Consumers and businesses focus on decreasing debt burdens

In the years immediately preceding the financial collapse of 2008, U.S. consumers were accumulating high and unsustainable levels of private debt. This rapid spending sent the economy rocketing to new heights, but it was one cause behind its equally speedy descent. According to studies of private debt loads across the country, however, Americans are doing a better job of paying down their outstanding debts, which could pave the way for positive economic gains in the future.

The total debt burden in the U.S. rose by 28 percent during the 11 quarters preceding the recession, while in the 11 quarters since the recession was deemed over, debt has increased by only 1.4 percent. This is evidence that businesses, individual consumers and other entities are working hard to eliminate debt.

In addition, a recent study by a group of economists working for the Bank of International Settlements indicated that consumer debt as a percentage of GDP recently fell below an important threshold above which it acts as an impediment to economic growth. But even more deleveraging--another word for paying off debt--will have to occur in order for total consumer debt levels to reach sustainable levels. Another study estimates that this process will last another two years.

While this news may offer encouragement to some Illinois families dealing with high debt balances, for others the family ledger may have improved very little during recent years. There are solutions that can help people eliminate debt and meet financial challenges in difficult times. Bankruptcy can be an option for some businesses and consumers, but it is important to weigh the consequences and benefits before choosing to file.

Source: MarketWatch, "U.S. debt load falling at fastest pace since 1950s," Rex Nutting, June 8, 2012.

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