Rising Household Debt: A Cause for Insolvency Concern

Published by:
David Johnson

Reviewed by:
Alistair Vigier
Last Modified: 2024-05-11
Worried about rising household debt? Amidst the highest inflation rate seen since the early 1980s, many people are struggling to cover their daily expenses. As a result, an increasing number of consumers are turning to credit cards to make ends meet, leading to a surge in credit card debt.
As of the third quarter, total credit card debt stood at $930 billion, just shy of a record.
Compared to the previous year, credit card balances have spiked by more than 15%, marking the largest annual increase in over 20 years. This trend is hardly surprising, given that prices have risen by over 8% in the same period.

Rising Household Debt
The true measure of the impact of this phenomenon will be whether borrowers can sustain their credit card payments over time.
Eliminating credit card debt has become increasingly difficult due to high inflation and interest rates.
Credit card balances have returned to pre-pandemic levels, and many consumers are carrying these balances for extended periods. A staggering 60% of people with credit card debt have been carrying it for over a year.
Interest rates are on the rise
As the Federal Reserve increases its target federal funds rate, credit card annual percentage rates also rise. This is because most credit cards have a variable rate that is directly tied to the Fed’s benchmark.
As the federal funds rate and the prime rate increase, credit card rates also go up. Currently, credit card rates are at an all-time high of roughly 19%, up from 16% earlier in the year.
The Federal Reserve has signalled that there will be further increases until inflation shows signs of slowing down. In this environment, the best course of action is to pay down high-interest debt with a 0% balance transfer card or consolidate credit card debt with a lower-interest personal loan.
Understanding your net worth and goals is crucial in determining the amount of money you need to earn to cover expenses and save for the future.
Your net worth is a comprehensive measure of your financial health, encompassing all your assets (cash, retirement accounts, investment properties, valuables like art and jewelry, etc.) minus your liabilities (long-term debt like mortgages, student loans, revolving credit card balances, and personal loans.)

Set financial goals and budgets
To assess your financial progress, start by determining whether your net worth is growing or shrinking over time. If it’s decreasing, it’s essential to prioritize saving and reduce spending.
By setting financial goals and creating a budget, you can start to build wealth and grow your net worth. You may also consider ways to increase your income, such as negotiating a raise or starting a side hustle.
It’s also vital to manage your debt effectively to prevent it from becoming a burden. High-interest debt like credit card balances can accumulate quickly, so creating a plan to pay off this debt should be a priority. In contrast, investments like real estate or stocks may help increase your net worth over time.
By regularly assessing and managing your net worth, you can make informed financial decisions and work towards achieving your long-term financial goals.
Americans still have a lot of opportunities
Despite reports of wealthy Americans seeking investment opportunities overseas, the United States remains an economic powerhouse. Its position as a tech and financial leader, coupled with renowned educational institutions, ensures the country’s appeal to both foreign and domestic entrepreneurs and investors.
Research indicates that the US is highly competitive in the key drivers of wealth, including growth in key sectors, a well-developed and neutral news media, robust ownership rights, a highly developed banking system, and a stock market with fairly competitive tax rates.
The US is home to 770 billionaires and 5.3 million millionaires, holding a total private wealth of $65 trillion. This makes the US the largest wealth market globally, by a considerable margin.
Rising Household Debt
As we enter the greatest wealth transfer period in history, it’s more crucial than ever to implement diligent estate planning to preserve this wealth for future generations. Family offices and planners play an essential role in this process, ensuring that wealth transfer is carried out smoothly and without unnecessary tax liabilities.
The US remains a highly competitive economic environment, making it a desirable destination for investment opportunities. Its robust infrastructure and diverse economy have ensured its position as a global leader.
It’s essential to remain vigilant and plan wisely, particularly during the greatest wealth transfer period in history, to preserve and grow the country’s wealth for future generations.
Rising household debt is hurting a lot of people. Let us know if you need an insolvency lawyer.
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