The economy is improving with more jobs and less unemployment than any time in 8 years, but the changing landscape of consumer debt is a black cloud on the horizon you need to understand.
A large part of the cause is stagnant wages as American workers continue to get less for increased productivity. There has also been a reaction to holding off on replacing aging vehicles, appliances and other big ticket items from the early days of the financial crisis. Consumers are generally optimistic about their financial situations and this generally leads to more borrowing.
The average vehicle on the road is 11 years old and more of them will have to be replaced as they inevitably break down. There are also aging refrigerators, washing machines and other large appliances. In addition, many families have not been able to reduce their debt and are getting tired of holding down spending as debt rises faster than income.
There are far fewer bankruptcies and defaults on loans and people are generally being more careful with their money. Still, a large portion of consumers can’t seem to get ahead because salaries are not going up and prices continue to rise, even if inflation is low.
A large portion of our society lives paycheck to paycheck. Rainy days have been a fact of life for some families for years, and there is nothing left in the bank. Since many Americans do not have anything put away for a ‘rainy day’, they have no choice except borrowing. Debt is the only way to deal with a serious illness or broken down vehicle.
While credit card debt is down, student loans and medical bills have more than taken up the slack.
In the early days of the credit crash, many middle-income households were forced into financial trouble by loss of jobs. That has largely been corrected and this segment of the economy should remain strong. The new debt is now largely with lower economic consumers. The consumers in this segment may have jobs, but their low wages and no prospect for raises are squeezing them into a credit situation that almost guarantees a downward spiral.
What are we talking about?
The average for credit card debt in this sector is $15,607. Student loan debt is much higher at $32,656 and mortgages are much higher $153,500.
So what does all of this mean to you?
If your customers are all or in part from the lower middle class or lower, you may need to tighten your applications and contracts. There is a real problem anticipated as borrowing increases in these sectors without any ability to pay back the loans.
If your prospective customer is driving a 15 year old vehicle, does that prospect have the ability to replace the vehicle when it dies and still pay your bills? Is the prospect’s income largely consumed by student loans or bank loans? Does the prospect have gigantic unpaid medical bills?
None of these questions are needed this year for this year’s bills. All of them, however, have huge consequences for the near future.
Forewarned is forearmed.
Make changes now and you should be able to medicate the damages excessive borrowing will cause your colleagues in the years to come.
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ABOUT EXECUTIVE CREDIT MANAGEMENT, INC.
Executive Credit Management is a full-service Debt Collection and Applicant Screening agency with over 20 years experience located in Central New Jersey. We provide excellent service in the following areas: Employment Screening, Business Screening, and Tenant Screening. Executive Credit Management belongs to a number of Skip Tracing databases and offers services to help locate and confirm the current address of missing debtors. Other services provided are: litigation evaluation on all lawsuit decisions, improvement of the quality of the applicant data, Lawsuit Monitoring, Handling of Debtor Disputes. Executive Credit Management features the best Call Monitoring System in the Debt Collection industry.