Debt Is the Real Reason Why Your Personal Recession May Last for Years

The recession may have officially "ended," but chances are your financial struggles are far from behind you.

The weak jobs market is certainly a factor, not to mention the volatile stock market, which has likely made whatever investments you have drop in value.

There's also the sagging housing market, which may mean your home is worthless.

Those are the obvious things – the stuff that explains why nearly 75% of Americans don't believe the recession is really over.

But there's another reason that many of us are going to feel cash-strapped for some time to come. Simply put: Americans are very quick to rack up debt, but slow to pay it off.

And unfortunately, our decades-long love affair with credit and over-consumption won't easily come to an end.

The Numbers on Debt are Dead Wrong

In recent months, we've gotten word that consumers have started paying off debt and saving more money in response to the Great Recession. But those reports largely proved to be unfounded – or misleading at best.

For example, a lot of the hoopla about reduced credit card debt turned out to be much ado about nothing. While it's true that the totals for credit card debt have gone down, it's not because people have starting paying more money toward their bills.

In fact, just the opposite is true. People haven't been paying their credit card debts, leading banks to write off those debts as uncollectible. So the real reason for the reported drop in credit card debt is charge-offs from banks' balance sheets – not payoffs by consumers. I'm afraid we may be in for some future disappointing news about Americans' saving levels too. Only time will tell. But for now, here's the paradox I see. On the one hand, the personal savings rate is up. In July, it stood at 5.9%. Granted, that's a huge improvement over where we were in 2005, when the savings rate was as low as negative 1.1%.

But if we're all doing such a better job of saving money, you'd think savings in other areas might budge too. Yet that's not happening. For most other categories of saving – whether it's saving for our kids' college education or for our own retirement – Americans' savings accounts are severely under-funded.

Why? The truth is that Americans are still borrowers to a far greater extent than they are savers. And in every category of borrowing, consumers are taking more time to pay off their obligations than in previous years.

A Generation of Debtors

For instance, many of our parents and grandparents got mortgages for 15 or 20 years.

But the standard home loan is now 30 years, with a good number of lenders offering 40-year loans. Even the government is pushing 40-year mortgages. More than half of all homeowners modifying their mortgages through the federal government's Making Home Affordable Program have extended the life of their loans, with most going from 30-year to 40-year mortgages.

It's little wonder, then, that only 33% of Americans own their home free and clear, according to Federal Reserve data. Among the majority – the 67% of homeowners who do have mortgages – the average home owner's equity is less than 15%.

Think also about car payments. Automobile loans used to be three to five year contracts. Now six- and seven-year loans are common and the average car loan exceeds $28,000. I call them car mortgages.

Student loans are even worse. According to the College Board, it takes the average college graduate (or college dropout) 15 years to repay student loans, much longer than the previous generation of students. Moreover, only 40% of the more than $820 billion in student loans outstanding are currently being repaid, statistics from show.

Other areas are stretching loans too: payday loans used to be granted for just one or two weeks – until the next paycheck. But to get around strict state laws cracking down on short-term, payday loans, these lenders started offering longer loans due in 31 to 60 days. Some payday lenders even entice people into getting "installment loans" of 121 days or more.

And let's not forget about that credit card debt I've already mentioned. Excessive credit card debt leaves many Americans trapped in a never-ending cycle of living paycheck to paycheck.

It's all this debt that holds us back from saving and investing for the future. If your home was under water, and you didn't plan to move anytime soon, you probably wouldn't care.

But if you're a cash-strapped homeowner who wants to borrow against your property, it's a different story. You can't borrow because the equity simply isn't there. And thus, you're feeling financially pinched. Your personal recession is alive and well.

As a nation, we're drowning in debt. And without smart financial planning and improved financial literacy, it's going to take most people a very long time to get rid of all these bills.
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