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Analyzing The Consumer Debt Problem Of Americans

debt split in halfIf you are having problems with debt, there is help available for you. But before you concentrate on getting yourself out of debt, you also need to consider the reasons that got you there in the first place. The consumer debt problem in the country is not decreasing. It did for a while, but now it is going up once more.

That is something that you may want to research on. Why is it that after everything that we have been through in the last recession, why are we still incurring debt? Haven’t we learned our lesson yet? Are we really driving ourselves up the wall again and setting up our future for another credit problem?

In an article published on the NYTimes.com, it is reported that American households added $241 billion worth of debts in the last quarter of 2013. After lowering their debt levels, consumers are back to borrowing money – again. According to the title of the article, this is an “ambiguous omen” for the country.

Important statistics about the American debt scenario

The latest report from The Federal Reserve Bank of New York revealed the details of the growth in the consumer debt problem. The NewYorkFed.org revealed that the change in the debt are as follows:

  • Mortgage debt is $152 billion

  • Student debt is $53 billion

  • Auto loan debt $18 billion

  • Credit card debt $11 billion

Only the HELOC declined by $6 billion. The rest went up significantly.

According to the report, this is the highest increase from one quarter to the other since Q3 of 2007. That is before the recession happened. Are we setting up ourselves for another financial meltdown? Let us hope not.

Although the debt level is rising, the delinquency is holding steady at 5%. It means consumers are trying their best to stick to their payments.

In a separate infographic from The Credit Examiner, it revealed that the average debt of consumers in 2012 are as follows:

  • $149,782 in mortgage debts

  • $34,703 in student loans

  • $15,328 in credit card debt

TheCreditEaminer.com revealed that the average consumer debt problem was $199,813 in 2012. And it is reported that the amount is higher in 2013. How can we expect to completely solve the debt problem in the country if we keep in increasing our debts?

Why is our debt continuing to grow?

That is actually a good question – why do we keep on increasing our debt level – thus increasing our consumer debt problem? In an article that we published earlier, we discussed a study that revealed how 1 out of 3 Americans still lose sleep over money problems. If debt is so bad that we lose sleep over it, why can’t we just live without it?

It is somehow connected with how we are encouraged to increase consumer spending. It reaches a point wherein we are forced to spend beyond our means already. We are given easy access to credit just to support spending that we cannot afford. That is how we are tricked into making our consumer debt problem worse.

But why is there so much concern about consumer spending anyway? We think that these three reasons are to blame.

  • Economy-driven. We are a consumerist society. In fact, it is a known fact that 70% of the US economy is driven by consumer spending. Our economy is built in such a way that it thrives in how much we spend – not how much we produce. Even if we have a high production rate, if no one buys them, that will not mean anything in our economy. Overall, the businesses thrive if we spend our money on them. So we work for these companies so we can buy the products that businesses produce. What we spend is what the business owners use to pay us our wages so we can buy some more. It is a cycle that moves because of consumer spending.

  • Measurement of an improving economy. In connection with the first reason, our consumer debt problem is made worse because we use our spending as a measurement of our economic success. According to the New York Times link that we mentioned at the beginning of this article, the willingness to borrow money to spend is an indication that households are confident about their personal economic conditions. The NYTimes.com article quoted an expert that said “In a steady state you would expect, in nominal terms, household debt to grow.” That simply means if we want our economy to be steady, we need to expect that our debt will really grow.

  • Cultural thing. As sad as it may sound, Americans are culturally inclined to spend. If they want something, they spend on it instead of finding ways to work on it themselves. Some of us blame credit card debt on the purchasing tool itself. But if you think about it, the problem is not the card, but how we use it. An article published on CNBC.com revealed that other countries does not react to credit cards in the same way as we do. France, Germany and other countries in Europe do not have as much credit card debt as we have – and they have more savings than we do too. We all have access to the same purchasing tools but Americans are culturally inclined to be in debt just to get the things that we want. We do not prioritize savings as much as we should and the lack of emergency fund actually leaves us in a more vulnerable position in the future. One emergency that is beyond our budget can put us in debt.

You need to consider these factors as important influences to our current consumer debt problem. Obviously, something has to change and relying on the government to influence us to change is not possible. We need to look into our own homes and start making small changes here and there to make sure that our debt level will not reach a point that will lead into another financial crisis.

What will it take to change the debt situation of consumers

There are many ways to improve your finances but it all begins with your ability to change your mindset. It is tough to change habits that we have grown accustomed to but there is no shortcut to it. We have to work hard to make sure that our debt situation will not get any worse.

With that, here are 5 things that you can do to help make the necessary changes that will solve our consumer debt problem.

  • Ignore the calls to spend if you do not need to buy anything. Since our economy is geared towards spending, you can expect that everything around you will encourage you to buy something. These include advertisements, peers, neighbors and even your own family. Keep in mind that if you do not need it, do not spend on it.

  • Understand your current financial situation – at all times. One way to help you control your spending is when you know your financial capabilities. If you live on a budget, you can quickly decide if you can afford something or not.

  • Stop using your material possessions as a measurement of your success. At this point in time, looking into the qualities of the modest millionaire is a good idea. You need to stop using your possessions as the measurement of how financially successful you are. You do not need to show off. Just be modest and be content in knowing that you are financially secure today and in your future.

  • Educate yourself on how to properly grow your personal net worth. Not only should you know your finances, you should also understand how you can grow it. Learn about investments so you can put your money where it can grow.

  • Find out your options to get out of debt. Since we already have the consumer debt problem, we naturally have to find out how to get out of debt. Fortunately for you, there are so many options before you. You just have to find the specific debt solution that fits your needs. To help you, here is a video from National Debt Relief that will help you find trustworthy debt relief companies to aid you in getting debt freedom.

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