Consider these statistics:
More than 191 million Americans have credit cards.
The average credit card holder has at least 2.7 cards.
The average household credit card debt is $5,315.
Total U.S. consumer debt is at $14.9 trillion. That includes mortgages, auto loans, credit cards and student loans. Fact and Figures on American Debt (May, 2021)
Now might be a good time for reflection. Americans currently are facing a 5% rate of inflation, paying much higher prices for groceries and gasoline, and the future doesn’t look like it’s going to get better anytime soon. We tend to be a reactionary society, as well as procrastinators by nature. It’s easier to think about a difficult problem tomorrow (in our minds--literally,) rather than today. We don’t like facing uncomfortable truths, and often we just take option 1: do nothing. But, what if we engaged in thinking that was more preventative than reactive? How much of an impact might that changing of our thought processes positively impact our society--individually as well as wholly?
From my experience as an educator, there are several factors that contribute to the mess we find ourselves in today regarding increasing debt. First, not everyone understands that there is a thing called “good” debt. This is the kind of debt that allows a consumer to leverage investments and build wealth. The mortgage is a great example, and it provides some benefits other than letting you live in a home and be a part of the American dream. It is actually to your advantage to have a higher mortgage balance later in life when most people think it’s smart to pay it off. As we get older, deductions disappear, social security becomes taxable ordinary income, and we are forced to take money out of qualified accounts to ensure that Uncle Sam gets their lion’s share on the growth you’ve worked so hard to accumulate over the years. This is when the mortgage interest is your best friend, because you can “wash” the taxes owed with the interest deduction. Make sense?
The debt you want to avoid is that which keeps revolving when you carry a balance and pay exorbitant interest rates to use the bank’s money. You absolutely do NOT want to carry a credit card balance if you can avoid it. Here is a little tip I learned in my early 20’s. If you must use a credit card, and the expense is a little more than you might be able to pay off the next month – look at your closing date on the account. Wait to make your purchase on that day and get an extra 15 days to pay the balance back. If you pay the entire balance, you’ve used the bank’s money essentially for free as long as you have no fees on your card.
Student loans are interesting. The interest rates tend to be relatively low, and did you know that as long as you are an active student, your payments are not going to start until you are done. In some cases, I know folks who have gone on to achieve MBAs and PhD’s to keep the active status while building a career and earning at a higher level when it’s time to begin making those payments. Our current president is now taking measures to forgive much of the student loan debt in existence. See more on his plan here: Joe Biden's Student Loan Plan.
There are a number of available services for managing your debt and getting it paid off quicker, so if you find yourself feeling overwhelmed by growing debt, reach out and we can share our resources to assist you in getting back on track. Go to www.mvplwrc.com and request a free consultation.
