US CC and Household Debt At Record Levels

[mountainjogger]

https://www.cnbc.com/2022/06/09/cred...duce-debt.html

I am fortunate not to have any debt. I am also a believer that the Fed is behind the curve and needs to seriously increase rates to try to get a grip on inflation. But I fear there is going to be a lot of pain for the average household.

Thoughts?

[GB-man]

Can I borrow some money?

[superdog]

For 15 years I’ve been told I’m an idiot.

I should be leveraged. I should not be paying cash. I could make more money in the markets if I had leverage and more cash in the markets. But I still insisted on living smaller, but paying as I go.

Whelp, I do have one loan. A mortgage for a jersey shore home. The interest rate is 2.625. And I still hate having it, and want to pay it off. I realize it would be foolish, but I still hate having it.

People get a false sense of security while using debt.

I think we have found ourselves in another perfect storm. I’m fearful that the wurst is yet to come. I believe that we are one bad reporting day away from a major crash.

And with personal debt this high, and interest rates rising, a lot of folks are in for a rude awakening.

[brandrea]

Originally Posted by superdog

For 15 years I’ve been told I’m an idiot.

I should be leveraged. I should not be paying cash. I could make more money in the markets if I had leverage and more cash in the markets. But I still insisted on living smaller, but paying as I go.

Whelp, I do have one loan. A mortgage for a jersey shore home. The interest rate is 2.625. And I still hate having it, and want to pay it off. I realize it would be foolish, but I still hate having it.

People get a false sense of security while using debt.

I think we have found ourselves in another perfect storm. I’m fearful that the wurst is yet to come. I believe that we are one bad reporting day away from a major crash.

And with personal debt this high, and interest rates rising, a lot of folks are in for a rude awakening.

The idiots are the people who’ve told you to lever up IMHO.

No debt is never a bad thing. Happy to be in a place where these crazy markets don’t worry me a bit. I feel badly for those average folk who are affected by higher rates on a tight income.

For the folks who borrow from Peter to pay Paul, well now it’s time to pay, and it shouldn’t come as a surprise

[travisb]

I feel for those who were already struggling check to check before all of the huge increases (rent, food, gas etc). I know of people who can’t afford their rent increases are are being faced with nowhere to go.

[enjoythemusic]

Cue the LendingTree commercial.



Wishing everyone safe travels during the current wave of systemic financial instability.

[beshannon]

There is nothing wrong with debt.

Having said that it is all in how it is managed as part of a bigger picture. Making a definitive statement about one aspect of personal finance is what leads many people astray.

[Star Ferry]

Stocks were at twilight zone weird valuations, and rates were bizarrely low. Looks like that game of musical chairs is coming to a long overdue end. As for the average household, I have empathy, but people should live within their means to protect themselves from downturns. Maybe it’s not fair they are broke — that’s a debate for another forum than TRF — but pretending to be rich just masks and exacerbates the underlying issue.

[logo]

Originally Posted by beshannon

There is nothing wrong with debt.

Having said that it is all in how it is managed as part of a bigger picture. Making a definitive statement about one aspect of personal finance is what leads many people astray.

100%. There’s often a very negative stigma attached to the idea of debt, which I don’t think is correct. Comes down entirely to the individual financial plan the person has. Saying that, I do agree that raising rates is going to hurt a lot of people.

[beshannon]

Originally Posted by Star Ferry

Maybe it’s not fair they are broke — that’s a debate for another forum than TRF — but pretending to be rich just masks and exacerbates the underlying issue.

I disagree.

Look at the tone of the forum over the last 18 months. Look at the number of members looking desperately looking for luxury jewelry, strategies to buy, how to approach sellers, how to get discounts while watching their watch go up in value. Buyers afraid to wear their watch at home or on travel, buyers criticizing AD's or other sellers because they feel slighted and that everything is so unfair.

As long as we see posts here about being so very desperate to buy a Rolex this is not going to end.

