Home » The Facts Don’t Lie – We’re Addicted To Debt

The Facts Don’t Lie – We’re Addicted To Debt

by Chris Poindexter

The first step to dealing with a problem is admitting you have one and, for America, it’s time we collectively faced up to our addiction to debt. For a brief time during the near-collapse of the economy it looked like we the people were finally catching on that unsecured debt, like credit cards, is a game for suckers. During the recession Americans “deleveraged” in the parlance of the modern economy but, like any other junkie, that short stint of financial sobriety was followed by another borrowing binge.


As of June of 2014 outstanding revolving credit card debt topped $873.1 billion, a staggering amount of unsecured debt and that’s up from $861 billion in Q1. Americans are, by every measure, burning up the plastic.


The average American family is now toting around over $15,000 in credit card debt. Add that to average mortgage debt of $156,000 and student loan debt of $33,000 and our typical countryman is in hock an eye-popping $204,000 dollars –one-fifth of a million dollars. How are people managing under such a crushing weight of debt? It appears they’re doing it by stretching the payments out over a longer period of time as evidenced by the amount of debt service people in the U.S. are paying relative to their income, a figure that’s near an all time low.



I believe that nearly everyone in debt has a “we’ve got to get a grip on this” moment every time they look at their balance, just like an alcoholic that vows to change the morning after a rough night out. The determination lasts for a day or two before old habits reassert themselves and out comes the plastic. But if you finally do come to the day when you really do want to change, then follow a plan that’s more likely to lead to success.

Don’t Panic, Plan Carefully

You didn’t get into debt overnight so don’t expect to dig your way out overnight. The cure for the debt depression you feel is developing a plan to payoff your bills. It’s going to be a long slog, so you might as well settle in and draft up a payoff plan. It doesn’t have to be particularly detailed or very long. Just list out your debts from the highest interest rate to the lowest along with the minimum payment for each one. My wife and I paid off $163,500 in debt in less than three years and we started with about $2,500 in savings. You can do this.

First Have An Emergency Fund

Dave Ramsey says start with a $1,000, my figure is $3,000, which is usually enough to cover emergencies like a roof repair or replacing a central A/C unit on your house. Without an emergency fund your journey to the land of debt freedom is likely to be a short one as your debt increases to meet some unexpected expense.

Attack The Highest Interest Rate Debt First

Some people suggest paying off the lowest balance first, but paying off the highest interest rate first is a double bonus. You’ll trim the principle on the highest interest rate debt and the savings compound. Then take the extra money from the first payoff and attack the second debt on the list. That process is called the “debt snowball” and it is one of the most powerful tools out there for getting out of debt.

Carefully Consider Refinancing

I’m not a big fan of refinancing because what tends to happen is people refinance to pay off credit card debt only to start using the cards again! So only consider this if you’ve been on the debt paydown wagon for at least a year. Prosper and Lending Club are peer-to-peer lending services where loans are financed by small contributions from a wide variety of lenders and the rates are usually better than a bank loan.

Paying debts off over a longer period of time does not help borrowers or the broader economy. We face two equally bad options as a nation: We can either keep going with the borrowing and keep running up a huge tab, or we can bite the bullet and pay down our debts, which will hurt the broader economy in the near term. Getting out of debt was the smartest financial move my wife and I ever made. If the economy took a little hit because we stopped spending lavishly, that’s too bad. Do what’s right for you and let the economy take care of itself.


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