As children return to school this month, their parents will learn a tough lesson: It was a cruel summer for their finances.
Study after poll after survey shows Americans have fully recovered from their inflation fears — and they have already drained their pandemic savings. Just this summer, we learned:
- Household debt has set a new record high of $17.06 trillion — growing $148 billion from last year, according to the Federal Reserve Bank of New York.
- We know we have a problem: Two in five Americans feel their credit card debt is “embarrassing,” according to a NerdWallet poll.
- The Brookings Institute has issued a dry report with this dense language: “Our research investigates a natural propagation mechanism through which rising debt-to-income ratios and higher interest rates systematically depress real activity for years in the future.” What that means in plain English: Even if you pay off everything you owe today, you’ll suffer a debt hangover that could last years.
Of course, I haven’t even mentioned student loans. That’s the tipping point for what I predict will be a “financial fall.” On Sept. 1, the interest on your student loans begins to accrue again, after the federal government froze that in the wake of the pandemic three years ago. The pause on actually paying your loans ends in October.
CPAs like myself had hoped Americans would use that pause to pay down their other debts. Instead, they ran up even more debt. Now a Credit Karma poll from earlier this month shows, “nearly two in five federal student loan borrowers say they have not saved money in anticipation of resuming their payments.” Even worse, more than half “say they will need to choose between making their student loan payments or paying for necessities” — like rent, groceries and utilities.
Here’s the scariest part: The holiday season comes right after student loan payments resume, and we’re all going to feel pressure to buy holiday gifts. Last year, the average adult spent $932 — well higher than the $846 the holiday season right before the pandemic hit.
It’s worse here in South Florida. The Sun Sentinel reported this summer that “South Florida renters need six figures to make ends meet.” To be more specific, they need to earn $112,183 to afford the typical rent. That makes “South Florida one of the most cost-burdened places to rent, ranking eighth in the country.”
It’s not much better for homeowners. A Florida Atlantic University study earlier this month reported that our area is “climbing up the list of overvalued housing market,” and “South Florida home prices have started to increase over the past few months.”
So now that I’ve scared you half to death, what can you do about it? First, let me tell you what not to do. Don’t expect the government to help.
These days, no issue isn’t hyper-partisan. Democrats and Republicans are fighting over student loan forgiveness, when the plain truth is: Even if all that debt is wiped out, the problem just begins again. It’s like pulling the drain on a bathtub but leaving the spigot on at full blast. You’re still wasting water.
Thankfully, you’re not alone. Just as there are therapists for your mental health, there are counselors for your financial health. Even better, you can consult the latter for free. There are nonprofit credit counseling agencies that will give you a free debt analysis. By law, those agencies can’t sell you services that don’t help you get out of debt, and they often offer DIY advice you can do on your own.
I’m always surprised that people who have no problem hiring plumbers to fix a stopped drain or a mechanic to change their oil never consult a professional to fix their debts. Just as you don’t want to wait until a pipe bursts and floods your home, or until your engine seizes up and stops working, you don’t want to wait until your fall season becomes a financial failure. Seek out a nonprofit credit counseling agency today, or consult a for-profit financial professional. Whatever you do, don’t do nothing — because you could lose everything.
Howard Dvorkin, CPA, is chairman of Debt.com and founder of Parkland Cares, which provides mental health trauma counseling.
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