Statistics About Consumer Debt and How It May Impact the Economy

The news is full of articles about consumer debt. One day there is a blazing new headline about how Americans are one paycheck away from financial ruin, and the next day you may find an article touting that the ability of US citizens to save is at an all-time high. A week later you will probably run across an article declaring that consumers are spending more than ever before because interest rates are falling. The rise and fall of information that contradicts itself can almost be too much to comprehend, and it is certainly too confusing to be believed. To help you understand a little more about the credit health of the average consumer, here are a few of the latest statistics about consumer debt and the impact it may have on the economy.

Definition

There are many reasons consumers may owe money, but for an all-purpose definition, what you owe is called consumer debt. That is measured and defined separately and differently than what the government owes or what businesses owe. Under the definition of consumer debt, there are two categories: non-revolving and revolving. Home mortgages do not fall into either category and are considered a separate type of personal investment debt, rather than a consumer debt.

Non-Revolving

The non-revolving type credit is based on a fixed payment style of loan. The amount is borrowed once and is paid off over the course of many months at a set schedule due for each payment. Most of these consumer loans are created for terms between one-year and 10 years in length, and many hundreds of thousands are for car loans that have a fixed or variable rate of interest. School loans are another example of a non-revolving loan.

Revolving

Revolving is the amount accumulated across the United States by individuals using credit cards every day. Some use them solely for big-ticket purchases, while others use the cards to purchase just about everything. Although credit cards are meant to be paid off each month, most people use the money as a credit that carries over each month that they pay interest rates on, depending on their credit scores.

Statistics

Although different groups report different consumer debt statistics, the credit card groups all agree that the total debt rose to settle somewhere between $4.1 and $4.4 trillion for a yearly high. With over $3 trillion of that reported consumer debt belonging to non-revolving accounts in education and car loans, the rest was left unexplained. The good news was that consumer credit card debt went down from over $1.3 trillion to just over $1 trillion, but the bad news is that it still is over the record once set for consumer debt in 2008.

Reasons

American citizens are reporting the use of credit cards for paying everyday bills more than ever before. Since the Bankruptcy Act of 2005 made it more difficult for anyone to file for bankruptcy, individuals are reporting they are using their cards to pay monthly bills, including food and clothing. Another surprising use of credit cards in the past 10 years has been for rising medical costs that consumers believe have gotten out of hand.

Credit

Here are some surprising credit statistics that may make you want to check your report on credit health, so you can evaluate your debts. Americans' average credit score is around 675, but the average household balance on credit cards it nearly $6,500. The report also provided the surprising fact that credit scores among the newest credit users are at their lowest in many years. Companies also reported that as people age, their credit scores rise, which makes sense because of how people learn to handle money during various recessions they live through.

Economy

At first glance, it may be confusing, but consumer debt is said to be bad for the individual, but good for the economy. As consumers make more purchases, the economy grows and becomes stronger, which in turn, benefits the businesses that provide jobs that your student loan allowed you to get. It also means you have a long-term loan on a house with interest rates paid to a business that pays for more jobs to build more houses, and that boosts the economy. As the upward cycle continues to move, people report a better lifestyle and more personal satisfaction, and that leads to more requests for products and services, which leads to more jobs.

Debt

Although debt may be thought to be good for the economy as a whole, there can also be a devastating side to the growing problem that is consumers owing money. As with anything, too much of a good thing can have detrimental effects on the whole, and that is certainly true of consumer debt. For many individuals, the money they receive each week in their paycheck is all that is keeping them afloat in the world of too many medical bills, too many monthly student loans, or an excess of credit card and car loans. Falling behind on paying bills for even a single month can have devastating effects on credit scores, and the revolving cycle of debt and bankruptcy can begin again.

If you are going to participate in credit card consumerism, the best thing you can do for yourself is to build your credit by having small amounts on your card to increase your score, but keep the amounts such that you can easily pay them off at the end of the month if you need to. Also, to protect yourself from an economic disaster, always keep three months of money in your savings account.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.