Answer: We don't know yet. The numbers above are the annual levels of consumer debt from 1999 to 2003. For instance, there was $2,025 trillion in consumer debt outstanding at the end of 2003. At the end of 2004, it undoubtedly will be higher because the second-quarter level already had reached the level of $2,030 trillion.

Many people cite these climbing figures as end-of-the-world statistics. With consumer debt levels this high, all hell might break loose. The strength of the consumer during the last recession made it one of the most shallow recessions ever. But that consumer strength was debt-fueled. Now it's weighing on us, as noted repeatedly in the media, and might bring us down. The government-tracked debt-service ratio, which is the ratio of debt payments to disposable personal income, is at its highest level ever. I'll get to why this is not necessarily a bad thing.

On June 21, I wrote about two stocks that might benefit from this trend. Encore Capital Group (ECPG - commentary - Cramer's Take) and Asta Funding (ASFI - commentary - Cramer's Take). Both of these companies buy charged-off debt portfolios from banks and credit card companies at significant discounts, usually for 3 cents to 6 cents per dollar of debt. They then outsource to collection agencies or use their own internal collection agencies to collect. Typically, they are able to collect 8 cents to 12 cents per dollar of debt. Recent public entrants into this space include Portfolio Recovery (PRAA - commentary - Cramer's Take), which went public in November 2002, and Asset Acceptance, which went public in March 2003.

Encore Capital has done well since June, going from $14.32 to $18.64, with an interim high reached just three days ago at $19.77.

Encore Capital Group (ECPG:Nasdaq)

Source: BigCharts.com