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Maybe We Never Learn: Consumer Debt Grows!

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According to Business Insider, consumer credit balances rose by $26 billion in July. Yes, that is Billion! This was almost $9 billion more than economists expected. So, what does this actually mean? Well, apparently we haven’t learned our lesson; we continue to borrow and rack up consumer debt.

When the recession was in full swing, we started tightening our belts as a nation. Our consumer credit balances fell and they were doing that consistently. The reason for this was the insecurity everyone felt about their jobs and their money. Savings rates slowly increased and it looked like people might have finally realized the error of our ways. Nope!

Short-term Memory Loss

 

The infamous Great Recession only took place in 2009 with regards to meeting the definition of a recession. Either way, that was only five years ago and it appears we may have forgotten the financial chaos. I remember how scary it was back then for many people, but it appears we have slowly forgotten this.

When we hear the “economic recovery” is doing better, it appears we start spending again. Yes, it is good when we spend as that is a big driver of the economy. The biggest issue is we aren’t spending the money we have worked for, but borrowing money from our futures to fund the present. That is just setting us up for more problems down the road.

It amazes me that in such a short amount of time, we have switched from saving our money and reducing our consumer debt to spending it and borrowing more to buy more. When things are bad we save, but when things look better, we spend. That does make sense, but why are we back to our old ways of borrowing so much?

Consumer Debt Stifles

 

As a person who battled with consumer debt, I can tell you it stifles you. It disables your ability to do constructive things with your money. For example, I was able to grow my net worth by $140,000 in just two years after I paid off my consumer debt. No, I don’t make that much per year, but I do understand how to find assets which enable my money to make more money.

When my main focus was paying down my debt, that is where my money went. I funneled all my extra cash into credit card debt in an effort to break the chains. Once I did, I realized my options were limitless.

I could do what I wanted with my money and learn how to make more of it. I don’t plan on heading back into the consumer debt jail where I was a prisoner of my own actions. I have seen that the grass is greener on the other side and I like it.

Make a Change and Stick with It

 

As someone who tries to help others in debt, this news of increasing consumer debt irritates me. It seems so many have forgotten where we were just a few years ago. People were losing jobs left and right. Our financial security was lacking and we vowed to make a change.

Unfortunately, it appears not everyone was ready for that change. I have used my credit cards, ever since I paid them off, but I use them differently; now I always pay them off at the end of the month.

If you want to get out of debt and stay out of it, the requirement is sticking with a plan and making a change. You can’t change for just a year or two. You have to stick with it for life. This is not a diet, this is a lifestyle change.

If you want to get ahead, then switch your money mindset and change because you want to. Change because you need to. Every financial change is going to be hard, especially if you have been going in the wrong direction. It takes a lot of determination and discipline, but changes are possible. If you’re tempted to rack up debt buying things or experiences you can’t afford today, don’t get sucked into the hype that we need to spend more to help the economy. Don’t rob from your future to fund your present. Delay your gratification. I promise it is worth it.

 

What do you think of this news of increased consumer debt? Have you dug yourself out of consumer debt? If so, how did you do it? Why do you think our memory is so short when it comes to things like saving and spending?

 

 

Photo courtesy of: reynermedia

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Grayson is the owner of Debt Roundup and Empowered Shopper. He also co-owns Sprout Wealth and Eyes on the Dollar. After going to battle and winning against consumer debt, he decided it was time to learn how to use credit wisely and grow his wealth. He discusses all things personal finance and is not afraid of being controversial. He also is a freelance writer and blog manager.

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18 Comments

  • Kirsten says:

    The news doesn’t really surprise me at all. I’m not sure if we will learn as a nation – too many people watching too much trash TV, trying to keep up with the Real Housewives or the Kardashians – yet making way less.

  • Taylor Lee says:

    I think it’s a reflection of “consumer confidence”, i.e. people’s willingness and ability to spend on credit. A proxy on general employment and to our feelings about “the economy”. Which is not 100% a bad thing if on average people maintain manageable debt levels.

  • Oh dear, this really scares me, Grayson. It seems we are living again in a state of denial. 🙁 I don’t think it’ll be long before we see another major crash, honestly. And that will not be good for an economy with rising consumer debt.

  • Robin says:

    26 billion…These people clearly are not reading up on personal finance!

  • I’ve often been baffled by this phenomenon of how people not only spend ALL they make, but with debt they spend MORE THAN ALL they make. Like you said, it’s borrowing from our future earnings in order to consume today. I know there’s lots of financial illiteracy all around, but this seems to me to be basic MATH illiteracy!

  • Old habits are hard to break. I see it happen all the time with clients. They do great for a period of time and then start slipping back into their old ways. Without accountability or someone to check you on it, it’s hard to stay on track with your financial goals.

  • The more I think about it, the more I’m realizing we seem to suck at long-term thinking- with debt, money, health, etc. It’s all the short-term focus that gets us into trouble.

  • “If you want to get out of debt and stay out of it, the requirement is sticking with a plan and making a change.” — This is excellent advice. I think a major problem with change is the lack of commitment and / or a solid plan. With both, you’re set. Without one, you’re in big trouble. And personally, I don’t use credit cards because of my propensity to shop 🙂

  • Kim says:

    I’m not surprised at all. I have family who really struggled during the recession, seemed to change their ways, and now are back to paycheck to paycheck. I’m not sure what it takes to make it stick.

  • Unfortunately not surprised by those stats as I see it happening with people around me. I got off the debt treadmill and as you said, it’s about how we think of it. I want no part of debt again, save for a mortgage if absolutely necessary. Others actually don’t mind huge piles of debt, or rather try to shove it out of their mind and pretend that life’s fine…I just can’t do that given what I now know.

  • If I look back on my own history with money management, I see the same pattern. A really tough financial time would be followed by more solid finances – and my spending would increase – along with my debt. It took a prolonged period of financial stress to get me started on the right track. Perhaps everyone has a different breaking point for the “Aha!” moment that changes them. Some get it right away. Others have to have it knocked into their heads. I do find comfort in knowing that although stats indicate that people, on average, are getting into more consumer debt, I’m not. And if there’s hope for me, there’s hope for everyone out there who is making the stats what they are.

  • It’s so much easier to swipe the card when the consequences aren’t immediate. If the credit card company were standing right there asking “How are you going to pay us back?” People would probably be a little more choosy on how they spend their money.

    Not saying I advocate that 🙂 Just an interesting thought on our uncanny ability to capitalize on delayed consequences but not on delayed gratification.

  • dojo says:

    Well, we never learn, that’s for sure.
    For all the efforts we make, the media makes its own efforts to make us want more and ‘need’ more. Most people are still being influenced by what they see on the TV and still want to keep up with the Joneses.

  • That news also irritates me a bit. I don’t understand why we need to keep buying stuff on credit. It feels so rewarding to save up and being able to pay for things you want cash – or use the credit card to get points and pay it off at the end of the month. The only thing we can do is continue to educate our family and friends and hopefully we’ll be able to change somebody’s life one day.

  • I’m not that surprised. It does seem like we have short term memory. Perhaps we are an optimistic bunch, but I’d rather error on the cautious side.

  • I think it’s a culture thing here in the U.S. Most people think that is normal to have a car note or you are successful if you have a credit card. It’s amazing how much I am saving after I sold my new car and no car note. Even now my friends wonder why I made financial changes.

  • I’m not surprised that consumer debt has risen in the USA. We are all trying to live the style life we once did before income inequality became overwhelming. Sadly, we will not, in our lifetimes, see that kind of a positive economy again.

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