Consumer Debt Levels

The incomes of so many households are heavily burdened these days with consumer debt repayments. Low interest rates and aggressive marketing campaigns over the past few years, added to rapidly increasing house prices has led to many people getting up to their eyeballs in debt.

Home loan repayments take up the largest percentage of the household income as well as car loans, credit card monthly payments and even student loan repayments (for some people).

Consumer debt levels tend to increase every year and, in recent years, have reached record levels. The worrying thing is, as interest rates continue to rise (as is predicted) there will be growing pressure on household incomes and some people will simply not be able to keep up with their growing debts. That is largely why we’re seeing such problems in the credit industry right now.

Ultimately, all of this easy credit from the last few years will now result in an increase in bad debts and bankruptcies. This will not only affect the individuals directly involved, but also the economy since creditors will have to write-off the bad debts and the economy will slow down due to a decrease in consumer spending. Time will tell just how bad things will get, but no matter what, this should be a good lesson for the next time easy credit rolls out the red carpet.

It is for this reason that economists and governments watch consumer debt levels with great interest before making economic recommendations and policy decisions.