US Households Owe Record Amount – More Than During Recession

The New York Times and the Associated Press have been reporting new statistics just released by the “New York Fed.” I’m sorry, but I talk Minnesotan and “New York Fed” is not something in my vocabulary.  So I looked that up and find that it’s the Federal Reserve Bank of New York.  If you can’t believe them, then who can you believe.

The New York Fed says that consumer debt in the US now exceeds the level it was at before the recession.  I will admit that I’ve been wondering a bit, because over the past couple months my phone has been ringing a lot more than it did in 2015 and 2016.  I think the ringing of my phone might be a better barometer of what’s going on than the financial reports in the media.  I remember in 2008 when it started ringing like never before, they were still saying on the financial news networks that there was no sign of a recession.   The media in general wants to downplay economic problems.  So I figure if they are actually reporting a story like this, things are probably worse than they are admitting.

The New York Fed goes on to say, however, not to worry.  The new debt is proportionately more auto loans and student loans than it was in 2008, and besides the people with the debt are more credit worthy now.  In addition, home ownership is down and a higher percentage of mortgage debt is held by people over 65, as if that somehow was good news.  They admit that the student loan debt is getting up there and could be a bit high.  Also it might be that defaults on those auto loans are on the rise.  But a lot of the language in these stories is very soothing, so not to worry.

My opinion, based more on what I see with my own eyes, is this.  I think it is time to worry.  People may be back to work, but their earnings are down.  They still need to drive and the old car can only go so far, so they are getting car loans that they can’t really afford.  If they are not back to work they are back to school, getting student loans that they can’t afford.  Getting credit might be a bit more work than it used to be, but with the help of Credit Karma and other similar sites the lenders can still be manipulated into granting credit to people who really can’t afford it.  Maybe on paper they look more credit worthy, but that could be as much a fiction now as it was in 2008.  In other words, I believe individuals in this country are getting overextended again.  For many, another bubble may be about to burst.

This post is for general information purposes only, is not legal advice and does not create and attorney-client relationship.

 

Rebuilding Credit After Bankruptcy

Rebuilding Credit After BankruptcyPeople ask me a lot of questions.  A  very common question is “how can I rebuild my credit after bankruptcy?”  Another variation of the question is “how long will it take to rebuild my credit after bankruptcy?”  For most of the people who are calling me, I think that is the wrong question.  Hidden beneath the “how can I rebuild my credit” question is another question which I am afraid is the real question:  “How soon can I get back in debt?”

Once the bankruptcy is completed, most of my clients are really out of debt – or at least nearly out of debt.  That can feel pretty strange for somebody who is not used to it.  It can feel uncomfortable, just not normal, not OK.  There can be a tendency to want to get back into debt as soon as possible, because being debt free is just too strange. Let me suggest this is not the time to be thinking about more credit.  This is the time to focus on staying debt free and actually enjoying being debt free. Being debt free will start to feel really good if you allow yourself some time to let it start feeling normal.

The better question would be “where can I learn some money management methods and principles?” I make no claim of being a money management expert.  If you want such an expert, I have been recommending Lutheran Social Services and/or Family Means for years.  Having said that, however, let me share a few money management ideas that I believe actually work:

  • Never let somebody else handle your check book or checking account.  Always take care of it yourself.  Otherwise you’ll never know what’s going on.
  • Minimize automatic withdrawals – they make it harder for a person to be aware of where the money is going.
  • Sit down and spend some time with your bills.  Touch them, smell them – I’m serious.  Accept that they are real and they are yours.
  • Pay each bill manually or as manually as technology these days permits.  Avoid everything and anything that helps you forget that the bill is there.
  • Avoid credit cards whenever possible.  In the situations where you must have one, use a debit card or a prepaid card.
  • Do whatever it takes to completely rid yourself of the idea that somebody or something is going to come along and bail you out.  No matter what the politicians, your friends, your relatives (especially parents) say, there are no free gifts.  No free bailouts.  No free money of any kind.  It all has a price of some kind that you will have to pay sooner or later.

Everything I’ve ever read about money management says you should do a written budget.  Personally, I’m not sure that’s such a great idea.  Diets don’t work for people who need to lose weight, and I think a budget is a lot like a diet.  Best to take it day by day, being mindful every day of where your money is coming from and where it is going to.  I don’t think it is at all a matter of needing to put yourself on something like a diet.  I think it’s mostly a matter of needing to really just start paying attention.

This article is for general information purposes only and is not intended to be legal advice. Kelly Law Office is a debt relief agency helping people file for relief under the federal bankruptcy code. 

 

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