Slow Wage Growth and Consumer Debt

Since the foreclosure crisis in 2008, many consumers across Oak Park, Illinois and throughout the country have worried about whether another consumer debt crisis could occur. According to a recent report from NBC News, slow wage growth combined with added consumer debt suggests to some that another consumer debt crisis could be lurking. As the report points out, “subprime borrowers in particular aren’t as resilient when it comes to surviving a financial shock.”
What do you need to know about the link between slow wage growth and the possibility of a looming consumer debt crisis? Could this result in another foreclosure crisis?
Slower Wage Growth Than Expected Could Lead to Consumer Problems
Workers in the United States have certain expectations with regard to wages, and according to the report, it is likely than many expected to be earning more than they currently earn. As a result of wage-earning expectations, many of those consumers have taken on additional credit card debt and other forms of debt, assuming that an increase in wages would allow them to pay off what they owe without getting into trouble financially. However, despite the fact that more jobs were added last month, “robust wage growth again proved elusive with an increase of just 2.7% on an annualized rate.” What this means is that “some Americans are starting to struggle financially, suggesting that workers may have added debt to their household balance sheets because they expected to be earning more by now.”
Consumer debt has risen, and by the end of March consumers owed more than $13 trillion in debt. The problem is that “more of them appear to be having trouble servicing that debt.” There have been more delinquencies on consumer accounts, too. For instance, retail credit cards have seen an increase in delinquencies, and they are now at a rate of 4.65%. Equifax points to that number as a “seven-year high” for retail credit card debt delinquencies.

Auto loan delinquencies, too, are on the rise, and have gone up by about 5%. Many of those consumers have “subprime credit scores,” and the auto lenders in particular have been “hit especially hard after expanding their activities to include more ‘deep subprime’ borrowers.”
More Americans Are Living ‘Paycheck to Paycheck,’ Which Could Lead to a Debt Crisis
Much of the news about tax cuts led average American workers to assume that they would be making more money in 2018 and afterward, and that they would be able to pay off more consumer debt. However, in practice, that assumption has proven false. Even though the number of jobs has increased, many of those positions actually have gone to part-time or unskilled laborers, and as a result “about 40% of the U.S. population is living paycheck to paycheck.”
What this means is that another consumer debt crisis could occur. With many subprime borrowers, even a small financial shift could result in the inability to make monthly payments on debts. For some of those borrowers, Chapter 7 bankruptcy or Chapter 13 bankruptcy could help those individuals. At the same time, however, large-scale consumer financial problems could lead to larger economic issues.
Contact an Oak Park Consumer Bankruptcy Lawyer
If you have questions about filing for consumer bankruptcy or managing debt, an experienced Oak Park consumer bankruptcy attorney can help. Contact the Emerson Law Firm for more information.
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