Short term loans come as a respite to both government & consumers as they struggle with debt

If we had to explain what consumer debt is, it is the debt amount that you owe, as opposed to what the government or business owes. Consumer debt can also be called consumer credit and this can be any amount that is either borrowed from a credit union or a bank or even the federal government. Among revolving and non-revolving debt, the latter is not paid off every months but they are held for life of the specific asset. Borrowers can choose loans with either variable or fixed interest rates. Though mortgages are a huge loan type, they don’t fall into the category of consumer debt. They are just personal investments.

In 2019, January, consumer debt in the US rose by 5.3% to $4.034 trillion and this exceeded the record of the last month which was $4.015 trillion. Among this debt, $2.945 trillion of debt was in the form of non-revolving debt and it rose to 6%. Majority of the non-revolving debt come in the form of auto loans and education loans. School debt in 2018 December was at $1.545 trillion and car loans were at $1.255 trillion.

What makes so many Americans drown in debt?

The consumer debt levels in America have always remained high to such an extent that the levels never seem to decrease. Here is the main reason why Americans are always drowning in debt:

Due to the Bankruptcy Protection Act of 2005, credit card debt rose as the Act made it tougher for people to file bankruptcy. Due to this they took resort to credit cards due to their dire attempt to continue paying their bills. Credit card debt reached its all time peak of $1.038 trillion and there was an average of $8640 per family. Majority of the debt was used to cover all sorts of unanticipated medical bills and this was the reason why health care costs are the number one reason behind bankruptcy.

Consumer debt can also benefit the economy

Did you know that consumer debt can also contribute to economic growth? Till the time the economy grows, a borrower can easily pay off the debt rapidly in the future. This is because your education will let you earn money from a better-paying job. This in turn creates a positive cycle which plays a role in boosting the economy. You can furnish your home, buy a car, pay for education and also save money at the same time. 

Debt can be devastating

Just as there are advantages of debt, there are disadvantages too. In case the economy slides to a recession and you are unfortunate to lose your job, you may soon become delinquent. This can have a damaging impact on your credit score and also bar your ability to take out loans in the near future. Even though the economy stays robust, you can still take on debt. It is not only due to the poor spending habits but also because of the soaring medical bills. What is the best way of avoiding debt? If you pay it off every month and keep saving money, you can have enough for fighting emergencies.

What about people who struggle with their daily expenses?

While there are stories of economic gains which tend to dominate the news, we often neglect the story of those Americans who are striving hard to make ends meet, to continue with their daily living, to meet their unanticipated emergencies and to pay off their soaring housing costs. Did you know that California had the highest rate of poverty in the nation and that it still continues to struggle with seeking income equality that touches the rural and urban residents? There was an Assembly Bill 539 which was passed to abolish the small-dollar and accessible regulated loans on which Californians relied to make ends meet. 

However, the laymen of California who are struggling with their expenses strongly oppose to this bill. If the legislation outlawed more than half of these loans between $2500 and $10,000, this could lead to $1.5 billion of unmet need for consumer loans. A study revealed that African-Americans are more likely to find a drop in working hours and in pay for the last 5 years. Without these extremely accessible short-term loan options, the families will either not be able to meet their monetary obligations or they would have to take resort to the options that are less-regulated. 

None of us live in an ideal world and the Californians too need to receive the assurance that they too will have access to reliable and safe loans. Henceforth, the lawmakers should work to keep up a practical approach to lending which doesn't eliminate the options for the people who already have a tarnished credit score.