Freedom Debt Relief Quarterly Comment: People Struggling With Debt at Greatest Economic Risk


Freedom Debt Relief Quarterly Comment: People Struggling With Debt at Greatest Economic Risk

September 21, 2017

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The current economic outlook for U.S. consumers is in flux because despite the relatively stable economy, the nation is facing multiple disaster recovery efforts, according to the Freedom Debt Relief Quarterly Comment on consumer debt and credit issues.

The positive news is that U.S. employment has remained strong for several years. Some economists expect the U.S. unemployment rate to hit 4.2 percent, its lowest point since 2001, within 12 months. In the wake of Hurricanes Harvey and Irma, however, this low unemployment rate could contribute to a slow recovery

Unemployment Rate Impacts Recovery Efforts

“The recovery picture will be complex, and different in each of the affected regions, but one common risk is that tight labor markets could slow the effort to rebuild homes, roads and businesses,” says Sean Fox, co-president of Freedom Debt Relief. “Depending on the recovery cycle, these disasters could significantly exacerbate people’s financial problems – especially for those who are already struggling with debt.”

People who live in areas where they cannot easily rebuild could face deteriorating conditions, lost jobs, medical bills and other escalating problems, Fox says. In Texas, the unemployment rate has been just over 5 percent, even with a slowdown in the energy economy that resulted in thousands of lost jobs. Florida’s labor market is even tighter, with about 4 percent unemployment.

Rising Cost of Debt

Additionally, most economic observers anticipate that the Federal Reserve will raise its key federal funds rate again before the end of 2017. Interest rates on credit cards and HELOCs (home equity lines of credit) have increased by 0.5 percent in 2017.

“These rate hikes mean debt becomes increasingly expensive. When people cannot repay what they owe, their credit scores decline, which raises the price of future credit, such as car loans and mortgages,” Fox explains. “These challenges make it even more important for people to eliminate and avoid going into debt in the first place, if possible.”

In addition, says Fox, the rate of increase in consumer debt is outpacing that of personal income, so consumers are getting deeper into debt at a time of increasing interest rates. In July (the most recent data available), total personal income increased 2.7 percent from the same month one year ago, while revolving credit (mainly credit cards) was up 3.2 percent compared to the prior year.

Freedom Debt Relief works to help people recover from setbacks in the communities where it operates. Earlier this month, the company, a subsidiary of Freedom Financial Network, announced it had established the charitable Freedom Foundation with a $1 million contribution. A $100,000 initial donation from the foundation, plus matching funds for employee contributions, are being directed toward Hurricane Harvey disaster relief.

Recently Released Financial Data

The Freedom Debt Relief Quarterly Comment provides input and comment on several economic indicators in its work to help consumers get out and stay out of debt. Recent financial data as reported:

1. Consumer debt continues to grow. In July (the most recent data available), total outstanding consumer credit rose at an annual rate of 6 percent. Total consumer debt has held relatively steady at over $3.7 trillion for the past several months. (That figure excludes mortgage debt.) Revolving credit (primarily credit card debt) rose $2.6 billion from the previous month, an annual rate of 3.2 percent. That increase, however, is lower than the prior two months’ increases. Non-revolving debt (outstanding credit for items such as vehicles and education, as well as unsecured installment loans) increased $15.8 billion, an annual rate of 6.9 percent.

2. Personal income increases. In July (the most recent data available), total personal income increased 2.7 percent from the same month one year ago. Total U.S. personal income increased by $65.6 billion during the month, or 0.4 percent, a rate comparable to past months. Disposable personal income increased by $39.6 billion, or 0.3 percent. Personal spending also rose by 0.3 percent.

3. Savings rate remains low. In July (the most recent data available), consumers saved 3.5 percent of their personal disposable income – a total of $510.2 billion. This rate decreased slightly from the rate earlier this year.

4. Unemployment remains level. The U.S. unemployment rate for August was 4.4 percent, comparable to the rate since April. During August, the economy added just 156,000 jobs. The number of people who are long-term unemployed (jobless for 27 weeks or more) held steady at approximately 1.7 million. Another 1.5 million people remain “marginally attached” to the labor force, meaning they want to work and have searched for work during the past year, but have not done so during the past four weeks. (These data do not reflect employment changes related to Hurricane Harvey or Hurricane Irma.)