Personal Finances: How To Manage Debt With Better Control

Money is a means to an end. It facilitates the purchase of assets, and it is one of the most useful tools for providing for our family’s needs and wants. However, the pendulum also swings the other way. Rampant spending leads to excessive debt, and that is particularly hard on families. Money is not the source of all things good or bad – it is simply a medium of exchange that needs to be carefully managed to allow us to do what we need to get done. If we overspend, we land up in debt.

Carefully Managed Debt Is The Optimal Solution

If we can’t manage our debt effectively, we run the risk of destabilizing our family unit. According to various reports, household debt is on the rise. At first glance, this may appear to be extremely negative, but Moody’s Analytics believes that there is still plenty of room for more debt. In other words, responsible lending and borrowing is still an option for households. Equifax recently published US economic and credit trends, and they reveal interesting market research insights. There is room for credit expansion in the subprime credit market, and we are already seeing families taking on more debt in this area. Experts tend to agree that we’re nowhere near a bubble at this time, as cutbacks on subprime credit lending have been taking place.

The most daunting challenge for US households remains total consumer credit. This includes things like personal lines of credit, mortgages, unsecured credit, automobile loans and much more. By the start of Q4 2017, household credit reached $12.89 trillion. This is unbelievably high, but it should be pointed out that this level is over 18% less than the zenith of 2008 with the global financial crisis. The total US National Debt is $20.6 trillion. Household debt makes up almost 63% of that. Economists don’t want to sound the alarm bells just yet, which is a good thing. Panic and fear drives irrational decision-making and that does not bode well for households or markets. Presently, US household debt and household income are evenly matched.

How Does Fed Policy Drive The Debt Issue?

There are several proverbial flies in the ointment this year. For example, rising interest rates will play a big part in incrementally raising debt levels. Currently, the Federal Funds Rate (FFR) is 1.25% – 1.50%. There were multiple rate hikes in 2017, on the following dates: March 16, June 15, and December 14. Each time, the Federal Open Market Committee (FOMC) raised interest rates 0.25%. At the start of 2017, the FFR was 0.75% – 1.00%. By the end, it was up 0.75%. We can expect more of the same in 2018. The Fed is intent on maintaining a 2% inflation rate and stable employment. It will drive the economy in that direction with quantitative tightening in monetary policy.

Families need financial stability to prosper. Too many families are torn apart by poorly managed finances, leading to emotional, financial, and psychological despair. By forecasting what is likely to happen (higher interest rates) and how that will impact debt repayments, it’s possible to pave the way to a more successful future. There are many easy-to-implement debt controls. These include credit counseling, debt management, debt settlement, debt mitigation and debt consolidation. Families can control family debt by hitting it where it hurts most – high APR credit card debt.

Since discretionary spending on credit cards is a major problem, families may wish to try bold initiatives like debt consolidation. These loans are offered at a lower rate of interest than the credit card rate, and they allow all similar debts to be pooled together (consolidated) under one umbrella and then targeted. The cost savings can go towards repayment of the principal, leaving your family with more savings and heading towards debt free living!

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