America has a debt problem and we all get the blame. Credit firms throw cheap and easy money at people the moment they are old enough to legally sign their names and the show continues for several years till it becomes a heavy burden. Corporate greed, as indicated by complicated interest rate calculations and misleading marketing all come together to fool consumers into thinking they are getting a decent deal.
For those who are lucky, the treatment will merely be a painful realization of their carefree lifestyle as they reel in their spending habits. For those not so lucky, the years ahead will be full of struggle, anguish and regret as they see their homes, cars and other assets snatched away along with dreams of a financially secure life.
It’s easy to blame to government for doing a bad job of regulating the financial sector; for letting banks play around with our mortgages, for letting credit firms charge unfair interest rates; for letting these lenders penalize us when we openly struggle to keep our installments on track.
There is no compassion on Wall Street and that’s not going to change anytime soon.
The virus will keep looking for susceptible victims and the easiest way to protect yourself is to “Say NO to Debt.”
If you have your doubts about debt being a curse, maybe the following shocking figures from GoBankingRates will change your mind:
- The average American is in more than $225,000 of debt (this figure includes credit card debt, auto loans and student debt, among others)
- The average auto loan or car loan debt is around $31,000
- Around 40% of Americans have less than $500 in their savings account.
The report was released in 2013, and in the same year, Credit Card Debt: Younger People Borrow More Heavily and Repay More Slowly, Study Findsco-authored by an Ohio State University economics professor (Lucia Dunn) finds that many young Americans will die in debt if they fail to change their current debt-supported lifestyles. That shocking discovery was apparently not enough to change the spending behavior of consumers because in 2014, consumer debt figures reached an all-time high, as per data released by the Federal Reserve.
The two graphs show that consumer debt has steadily risen since the 1980s, and that the credit crunch created by the sub-prime mortgage crisis in 2008 only reduced credit card spending momentarily. Come 2009 and credit cards started doing great business again!
The Student Loans Infestation
Given without any risk assessment based on previous financial records or repayment capacity, student loans keep getting bigger and more difficult to repay, thanks to the current state of the economy. Last year, outstanding student loans amounted to a whopping $1.2 trillion, owed by around 40 million Americans. A simple calculation shows that the average size of one person’s student debt is around $30,000, which is no small amount. If these students fail to get a good job as soon as they graduate, they will struggle to make their payments, which will tarnish their credit scores. (Figures from Experian and Edvisors)
There are plenty of ways students can go through higher education without borrowing a cent, which require lots of resolve and commitment.
The Home Loan Infestation
Many financial advisers believe that mortgages and home loans are good debt because they help acquire assets for a secure future, and so it’s no wonder that mortgages are a common household debt these days. The average mortgage debt is a huge $147,000 (figures from GoBankingRates) and people generally delay paying off their home loans in favor of consumer loans, which carry higher interest rates. Some economists even use the growing mortgage and housing loans figure as a signal of economic growth – meaning, ‘more is good’.
Dear Consumers! There is no such thing as a good debt. Even though you are using that money to put a permanent roof over your head, that house is not yours till you have paid off every cent of your loan. Banks have the right to foreclose your home if you fail to pay up and the roof you thought would keep you safe will suddenly be gone.
Credit Card Debt Virus
The situation is pretty dire in this area. Total credit card debt was around $50 billion (see second graph above) in 2014, which is the highest amount of credit card debt America has ever seen. The economy and its people are heavily dependent on credit cards, and the financial crisis in 2008 hasn’t changed that. Statistics compiled by CreditCards.com (no affiliate link to declare here) shows that on average, every adult that owns a credit card carries a debt on it of around $5,600.
Who gets the blame for this dirty mess, you ask.
Of course, the financial sector and the government not doing enough to protect consumers. But, the responsibility for this also falls on the shoulders of the ignorant consumer. And that ignorance is what this blog will try to alleviate.