Who's Most Likely To Be In Debt In 2012?

There can be little doubt that the U.S. is hovering on the edge of a recession as we head into 2012. The nation continues to experience a stalled economic recovery in response to the global financial crisis of 2009. The U.S. gross domestic product (GDP) is currently growing at a mere 2%, which is insufficient when you consider the consistently high levels of unemployment prevalent across the country. This is forcing many social demographics to grapple with significant levels of debt, but who is most likely to suffer financial hardship as we head into a brand new year? (For related reading, see How Much Debt Can You Handle?)

TUTORIAL: Credit And Debt Management

The Burden of Household Debt
Let's start with the good news for families and homeowners across the U.S. Household debt burdens have continued to fall through the last financial quarter. Since October 2010, the rate of disposable income allocated to debt services has declined from 13% to just over 11%, with the total level of household debt in the U.S. having fallen simultaneously during the same period. That said, there remains a significant level of household debt within the U.S., and this situation is unlikely to improve with unemployment expected to remain high throughout 2012.

The issue facing families and homeowners in the U.S. is one of multiple debt and the prospect of having to prioritize what gets paid as a matter of urgency. When you consider that the average debt per household in the U.S. (not including mortgage repayments) stands at approximately $14,500, then you begin to understand the amount of repayments that may be missed in order to maintain a family home. As long as households continue to be burdened with multiple debts, they face an arduous journey towards solvency in 2012. (To learn more about debt, read 3 Strategies For Shedding Holiday Debt.)

Threat to the U.S. Economy
It is all too easy to forget about student debt as the year draws to a close, but the fact remains that this is potentially even more of a threat to the U.S. economy in 2012. Mortgages can be sourced with an interest rate of as little as 5% in some instances. However, student loans are often available at rates of anywhere between 6.8% and 7.9%. This makes them considerably more expensive in comparison, especially given the fact that they do not secure a tangible asset or boast a specific value.

This is not to say that education is not valuable. It is just that it does not offer the same level of financial security that a house or an automobile does. Student loans can live with graduates for an entire lifetime, and certainly hinder them as they enter an economy where unemployment is high and job creation is low. With student loans set to top the $1,000 billion mark for 2011, it is clear that an increasing number of students are attending college and therefore taking on an enormous amount of debt and financial liability. Considering the rising cost of loans bills and exaggerated rates of repayment, 2012 could be a worrying year for graduates and college students. (For more on student loans, read Student Loan Debt: Is Consolidation The Answer?)

Debt an Increasing Concern
There was a time when retirement meant easing into a comfortable old age on the back of a hard working career and well-earned savings. This is no longer the case as we close in on 2012. An increasing number of U.S. citizens aged 60 and over are approaching retirement age heavily burdened by debt. They have been hit with a crippling combination of economic circumstances, which have left many with multiple debts and facing the possibility of working well into their seventies.

Mortgages remain the most significant problem for this demographic. Thirty-nine percent of home-owners aged between 60 and 64 held primary mortgages in 2010, with a further 20% owning secondary mortgages. These figures had nearly doubled those recorded in 1994, revealing that an increasing number of citizens were still burdened with significant repayments well into their twilight years. This problem has only been exacerbated by the steep drop in housing value, which has left many with negative equity and facing difficult times ahead in 2012 and beyond.

The Bottom Line
These are trying times for many social demographics in the U.S., as an economy that presides over rising unemployment is unlikely to experience any significant growth. While there is at least some room for optimism with regards to slowly diminishing household debt in the U.S., this is somewhat offset by the rising financial liability of students, which has the potential to burden the next generation of taxpayers. Next year looks set to be an especially difficult year for homeowners and graduates, while those approaching retirement may be forced to shelve their plans for a year or two. (For related reading, see Digging Out Of Personal Debt.)

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