As the US and the rest of the world continue to recover from the recession, Americans are becoming increasingly comfortable with debt. But many of us may be getting a little too comfortable, and that’s not good.

Consumer confidence – or looming debt crisis?

According to the Federal Reserve, consumer credit, which is a measure of non-mortgage debt including student loans, credit card debt, and car loans, rose by a seasonally adjusted $18.56 billion in May 2016 from the prior month. This represented 6.18% seasonally adjusted annual growth rate, almost 50% higher than the reported April rate. And after the particularly slow real estate market of the last seven years, mortgage debt has begun increasing, as well. Although debt relative to Gross Domestic Product (GDP) has declined since the recession officially ended, it is still greater than almost all years since World War II, and U.S. households now hold trillions in total debt.

It would appear that Americans have begun to restore their exuberant confidence in the economy, but it is also a cautionary note, as we’ve seen where such exuberance has led us in the past. Already, analysts are expressing concern in their forecasts of higher credit card losses over the next year, based upon a rise in overdue accounts.

Household debt isn’t necessarily bad, and the overall rise in debt can be considered to be a mark of increased consumer confidence, which is a good thing. But debt is emphatically not a good thing when it spirals out of control.

Do you have a debt problem?

Many people who do have problem debt don’t recognize it as a problem, and they keep on spending, and/or not saving, as matters continue to get worse. How can you tell if you have problem debt? The first step is to eliminate any emotional judgment you might place on your financial situation. It helps to acknowledge that if you are having debt problems. you are far from alone. It has been estimated that roughly a third of Americans have one or more debts that are currently in the collections process, with an average amount of non-mortgage indebtedness of $5,200. Look objectively at your finances, and see if, beyond being in collection, any of these red flags appear to warn you of either current or impending problems.

• Interest rates on your credit cards are increasing – Credit card companies raise interest rates on accounts when their analysis models indicate that the cardholder might have or soon be having problems keeping up with payments.
• Your credit score is dropping – Ideally, you want your credit score to be 690 or above. If it seems to be on a downward slope, or especially if it drops below 630, you very likely have a problem.
• Your debt repayment plan resembles a Ponzi scheme – If you’re having to go into new debt just to pay older debts, you definitely have a debt problem.
• You often find that your income doesn’t cover your monthly bills – This happens to many people on occasion, but if it happens a lot, you are headed for trouble.
• Your income has diminished, and/or your expenses have increased – A reduction in hours or salary or the loss of a job will definitely have a negative impact on your credit. So will being burdened with significant unplanned expenses such as major home or car repairs or significant medical bills.

If any of these apply to you, it is essential that you get started taking measures to correct the problems, before they spiral out of control.

Can you borrow your way out of your problem?

Most personal finance experts advise against trying to “borrow your way out of debt,” which they liken to trying to dig your way out of a deep hole. There are, however, some instances when taking out a debt consolidation loan can help you get your debts under control, or when a personal loan can help you over a tough spot. But you have to be very careful that the debt you are assuming is really going to help and not make things worse. That starts with researching the various types of loans and the lenders who offer them.

Different types of loans carry different interest rates, depending upon the profitability of the transaction and the risk involved. But even among loans of a similar nature, individual lenders have some leeway in the interest and fees they charge, as well as the various terms of the loan. For that reason, it makes good sense to shop around to see which types of loans and which lenders offer the rates and terms that best meet your requirements. By making a side-by-side comparison of available loans, you can save yourself a considerable amount of money, and in the process improve your overall financial health.

That household debt is on the rise is beyond dispute, and as indicated above it can be construed as a hopeful sign: a signal of increased consumer confidence. Accordingly, your own debt isn’t necessarily a negative and can be an indicator of your own post-recession confidence. Just watch yourself so you don’t become overly confident, because that can lead you straight into a debt hole.