Americans Are Carrying Record Amounts of Consumer Debt
record amount of debt. That’s the news from a New York Federal Reserve report, as relayed by Business Insider.
According to statistics, the amount of household debt rose to $14.3 trillion by the end of March 2020. This represented a 1.1% increase over the previous quarter and stands as a record amount in the nation’s history. The previous high was from the third quarter of 2008.
The Makeup of the Debt Might Surprise You
What was the cause of the increase in household debt? Believe it or not, credit cards were not to blame. The balances on credit cards actually declined by $34 billion in the first quarter of 2020. That is a sizeable drop, which shows that people were not getting overextended by going on shopping sprees. Instead, it looks like many people paid off the balances they had incurred while shopping for the holidays.
The largest increase in consumer debt was mortgage debt. It increased to $9.71 trillion, which was an increase of $156 billion for the quarter. Clearly, consumers came into the new year expecting to buy a new place to live, and many did.
Also registering small increases for the quarter were student loan debt (up by $27 billion) and auto loans (up by $15 billion). All other debt declined by $5 billion in the first quarter of 2020.
How Will the Pandemic Affect Debt Loads?
Many states and cities began issuing lockdown orders only at the end of March, so this data does not fully capture what is happening now. Experts interviewed have stressed this fact.
It is hard to tell whether debt will increase. For sure, millions of people have lost their jobs. And, in March, consumer spending declined by 7.5%, which is the most on record. Perhaps this will translate into restrained credit card growth, since people are choosing to delay purchases.
But with people out of jobs, they might need to reach for the plastic to keep up with living expenses, such as utilities and food. We will have to wait for the second quarter’s report to see whether consumer debt continues to climb. That report will be released sometime this summer.
Can You Manage Your Debt?
If you have lost your job, you are probably struggling to cover your expenses. Even with generous unemployment benefits and a stimulus check, many of our neighbors are experiencing lean times.
Fortunately, you have many options for tackling your debt. For example, you should contact your lenders. Many of them have put in place forbearance plans that allow debtors to temporarily reduce or suspend payments. Creditors have an interest in making sure that you do not default, so you should check whether you can work something out.
Also consider bankruptcy. A Chapter 7 or Chapter 13 might be just what you need to find breathing room during this stressful time. At Nowack & Olson, our Plantation bankruptcy lawyers have advised tens of thousands of consumers about when is the right time to file. Please call us at 888-813-4737 to schedule a free consultation.