Normally,
I write about solving your debt problems and improving your credit worthiness
relating real life stories I have encountered in my years of working with
people who need help with their personal finances. This time, however, I have relayed some of my
thoughts about the broader picture of debt management and why it has become so
important for so many people.
Fifty
years ago, for most people, debt management was about spending conservatively
so they enough money left from their paycheck so they could pay all of their
bills and have enough left over to put some away for emergencies or to save for
their children’s education. At that
time, revolving charge accounts were a relatively small part of their financial
profile and their credit score. Fast forward
to today and you realize that the biggest part of your financial profile is your
credit cards and how much debt you happen to be carrying in relation to your
income.
Why??
There is a variety of reasons but they can be summed up in two sentences. First, the financial demands on the average
family have increased significantly.
Second, for a large percentage of these families, real income has
declined. As a result, the focus of the average family’s finances has switched
from managing their income to managing debt.
The
credit card and it’s “loan shark” interest rates have become an integral part
of their debt management strategy. They
have become the bridge for meeting their financial obligations during those
months when they run out of money before they run out of month. That may be ok if you have enough income to
pay down that balance during a month when you have some extra cash, but if you
don’t you are slowly painting yourself into a financial corner.
The
problem has been growing for many years and it culminated during the recession of
2008. When the housing bubble burst
millions of people who worked in the construction and related industries were
put on the street. Many have never
recovered from that economic setback and have been “bouncing off the bottom”
for more than eight years. Yes, many of them have found other jobs, but are earning
much less than they were a decade ago.
The
elephant in the room, however, is the cost of medical insurance. Millions of low income people work for small
businesses that can no longer afford to cover their health insurance or dental
insurance. For a family of four with
young children the monthly premiums are outrageous. The premiums have been
increasing at twice the rate of inflation for over thirty years and nothing
seems to slow them down.
So,
are we headed for another personal debt crisis?
I don’t know. I do know that the
increasing dependency on credit and debt management is a cause for
concern.
Comments??
Write to me at info@debtpros21.com