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In April, consumers only added another $100 million in credit card debt. This sounds like a lot, until you realize it’s just a 1% increase to the $849.1 billion they already owed. Even that’s much, much less than the $1 trillion owed in 2008. Overall, it’s a healthy sign for a country that tried to attain the American Dream on the back of plastic.

Instead, families are wisely taking advantage of low interest rates to take out auto and school loans. This “Non-revolving” debt rose 6.4% to a new record, $1.97 trillion. Of this, nearly a third ($567 billion) was held by the Federal government for education loans. All told, Americans now owe a record $2.82 trillion in total consumer debt.  (Source: Federal Reserve, G.19 Release, June 7, 2013)

On average, Americans now owe a whopping $6,903 in credit card debt. Although this isn’t as high as prior to the recession, and that’s a good thing, it’s still a lot to owe on a high-interest account. Add that to the $16,200 owed by the average household in school and auto loans, and you can see that White House is not alone in needing to reduce deficit spending!  (Update: This estimate is based on 123 million households or 315 million total people / 2.55 persons per household.Source: U.S. Census, 2012 Estimate; Average Household Size)

What It Means to You

The only good news is that more households are using debt to buy the opportunity to achieve the American Dream through education. True, many students get degrees that aren’t helping them find jobs, but research shows that education is highly correlated with wealth.

How to Reduce Credit Card Debt

• A Life Preserver in a Sea of Debt
• Making a Plan to Reduce Credit Card Debt from the About.com Guide to Credit, LaToya Irby
• More Resources for Reducing Credit Card Debt from the About.com Guide to Beginners Investing, Joshua Kennon

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I noticed that a lot of people were looking for debt reduction software here on About.com Financial Software, so I decided to focus on debt reduction apps for my June, 2013 iOS apps of the month. I did some research and came up with four really good choices for iPhone, iPad, and iPod Touch. All of these apps use the debt snowball method of reducing or even eliminating debt, which means you choose one that to pay off with additional funds while paying the minimum on other debts. To learn more about that check out my Top 4 iPhone and iPad Apps for Reducing Debt. The individual best iOS debt reduction apps for 2013 are:

• Debt Free
• Debt Payoff Pro
• Debt Strategy
• Debt HD

More Debt Reduction Tools:

• Free Debt Reduction Spreadsheets
• Free Budget Spreadsheets
• Best Budgeting Software

Image: Debt Payoff Pro and Debt HD iOS Apps

A reader asks:

…I must take you up on a point where you are stressing that the US economy is on the mend with housing and Wall Street up. First, the housing market is up mainly due to the Chinese no longer investing in Gov Bonds and spending the dollars they have accumulated on US Real estate and other assets. It is said that 7 of every 10 homes in Los Angeles is being bought by Chinese. Second, the Reserve Bank’s printing is another reason to scare the bond market. What US media is NOT putting out is what is to become of the US when the Petrodollar collapses. In reality, I foresee is that the Bond market is about to collapse and interest rates will rise dramatically when the printing stops. What do you think?

To your first point, it’s not really true that China is selling its government bonds. As of March 2013, China owned $1.250 trillion in U.S. debt, down slightly from $1.2519 trillion it owned in February, but up significantly from the $1.114 trillion it held in March 2012. China still owns 22% of the total of $5.6758 trillion held by foreign countries. That’s still a major investment for them. They may be buying real estate in CA, but I think that would be private investors, not the Chinese government. For more, see Who Owns the U.S. National Debt.

To your second point, when the Federal Reserve ends its Quantitative Easing program, it won’t cause the bond market to collapse. Yes, interest rates will rise as investors move their money out of Treasuries. These higher rates will counterbalance the Fed’s printing press, thus preventing inflation. Furthermore, the Fed won’t end QE until unemployment is 6.5%, or near there. So far, it’s taken a year for unemployment to lower one percentage point. At this rate, there won’t be an end to QE until 2014 at the earliest. Bernanke will ease out of QE so slowly, with lots of warning, to avoid a catastrophic reaction by the bond market. His whole philosophy is managing expectations, which he found was the only way Former Chairman Volcker ended stagflation and double-digit inflation.

However, I’m most interested in your third point, the collapse of the petrodollar. Right now, all oil contracts must be conducted in dollars. It does make sense that Russia and /or China will grow tired of using the dollar to transact oil trades. They’ve both already stated that they resent the dollar being used as the world currency.

However, I just don’t think there is an alternative right now. There’s not enough gold to allow a return to the gold standard, even just for oil transactions. The U.S. had to accumulate 75% of the world’s gold, and win World War II, before it could muster the authority to establish the dollar as the new global currency. For more on this, see Gold Price History.

All your points are good ones, and they really made me think. I remain optimistic about the stability of the U.S. economy, but of course, anything can happen — as we saw in 2008!

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As the stock market hits record highs, gold prices continue to fall. A review of gold prices throughout history show that this trend will probably continue. Was commodities trader George Soros right when he said “Gold is the ultimate bubble”? Were high prices in 2011 just a sign of an asset bubble? If so, how far will prices fall?

