The Good News About Debt This Holiday Season

From 1990 to 2009, we went on a credit binge...

While many of our parents taught us values like "only buy things you can afford," low-interest-rate loans and credit cards make it too easy for folks to "buy now and pay later."

Unfortunately, over the last few decades, the U.S. has adopted a buy-now-and-pay-later mentality. And as you may know, taking on debt is a slippery slope.

You can quickly find yourself in over your head and in serious trouble. We've all heard the horror stories. Perhaps, you've been a part of one yourself.

But there is some good news...

The chart below looks at net household liabilities as a percentage of disposable income. Household liabilities include the combined debt of all people in a household, such as mortgage loans and credit cards. Disposable income is the amount of money that a household must spend or save after income taxes have been deducted.

Before the 1990s, net household liabilities as a percentage of disposable income was around 0%. Folks only bought what they could afford.

But then we started binging on credit. That ratio shot up to nearly 70% right before the housing bust in 2007. Of course, the financial crisis devastated many families all throughout the country – so that wasn't surprising. Take a look...

You can see the turnaround, though. Over the past decade, especially the last couple of years, U.S. household deleveraging has been extraordinary...

Thanks to the pandemic, folks have been spending less and saving more. Net household liabilities as a percentage of disposable income has finally come down to reasonable levels.

It really is refreshing to see Americans finally getting their debt levels in check.

The only question is: will this last?

After all, Americans have a love affair with their credit cards and low-interest-rate loans. And with the economy still in various stages of reopening, folks who are sick of being stuck indoors have been eager to get out of their houses and spend.

Plus, it's nearly Christmas. And a lot of folks have spending on their mind.

A recent survey from found the average parent with children under 18 years old plans to spend $276 per child on gifts. Meanwhile, folks with significant others plan to spend $251 on gifts for them.

It wouldn't surprise me if parents, grandparents, siblings, and loved ones spend a little more this year than they did last year. It has been a brutal couple years, after all, thanks to COVID-19.

Everyone deserves time with their loved ones to celebrate the holidays.

But one thing I hope I won't see is folks falling back into the habits of running up their credit cards.

I'm a huge advocate of saving. There will always be times where you'll need cash for some unexpected expenses... So, at the bare minimum, you should have enough saved to cover three to six months' worth of expenses like mortgage payments, food, and utilities.

Always make sure you have your emergency fund fully funded before you even think about pulling out your credit card.

It is a breath of fresh air that Americans have finally deleveraged credit card debt... Let's hope it stays this way for a while.

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig

Editor's note: Americans are still facing one big threat to their savings... inflation. Worse, Doc says this situation is likely spiraling toward a more government-planned economy – and, potentially, a retirement crisis. That's why he has recently published four special reports for his Retirement Millionaire readers on how to protect and grow your wealth during this "new era"... Learn more here.

Further Reading

If you don't have enough saved, you could ruin your retirement. Retirees often blow through a large portion of their savings in just a few years. But this doesn't have to happen to you... Learn more here.

"The average American is expected to run out of savings at some point during retirement," Doc writes. With today's threats to your nest egg, it's important to make sure your finances are working for you... Read more here: Don't Fall Into the Retirement Nightmare.

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Market Notes


Today's company profits when folks run out of room...

Regular readers know we love investing in big secular trends. One of those big trends has been self-storage recently. Folks need a place to store their extra things – whether they're downsizing their homes or just own too much stuff. That's good news for today's company...

Extra Space Storage (EXR) is a $30 billion self-storage company with more than 2,000 U.S. warehouses and around 159 million square feet of rentable space. Folks fill that space with their old couches, boxes of books, or whatever else they can't bear to part with. And once they've filled a storage unit, it's easier to pay rent forever than clean it out. There's no shortage of demand... Extra Space Storage's 1.2 million customers occupied a record 97% of the company's space in its most recent quarter, and sales rose 20% year over year.

As you can see, EXR is up almost 200% over the past five years. And shares just hit an all-time high. As long as people hang onto their extra stuff, Extra Space Storage is set to benefit...