Personal debt grows because a credit based society encourages it. Life is difficult and at times consumers have no choice but to take out that emergency loan to pay off a medical bill or unexpected expense. Life happens and it causes consumers to make choices that will affect them long term.
There are many causes of personal debt; that includes reasons why it is considered good to have a debt if it is a long term investment. Long term investments include purchasing a home, investing in a college education for yourself or a child.
Bad choices
Long term investing in education or a home are considered good items to get into personal debt; but there are other items that most consumers purchase that are not good investments. America is a consumer-based society: goods are consumed to drive a strong capitalist society. Many Americans want to get that latest iPad or that newest car; instead of saving for it; they finance or borrow on credit cards. This is a bad choice long term because if the credit card bill is large and the interest continues to accrue, on minimum payments only, the purchase that was paid by that credit card years ago will haunt the consumer for twenty years or more. Paying the minimum payment on the cards will insure that you will be paying high interest on those cards for years, not to mention the adverse affect of taking too much credit being reported to credit reporting agencies.
Student loans
Education is considered a good long term investment but there are times that borrowing too much can bankrupt a college graduate before they even graduate from college. If borrowing from student loans, borrow smart; try not to start school without having some small savings towards paying for school first. Shop around for schools and their prices, purchase used books instead of new, and really research scholarship resources.
Mortgages
Mortgages are a death sentence because the consumer feels that they are sentenced to pay this huge debt until death. The mortgages are designed to be paid off by 15 or 30 even 40 years. The payments are designed according to the amount of the years the mortgage is designed to last. A 30 year mortgage of 386.00 a month on a home that costs 47,000 at the time, if paid throughout the length of the mortgage, with the interest paid the total loan would be 116,000. This is more than three times the amount of the original mortgage, which is why mortgages should be paid as quickly as possible by making extra principal payments to lower the overall interest each month. Out of the 386.00 payment only 31.00 is applied towards the mortgage principal. The rest is interest and payment towards the property taxes, if the mortgage company arranged to have the taxes included in mortgage payment, which some do. Having a good down payment will insure some equity in the home and help to pay down that debt quicker.
Using the credit card everyday
Personal debt builds when consumers purchase everyday items such as food and clothing, and pay utilities on credit cards. Many consumers pay with credit cards, then use their paychecks to pay the credit bill that covered the payment of monthly bills. The problem with this is that the consumer has paid more by using that credit card instead of using their checking account because of the interest paid for borrowing. If possible, use checking or debit cards to pay for everyday purchases. The consumer should ask themselves do they really need that new IPhone or tablet, or do they need to save for it and wait a few months to get the item. Personal debt is a problem that plagues US consumers. It affects our government too. If our country is running on 16 trillion dollar deficits and our currency is imaginary IOU’S basically, how can its citizens not follow that example?
The US economy is credit based, it is not backed by gold; it is backed by the GDP and a promise to pay. Nations around the world know that America, because of its consumer based economy, has the ability to pay back these loans. Nations around the world are taking austerity measures that have slowed and stalled their economies in Europe, because of cuts to social programs. The US economy is slowly growing. It has to be rebuilt by creating more new jobs, so taxpayers can help lower national debts and their own personal debts.