There’s some good and bad news for those of us faced with the prospect of rising debt. Overall household debt is lower, but there are fewer ways to pay down the debts we do have.
The good news is that Federal Reserve Bank of New York reports that overall household debt has declined $1.3 trillion since its peak in 2008. This decline has continued through 2012 and looks to stay consistent into 2013. Since the Great Recession, consumers are compelled to better manage their debts and cash flow. This “deleveraging” means that households owe less to creditors and can better manage their finances. For example, credit card balances have fallen to $672 billion (a ten-year low) and credit card delinquencies have fallen to 10.9%–the lowest level since the fourth quarter of 2008.
Unfortunately, while most areas of personal debt continue to fall, student loans remain on the rise. These loans have increased by $300 billion in 2008 to $914 billion through 2012. This is suggestive of a “bubble” and could be a serious problem for financial institution going in to 2013.
Most economists are predicting that general deleveraging and rising student debt will continue into 2013. While this is good for individual households, the bad news is that the economy as a whole might suffer. Financial institutions will be looking at a decrease in revenue and therefore will be less likely to approve loans and may be more risk-averse in financing new businesses. Meanwhile, a high rate of student loan defaults would burst the student loan “bubble” and could lead to a new financial meltdown.
Both problems go a long way in explaining why 2013 will be a difficult economic year for job production. It also suggests that there will be more pressure on households, both men and women, to find ways to pay down their debts. In an era where jobs are scarce and sources of income are few, that could prove very difficult. This is a scenario where finding a low-cost start-up business, like a network marketing partnership, can be a real life-saver.