Here’s a hair-raising statistic: American consumers have increased unsecured personal loans to a record $177.9 billion.
The findings come from Personal loan statistics for 2022a new report from The Ascension. The same analysis found that the average unsecured personal loan balance is $9,896, higher than the average $6,656 for borrowers receiving new loans, according to data from credit reporting giant TransUnion.
The latter figure was reported to be the highest average balance in some time, likely due to a surge in borrowing in 2021 and early 2022. The Ascent suggested that new loan balances rose to $7,126 in the second quarter of 2021, a 36% increase. from $5,213 in the first quarter of last year.
David Chang, personal finance expert at The Ascent, pondering why personal credit is reaching banner levels is a big deal for black Americans. He says there is a large racial wealth gap between black and white Americans. Citing Federal Reserve data, Chang found that the median net worth of a typical white household in 2019 was $188,200. He says that’s almost eight times the price of a typical $24,100 black household. He says the poverty rate of black Americans (21.2%) is more than 2.3 times that of white Americans (9%), and blacks have much higher unemployment rates than any other ethnic group.
“The wide inequality in net wealth, income and employment is one of the main reasons black Americans struggle with debt. It has also been a major contributor to Black Americans being hit harder during the pandemic.”
And because of the credit gap, Chang explained, many black Americans are turning to payday loans to make ends meet. He says the average interest rate on a payday loan is a whopping 391%.
Still, some help is at hand. According to Chang, there are many financial resources, advocacy groups, and support groups in the community to help obtain funding or manage existing loans. He says here are some for black Americans. He says they include the Black Cooperative Investment Fund (BCIF), which, he says, provides microcredit to the black community through pooled dollars.
He noticed that is another Operation HOPE. Chang says this nonprofit organization has programs that help black Americans successfully manage their money, own a home, start a business, or recover from a disaster, including a hurricane, tornado, fire, and the COVID 19 pandemic.
He suggested humble needs, a nonprofit organization that “provides short-term financial assistance to individuals and families in a temporary crisis who, because they work and live just above the poverty line, are ineligible for most conventional welfare benefits.”
There were some bright spots from The Ascent report. Interest rates on personal loans have been reported to be low, creating an opportunity for those in need of credit to grab a bargain. While crime rates may not be at their all time lows now, they are better than before the COVID-19 outbreak.