Credit Trap

Every now and then I go looking for statistics on debt. I’ve seen a number of articles stating that consumer debt actually went down in the last quarter of 2010. So I went looking for statistics and charts. What I found confirmed the reports about the last quarter but also showed a pretty grim picture overall. Credit is a trap and nearly every part of our society is caught in it. Check out the following charts:

US Household Debt

Chart showing US household debt 1948-2010 from "How Americans' Love Affair with Debt Has Grown", The Atlantic, Sept 2010

Corporate Debt Chart

Chart of corporate debt vs profits from theeconomiccollapseblog.com

US National Debt Chart

US National Debt held by the public from perotcharts.com

As you can see, this is a big problem. There is no way this pattern of spending more than we’re making in all levels of society is sustainable. If the overspending problem isn’t gotten under control, the credit trap is going to destroy us.

My post yesterday was about whether or not it’s important to protect your credit rating. The thing is, having good credit is NOT synonymous with going into debt. One can have and maintain good credit without going into debt. Unfortunately too many people succumb to temptations to borrow more than they can afford to pay off at the end of the month. Once you start doing that it’s a slippery slope to levels of debt it will be difficult to get out of in any short period of time. If you get to the point where your income is inadequate to cover your basic expenses and your debt repayment you’ve got a financial disaster.

Using credit can seem like a good idea at the time you’re doing it. It’s probably not a problem to incur a small amount of debt once in a while, but what we’ve got here is a nationwide problem of consistently and repeatedly spending more than we’re making.

Here’s a simple suggestion for anyone considering going into debt to purchase any product or service, other than real estate. Just ask yourself this question, “How would I buy this if I didn’t have any credit available?” Whenever I’ve asked myself a question like that I’ve come away with answers like, “I just wouldn’t buy it.” or “I’d save the money until I could pay cash.” Those are the best solutions.

How do you avoid the credit trap?

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