Without Good Debts, More Young Consumers Unable to Get Loans

Fewer young adults are in debt today than 10 years ago. But as it turns out, that may not be a good thing.

It's not that people in their 20s and 30s have become more financially responsible overnight. Rather, it's that their fiscal behavior over the past decade has finally made it impossible for them to qualify for loans.

While debt increased 63 percent for Americans over 35 between 2001 and 2010, it actually dropped 14 percent for the under-35 crowd, according to a recent survey by the Pew Research Center.

Older consumers already have mortgages, home equity loans and car loans and, as our bankruptcy lawyers discussed in a recent post, their debt load has only increased as they've tacked on new credit card debt. As a result, many baby boomers are facing the possibility of delaying - or eliminating - retirement because they simply can't afford to stop working.

At the other end of the spectrum, young Americans are beginning to suffer the consequences of too little debt.

Younger consumers have credit card debt and, increasingly, student loan debt. What they don't have is so-called "good" debt that can increase in value, like a mortgage or business loan. But when you combine a lot of unsecured debt (i.e. credit card debt) with a weak job market, it's no wonder younger generations are struggling to get loans.

Instead of continuing to add credit card debt, many are choosing to pull back on plastic. Between 2008 and 2012, borrowers between 25 and 34 decreased their credit card debt by half.

While carrying a more manageable debt load can help improve one's credit score, it's only part of the picture. Creditors also want to see that a borrower can make consistent timely payments on a mortgage, car loan or other obligation. Yet only 66 percent of young consumers own at least one car, and just 34 percent own their own home - down from 40 percent in 2007.

For most people, it's better to use plastic responsibly than to not use it at all. Putting a reasonable number of purchases on credit and paying off your balance each month can be a wise way to build credit - so that when you do apply for a loan, you don't get skewered by impossibly high rates.

If limited income combined with too much credit card debt is your problem, however, bankruptcy may be able to help.

In many cases, the reason young consumers are avoiding new debt is that they're already overwhelmed by previous debts. Although bankruptcy can't lower student loans, it can eliminate credit card debt and other expenses that may be interfering with student debt payments.

Chapter 7 bankruptcy is ideal for those with overwhelming bills and expenses, but no major assets like a home to protect. Unlike Chapter 13 bankruptcy, which reorganizes debt into more manageable payments, Chapter 7 has the power to discharge unsecured debt entirely - sometimes in as little as a few months.

Whether you have too little debt or too much debt, making the right moves today can help you achieve financial independence in the future. At DebtStoppers, we can help make your dream of financial freedom a reality.