Credit card debt, college debts, sinking average families?

The New York Times has started a series on debt, and the first issue contains some discouraging stats. The liberalization of lending rules has, over the years, created a nation of serious debtors. Today, the average household has $8,565 in credit card debt, $14,414 in vehicle and tuition loans, $10,062 in home equity loans and $84,911 in mortgage debt. That adds up to total debt of $117,951 for the average household.

Some other interesting factoids: From 1989 to 1995, lower income families took on credit card debt faster than any other group. Borrowing by lower income families kept growing well into the new century. 40% of households carry a credit card balance and the average family has 13 cards.

Credit card debt is unsecured debt, and therefore is of the least concern.  If things get bad, bankruptcy can erase (or almost erase) it. Not paying mortgage debt or auto loans can cost you your home, and student debt cannot be canceled by bankruptcy.  I advise people not to borrow money against their homes to pay down credit card debt.

People tend to be afraid of bankruptcy (“It will ruin my credit” is something I often hear) but I think it can be a very effective cure for those whose debts have overwhelmed them. (This is often the result of losing a job, or unexpected medical bills.) Most people who file bankruptcy have been missing bills for some time and they have little to lose in their credit rating. Sometimes people’s credit rating actually improves after bankruptcy.

If done correctly you should be able to keep your home and your car and go on with your life without those pesky credit cards. That is probably a good thing. But you need to consult an attorney who specializes in personal bankruptcy to get reliable information about your situation. I am not a lawyer.

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