Consumer Debt Growing
01-14-2004, 09:11 AM
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Consumer Debt Growing
http://www.msnbc.msn.com/id/3881195/
Americans build mountain of debt
NEW YORK - As the bills from holiday spending sprees arrive, Americans are finding that the mountain of debt they've built has gotten even higher. Consumer debt has more than doubled in the past 10 years to record levels, making it hard for many families to cope.
For Bruce and Lorraine Esbensen of Clifton Heights, Pa., trouble started when they spent lavishly on their wedding six years ago. They soon found themselves falling behind on their bills.
"Creditors were calling, and I knew if I paid one, I couldn't pay the other," Lorraine Esbensen remembers. "It was so painful I got to the point where I didn't want to answer the phone."
Credit counselors helped the couple work out a repayment plan, but it still took more than four years to pay down their debt.
"We still basically live paycheck to paycheck," she said. "But we do have an IRA (Individual Retirement Account) going now, and we're careful with our spending so we feel better."
Consumer debt hit a record $1.98 trillion in October 2003, according to the most recent figures from the Federal Reserve. That debt, which includes credit cards and car loans, but not mortgages, translates to some $18,700 per U.S. household.
National savings rate drops
At the same time, the government says the nation's savings rate dropped to just 2 percent of after-tax income in the first half of the year. That means many people lack the means to deal with financial emergencies, much less their eventual retirement.
Experts worry about the impact not only on individual families but on society as a whole.
"The Depression generation is passing on, and we're losing their values," said Howard Dvorkin, president of the nonprofit Consolidated Credit Counseling Services in Fort Lauderdale, Fla. "Now we've got an entire generation that doesn't know anything about thrift and careful spending. It's tearing the fabric that made this country great."
Just how did American consumers get so deeply in debt?
Robert D. Manning, a sociology professor at the Rochester Institute of Technology who wrote "Credit Card Nation: The Consequences of America's Addiction to Credit," says the problem dates back to the 1980s, when financial institutions began issuing credit cards and making loans to people who wouldn't have qualified in the past.
"At the same time, people had this sense of entitlement based on the idea that this generation was expected to outperform the earlier generation," Manning said. "It was OK to buy yourself a better standard of living than your parents, and the banks would help you do it."
The nation's credit card debt currently stands at $735 billion, or nearly $7,000 per household. And since about 40 percent of card users pay their balances in full each month, the per capita card debt of those who carry balances is closer to $12,000.
Americans have become champion shoppers, says Joel Greenberg, chief executive officer of the nonprofit Novadebt credit counseling service in Freehold, N.J.
"Through the go-go '90s, the irrational exuberance wasn't just in the stock markets," Greenberg said. "It was throughout society. We became phenomenal consumers, and deplorable savers."
Shopping is what Kristeen Mahler, a secretary from East Meadow, N.Y., turned to for solace after the Sept. 11, 2001 terror attacks. Mahler's office was just 100 yards from the World Trade Center.
"I shopped to try to forget it," she said.
She bought clothes for herself, gifts for friends, and kept the mounting bills a secret even from her husband.
Mahler said she finally started talking about the attack and found support from family and friends in dealing with her anxiety. She also sought credit counseling and is one year into a four-year plan to pay off her debts.
What's surprising about the nation's debt is that it has continued to rise despite record numbers of mortgage refinancing from 2001 to 2003, many of them yielding cash that consumers have used to pay down credit card balances.
Mark Zandi, chief economist at Economy.com, points out that the rate of growth of card debt has slowed "because people are using their homes as cash machines."
But while refinancings have allowed upper income households to put their balance sheets in order, lower income families without that option are finding it harder to cope, he said.
Consumer bankruptcies hit record high numbers
"They're the folks filing for bankruptcy in record numbers, they're the ones facing repossession and foreclosures," Zandi said.
Consumer bankruptcies have exceeded 1 million a year since 1996, hitting a record of 1.54 million in 2002. Bankruptcy filings totaled 1.25 million during the first nine months of 2003 and could set a new record when full-year tabulations are done by the Washington-based American Bankruptcy Institute.
There's debate about how the high debt levels and demanding repayment schedules will affect the economy.
