The year 2008 called. You remember 2008, right? The year right before the Great Recession?
Well, it called, and it wants its household debt record back.
It’s official: Americans have regained their appetite for debt. We’ve crossed a threshold, because we are now borrowing more money than we did at the peak of the U.S. housing bubble in 2008.
You remember what happened after that, right? Yes, that’s when the entire global financial system collapsed.
Relax. It might not be that bad this time, but you’ll still need to play your cards right. We’ll talk about ways to do that.
First, the news: Total U.S. household debt climbed to $12.73 trillion in early 2017, pushing today’s debt level higher than the $12.68 trillion peak in 2008, according to the Federal Reserve Bank of New York.
Key differences exist between now and 2008, reducing the likelihood of another financial meltdown. The main thing: More of today’s debt is held by older, more creditworthy borrowers compared to 2008, according to the Fed.
“The growing debt level shows that many of the millions of Americans who struggled during the recession have sufficiently repaired their credit to qualify for loans,” The New York Times reports. “It also suggests a rising optimism about economic growth among banks and other lenders.”
While people in 2017 are handling their mortgages and auto loans better — with fewer foreclosures and defaults — the fact is that student loans are fueling the rise in debt.
There’s a fear that rising student loan debt could lead to a wave of defaults like the one from 2008’s financial debacle.
“This is not a marker we should be super excited to get back to,” Heather Boushey, director of the Washington Center for Equitable Growth, told the Times. “In the abstract, more debt signals optimism. But in reality, families are using debt as a mechanism to pay for things their incomes don’t support.”
Here’s how to not run afoul of our increasing appetite for debt:
1. Figure Out What You’re Dealing With
Map out exactly what kind of debt you have.
For example, which companies do you owe money to? Are any of your debts in collections? What are your minimum monthly payments on each credit card or loan?
An easy way to do this is to sign up with a free service like Credit Sesame. This tool shows your balance on any unpaid bills, credit cards or loans. It also offers tips on reducing your debt and raising your credit score.
2. Consolidate Your Debt
If you fall behind on your credit card debt, you may find yourself getting crushed by interest rates north of 20%. You’ll never catch up that way. You’re spending so much on interest, you’ll never pay off your balances.
It might be worth consolidating or refinancing your debt.
By refinancing an existing loan, you’re taking out a totally new loan, which comes with new terms and (ideally) a lower interest rate. Credible is an online marketplace that offers consumers personalized loan offers. Think of it like Zillow — but for personal loans.
Rates start at 5.99%, and you can check yours by entering a loan amount here ($500 to $40,000) and comparing your personalized options in under 90 seconds.
3. Protect Your Identity
What if you work hard to pay down all your debt and you’re totally responsible with your credit — only to take a hit because of identity theft?
A free service like TrueIdentity helps you avoid this situation by keeping a watchful eye on your finances. It sends alerts by email, phone or text if someone tries to apply for credit in your name.
The bottom line: It’s best to have a strategy when we’re talking about household debt levels surpassing those of 2008.
The experts insist 2017’s household debt really is different. For one thing, consumers are currently delinquent on less than 5% of total debt, compared to nearly 12% of debt that was more than a month late in 2009.
Fewer of us are falling behind.
Let’s keep that trend going.
Disclosure: This post contains affiliate links. May we all be a bit richer today.
Mike Brassfield (mike@thepennyhoarder.com) is a senior writer at The Penny Hoarder. He remembers 2008 all too well.
This was originally published on The Penny Hoarder, one of the largest personal finance websites. We help millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. In 2016, Inc. 500 ranked The Penny Hoarder as the No. 1 fastest-growing private media company in the U.S.
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