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American Consumer Debt Trend Is Still Troublesome

When debt accumulates in this area, it also implies that the consumer is not able to repay even smaller debt obligations and is more likely to experience defaults or bankruptcy in the future.

Consumer credit card debt is now coming in above $856 billion, which will become more troublesome if we start to see marked increases in revolving balances and missed payments. For these reasons, it is important to always pay more than the minimum balance as this is the best way to avoid the predatory lending practices that are seen in many credit card agreements. This is especially true for card agreements that are directed at the sub-prime consumer base, as these agreements are almost always accompanied by interest rates at significantly higher levels.

Student Loan Defaults: Potential for Long-Term Concerns

The next important area to watch can be found in trends related to student loan debt, as there have been massive increases in this area in the last few years. On a yearly basis, the latest official figures show that total student loans have risen above $1 trillion. This is an increase of 12.3% from the previous year as more students have opted to avoid entrance in a weaker jobs market, choosing instead to invest in higher education. But while many will argue that student loan debt falls into the "healthy debt" category, there is some cause for concern as well. In particular, this is true in cases where the overall debt levels fall out of proportion with the expected earnings in careers associated with a student's chosen degree.

Of course, hiring rates and long term career prospects for those with a college degree far outweighs those with high school diplomas, so it does make sense to look at student loans as a viable option when pursuing an advanced degree.

Recent economic data show that monthly hiring numbers have improved far beyond the original analyst expectations in the financial markets. It will be important for these trends to continue in order for new graduates to keep a lid on their student loan levels. There are protective measures in place for students to avoid defaults in their earliest stages after graduation (with measures like deferment periods and subsidized interest rates).

In any case, the next few years will prove critical as we will need to see some slowing in the annual accumulation rates for student loan increases. This is likely to be the case as the labor market continues to show improvement. Confirmation will be important, however, in order to assess the true performance in these trends and this will be a key area to place the focus as the economy continues to progress in 2014.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Sam Kikla is the founder of BestCredit.net, which offers the latest information in consumer trends, debt management and labor markets as they relate to the broader market environment. Focus is placed on investment decisions that are affected by consumer trends, and credit markets are addressed from the long-term perspective, with most of the attention paid to macro events influencing multi-year market positions.
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