Consumer Debt is Reaching New Highs


One of the most common reasons for residents of Oak Park and Chicagoland to file for personal bankruptcy is credit card debt. Many people spend more on credit than they can reasonably repay each month. While maintaining a revolving balance might be necessary in certain circumstances—such as when an unexpected expense arises for a significant household repair or a medical emergency—it is never a good idea to plan to have a revolving balance. A revolving balance refers to the amount of money that has been charged to a credit card but goes unpaid when the bill is due. For instance, if you charge $5,000 in a month and can only pay $500 when the bill is due, the remaining $4,500 on which interest will be charged is the revolving balance.
According to a recent article from CNBC, consumer debt has been growing over the last several years, and by the end of 2018 it will reach a new high. Will the increase in consumer debt lead to more consumer bankruptcy filings?
Americans are Borrowing, and Credit Card Debt is Rising
As the article explains, “Americans are in a borrowing mood, and their total tab for consumer debt could reach a record $4 trillion by the end of 2018.” That data comes from LendingTree, which recently assessed the rate of “nonmortgage debts,” which include credit card debt, auto loan debt, student loan debt, and other personal debts. Currently, on average, more than 26% of Americans’ annual income goes toward consumer debt. To put that number in perspective, back in 2010, it was only 22%. In the early 2000s, the percentage was even lower.
In particular, credit card debt has climbed substantially, as has auto loan debt—about 7% each year. In general, consumer credit has risen an average of between 5% and 6% per year over the last two years. If that rate continues through the end of 2018, consumers will collectively owe $4 trillion in debt by time we reach January 2019.
Credit Card Delinquency Rates Low Despite Increased Spending
Does the increase in consumer debt mean that more people likely will be filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy in the coming years? Believe it or not, although consumer debt is likely to reach record highs this year, the average rate for consumer delinquencies on credit card debt is “low,” according to the article, at only about 2.4%. This tells us that, although consumers are charging more on credit, the debt for most is manageable each month.
At the same time, however, consumers should know that the Federal Reserve likely will raise interests rates multiple times in 2018, and any raise to interest rates will mean paying more in interest on revolving credit. Credit card debt in particular—unlike lower interest federal student loan debt, for example—can end up causing problems for consumers if it is not managed properly. What can consumers with a significant amount of credit card debt do to avoid bankruptcy? One option is to refinance debt. It may be possible to obtain a personal loan with much lower interest rates than the interest rate on most credit cards.
Contact a Bankruptcy Lawyer in Oak Park
If you have questions about options for managing debt or if you need help with a bankruptcy filing, you should speak with an Oak Park bankruptcy lawyer as soon as possible. Contact the Emerson Law Firm for more information.
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