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Do Americans Have Too Much Debt?

It’s something we hear about every day: Americans are in debt, especially credit card debt, struggling to make ends meet, not able to get by even without one paycheck and need a good debt relief solution to help them. Even other countries are starting to jump on the bandwagon with the picture of Americans as “fat cats” who live off something other than honest earnings, and are their own worst enemies. Simply put, Americans have a reputation of being irresponsible with money. However, is that really true?

In fact, although it is true that debt today is much more common than it has been in previous years, more than half of Americans don’t have debt other than what they can pay off monthly, besides their mortgages and perhaps car payments or student loans. It’s the remaining 44% (which admittedly is still almost half) who struggle with debt. Perhaps worse, many Americans don’t seem to “struggle” with it at all, but simply seem to take it as a way of life, a sense of entitlement, of living “beyond their means” simply because they can. When did this change?

Well, back in our parents’ and grandparents’ generations, in fact, debt was seen as a bad thing to have. You didn’t get a loan or other debt (and certainly not a credit card) unless you were a very, very good risk. What this meant was, you got only the money that the lender would sure you could pay back. In other words, you didn’t get to go into debt simply to live above your means. Loans were given out for things like car purchases, schooling, or to make shopping simpler — but if you got a credit card, you paid it off every month. It was a matter of pride.

Now, of course, debt is relatively easy to get and sometimes lenders even encourage it, such as all of those easy credit card offers you get in the mail. And at least what the media would have you believe is that you’re seen as an oddball if you don’t have debt. And in fact, for some members of the American population, this is true. It is true that there are Americans who simply have to have the “biggest and best” to impress others, rather than because they really need it. This is where things have shifted, in that we now seem to think we have to impress others with material things, instead of simply living within our means, and only buying what we can afford. We live for now, instead of for tomorrow; instant gratification.

However, this can change. After all, this has only shifted over the last couple of generations, and it can change back. What we must do as a nation is to learn to buy only what we can afford, live on a cash basis, and only use credit cards for convenient money-management, not to buy things we can’t afford.

To start, if this is you, put yourself on a budget. Financial experts say that if you have a lot of credit card debt, the first thing you have to do is to cut up or at least make your credit cards inaccessible. Then, you pay off your credit cards, one at a time, starting with the highest interest rate first. Pay the minimum payment on your lower rate cards and put all of your extra cash toward paying off the highest interest rate card. Then, when you have paid off that credit card, start with the next lowest interest rate, make minimum payments toward all the other credit cards until that one is paid off, and so on.

In fact, it doesn’t take most Americans a lot of time (in fact, as little as two years for some) to pay off credit cards, as long as they have a little discipline and don’t see their lightening credit card load as a reason to go shopping yet again. The key is to figure out what your minimum expenses are (this includes housing, utilities, food, and such necessary debt payments as student loans or car payments, in some cases). This doesn’t include extra frivolous things like unnecessary clothing purchases, eating out, and the like.

After basic expenses, at least 10% of what remains goes to savings, so that you have some sort of emergency fund if you should need something like an emergency car repair, or even if you lose your job. With this emergency fund, you want to build up six months worth of monthly expenses so that you can afford to eat and pay rent or your mortgage while you get back on your feet financially. Finally, you allow yourself to no more than 10% of your extra income beyond your basic expenses for frivolous purchases. This helps keep you from feeling completely deprived, but the key here is that you have to pay cash for everything. And who knows? You might enjoy paying off your debt and saving money so much that that will be your new high, not shopping.

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