Everyone has debt of some form or another, from student loans, credit cards debts to mortgages, even lines of credit. Americans in 2012 owed more than $8.5 trillion in mortgage debt alone, and nearly $1 trillion in student loan debt, and over $789 billion in credit card debt. All of this debt added together equals an average U.S household median debt of a staggering $200,000 per household! We all fall into debt at some points in our life, but we owe it to ourselves to find out why we are in debt, pay that debt off and escape the cycle of debt.
The good news is that our debt load has actually decreased! yes since the 2007 recession our average debt load is lighter than pre-recession times. This is largely due to more Americans saving money and spending less in these turbulent financial times. Yet recent studies have shown that Americans are taking out very hefty loans these days, resulting in heavy debt loads.
The debt load faced by Americans today is causing many of these debtors to fall into default on their debts. Nearly one in every 10 people repaying a student loan has fallen into default on their student loans. Foreclosures have risen by 23% according to recent foreclosure data, this despite all the government anti-foreclosure programs available today.
Debt just does not hurt our finances, it also harms our relationships. Most divorces can be traced to finances and debt. Many friendships and family fallout’s are also the result of debt and finances, including failure to honor the repayment of credit cards and loans where a family member or friend was the co-signer. A whopping 27 percent of people in mental health care can trace some of their symptoms to financial debt, and of these people 24 percent can trace financial anxiety to an adverse effect on their health.
If you too find yourself weighed down by debt, and all of it’s negative effects, read on for ways to reduce this debt. Knowing how we got into debt in the first place is critical here. Did you know that when we use credit versus spending cash that our brains process this differently? When we use credit our brain does not fully process the ramifications, consequences and effects of using credit. For example people at an auction are willing to pay twice as much with credit than when using cash. If you cannot see the money, it is far easier to spend it. We as human beings are also very optimistic, replacing reality with hopes and dreams, we think we can repay the dent easily, when in fact this debt we willingly take on often crushes us with its weight.
You should start correcting this by making up a budget, and sticking with it. Budgets do not need to be hard, where many people screw up on a budget is not allotting any money to indulgences and spending money. If you do not get to aggressive with your budget, and leave a little breathing room it will work. They key during this time is to live to the budget and not to take on any unnecessary debt or loans. If your car breaks down or is totaled, obviously you may need a car loan during this time, but you do not NEED a loan to take a fancy vacation. You also should get debt repayment goals and celebrate moderately when these goals are met. When you have paid down one debt to a zero dollar balance, treat yourself to a night out or some other small treat.
Also be on the look out for any way to increase your income, either on a permanent basis or a temporary basis. Believe me you will remember taking a second job in order to repay your debts every time you consider taking out any form of credit in the future. Repaying back a massive debt load is never easy, nor pleasant, nor is it intended to be. If you stick to your budget, commit to a repayment plan, and remember how you ended up in debt in the first place, you will find yourself out of debt in time, and you will find yourself saving more and spending less.