Any financial expert will tell you that we are facing the biggest financial dilemma the country has ever seen. Along with the nation’s financial crisis and credit crunch, an increasing number of individuals are falling deeper into personal debt with very few solutions for extracting themselves from this financial quagmire. So how did this sorry state of affairs come to be?
The Steps That Led To Disaster
For quite some time, many individuals have been living lifestyles that are beyond their financial means and financing their lifestyles with credit cards and home equity loans. A number of people purchased new homes that they could barely afford, taking advantage of the lax lending standards prevalent at many banks and lending institutions. People were rewarded with low interest loans on homes that were priced much higher than what they could actually afford.
Other people obtained high limit credit cards and spent recklessly, never thinking of the day when the balance would become due. The credit card companies began to offer double and triple reward points for major purchases on credit cards and our nation’s leaders pushed people to spend money to stimulate a suffering economy as a patriotic act. Many companies capitalized on this trend by convincing people that they needed their products and services, no matter if it was for the latest fashions, the newest cell phone with the best data plan, or acquiring the home of their dreams without having to prove that they could afford it.
These simple luxuries were the catalyst that started the trend of individuals slowly growing deeper in debt, gradually chipping away at the savings many of us had tucked away for a rainy day. Our outlooks toward finances were changed from saving for the future to spending just to save our future. Now, those days of easy credit are gone and the credit crunch is quickly cutting off the circulation of cash that people had used to support their lifestyles. The lending standards and interest rates for home equity loans are at an all time high and many people are obtaining them to pay off the other lines of credit that they had relied on in order to maintain their lifestyles.
What Must Be Done
Some people believe that in order for them to pull away from the hold of debt, they should eliminate that debt by paying it off quickly, which in theory is a good method of getting out of debt. However, paying off loans with more credit based loans or home equity loans is not the answer. Credit based loans and home equity loans will just transfer debt from one place to another, which does not solve the problem
The simplest and most effective solution for getting out from under mounds of debt is to monitor your spending and cut back on the extras. Take any extra money that you may have after paying your monthly obligations and apply it to your debt instead of spending it on frivolous items. Personal restraint in your spending is the only way to truly become debt free and the more restraint that you exercise, the faster you can eliminate your debt and the headaches that come with it.