Is it just us, or does it seem that America, in general, is addicted to debt? Just call us the credit nation, from the highest levels of government all the way down to Main Street USA. America and Americans are obsessed with credit and rely on debt every day. Even as the nation and its consumers struggle under record debt levels, we continue to rack up more.
Like it or not, we do need credit. As we have established during and since the global financial meltdown of 2008, credit keeps the wheels of the global money machine well greased. Concepts, such as buying a home, starting a business, or buying an investment property often could not become realities without some form of credit. In fact, utility companies, banks, landlords and even employers often require credit checks before extending services or employment. Consider the following statistics:
- As reported by the Federal Reserve Board (FRB), the size of total U.S. consumer debt grew nearly five times in size from $824 billion in 1990 to nearly $2.2 trillion in 2005.
- According to Experian, without factoring in mortgages, in 2008 the average American held over $16,635 in debt.
- According to ComScore, in 2008 55% of Americans maintained a running balance on their credit card accounts.
- According to Visa and MasterCard, in 2006 alone there were 984 million bank-issued Visa and MasterCard credit and debit card accounts in the United States.
- Mail Monitor, a credit card direct mail tracking service, reports that roughly 4.2 billion credit card offers were made to U.S. households in 2008.
- An online poll conducted by CardTrak.com reports that the average rate for bank credit cards reached a whopping 19% in March 2007, whereas the average rate in 2003 was 16.5%.
Credit and its associated debts are a part of our reality, and will continue to be for the foreseeable future, and it is up to each individual consumer to not let credit ruin them. Unfortunately for many, it already has. The level of consumer debt has grown exponentially in the U.S., where tens of millions of credit consumers find themselves overwhelmed by their personal debts.
What about you? Are you managing your debt, or is it ruining your life? Without disclosing anything personal, or your identity, we’d love to hear your comments about how you are managing debt these days, or how it’s managing you. Where do you see our country going with it’s current debt seemingly out of control, and no apparent leaders in Washington who seem to be able to figure out how to bring it under control?
Use the comment link below to sound off and tell us what you think. Remember, your email address will NEVER appear on this site, so feel free to tell us what you think.
You’ve got a little extra money and want to destroy some debt. But which should you pay off first – the smallest debt, or the one with the highest interest rate?
Questions or comments? We’d love to hear from you. Just click the “comment” link below to sound off.
If you have a car loan through your bank, an offer to skip a payment might seem like a godsend. But is it?
Have you gotten offers like this one? Did you skip a payment? Would you skip a payment now that you know how much it’s really costing you to do it? We’d love to hear from you. Click the comment link below and tell us your experience…
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If you have questions or comments about this, or any other story on our site, please use the comment link to ask us what’s on your mind. We’ll get back to you with answers.
We’ve all been guilty of it – we get a big tax refund check and run out to buy that big-screen plasma television we’ve been wanting, or take a trip to Mexico, or that new sofa you’ve been dreaming of adding to your sun room.
Spending your tax refund check this way is one of the worst things you can do.
The first thing you need to understand is that your tax return is, in fact, your money to begin with! It’s not some gift from the government; rather, it’s money that you overpaid to the government over the course of the previous calendar year.
If you consistently receive a hefty tax return each year, then you are doing nothing more than giving the federal government an interest-free loan on your money. There is no reason to do that. The solution? Adjust your federal income tax withholding so that you neither owe, nor receive a substantial amount of money come tax time each year.
But if you do end up getting a big refund check, here are 3 simple yet financially sound ways to spend it.
1. Eliminate Credit Card Debt – First and foremost, if you are in any sort of credit card debt, pay it off! When you’re paying interest fees for any credit card, you’re just giving away your hard-earned money. Forego any other temptation with your tax return until you have completely eliminated credit card debt from your life. Once you’ve done that, stay away from credit card debt altogether. There is a simple rule to follow – if you can’t afford to pay it off by the end of the month, then you need to drastically reduce your spending habits.
2. Invest 75% – If you don’t carry a credit card balance, consider the following formula: Each year, commit to investing 75% of your tax return check. The investment products you choose are up to you. You can utilize a Roth IRA or a traditional IRA as you work to save for retirement, or you can build up an emergency fund to protect you against unforeseen events that come your way. You can also choose to invest a portion of your tax refund money in some of the riskier investment options like investing in the stock market or trading financial derivatives. Whatever you choose, the important thing is they help stabilize your future income rather than fulfill any short-term temptations.
3. Spend 25% on Yourself – If you’ve led a financially stable life over the course of the past year, there is nothing wrong with spending some of it on yourself or on projects that have been tossed to the side. Exactly how you spend it is up to you, but rewarding yourself from time to time with small splurges during your financial life is pertinent to your overall success. Indulge yourself if you want, but just make sure you do it after you’ve invested the first 75%.
If you do get a large refund, by all means enjoy some of it. Simply put, prioritize your debts and your future income before spending the remainder on any short-term purchases. Your tax return should be used as one of your many tools towards achieving a fiscally responsible lifestyle. Use it to your advantage! Then, as you get out debt and invest more and more, you can begin rewarding yourself.
How are you going to spend your tax return money this year? Do you have any other tips that have worked for you? Please share your comments below.