The Consumer Debt Trap, Part 1

How Good People Get Caught in the Debt Web

Bankrupt Businessman
“Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.”
-Ogden Nash, American poet

If you are staggering under the weight of Consumer Debt, join the club.

According to a May 13 article in Investopedia entitled “Stop Keeping Up With The Joneses – They’re Broke”, over 43% OF Americans spend more than they make. One financial journalist estimated that there are more than two million Americans carrying a credit card balance of more than $20,000. Most people making minimum payments (without taking on more debt) won’t pay off their cards for 24 years.

There are some common reasons for this:

Debt is viewed as normal part of American living.Everybody’s doing it!
We want what we don’t have. We covet what others have. We don’t prepare for emergencies. And ‘delayed gratification’ is not part of our cultural vocabulary.

It starts with a series of small and seemingly manageable compromises. Dinner with friends? Just charge it. Car needs fixing? Flash the plastic. Had your eye on a new flat screen TV? With low monthly rates, it can be yours today.

All of these decisions might seem reasonable at the time. However, the accumulation of these smaller debts adds up to a large and ungainly debt. Before we know it, we have monthly payments we can’t get rid of.

We fall into The Debt Trap by accident. We really didn’t mean to!

In the beginning, our intention may have been to utilize debt as a cash-flow management tool, which can be a smart strategy. But now, the tool is using us. What started as “responsible management of credit” or even an effort to establish or raise our credit score spirals out of control.

We felt like we could handle those “low monthly payments.” But debts accumulate, incomes change, inflation raises our cost of living, and too late, we realize we are trapped in the debt quicksand.
When attempts to pay off a debt in increments over years – or decades – are unsuccessful, then it might be time to explore some new options.

We’re too embarrassed to deal with our debt. So we don’t.

It is natural to avoid issues that make us uncomfortable or trigger feelings of being overwhelmed. A key element in reducing financial stress is to examine how you handle emotional, mental or physical stress. Once self-care and stress reduction become a priority, then financial issues won’t feel as overwhelming.

We grow accustomed to being in debt. And too paralyzed – or complacent – to get out.

If you carry an extra $1k a month in consumer debt payments, it becomes ‘normal’ over time. It is neither normal nor desirable! People can become accustomed to most situations over time, even intolerable ones. Never lose sight of the fact that there are always choices.

Debt: Easy Come, Not-So-Easy Go

Getting into debt can be the result of bad spending habits, emergencies or even intentional financial strategies. How we get into debt can affect how we get OUT of debt – and how quickly. Here are the two most common scenarios:

Habitual debtors. Habitual debtors have trained themselves to see credit cards and monthly payments as a regular part of life. They might be living modestly or appear to be keeping up with the Joneses. In either case, debt is seen as a necessity for making ends meet. Even if they live a humble existence, they are still not living within their means.

The solution may be simple, but it’s not necessarily easy. To break out of the Debt Trap, income must increase and expenses must decrease, but a change is essential. People who continue to spend more than they make can count on three sure things: death, taxes and never-ending debt.

Emergency debtors. These people live more or less within their means. Their credit cards are for emergencies only, but there is no plan in place to save for emergencies. Unexpected situations such as unemployment, divorce or a dire medical emergency can cause debt to accrue at an alarming rate.

Once the emergency has been resolved, it is possible for emergency debtors to get back on track through methods such as liquidating assets, increasing income or declaring bankruptcy. However, if the situation doesn’t have a ready resolution (i.e. child support payments or a disability), the debt may be ongoing. If there is no readily apparent way to reclaim financial balance, then emergency debtors can turn into habitual debtors as they try to make ends meet.

So you got caught in the consumer Debt Trap. What Now?

The Truth about getting OUT of debt – permanently.

One of the dirty secrets of the “debt help industry” (even certain kinds of bankruptcies), is that many programs designed to help consumers fail to do what they promised, or even leave them worse off than before!

Nevertheless, there is hope.

In part two of Trapped In Debt, we explore what’s working and give you essential steps to break out of the consumer Debt Trap – and stay out!

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