Consumer Debt Info
As of 2010, U.S. Federal Reserve statistics indicate that Americans have accumulated over 2.4 trillion dollars (www.federalreserve.gov) of consumer debt, with the average household carrying approximately $6,500 in credit card debt. This escalating concern has been compounded by the mortgage crisis and slow economic growth, which have both contributed to high unemployment and led many consumers to contemplate the financial risk of holding substantial, high-interest debt, during these challenging economic times.
1. Financial Maladies
Overspending can be compared to a bad habit, or worse, an addiction, which has spiraled out-of-control, ultimately leading to the consequences that ensue as a result of the condition.
The self-defeating habit of overspending is often difficult to diagnose. The symptoms may linger for years before becoming fully apparent, but the outcome is usually the same: financial disarray. The family is negatively impacted and workplace productivity is also disrupted.
Comparing over-indebtedness to an addiction may seem like a far stretch, but for many people suffering from this malady it represents a good analogy. The key to becoming fiscally healthy is to recognize the symptoms, seek help, and with the aid of a specialist, develop a plan to treat the problem.
2. Financial Health
Many of us believe that a higher income ensures financial stability. Unfortunately, poor spending habits carryover regardless of salary. Maintaining financial steadiness takes planning. and sometimes, requires significant changes in your spending habits. If you're finding it harder to make ends meet, here are 5 tips that may help.
Tip 1 - Set Financial Goals: Set realistic (and stick to) short, mid and long-range savings goals and timelines for paying bills. Put away at least 5 to 10 percent of your net income each month. Also, in case of emergencies, you should have the equivalent of three to six months salary in some type of savings account.
Tip 2 - Create and Maintain A Budget: Generate a budget and try to adhere to it as closely as possible. Prior to creating a budget, monitor your spending habits for at least one month to identify avoidable expenditures. Once you have generated your budget, be prepared to revise it, when necessary, to account for irregular expenses, such as annual car registration fees, prepaid insurance premiums, special occasion gifts and other periodic expenses.
Tip 3 - Economize When Possible: Cut back on home energy consumption. Shop at outlet stores or wholesale clubs. Bring your lunch to work more often. Take advantage of free or low cost activities in your community. Limit fuel usage by planning to conduct multiple errands in one driving session.
Tip 4 - Use Credit With Caution: Don't allow credit payments to exceed 20 percent of your net (take home) income, and don't borrow from one creditor to pay another. Do not charge more than you are paying your creditors each month.
Tip 5 - Maintain A Good Credit Rating: If you can't pay your bills on time, contact the creditor and explain the situation. Creditors will often work with you to come up with an alternative payment arrangement.
3. Danger Signs
Financial problems aren't necessarily the result of poor money management. Sometimes situations beyond our control such as divorce, death of a spouse, health problems or a change in household income can lead to financial hardship. Many times we don't see the signs of a financial crisis until it's too late. But financial crises don't occur overnight.
There are 5 warning signs which indicate things may be getting out of control: (1) paying bills late, (2) obtaining cash advances from credit card accounts to pay other bills and expenses, (3) relying on overtime at work to meet monthly bill expenses, (4) hoping that mailed checks or online payments are not processed before funds are in your bank account, and (5) borrowing money from friends and relatives to meet basic living expenses. If you are experiencing these signs, you may be heading for financial trouble.
4. Steps To Living A Debt Free Life
Today, many U.S residents are financially over-extended, using more and more of their monthly income to satisfy consumer debt obligations, and less and less to be applied to savings for emergencies and retirement. If you're looking to get a handle on your financial life, then you MUST stop spending money and start managing it.
Part of the American dream should be to live a life that is debt free. To capture this reality, you may have to do without some instant gratification, and instead, plan to save to reach short, mid and long-term goals. In a debt free existence, you stand a better chance of establishing and increasing your "net worth," due to the elimination of expensive interest-bearing debt. Here are 3 steps to begin the process of becoming debt free:
The First Step: The first step toward living a debt free existence begins by sitting down and taking a realistic look at your lifestyle and the cost of maintaining it. Examine your household budget. If you are only making minimum payments on credit cards, expect this relaxed, unplanned approach to significantly extend the debt repayment period.
Note: It could take a consumer up to 30 years to payoff the principal balance on a credit card account, when only sending the minimum payment, usually due to high interest rates, decreasing minimum payment requirements or a combination of both. Also, the effect of current interest rate hikes, when only sending the minimum payment, slows down the reduction of credit card balances, because a larger portion of your monthly payment is used to meet finances charges, leaving very little left over to be applied to the principal balance. In addition, late and over-the- limit fees add to the total debt.
The Second Step: Next, you must realize the problem and sincerely want to fix it. Although filing bankruptcy (chapter 7 or 13) is suggested as an option to eliminate debt, it should only be considered as a last resort. For many people, Consumer Debt Management options are usually a better solution than filing for bankruptcy.
Note: A Consumer Debt Management Program maybe the best alternative for consumers that are unable to meet personal debt obligations. Most credit card companies encourage qualified consumers to seek the assistance of a Non-Profit Consumer Credit Counseling Agency.
The Third Step: Consolidating your credit cards and other unsecured debts into a Debt Management Program is easy and painless. Personal information and financial data are considered confidential, and all credit counseling agencies are required to strictly adhere to recently updated Federal Trade Commission (FTC) privacy laws. After working collectively to generate a realistic and manageable household budget, all qualifying personal debt will be consolidated into one, low manageable payment. Payments in the Debt Management Program can be up to 50% lower than the combined payments being sent to creditors, prior to consolidating debts.
Sticking to a realistic and sustainable household budget, created by you and a certified DMP counselor is vital to the success of becoming debt free. Achieving a debt free existence is possible through structure, discipline and patience. Once debts are paid in full, we strongly urge clients to continue to allocate the same monthly payment into a personal savings plan. By contributing that same monthly payment into a safe savings plan, clients can begin to accumulate a "nest egg"