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Mortgages aside, many Americans underwater

NEED TO KNOW
  • New report: 20% of households owe more than they've saved
  • Those numbers don't even include mortgages or car loans
  • Other research finds hundreds of thousands can't afford bankruptcy
Mortgages aside, many Americans underwater

Americans are drowning in debt and there’s no end in sight for a lot of them.

While so many families are struggling to pay off their mortgage, they’re battling to keep other debts under control at the same time. The mortgage crisis has left a lot of Americans in a difficult place financially, and unfortunately all of the other bills have just kept piling up.

About one out of every five U.S. households now owe more than they have in savings and other liquid assets, according to new University of Michigan report. And that doesn’t include mortgages or car loans. Recovering from the Great Recession, or trying to, these families just don’t have the money to even make a dent in what they owe on credit cards, medical bills, student loans and other debts like loans from relatives.

For a lot of people, the problem isn’t that they don’t have enough in savings, but an alarmingly large number of families actually have no savings. The Michigan report found that on top of Americans being buried under so much debt, 23.4% of families had no savings or other liquid assets in 2011, up from 18.5% in 2009.

"Even if they're not underwater with their mortgages, they are struggling to save money and reduce their debts,” said Frank Stafford, co-author of the report.

The report showed the number of families that owe at least $30,000 in credit card and other debts rose to 10% in 2011, up from 8.5% in 2009. Student loan debt has been on the rise since 2008 and the report cites this now-$1 trillion problem as a likely reason more people have such a substantial amount of debt.

In the midst of all of this, there are Americans who are making some headway. The number of families with more than $50,000 in liquid assets jumped to 14.6%, up from 11.8% in 2009. Besides these few who may be getting somewhere with their debts, Stafford said, “the rest of American families are simply treading water, if they’re lucky.”

Now, the question remains: For Americans who are underwater in their lives, what can they do about it?

One might think that bankruptcy is a good last-resort option. But, it has a few drawbacks. For one thing, bankruptcy won’t wipe out those student loan debts. The law doesn’t allow them to be discharged. It also puts a black mark on your credit report for as long as ten years -- and borrowers with serious debt may not have stellar credit to begin with.

Another concern is the cost of the bankruptcy filing itself. According to new research, it costs about $1,500 to file for Chapter 7, which is too steep of a price for an estimated 200,000 to one million people. 

Desperate borrowers can seek guidance from the National Foundation for Credit Counseling. It’s a nonprofit group with agencies nationwide that provides education and financial counseling of all types. They can offer bankruptcy counseling and dept management plans, which help borrowers with severe debt consolidate and potentially reduce their balances.

For those pesky student loans, an Income-Based Repayment Plan can make payments more manageable for borrowers whose loan obligations  are eating away at their incomes. Student loan borrowers in some professions may even be eligible to have their debt forgiven.

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