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Federal Reserve report painst grim picture of U.S. consumer debt

Consumer debt levels in Kentucky and around the country are increasing at worrying rates according to many observers, and American consumers now owe more to banks and credit card companies than they did at the height of the financial crisis. The Federal Reserve Bank of New York released a study on household debt on May 17. American households now hold $12.73 trillion in debt according to the study, which is enough to surpass the previous consumer debt peak of $12.68 trillion reached in the third quarter of 2008.

The $12.73 trillion figure contained in the Federal Reserve report represents a $473 billion increase from the previous year, but a research officer at the bank said that investors should not be alarmed. While debt levels are going up, banks seem to be lending more cautiously. The data suggests that balances are shifting toward more creditworthy applicants, and consumers with marginal credit are finding it increasingly difficult to borrow as a result. Experts say that underwriting standards have become particularly strict in the home and auto sectors.

Declining delinquencies are not enough to allay fears over student loan debt. More than one in 10 student loans is currently seriously delinquent, which has even Federal Reserve economists voicing concerns. The president of the bank behind the report is on record as saying that rising student loan delinquencies could soon begin to impact home ownership and consumer spending.

Many American families struggle to pay their bills each month, and they are often barely able to make ends meet until they encounter an unexpected event like a layoff, injury or illness. Attorneys with debt relief experience could explain to those in financial difficulties how pursuing bankruptcy offers the chance of a fresh start. They could also point out that a Chapter 7 or Chapter 13 petition puts an end to harassment from bill collectors.

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