What to Do About Record Debt

  • Not to be an alarmist, but the statistics on debt just keep on getting worse. A few weeks ago I highlighted the debt crisis in Puerto Rico. Now it's U.S. households that are setting records. The Wall Street Journal just ran an article with some new debt figures.

     

    "The total debt held by American households reached a record high in early 2017, exceeding its 2008 peak after years of retrenchment in the face of financial crisis, recession and modest economic growth. In the first quarter, total debt was up 14.1% from that low point as steady job gains, falling unemployment and continued economic growth boosted households’ income and willingness to borrow. The New York Fed report said total household debt rose by $149 billion in the first three months of 2017 compared with the prior quarter, or 1.2%, to a total of $12.725 trillion."

     

    So we now have more debt than we did before the crash of 2008! The one good thing to come out of that crash was that Americans reduced the amount of debt they owed. Now that's all washed away.

     

    That leads me to a couple of thoughts. First, if you're in debt, now is the time to get out. When the defaults start to increase like they did in 2008, lenders will raise rates and be quicker to call in your loan. The job market is relatively good now. Instead of adding to your debt, now is the time to do what it takes to pay it off. Even if that means taking a part-time job. We have a whole section in the library on earning extra cash.

     

    If you're not in debt there are still things that you need to do. Now is the time to be careful where you invest your money. So-called 'junk bonds' might offer a higher yield, but you could lose some of your principal if you own them when the economy slows or we have another 2008 meltdown.

     

    You probably should also be prepared for some inflation. The government wants to make it easier for people to repay their debts. One way to do that is to increase the money supply and trigger a little inflation. So if you've accumulated some wealth don't let inflation eat away at it.

     

    You might think that I'm overly concerned with debt. And, who knows, maybe you're right. But, at least for individuals, not being in debt is almost always a stronger position than owing a bunch of money. Being in debt limits the choices you have available to you. And, if you get too far in debt, it can dictate what you have to do. That's a place that no one should be in.

     

    Keep on Stretching those Dollars!
    Gary


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