American Consumer debt at $2.6 trillion in 2008. Is it Dangerous?

America is waking up to a sobering truth; we are a nation of over-spenders. We don’t save enough and a lot of us live beyond our means. The “American Dream” drives a lot of people to not think about the future and only satisfy the need for immediate gratification.

In order to meet our insatiable needs for goods and services a lot of people turn to their credit cards to cover what cash can’t. While the idea of putting money on a card because you don’t physically have the cash is fine, but a lot of people buy things that they have no way to pay for within the grace period of their card. This trend is accelerating. Total consumer debt grew nearly five times from 1980 ($355 billion) to 2001 ($1.7 trillion). Consumer debt in 2008 now stands at $2.6 trillion.

Credit card companies don’t want you to pay off your debt all at once. That’s how they make their money. By carrying debt over on your card they can hit you with exorbitant interest fees. They also allow you to pay low minimum payments. By just meeting these payments compound interest traps you.

If you had a balance of $1000 and only paid the minimum payment of $25 a month, it would take you 152 months to pay it off and cost you $1115 in interest. By maintaining balances you insure that credit card companies will have a hold on you for a very long time.

If you consider that the top ten credit card companies have over $760 billion in outstanding debt issued to U.S consumers they have no desire to help people escape debt.

Many people used refinancing their homes during the housing bubble to pay off credit cards. Since housing prices had reached speculation-like heights many people had equity they didn’t know existed in their homes. Debt consolidators encouraged people to pull out the equity and pay down the credit cards. This is a sound plan; the interest on the cards would be astronomical compared to the interest on the home equity loan.

The only problem is people didn’t change their spending habits. They continued to spend, racking up more debt. This time there was no equity to pull out of the homes. In fact, the houses were now worth less than what was owed on them.

These kinds of scenarios have been played out more and more across our country, as the economy gets worse. People refuse to change their spending habits and understand that living beyond their means is not the way to go through life.

While it seems that everyone is living heavily debt-ridden lives, the truth of the matter is a handful of rotten apples are ruining the bunch. Almost 24% of American households actually have no credit cards at all. Another 31% of the households paid off their most recent credit card bills in full.

While that is good news, it doesn’t solve the problems that a lot of people face. Cash advance and payday loans have seen explosive growth in the last couple of years. Combined with excessive credit card debt it is possible to see how many families are facing economic ruin with the rest of the economy. Education about the predatory practices of credit card companies is the only hope to stem the tide of these kinds of things.