Many people are ruled by their debts, working to service mortgages, second mortgages, car loans, vacation loans, debt consolidation loans, and student loans. Then of course there is the credit card debt which was acquired through consumer spending, filling the house with time saving gadgets which allow more time to work to earn the money to service the debt.
Americans have to a large extent become trapped by the idea that using plastic is necessary and the huge credit reporting business has grown to have enormous influence on everyday lives. How bizarre a situation it has become when people are penalized for not using credit, yet it is an accepted fact.
The dependence on plastic was cleverly exploited by banks that now turn their backs on those who fail to meet tightened lending standards, throwing the still dependant plastic debtors into the hands of sub prime lenders. Despite credit regulations there is still one lender craftily breaching credit card rulings by charging more than the decreed 25% of available credit just to use their plastic, and there are plenty of takers desperate to have credit at any cost.
All this dependence on borrowing ought to be unnecessary, and apart from a mortgage which is a necessity of buying a home, the rest is superfluous and can be avoided. Student debt is now the highest level of debt across the nation, growing year upon year. Taking on high levels of student debt is perceived as a necessity for those who expect to earn higher salaries once a degree is achieved.
Yet a high proportion of students that takes on student loans never complete a degree course, and drop out of college with nothing but loan debt to show for it. Many others complete college to find it does not necessarily open the door to wonderful graduate opportunities as their degree course was practically useless in the job market.
Student loans are a necessity for those who need to obtain a professional qualification to enter an intended work area. Others would benefit by not attending college unless there is a clear direction of what they expect to attain from borrowing so much to obtain a degree which has far less value than the expense of obtaining it.
Credit card debt is at its lowest for years as many understand how trapped they have become by it and attempt to pay it down. It is the most unnecessary debt of all and can be avoided by simply not using credit, or only to the extent it is necessary to establish and maintain the all pervasive credit score. By simply not spending beyond ones means credit card debt can be avoided.
It is a simple concept that those who use credit and carry a balance are living beyond their means and financial prudence would be to pay down the debt completely, cease using plastic, and put at least the equivalent amount which went towards paying debt into savings. Those who save in advance for the things they need and want can get better deals and don’t waste a fortune on paying interest to the banks.
When you consider the reasons why many people take loans it becomes apparent that this is just another form of unnecessary personal borrowing. Auto loans are a prime example: saving up for a basic vehicle instead of financing it would allow for continued savings to be made to upgrade the car later, rather than spend the equivalent amount servicing a car loan on a depreciating asset.
Loans for vacations mean that people are still paying for vacations long past the time they took them, and can end up paying for the cost of another vacation in interest payments. Again advance saving would make such loans unnecessary.
Establishing a savings pattern is a basic necessity of controlling your own finances. Living within ones means should be a given. Many are now going to find their own preference for borrowing much curtailed by tighter lending practices. However the outcome will go one of two ways; either people will rein themselves in and start to live within their means, or they will actively seek out subprime lenders who are waiting to cater to their spending whims.