This used to be a place to talk about watches

[daveathall]

I have had debt, I was never paid enough to pay cash to have a really nice car or house, so I borrowed. In fact, my first Rolex was bought on finance. I did make sure that I had enough to pay the repayments and have some left over for emergencies. I don't have any debt now and own my home and cars. All the stuff I buy now, I look to pay cash. Having said that, If there was something I couldn't afford to pay cash, I would look at interest free credit, I have no qualms about that, so long as I can make the repayments and some, I am comfortable with debt.

I have 3 decent pensions coming into the house as well as other money and will get a forth and fifth pension in another one and two years plus a fairly small pension soon, so income isn't really a problem.

[Dan Pierce]

Debt free on the house & cars and haven't paid credit card interest since 1986. We've been able to weather the hard times in the past and plan on doing it again.
dP

[enjoythemusic]

Originally Posted by logo

There’s often a very negative stigma attached to the idea of debt, which I don’t think is correct.

Agreed. There are ways the system 'works' mathematically in the borrower's favor, such as 4% loan at Present Value Of Currency to pay back in two years (when 15% total inflation has reduced the Value Of Currency). Of course there are other viable examples to go into debt that is mathematically advantageous for the borrower versus the lender.

But if one starts adding leverage to the equation and/or higher risk, which 'the system' can do moreso than a normal borrower can imho, things can get troublesome quite quickly.

Comes down entirely to the individual financial plan the person has. Saying that, I do agree that raising rates is going to hurt a lot of people.

100% agree.

[ronricks]

2008/2009 taught me a valuable lesson regarding this. I was young and dumb and leveraged up to my eyeballs in debt. Was laid off and it went downhill from there. Fast forward to my older wiser self and 13 years later I have zero debt (other than mortgage) and am sitting on a nice reserve fund to deploy later this year when things get really bad. Sometimes it is important to learn harsh lessons in order to have future successes.

[Star Ferry]

Originally Posted by beshannon

I disagree.

Look at the tone of the forum over the last 18 months. Look at the number of members looking desperately looking for luxury jewelry, strategies to buy, how to approach sellers, how to get discounts while watching their watch go up in value. Buyers afraid to wear their watch at home or on travel, buyers criticizing AD's or other sellers because they feel slighted and that everything is so unfair.

As long as we see posts here about being so very desperate to buy a Rolex this is not going to end.

This used to be a place to talk about watches

Disagree with what? The number of people obsessed with buying luxury watches, while probably larger than it's ever been, is still a small segment of consumers. Your typical person is borrowing for housing, auto, education, renovations, travel, clothing, furniture, appliances, gas, food, etc. before they borrow for a watch.

[pickettt]

I have 128.35 on one of my credit cards.

[mountainjogger]

Originally Posted by GB-man

Can I borrow some money?

PM Chewie. But don't miss the vig.

[mountainjogger]

Originally Posted by beshannon

There is nothing wrong with debt.

Having said that it is all in how it is managed as part of a bigger picture. Making a definitive statement about one aspect of personal finance is what leads many people astray.

Agree in theory Brian for sure. But What bothers me is the all time high of credit card debt and my belief that many have used this either to make up for inflation or to purchase beyond their means, particularly if interest rates go up.

[brandrea]

Originally Posted by mountainjogger

Agree in theory Brian for sure. But What bothers me is the all time high of credit card debt and my belief that many have used this either to make up for inflation or to purchase beyond their means, particularly if interest rates go up.

I’m not putting words in your mouth (well maybe I am) but this is the kind of debt you were referring to I assumed in the OP.

[macrowatch]

I put 100 SS Daytonas on my credit card, did I do something wrong?

I am of course kidding. I tried but they wouldn't sell me the display model when I threw down the CC.

But ya, getting scary out there soon. Existing debt + 200 bps more in cost + BNPL off the books loans...oh and student debt back online? Giant sucking sound of discretionary cash getting sucked out of the party.

