Is debt on the comeback trail?

by | May 19, 2017 | Bankruptcy

Whether it involves a celebrity changing a once-tarnished image, an athlete overcoming serious injury or a politician on the comeback trail following a scandal, everyone loves a good comeback story.

Even remade movies, resurrected film franchises and rebooted television shows can reclaim their former dominance.

And now, after a decade, debt is on the comeback trail.

The Federal Reserve Bank of New York recently reported that Americans have now borrowed more money in the first three months of the year than they had at the height of the 2008 credit bubble. Ten years later, household debt is back at $12.7 trillion and bigger than ever.

The cause of this recent debt growth is twofold. Millions of U.S. citizens who once struggled have repaired their credit enough to qualify for loans. Banks and other lenders also have increasing optimism about economic growth.

Consumer spending fueled by credit cards and other loans accounts for nearly 70 percent of domestic economic activity. Americans able to make significant investments in education and housing can build personal wealth and much-needed financial stability.

However, economists are less than exited. With a peak in borrowing come significant risks to the economy.

Student loans are a major factor behind the debt binge. The ballooning burden is currently at $1.3 trillion, doubling over the past nine years, could negatively impact economic growth. It could delay or prevent the purchasing of homes and other big-ticket items.

In addition, student loans now have the highest delinquency rates. Unlike other debts, debts for academic pursuits are nearly impossible to discharge in bankruptcy.

Add debt from car loans and credit cards and Americans could find themselves revisiting the past. Simply stated, newfound debt optimism could lead to an overreliance in paying for things that incomes cannot pay back.

Debt’s comeback trail may only go so far.