The Obesity of American Debt

Americans of all income levels are weighted down with hefty debt. The average household carries $8,565 in credit card debt, a number that rose 15% since 2000. We’re also carrying $2.56 trillion in general consumer debt, up a whopping 22% from eight years ago, according to the Federal Reserve Board.

High interest payments, late fees and processing charges just add to our uphill battle to becoming financially fit. A recent New York Times article suggests lenders are intentionally prolonging loans to make money off the fees and surcharges attached to them. Although this new business model is making lenders big bucks, it’s cementing Americans to their growing debt.

In a 2005 speech, the Acting Comptroller of the Currency spoke about the industry trend of prolonging a customer’s debt, saying, “today the focus for lenders is not so much on consumer loans being repaid, but on the loan as a perpetual earning asset.”

The Profit of Ensuring Debt

Lenders have strategic plans to guarantee we stay in debt. According to the Times, mortgage lenders are cold-calling homeowners to suggest refinancing. Although refinancing home loans can result in lower monthly payments, it also results in prolonged debt for homeowners. That’s good news for the lender—they get to make money off the appraisals, credit checks, titles searches and processing fees.

Credit card companies are also attempting to reshape how consumers think about debt. In an effort to dismiss the belief that credit card debt can be dangerous, MasterCard’s “Priceless” commercials and the “Life Takes Visa” campaign suggest that debt is safe and advantageous.

It doesn’t stop at just the credit card and mortgage lenders; retailers have discovered that financing programs create large-scale wealth. In fact, store credit cards can lead to bigger profits than their main businesses. Stores are aggressively promoting their credit cards, promising short-term savings for long-term debt.

Besides these lender tactics, consumers are also staying in debt due to the Bankruptcy Abuse Prevention and Consumer Protect Act of 2005 (BAPCPA), which has benefited mostly creditors, according to a new study.

Since BAPCPA was enacted, credit card revenue increased by 25% and the cost of borrowing has increased 5—17%. BAPCPA also made it more difficult for those being crushed by debt to file for bankruptcy relief.

Consumers are in a dangerous position when debt becomes a profitable business. If you or someone you know is struggling with debt, consider talking to a bankruptcy lawyer about your options.