Maybe it is because basic things required for living costs more these days. Food, healthcare, utilities and clothing have all seen a rise in prices. Maybe it is because we simply haven’t learned from the last economic crash. While home prices are slowly rising, so are sales of the latest electronic gadgets that sell out hours or days after being released. At the same time, U.S. income has fallen overall by 1.5 percent. Whatever it is, a need study has confirmed what may be surprising to some: household debt has seen the largest rise since 2008.
How much household debt is actually out there? Try more than $13 trillion by some estimates. Add in an additional $2 trillion and you have the total economic output of the country, according to data from the Federal Reserve. This means that we are close to having as much money debt as the money that we make in a year. Scary, isn’t it?
Some analysts say that higher debt levels are good because they show that people are spending money and the economy is growing. That can be relative. After all, my household is not increasing the amount we buy, but spending more on the same things. Anyone who has scratched their heads over the fact that their groceries cost more can relate. Even these analysts admit that eventually the consumption will stop, when we run out of credit.
While it is hard not to stop reading because it all seems like gloom and doom, it is important to realize that there are positive changes that we can make to keep ourselves out of debt. Some may be small, such as bringing lunch to work instead of eating out, while others may take bigger decisions and life changes, such as downsizing to a more affordable home. Whatever the steps that must be taken, the key is that word “must.” There may be less wiggle room now with debt, meaning that debt may be increasing harder to eliminate. This means that the best strategy is to get out of it as quickly as possible, or at the very least, stop adding to your existing household debt.
There are really only two ways to decrease your debt: Spend less and earn more. The best strategy for debt elimination is a combination of the two. Figure out how to live at or below your means and generate additional income to start paying down what you owe. In the event that things get worse, that prices on basic needs continue to increase, it will be those with enough cash flow to purchase them who will come out ahead.