Too Much Personal Debt

[legion]

Are we headed for another Great Depression?

IIRC, one of the major factors leading to the Great Depression was high personal debt and an inability to pay it off.

Negative amortizing loans...the fact that my sis-in-law graduated college with $40k in student loans and $50k in credit-card debt only to find a job for $8.50 an hour....the crap I see in college dorm rooms now (plasma TVs, etc.)...people shifting debt from credit cards to home equity loans back to credit cards (never really defaulting but not making any progress either)....

It all makes me wonder if the average citizen is now carry a debt load that they can't possibly pay off. And when there is mass defaults, there is mass economic dowturn.

Now I know the brain trust here is in better shape financially than the average citizen, but I'm not talking about us.

[kaisen]

I think you are correct. It's a shame.

[widebody911]

That's the downside of a consumerist, keeping up with the jones, gotta have it all right now society. Remember just a couple years ago the exhortations of patriotism to go out and spend?

[serge944]

The average American has less than 1000 dollars to their name - excluding mortgages.

But damn, 50k CC bill?? I'm stressing over the 900 I have on mine.

[Dottore]

Originally posted by serge944
The average American has less than 1000 dollars to their name - excluding mortgages.

That cannot be right, can it?

[serge944]

I remember reading the statistic a while back, but it was in the hundreds. I don't remember the source, though. You have to remember that there are many people living paycheck to paycheck and therefore have zero in the bank. This isn't even counting those that are neck-deep in credit card debt.

[masraum]

I was one of those people. I still don't have much in savings, but I am rebuilding my 401k and we are paying off the rest of our debt.

Before 2001 I was making money and getting pretty big pay increases for a couple of years before early 2001. I worked in IT (internetworking, Cisco, routers, switches, etc...). When the .com stock market crash happened in 3/2001 it was a bad thing. 2 months later I was laid off, and the 9/11 happened and the job market was even worse. I was out of IT and in a mundane job for almost 12 months. When I got hired back it was making about 55% of what I had been making before the crash. I had run up a bit of debt including 2 relatively small car loans (10 and 20k) in 2000. While I was laid off I managed to not default on anything, but my debt continued to build. I've still not worked back up to what I was making before, but I'm getting close. Between smart spending and a little luck (inheritance) we've managed to pay off almost everything. We've closed out 9 credit cards and only have 1 car loan. We are focused on getting rid of everything but a house payment. I'm not about to get into that situation again. It's not pretty.

[john70t]

Ask Fannie May regulators what they've been doing the last 5 years. People put themselves in loan situations where they pay many times the true cost of products, and become indentured servants of the banking system. We've got a culture heavily addicted to spending, heck even James Bond is a car salesman.
Combined with multifaceted ADD it's brought the economy through the last few bumps though. Those bumps would've knocked some sense into the consumer, and probably would have made a smarter, more concious populus, but that goes against the rancher philosophy of polititians and CEOs alike. That is a battle of the now-untethered giants.

This one's headed for the tubes by design. Mabye the 20-30 year outlook will show improvements as the US in the past has consistently performed well as the underdog.
Neither party wants to confront the public with the situation or claim responsibility, so we all watch the fountain at the bottom of the boat.

[craigster59]

My Wife and I live pretty frugally for our incomes. We pay our credit cards in full every month (only have 2, Discover and MC for places that don't accept Discover) and 1 car payment that I run thru work. We don't spend much on clothes, maybe $300 a year total. Most of the credit for our savings goes to my wife, she's "tighter than bark on a tree" as my Grandfather would say. We have friends who make less than us, have less assets than us, live in a nicer house and have more toys. We just couldn't let ourselves get into a precarious financial position like that, neither one of us would sleep well.

[john70t]

I kinda think a lot of people expect the dollar to go the way of the peso, with some kind of blanket bankruptcy ammemdment passed by one of the partys, so they're "having fun till the morning come".

[pwd72s]

Increases In Personal Debt Send Up Red Flags Credit experts report that consumers are borrowing more -- and experiencing greater difficulty in paying off what they owe. Economist Mark Zandi at Economy.com sees the process as a "scary sign."

Payment delinquency rates rose at the end of last year for just about every type of consumer loan. While economists expect late payments to rise when the economy slows, the extra stress on consumers comes at a time when analysts are banking on spending to keep the economy from falling into recession.

Mortgage delinquencies have surged to their highest level since 1992 -- with 4.54 percent of payments at least 30 days overdue in last year's fourth quarter, the Mortgage Bankers Association reports.

