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.
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