The Consequences of American Consumer Debt

People everywhere are hurting, and not for nothing. After all, U.S. consumer debt topped $16 trillion in the second quarter, driven by increases in mortgage balances and credit card and auto loan debt. That’s $2 trillion more than the fourth quarter of 2019, before COVID-19 began its march.

Consumers are increasingly dealing with inflationary prices by borrowing more, which is becoming more expensive and causes other problems. In fact, the issue of debt is dynamic and its effects, far reaching. On that note, let’s look at the consequences of American consumer debt.

Growing Debt in America

According to the New York Fed’s quarterly household debt report, delinquency rates in the second quarter increased across the board, especially among those with lower incomes. The balances were mostly from credit cards, unpaid bills such as from phone and utility bills, and expensive unsecured loans. By June’s end, mortgage debt had risen to $11.39 trillion amid some of the worst inflationary levels in 40 years.

At the same time, the lending rate went up and experts predict even more increases this year. This is as the cost of houses and vehicles and other big-ticket items rose as demand outpaced supply. Then there’s the steep hike in the price of gas and groceries.

Further, auto loan originations jumped by $33 billion to $199 billion. And notably, credit card debt increased in the quarter by $46 billion – the largest the Fed has seen in 23 years. In fact, the number of U.S. residents with credit cards and personal loans rose to record highs. If you’re one of those consumers who is in over your head with credit card balances, you should consider a leading debt settlement company such as

Non-Loan Debt

Sure, borrowing causes the most debt, but you can also find yourself in a big hole due to emergencies, income reductions, and just from always having problems meeting obligations. Top sources of non-loan obligations include out-of-pocket medical costs, state and local government fines and fees, and unpaid bills for basic services.

The Effect of Growing Consumer Debt

Consumer debt promotes financial insecurity, reduces wealth, and hurts families. It may also weaken the economy.

The deleterious consequences of debt are significant, expansive, and varying. If your debt load is too big, that can trigger a downward spiral that wind up with court judgments, wage garnishments and other payments. If you file bankruptcy, you may not see long-term relief, particularly if spending habits remain poor. What’s more, debt makes it hard to save and build wealth.

While credit and debt have led to increased mobility for some consumers, others are stymied by the vicious cycle of borrowing and indebtedness.

Other negative effects of debt that don’t show up on many spreadsheets include mental and physical health issues, undoubtedly exacerbated by the pandemic. They can also include damaged social and familial relationships, according to the Aspen Institute.

Then there’s the larger impact of non-mortgage consumer debt independent of the linkage between debt and debt-propelled business cycles. Increasing credit card and car loan default levels give experts pause, since such rates often reveal households’ financial robustness.

Further, economists are increasingly concerned that, because student loan debt has negatively affected home ownership, economic growth could be impeded. Such concerns may be somewhat allayed by news that President Biden aims to slash individuals’ student loan debt, within limits.

So, yes, the consequences of America’s consumer debt are wide ranging and profound, for individuals as well as for society at large. And remember, if you have an acute debt problem, we recommend Freedom Debt Release, for its accreditation, experience, and reputation.     

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