Published On: Mon, Dec 11th, 2017

Just How Bad is the US Debt Situation?

At a macroeconomic level, total US debt stands at $20, 593,984,866,096. That translates into an average debt of $63,097 per citizen, or $170, 423 per US taxpayer. From the government’s perspective, federal tax revenues are a paltry $3,354,429,000,927, and US GDP is $19.4 trillion. These numbers are difficult to comprehend on a personal level, but economists make it easy by providing figures for US household debt.

The total consumer debt balance has ebbed and flowed since the global financial crisis of 2008. At that time, the total consumer debt balance was $12.68 trillion, and by Q1 2017 – 9 years later that figure rose to $12.73 trillion. Over the years, there have been fluctuations in the composition of consumer debt. Housing (home equity loans and mortgages) still claims the lion’s share of the debt at 71.4%, followed by student loans at 10.6%, car loans at 9.2%, and credit cards at 6%. The remaining consumer debt is made up of other debt.

photo: TaxRebate.org.uk

US Household Debt Is 65.56% of GDP

According to reports from the New York Post, US household debt has increased by $605 billion in 2017, and that figure is expected to rise now that the holiday season is in full swing. With increasing debt burdens comes increasing delinquency on these lines of credit. In the run-up to the 2007 – 2008 global financial crisis, people were being issued credit cards, personal and business lines of credit in a liberal fashion. Today, interest rates are still relatively low by historical standards and this encourages borrowing. US households have been quick to take up these offers, and the total level of household debt is now 65.56% of GDP.

Getting out of debt is more than a catchphrase or a once-off activity. Debt management is an all-encompassing lifestyle-issue. Unfortunately, Western society promotes impulse satisfaction. It is a demand-driven economy where borrowing is necessary for asset purchases. Seven years ago, the US Census Bureau reported that the median household debt level was $70,000, and 69% of households were in debt. Since 2000, we have seen student loan debt eating into the personal disposable incomes of graduates across the country.

The number of defaults on student loan debts is gradually increasing over time and certain states are revoking drivers licenses and vocational licenses for people who fail to repay their student loans. These states include Washington, California, Alaska, North Dakota, South Dakota, Minnesota, Iowa, Illinois, Kentucky, and several others. There are 20 states in total that can seize, suspend, or revoke professional licenses and driver’s licenses.

Tips for Eliminating Debt Problems

A strategy is required to get out of debt. This issue must be tackled head on, by paying off the highest interest-rate debt first and then working your way down the chain. There are several failsafe techniques to reduce the debt burden including the following:

  • Living beneath your means and sticking to a budget
  • Downsizing your vehicle and carpooling, or using Uber and Lyft
  • Using debt consolidation for credit cards, student loans and other lines of credit

The most important characteristics needed to stay debt-free are discipline, determination and financial management. It is foolhardy to expect a debt consolidation strategy to solve all your debt problems once and for all. It is a mindset change that is needed, and a debt consolidation loan, or a debt management plan can help you to facilitate debt alleviation. Unsecured lines of credit such as credit card debt should never be shifted to home equity loans. The reasoning behind this is clear: home equity loans are secured loans with the property acting as collateral for possible default. The worst that can happen by defaulting on credit card debt is the revocation of credit, and a lower credit score.

Author;: Jeff Broth

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