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Credit card debt increases as default rates fall

It appears that consumers in Minnesota and around the country are taking on more debt as the economy continues to grow. Total consumer debt in the United States has grown for 16 consecutive quarters and is now approaching $14 trillion according to the New York Federal Reserve's second quarter Household Debt and Credit Report. However, consumers seem to be coping with this increased debt load as default rates are essentially flat and credit card delinquencies are actually falling.

The figures reveal that credit card debt grew by about $14 billion in the second quarter of 2018 while the revolving debt default index, which is based on figures from Standard & Poor's and Experian, fell from 3.86 to 3.56. This figure stood at 9.15 in April 2015. This suggests that American consumers are able to manage their credit card balances despite paying interest rates that average nearly 17 percent.

Experts say that lower default rates are a result of stricter lending standards put into place in the wake of the 2008 financial crisis. Credit card companies generally consider a debt defaulted on after six months of missed payments, which means that the figures do not reflect the financial struggles of consumers who have fallen behind on their payments but have not yet reached that benchmark.

The financial situations of consumers often go from difficult to completely unmanageable after they turn to credit cards to make ends meet following a layoff, illness or other emergency. Punitive interest rates and soaring fees make escaping the revolving debt trap extremely challenging, but the nation's bankruptcy laws provide relief from crushing financial burdens and offer the possibility of a fresh start. Attorneys with debt relief experience could explain the differences between Chapter 7 and Chapter 13 and make recommendations based on an individual's unique situation.

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