Debt seems to be the norm in the USA. It is not all bad news because mortgage debt is the means by which the real estate market grows and allows many families to build up significant assets. When the Collateralized Debt Obligation (CDO) Crisis struck causing the recent recession the real estate market took a hit but as a general rule, affordable mortgages make perfect sense. Even a debt which is a student loan is positive in some ways because a good education can be a means to a better career. The problem of debt lies elsewhere.
Debt is stressful and can lead to mental and physical health problems. Many families are living with debt on a daily basis and the signs are that many are struggling to manage it. The level of core credit card debt is a clear indication of the problem. At the end of the month a level of interest is charged on outstanding balances that is both wasteful and penal. Those who pay just the minimum the card companies require hardly reduce their balance at all.
The Federal Reserve Bank of New York produces a report each quarter on the indebtedness of American citizens; it is not far short of $50,000 installment cash loans each. It seems that many get a short term psychological boost from a material purchase such as a new automobile but the boost lasts just a short time; the misery of unmanageable debt lasts far longer. It surely makes sense to find a sensible way forward? That means making realistic decisions about the main causes of debt and paying off that debt where possible.
During the years before the recession, companies seemed happy to approve any mortgage application, even ones seeking more than the existing valuation of the real estate. The logic was that the growth that was happening year on year would soon mean there was equity in the property. There didn’t appear to be any risk on the surface but plenty of people managed to obtain mortgages that they simply could not meet. It was toxic debt that the CDO Crisis revealed. The result was misery, foreclosure, a surplus of real estate and minimal demand. Suddenly a value of obtaining a mortgage to create a family asset was under question.
The market has stabilized but no one should take out such a loan if they cannot afford it or if there is any question that the property involved may not grow in value over the medium to long term.
It is nice to have a new automobile but those in financial trouble or simply struggling to meet their current commitments need to ask themselves whether they really have to have a new one. Today’s automobiles are built to last and delaying changing until finances are better makes sense.
Credit cards are extremely dangerous. The worrying thing about that US consumer debt level is that much is in credit cards and they incur a high level of interest. The days when consumers were able to juggle their card balance debt by taking a promotional 0% balance transfer offer and repeating the strategy when problems arose again have gone. One simple action can solve this problem. Personal loans are available that are cheaper to finance and they should be used to pay off card debt. Such loans are repayable by installment and those monthly payments can be put into a monthly budget replacing the card payment or payments currently being made.
The terms of student loans are reasonable and as mentioned above such loans can help towards better future prospects. That is not to say that such loans should be left outstanding longer than is necessary.
Everyone wants a long and happy life. Problems do occur from time to time and rarely do they go away without some form of action. When it comes to finance, it seems that many Americans have got themselves into trouble without the obvious means of getting out of it. Advice is available and the economy has improved since the recession finally went. It is time for more Americans to look at ways of reducing that debt; ironically one answer among many is further debt; a consolidation loan to reduce monthly outgoings.