Budget Basics
Americans must stop digging themselves deeper in hole of personal debt
Manning is sensible and well-versed on the issue. Unfortunately,
this makes him a font of bad news, such as the fact that when mortgages are thrown
into the mix, American households are about $9 trillion in debt and that the average
consumer debt means about $1,700 per year in fees and finance charges. Figures like
the latter mean that, "In the old days,'' according to Manning, "the best customer
was someone who could pay off their loan. Today the best client of the banking industry
is someone who will never pay off their loan."
Of course, customers like that often hit the end of the road, and that road can
mean bankruptcy. Consumer bankruptcies have topped 1 million a year every year since
1996, with new records set regularly in the new millennium.
The implications of all this are considerable. Consumer spending drives the economy,
accounting for $2 of every $3 spent. Currently, mortgage and credit debt takes $1
of every $5 from the average American's after-tax income. It is not a desirable
trend.
Fortunately, many people are trying to combat the trend. As with physical fitness,
fiscal fitness becomes a goal for many at the start of another year. Celeste Collins,
executive director of Consumer Credit Counseling Service of WNC, says, "This is
the time of year when people start taking their debt seriously. They've gotten past Christmas, the bills start coming in the mailbox and the reality hits. People make
resolutions to do things like save more, get out of debt, or even balance their
checkbooks.''
Collins says the debt numbers are "mind-boggling. What we have seen is folks using
home equity to refinance their credit card debt, converting it to mortgage debt.
That's not in and of itself a bad thing, but it could be devastating if their credit
card debt goes back up. They've taken short- term unsecured debt and put it on a
20-30 year mortgage. If they don't rein in spending they'll rack up more debt and
have no home equity to use to get out of that cycle.''
Consumer Credit Counseling is one place where people do turn when they're trying
to beat the debt game. Unfortunately, there seems to be something that is built
into our national psyche that all too often keeps us from acting until there's a
crisis, and that crisis could be dire.
A jump in interest rates - which is inevitable at some point - will make debt even
more expensive, for example. And even if a crisis of that type doesn't happen, problems
both short- and long- term will continue. Financial stresses are a leading cause
of divorce, and if we keep waiting for tomorrow to settle our debts, we're essentially
putting off retirement.
The time bomb is indeed ticking. And there's a thing about time bombs we tend to
forget.
Eventually, they always go off.
