Understanding The Impact of Consumer Debt
Consumer debt is a financial killer. One of the best ways to reclaim your financial future is to repay those high interest consumer loans and then restrict the use of credit cards to emergencies and fast investment cash.
Consumer debt is usually used to finance the purchase of "nice to have" things-which typically depreciate in value. Whereas, investment debt is the use of financing to purchase things which go up in value, like real estate, antiques, and well-run businesses.
Consumer credit increased at an annual rate of 2.5 percent in May 2006, while revolving credit increased at an annual rate of 10 percent. The Federal Reserve Statistical Release for July 10, 2006, indicates Americans currently owe over 808 billion dollars in revolving debt, which is principally credit cards and auto loans, and over 1.3 trillion dollars in non-revolving debt. According to U.S. Bankruptcy Court statistics, there were well over 2 million bankruptcy flings made in 2005 alone, with the vast majority of these non-business related filings. Remember, there are approximately 123 million working Americans; therefore, this number represents nearly 2 percent of the working population.
The abuse of credit cards by the American consumer has become a financial epidemic. Statistical Release for July 10, 2006, indicates Americans currently owe over 808 billion dollars in revolving debt, which is principally credit cards and auto loans, and over 1.3 trillion dollars in non-revolving debt. According to U.S. Bankruptcy Court statistics, there were well over 2 million bankruptcy flings made in 2005 alone, with the vast majority of these non-business related filings. Remember, there are approximately 123 million working Americans; therefore, this number represents nearly 2 percent of the working population.
The propensity of Americans to assume high interest credit card debt, while fearing the use of debt to make intelligent investments, is mind-boggling. Consider this example. A new car may cost you up to $500 per month. At the end of 5 years, you will have a significantly depreciated car, with a loss of $30,000 or more in principal and interest payments.
Compare this to purchasing a rental property. In the worse case scenario, you may expect to make payments during vacancies, provide for unscheduled maintenance, and carry a negative cash flow from month to month. However, at the same time you will be enjoying a property that appreciates in value, while giving you a valuable tax write-off. Appreciation and tax write-offs are not the primary reason to get involved in real estate, nor is carrying a negative cash flow a pleasant thought. But, in the long run, this is more advantageous to your wealth goals than the car loan.
As a credit consumer you should also protect yourself against the dreaded Universal Default Clause. Amazingly, a large percentage of major credit card issuers have this clause tucked into your user agreement. Essentially, the Universal Default Clause allows your credit card company to significantly increase your interest rate and fees based on your credit score and payment history with other lenders, including your home and car loan. Watch out for this clause and try to avoid doing business with credit card companies that use this tactic to prey on their less sophisticated customers.
The next time you are tempted to take out a loan on a new boat or quad, consider how the cost of this purchase, with compounding interest, may be better used to achieve your financial goals. The National Foundation for Credit Counseling believes it takes from 3 to5 years to recover from credit card debt, once an individual starts a structured recovery plan. This can put a severe damper on your wealth accumulation goals. What it all comes down to is your willingness to delay gratification--a difficult emotion to master.
Phillip Collinsworth is the author of several books available on Amazon. He hosts a website offering free information on wealth building, and finding income opportunities through Internet marketing. Visit:
Comparing Chapter 7 and Chapter 13 Bankruptcy
Sometimes situations arise when you can no longer pay your bills. Although you may have the best intentions of paying off yo...
Debt Settlement Vs. Debt Consolidation
The goal of both debt settlement and debt consolidation is to lower your debt. Debt settlement companies negotiate with your ...
Using a Debt Consolidation Loan to Ease the Pain of Monthly Bills
It is so easy to get into debt today when the average American has five to nine credit cards which are used for everyday livi...
Packaging As A Marketing Tool
Thousands of new products are introduced every year, more than 15,000 to be exact. How can your product compete, not only wit...
Payday Loan Consumer Information - Tells You Everything About Payday Loans
Payday loans are very useful for a person in need of urgent monetary help but generally it carries very high interest rate. W...
Choosing a Debt Counseling Program
If you are an individual that is having trouble finding relief from your debts and you feel there are not other options, you ...
Bankruptcy - The Last Resort
If you have been in debt before, you understand how it feels. Debt can feel like an elephant on your shoulders day in, and d...
Debt Settlement and Your Credit Score
In extreme financial situations, many creditors are willing to accept a debt settlement, as an alternative to bankruptcy. A ...
Struggling To Pay Your Bills? Credit Card Debt Consolidation May Be The Solution For You
Are you struggling to pay your bills? Cant seem to manage the surmounting expenses? There are thousands of people like you, a...
Eliminate Your High Interest Debt
Monthly credit card payments have recently skyrocketed, which has resulted in millions of people looking for some type of deb...
Debt Consolidation Loans for Bad Credit
If you have a bad credit history you must look for debt consolidation advice. These are now available online. With these you ...
Debt Consolidation Companies
Debt consolidation companies have dotted the debt solution landscape as a result of the critical financial conditions consume...
Alternative to Bankruptcy in Canada
One way to avoid bankruptcy in Canada is to file what they call a Consumer Proposal. A Consumer Proposal is a deal that is wo...
Advantages of Bankruptcy
Bankruptcies are on the rise so it seems that people understand the advantages of bankruptcy or maybe they are in the unfortu...
Difference Between Good and Bad Debts
With this article people will learn the difference between good and bads debts, in order for them to try to avoid the bad one...
Debt Settlement What You Need to Know
Are your credit card payments more than you can afford to pay each month? If so, its not likely that youre able to afford to ...
Do You Need a Debt Consolidation Loan?
Many people seek out debt consolidation loans when caught in the debt trap involving multiple creditors and high monthly inte...
Debt Settlement Service
It can happen to anyone to be in debt. There can be lots of reasons for it. It goes without saying that being in debt is a st...
Debt and Bill Consolidation - What Are Your Options for Reducing Debt?
Excessive debt causes a lot of worry and anxiety and for good reason. While some people are able to control their spending h...
When A Loan Becomes Delinquent, Why Involve Debt Collection Agencies?
It is a sad fact of everyday life that many consumers will at some point find themselves in debt. Whether the debt is accumul...