Auto and School Debt up the Most

The AP reports that US consumers borrowed more in November in order to purchase cars and to go to school but left their credit cards alone.

The Federal Reserve said consumer borrowing rose by $16 billion in November to a record high of $2.77 trillion.  Borrowing for autos and student loans increased $15.2 billion.

Americans are remaining cautious on keeping their credit card debt in check but willing to take out loans for school.  One reason for the increase in debt for school is most likely those who have lost jobs are going back to school.

The Federal Reserve’s borrowing report covers auto loans, student loans and credit cards. It excludes mortgages, home equity loans and other loans tied to real estate.

With the U.S. economy supposedly showing signs of improvement, consumers increased their spending in November, aided by lower gas prices and firm job growth that carried over into December. Employers added 155,000 jobs in December and 161,000 in November.

Steady hiring may have stimulated consumers to keep borrowing and spending, in the face of tense negotiations to resolve the fiscal cliff.

Will the rise in consumer debt make more bankruptcies inevitable?  While credit card debt stayed level there is still a lot of debt out there and adding more consumer debt to the mix I fear will likely lead to once again an increase in bankruptcies.

Unemployment numbers are still bleak and the economy, while many say is on the rise, is still at an all-time low.  No matter what the media puts out there, many Americans are still out of work and struggling.  Commodity and food prices are on the rise, there’s fear the U.S. credit rating will take another hit and the GDP is likely to dip below 20% for the first time in modern history.

With all of this going on, the majority of Americans will no doubt be affected and predictably have no choice but to file for bankruptcy.  Not helping the problem, recently banks have made it possible for severely financially strapped people to continue leveraging themselves.

I would suggest that if all possible to avoid taking on anymore debt.  We are a “want it now” society and financing the things we want is now common place.  I can still hear my father’s voice in my head saying “If you can’t pay for it, you don’t need it.”  He never financed anything, particularly in his younger years.  The cars were paid for, no mortgage on their first house.

Of course times are different I realize that.  It’s very unlikely that you could buy a house without financing.  Cars and other things however are possible.  Starting about 4 years ago my wife and I have made an effort to downsize things in an effort to be debt free.  We got rid of the expensive cars and their payments, and bought good older cars that we could pay cash for.  When it came time for a new TV, I traded some design work for the used, but in perfect condition, big screen plasma.  We are trying to live b mantra, “we don’t need it if we can’t pay cash for it.”

Do we miss the nice new cars? Sure.  Do we miss the high car and insurance payments? Nope.  We don’t use credit cards for Christmas anymore and the kids haven’t seemed to notice.  Going out to dinner is a treat now instead of a normal occurrence.  And we make pizza at home, as a family project instead of ordering delivery.

I’m not so naive to think that if the air conditioning or the hot water heater went out in the house, we would just do without until we had the cash.  But we do put off buying things just because we want it and there is still room on “the card” to charge it.

While not for everyone, I think everyone can step back and look at their spending, particularly their charging habits, and find somewhere to make cuts that won’t hurt too badly.

People will try to manage their debt but rather than living with the constant stress of high debt, there will be those that find it wise to consider bankruptcy.