High Debt Levels are Weighing Down the Economy

By Aminat Tokakova
International Business Writer

High debt levels could hamper the global economy if interest rates are not adjusted (Photo courtesy of Getty Images)

Due to the economic instability in the United States, consumer debt has reached its absolute peak, reports Reuters. According to the New York’s Fed’s US Household Debt and Credit Report, the amount of the current debt is $13.86 trillion, compared to the previous peak before the crisis in 2008, when the total debt was $12.68 trillion.

Total student debt in the country is approximately $1.5 trillion, which significantly exceeds any other loan type. As a result, more payments on student loans are falling behind, being at least 90 days late after each payment was due.

Desperate students borrow thousands and thousands of dollars, in order to afford their dream schools, without understanding the concept of the potential fall or rise of interest rates. Consequently, they are unable to adjust their payments to continuous changes of rates which could significantly increase the total amount of repayment.

Meanwhile, provoked by the US-China trade war and enormous debt levels, the global interest rates are firmly decreasing each day, significantly slowing the economy, reports the Wall Street Journal. According to Sonja Gibbs, managing director for global policy initiatives at the Institute of International Finance, policy makers need to adjust interest rates considering worryingly high debt levels, otherwise, the broader economy will be negatively impacted.

The Wall Street Journal analyzed the connection between debt, interest rates, and growth. As rates rise, consumers, who have taken out a loan of any type, start reducing other spending. The Journal expects future increases of the national debt levels and, therefore, recommend that individuals save money in advance so they will be able to complete their payments on time.

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