New reports show that consumer borrowing has been surging to record levels since the Fall of 2021. In November alone consumer borrowing jumped by $40 billion bringing the total of U.S. consumer debt to more than $15 trillion. The great majority of this borrowing has come in the form of credit-card debt and non-revolving loans.
Specifically, credit cards debt increased by more than 19.8 billion, while non-revolving credit, things such as car loans and student debt increased by more than $20.2 billion.
Experts have different opinions as to why debt is increasing, but the reality is that we live in a consumer debt driven economy. Without consumer debt most of our economy would collapse. What does this mean for consumers that have borrowed more than they can afford to pay back. Typically, when faced with a household debt crisis, consumers have a few options. First, they can refinance their home. Refinancing your home means getting a new loan, at a higher number, which pulls the equity out of your home and uses it to pay off your debt. The advantage here is that in most cases you can reduce 20% interest rates down to 4% and have one easy monthly payment instead of paying on multiple cards every month. The downside here is that the purpose of home ownership is to build equity. Refinancing to pay debt takes your equity from you and leaves owing as much or more than the house is worth. In that scenario you've effective destroyed the purpose of home ownership and converted yourself into a renter. Another downside to using your home equity to pay off credit cards is that you homestead is protected in Florida. If you defaulted on these debts the creditors couldn't come after your home equity so it seems that people should think twice before giving it away. Second, if you qualify then a Chapter 7 bankruptcy will wipe out your unsecured debt. A Chapter 7 bankruptcy will also allow you to protect the equity in your home. Thus, you could file and wipe out your debt while also preserving your equity. Third, if you make too much money then a Chapter 13 bankruptcy will allow you to re-organize your finances and give you a clear and more affordable path to paying off your debt, while protecting your home equity. A Chapter 13 bankruptcy will give you one monthly payment that will be used to pay all your creditors. Then at the end of the payment term the remaining debt will be wiped out. No matter what you choose to do when facing significant debt issues, it is important to consult with an experienced consumer lawyer to discuss your options. Don't take advice from financial planner or fake financial experts on TV or social media. If they don't deal with the legal issues associated with consumer debt every day then they probably don't know what they're talking about.