Tag Archives: debt

Why Do Americans Have So Much Debt?

Posted by on May 29, 2011 No comments

The average American household has about $8,000 in charge card account debt and many consumers are applying for a second mortgage and consolidating loans only to apply for more charge cards more and more. Young people are finishing college with lots of loan debt and carry this debt for years.

Why do we continue to overspend and put ourselves in debt? When a psychologist examines a patient and wants to find out why they have a certain problem, they usually look at their past and childhood. Financial trouble can definitely be traced back to their childhood.

Parents today focus on making sure their kids do well in school, don’t do bad things, go to college, and have a good career. Schools emphasize writing skills, math skills, and the arts.

I am not saying that any of these things are bad, by no means! I hope they keep working on and developing these skills. The problem is what they are not including in this list of important things to teach your kids. Most parents do not emphasize finance skills.

If a child becomes an adult never learning anything about money, they will use money based on their own experiences. Once they find out that they can exchange money for the things that they love, they will continue to do so. Add in charge card accounts, and they now realize that they can get more stuff without even having to pay for what they want with money they had to work for.

Usually, these consumers become spending addicts and every time they get paid they’ll spend it on things they don’t need and won’t have anything left for what they do need. They will force them into debt.

We can try to prevent this by teaching them about money when they are young. Parents today need to teach their kids the value of cash and how to budget, save, and spend money correctly in order to keep them out of debt.

If you are a parent, you should point them in the right direction and try to provide good guidance into money management. You can help do this at Teen Money Central which you can find more information about in the link in the bio section below. How do you teach them?

Don’t buy them everything they want. Give them an allowance, not attached to chores, so that they can learn to budget their cash and buy their own things. Encourage them to save. Have them open up a high interest bank account and deposit regularly to it so that they can see that it’s possible to earn money with minimal effort.

Encourage them to apply for a job when they are old enough and have them spend their own money on things such as clothes, music, going out, etc. Teach them about investing and why it’s important to save for their future. Have them open up a custodial account to an online brokerage firm so that they can get hands on experience.

Don’t buy them a car. Have them save for their own car. Or, you can match whatever they save and put it towards their car. Teach them how to budget their money. Don’t give them a charge card account. Follow these ideas and watch your kids learn to handle their money.

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Getting Out Of Charge Card Account Debt

Posted by on May 29, 2011 No comments

Debt is the hottest topic on personal finance blogs around the world. Why? I would venture to guess it is because so many consumers are drowning in it. The unfortunate truth is that few consumers care to read about debt until it has already had a negative affect on their financial situation. This can make the final solution to their debt problems even more difficult to hear about.

I’m no stranger to debt. I had been managing school loans, vehicle loans, and a few small charge card account payments since I was 19, and I was successful in keeping a clean credit record. Then a few poor life choices left me responsible for over $30,000 in charge card debt at age 24. With nothing tangible or memorable to show for my efforts, I could have become bitter. Maybe I could have filed for bankruptcy (this was before the laws changed considerably.) Ultimately, however, I chose to consolidate, reduce the rate, and pay those debts off early.

Why am I telling you all of this? Two reasons: (1) It lends credibility to my view on debt and repayment. (2) To keep you from throwing things at me when you read the next paragraphs:

The number one question I hear from people in debt is NOT: “What’s the best way to pay this off?”

It is usually: “How do I get out of this debt?”

Note that in their wording, they are usually implying that they are wanting to get out of their obligation of the debt, though not necessarily through repayment. Google searches for popular debt-related terms bring up scads of results for help in “Getting out of debt” — all of which seem to give a quick and easy way out. A few clicks and some reading will tell you, however, that the scheme is all the same, and repayment is almost always involved.

So to answer the question of “What is the Best Way to Get out of Debt?” — my answer is simple: Whatever way is quickest, easiest, and costs you the least amount of cash, while at the same being perfectly legal and moral. Ditching your financial obligations by having a cousin co-sign while you walk away is NOT the best way. Making a conscious decision to default when you could be paying something (anything) is NOT the best way. Looking for answers from the sky for a way for you to not have to repay a debt (when you could if you wanted to) is NOT the best way.

I am saying this with the full understanding that someone reading this will have a unique situation that warrants blowing off a loan. I will guarantee that a handful of others will insist that they had no choice. I am, therefore, not talking to you, specifically. The $30,000 in debt that I repaid gave me zero benefit. It was the product of putting my name on a few accounts that were taken advantage of in the most grievous of ways. It would have been easy to say, “It wasn’t my debt,” default and start over 7 years later, instead of taking almost 6 to pay it all back. For this reason, I am speaking to the majority of those suffering from excessive debt who may not feel the benefit of their spending, realized they spent more than they could truly afford, or who simply got the short end of the debt stick. A loan is a loan, which is almost always best to pay back. Period.

I realize that if everyone paid back their loans, small claims courts would shut down, and debt collectors would lose jobs. Search Engine Optimization would change dramatically, and books on finance would lose their place among the Best Seller’s List. Thankfully, there will always be those who won’t pay up. But for the rest of us, there is still one answer to the debt problem: Make payments – no matter how small. As painful as it feels right now, no amount of money can buy the integrity and honor of making good on a loan.

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Dealing With Charge Card Account Debt After The Holidays

Posted by on May 28, 2011 No comments

Here we are about a month after Christmas, and the first charge card account bills from the holiday season are starting to arrive. Many consumers are experiencing a little sticker shock at the extent of their overspending. According to Consumer Reports, shopping with charge cards during the holidays often leads to overspending by an average of 16%. This is part of the reason that the same Consumer Reports survey revealed that 13.6 million Americans were still paying off holiday purchases from 2009 in November of 2010.

The cost of charge card account debt is often a hidden expense, particularly for consumers who are juggling multiple charge card accounts. It is easy to overlook the total interest expenses when they are spread across three, five, or even seven credit card accounts.

But credit card interest expenses add up quickly. Having an average monthly balance of $3,000 may not seem like much, but at a 15% APR, it can cost you $450 a year.

Now is the time to assess the situation and make a plan to pay off the debt.

3 to 24 Months: Transfer Your Balance

If you know you can’t realistically do it in two or three months, seek out a credit card that offers a 0% balance transfer. With a balance transfer, you pay a small transaction fee, typically 3%, to move your high-interest debt to a card that charges no interest for anywhere from 12 to 24 months.

During this time of no-interest repayments, all payments you send to the charge card will reduce your debt directly. This will help you pay off the holiday debt faster than sending a minimum payment each month and paying interest all year long.

Balance transfers are a good option for consumers with good credit, but these offers should be used with caution. Refrain from running up new debt when you transfer the balance to a new card — and focus on paying down what you already owe.

The best way to deal with credit card debt after the holidays is not to have any. Many consumers find themselves digging for a credit card during the holidays. However, the consumers that come out ahead are the ones that only spend what they know they can pay off by the end of the month! Remember improper use of credit cards can lead to severe financial hardships including bankruptcy so it is important to use credit cards responsibly even during the holidays!

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