What you should know about debt consolidation

What you should know about debt consolidation

By Samuel Baker, KSL.com Contributor | Posted - Oct. 9, 2012 at 8:27 a.m.



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SALT LAKE CITY — With the job market resurrecting, although slowly and steadily, it may be boosting the confidence of consumers who are whipping out their plastics even more frequently and landing up in debt.

July’s employment growth exceeded both financial analysts' anticipation and the meager job gains in May and June, when 164,000 new jobs were created. Unfortunately, while this growth wasn’t enough to condense the jobless rate, now 8.4 percent, it was more than enough to augment and enhance the stock market. This job tally came as a pleasant surprise to investors but some became wary that the Federal Reserve will soon arbitrate to juice the U.S. economy.

The job growth in July brings the monthly average report for 2012 to 152,000 in contrast with the monthly average in 2011 of 154,000. With this lackadaisical improvement, it would take 10 more years to rejuvenate the jobs that were lost since the Great Recession. However, with positive hiring reports and the simultaneous spur in credit card debt, here is an analysis of the possible reasons behind this scenario and some effective solutions.

Hiring is back in a big way in colleges – Are the young being overconfident?


While the jobless rate reduced to 8.3 percent in February, unemployment among college graduates stood still at 4.2 percent.

One of several signs the U.S. job market is recovering is that hiring is back in a big way in most American college campuses. After four to five years during which students graduated only to become jobless, an increasingly large number of colleges are teeming with big-shot companies eager to hire. A survey by the National Association of Colleges and Employers anticipates hiring to climb by 11 percent this year, more than a previous approximation of 9.5 percent. Career experts in dozens of U.S. schools and colleges say there is an increase of 15-30 percent in the number of companies eager to attend campus career fairs. While the jobless rate reduced to 8.3 percent in February, unemployment among college graduates stood still at 4.2 percent.

Despite the aforementioned positive reports about the job market, there is a change in consumer spending behavior due to the sudden flush of cash in wallets. Consumer credit card experts see the debt level soaring with the improved job market, and it is mostly the young who are ruthlessly using credit instead of cash to fulfill their wishes.

Consumers rack up credit card debt, according to Federal Reserve reports


Consumers have become over-confident about their spending power and are using credit cards to make big purchases.

Consumers are racking up credit card debt, among them the young and new graduates, according to data released by the Federal Reserve G-19 Consumer Credit Report. Consumer credit soared by $18.2 billion in July, following a $9.97 billion increase in May. The jump in May was higher than the expectations of economists and the biggest leap in the last five months. Many experts had predicted there would be a sudden rise in credit card debt but the size of the increase came as a surprise.

Rise in credit card debt is often treated as a good sign for the economy as it may imply consumers are gradually becoming capable of tackling more debt, but this can also be a temporary blip. In July, consumer confidence took a hit with good job market reports and a shining stock market, which might be the reason for the debt level at the same time. Consumers have become over-confident about their spending power and are using credit cards to make big purchases not included in their household budgets.

Debt consolidation firms gain ground by offering priceless advice on handling debts

Credit information corporation Trans Union shows average credit card debt in the second quarter of 2012 is valued at $4991, almost seven percent more than the average in 2011. While financial institutions warn irresponsible credit card usage can lead to incurring more debt, most credit card holders, especially the young, turn deaf ears to this advice. Debt Consolidation USA, which offers credit counseling and debt management advice, believes debt relief programs can help borrowers avoid panic-driven situations.


While financial institutions warn irresponsible credit card usage can lead to incurring more debt, most credit card holders turn deaf ears to this advice.

The economy is at a crossroads — some would say on the threshold of another debt crisis — and to save consumers from such economic distress, debt consolidation firms can help. They offer debtors the chance to speak to an expert and create alternative plans for repayment. The debt consolidation expert will then negotiate with creditors to reduce interest rates on credit card accounts.

Another form of debt consolidation entails taking out a master loan with drastically lower rates than what the debtor is paying and using the proceeds to repay multiple creditors. Once the creditors are satiated, the debtor can start repaying the loan by making a single monthly payment over an extended period of time. However, taking out a loan at the best possible rate is important, otherwise people might end up paying more than what was owed.

Thrifty use of credit cards can help consumers stay away from the edge


Credit cards are loans and should not be used to buy more than users can afford.

Although consumers may have enough to make ends meet, thrifty use of plastics can assist them in staying away from the edge. Credit cards are loans and should not be used to buy more than users can afford. Consumers should keep track of every credit card purchase and remember impulsive and incidental purchases add up fast. They should save receipts and not lend credit cards to anyone. Owing more than an affordable payoff amount can hurt a credit rating, which makes it difficult to finance a vehicle, qualify for insurance, rent an apartment, or even get a job. Paying off credit card bills on time and in full and can take years off of repayment compared to paying just the minimums.

In order to avoid such a scenario and alleviate the debt level of U.S. consumers, debt consolidation firms advise credit card holders to responsibly use their cards by, for example, learning to budget, save money, consult with experts and stick to using a single credit card at a time so as not to accrue debt that cannot be paid back. Consumers should take a look at the bigger picture to realize the consequences of misusing credit cards has on the U.S. economy. The recovering job market may be a positive sign for the American economy, and consumers can help the revival by managing credit card.

Samuel Baker

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