Americans currently spend a near-record 18.1 percent of their after-tax income to cover debts, including mortgages. That limits their ability to borrow more to spend more, and consumer spending accounts for about two-thirds of the economy.
Federal Reserve Chairman Alan Greenspan has pointed out that because of low interest rates, consumers can more easily handle their debt so the level is "not a significant cause for concern."
Economist Sung Won Sohn of Wells Fargo & Co. agrees that for now, most Americans are OK and should continue to be the driving force in the nation's economic growth. Still, he said, the level of debt does raise concerns.
"In the long run, it's a ticking time bomb," Sohn said. "At some point when you get a sharp setback in the economy or a spike in interest rates, the high debt causes instability."
Americans build mountain of debt
NEW YORK - As the bills from holiday spending sprees arrive, Americans are finding that the mountain of debt they've built has gotten even higher. Consumer debt has more than doubled in the past 10 years to record levels, making it hard for many families to cope.
For Bruce and Lorraine Esbensen of Clifton Heights, Pa., trouble started when they spent lavishly on their wedding six years ago. They soon found themselves falling behind on their bills.
"Creditors were calling, and I knew if I paid one, I couldn't pay the other," Lorraine Esbensen remembers. "It was so painful I got to the point where I didn't want to answer the phone."
Credit counselors helped the couple work out a repayment plan, but it still took more than four years to pay down their debt.
"We still basically live paycheck to paycheck," she said. "But we do have an IRA (Individual Retirement Account) going now, and we're careful with our spending so we feel better."
Consumer debt hit a record $1.98 trillion in October 2003, according to the most recent figures from the Federal Reserve. That debt, which includes credit cards and car loans, but not mortgages, translates to some $18,700 per U.S. household.
National savings rate drops
At the same time, the government says the nation's savings rate dropped to just 2 percent of after-tax income in the first half of the year. That means many people lack the means to deal with financial emergencies, much less their eventual retirement.
Experts worry about the impact not only on individual families but on society as a whole.
"The Depression generation is passing on, and we're losing their values," said Howard Dvorkin, president of the nonprofit Consolidated Credit Counseling Services in Fort Lauderdale, Fla. "Now we've got an entire generation that doesn't know anything about thrift and careful spending. It's tearing the fabric that made this country great."
Just how did American consumers get so deeply in debt?
Robert D. Manning, a sociology professor at the Rochester Institute of Technology who wrote "Credit Card Nation: The Consequences of America's Addiction to Credit," says the problem dates back to the 1980s, when financial institutions began issuing credit cards and making loans to people who wouldn't have qualified in the past.
"At the same time, people had this sense of entitlement based on the idea that this generation was expected to outperform the earlier generation," Manning said. "It was OK to buy yourself a better standard of living than your parents, and the banks would help you do it."
The nation's credit card debt currently stands at $735 billion, or nearly $7,000 per household. And since about 40 percent of card users pay their balances in full each month, the per capita card debt of those who carry balances is closer to $12,000.
Americans have become champion shoppers, says Joel Greenberg, chief executive officer of the nonprofit Novadebt credit counseling service in Freehold, N.J.
"Through the go-go '90s, the irrational exuberance wasn't just in the stock markets," Greenberg said. "It was throughout society. We became phenomenal consumers, and deplorable savers."
Shopping is what Kristeen Mahler, a secretary from East Meadow, N.Y., turned to for solace after the Sept. 11, 2001 terror attacks. Mahler's office was just 100 yards from the World Trade Center.
"I shopped to try to forget it," she said.
She bought clothes for herself, gifts for friends, and kept the mounting bills a secret even from her husband.
Mahler said she finally started talking about the attack and found support from family and friends in dealing with her anxiety. She also sought credit counseling and is one year into a four-year plan to pay off her debts.
What's surprising about the nation's debt is that it has continued to rise despite record numbers of mortgage refinancing from 2001 to 2003, many of them yielding cash that consumers have used to pay down credit card balances.
Mark Zandi, chief economist at Economy.com, points out that the rate of growth of card debt has slowed "because people are using their homes as cash machines."
But while refinancings have allowed upper income households to put their balance sheets in order, lower income families without that option are finding it harder to cope, he said.
Consumer bankruptcies hit record high numbers
"They're the folks filing for bankruptcy in record numbers, they're the ones facing repossession and foreclosures," Zandi said.
