By Chris Kramer
The current turmoil in the American economy is making headlines everywhere - and revealing some scary figures about the state of debt in the United States. According to the Federal Reserve Board, U.S. consumers currently have $2.56 trillion in consumer debt, 22% more than eight years ago.
And the average household carries $8,565 in credit card debt alone - a 15% increase from 2000. While it's easy to attribute these skyrocketing debt levels to a simple case of buying more than we can afford, a recent New York Times article suggests that the roots of rampant debt run much deeper than that.
As far back as 2005, the Acting Comptroller of the Currency delivered a speech in which she explained that, "today the focus for lenders is not so much on consumer loans being repaid, but on the loan as a perpetual earning asset."
In other words, lenders are looking at loans differently than they did in the past: because of the late fees and processing charges they add to accounts, prolonging a customer's debt can be more profitable than making sure it's paid in full.
So what are lenders doing to make sure we stay in as much debt as possible? Plenty, according to the Times. For example:
Besides these everyday debt-increasing techniques, larger changes like the introduction of the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005 (BAPCPA) have benefited mostly creditors, according to a new study.
It seems that since BAPCPA has been in effect, credit card revenues have increased by 25%, and the cost of borrowing from a credit card company has increased from 5-17%. In addition, filing bankruptcy is harder than ever for debt-laden Americans!
Rising costs of medical care, college education and credit card borrowing combined with lenders who are experts at keeping borrowers in debt is a dangerous combination for consumers. And the evidence is in the numbers.
If you're struggling with debt, consider talking with a lawyer for a free consult about your options.
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