Americans deep in debt

AP ^ | January 6, 2004 | Eileen Alt Powell

[sarcasm]

NEW YORK - As the bills from holiday spending sprees arrive, Americans are finding that the mountain of debt they've built has gotten even higher.

Consumer debt has more than doubled in the past 10 years to record levels, making it hard for many families to cope.

For Bruce and Lorraine Esbensen, of Clifton Heights, Pa., trouble started when they spent lavishly on their wedding six years ago.

They soon found themselves falling behind on their bills.

"Creditors were calling, and I knew if I paid one, I couldn't pay the other," Lorraine Esbensen remembers. "It was so painful I got to the point where I didn't want to answer the phone."

Credit counselors helped the couple work out a repayment plan, but it still took more than four years to pay down their debt.

"We still basically live paycheck to paycheck," she said. "But we do have an IRA going now, and we're careful with our spending, so we feel better."

Consumer debt hit a record $1.98 trillion in October 2003, according to the most recent figures from the Federal Reserve. That debt - which includes credit cards and car loans but not mortgages - translates to some $18,700 per U.S. household.

At the same time, the government says the nation's savings rate dropped to just 2 percent of after-tax income in the first half of the year. That means many people lack the means to deal with financial emergencies, much less their eventual retirement.

Experts worry about the impact not only on individual families but on society as a whole.

"The Depression generation is passing on, and we're losing their values," said Howard Dvorkin, president of the nonprofit Consolidated Credit Counseling Services in Fort Lauderdale, Fla. "Now we've got an entire generation that doesn't know anything about thrift and careful spending. It's tearing the fabric that made this country great."

Just how did American consumers get so deeply in debt? Robert D. Manning, a sociology professor at the Rochester Institute of Technology who wrote Credit Card Nation - The Consequences of America's Addiction to Credit, says the problem dates back to the 1980s, when financial institutions began issuing credit cards and making loans to people who wouldn't have qualified in the past.

The nation's credit-card debt stands at $735 billion, or nearly $7,000 per household.

What's surprising about the nation's debt is that it has continued to rise despite record numbers of mortgage refinancing from 2001 to 2003, many of them yielding cash that consumers have used to pay down credit-card balances.

Americans spend a near-record 18.1 percent of their after-tax income to cover debts, including mortgages.

[sarcasm]

That debt - which includes credit cards and car loans but not mortgages - translates to some $18,700 per U.S. household.

Yikes!

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[sinkspur]

Bankruptcy courts aren't as friendly any more.

Sooner or later, people learn that they cannot live beyond their means.

[Damocles]

My Dad left me with a sage bit of wisdom:

"If you can't pay cash, you can't afford it"

It's worked well for me to date. No debt but my mortgage.

[Damocles]

Oh yeah, and get rid of those snakes in your wallet (credit cards), eventually you will get bit playing their money games...

[2banana]

"The Depression generation is passing on, and we're losing their values,"

You mean the same generation that gave us and religiously votes for the ponzi scheme of social security that will go bankrupt in 15 years? You mean the same generation that religiously votes for massive increases in the soon to be bankrupt medicare scheme? You mean the same generation that voted FDR into office 3 times that gave us the nanny state we have today?

[sarcasm]

Credit cards are fine - as long as you pay the full balance every month.

[Mulder]

You mean the same generation that voted FDR into office 3 times that gave us the nanny state we have today?

Maybe the 'greatest generation' wasn't so great after all.

[Frank_Discussion]

I've been trying to get there, though I finance my cars, too. I keep my vehicles as long as I can, though, well beyond the last payment. I feel that if you're going to buy a car, get the best deal you can on a new one that fits all your needs, then plan on keeping it.

I hope to get to the postion to do this with cash someday, though. THAT would be a thrill!

[metalcor]

I see numbers like these and doubt their accuracy or at least the truth. For instance, in our case we have an average credit card bill of 2500 a month, but pay it off each month. Does that mean we have $2500 credit card debt? We have a $20,000 car loan balance at 0% interest on a vehicle valued at something more than the loan balance. Do we have a $20,000 debt? I suppose in the technical sense it certainly is, but it isn't neccesarily a sign of financial problems.

[FITZ]

I like them for the convenience --- and you can turn them into debit cards if you pay money on them before you use them --- for example if you are taking a trip, you can send a check to your account, use your cards and owe nothing. You don't have to worry if you go a little over since they're still credit cards.

[Damocles]

Just bought our "new" minivan with cash. Couple years old, so the original lease owner took the biggest depreciation hit.

I drive a piece-o-crap Honda to work, but make the payments I would normally have to my bank account. Couple years I'll by a newer car with cash.

It can be done, it just takes a plan and the resolve to stick to it.

[FITZ]

For Bruce and Lorraine Esbensen, of Clifton Heights, Pa., trouble started when they spent lavishly on their wedding six years ago.

You see quite a bit of this --- nothing like getting started off on the wrong foot.

[stainlessbanner]

Just how did American consumers get so deeply in debt?

1. Don't teach responsible spending, budgeting, life skills in High School
2. Push credit cards like candy on college campuses
3. Pump up college students to believe they will make $70k right out of school

[dakine]

I bought a used 2002 last spring, a lot easier getting a good price after the dealer asked "how I wanted to finance",
and I told him I was writing a check...

[madison10]

That debt - which includes credit cards and car loans but not mortgages - translates to some $18,700 per U.S. household.

Hmmm...that's about right. Sigh.

[sarcasm]

and you can turn them into debit cards if you pay money on them before you use them --- for example if you are taking a trip, you can send a check to your account, use your cards and owe nothing

I thought that credit card companies frowned on that practice.

[SLB]

Dave Ramsey and Financial Peace University

Has some of the best financial advice I have found. We are graduates of FPU. We have some debt, but not near what we used to have. We use envelopes and pay cash. One of the largest surprises was dickering with a car dealer and then writing a check for a Suburban. You would be surprised what kind of deals you get when you use nothing but cash.

[Damocles]

Yeah, I love the look in their eyes after that comment. You can see the wheels a-turnin'.

Did that to a furniture salesman, except I had $100 bills in my pocket. When I took them out, he about collapsed...also gave me another $300 bucks off the "lowest" price.

Something about cash...

[Frank_Discussion]

Oh, I know, but I've had some "issues" when buying used cars and ended up hating them and all of their maintenance problems. I enjoy having a car with a warranty that takes care of any tweaking that may be needed. By the time the warranty runs out, most if not all problems in a vehicle are usually locked down. That's my experience, anyway.