Dealing with Debt: Discipline and Decisive Decision Making

A report recently surfaced detailing credit card debt levels in the United States. The aggregate value of consumer borrowing increased by $18.4 billion during May 2017. During Q1 2017 (January, February, and March), the total value of outstanding credit card debt hit $1 trillion, while household debt now stands at $12.73 trillion. Consumers are likely to be extremely concerned about these burgeoning debt levels, given the uncertainty in the current economy.

The Fed has balked at additional rate hikes for the time being, citing concerns about a slowdown in economic growth. Much like the Bank of England, the Fed is reluctant to raise interest rates when the repercussions will be negative for borrowers. According to a Fed report, the last time debt grew so fast was in November 2016. At that point, the total value of consumer borrowing increased by $25.1 billion.

Real Wages Slow as Inflationary Pressures Grow

US household income has gradually increased over time, however CPI growth (Consumer Price Index) has not maintained pace with inflation. To make up for the shortfall, US households are borrowing more on their credit cards and other lines of credit. The trend has been noticeable since 2012. The following average credit card debt per household has been reported:

• 2012 – $14,539.11
• 2013 – $14,622.21
• 2014 – $15,054.54
• 2015 – $15,762.07
• 2016 – $16,060.78

Prior to 2012, credit card debt was decreasing year-over-year. It peaked in 2008 at $16,911.82 and dropped to $14,539.11 by 2012. The economic recovery post-recession has facilitated greater confidence among banks and credit providers, but US households are now relying more heavily on their credit cards to make up for the shortfall in their pay checks. In May 2017, the outstanding consumer revolving credit increased by $7.4 billion.

This is the highest credit card debt level since 2008, at $1.02 trillion. In July 2017, the US national average Fair Isaac Corporation (FICO) score rose to 700. FICO scores customers from 300 on the low end to 850 on the high-end. These scores are particularly important when it comes to determining how much credit you are eligible for, and what interest rate you will pay. While the housing crisis was in effect, credit scores hit an all-time low of 686. They have risen by 14 points since then, according to the VP of credit scores at FICO.

However, rising credit scores are also associated with increasing delinquency rates. The outstanding balance on credit card debt is now well over $1 trillion, and growing. There are several strategies that can be employed to increase low credit scores, including the following:

• Regularly checking credit reports for inaccuracies, errors and omissions
• Actively working to reduce debt levels
• Making timely, regular payments
• Aiming for 30% or less credit utilization

Credit Counseling Services Can Help

Consumers can learn to manage their debt through credit counseling services. Organizations in the business of guiding consumers towards debt relief, or debt elimination have plenty of tools at their disposal to help clients. Debt is the broad term given to the outstanding balances to all your creditors. Debt relief companies can work to eliminate debt by negotiating a settlement with your creditors. If you are required to file chapter 13 bankruptcy, credit counseling services are mandatory.

The info is freely available, and the counseling agency is accredited by either the AICCA (Association of Independent Consumer Credit Counseling Agencies), or the NFCC (National Foundation for Credit Counseling). Expert credit counselors at these organizations are skilled in financial planning, budgeting and debt management. Credit counseling is designed to prevent customers from filing for bankruptcy. They are tasked with teaching financial management to clients, and tailoring plans to individuals. Now that credit card debt is rising, credit counseling services are in demand, and they can certainly help individuals and companies to deal with debt more effectively.