Understanding Debt
The great naturalist and writer Henry David Thoreau once wrote that “The mass of men lead lives of quiet desperation.” This quote may have more meaning now, in 2007, than it did many years ago, when Thoreau first said it. The reason(s) why just might shock you.
Here are some facts:
- As a nation we are 2.4 trillion dollars (and growing) in credit card debt.
- Over 3 billion offers of credit go out to consumers on an annual basis
- The average credit card debt per household is over $10,000
- The average time it will take those who actually pay off their debt is 18 years
- Over half the adults in the United States do not think that they are handling their debt effectively
- 83% of all couples who are experiencing difficulty in their relationships cite financial problems as the most compelling reason.
As a people, we are akin to the indentured servants who arrived from England back in the colonial days, to work off their passage for at least seven to ten years. In that time, they were not allowed to own land, travel without their master’s permission or enjoy other amenities of life. Such as then, today many people, because of their chains of debt and reliance on credit cards cannot enjoy a life based on financial independence. Instead, they strain month after month, year after year; to hopefully get their debt to the point that they can manage it and it doesn’t overwhelm them. Unfortunately for many, this condition never occurs and on a number of occasions, they die in debt, which in some ways can affect future generations, such as liens on properties.
How did we get to this point as a people and why do we seem to be stuck there? There are a myriad of reasons.
First, there is extremely easy access to credit. With record numbers of offers being distributed to the population, creditors are targeting every segment of the population, many times giving the illusion that people will be getting something for nothing. Because many consumers fail to read the small print on those offers, they might actually be getting a higher interest rate, or not actually qualifying for the original offer, but still subscribing anyway. They simply do not see an annual fee or other hidden costs involved.
Second, people may obtain too many credit cards. Many professionals indicate that having two or three cards is considered average, but a large portion of the population may have up to eight cards at once, even if they are not using all the cards.
Third, there is increased cultural and societal pressure brought to bear on consumers to keep up with their neighbors, whether it is purchasing a bigger and better automobile, keeping up with technology, buying the right clothes, etc. Back in the day, this was called “keeping up with the Joneses” and while there were some folks that took it too far, it was certainly not the lifestyle which we now employ. Speaking plainly, people are now trying to keep up with images that may be impossible to duplicate and maintain. With technology being upgraded every few months, there are many who feel that they cannot live without whatever new gadget comes into the market.
Fourth, there is a definite lack of financial literacy amongst the population. People either fail to read the small print on contracts or they cannot evaluate the offers that they do take the time to read.
Fifth, families can face severe financial setbacks, such as loss of a job, death in the family or life events such as hurricanes that can suddenly shift financial stability to instability and loss of good credit, sometime incurring even more debt in the process.
There are several psychological profiles as to why we spend, briefly stated; compulsion, co-dependency, narcissistic behaviors and revenge type spending (during bad or failing relationships).
To resolve bad debt situations, people can do the following:
- Contact creditors and let them know what the situation is. Sometimes the creditor will temporarily lower payments and/or interest rates until the debtor can catch up.
- Get into a good debt management program. Consumers should research any company that offers credit counseling to make sure that the company has a legitimate program and will do all that they say they will do.
- If things are beyond control, contact a bankruptcy attorney to determine what the options and consequences are under the law regarding bankruptcy.
- Create a workable budget based on real income and expenses. Credit counselors can assist with this process, generally at little or no cost.
- Attend financial literacy awareness seminars to learn about budgeting, financial goal setting, understanding credit and many other topics.
Negotiating oneself through the maze of debt may be a daunting challenge, but one which most people can master, at the end realizing their goal of financial independence.
|
ConsumerSense
Click here to learn more about our ConsumerSense Financial Education Program! |
