U.S. per capita installment debts are growing about 8 percent each year. Payments on mortgage and consumer debts absorb almost one-half of the average annual income after taxes. For some people, there's not much left. One credit card is used to pay another; one bill is delayed so an overdue bill can be paid. (For other warning signs of being too far in debt, see the box below.)
Some statistics indicate that Americans cannot afford any more debt. In the United States, personal bankruptcies doubled in the past decade. Most of the people who filed for bankruptcy had jobs and were working over 40 hours per week. Unexpected medical bills or reductions in pay caused the bankruptcy, because there was no money left for a nest egg to cover these emergencies.
If bankruptcies increased in the late 90s, when the economy was going well, what will happen when a recession comes again and more people lose jobs? Not all economists agree about when a recession will come, or how severe it will be, but they agree that a hard hitting recession is over due.For example, Alan Greenspan, former Federal Reserve Board chairman, in early 2001 warned Congress about the U.S. federal government debt: "Allowing deficits to persist...risks potentially significant reductions in our standard of living." The US government in congress and the house of representatives are setting the wrong example for Americans by having such poor debt management.Harvard University economist Benjamin Friedman warned: "The reason that the average American has enjoyed such a high standard of living lately is that since January 2001 is our government has simply borrowed more than $160,000 on behalf of each family of four... The costs, which are only beginning to come due, will include a lower standard of living for every ordinary working American." (Day of Reckoning, Benjamin Friedman, pages 4).THE VALUE OF THE DOLLAR IS THE LOWEST ITS BEEN SINCE THE GREAT DEPRESSION IN 1929!Does that tell us something?Because of the importance of international trade, any U.S. recession will affect other nations, too. Jobs will be lost. Pension funds can become bankrupt. Corporations will be taken over by new managers. Even government agencies can be made "more efficient" by privatization or simply being eliminated. Even the prison system has been privatized. Its become a business to put people in prison! A recession will affect everyone. The problem will be even greater when over 12 million illegal immigrants start looking for and demanding government handouts when the next recession hits!
Even now, many families live from paycheck to paycheck, with little or no reserves for emergency expenses. A temporary loss of a job would be unbearable. Because of the uncertainties of the economy, and even of our own health, it is wise to get out of debt and to save a reserve for emergencies that will come.
Paying off your debts isn't easy. Lenders do not make money that way. They want you to borrow more in bad times, so they can secure their profits. Its much easier to earn more money, and manage the money you earn.Imagine earning more money then you can spend?Sounds weird doesn't it? That's how being an employee has trained us to think about that idea. That's the beginning of financial security, when you can break free mentally and begin to imagine that possibility. It will lead you to seek out opportunities that will make your imaginations a reality!Are You Living On Borrowed Time?Whether you live in a credit society or not, let's take a look at the problems of credit in the United States. For what is occurring in America will likely be visited on many nations because of globalization.Why is there such a dramatic rise in consumer debt?
In 2000, the average American adult owed more than $8,000 in installment credit (not counting house mortgages). Since many people have no debts at all, others owe much more in some cases, and some owe more than they earn in one year!
Certain kinds of debt may be appropriate. Most people need to borrow money to be able to buy a home. With the cost of the average home today being around $210,000, lenders have come out with a 50-YEAR mortgage!In spite of all these fancy mortgage loans, homeowner are loosing their homes in record numbers. Check out this news story by Channel 13 News: News Story What if these people knew about SFI Marketing Group because they saw an ad you had placed? They would not be in this situation, and you'd be much richer for helping them keep this from happening to them!Some need to borrow money to buy a car, since in most places a car is a necessity. But credit is often used to buy consumer goods and luxuries, leave little to show for them except the bills. Many people try to buy more and more than they need. Banks and businesses encourage it because it helps them to build their bottom line when you spend money you don't have to pay for the things you don't really need.
The catch is, when your income doesn't meet our needs, you borrow the difference. As a result, we have to pay interest often as much as 25 percent. Since many families lose between $2,000 to $3,000 each year in interest payments on installment debts alone, the net result is these unnecessary things we buy to increase our standard of living, only reduce our future standard of living with the burden of debt repayment.
Credit: Comparing Four NationUnited States: Americans tend to borrow more than citizens of other nations do. Why? In the first four decades after World War II, as incomes increased, Americans had an ever larger increase in money available for non-essential consumer goods and to establish credit. As they accumulated more household buying power, they became more credit-worthy, both to lenders and in their own eyes. The result has been the social acceptance of debt, and a negative view of saving for the future. The factors that brought a credit culture to the United States are beginning to work in other nations, too.Germany: West Germans doubled their consumer and mortgage debt ratios (debt as a percentage of disposable income) in the decade 1995-2005. Household debts now come to 62 percent of disposable income.
