The Silent Consumer Debt Crisis
We have an epidemic that is slowly growing bigger and bigger...consumer debt. Back in 2007/08 before the first debt crisis, we thought we had a problem. That problem played out as the debt crisis creating a nightmare for credit card companies and consumers alike. Fast forward to today, we learned nothing from the debt crisis because today, the debt crisis in America is much worst than 2008. Here are the last statistics:
U.S. consumer debt climbed in May at about the same pace as a month earlier, led by the largest advance in revolving debt outstanding since October. Total credit rose $17.1 billion from the prior month, in line with the median estimate of economists, following a $17.5 billion gain in April. While credit card and other revolving debt outstanding increased at a faster rate, non-revolving credit posted the smallest increase in almost a year.
Half of Americans have either no emergency savings, or less than enough to cover three months of expenses. Incidentally, that is the highest percentage since bankrate.com started tracking the data.
Here are some takeaways from the data:
Revolving debt outstanding increased at a faster rate while non-revolving credit posted the smallest increase in almost a year. That statistic speaks volumes. Revolving debt is easier to get and has higher interest rates while non-revolving credit requires higher credit scores. What does that mean? Consumers are having to resort to high interest revolving debt because they can't qualify for non-revolving credit.
Credit card debt is rising at an alarming rate as interest rates on average are in the 20% range.
What are people using credit cards for? I doubt that they are buying big screen flat panel TVs considering those high interest rates. Are they using credit cards to fund living expenses?
Consumers are clearly living on the edge. The financial crisis only taught one group a valuable lesson. The credit card companies learned that you have to charge much higher interest rates because a consumer relying on credit card debt is a risky venture. The consumer however apparently didn't learn anything making this next crisis an even dicier potential event.