America’s Growing Debt & its Effects on Americans

The national debt clock tracks the U.S. debt, which first surpassed $27 trillion in October 2020. When the federal government spends more than it takes in, we have to borrow money to cover that annual deficit. And each year’s deficit adds to our growing national debt. Historically, our largest deficits were caused by increased spending around national emergencies like major wars or the Great Depression.

Today, our deficits are caused mainly by predictable structural factors: our aging baby-boom generation, rising healthcare costs, and a tax system that does not bring in enough money to pay for what the government has promised its citizens. The coronavirus crisis has accelerated an already unsustainable fiscal trajectory, both because of its devastating effect on the economy and the necessary legislative response. Once we have emerged from the pandemic, it will be critical for America’s leaders to address our rising debt, and its structural factors.

Total consumer debt amongst Americans rose 4.7 percent and hit just below $4.2 trillion in September 2020, according to the Federal Reserve. Collectively, Americans owe 10 percent of their disposable income to non-mortgage debts like car loans, credit card accounts and student or personal loans.
What’s causing these changes in behavior? Recent studies have shown that Americans are losing their financial literacy at an alarming rate. These studies, which cover topics like basic finance and investment, show that Americans lack fundamental knowledge in these areas. Perhaps that explains the marked uptick in consumer borrowing.
Now that we know Americans are struggling with a lot of debt what can we do to fix it? Let’s start with the basics and learn what consumer debt is and how it works in our financial systems.

Consumer debt consists of personal debts that are owed as a result of purchasing goods that are used for individual or household consumption. These include credit card debt, student loans, auto loans and mortgages.

These purchases are typically consumable and include items that do not depreciate in value. Purchases like this allow consumers to better themselves through a purchase without the requirement of paying the full purchase price up front. Consumer loans can be extended by a bank, the federal government, and credit unions, and are broken down into two categories: revolving debt and non-revolving debt. Revolving debt is paid down on a monthly basis, such as credit cards, whereas non-revolving debt is the loan of a lump sum up front with fixed payments over a defined term. Non-revolving credit usually includes auto loans, mortgages and school loans.

Consumer Debt Statistics

The following statistics come from the Federal Reserve’s Consumer Credit G.19 release:

• Total consumer debt totaled $4.161 trillion in September 2020, increasing a total of 4.7%.
• Average consumer debt per capita is approximately $12,596 (total consumer debt as of September 2020/total US population as of September 30, 2020).
• Total revolving consumer debt was $989 billion in September 2020.
• Total revolving consumer debt saw a huge drop of 30.8% in Q2 of 2020
• Despite the drop in Q2, total revolving consumer debt rose 4.8% in September 2020.
• Average revolving debt per capita is approximately $2,992 (total consumer debt as of September 2020/total US population as of September 30, 2020).
• Total non-revolving consumer debt was $3.173 trillion in September 2020.
• Total non-revolving consumer debt increased by 4.6% in September 2020.
• Student loans totaled $1.7 trillion in September 2020.
• Auto loans totaled $1.223 trillion in September 2020.
• Average loans per student equal approximately $86,075 (total student loans in September 2020/total students enrolled in public and private universities in 2020)*

*Total enrollment based on a 2020 projection of students in public or private universities

• One in ten adults says they carry a credit card balance over $5,000. [Source: NBC]
• The average credit card balance per person in May 2020 was $5,338, which was a 14% drop from the beginning of the year. [Source: Experian]
• The average personal loan debt reached $16,257, which was a 2% increase from the start of the year. [Source: Experian]
• 75% of consumers who have a credit card have a balance over $6,200. [Source: Experian]

Why does National Debt Matter?

This is about our future.

What makes America strong is our willingness to build and leave a better future for the next generation. Unfortunately, our growing debt is doing the opposite.

America faces many challenges including rising inequality, unaffordable healthcare, a changing climate, failing education, crumbling infrastructure, and unpredictable security threats. To address these challenges we will need significant resources. Every dollar that goes toward interest payments means less resources available to build a stronger, more resilient future.
Being irresponsible with our budget is simply not fair to our kids and grandkids, who will inherit this debt. Two recessions and the economic impact of COVID-19, consumer debt has increased steadily over time, with minor drops in 2020. It is possible that total consumer debt may break four trillion dollars within the next decade.
How to Tackle your Personal Debt
If you’re unsure how to begin tackling your personal debt, here are some things to consider:

• Create a budget
• Use the snowball method to pay your debts
• Pay more than the minimum balance
• Take advantage of balance transfers
• Stop your credit card spending habits
• Delete credit card information from online stores
• Sell unwanted gifts and household items

There are tons of resources out there to help you tackle your debt. If you feel that your debt has negatively affected your credit score and you need help contact us! A credit repair specialist will work with you to help identify and remove negative items from your report such as inaccurate, incomplete, or unverifiable items. These types of items include incorrect personal data, collections, late payments, foreclosures, bankruptcies and more. ⁣

Originally published at https://lifeguardcreditsolutions.com on February 17, 2021.