American consumer debt has been a hot topic as of late simply because of the record numbers it has posted in the past few months. When you start talking about consumer debt, this can include your mortgage loan, student loans, auto loans, and even your credit card debt. This is basically what most people have in their debt column.
Mortgage loans are normally the biggest debt item in your list as it is usually the most expensive investment you make in life. Homes normally range in six-figures and can take decades to pay off. Reuters even shared that buying or refinancing a home hit a record high of $354,500 early this year. That is a big amount you have to pay off in the coming years.
American consumer debt is a barometer for some people to determine how well or scary the economy is. It is still fresh in a lot of people’s minds what happened in 2008 when the recession hit the markets, both locally and abroad, and forced workers out of their jobs. Some people also lost their homes during that challenging time.
Is the trend a precedent to a bleak economy?
The Federal Reserve shared that American consumers are falling in love with debt more and more. Consumer debt stands at over $4 trillion for the first time. Looking at face value, that is quite a scary figure considering the depression of 2008 happened not too long ago. It could be a precursor to another economic
There are some people who say that increase consumer spending is a good sign for the economy. The American economy is consumer-driven which simply means that the more people purchase, the better the economy will be. An increase in consumer spending can be an indicator that the economy is doing good.
Consumers could be spending more because they are either earning more or have better career outlook. However, consumers need to understand that the more they spend, the more prone they are for setbacks which can push them over the edge. Also, you need to figure out why your spending is increasing over time. Here are a few things you can look into to help you manage your spending better.
Assess where you are financially
American consumer debt is increasing and if you notice that you are spending too much, the first thing you need to do is assess where you are with your finances. It is crucial to know how much you are in debt for and where you stand with your payments. You cannot move forward and create an action plan if you do not understand your current situation.
It is a good idea to list down all your debt payments and put in as much information as you can into every item. Take your mortgage loan, for example, you need to put in not only the amount but even lender details. When it comes to your credit card debt, it is a good idea to list down not only the amount you have to pay but the interest rate as well.
This helps you make informed decisions along the way. If you need to look at and prioritize your debt payments with the highest interest rates, you have the list for it. If you want to try and call up a lender to try and lower down your rate, you have that information handy. It not only helps you assess your current financial situation but makes decision making a lot easier.
Make adjustments on your household budget
American consumer debt has a lot to do with managing huge debt amounts. One of the ways you can address this is to constantly make adjustments in your budget. If your income increases for a few months, you do not go out and spend all that extra money on things you want like shopping or new clothes.
It is not to say that you cannot spend money on yourself but do not use it all up just for your wants. Make budget adjustments so you can make the most out of that increase. You can put a little towards paying down your credit card bill or a few more towards your emergency fund. It is also possible to put extra money into your 401k to help you take advantage of that matching program offered by your employer.
Having the ability to make budget adjustments when you are deep in debt gives you the ability to prioritize and cross out debt accounts from your list. You can make minimum payments on lower interest payments and put extra money in paying off high-interest loans. If you have payday loans, you can prioritize those over extra payments on your mortgage so you can stay away from high penalties and fees.
Focus on your goals
American consumer debt can be the result of losing focus on your goals and using your money for other senseless purchases. There are cases where your goal was to save up for a downpayment on your dream house but you used the money to buy a new car. It could also be that your goal is to focus on saving for your retirement but you use the money to help pay for your child’s college expenses.
You should not deny yourself a new car especially if you need one already or even in helping your child pay for college. However, you need to make sure that you are able to meet your goals so you do not get derailed and end up in debt. In your desire to still get that house, you agree to pay Private Mortgage Insurance (PMI) because you do not have enough for at least 20% down payment.
Manage your lifestyle increase
As you progress through your career, there is a good chance your income will go up. As that happens, your lifestyle can also increase. American consumer debt can also be a result of severe lifestyle inflation. You might be spending more than what you can pay for in anticipation of a salary increase in the coming months.
You could also be charging too much on your cards because you have already been accustomed to a certain lifestyle which your current income cannot sustain. This is a dangerous path to take because you can end up with a huge bill at the end of the month where you will only make the minimum payments. This can result in fees and penalties which will only bury you deeper in debt.
Explore frugal living
Frugality is a way of life where you try and live below your budget. It helps you save money so you can allocate it to areas in your finances which needs it the most. You can put it into paying down high-interest loans, putting extra principal payments on the house, or even settling that debt you have with a family friend.
The idea is to find creative ways to help you lower your expenses at home and even in the office. You can start bringing food to the office for lunch so you do not have to eat out every single day. Why not cut your cable and just stream the movies you want to watch. You can also take the bike every day so you save money on gas and even get a good exercise out of it.
American consumer debt is on the upswing simply because people are starting to spend more money on the things they need and want. It is not an outright red flag but it will not hurt if you start managing your finances better especially your expenses.