Can Polo Funding Help Borrowers With High Debt Ratios?
“Polo Funding and its affiliated web sites are not accredited by the BBB and have been the subject of numerous complaints and negative press under different names.”Ed Miles, crixeo.com
Recently, Braidwood Capital, was profiled by Crixeo. Apparently, Braidwood Capital is allegedly part of the same collection of web sites involved in the debt consolidation scam.
The Rise in US Household Debt Ratios
Debt ratios help you to determine the health of the economy and the average debt that households owe. Key among these is the debt-to-income ratio, which enables us to understand the financial standing of families in America. Calculating this debt ratio is simple. You can compute this debt ratio simply by dividing the monthly debt payment by the total monthly income.
For instance, if your monthly debt payment amount stands at $6,000, whereas your monthly income is $10,000, then your debt to income ratio is 60%. This is a high debt-to-income ratio and it shows that you need to work out your monthly income and expenses for servicing your debts in a better and faster way.
Hence, debt ratios indicate your financial state. This is important for other reasons as well. If you want to get a loan then depending on your lender, you will need a debt ratio under a certain amount. If your debt to income ratio is below this amount then you can qualify for the loan. But if your debt ratio is above or equal to this threshold, then you will not qualify.
Debt Ratio Limits
For instance, if you want to take out a mortgage, then your debt ratio needs to be under 40% for most lenders. Financial advisors recommend a debt ratio of well under 30% for healthier finances. If your debt ratio is too high then you might face trouble of all sorts. If you choose to pay your entire monthly dues (for which you don’t really have a choice to begin with) then you may have too little remaining for your necessities and leisure when your debt ratio is too high. If you fall back on your monthly dues and cannot pay the full amount, then you will face all sorts of problems including lowered credit scores and even lawsuits.
Debt Ratios Increasing
Debt ratios of American households have sadly increased over the decades. If you look at the Federal Reserve data, then there was a slow but steady increase in debt ratio starting from the 80s. Just before the housing market collapse that triggered the financial meltdown of 2008, there was a steep rise in debt ratios. This goes to show how critical debt ratios are for the health of the economy. If households, businesses and other entities have debt ratios that are too high, then this can possibly trigger financial catastrophes as the nation painfully learned in the aftermath of the 2008 crisis.
Following the financial crisis of 2008, there was a sharp downturn in debt ratios for American households. One important reason for this is that many declared bankruptcy. Another reason for this is that households became more cautious of borrowing large amounts and thus started borrowing less due to which the debt ratios plummeted.
Overall, debt ratios have skyrocketed since the turn of the century. The US Census Bureau shows that in 2000, the median debt was almost $51,000. But now the median debt for American households now stands at a staggering $137,000. The debt amount has more than doubled. The trouble is that median household income during the same period saw a rise of only $20,000. In 2018, the median household income was $61,372. Hence, the debt ratio has outpaced the rate of income growth. The troubling rise in debt ratios indicates that Americans are borrowing at a much faster rate and may find it harder to keep up with repayments.
Debt Ratios Among Various Households
Debt ratios can also vary according to family types. Married couples usually carry less debt than singles. TD Ameritrade carried out a study in 2017 showing that just 29 percent of singles consider themselves to be financially secure compared to 43 percent of married couples.
Married people also earn more on average than singles. A married person on average earns around $61,500 each year while a single person on average makes about $52,900 per annum. One reason for this could be due to the increased pressure on married couples to earn more for their children.
Married couples also save more than singles. Around a third of singles don’t save compared to 17 percent of married persons who do not save. Once again, this could be due to higher pressure to provide a safer financial future among married couples.
Rising Debt Ratios and Their Factors
Debt ratios have continued to rise following the 2008 financial crisis. Although debt ratios in America are on average lower than other countries, this could still create problems because rising debts could become harder to pay back. The rising debt ratio might mean that many households with too much credit card debt may be denied access to credit in the future when they need it. The rising debt ratio can also lead to a widening of the financial divide between age groups and communities further deteriorating inequality.
Much of this debt can be attributed to mortgages which account for around 70% of household debts. The good news is that mortgage defaults are now much lower than what they were back in 2008.
In the aftermath of the 2008 debt crisis, debt ratios fell sharply as a result of delinquencies and cautious borrowing. However, debt ratios have seen a steady rise since then and the total mortgages that households owe is similar to levels that preceded the 2008 financial crisis. Another startling trend is that student debts are rising fast and further worsening debt ratios across households.
In the third quarter of 2008, student loans amounted to around $600 billion. But in the third quarter of 2018, student loans reached a staggering 1,400 billion. That is, student loans have more than doubled during a time period of one decade. This is one major reason why debt ratios for households look rather troubling.
Another key reason for the rise in debt ratios is due to the sharp rise in auto loans and too much credit card debt which leads to debt consolidation loan vs refinancing. During the same time frame as mentioned above, the total amount of auto loans went from $810 billion to $1,260 billion.
To ensure financial stability in the future, the US must assess it debt ratios and improve them by increasing income levels and reducing borrowing.