Consumer Debt an Increasing Problem in the United States
Q4 figures released by the Federal Reserve Bank in November revealed that U.S. consumer debt had risen to a record high of $13 trillion. This is the 13th quarterly increase, which is a very worrying trend and a sign of difficult times ahead if interests rise as predicted.
U.S. consumers owe $8.7 million on mortgages, with 1.4% of mortgages classed as delinquent for 90+ days. Student loans account for $1.4 trillion of debt and Americans owe $24 billion on credit cards. Auto loans are also a concern, with $24 billion owed and 90+ day delinquencies rising to 4% of the total debt.
photo/ Mary Pahlke
Sub-Prime Auto Loans an Area of Concern
The main area of concern is sub-prime borrowing, particularly on auto loans. Sub-prime borrowers are people with a credit score of less than 620. Around 20% of all new auto loans are given to sub-prime borrowers, most of which originate from finance companies rather than banks or credit unions. Non-traditional lenders have a much higher delinquency rate, and given the size of the industry, an increasing number of sub-prime loans could have a serious impact on the economy.
What is of great concern to many economists is that U.S. economic data indicates household debt is now greater than it was prior to the 2008/9 economic recession. There is a risk that millions of people who don’t qualify for regular credit will take out sub-prime loans and then struggle to make the repayments. Sub-prime loans should only be used if your finances are such that you won’t struggle to repay the debt if interest rates do rise, which they almost certainly will.
Families Struggling with Debt
According to Auto Repair Pickering’s, reputable lenders won’t hand over money to people who are struggling with debt, but it is becoming increasingly evident that the sub-prime auto loan market in the U.S. is in danger of imploding. For too long now, lenders have been much too quick to offer auto loans to borrowers with poor credit scores and very little chance or repaying the loan. The situation is similar in the UK, where finance companies push hire purchase agreements with large balloon payments at borrowers, so they can drive away in a brand new, top of the range vehicle, with low monthly payments.
Borrowers using sub-prime loans are clobbered with higher interest rates, so they find it more difficult to make regular repayments and will pay more in the life of the loan. The best way to recover the situation and rebuild your credit score is to use bad credit loans to consolidate your debt.
Rebuilding a Credit Score
Most people have bad credit because they have not managed their spending. Borrowing money that you can’t afford to pay back, whether on a credit card or via an auto loan is never a good idea. Interest rates are low right now, but they will rise again soon, and even a marginal increase in the base rate will push millions of households into financial crisis.
Author: Andrew Simmons
