Forward Focus - October 2024

Total Household debt hit $17.80 trillion in the second quarter of 2024, according to the latest report from the Federal Reserve Bank of New York. In just the past 3 years, Americans have increased household debt by $2.85 trillion, all while unemployment was near 50 year lows, wage growth was exceeding inflation, the stock market was near record highs, and the U.S. government handed out $814 billion in historic stimulus payments.

Digging into the numbers: Credit card balances are 55% higher than they were 4 years ago! Credit card balances are now $1.14 trillion. Mortgage balances stand at $12.52 trillion, outstanding student loan balances are now $1.59 trillion and auto loan balances are currently $1.63 trillion.

Delinquencies (those with balances at least 30 days past due) climbed higher as well. Credit card and auto loan balances that entered delinquency were 9.1% and 8.0%, respectively. Consumers credit reports showed that 136,000 consumers had bankruptcy notations, 47,000 listed new foreclosure notations, and roughly 5% of credit reports listed a 3rd party account collection, per the Federal Reserve Bank of New York report.

These numbers are staggering. The reason I bring it up is to highlight that this is occurring when the economy is strong and we are not in a recession. What will happen during the next downturn? It is not good news.

My plea to everyone is to use this time to pay down (and pay off) debt. Make a budget, stick to it, even stop investing completely for a short period of time if you have to, but aggressively pay down debt. I know it is easier said than done, but your financial focus should be to get rid of credit cards, auto loans, student loans, and eventually your mortgage. If you need help devising a plan, let me know. Send me an email or call to schedule a meeting. I would be glad to help.

If you are already out of debt (besides a mortgage), then make sure you have an emergency fund (3-6 months of monthly expenses). An emergency fund should be liquid and easily accessible (checking/savings account or a money market). Uncertainty in life is a certainty so make sure you have money saved for the unexpected.

The consumer debt levels in our country are at record levels and the NATIONAL debt is at a record $35.32 trillion. Just the interest payment alone this year will be $892 billion, according to the Peterson Foundation.

The U.S. Government continues to borrow at an alarming rate. Last year the government deficit (amount they spent over what they had) was $1.7 trillion. This year’s deficit is estimated to be $1.86 trillion. Whether we look at the Total Consumer Household Debt or the National Government Debt, both are unsustainable.

It might seem odd for me to devote an entire page to consumer and government debt. Shouldn’t I be talking about investing and saving? Yes, however, debt (whether yours or some else’s) has an impact on the economy. The reason I wrote about this is simple. The economy and stock markets continue to hum along, but is more and more supported and fueled by unproductive debt. This debt fueled phase can continue on, but there are limits. Bottom line: Debt impedes your financial future. As you seek to save and invest, focus first on eliminating debt.