Since President Nixon took America off the gold standard in 1973, investors have bought gold for three reasons:

1. To hedge against inflation.
2. As a safe haven against economic uncertainty.
3. To hedge against stock market declines.

In 2011, gold reached an all-time high of $1,895 an ounce as investors became concerned that Congress would not raise the debt ceiling, and the U.S. would default on its debt. In fact, gold was in a bull market since 2000, as investors reacted to the Y2K crisis (1999), the bursting of the stock market tech bubble (2000), 9/11 (2001), the dollar decline (2002-2006), the 2008 financial crisis, and the uncertainty surrounding Obamacare in the midst of a slow-growing recovery.

However, much of this uncertainty has been removed, as economic growth has stabilized around 2-2.5%, the stock market hits new record highs, and Washington seems to be in a state of gridlock. History before 2000 shows us that, as the stock market rises, gold prices fall. There hasn’t been a threat of inflation above 4% since 1990. In other words, investors have no compelling reason to buy gold.

What It Means to You

From 1979 – 2004 gold prices rarely rose above $500 an ounce. The rise to recent record-highs was a result of the worst recession since the great depression, and its after-effects. Now that things have stabilized, it wouldn’t surprise me in the least if gold returns to that historical level, or at least below $1,000 an ounce. I’m an economic analyst, not a financial planner. However, most of them advise that gold be 10% or less of a well-diversified portfolio. If you’re holding more than that now, I’d suggest you talk to your financial advisor before gold drops further. For more on what the research shows, see Why Invest in Gold.

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Reading success stories of people who’ve dig themselves out of mounds of debt is great motivation. Cait, a 28-year-old who runs the blog Blonde on a Budget, met her debt freedom goal this week, paying off more than $28,000 debt in just two years.

Like many others who’ve paid off tens of thousands in debt, Cait used a variety of strategies to pay down her debt: moving in with parents, avoiding shopping, getting rid of a drinking habit, walking to the grocery store instead of driving, and putting as much money as possible toward her debt.

Read a few of her posts:

• How I Paid Off $30,000 of Debt in 2 Years
• The Only Motivational Blog Post I’ll Ever Write
• How I Paid Off $17,000 of Debt in 1 Year
• 5 Things My Dad Taught Me About Money

Don’t be intimidated by that Cait’s two-year timeframe. You may not be able to pay off your debt in such a short amount of time, but if you’re diligent, you can do it in a timeframe that fits your situation. Stay motivated!

Fortunately, the Bureau of Economic Analysis barely revised its estimate of the GDP growth rate for Q1 2013. The economy grew 2.4%, instead of the Advance Estimate of 2.5%, from January through March this year. This is still an ideal growth rate, which is anywhere between two to three percent.

Many experts would like the economy to grow much faster than 3%, so that more jobs will be created and lower the 7.5% unemployment rate. However, faster growth runs the risk of generating inflation. Slower growth, of course, is even more dangerous at this phase in the business cycle. It could reduce confidence in future growth, and even send the nation back into recession.

The best news is that now the three major pistons of the economic engine are contributing. First and foremost, housing construction is solidly expanding in response to rising housing prices and demand. This is something we haven’t seen in seven years. Second, consumer spending is still showing confidence. Third is manufacturing, especially from agri-business that added inventory. These three private sector engines overcame the drag from decreased government spending. (Source: BEA, GDP Second Estimate, May 30, 2013)

What It Means to You

There’s a reason the stock market is reaching new highs day-after-day. It’s not solely because of Quantitative Easing (although that certainly helps) or debt reduction. It’s because the economy is finally functioning in a healthy fashion. Homeowners feel like their #1 investment is increasing in value. This fuels demand and consumer spending. Manufacturers can confidently ramp up again. The final effect is that they will keep hiring, which I expect we’ll see in the Employment Report next Friday. It’s the upward spiral of the expansion phase, instead of the downward one of contracction that began in 2008.

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After serious errors were discovered in an influential paper on debt and economic growth, I figured that the issue would be settled with a critique of the original paper and a response to that critique. Apparently I was wrong, since Carmen Reinhart (along with Ken Rogoff as a co-signer, at the very least) has written an open letter to Paul Krugman.

At this point, the most notable part of the letter is that Reinhart claims that, when she and Rogoff were talking to policymakers, the policies they advocated were not the ones that the austerity crowd used their research to justify. In some cases, that assertion is very much true. In other cases, Rogoff at least is documented as being a champion of the debt-justified austerity measures that he is now trying to distance himself from. For example:

“Absolutely,” Rogoff said. “Not acting moves the risk closer,” he explained, because every year of not acting adds another year of debt accumulation. “You have very few levers at this point,” he warned us.

Krugman responded to the letter on his blog, and he (rightly, in my opinion) chose to focus on the intellectual substance of the debate and reiterate that it’s misleading to imply that there is some sort of dropoff point at a 90% debt-to-GDP ratio where economic outcomes become catastrophic, since that isn’t actually what the data shows. To make this point a bit clearer, UC Berkley economist Brad DeLong was kind enough to translate Krugman’s argument into the language of graphs.