14 Feb Credit Card Debt: All Time High and Unemployment: 50-Year Low
It’s been recently reported by The Wall Street Journal that credit card debt is at an all-time high. With an estimated $930 billion in credit card debt, Americans are utilizing credit now more than ever before. Credit card debt is reaching levels of pre-recession highs. Is this irony or simple coincidence? Some ask the question are we using more consumer debt because we’re struggling to make ends meet or are we utilizing more debt because we feel that the economy is booming and the job market is strong?
Families that have a household income over $100,000 annually are still struggling with the everyday costs of childcare, food and transportation. These costs do not take into consideration unexpected costs that arise as a result of car repairs, emergency home repairs or appliance replacement costs. Historically, the relation of credit card debt compared to unemployment has been on opposite ends of the spectrum, with consumer debt being high and employment rates being lower. Currently, employment is high and credit card debt is high as well. So the news of the day is, the light at the end of the tunnel could possibly be an oncoming freight train.
Are we headed for another financial disaster?
The debt trap
With the increase in credit card spending, will consumers find themselves needing help with credit card debt somewhere down the line? Will there be a new campaign targeting consumers for credit card debt relief? In order to get out of the debt trap, you have to understand how the cycle works. The borrowing leads to increased debt and increased debt could eventually lead to a default on a loan, if the consumers are not careful. Consumers make the mistake of thinking credit cards are an extension of their income, when it fact, it isn’t. There is a false sense of security that comes with using this type of debt. The use of credit card debt allows consumers to save their cash and gives them the idea that they have more cash on hand, but the truth is, the cash should be the equivalent to the amount spent on the credit cards. Consumers who have an excessive amount of debt often use new loans to pay off older loans, then the cycle starts all over again.
The booming economy
In a booming economy, lenders are eager to lend extra money to consumers. Their thought process is consumers are employed, making more money and have higher disposable incomes, therefore, they are able to afford monthly payment on loan debt. It is still undetermined whether or not families are actually benefiting from extra debt, but lenders are surely standing in line waiting to capitalize on the booming economy. When the economy is booming, consumers are out spending more money by shopping more, eating out more and buying things they normally wouldn’t buy if they were on a limited budget. With the access to easy credit, these spending habits are likely to become out of control. Credit cards can give consumers a false sense of security when they’re shopping or dining out. When consumer spending debt gets too out of control it impacts a consumer’s ability to repay the debt. This could ultimately have a negative impact on the booming economy as the current consumer debt continues to rise
The great partnership
Does the booming economy and consumer debt have a correlating relationship? With a booming real estate market, one would wonder why consumers prefer not to tap into their home’s equity versus utilizing consumer debt. After all, a home equity line of credit would give a consumer a much lower interest rate in comparison to the higher interest rates of credit card debt. With unemployment being at an all time low, the coincidence here is why are we utilizing credit card debt when we are gainfully employed with higher salaries? Is it because the credit is being offered or is it because we want to preserve cash? Usually, consumer debt is higher when the economy is in a recession. In the current economy, employment rates are higher and so is credit card debt. The irony here is that these two factors are usually opposite each other and now they are corresponding.
Are banks lending more now that people have jobs?
The answer to that question is yes. Lenders are looking for ways to capitalize on the booming economy and they are willing to do it at the expense of the consumer. This scenario sounds familiar to the real estate industry prior to the 2009 recession. This begs the question, are we headed into another financial crisis with the excess in credit card debt? Depending on who you ask, some would say yes, while others would indicate everything is fine. We will always have this booming economy, after all people will always have good jobs and the unemployment rate will always be at historic lows, right? Again, it was this type of mentality that got us into the trouble that caused the real estate boom and bust situation. The real estate fiasco in 2008 led to the largest modern-day recession in the history of our nation. Are we headed down that same road and is there a way for us to heed the signs and make different choices when it comes to consumer debt?
The credit card addition
Whether we realize it or not, there is an addiction to credit cards. The ability to shop and spend money at will has created a psychological pattern of behavior that is hard for many consumers to break. Some people are so addicted to their credit cards that they would use it to make smaller purchases such as a pack of gum or a bag of snacks. This type of spending behavior can be detrimental and can be the beginning of a never-ending cycle of consumer debt. Often, consumers don’t realize that spending $3 for a pack of gum in essence cost them $7. Anyone who understands credit understands this is not wise. With the interest rates of credit cards being in the double digits, when customers get into the credit card trap it is hard for them to get out. One missed payment or late payment can negatively impact your finances and your credit standing. In order to fix the credit card addiction, we have to start providing more consumer education on how credit cards actually work. Until we tackle that problem, we will continue to have high credit card debt.
No matter how deep the never ending cycle of consumer debt goes, there’s always options for credit card debt relief. Companies who help with credit card debt are able to provide consumers with a plan to help settle credit card debt. Credit card debt consolidation companies provide you options to help relieve the burden of consumer debt. Consumer Credit Card Relief is among the reputable companies that are willing and able to help you take control of your debt. They provide solutions to help you settle credit card debt which include consolidating credit card debt and bankruptcy, if appropriate.
The idea of filing bankruptcy for many consumers is mind-boggling but with credit card debt consolidation companies, they are able to provide you alternative solutions to bankruptcy. As a last resort, bankruptcy would be used if needed. Consumer Credit Card Relief will implement a plan for you that includes paying off your debts and implementing a monthly budget that’s realistic for you and your family. Give them a call today. They have professional representatives standing by to help you relieve the burden of your consumer debt.