Some people continue to put their heads in the sand when it comes to their debts. Denying debt, however, can lead to bankruptcy or even to a person's home being repossessed. The mountain of debt consumers in Western countries took on is a big part of what led to the current worldwide economic downturn in the first place. Giving credit to those who could not afford it, especially as was the case in many of the sub prime home loans given in the United States, created a knock on effect that caused the sub prime home loan market to collapse. Much of this debt was bought and sold internationally and, like a cancer or other debilitating disease, it spread to banks around the world, erasing trillions of dollars worth of paper wealth and affecting vast swathes of the world's population.
The use of credit cards and other forms of debt taken on by consumers, often to fund lifestyles that were not sustainable, created an unreal world in which valuable products and services could be easily obtained on credit. The party is over now, and it also left us with an economic hangover that will be felt around the world for years to come. This is the ruin we have created. To quote Peter Davidson of Bankrate.com: "The road to financial ruin is paved with plastic."
In fact, a study in the United Kingdom revealed that one out of every six people believe that they are not able to keep up their commitments to paying debt payments, with this figure moving up to one out of every three people in the survey when asked this question in relation to the near future. This means one in three people are seriously concerned with their current or near future financial situation, and this sort of attitude is becoming more endemic.
Darryl R. Schoon of the Market Oracle has this to say about debt:
"Debt, in capitalist systems, is a wondrous device. That is, until it can't be paid back. Under capitalism, credit fuels expansion but it does so at a cost. As capitalism expands, credit becomes debt and the greater the expansion, the greater the debt."Interest rates around the world have plummeted to their lowest levels in decades, making debt seem as if it could be manageable once again. Lest we forget, repossessions of homes are still happening at an alarming rate, and have increased even here in South Africa, one country that was supposed to be only residually affected by the economic downturn.
To quote a previous article I wrote on the Creating Wealth Blog, we need to rid ourselves of this debt culture. We need to live within our means and not spend beyond what we can afford and, if this means more people go to consultants to help them budget their debt, so be it. Debt counselors will do well in the coming years...
Pessimism about our current economic debacle is not a new thing, and I do not wish to sound too pessimistic. There is hope on the horizon if we choose to see it, but we must get our respective houses in order and deal with the debt that many of us built up over the long party prior the current serious economic downturn.