[Star Ferry]

Originally Posted by mountainjogger

Agree in theory Brian for sure. But What bothers me is the all time high of credit card debt and my belief that many have used this either to make up for inflation or to purchase beyond their means, particularly if interest rates go up.

the student loans are worse IMO. the interest rates have been 0.00% with no principal payments required for over 2 years now (federal loans only).

hardly anyone has been making payments, many are banking on forgiveness, and all the while interest rates continue to tick up. Many who could have refinanced their ~6% federal loans at under ~3% in 2021 will lack that option down the road. when the freeze ends, you'll have a credit crunch wherein millions of student loan borrowers try to refinance at once.

[beshannon]

Originally Posted by mountainjogger

Agree in theory Brian for sure. But What bothers me is the all time high of credit card debt and my belief that many have used this either to make up for inflation or to purchase beyond their means, particularly if interest rates go up.

And if you look at history this is a cycle that repeats itself. Nothing new this time either

[mountainjogger]

Originally Posted by Star Ferry

the student loans are worse IMO. the interest rates have been 0.00% with no principal payments required for over 2 years now (federal loans only).

hardly anyone has been making payments, many are banking on forgiveness, and all the while interest rates continue to tick up. Many who could have refinanced their ~6% federal loans at under ~3% in 2021 will lack that option down the road. when the freeze ends, you'll have a credit crunch wherein millions of student loan borrowers try to refinance at once.

Agree student loans are a big issue too.

[mountainjogger]

Originally Posted by beshannon

And if you look at history this is a cycle that repeats itself. Nothing new this time either

Sadly, yes It does.

[mountainjogger]

Originally Posted by brandrea

I’m not putting words in your mouth (well maybe I am) but this is the kind of debt you were referring to I assumed in the OP.

[Uggi]

Using cheap debt responsibly and for appropriate purposes is sensible money management.
Nothing “wrong” with it. Not all debt is the same, not all debt is bad.
Comparing a 0.9% mortgage rate on a 5 year fixed rate deal with a credit card financed Rolex is plain daft - even though both are “debt”.

[V25V]

Originally Posted by beshannon

And if you look at history this is a cycle that repeats itself. Nothing new this time either

Maybe but scary part is that we all see this coming and nobody seems to adjust until its too late. Everyone knows something has to give, yet everyone just keeps spending as if there is no end to the run in sight. Scary stuff. Mortgage crisis comes to mind.....

[macrowatch]

Originally Posted by V25V

Maybe but scary part is that we all see this coming and nobody seems to adjust until its too late. Everyone knows something has to give, yet everyone just keeps spending as if there is no end to the run in sight. Scary stuff. Mortgage crisis comes to mind.....

Who wants to leave a hoppin' party even if you know the neighbors have called the police? Until the moment they actually arrive and everyone makes a mad dash for the exits.

[Toony]

Originally Posted by superdog

For 15 years I’ve been told I’m an idiot.

I should be leveraged. I should not be paying cash. I could make more money in the markets if I had leverage and more cash in the markets. But I still insisted on living smaller, but paying as I go.

Whelp, I do have one loan. A mortgage for a jersey shore home. The interest rate is 2.625. And I still hate having it, and want to pay it off. I realize it would be foolish, but I still hate having it.

People get a false sense of security while using debt.

I think we have found ourselves in another perfect storm. I’m fearful that the wurst is yet to come. I believe that we are one bad reporting day away from a major crash.

And with personal debt this high, and interest rates rising, a lot of folks are in for a rude awakening.

I’m right there with you Seth. I’m a lot more risk averse at this point in my life. There’s no perfect way but this way helps me sleep at night. My best friend is so leveraged he is on the brink of a nervous break down. But he loves the wild swings. But the swing down right now is hurting.

[Ferdelious]

I just want to know how everyone is affording to travel these days. Airline tickets, hotels, rental cars, gas and food costs are through the roof. I'm sitting on the sidelines and doing staycations until it all settles down.