This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

There's a Debt Storm Brewing

NEW YORK ( TheStreet) -- We'll go with the good news first: Charge-off rates (the frequency with which banks have to write long-overdue credit card debt off their books because it's uncollectible) are at record lows, and issuers are passing some of their savings along to consumers in the form of lucrative initial rewards bonuses and 0% financing deals.

The bad news? Well, we're racking up unsettling (and potentially unsustainable) amounts of new debt that could put the economic recovery in jeopardy if left uncorrected.

U.S. consumers added nearly $82 billion in credit card debt to their tabs in 2011 and last year, and we're on pace to tack on an additional $47 billion this year, according to a recent CardHub study. It seems that optimism about the economic recovery is fooling many folks into believing they can simply revert back to pre-recession spending habits. Unfortunately, pre-recession income levels were tied to the housing bubble, and we were having trouble making ends meet even before it burst.

The question is what we're going to do about our recidivist debt problem. The answer clearly begins with a readjustment of expectations as well as some good old fashioned budgeting. Only two in five Americans even keep a budget, according to a survey from the National Foundation for Credit Counseling, and it's impossible to determine what luxuries are affordable without knowing how your spending stacks up against your income.

It doesn't end there, though. Everyone also needs to: 1) build an emergency fund and 2) pay off amounts already owed. That's in order of priority, believe it or not.

Part of the reason the recession was so severe is that too few people had the type of financial safety net needed to withstand prolonged periods of unemployment. We simply thought the good times would keep on rolling and didn't even consider what would happen should that expectation prove baseless. But we've seen where such thinking can get us. Now experts recommend that people have about a year's worth of take-home pay squirreled away, and beginning to make the monthly deposits necessary to build such a robust fund is actually more important than starting to pay off existing debt. After all, what good is being debt free when you're a pink slip or unexpected major expense away from ending up right back where you started?
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AXP $77.55 -0.05%
C $54.52 -1.00%
JPM $66.82 -0.76%
AAPL $125.62 -0.30%
FB $87.25 -0.34%

Markets

DOW 17,776.91 +93.33 0.53%
S&P 500 2,080.75 +11.99 0.58%
NASDAQ 4,995.3860 +3.4460 0.07%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs