Debt is a huge problem for many Americans as a ton of people are wrestling with high interest consumer debt. These consumer debt levels are incredibly high currently for a variety of reasons.
High Credit Card Debt
The biggest reason that people fall into the consumer debt trap is because people fail to live within their means. Many people want to have the latest technological gadget or clothing trend when they first hit the market. The problem is that those same people are not willing to wait or save money in order to purchase those items .Many resort to using credit cards to finance the purchases that they want and rack up big bills buying things that they do not need or should have waited to buy. Since credit cards have such high interest rates, it can take a very long time to get out of debt. This leaves the buyers with very high levels of consumer debt.
A general rule of thumb is to never spend more than 50% of your overall income on bills. This includes home payments, automobiles, credit card debts, and all other bills. Due to predatory lending, lots of uninformed people ended up spending way too much on their homes. Some people took out adjustable rate home loans with low teaser rates. The loans quickly adjusted to amounts that were more than half of their total monthly income. The dream homes that they purchased quickly had them swimming in debt. Huge amounts of home debt left homeowners flat broke so they borrowed from sources like credit card companies to make their mortgage payments, or they ended up abandoning their homes completely.
Higher Interest Rates
The problem with consumer debt is that it is usually at much higher interest rates than regular long term loans like mortgages. Consumer finance companies, payday lenders, and credit card companies charge such high interest rates that many people find themselves having a hard time just paying off the interest charges. People with lower credit scores and lower income levels are likely to get loan products with much higher interest rates. This causes those that are the most financially vulnerable to get loan products with the highest interest rates making repayment more difficult than ever. It is a horrible debt circle.
My Take on Consumer Debt
I avoid high interest consumer debt like the plague. I pay off our credit card balances in full each and every month and we pay off all loans as quickly as possible. Right now, my husband and I only have our mortgage debt left from our home, which we bought in 2007. I am aiming to have it paid off in full no later than the end of 2013 and am really pushing for sometime in 2012 instead.
If you already have consumer debt, I would suggest creating a list and a budget. The budget is to keep you on track on a day-to-day basis while you use all of your excess income to annihilate high interest consumer debt. It is possible once you decide that it is an important goal to you. Good luck!
Crystal Stemberger uses Budgeting in the Fun Stuff to write about finding the balance between paying your bills, saving for your future, and budgeting in the fun stuff along the way.