Consumer debt can sometimes be just that: consuming. People in debt often feel alone and like no one understands what they are going through. But consumer debt affects millions of people across the United States. In fact, consumer debt is searched twice as often on Google by people in the United States than in any other country. Consumers as well as corporations are always keeping tabs on the impact consumer debt has on the economy.
Consumer Debt Overall
According to Debtscape, a non-profit consumer debt organization, the national consumer debt in 2004 topped 2.04 trillion dollars. That amounts to more than $18,000 of consumer debt per household in the United States.
Consumer debt is made up of many different factors: credit cards, student loans, home mortgages and personal loans. Most lenders use a debt-to-income ratio when determining the interest rate for consumer loans or whether to even offer someone a loan. Usually, a debt-to-income ratio above 45 percent will flag the customer for either a high interest rate or denial of loan.
Credit Card Debt
According to Debtscape, as of 2004, credit card debt accounted for roughly 36 percent of overall consumer debt in the United States. It is estimated that the average family carries a balance of $8,000 over one or more cards from month to month.
Carrying a balance can make it extremely difficult to pay off credit cards. With their relatively high interest rates and low minimum payments, credit cards have become the leading source of consumer debt in the United States, according to Debtscape.
Student Loans
Student loans are often seen as a "necessary evil" of life. According to FinAid, 2/3 of college students between 2007 and 2008 took out financial aid in order to help pay for schooling.
Student loans generally offer lower interest rates than other types of consumer debt because they are backed by government guarantees. That means that if a student loan holder defaults on her loan, the government will pay the bank back the balance of the loan, making it easier for banks to offer lower interest rates.
The average college student accumulates more than $18,000 in debt over the course of her college career, according to statistics from the National Postsecondary Student Aid Study (NPSAS).
Bankruptcy
For many Americans, bankruptcy is a viable solution to mounting debts and payments. The government regulates bankruptcy, and in 2009, personal bankruptcies were up almost 1/3 over the previous year.
More and more consumers are looking to bankruptcy as an option to wiping away their consumer debt. But it can have negative effects as well. According to the Experian National Score Index, the average personal bankruptcy can result in an 80-point drop in credit score.
Debt Consolidation
Many consumers turn to debt consolidation in order to relieve the stress of debt and minimum payments. Debt consolidation loans are often offered by banks and other institutions. In essence, the financial institution will meet with you to determine the total amount of consumer debt under your name, then provide you with a loan to pay off all of it. You would then owe that company the total amount of all the debt you used to owe several companies. This can often lead to a better interest rate than you were getting over several loans, as well as lower monthly payments. However, when you do the math, you might actually be paying more if you only pay the minimum payments over a longer period of time.
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