Borrowing 101

Consumer debt can be divided into several categories, with the first division being secured and unsecured. Secured loans are issued against the value of property, such as, a house or a car, and represent a majority of debt in the U.S. The next division comes in the difference between revolving credit and installment loans. Revolving credit includes debts like credit cards, where there is an open-ended agreement with no fixed payment or term, while installment loans have a predetermined payment schedule, such is the case with your mortgage or car payment.

Consumer Credit and Personal Loans

Personal loans, which are an unsecured debt, that can be obtained on a revolving or installment basis, are among the fastest growing types of consumer loans. Unlike loans secured against a specific piece of property, personal loans can be used for anything from consolidating to debt, to paying for a vacation. This flexibility, however, has also led to misuse of personal loans and mismanagement of consumer debt. In many cases, consumers inadvertently over-burden themselves with more debt than they can handle, which in turn has led to increased use of short term loans with significantly higher interest rates.

Alternative Lending

In recent time, short-term same day loans have been growing in popularity as an alternative debt instrument to larger banks' cash advance offering or overdraft fees. This growth, however, has resulted in a legal backlash from interests seeking tighter control over these financial markets and, in particular, interest rates. The higher interest rates of these types of specialty loans have garnered widespread debate about their costs and benefits. As most studies on this relatively new form of debt have delivered inconclusive or circumstantial results, the payday loan market in the U.S. continues to grow.

Analysis of U.S. Debt

Mortgage loans secured against the value of a home represent the single largest piece of the average household debt, at approximately 75% of total consumer debt. In 2010, national student loan debt rose to $810 million, surpassing credit cards as the largest non-housing source of household debt. As of the most recent national consumer debt balance released by The New York Fed, student loans account for 36% of non-housing debt. Auto loans were the second largest segment, representing 29% of non-housing debt and credit card debt came in as the third largest source of non-housing debt at 24% of total national household debt.

Student Loans in The U.S.

The fastest growing source of debt in the United States is student loans. Over the past 5 years, the debt from America's student loans has increased substantially. The current outstanding student loan debt burden has exceeded the trillion dollar mark, with recent studies reporting that one in every five American households owe money on student loans. Just five years ago, that number stood at one in eight, and twenty years ago only one in ten households had outstanding student loans. This trend is highlighted by the forty percent of homes with a head of household under the age of 35 that are paying on student loans.

America's Debt-Burdened Youth

These numbers are part of an ongoing pattern of new college graduates being unable to find work after graduating and struggling to repay their student loans. These increases in student debt have occurred across the board in nearly every demographic and income group. The lower income households are most profoundly affected by student loan debt and there are growing concerns about these borrowers' ability to repay their debts. According to the most recent data two out of five student loan recipients will be delinquent on their loan repayments at some point.

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