Personal bankruptcy filings rose to more than 1.4 million in the fourth quarter, after averaging about 1.2 million a year throughout 2000, Economy.com says.

The American Bankers Association says credit card delinquencies rose in the final quarter of 2000 to 3.34 percent of all accounts -- from 3.21 percent in the previous quarter.

Consumer debt soared at an unexpectedly rapid 10.5 percent annual rate in February, according to the Federal Reserve.
Economists say the increasing trouble Americans are having paying off debt is not enough in itself to cause the economy serious difficulty. But the problem could worsen sharply if unemployment rises further and more consumers have trouble keeping up.

Source: George Hager, "Consumers Dig Perilously Deep into Debt," USA Today, April 11, 2001.



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[techweenie]

Yes, personal debt is at an alltime high.

But so is Federal debt (see my thread on that).

Where is the perception that debt isn't the natural state of things?

[techweenie]

Originally posted by masraum
I was one of those people. I still don't have much in savings, but I am rebuilding my 401k and we are paying off the rest of our debt.

I'm behind you a bit. From a "paper net worth" of nearly four million to selling my house because I didn't have the money for the next mortgage payment in approximately 20 months. 9/11 was part of it, as was working for 1/2 a living wage through a couple startup ventures. Took a couple years off to regroup and am now in another startup with great prospects, plus a major investment of mine from 6 years back may be about to finally pay off.

I've noticed that when you're at a FICO of around 800, and/or carrying about 30% of your allowed debt load, you can do nothing wrong. Run a card to near the limit, and fees and penalties pile on at an unbelievable rate. IOW, if you don't have a big, steady income opportunity pending, cc debt will sink you.

[turbo6bar]

The wealthiest 1% has the biggest piece of pie since pre-Depression times. If the bottom can finance a lifestyle, revolution is deferred.

[gprsh924]

if it is true that the average american has less than $1000 then that is just sad

im 18 years old and in college and i just put $12,000 in a 7 month CD, plus i have $1,000 in my checking account in the moment (and thats all MY money that i worked for)

[Nathans_Dad]

My wife and I had big time CC debt when we got out of residency. In short, we had a total of about $110k in education loans, two car notes and $30k in credit cards. In the three years since we have paid off one car, added a Porsche (which I paid cash for), paid off all the CC debt and have put about $45k in investments. We hope to make about $50k off the sale of our house which will likely go to a down payment on a new house as well as paying off one of the car loans. I hope to be debt free (except for the mortgage and school loans which are set at 3% interest) in the next 18 months.

It takes some doing, and I realize that my wife and I have incomes that are larger than most Americans, but it can be done...

[Tim Walsh]

To be quite honest, if you've got twelve grand in a CD at 18 years of age, you're doing very well. When I was your age (only a few years ago) I had only had three from putting most of my birthday and christmas money into an account the dwindled badly during college. Granted I didn't hold any nonsummer jobs, but still many kids won't start off life with anything in the bank


I think the availability of credit combined with the lack of financial discipline is really what's hurting us when it comes to debt. It's just too easy to live beyond your means. Some months it's tough to make sure I've put enough money away to make sure everything will be paid for without loans.

[84porsche]

I agree it is a problem but it is up to those who have a unique understanding to teach those who don't understand in my opinion. I am an accountant starting out but have decent skills in managing money and I try my best to help those I know (friends/family) learn about budgets and what to do when they are in debt.

I give those I know the benefit of my experiences but this is stuff that should be taught in school such as how to balance a checkbook and how to be diligent and responsible. I know so many people that don't the first thing about money let alone how to open a bank account. I wish more people were fiscally responsible but if they were, credit card companies wouldn't be able to make the money they make.

[widgeon13]

Originally posted by legion
Are we headed for another Great Depression?

IIRC, one of the major factors leading to the Great Depression was high personal debt and an inability to pay it off.

I am not an economist but I don't agree with this statement. Back in 1929 most people did not have personal debt, there were no credit cards and lending was much more strict than it is today. People did not want to carry personal debt, they were more make it and spend it mentality. Debt and capital were managed on a local basis not a worldwide scope as it is today.

Is there some documentation/article that verifies your statement. I would be interested in reading the rational if that is in fact the case. Thanks

[gprsh924]

well thank you for the compliment

ive been lucky i guess, because the harder I work and the more I save, rather than my parents making me pay for more of my own things, they actually reward me by buying me more stuff. I think their philosophy is that the little money they are spending on me now will help me out hugely in a few years when i need to get an apartment or house or car