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.
Avoid Taking on More Debt
If possible, avoid taking on more debt. We live in a “want it now” society, where buying on credit has become normal. I still remember my father saying, “If you can’t pay for it, you don’t need it.” He never financed anything — not cars, not even his first house. Everything was paid in full.
Times Have Changed
Of course, times are different now. It’s hard to buy a home without financing, but cars and other items can still be purchased with cash. About four years ago, my wife and I decided to downsize and work toward being debt-free.
We sold our expensive cars, cleared their payments, and bought reliable older cars with cash. When we wanted a new TV, I traded some design work for a used but perfect big-screen plasma. Our new mantra became simple: “If we can’t pay cash for it, we don’t need it.”
Living Within Our Means
Do we miss the shiny new cars? Sure. But do we miss the high car payments and insurance bills? Not at all. We stopped using credit cards for Christmas, and surprisingly, the kids haven’t even noticed.
Dining out has become an occasional treat instead of a routine. Now, we make pizza at home together — it’s cheaper, fun, and brings us closer as a family.
Managing Debt Wisely
Some people try to manage their debt but live under constant stress. For them, bankruptcy may become a practical option to start fresh. Whatever path you choose, the goal should always be to regain control — not let debt control you.
