What do Debt Consolidation Loans say About the US Economy?

People go into debt for many reasons, and as markets and fortunes change, debt consolidation loans continue to be a regularly increasing source of financing provided by local and national banks.  In fact, in hot real estate markets that have felt the pinch, such as Minneapolis or Atlanta, pressure to make payments and keep though financial situations from getting tougher, the rate at which debt consolidation loans have penetrated the lending market have gone through the roof.

As real estate markets become “hotter,” the price of homes in the suburbs increases.  This drives an economy that feeds into the urban center.  Hoping to take advantae of the situation, urban areas receive improvement monies from a broader state (and federal) tax-base.  This drives urban renewal and generally causes live to improve enough in the urban center that people actually want to live there again and spruce the place up.  Additionally, as the price of fuel increases, it becomes more efficient to live in closer confines.  

Thus, the cost of living goes up everywhere.  That's why the use of debt consolidation loans has been such a widespread phenomena in recent years – a trend that isn't likely to be changing any time soon, given likely increases in the price of oil in the US and worldwide.  Because the price of living rarely keeps up with wages in a hot real-estate market for very long (or until things settle out, anyhow), there will always be an increased use of credit for those who don't have any “wiggle-room” built into their budgets.

Credit card debt accounts for most of the debt consolidation loans granted in the 'aughts.  Add to that the fact that, on average, debt consolidation loans cover well over $40,000 in high-interest debt, and you've got a major economic force on your hand.

Of course, over the span of most debt consolidation loans, the loaning party can expect to save thousands of dollars on interest payments, even in just the first year, while paying the bank plenty to cover it in its own interest.  Thus, wealth is taken away from the people at the bottom segment of the wage-earning population because of market forces and not being sufficiently insulated against them.  

Debt consolidation is a sign of an economy that is acting like a pump – taking people from true middle-class affluence and pushing them into the ranks of those who like to call themselves the “lower middle class.”  One could also classify this segment of the population as they are functioning: the working poor.

Further proof of the significane economists afford such issues related to the vast swath of America can be found in how the stock markets react to the recent troubles with sub-prime lending.  You can be certain that a similar melt down in people's ability to pay back debt consolidation loans (in addition to continued increases in the debt consolidation loan market) will be rewarded with a very bad day on Wall Street.

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