Jan. 17 (Bloomberg) -- Sometimes appearances can be deceiving when it comes to how much debt is weighing down on overleveraged Americans.

One anecdotal sign of the burdens American are struggling with: the ubiquitous TV commercial for a debt-consolidation service in which a suburban, upper-middle class man initially brags about his country club membership, spacious house and luxury car.

``How did I do this?'' the character asks. ``I'm in debt up to my eyeballs. Somebody help me!''

The man represents millions suffering from cash-flow poverty who have trouble paying for basic living expenses without taking on more debt.

Consumer debt has been climbing faster than personal incomes and shows no signs of abating.

Personal bankruptcies hit an all-time high in 2005, according to Lundquist Consulting, Inc., a bankruptcy analysis firm based in Middlesex, New York. Although spurred by a new anti-debtor law going into effect late last year, more than 2 million Americans sought debt relief from Chapter 7 and Chapter 13 bankruptcy.

U.S. consumer debt has almost doubled to $2.16 trillion as of October from about $1.3 trillion in 1998, according to the Federal Reserve.

More Troubling

An even more troublesome figure is that consumer debt has consistently exceeded disposable personal income over the past half-decade at a 4.5 percent annualized rate, according to a Bloomberg analysis of Fed data.

Some $600 billion of home equity debt was borrowed in 2004, accounting for 40 percent of the growth in gross domestic product that year, up from $439 billion in 2003. While home equity that is converted into cash for spending boosts the economy, it erodes the largest source of savings for most Americans. At the same time, paltry gains in personal income haven't kept up with housing costs and consumer inflation for most middle-class Americans.

``The economic growth over the last 20 years didn't help two-thirds of Americans,'' says Ellen Schloemer, research director for the Center for Responsible Lending, a consumer group based in Durham, North Carolina. ``Many were forced to take on debt to cover basic expenses.''

Her organization's sampling of low- and middle-income Americans (representing 15 million households) in a study entitled ``The Plastic Safety Net'' found that seven out of 10 of those queried used their credit cards as a ``safety net --- relying upon credit cards to pay for car repairs, basic living expenses, medical expenses or house repairs.''

A higher reliance on debt to cover living expenses, she says, is ``creating a permanent underclass of debtors.''

Pressures on Debtors

For those suffering from cash-flow poverty, credit has been generally easy to obtain, although the cost for the most cash- strapped is increasingly expensive.

Because of new guidelines issued by U.S. banking regulators, credit-card companies are doubling and tripling their required minimum payment to up to 3 percent of the balance plus fees. Regulators want banks to require debtor payment of at least 1 percent of the principal balance.

Banks can also layer on additional fees for late payers. ``Until 1996,'' according to the Center study, ``a late payment on a credit card account typically resulted in a fee of $10 to $15, but now such late fees more commonly range from $29 to $39 and `penalty' or `default' rates that currently average more than 25 percent.''

Even more pernicious are ``payday'' lenders that advance money based on future paychecks. These businesses charge interest rates of as much as 400 percent annualized for short- term loans.

Stress on Consumers

For those deepest in debt, it can take a long time to get in the clear.

On a $12,000 card balance, paying a minimum 1 percent on principal a month, it will take 30 years to wipe out the balance. During that time, $17,684 in interest is paid, according to http://www.bankrate.com, a consumer lending Web site.

While a 3 percent minimum payment would clear the card debt in about two years, if the higher payments aren't affordable for the most cash strapped, it could lead to a cycle of even more borrowing.

The American Bankers Association in a Jan. 10 statement cited ``signs of financial stress'' for consumers brought on by higher short-term interest rates and rising gas prices.

The Washington-based industry association found that while delinquencies on credit cards dropped slightly in the third quarter of last year, late payment rates rose on auto, boat, personal, home-improvement and recreational-vehicle loans.

Cash-Flow Poor

Cash-flow poverty imperils consumers by making it impossible to save for future expenses.

Those who are shackled by debt now will not have enough saved for retirement and will likely need government support. It is in the country's best interests to acknowledge that the consumer debt problem needs to be addressed.

If you or someone you know is handcuffed by debt, try trading debt for savings. When $100 in debt is paid off, buy a U.S. inflation-adjusted bond, or I-bond. This savings bond, paying a 6.73 percent rate through May 1, is a great deal. It's commission free, compounds interest for 30 years and pays a bonus rate based on the U.S. consumer price index.

The $100 I-bond has the picture of Martin Luther King on it. King once said ``the quality, not longevity of one's life is what's most important.''

This insight also applies to managing credit. Getting out of debt is one of those quality-of-life issues that can't be ignored on a national -- or personal -- scale.

To contact the writer of this column: John F. Wasik in Chicago at jwasik@bloomberg.net.

Last Updated: January 17, 2006 00:13 EST