Worrying is a bit passive. We say it is time to shore up the process or circle the wagons. Credit is a good thing for the economy and households, but it does go through cycles as household budgets ebb and flow.
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Americans owe more than ever before, with household debt hitting a record of nearly $13 trillion. And auto loans, home loans and credit card debt are all still on the rise, according to the Federal Reserve Bank of New York.
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The last time borrowing hit a record, the country was in the throes of the financial crisis. That might sound ominous. But the economy is in much better shape now.
The economy seems better than it was 2 years ago. Inflation is under control. People are working. Gas prices are rising but they are still relatively low. Taking on debt requires confidence in the future, assuming we are using that debt for aspirational products, not dining and traveling, or consuming.
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Research shows that if you have a college or advanced degree you’re much more likely to own a house and earn a higher salary. But another report by the New York Fed shows that rising student debt is becoming a bigger drag on many Americans’ finances.
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Also, incomes have been slowly rising. So while overall debt is at a new high, it’s still a lower percentage of people’s incomes than it was when the financial crisis hit.
The takeaway is simple. Yes, debit is up, and no, that is not necessarily a bad thing. But as we say, it is time to circle the wagons and fortify, no matter how good people feel about taking on debt.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
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