Consumers in the United States of America have a problem with immediate gratification. They want what they want, how they want it, when they want it. And they are not going to let something like the ability to pay for those things they want stand in the way of getting them.
The debt levels of American consumers have been trending upwards for decades, but recent evidence has shown that those increases are actually rising faster than ever before. We are taking on debt at an incredibly fast rate, and if we aren’t careful it could lead to our ultimate destruction.
Overall Debt is Up
A recent article from PYMNTS.com stated that mortgage debt, automobile debt, and credit card debt have all been on the rise over the past year. It also noted that recent interest rate hikes by the Federal Reserve have made it more difficult for those debtors to refinance their obligations.
The fact that the amount of outstanding consumer debt continues to rise should not come as a shock to anyone who has been monitoring the situation over the past few years, but it does raise some serious red flags that should have anyone who extends credit to their customers or clients thinking twice about the amount of risk they are willing to assume.
Why is Debt Rising?
Because of the consumer culture that exists across the country, it is no surprise that people are borrowing against their future earning to purchase things for themselves. While the Baby Boomers generation was strict about saving money and paying cash for expensive purchases, Millennials have gone the other direction and have no problem running up credit cards with the belief that they will be able to pay for those debts in the future.
Another possible reason that debt levels are increasing at faster rates is that the Internet has made it easier to spend money than at any other time in the history of the world. We have the ability to order hundreds or even thousands of dollars worth of merchandise right from our smartphones…and we can put all of those expenses right on our shiny new credit cards.
What is Going to Happen?
Much like we saw with rapidly rising real estate prices in the early 2000s, this trend is likely to continue picking up steam until the day that everything suddenly comes crashing down. As American consumers continue to overextend themselves, they are becoming more and more vulnerable to even the slightest bumps in their financial roads.
Those bumps could be something like a domestic crisis, or it could be something as simple as another interest rate hike by the Federal Reserve. Regardless of what causes it, there is no doubt that there will eventually come a point where American consumers simply can’t make good on their obligations.
If your business operates in an industry where extending credit to customer or clients is a necessary practice, you should be sure to put every possible safety measure in place to ensure that you are not going to be left holding the bag when the next credit crisis comes crashing down.