Consumer bankruptcies have exceeded 1 million a year since 1996, hitting a record of 1.54 million in 2002. Bankruptcy filings totaled 1.25 million during the first nine months of 2003 and could set a new record when full-year tabulations are done by the Washington-based American Bankruptcy Institute.
There's debate about how the high debt levels and demanding repayment schedules will affect the economy.
Americans currently spend a near-record 18.1 percent of their after-tax income to cover debts, including mortgages. That limits their ability to borrow more to spend more, and consumer spending accounts for about two-thirds of the economy.
Federal Reserve Chairman Alan Greenspan has pointed out that because of low interest rates, consumers can more easily handle their debt so the level is "not a significant cause for concern."
Economist Sung Won Sohn of Wells Fargo & Co. agrees that for now, most Americans are OK and should continue to be the driving force in the nation's economic growth. Still, he said, the level of debt does raise concerns.
"In the long run, it's a ticking time bomb," Sohn said. "At some point when you get a sharp setback in the economy or a spike in interest rates, the high debt causes instability."
01-14-2004, 09:13 AM
#2
GEEZER
Monkey See Monkey do..if the President can run the Country with a HUGE DEFICIT..why can't it's citizens...
:ibseeingthismovedtor&p:
:ibseeingthismovedtor&p:
01-17-2006, 06:52 PM
#5
I feel the need...
Time for a timely thread revival...
U.S. Consumers Reeling From Higher Debt Burden: John Wasik
2006-01-17 00:13 (New York)
(Commentary. John F. Wasik, author of ``The Bear-Proof
Investor,'' is a columnist for Bloomberg News. The opinions
expressed are his own.)
By John F. Wasik
Jan. 17 (Bloomberg) -- Sometimes appearances can be
deceiving when it comes to how much debt is weighing down on
overleveraged Americans.
One anecdotal sign of the burdens American are struggling
with: the ubiquitous TV commercial for a debt-consolidation
service in which a suburban, upper-middle class man initially
brags about his country club membership, spacious house and
luxury car.
``How did I do this?'' the character asks. ``I'm in debt up
to my eyeballs. Somebody help me!''
The man represents millions suffering from cash-flow
poverty who have trouble paying for basic living expenses
without taking on more debt.
Consumer debt has been climbing faster than personal
incomes and shows no signs of abating.
Personal bankruptcies hit an all-time high in 2005,
according to Lundquist Consulting, Inc., a bankruptcy analysis
firm based in Middlesex, New York. Although spurred by a new
anti-debtor law going into effect late last year, more than 2
million Americans sought debt relief from Chapter 7 and Chapter
13 bankruptcy.
U.S. consumer debt has almost doubled to $2.16 trillion as
of October from about $1.3 trillion in 1998, according to the
Federal Reserve.
More Troubling
An even more troublesome figure is that consumer debt has
consistently exceeded disposable personal income over the past
half-decade at a 4.5 percent annualized rate, according to a
Bloomberg analysis of Fed data.
Some $600 billion of home equity debt was borrowed in 2004,
accounting for 40 percent of the growth in gross domestic
product that year, up from $439 billion in 2003. While home
equity that is converted into cash for spending boosts the
economy, it erodes the largest source of savings for most
Americans. At the same time, paltry gains in personal income
haven't kept up with housing costs and consumer inflation for
most middle-class Americans.
``The economic growth over the last 20 years didn't help
two-thirds of Americans,'' says Ellen Schloemer, research
director for the Center for Responsible Lending, a consumer
group based in Durham, North Carolina. ``Many were forced to
take on debt to cover basic expenses.''
Her organization's sampling of low- and middle-income
Americans (representing 15 million households) in a study
entitled ``The Plastic Safety Net'' found that seven out of 10
of those queried used their credit cards as a ``safety net ---
relying upon credit cards to pay for car repairs, basic living
expenses, medical expenses or house repairs.''
A higher reliance on debt to cover living expenses, she
says, is ``creating a permanent underclass of debtors.''
Pressures on Debtors
For those suffering from cash-flow poverty, credit has been
generally easy to obtain, although the cost for the most cash-
strapped is increasingly expensive.
