Back to the Basics for Borrowing and Lending
Some US consumers and mortgage lenders are in the middle of a loan and credit crisis. Lenders have quickly learned their lesson and are tightening their lending practices just to survive and stay in business. Consumers should take the same approach to their own finances and make changes for their own financial survival. It is time to bring some restraint back to our borrowing and lending.
The Federal Reserve has just released a report about the rise of U.S. household indebtedness. It says that says the ratio of total household debt to personal income in the United States has risen from an average of 0.6 in the 1980s to an average of 1.0 so far this decade, our debt is now equal to our income. The report tries to explain the causes and consequences of this dramatic increase. Reasons for the increase include financial innovations that have boosted household debt by relaxing constraints and lowering the cost of credit. It also says that the this cheaper and easier access to credit may encourage households with unreasonable expectations about their future income to take on more debt than appropriate.
"The rise in household debt is no surprise. However, I am surprised that this report seems unconcerned when it points out several times that the greater availability of credit makes it easier for households to smooth through temporary downturns in income. I am alarmed that debt is now just an acceptable way of financing life for many households. We are in trouble when credit cards replace emergency funds and expectations of appreciations in our home equity replaces our retirement savings," says Bill Hardekopf, CEO of www.Lowcards.com.
Many consumers who no longer have a home equity line as a source of credit are turning to credit cards. The Federal Reserve just reported that consumer credit rose at an annual rate of 6.5% in June to a record $2.459 trillion, the second straight significant increase. The increase was led by an 8.4% rate of increase for revolving credit, the category that includes credit-card debt (revolving debt increased 12.2% in May).
"The days of easy credit for almost everyone have quickly ended. Creditors are tightening guidelines and closely monitoring their consumers debt load," says Hardekopf. "This comes at a difficult time when income for most Americans has not significantly increased, but the costs of health care and energy have soared. Unfortunately, we are going through painful proof that there is no other answer for financial planning than to spend less than you make and to have an emergency fund to get you through the difficult times. Using a credit card to get you through may help in the short term, but you will eventually have to pay it off, and the 14-30% interest rate is a high price to pay."
The Federal Reserve has just released a report about the rise of U.S. household indebtedness. It says that says the ratio of total household debt to personal income in the United States has risen from an average of 0.6 in the 1980s to an average of 1.0 so far this decade, our debt is now equal to our income. The report tries to explain the causes and consequences of this dramatic increase. Reasons for the increase include financial innovations that have boosted household debt by relaxing constraints and lowering the cost of credit. It also says that the this cheaper and easier access to credit may encourage households with unreasonable expectations about their future income to take on more debt than appropriate.
"The rise in household debt is no surprise. However, I am surprised that this report seems unconcerned when it points out several times that the greater availability of credit makes it easier for households to smooth through temporary downturns in income. I am alarmed that debt is now just an acceptable way of financing life for many households. We are in trouble when credit cards replace emergency funds and expectations of appreciations in our home equity replaces our retirement savings," says Bill Hardekopf, CEO of www.Lowcards.com.
Many consumers who no longer have a home equity line as a source of credit are turning to credit cards. The Federal Reserve just reported that consumer credit rose at an annual rate of 6.5% in June to a record $2.459 trillion, the second straight significant increase. The increase was led by an 8.4% rate of increase for revolving credit, the category that includes credit-card debt (revolving debt increased 12.2% in May).
"The days of easy credit for almost everyone have quickly ended. Creditors are tightening guidelines and closely monitoring their consumers debt load," says Hardekopf. "This comes at a difficult time when income for most Americans has not significantly increased, but the costs of health care and energy have soared. Unfortunately, we are going through painful proof that there is no other answer for financial planning than to spend less than you make and to have an emergency fund to get you through the difficult times. Using a credit card to get you through may help in the short term, but you will eventually have to pay it off, and the 14-30% interest rate is a high price to pay."
Posted by Lynn at
8:28 PM
Links to this post:
Create a Link
<< Home