Consumer Debt Reaches $2.4 Trillion in the U.S

In a recent report, the Federal Reserve points out that consumer debt in the U.S has increased once again. Consumer debt is currently standing at $2.4 trillion which is pretty alarming. The U.S economy is growing but at the cost of debt-fuelled consumer expenditure. This can have a disastrous effect on the economy. With an increasing number of people opting for debt relief programs like debt settlement and bankruptcy, we might be heading for trouble. In between, the economists have forecasted that consumer debt will soar further in the coming days.

The increase in consumer debt was expected because the financial analysts predicted a rise of $3.5 billion. However, the Federal Reserve report exhibits somewhat confusing facts. While consumer debt has increased by 2.5% in January, credit card debt has declined. Credit card debt has dipped $4.2 billion and stands at $795.5 billion. This is the lowest figure in last six years.

Why did consumer debt increase in the U.S? This is certainly because the government made it easy for people to borrow money from the financial institutions. Quite clearly, the government is leaving no stone unturned to increase consumer expenditure. Financial analysts believe that this is a rather dangerous policy.

The current unemployment rate in the U.S is 9%. Consequently, the Americans are facing serious credit crunch. Encouraging people to spend more in such a situation can lead to catastrophic results. The common people probably understand it better than the government. They are being wise with credit cards these days. The decline in credit card debt is a reflection of the fact. Credit card loans as well as delinquency rates have dropped. This implies that people have learnt their lesson with credit cards.

There can be another reason behind the soaring of consumer debt. The financial institutions have made it difficult for people to take home equity loans or any other secured loans for that matter. Therefore, people are turning to unsecured loans to obtain credit. As a result, consumer debt is steadily climbing up.

Inflation is adding to the plight of the consumers. Due to stagnant income growth, people are running short of money. But the cost of living is increasing owing to the inflation. Therefore, people are opening new lines of credit. The result is an increase in consumer debt.

Consumer expenditure constitutes nearly 70% of the U.S economy. A hike in consumer debt might be indicative of the fact that consumers are beginning to get back their confidence in the economy.

Also, non-revolving debt increased by 6.9% in the month of December. This type of debt includes student loans, auto loans etc.