U.S. consumers fell further in debt than ever last year and some will probably feel a little “debt hangover” when credit card bills from the holidays start arriving.

In 1968, consumer credit debt was $8 billion. Now the total exceeds $880 billion, the Federal Reserve Bank reported.

We’re certainly much better at spending than saving.

Consumer spending accounts for a high level of the nation’s gross domestic product, roughly 70 percent, UNLV economist Keith Schwer said.

“We thought consumers were tapped out, but automobile sales picked up. The latest income numbers are up. It’s kind of a mixed bag,” he said.

While plastic may be the quick and easy way to make a purchase, some people still operate with cash, checks and debit cards, Schwer said. The credit issue comes and goes as a concern and is often focused on the bottom half of the income bracket, he said.

According to a recent survey conducted by the National Association for Business Economics, the combined threat of subprime loan defaults and excessive debt has overtaken terrorism and the Middle East as the biggest short-term threat to the U.S. economy.

Thirty-two percent of survey participants cited loan defaults and excessive debt as the biggest threat. By contrast, 20 percent cited terrorism.

Credit counselor Mark Brinker of Detroit-based Hoffman Brinker and Roberts said he sometimes feels like an emergency room doctor trying to stitch up people’s financial wounds.

“I’m not happy they’re in this situation, but I’ve got to do my best to try to get them out,” he said. “It’s not a simple, quick and easy fix. You have to sit down with them and lay it out on the table.”

People need to figure out what they want to accomplish and then “reverse engineer” their ability to meet that goal, Brinker said. If they have the ability to pay, they should fulfill their obligation.

If they’ve lost their job or gone through a divorce, they may want to negotiate a settlement with the credit card company for less than the full balance. Lenders aren’t going to post that option on their Web sites, Brinker said, but every major credit card company will consider a settlement.

“I can tell you credit card companies are not going to make it easy for you,” he said. “Believe it or not, there are some credit card companies where you’re much better off letting your account be outsourced to a collection agency if your goal is to obtain a settlement.”

For those who are really behind the eight ball, the most aggressive solution may be filing personal bankruptcy. The main reason people want to avoid bankruptcy is usually because of their moral beliefs, not because it’s a black mark on their credit, Brinker said.

U.S. households received about 5.3 billion offers for new credit cards in 2007, he noted. The average consumer already has four credit cards and about 10 percent of consumers have more than 10 credit cards.

Many people face overwhelming money concerns from mismanagement or overspending, said Michele Johnson, chief executive officer of Consumer Credit Counseling Service of Nevada. Sometimes job loss, illness or accidents can place a family in financial jeopardy, she said.

Her office handles about 1,000 counseling sessions a month, not only for consumers deep in credit card debt, but for homeowners facing foreclosure.

“The creative loans and mortgage ARMs (adjustable rate mortgages) that were available, combine that with depreciation of housing prices so consumers can’t refinance and now you have folks with homes they can no longer afford,” Johnson said.

Schwer said the credit crunch in the mortgage lending industry could play out with consumer credit as lending standards increase and interest rates rise. Homeowners are going to find it more difficult to take out home equity to pay off debt, he said.

A telltale sign that consumers are in credit card danger is when an increasing amount of income goes to paying debts, said Howard Dvorkin, founder of Consolidated Credit Counseling Services. Only 10 percent to 15 percent of take-home pay should be spent on credit debt, he said.

Hubble Smith writes for the Business Press’ sister publication, the Las Vegas Review-Journal. He can be reached at hsmith@reviewjournal.com or 383-0491. Source