Because of new guidelines issued by U.S. banking
regulators, credit-card companies are doubling and tripling
their required minimum payment to up to 3 percent of the balance
plus fees. Regulators want banks to require debtor payment of at
least 1 percent of the principal balance.
Banks can also layer on additional fees for late payers.
``Until 1996,'' according to the Center study, ``a late payment
on a credit card account typically resulted in a fee of $10 to
$15, but now such late fees more commonly range from $29 to $39
and `penalty' or `default' rates that currently average more
than 25 percent.''
Even more pernicious are ``payday'' lenders that advance
money based on future paychecks. These businesses charge
interest rates of as much as 400 percent annualized for short-
term loans.
Stress on Consumers
For those deepest in debt, it can take a long time to get
in the clear.
On a $12,000 card balance, paying a minimum 1 percent on
principal a month, it will take 30 years to wipe out the
balance. During that time, $17,684 in interest is paid,
according to http://www.bankrate.com, a consumer lending Web
site.
While a 3 percent minimum payment would clear the card debt
in about two years, if the higher payments aren't affordable for
the most cash strapped, it could lead to a cycle of even more
borrowing.
The American Bankers Association in a Jan. 10 statement
cited ``signs of financial stress'' for consumers brought on by
higher short-term interest rates and rising gas prices.
The Washington-based industry association found that while
delinquencies on credit cards dropped slightly in the third
quarter of last year, late payment rates rose on auto, boat,
personal, home-improvement and recreational-vehicle loans.
Cash-Flow Poor
Cash-flow poverty imperils consumers by making it
impossible to save for future expenses.
Those who are shackled by debt now will not have enough
saved for retirement and will likely need government support. It
is in the country's best interests to acknowledge that the
consumer debt problem needs to be addressed.
If you or someone you know is handcuffed by debt, try
trading debt for savings. When $100 in debt is paid off, buy a
U.S. inflation-adjusted bond, or I-bond. This savings bond,
paying a 6.73 percent rate through May 1, is a great deal. It's
commission free, compounds interest for 30 years and pays a
bonus rate based on the U.S. consumer price index.
The $100 I-bond has the picture of Martin Luther King on
it. King once said ``the quality, not longevity of one's life is
what's most important.''
This insight also applies to managing credit. Getting out
of debt is one of those quality-of-life issues that can't be
ignored on a national -- or personal -- scale.
source: bloomberg.com
U.S. Consumers Reeling From Higher Debt Burden: John Wasik
2006-01-17 00:13 (New York)
(Commentary. John F. Wasik, author of ``The Bear-Proof
Investor,'' is a columnist for Bloomberg News. The opinions
expressed are his own.)
By John F. Wasik
Jan. 17 (Bloomberg) -- Sometimes appearances can be
deceiving when it comes to how much debt is weighing down on
overleveraged Americans.
One anecdotal sign of the burdens American are struggling
with: the ubiquitous TV commercial for a debt-consolidation
service in which a suburban, upper-middle class man initially
brags about his country club membership, spacious house and
luxury car.
``How did I do this?'' the character asks. ``I'm in debt up
to my eyeballs. Somebody help me!''
The man represents millions suffering from cash-flow
poverty who have trouble paying for basic living expenses
without taking on more debt.
Consumer debt has been climbing faster than personal
incomes and shows no signs of abating.
Personal bankruptcies hit an all-time high in 2005,
according to Lundquist Consulting, Inc., a bankruptcy analysis
firm based in Middlesex, New York. Although spurred by a new
anti-debtor law going into effect late last year, more than 2
million Americans sought debt relief from Chapter 7 and Chapter
13 bankruptcy.
U.S. consumer debt has almost doubled to $2.16 trillion as
of October from about $1.3 trillion in 1998, according to the
Federal Reserve.
More Troubling
An even more troublesome figure is that consumer debt has
consistently exceeded disposable personal income over the past
half-decade at a 4.5 percent annualized rate, according to a
Bloomberg analysis of Fed data.
Some $600 billion of home equity debt was borrowed in 2004,
accounting for 40 percent of the growth in gross domestic
product that year, up from $439 billion in 2003. While home
equity that is converted into cash for spending boosts the
economy, it erodes the largest source of savings for most
Americans. At the same time, paltry gains in personal income
haven't kept up with housing costs and consumer inflation for
most middle-class Americans.
