| March 4, 2016

Research of the Week: Consumer Debt Today

New Gallup poll finds debt levels are rising, but it’s not evenly distributed.

Each week, Consolidated Credit searches for financial research that can help you deal with your debt and budget. This week…

The interesting study

Plenty of reports have come out this year about how consumer debt levels are rising in the U.S. in the last quarter of 2015 and first quarter of this year. However, a new report from the data experts at Gallup finds that although the burden of debt is growing, it’s not evenly distributed. In other words, those with debt problems tend to have BIG problems, while everyone else isn’t actually doing all that bad.

The big result

While numerous statistics show that America’s consumer debt burden is growing, 39% of Americans report carrying no debt whatsoever in four key categories – credit cards, student loans, auto loans, and “other” (personal loans).

 

That means that roughly 4 in 10 Americans is, at most, paying off a mortgage but other than that they are completely debt free.

The fascinating details

Overall Americans aren’t as burdened by debt as some reports indicate. So…

  1. Only 1 in 4 (27%) of Americans have credit card debt
  2. Only 1 in 5 (21%) have student loan debt
  3. One third (34%) have an auto loan they’re paying off
  4. While 18% have personal loans

Gallup notes that all debt levels reported are self-estimating, so there’s a good chance the real numbers are higher since people tend to underestimate how much debt they actually have at any given time. However, the numbers for whether or not people have debt at all should be more accurate.

Still, the numbers reported this year are accurate, which means average debt levels really are rising and Americans across the U.S. are struggling to maintain financial stability in the face of debt. That means that the debt levels of those who are indebted continue to rise, creating a gap between indebted and debt-free Americans. It’s almost like there’s financial inertia in our economy today – those who are indebted tend to stay indebted and take on more debt, while those without debt are able to maintain that state.

What you can do

If you’re already among the debt-free Americans, then chances are good that you have plans in place to stay that way. Just make sure to take steps to ensure you stay that way no matter what happens. That means, establishing healthy savings to make sure you have a large enough emergency fund to cover any unexpected life events.

You should also be saving long-term to ensure you can maintain that stability during retirement, as well as saving for your children’s education so you can pay that stability forward and ensure they start their independent financial lives without the burden of debt.

If you’re an indebted American you need to do two things:

  1. Stop taking on new debt, because chances are high that you’re already overburdened.
  2. Make a plan and take aggressive action to eliminate the debt you have, because once you achieve freedom it will be easier to live without relying on debt to get by.

Of course, that may sound easier said than done because once you’re in debt it can be difficult to find a way to dig your way out instead of sliding farther in. Multiple debt payments and too many obligations because you’re trying to pay off credit cards and loans can easily eat away at every bit of breathing room in your budget. So how do you get out of debt if making the required payments every month isn’t getting you where you need to be?

Two words should become your best financial friends: consolidation and refinancing.

Debt consolidation is the process of rolling multiple debts of a similar type into a single monthly payment that, in many cases, is lower than what you pay in total now. So instead of having four credit cards and one unsecured personal loan to pay off individually, you consolidate by enrolling in a debt management program to potentially lower your total monthly payments by up to 30-50 percent.

The same thing can be done with student loan debt. Instead of paying off five different federal student loans, you consolidate using a federal consolidation plan that can fit your budget. You can choose a plan that fits your budget – whether that’s to lower your monthly payments so your loans are more affordable OR even pay off your debt with larger payments so you can eliminate them quickly.

Even if you can’t make larger payments now, consolidating your credit card debt could reduce the monthly obligation of eliminating those debts, which may leave more money for paying off your student loans. There’s even a program that starts with small payments and then increases them every two years so you can ramp up to eliminate your debt faster.

For auto loans and secured personal loans like a home equity loan, you can consolidate these types of debt. However, you CAN refinance them. Refinancing lowers the interest rate applied to each debt, which means you can pay off principal faster while saving money on added interest charges.

What you really want to avoid is struggling day in and day out to pay back what you owe with traditional means. Once you pass a certain threshold with debt, this can be almost impossible to do using traditional payment methods unless you figure out a way to increase your income. Instead, consolidation and refinancing strategically make your debts easier to pay off so you can finally be debt-free.

Coming up with the right strategy is unique to every financial situation. So many factors go into determining where you are now and you best way forward – everything from the number of debts and their rates to your credit score and assets. Luckily, a certified credit counselor can help you evaluate your situation and your debts so you can develop the best strategy for achieving freedom in your situation. To schedule a free consultation, call Consolidated Credit at or complete an online application to get started.

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