Worried? Happy? Both? Neither?

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December 21, 2016 by Mark Hammerstrom

“Don’t Worry, Be Happy” — Bobby McFerrin

I love Bobby McFerrin’s music. Just not this song.

I have a great admiration for the man and his musical genius, but it is unfortunate that for most of us this is the song that comes to mind when his name comes up. Released in 1988 (28 years ago!), it was the first a cappella song to hit number one on Billboard’s top 100 chart.  In a weird twist of fate, apparently it replaced “Sweet Child o’ Mine” by Guns N’ Roses.

My problem with the song is that it has become the worst ‘ear worm’ ever. I even hate to admit this, but I woke up this morning and had the song in my head from the get-go.  Suffice to say it took all my concentration to get it to stop, although I admit its catchiness sort of set the tone for the day.

Is this how we are living today? In some ways it seems so, as the financial markets just seem to keep motoring along while consumer debt continues to rise.

I have written before in this blog about the rapidly and somewhat alarming increase in the amount of consumer debt.  Let’s review what has happened since I wrote about it last summer.

In addition to increasingly positive economic numbers, we have a new President Elect and congressional majority who seem committed to further stimulating growth. Recent consumer confidence numbers reflect increasing optimism.  We are seeing a full blown “Trump Rally” in the stock market.  Last but not least, the Federal Reserve dared to raise interest rates last week for the first time in a year—remarkably only the second time in the last decade–with a promise of more to come in the next few years.  If you don’t feel a little whipsawed I would be surprised.

So should we just “Don’t Worry, Be Happy”?

Once again, that depends.

Recently NerdWallet released its annual report “2016 American Household Credit Card Debt Study.” The study was based on data from the Federal Reserve Bank of New York and the U.S. Census Bureau.  The intent of the study was to “…determine how much debt Americans are carrying, why they have so much debt and how this debt will grow and affect the U.S. economy in the future.”  Some key findings they reported include:

  • Household debt grew 11% in the last decade, and the average household has more than $16,000 in credit card debt. They report, too, that the average household with debt of any sort, including mortgages, owes more than $132,000.
  • NerdWallet says that this is not “lifestyle creep” as one may imagine it would be in a growing economy, but rather reflects significant increases in the cost of living which now exceeds income growth.
  • Income has grown about 28% since 2003, but the cost of living has increased by 30%.
  • The fastest growing expenses are medical (57%), food (36%) and housing (32%).
  • Thus it becomes “…challenging for many families to make ends meet without leaning on credit cards and loans.” The average household pays $1,292 in credit card interest alone.
  • Rising interest rates will increase the cost of borrowing, further adding to debt burdens.

So, should we start to ‘worry and not be happy’? Some of the data is reminiscent of trends last seen in 2007, right before the ‘Great Recession.”

The report is clear that although overall debt levels are at historic highs, this does not mean another recession is looming. Credit card debt in and of itself is not the culprit.  “When the next recession strikes, it’s unlikely to be the result of poorly managed credit card debt.” Says Sean McQuay NerdWallet’s Credit and Banking Expert.  Total debt today is expected to surpass that at the start of the ‘Great Recession’ mainly due to mortgages and student loans.

One of our goals at UCS is to keep our clients appraised of trends and changes that can have significant impact on their ability to manage their bad debt. As we all know too well, economic conditions can change quickly.  It pays to remain vigilant.  As your debt collection needs change, we are here to help!

Founded in 1950, United Credit Service, Inc. is a full service, licensed revenue cycle management and debt collection agency in Wisconsin providing effective, customized one on one management and recovery solutions for our business partners. Visit our website at http://www.unitedcreditservice.com, call 877-723-2902 or check out our YouTube video.

 

 

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