Record Breaking Debt: How Did We Get This Way And How Do We Get Out
There are many individuals across the nation that are in debt today and have no idea how they arrived there. They had good paying jobs, good credit, and, until recently, their homes were gaining in value rapidly. The very individuals that were the least likely to have debt problems in the past now count for a large percentage of the individuals struggling with or drowning in debt.
So, why are there so many individuals in debt today? What happened to cause a large percentage of the population to have a negative savings rate while incurring thousands of dollars in creditor debt? The answer is both unsurprising and frustrating in its simplicity.
The Problem
The main reason that many individuals get trapped into a cycle of debt is that they forget to think about the long term consequences of their actions. Over time, people have been conditioned to want the latest and greatest thing (especially if their neighbors have one) and because of easy credit, they have not had to wait, be patient, or sacrifice to get the items that they wanted. If the individual did not have the money to pay for the items that they wanted, instead of saving their money to obtain the item, they placed it on their credit card or took out a home equity loan to finance their purchases.
Because individuals did not have to worry about where they were going to get the money to pay for their purchases, many did not see the need of saving money for a rainy day. After all, if they needed to pay for anything, they could just charge it to their credit card. As their credit cards became maxed out and the equity in their home disappeared, these individuals found themselves owing massive amounts of money to their creditors with no money left from their paycheck to pay for anything else.
To be fair, there are a fair amount of individuals that have fallen into debt because of the loss of a job, unexpected medical bills, divorce, and other calamities that are beyond a person’s control. But the truth is that many of these individuals had little to no savings when these calamities hit and if they would have had a monetary cushion in the bank, they would not be in the situation that they are in now. Money held in savings is generally what is used in the event of an emergency situation and not having that cushion forces individuals to put those high dollar purchases on their credit cards, where the interest rates cause these purchases to cost even more.
The Solution
Becoming free of debt will require individuals to break this mindset of immediate gratification and begin to live in a different way, where credit cards and home equity loans are last resorts, not first choices. As long as the person is putting purchases on their credit cards, they will owe money to the credit card companies and interest payments, finance charges, and fees will cause these balances to grow quickly. The first step to getting yourself out of debt is to begin paying for all of your purchases with cash, checks, or a debit card so that you cannot spend money that you do not have.
Another item that is a key item in extracting yourself from a mountain of debt is to track all of your spending. By tracking your spending, you will be able to see where you can trim unnecessary purchases from your life and put the money that you save towards your debt balance or towards your saving account so that you will have a cushion in the event of an emergency situation. Getting out of debt is not easy, but if you are willing to change your spending habits, you will get out of debt much more quickly.
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