The Reality of Debt Must Be Faced

It won’t just go away! Many people have a great deal of debt. Where the debt is a mortgage that is helping them build up assets and they can afford the monthly payments that is not really a problem. Problems arise when the debt is out of control. Some don’t even realize it has happened, others are in denial and don’t really know the extent of their problems, and some even just hope it will magically go away. It won’t!

A report by NerdWallet suggests that the average household in the USA owes almost $130,000, slightly up from the year before. Even though the economy is growing as evidenced by the decision of the Fed. to raise interest rates, it does not make good reading.

Good & Bad

Mortgage debt is often not a problem and indeed student realistic loans are a valid route to a good education and enhanced career prospects but high interest rate debt can never be good news. The prime example of expensive debt is the credit card. Balances at the end of the month incur a high rate of interest. It is a waste. Anyone shopping for bargains and paying by credit card will not have bought a single bargain if interest is added month by month before the bill is settled.

The figure for consumer credit card debt is frightening. The average household debt, those households where balances are not settled in full each month, is over $15,000. Often people do not realise how much they actually owe on their cards. When they find out many actually try to rationalize why it happened and deny they have been irresponsible.

The reality is that they are paying an average of over $6.500 annually in interest on their cards alone. If they are bringing in $50,000 a year that interest is not an unsubstantial percentage of that amount before any other bills are settled. The problem is that many only pay the minimum the card company requires each month. That hardly scratches the surface of the debt. A balance can last a lifetime!

Pre-Recession Complacency

Prior to the recession consumers often held several credit cards and companies were more than happy to find new customers for their cards and did minimal checks before offering them credit. Regular promotions on 0% balance transfer allowed consumers to transfer the debt for the promotion period before getting yet another card. The recession brought an end to such easy credit.

The years of the recession were sheer misery for people across the country who had managed their finances badly, and even for some who were simply unlucky, losing employment through no fault of their own. Defaults and foreclosures were widespread. The statistics on national consumer debt would have been even worse if so much had not been written off. It does not look as though the lessons have been learnt because even though recession has receded and jobs are being created month after month, good financial management is proving elusive in many households.

Budget Action

It is time for change. The first thing to do is to prepare a budget, income and expenditure and take whatever action is necessary to show a monthly surplus, and also paying off expensive debt. Those with regular income are likely to qualify for a just right installment loan. Online companies provide a simple and quick route to funds if the loan appears to be affordable. A personal loan can pay off credit card balances; the interest rate applied will be much lower than that of the card companies.

Most households can reduce their regular bills by doing some basic research on such things as utilities, insurance and mobile networks. Comparison websites actually do most of the work for anyone looking to get the best deals. Certainly the best way to reduce the expenditure column is to look at these bills and expensive card debt.

It doesn’t mean that everything is suddenly great. This is just the beginning of the process to get out of debt. It needs self-discipline and determination in the coming months and years to solve the problem and begin to plan for the future right up to retirement. Those wanting a comfortable retirement will not be able to have that if they don’t act.

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