Household debt in Connecticut and the rest of the United States rose to its highest level at the end of 2022 since the financial crisis that sparked the 2008 recession. The average household had debt totaling $142,680 at the end of the year. Many consumers cannot afford to take on more debt, especially if the economy takes a turn for the worse.
Sectors where debt has increased
Mortgage debt rose by $290 billion in 2022, while credit card debt increased to $986 billion. Complicating the matter is the extremely high rate of interest that many cards now have. The average credit card APR is at a record high of 19.14%. All of these factors combined lead to a money crunch for consumers with the potential of having to file for Chapter 7 bankruptcy if they can’t pay their bills. With rising interest rates, consumers pay more for their desired goods and services.
This trend represents a complete reversal from 2021, when most households paid down debt with stimulus payments and avoided many big-ticket items, including luxury vacations. Current credit card interest rates show that consumers would need an extra six months to pay off the average credit card debt of $5,000 if they only make the minimum payments while also spending an additional $1,000 in interest.
What happens if I am drowning in debt?
If you have overwhelming debt, filing for bankruptcy can give you a fresh start. The type of bankruptcy you file for can affect what kind of debts are discharged. Under Chapter 7, you may be able to receive relief from unsecured debt like medical bills and credit cards, judgments, wage garnishments and older tax debts. This option is available to most consumers struggling with their bills.
To qualify for Chapter 7, you must go through a means test. This process compares your monthly income to the median income in the state of Connecticut. If your gross income for the previous six months is below the median, you will qualify for Chapter 7.