Debt can be a long road
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The Great Recession caused US consumers a variety of aches and pains. The unemployment crisis alongside excessive mortgage debt drove tens of thousands to bankruptcy and foreclosure. In the wake of the financial mess, many Americans tried to divest themselves of debt, choosing to use credit cards less and borrow more wisely. But now, a handful of years past the crisis, a study by the Pew Charitable Trusts shows we're getting in deep with debt once again.
What the study found
The Pew study showed that debt has continued to grow faster than income in the post-Recession period. For low-income households, it's even worse. Where before they owed 20% of their annual income, on average, eight years ago, now it's up to 50%. And Pew found that the middle class is not immune to the debt mushroom – most middle earners are now more than $7,000 in debt than they were a decade prior. That's an increase of roughly $1,000 per year in additional debt.
Mortgage debt increases across the board
Pew research indicates that Gen Xers have higher mortgage debt than did their parents because many bought when the real estate market was at its highest. They owe roughly double on house debt what their parents did at the same age. And what's troubling is that more Americans are entering retirement with debt which is something the generation before did not do as often. 80% of Baby Boomers are hitting their golden years with mortgage and credit debt – and many still owing student loans.
What do we owe and for what do we owe it?
Of the 80% of us that are in debt, mortgage debt is the most common liability – 44% of Americans surveyed by Pew owe for a home. Credit cards are the next most common source of debt with 39% of consumers carrying credit card debt over month to month. Car loans are the next most common source of debt with 37% of us financing a vehicle. And 21% of all US consumers now owe student loans. Gen Xers are most likely to be in debt with 89% owing some sort of liability.
Debt is a necessary evil
No one wants debt – but we still keep taking it on – evidenced by the 69% of respondents that told Pew they see debt as an unwelcome necessity. And 68% said that using credit had “expanded their opportunities.” What's interesting is that Millennials are much more opposed to debt than the two generations that preceded them and are much more likely to spend cash (via debit cards) rather than swipe credit cards or borrow to pay for what they want.
Retiree indebtedness is a growing problem
When working Americans accumulate debt, that's one thing, but when retirees on fixed incomes are plagued by debt, it can be far more troublesome. 80% of Baby Boomers now enter their golden years with less “gold” than ever because they face debt. Those with mortgages still owe roughly $90,000 on their homes thanks to tapping into home equity during tight financial times. Even among the Silent Generation, those born in 1945 or prior, 56% have debt.
When debt is too much
For those that do not have equity in their homes or a lot of cash in the bank, but are struggling with overwhelming debt, the best solution may not be to muddle on through but to look for a reset button. This can come with Chapter 7 bankruptcy. Even for high earners, Chapter 7 is an available remedy if the debts owed outweigh the ability to pay them. If you're struggling with debt that leaves you living paycheck to paycheck and unable to save, you may need to consider a financial reset.
If you live in North Carolina, contact the Law Offices of John T. Orcutt to find out more about how bankruptcy can give you a fresh start and the financial peace of mind you deserve. Call +1-919-646-2654 for a free consultation in Raleigh, Greensboro, Garner, Wilson, Durham, or Fayetteville.