Americans have become increasingly dependent on credit cards and loans to purchase items both large and small. Credit cards and consumer loans have allowed Americans to make purchases that are well outside of their means, which leads to a vicious cycle as we try to borrow more money to pay our existing debts. Studies show that 43% of Americans spend more money each year than they earn, and that the average household carries more than $8,000 in credit card debt. This has led personal bankruptcy cases to double in the last ten years.
Revolving credit accounts, such as credit cards, can actually help your credit score, as long as you can keep the balances low enough to pay off each month. Unusually low interest rates have prompted more Americans to apply for extra credit cards, however, which then prompt a higher level of spending. Add to the whole mix the advent of Internet shopping, which usually requires the use of a credit card, and we suddenly find ourselves in trouble with no way out.
The average American has approximately three bank credit cards, four retail credit cards, and one debit card in his or her wallet. Unfortunately, we don’t see our income as a limit for our spending, because Americans average $1.22 in spending for every dollar earned. To put it in business terms, we end each fiscal year in the red.
There are ways to counteract these numbers, however. By taking responsibility for the purchases that we make, we can begin to lower the amount of consumer debt in our own households. It is important to create a household budget, and then to stick to it implicitly. If there are large purchases that you feel you need to make, begin a savings account so that you can make these purchases with cash. You will actually feel a sense of accomplishment when you hand over a debit card instead of a credit card, knowing that you have truly earned the big-screen television or the laptop of your dreams.
If you feel that you are in over your head with your credit card debt, then it is time to make some calls to your creditors. You can work out payment plans to lower the monthly requirements, or you can work with the creditors to get the debts paid sooner. The most important thing, however, is that you take the initiative to get your household debt under control.