Since the housing bubble burst nearly ten years ago, the U.S. economy has been in a slow process of recovery, specifically their credit card debt. Many Americans were devastated by bankruptcies and foreclosures in the immediate aftermath of the crisis. However, those same individuals have now had time to get back on their feet and re-establish credit. With new regulations in place to limit predatory lending practices, consumers are beginning to trust lenders again. Consequently, there is currently a rise in new loans of all kinds.
Of course, as loans increase, so do debt problems. In fact, the average American household owes an average of $155,000. This is a record high. Not only that, more than 30% of people struggle to pay their bills. The majority of consumer debt comes from mortgage and home equity loans, auto loans, student loans, and of course, credit card debt. This is true for New Jersey and throughout the U.S.
Consumer Debt In New Jersey
New Jersey residents carry a significantly higher amount of debt, on average than the rest of the country. One possible explanation for this is the fact that incomes are higher than average in that state. This allows people to manage a higher level of debt successfully. However, New Jersey also ranks in the top ten states with the highest cost of living. This is due to housing prices, high taxes, and higher-than-average costs for food and transportation. The state also has a higher unemployment rate than the national average – 5.1% in November of 2017, compared with 4.1% for the whole United States. Finally, 304 out of every 100,000 residents of New Jersey declared bankruptcy in 2017. These statistics show that many people in New Jersey are suffering from excessive debt, and they are in need of solutions.
The largest component of household debt tends to be mortgage debt. Economists label this a “good debt” since homes tend to increase in value over time. This makes the purchase an investment. The majority of Americans report owing less than $200,000 on their current mortgage. However, the average mortgage holder in New Jersey owed more than $250,000 in 2017. In fact, New Jersey was ranked among the top five states in the country with high mortgage debt. Not only are New Jersey home prices higher than average, home values have decreased somewhat in recent years. Unfortunately, a growing number of residents are delinquent in their loan payments. Many are going into foreclosure. Currently, New Jersey ranks just below New York in the number of home loans in foreclosure.
Student Loan Debt
Student loan debt is the second largest contributor to consumer debt overall. True to that form, New Jersey college graduates tend to have higher-than-average loans. The typical college student in New Jersey leaves school owing around $30,000 in student loan debt. In addition, at least two-thirds of students in the state graduate in debt. Like a mortgage, student loans are considered a type of investment. A college degree ideally leads to a higher-paying job. However, many students are unable to find a job immediately after graduation. For some, the search for employment can take months or even years. During this time they risk becoming delinquent on their student loan payments. The graduates most likely to default on student loans are over 65 years of age, but individuals of all ages default on loans or miss payments.
Credit Card Debt
According to a 2016 report on credit card debt by state, New Jersey ranked 4th highest in the nation with an average debt of $6,345 per person. High real estate prices and property taxes along with a rising cost of living have created a high-pressure environment for consumers. In many cases, the debt belongs to multiple credit card companies. In fact, New Jersey has an unusually high percentage of residents who own ten credit cards or more. While the amount of debt is higher in high-income cities, the debt-to-income ratio tends to be higher in low-income areas. For example, the city of Lakewood, New Jersey is ranked as one of the worst cities in the nation for credit card debt. The average credit card debt here represents 35% of the average income.
When credit cards are easy to obtain, consumers may come to rely on them as an easy source of cash to cover emergencies or pay off other debt. Unlike mortgages and student loans, credit card debt is considered “bad debt” because it does not increase the borrower’s wealth. In fact, credit card interest rates and fees are exceedingly high. Not only that, credit card debt is one of the main reasons why New Jersey residents seek professional help in managing their debt.
Other major sources of debt for New Jersey residents include auto loans, home equity loans, personal loans, and short-term unsecured loans from direct lenders, often known as “payday loans.” Payday loans are a last resort for many consumers who are on the brink of financial disaster. These loans are accessible to people who have lower-than-average credit scores. This is why many people take them out in order to pay off other debt. But interest rates and other fees make them even more expensive than credit cards. This usually leads the borrower deeper into debt rather than helping him or her escape it. Rather than taking this route, many consumers seek other solutions to their debt problems.
New Jersey Consumer Protection Laws
The state of New Jersey has enacted several pieces of legislation designed to protect consumers from fraud, theft, and unfair collection practices. The Consumer Fraud Act provides education on consumer rights to vulnerable populations. They also help prevent unsolicited marketing calls and credit card deliveries. The Fair Debt Collection Practices Act prohibits debt collection agencies from harassing debtors or making dishonest statements. In addition, the state has placed a six-year statute of limitations on collecting a debt. It’s important for consumers to be aware of their rights when trying to deal with a large burden of debt.
Consumer Debt Solutions
When individuals face a financial crisis that involves unmanageable debt, there are several paths to resolving the problem. Some people are able to resolve their debt through self-help. This includes changes in thinking and behavior. Debt self-help strategies typically include developing and following a budget and dealing with creditors and debt collectors proactively. This is all with the intention of avoiding repossession or foreclosure. Other solutions can include debt consolidation and debt settlement. Credit counseling organizations offer these services for their clients.
One solution to mounting debt, especially when it comes from multiple loans, is to get a new loan to pay off all the other ones. This is known as debt consolidation. A debt consolidation loan is available at a lower interest rate than what credit card companies and direct lenders charge. It also allows the payments to be spread out over a longer period of time. The only disadvantage of a debt consolidation loan is that it tends to be expensive in the long run. Because the payments are spread out over many months or years, the borrower ends up paying a lot of interest. However, the lower monthly payments offer a great deal of relief to stressed consumers. This makes it possible to get out of crisis mode and begin to budget and save.
Another debt relief option is debt settlement. In the case of debt settlement, a company negotiates with creditors on the debtor’s behalf to arrange a lower lump-sum payment to clear the debt. Creditors don’t have to accept a settlement, but often it is in their best interests to do so since otherwise, the debtor might end up in bankruptcy. Debt settlement companies charge a fee for their services, and the client is typically required to deposit money each month into an escrow account in lieu of making further debt payments.
There are two potential disadvantages of using debt settlement. For one thing, some clients have difficulty making the monthly payments and end up abandoning the program. In addition, if clients stop making payments to their creditors, their credit score will be negatively affected. Nonetheless, many debtors who can afford the payment plan are able to get relief from some or all of their outstanding debts.
Other Tips For Dealing With Debt
Even though creditors will often ask for bank account information, it is a good idea to use a third-party method of payment, if possible. One step that many experts recommend taking is to create a separate bank account for social security or disability income deposits. These funds are exempt from court-ordered payments, so in the case of a judgment against a debtor, those funds can be protected.
Another piece of advice is to seek help as soon as possible. People who struggle to follow a budget may have issues with spending that can be dealt with through personal therapy or a support group such as Debtors Anonymous. In addition, credit counseling services provide a wide range of assistance, from budgeting guidance to debt relief solutions.
If you need some tips to make budgeting more fun and entertaining, here is a video that you should watch.