These figures reveal that consumers are starting to open their wallets after years of financial restraint caused by the recession. But while the increase in spending represents good news for the economy as a whole, it may be a dangerous trend for American families.
Consumer Debt Could Lead to Jump in Bankruptcy Filings
The increase in consumer debt could lead to a rise in the number of people filing for personal bankruptcy, although this isn't necessarily a bad trend, as more than a million people obtain debt relief in bankruptcy court each year. In addition, the jump in debt means consumer spending in increasing, which is positive news for the economy, which has been limping along since the end of the recession.
Interestingly, consumer debt jumped across the board in almost every major category, including car loans, student loans, and credit card debt. And if Americans continue to add new debt at an 8.3 percent clip for the next 12 months, the country would see a $235 billion net gain in consumer credit, which amounts to more than $2,000 per household. This sudden willingness to shop certainly seems like good news for the economy as a whole, but, again, it may prove costly for families, many of whom may be calling a bankruptcy attorney once the dust settles.
Rise in Consumer Debt Likely Unsustainable
While the jump in consumer debt may mean the economy is headed towards a stronger recovery, it likely isn't sustainable. Sources report that the overall level of consumer debt, a remarkable $2.84 trillion, is an all-time record, even when adjusted for inflation. In addition, the total amount of outstanding debt has already surpassed the level it reached in 2006, just one year before the global economy nearly collapsed.
But the U.S. economy is driven by consumer spending, and the rise in consumer debt means that American families are finally to spend more at their local retailers. So the spending boom is a necessary ingredient to an economy recovery, but consumers must be careful not to become over-leveraged. Everyone would be wise to remember the harsh lessons of 2008.