Japan: Until recently, banks weren't allowed to offer consumer installment loans. But credit has been available from other sources. Even though interest rates were often more than 50 percent, consumer debt ratios doubled between 1995 and 2005. Consumer debt load is now larger in Japan than in Britain.United Kingdom: Household debts rose rapidly in the '90s after credit was deregulated. Interest rates on consumer loans are often more than 25 percent. The home mortgage debt ratio is now larger than it is in the United States.Converging ratios: In 2000, the Japanese household debt ratio was only 29 percent of the American ratio; today it is 72 percent of the American. Similarly, West Germans have gone from 32 to 83 percent of the American ratio, and Britons from 64 to 85 percent."Over the past two decades, there has been a striking convergence among the household debt ratios. Since 2000, however, debt growth in the United States has accelerated above that in Japan and Germany, bringing the prior trend toward convergence to at least a temporary halt" (Dorothy B. Christelow, "Converging Household Debt Ratios of Four Industrial Countries," Federal Reserve Bank of New York Quarterly Review).Not only are Americans borrowing more, they have been saving less, which is "cause for concern." The article warns that America's trade deficit is due in part to "a sharp decline in the U.S. personal savings rate accompanied by a surge in consumer borrowing" to pay for imported goods.Here are some highlights:
- Last year's total debt of $48.4 Trillion was 11 times higher than the $4.6 Trillion debt in 1957 (both measured in inflation-adjusted 2006 dollars).
- Last year's total debt increased $3.9 trillion (up 8.7%). Federal government debt (incl. added debt owed trust funds) increased $510 billion (6.2%), household debt increased $1 Trillion (up 8.6%), business debt increased $750 billion (9.1%), state & local government debt increased $152 billion (up 8.2%), domestic financial sector debt increased $1.2 trillion (9.3%). Each sector reached a new, all-time record high.
- As shown below, 26% ($1 Trillion) of the total debt increase of $3.9 Trillion was owed to foreigners, up 11%.
- Last year's total debt per person was $161,287 (up $11,379 over prior year's $149,908); this compares to $28,905 in 1957 (both measured in inflation-adjusted 2006 dollars). Last year's debt per family of four increased $45,514 to $645,148.
Consumer Debt in Latin America
The use of credit in Latin American nations varies widely. Large segments of society use cash only; most people do not have bank accounts or buy many consumer goods. In some nations credit is widely used. Over indebtedness may, in fact, be a bigger problem than it is in the U.S.
Merchants often offer installment credit for appliances and other large purchases. Buyers must prove creditworthiness, and a large down payment may be required. Money in the bank is usually required to cover the credit limit. To establish creditworthiness it also helps to own land. Interest on credit purchases might be double the inflation rate. If inflation is unpredictable, full payment will have to come within a shorter period.
Credit cards are more difficult to obtain than in the U.S. or Western Europe and are a sign of wealthier status. Most credit cards cannot be used outside the nation of origin; an international card may be obtained through a special application.
Consumer Debt in CanadaThe average Canadian adult owes more than $6,500 in consumer installment debts. Ten years ago, the consumer debt load was 15 percent of income after taxes. Now it is 35 percent.
Ten years ago, Canadians saved about 12 percent of their income after taxes. Now Canadians save only 9 percent. Incomes have risen 126 percent in the past decade. But since costs have risen similarly, families cannot buy any more than they used to.
Inflation has disguised some changes. Savings have almost doubled in dollar amounts, but the value of those savings has fallen 25 percent. Canadians, like many others around the world, are poorly prepared for an unexpected job or personal crisis, or another recession.
10 Warning Signals You Are Heading For Financial Trouble!
Here are 10 warning signals that can help you determine whether you are headed for financial trouble. If any apply to you, it's time to take a closer look at your budget. If three or four apply, you are in difficulty.
Using credit to buy things you used to be able to buy with cash.
Getting new loans or extensions to pay your debts.
Paying only the minimum amount due on charge accounts.
Receiving overdue notices from creditors.
If you are in financial difficulty, you may wish to contact a professional counseling service. Local governments or banks may offer help or direct you to an organization that charges little or nothing for such help.
However, there is a better way out of debt!Don't be fooled into thinking things will get better doing the same thing everyone else is doing. Insanity has been defined as doing the same thing over and over, and expecting or hoping for a different result. What we are offering you as a way out of your situation that is proven.Ten's of thousands of people all over the world have put themselves onto a success path that leads to a better life in a few years by follow a few simple steps day in and day out like working on a job. The principles of exponential income growth as was shown by our doubling penny illustration has been proven by mathematics.Do you have any questions? Write us:To test the benefits of the above information, send this website to at least 5friends or family members and see how they respond.Simply add YOUR name and THEIR email address below:
