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High-interest car loans are creating debt problems for many

This article looks at how more Americans are struggling with auto loans, especially ones with high interest rates.

In 2008, the economy crashed largely because too many people were taking on mortgages they could not afford. Today the debt profile of most Americans looks quite different. Mortgage debt has fallen as a share of overall household debt, but, according to MarketWatch, other types of loans, most notably auto and student loans, are up significantly. The rise of auto loans is especially worrying given that such loans typically come with high interest rates. Furthermore, delinquency rates on auto loans are rising at a time when household debt is returning to pre-recession levels.

How debt is different today

A recently released study by the New York Fed shows how debt has changed for American families since the recession. In 2008, for example, mortgages accounted for 78 percent of all household debt. Today, while mortgages remain the largest debt burden for most families, its overall share of household debt is down to 71 percent. Likewise, credit card debt has also fallen, albeit a bit more modestly from 6.8 to 6.2 percent, according to Think Advisor.

Despite those declines, overall household debt is now back at where it was when it peaked in 2008. The reason debt is rising again is because of student loans and car loans. Student loans have more than doubled since 2008 as a share of household debt, from 5.0 percent to 10.4 percent. Likewise, auto loans have grown by a third, from 6.2 percent in 2008 to 9.2 percent today.

The danger of auto loans

So despite the fact that Americans are carrying less house-related debt today, they nonetheless remain under significant financial strain. In fact, the reason many Americans are carrying less mortgage debt is simply because their student debt is preventing them from qualifying for mortgages.

What is especially worrying about the makeup of household debt today, however, is the role that auto loans are playing. That's because auto loans, especially subprime auto loans, typically come with much higher interest rates than other types of debt. And statistics suggest more Americans are struggling to keep up with their car loans. Delinquencies for auto loans, for example, recently peaked in December at their highest level since 2010. In fact, at the end of last year six million Americans were at least 90 days behind on their auto loan payments. Another concerning fact is that 12 percent of people who took out a car loan in the past year had repayment periods on those loans that were longer than how long they actually planned on keeping their car for.

Bankruptcy and debt help

As more and more people struggle with debt, it is important that they know there is somewhere they can turn to for help. Bankruptcy may sound frightening, but it could be a viable option for those who are drowning in debt. A bankruptcy attorney can help those struggling with debt understand how bankruptcy may be able to help them get back on sound financial ground sooner.

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Goldman & Beslow, LLC is a Federal Debt Relief Agency by an Act of Congress. We have proudly assisted consumers seeking relief under the U.S. Bankruptcy Code for over 38 years.

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