Americans are falling behind on their debts

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I think we would all agree that the economy is, by and large, better than it has been for much of the last decade. More jobs, less unemployment, and a bit more money to go around. That increasing stability means that lenders are also more comfortable lending money, which means more debt for all of us. That growing debt, in and of itself, isn’t necessarily a bad thing – it’s only a problem if consumers begin struggling to pay it back.

Well, about that…

According to a study from the American Bankers Association, delinquencies are back on the rise. In the third quarter of 2016, credit card delinquencies rose to 2.74 percent of all accounts. Auto loan delinquencies also increased appreciably.

Subprime reigns supreme

If there’s a single culprit to point out, it’s most likely the continued prevalence of subprime lending. The majority of new credit card borrowers are opening subprime cards, which come with higher fees and rates. Those high fees and interest rates are designed to offset the risk involved with lending to consumers with less than stellar credit scores. So while consumers are more easily able to obtain credit than they were just five years ago, that credit is costly and can be difficult to maintain.

Be cautious with credit

It’s a treacherous balancing act. Consumers need to use credit in order to build their credit profile and score, but that credit can be costly when they’re just starting out or attempting to recover from a significant financial setback.

The key is caution and careful planning. To the best of your ability, always strive to limit credit purchases to amounts that can easily be paid in full before you’re charged interest. Treat your credit cards like debit cards – as extensions of your available income, not as a supplementary source of funds. Subprime terms can be burdensome, but if you understand what you’re signing up for and use that credit wisely, eventually you’ll build your credit and find that you qualify cards and loans with significantly better terms.

Don’t panic

Even with delinquencies trending upward, our overall level of delinquent debt is still well below the 15 year average of 3.68 percent. So we’re not in grave danger quite yet, but it is important to stay alert and cultivate positive money habits. Keep your accounts current. Try not to accumulate more debt than your income can sustain. Develop long-term plans and stick with them.

Most important of all, however – if you do begin falling behind on your payments, don’t forget that help is available and that almost all problems are easier to solve the sooner you address them. If you’re struggling to stay current with your debts, speak with a certified credit counselor and see what changes you can make to help you manage your budget and stay on top of your debt.

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.