So what is the next meltdown? This article in MSN suggets it’s credit cards. Definitely a possibility. But I think there are two other bigger problems. This is a neat rundown of debt 2006-2008.
First, the average debt of consumers is $16k when averaged over people who don’t have credit cards, pay in full, and carry a balance. But only 9.3% of households carry more than $9k of credit card debt. And 48% of consumers carry less than $5k in debt.
So it sounds like it would be bad right? Nope, in the same article the AVERAGE college graduate walks out with $20k in student loans. Student loans are not discharged by bankruptcy. And 1 in 5 people between 18-24 declare economic hardship when paying back their student loans.
What about car loans? Turns out the average car loan for one person is 5 years 4 months, so between 60 and 72 months for most people. The average loan is $25k! I have to wonder how people will afford these cars?
Yep sounds like credit cards might meltdown soon, but how are people affording credit cards, student loans, and car loans? Much like foreclosures, will cars soon be abandoned and repossessed? Will people toss the keys back to the bank? You can’t give back a student loans, but many I’m sure will turn to hardship deferral and let the balance grow.
So I highly doubt the next meltdown will be from credit cards. I think more likely people will just walk away from their cars leaving them in the homes they no longer want or can afford.
7 responses so far ↓
1 Kristy // Nov 6, 2008 at 2:34 pm
Who knows what will be next? I guess if I had to choice between making my car payment or paying on my credit card, I would make my car payment so I could drive to work or look for work. Maybe that’s why the experts are seeing that as the next meltdown. People can always defer their student loans until they are in a better situation. Good topic though!
2 LivingAlmostLarge // Nov 6, 2008 at 7:52 pm
Ah that’s true about cars. But don’t you get at least a few months before they repossess it? I think it’s all going in the same direction.
3 Mary@SimplyForties // Nov 6, 2008 at 9:47 pm
From what I hear about huge credit card debts, suveys notwithstanding, I suspect it will be credit cards.
4 fengshui // Nov 6, 2008 at 10:24 pm
I wouldn’t doubt that the average student loan debt is $20k. Mine is about $30k. However, I really don’t see it as a problem or even a big deal (for me). Sure, $30k is a lot, but I look at is as getting a big return out of my investment. However, for students who graduate with a BA in liberal arts or something, I’m presume that they will struggle with the payments unless they land a great job, but in this economy, who knows….
As far as credit cards, and the mess that we are in now, I find it hard to believe that only 9% of households have a balance over $9k. It seems as if everyone I know have large balances, mainly from being new homeowners and buying new appliances and furniture that they don’t really need.
As far as a car loan, I learned that the hard way. I just HAD to have this cute little hot rod that cost me $23k aobut 3 years ago. It was SO cute and fast, and I just had to have it. What the h*ll was I thinking????? Now I wish that I didn’t have it because I got stuck EVERYWHERE last winter in our 100″ of snow. And I have a $450 car payment every month to boot. So, thankfully I’ve paid it down to where it is worth more than I owe, but I will tell you that I will NEVER, EVER do that again. No more brand new cars. However, the only good thing about buying that car brand new was the great warranty. I’ve had my transmission replaced in it free of cost, through the warranty. And it came with $60k mile roadside assistance and I’ve used that a few times too. But, over all, I still wouldn’t buy new again. I can afford the payment, but I would much rather invest the $450 a month instead of on that damn car…..
5 Kristy // Nov 7, 2008 at 10:00 am
Fengshui - At least you have learned from your mistakes! Congrats!
LAL - I have no idea how long it is before they repossess a car, though I have seen more cars being repossessed lately. I am sure in the next year we will see what the next meltdow actually is!
6 LivingAlmostLarge // Nov 7, 2008 at 12:52 pm
A lot of people Fengshui are Dave Ramsey followers and do not use CC. A lot more people use debit cards only. But most do have car loans.
So I think car loans and the size of an average car loan $20k is more prevalent than $20k in credit card debt.
Everyone says CC debt is bad. NOT everyone says car loans are bad. Like Kristy said, you need a car to get to work. Of course the argument is you don’t need a $20k car. But semantics.
I’ve been looking at cars for my DH, he’s been begging and we’ve considered taking over someone’s lease for a few months. A way to get a car for fun without getting entangled really. Yes it’s a waste of money but it might only for be 1 year or less.
I think a lot of people are in trouble with cars.. The deals going on with cars are crazy right now.
Carnival of Consumer Credit #3 — Arrive Financial - Nov 26, 2008
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