Americans are beginning to gain ground against the worst recession in recent history as more and more economic indicators point to recovery. A new study from the Federal Reserve says household net worth in the U.S. soared $2.1 trillion during the last three months of 2010.
Gregory Daco, U.S. senior economist for the research firm IHS Global Insight says household liabilities rose just 0.2 percent during the fourth quarter of 2010 as consumers took on more installment debt but continued to pay down existing mortgages. Outstanding mortgage debt fell by 0.3 percent.
The latest figures are a good sign for the mortgage market as it struggles to get a handle on delinquency numbers in the millions. The increased net worth should translate into stronger household finances and fewer homeowners who are unable to meet their mortgage obligations.
Market analysis from the Mortgage Bankers Association (MBA) does indeed point to a decline in new delinquencies in recent months.
MBA reported last month that the overall delinquency rate for single-family mortgage loans dropped to 8.22 percent at the end of 2010, as the numbers fell in all past-due buckets.
Mortgages only one payment late – 3.25 percent of all outstanding home loans – have now fallen to the pre-recession levels of late 2007, according to MBA.
Consumer bankruptcy filings ticked up in February, but so far the rise has slowed from 2010.
The number of personal bankruptcy filings rose 11% to 102,686 in February compared to a month earlier, the American Bankruptcy Institute and the National Bankruptcy Research Center reported recently.
“Though consumers are striving to reduce their debt burden, high unemployment and a still-poor housing sector continue to fuel new bankruptcies,” Samuel J. Gerdano, the American Bankruptcy Institute’s executive director.
Compared to the same time a year ago, however, personal bankruptcies fell 8%. While it’s still early, data for the first couple months of the year could indicate that consumers won’t have a repeat performance of the surge in filings in 2010. More than 1.6 million consumer bankruptcy filings were reported last year — the highest level in five years.
A more tempered pace of filings is partly from consumers saving more and paying down their debts. It’s also because less credit has been available, which makes it harder for Americans to incur new debts.
Debt consolidation is getting more popular as more people are struggling with finances. If you want to get onboard, but you have bad credit, there may be some help available. Finance companies are under pressure to find new ways to get customers. Early in 2011, at least two of them, Wells Fargo and Citibank, announced they would offer bad-credit debt consolidation loans. This is good news for people with less than perfect credit.
Many people with bad credit are already struggling to make their monthly loan payments. The opportunity to consolidate their loans provides a way they can still pay them, but at a lower monthly payment. This can help them avoid further credit blemishes, and even start building a good credit history. Additionally, those with blemishes who are on the road to recovery, and who have made timely payments for a while, will have the ability to consolidate high interest loans into one with more affordable rates.
This is not to say that debt consolidation loans for people with poor credit will have low interest rates. If a person’s credit is on the mend, however, he may qualify for a lower rate than he’s currently paying. These loans go for varying amounts.
Whether you have bad or good credit, debt consolidation is usually a good option. You do not have to be a mathematician to figure out lower interest rates and lower monthly payments are beneficial. However, you should always use caution. You do not want to fall into the trap of consolidating your credit cards only to run them back up to their limits. That is a recipe for financial disaster. Look at a debt consolidation loan as an opportunity for a fresh start, and try to break bad spending habits
Did you resolve to get in better shape financially this year? One way to do it is to shed some of that unsightly debt.
Have any other “Reduct the Debt” tips for our readers? We’d love to hear your ideas. Just click the “comment” link below and tell us your plans…
MSN Money columnist Liz Pulliam Weston recently wrote an interesting column about the high failure rate in the credit counseling business. It turns out that most people who sign up for credit card counseling, even if they’re working with a legitimate counselor licensed by the National Foundation for Credit Counseling, fail to pay down their debt.
This often leaves these people with one choice: They have to file for bankruptcy protection.
Pulliam Weston cited statistics from the National Foundation for Credit Counseling in her column. According to these numbers, of the 3.2 million people who contacted the foundation for help in 2008, one-third were able to handle their financial problems on their own after a counseling session. Another third had too much debt for credit counseling to matter or were referred to social service agencies to deal with more important issues such as gambling or alcohol addiction.
The final third did enroll in debt-management programs, but at least 45 percent of these people dropped out of their programs before paying down their debt.
Pulliam Weston emphasizes that she doesn’t bring up these numbers to dissuade struggling consumers from taking sessions at a legitimate credit counseling center. The professionals working in such places can help consumers identify the reasons why they overspend. They can then help them change their negative spending habits, preventing them from running up their debt again in the future.
However, the column does serve as a reminder to consumers that eliminating debt is far from easy. It takes real commitment and it takes will power. It makes little sense for consumers to eliminate their debt if they’re just going to run it up again in the next several months.
Unfortunately, with many consumers, that’s exactly what happens.
Those consumers who have a long history of overspending can receive real help from credit counseling. They have to make sure, though, that they’re going into their counseling sessions with the right attitude. They have to be willing to make substantive changes in their spending habits. They have to be willing to delve deep enough to uncover what causes them to spend money that they don’t have.
This is far from an easy process. Most U.S. consumers don’t feel comfortable talking about money or debt, and they especially don’t feel comfortable talking about their own overspending problems.
However, a debt-repayment program isn’t going to do struggling consumers much good if it doesn’t include some real credit counseling. Consumers need to learn how to use money and credit wisely before they can ever hope to get their finances in order.