``The economic growth over the last 20 years didn't help
two-thirds of Americans,'' says Ellen Schloemer, research
director for the Center for Responsible Lending, a consumer
group based in Durham, North Carolina. ``Many were forced to
take on debt to cover basic expenses.''
Her organization's sampling of low- and middle-income
Americans (representing 15 million households) in a study
entitled ``The Plastic Safety Net'' found that seven out of 10
of those queried used their credit cards as a ``safety net ---
relying upon credit cards to pay for car repairs, basic living
expenses, medical expenses or house repairs.''
A higher reliance on debt to cover living expenses, she
says, is ``creating a permanent underclass of debtors.''
Pressures on Debtors
For those suffering from cash-flow poverty, credit has been
generally easy to obtain, although the cost for the most cash-
strapped is increasingly expensive.
Because of new guidelines issued by U.S. banking
regulators, credit-card companies are doubling and tripling
their required minimum payment to up to 3 percent of the balance
plus fees. Regulators want banks to require debtor payment of at
least 1 percent of the principal balance.
Banks can also layer on additional fees for late payers.
``Until 1996,'' according to the Center study, ``a late payment
on a credit card account typically resulted in a fee of $10 to
$15, but now such late fees more commonly range from $29 to $39
and `penalty' or `default' rates that currently average more
than 25 percent.''
Even more pernicious are ``payday'' lenders that advance
money based on future paychecks. These businesses charge
interest rates of as much as 400 percent annualized for short-
term loans.
Stress on Consumers
For those deepest in debt, it can take a long time to get
in the clear.
On a $12,000 card balance, paying a minimum 1 percent on
principal a month, it will take 30 years to wipe out the
balance. During that time, $17,684 in interest is paid,
according to http://www.bankrate.com, a consumer lending Web
site.
While a 3 percent minimum payment would clear the card debt
in about two years, if the higher payments aren't affordable for
the most cash strapped, it could lead to a cycle of even more
borrowing.
The American Bankers Association in a Jan. 10 statement
cited ``signs of financial stress'' for consumers brought on by
higher short-term interest rates and rising gas prices.
The Washington-based industry association found that while
delinquencies on credit cards dropped slightly in the third
quarter of last year, late payment rates rose on auto, boat,
personal, home-improvement and recreational-vehicle loans.
Cash-Flow Poor
Cash-flow poverty imperils consumers by making it
impossible to save for future expenses.
Those who are shackled by debt now will not have enough
saved for retirement and will likely need government support. It
is in the country's best interests to acknowledge that the
consumer debt problem needs to be addressed.
If you or someone you know is handcuffed by debt, try
trading debt for savings. When $100 in debt is paid off, buy a
U.S. inflation-adjusted bond, or I-bond. This savings bond,
paying a 6.73 percent rate through May 1, is a great deal. It's
commission free, compounds interest for 30 years and pays a
bonus rate based on the U.S. consumer price index.
The $100 I-bond has the picture of Martin Luther King on
it. King once said ``the quality, not longevity of one's life is
what's most important.''
This insight also applies to managing credit. Getting out
of debt is one of those quality-of-life issues that can't be
ignored on a national -- or personal -- scale.
source: bloomberg.com
01-17-2006, 07:15 PM
#6
registered pw
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damn, people want things yesterday. the wife and i when we buy something we try to get it interest free and pay it off before the interest kicks in. we just paid off the wedding, that was $8k that we had to pay. we budgeted $$ for the honeymoon and had previously saved money just for it/
it would be nice to have all the nice shit, i would like to be able to eat also
it would be nice to have all the nice shit, i would like to be able to eat also
01-17-2006, 07:22 PM
#7
The Third Ball
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I have a small amount of debt on an interest free card. I hope to have it gone within the year.
But this is also why the credit cards have basically doubled the minimum payments on all the cards.....best interest for consumer protection....try and stave them off from amassing too much debt.
But this is also why the credit cards have basically doubled the minimum payments on all the cards.....best interest for consumer protection....try and stave them off from amassing too much debt.
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01-17-2006, 08:02 PM
#9
The Third Ball
Join Date: Sep 2002
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yeah i thought that, too.
Wonder how he is doing.
Wonder how he is doing.
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