For the first time, U.S Household debt has topped $ 14 TRILLION. It is true also that the percentage of household’s income to service that debt is the lowest that it’s ever been (thank you low interest rates) but the pattern is concerning. Households run up credit card and other debt, then use the equity in their house to pay it off and start all over. It works until it doesn’t. (See 2008.)
Once house prices begin to taper off, the equity wont be there to bail out the borrower, yet the borrower has the pattern of living outside their means, as indicated with the amount of credit card debt the average US Household currently carries. As of February 2020 revolving consumer credit debt reached 1.03 trillion, up from 810 million in the 1st quarter of 2018.
Another variable will be if and when the FEDs begin to raise interest rates from their artificially low rates we currently see. If the payment they refinance into ends up being higher than their current payment, households will have to rely on their credit cards even more to make ends meet.
“Keeping up with the Joneses’ can be detrimental to the financial security of the household. We like new cars, big TV’s, nice houses, expensive vacations etc. But unless the household income rises to keep us living the lifestyles we’ve become accustomed too, soon the debt will be too much to handle.
As Bill Connors asked in his last Newsletter posting, ‘How Much Debt is Too Much?’
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