It's like a rollercoaster that will not stop. The credit card debt pay down that comes in first fiscal quarter of each year is inevitably followed by a three-quarter stretch where these pay downs are systematically erased and new debt is often incurred. But why are things getting worse? Why are the pay downs now smaller and the new debt more burdensome? And what does this say about our citizenry?
The second quarter of 2011 saw U.S. consumers garner almost $18.5 billion in new debt, according to a Card Hub debt study, erasing a nearly $33 billion first-quarter pay down and overshadowing the Q1 debt increase by 66% and the 2009 version by 368%.
What seems to be happening is that too few people are taking the lessons of the housing bubble to heart. Things simply aren't going back to the pre-recession idea of normal that many of us assume will return once we work out all this economy rubbish. Not only do real estate agents and builders therefore have to permanently adjust their spending habits and lifestyles, but landlords, handymen, housekeepers...heck, anyone who's ever had a home equity line of credit has some changes to make as well. The bottom line is that if your income was tied to the real estate market in any way, shape or form, the depreciation of this industry makes it hard to believe that you will have as much money to play with in the foreseeable future. In fact, your income won't truly be the same unless another bubble develops.
That means we have to get used to things, but not necessarily how they are now, perhaps how they should be instead. You see, we've gotten used to the idea that debt is standard protocol. Maybe it's a consumerist society, maybe it's the cumulative effect of rap videos on the culture, whatever the case though, we apparently see our disposable income levels as minimum spending benchmarks, rather than hard caps.
Twenty-eight percent of consumers admit to not always paying their financial obligations on time each month, according to the National Foundation for Credit Counseling's 2011 Consumer Financial Literacy Survey. This has simply got to change. While, yes, it is easier to say than do, only truly extenuating circumstances and emergencies should lead to a payment not being made on time.
Don't get me wrong, there are multiple cases where debt can be useful, not only on the individual level, but for society as well. For example, debt can help us work toward owning our own homes, rather than spending the same amount or more in rent over the years. It can also help small business owners invest and grow their businesses. So, with that being said, get to developing budgets that trim the fat from your monthly expenses and realize that if you benefited directly or indirectly from the housing bubble a permanent reset of spending expectations is in order.
This article was written by Odysseas Papadimitriou, CEO of the credit card comparison website Card Hub.