retirement withdrawals.

Here’s how Americans are getting buried in debt again:

Student loan debt: There is now more than $1.3 trillion of student loan debt outstanding, a number that grows each year. It’s not just young people who are impacted. Many parents signed for millennials’ college loans and are now having trouble making those payments as they near retirement. According to the Wall Street Journal, more than 40 percent of student borrowers are not making payments on their debt, either by default or deferral.

Subprime auto loan debt: Subprime loans in the auto industry are those made to borrowers with a credit score of 660 or lower. New loans to borrowers in that category have nearly tripled since 2009. And delinquency rates are rising on those loans. In the third quarter of 2016, delinquency rates rose to their highest level since 2010.

Credit card debt: After leveling off following the financial crisis of 2007-2009, credit card debt is again climbing quickly toward $1 trillion.

Personal loans: The growth of online peer-to-peer (P2P) lending makes it difficult to account for rising debt levels taken on by individuals. Many websites that facilitate this lending brag that bad credit is no impediment to getting a loan. But P2P loans have a higher impact in case of a default, since the lender is not a well-funded financial institution

Bottom line: More Americans owe more debt than at any time since the last recession. According to NerdWallet.com, the average household with credit card debt has balances totaling $16,061. And the average household with any kind of debt owes $132,529, including mortgage debt.

If your eyes haven’t glazed over, consider this last statistic from the Federal Reserve: Total U.S. outstanding consumer debt — car loans, student loans, credit card and revolving debt, but not including mortgage debt — was $3.62 trillion in May 2016.

It’s likely that your personal debt has been climbing, too, now that the fear of economic collapse has dissipated and jobs seem more secure. It’s time to become a contrarian. Instead of piling up debt, pay it down. And start piling up secure savings.

—Pay down credit card debt more quickly by doubling the current monthly payment and paying that same amount every month, without charging anything else on the card. That should get you out of debt in less than three years.

—Transfer balances to low-rate cards now, while it’s easy. Check at www.Bankrate.com for the best deals in balance transfer cards. Then avoid the temptation to charge again on the old cards you’ve emptied out via transfer.

—Refinance all possible loans while rates remain near their lows. For student loans, go to SoFi.com. Check online mortgage refinancing at GuaranteedRate.com or QuickenLoans.com.

—Start saving more. Increase the automatic contribution to your company 401(k) or 403(b) plan. Or simply set up an automatic transfer of a small amount of cash from checking to money market on a specific date every month.

—Get help now. If you’re in debt trouble, contact Consumer Credit Counseling Services at 800-388-2227. That number will get you to the nearest local agency of this national nonprofit you can trust.

So, sit down right now and make a list of each of your debts, the current balance, the interest rate on the loan and the monthly payment required. Then attack that mountain of debt before it buries you. By the time the American debt burden makes headlines again, it will be too late to maneuver. And that’s The Savage Truth.



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