Bridgeman isn’t the only one who’s maxed out. Countless Americans have consumed far beyond their means during the recent economic boom, and piled up record amounts of debt from mortgages and credit cards. But now the rainy days that nobody saved for may be setting in, and experts warn that many people may drown in debt if they lose their job. With an unexpected layoff notice, “a family that was doing OK at Christmas may all of a sudden be way under water,’’ says Teresa A. Sullivan, coauthor of “The Fragile Middle Class: Americans in Debt.’’ The fallout: personal bankruptcies will rise by as much as 20 percent this year, predicts SMR Research.
In the good old days, Americans used to feel uneasy about going into debt. Not anymore, in part because it’s so easy to borrow money. Homebuyers used to be required to put 20 percent down, but now it’s possible to get a mortgage with “no money down.” Home-equity loans are now approved almost instantly and new credit-cards arrive in the mailbox pre-approved.
Financial counselors say many people naively assume that their continued access to credit is a sign that the banks believe their finances are in relative order. So people juggle debt to maintain a good credit rating, using new credit cards to pay off old cards. Steve Rhode, a cofounder of myvesta.org, a nonprofit firm that counsels people on managing their finances, says too many people won’t put off buying something until they save for it first. “Consumers want it now,’’ he says.
Getting laid off makes financial juggling much trickier. Bridgeman, the former March of Dimes staffer, has sworn off plastic. “We’re not looking to purchase anything on credit ever again,’’ he says. Others may change their spending habits, too, as layoffs introduce an element of fear into the economy. But many consumers have yet to take that pledge, in part because it’s so easy to put off paying until tomorrow what you owe today.
