As of September 2015, the total outstanding revolving debt in the U.S. (i.e. from mostly credit cards) was $925,200,000,000.1 That’s almost a trillion dollars! According to recent statistics, the average U.S. household owes $7281 in credit card debt….yes, just credit card debt. That doesn’t include mortgages, car loans, student loans, and other installment debt. What’s worse is that after you remove those families who do not carry any revolving balances from the statistics pool, the average household then owes $15,609.2 According to a prediction by CardHub, by the end of this year, Americans will be $60 billion more in debt then they were at the end of 2014, which they conclude as “putting us perilously close to a tipping point at which balances become unsustainable and delinquency rates skyrocket.”3 If that were not enough for concern alone, the U.S. public debt is now 105% of its GNP, which is the highest it has been during peacetime. This led a couple of economists to state that “[t]he persistence of high debt has moved the US into uncharted territory.”4
The American economy, it seems, is like a giant house of cards just waiting perilously for the next breeze to just blow it down.
Americans are gambling with debt.
Now, just so you are aware, the United States is not the only country with debt issues. Many developed nations share similar circumstances. Regardless of where you live, the results of debt are always the same: less freedom, less money, and more headaches.
Needless to say, the condition of your finances greatly affects your ability to be self-reliant. Therefore, managing one’s finances should be a top priority if you wish to prepare for the storms of life. This does not mean you have to be rich. This just means you must exercise self-discipline to not spend more than you make. Yes, it can be done. You can avoid a lot of unnecessary debt if you try. But why would getting into debt be such a big deal? Everybody does it, right? Here are some reasons why you should not gamble unnecessarily with debt:
Debt almost always costs more. Unless you have a zero-interest loan with no other fees, debt always costs money… usually a lot of money. I shouldn’t have to explain the effects of paying interest on one’s finances. In short, you are paying more for anything you buy when you are purchasing it with debt. This is especially true when one uses high-interest credit cards, payday loans, title loans, and other easily obtainable debt. However, even if one had a zero-interest loan with no fees, people, by nature, are more inclined to spend more than if they were to otherwise pay for it all up front. In the end, no matter how one looks at it, debt will cost you.
You are gambling with the future in believing with absolute certainty that you would be able to pay the debt back. There is not one of you out there that can guarantee with 100% certainty that you would be able to pay back a given debt on the lender’s timeline. Job losses happen, economies have downturns, and disasters can and do disrupt normal life. People even die. There is always a chance that you or your loved ones may find yourselves in a disadvantaged position to be able to pay off a given debt.
Debt causes stress. One of the leading causes of strife in households is financial trouble, which is often accompanied by debt. In addition, according to an Associated Press-AOL Health poll, debt-related stress is also responsible for a host of serious health issues including migraines, anxiety, severe depression, ulcers, and even heart attacks.5
So how should one avoid debt?
Savings is usually the answer. One should ideally save for most purchases. Also, a good practice for sound financial health is to build up an emergency savings fund. Even if you were to just start with $1000 set aside, that would cover many of life’s little emergencies, which would save you from having to pull out the plastic in a pinch. Sure, this may not sound as easy or as convenient as credit cards, but if you were in a position to have to dip into your own emergency fund, you would only owe yourself, at zero interest, and in a position to be able to pay yourself back on your own timeline.
Debt may not be avoidable in all circumstances, but much can be avoided with financial preparedness and self-discipline. Just think… if you were to free up your money from paying interest, and if you were able to free up your mind from the stresses of debt, you would have more resources and time available to be able to make other preparations for the future. Isn’t that the spirit of prepping?