Yesterday’s economic report indicating 4.1% growth in the second quarter is good news for the economy – but is it good for you?

The Wall Street Journal indicated that “Consumers, buoyed by low unemployment, steady job growth, and recent tax cuts – ramped up their spending at a robust 4% annual pace.” The article went on to note that, “As Americans spent more, however, they saved less,” noting that the savings rate declined from 7.2% to 6.8%. Here lies the problem. Too much of the growth is fueled by consumer spending enabled by credit cards – leaving the consumers with increasing credit card debt at interest rates ranging from 14.5% to 29%. According to ValuePenguin.com, the average amount of credit card debt per family that does not pay off their balance in full each month is $9,333. The highest balances carried hit the 45-54-year bracket, but 35 to 44 and 55 to 64 are the next closest.

The Federal Reserve publishes this data regularly at: www.federalreserve.gov/releases/g19/current. As of May, the outstanding revolving credit card debt is $1.039 trillion. According to the Fed:

In May, consumer credit increased at a seasonally adjusted annual rate of 7-1/2 percent. Revolving credit increased at an annual rate of 11-1/2 percent, while nonrevolving credit increased at an annual rate of 6-1/4 percent.

What does this mean? As I see it, we are growing the economy on the backs of the American consumer. The banks have increased the availability of credit – at an astounding 11.5% annual rate – and as a result, consumers are increasing their debt and decreasing their savings. I’m not surprised, this is precisely what happened leading up to the Great Recession in 2008. Do you remember what happened when the economy collapsed? Consumers had no savings and were living on available credit and the banks took away the available credit when the economy turned sour. What will happen the next time? The answer is the same – but the next time – the banks will react much faster. As soon as the economy begins to dip, available credit will be eliminated on anyone who has significant debt, and available equity lines on homes will be slashed.

Fool me once, shame on you. Fool me twice, shame on me.

You need to heed these words and NOT allow yourself to be caught in this trap. The solution – build cash reserves and eliminate the credit card debt – so you STOP wasting away your retirement by paying thousands and thousands of dollars in interest over these years. This money needs to go in savings. If you have $-0- in credit card debt and only use the cards to get “points” to buy stuff – you’re fine. If, however, you’re one of the many who carry balances, from, month to month, year to year, decade to decade – you need to take action, and you should do so now – before you get trapped again like in 2009-2010. My suggestion? Attend our FREE Seminar this coming Wednesday evening, “Debt Free is Me.” Details are below.

Enjoy the weekend,

Ken

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