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Increasing Consumer Debt Causing Worries

By    |   Thursday, 20 Feb 2014 09:21 AM

Rising consumer debt is a troubling trend for the economy, many experts worry.

Consumers amassed $241 billion in new debt in the fourth quarter last year, the biggest increase since 2007, according to the New York Federal Reserve's latest Household Debt and Credit report.

Increasing student loan debt, which increased $114 billion to $1.08 trillion last year, poses the greatest risk to the overall economy, according to CNNMoney.

Editor's Note:
Secret Wall Street Calendar Uses Strange ‘Crash Alert System,’ Gets 18.79% Annual Returns

Using debt to finance education can be a smart move if that education leads to higher pay. The problem is that may not be happening, CNNMoney points out. Borrowers with the worst credit scores are accumulating the most student loan debt, and student loan delinquencies are increasing even while delinquencies for other types of loans are falling.

Approximately 11.5 percent of student loan balances are more than 90 days past due or in default, a delinquency rate even worse than the 9.5 percent rate for credit cards, the Fed's report says.

The federal government issues student loans without considering the monetary value of the education. Salaries of some graduates might not be enough to repay enormous debts. Plus, student borrowers, unlike businesses, don't have to provide a repayment plan. Those factors, CNNMoney warns, make the government student loan program different from private sector lending and create substantial concerns for America's economic future.

Mortgage debt is also worrisome. Mortgage debt is declining for consumers with the worst credit scores, probably because of foreclosures and tight mortgage lending standards, CNNMoney notes.

Those with poor credit cannot obtain home loans, regardless of the interest rate or other factors, and that doesn't bode well for an incipient housing market recovery.

Some observers worry that rising consumer debt shows Americans learned nothing from the housing bubble and financial crisis and they still haven't learned how to manage their finances.

Others believe the debt increase is good in a way. It shows that personal finances have recovered and that consumers feel they can start borrowing and spending again. Rising consumer debt goes hand in hand with growing consumer confidence and employment levels.

Carl Richards, financial planner and director of investor education at BAM Advisor Services, believes consumers may be too optimistic.

"We've already forgotten 2008 and 2009, and now we're projecting into the indefinite future and we're spending based on as if it had already happened. Our default setting is optimistic, and maybe overly optimistic," he tells Time magazine.

Editor's Note: Secret Wall Street Calendar Uses Strange ‘Crash Alert System,’ Gets 18.79% Annual Returns

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Rising consumer debt is a troubling trend for the economy, many experts worry.
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2014-21-20
Thursday, 20 Feb 2014 09:21 AM
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