Debt is never nice whatever age you are. That said some debt is positive. It is primarily that associated with a mortgage to buy real estate. A good investment will grow over time and over the full term of a mortgage the growth in value of the real estate should far outweigh the interest costs involved during the term. The recession of course was a few years when first of all values dropped alarmingly before stabilization. Many families simply could not manage the repayments. There were widespread foreclosures and not just amongst those who had become unemployed. Mortgage lenders were often as irresponsible as borrowers. The logic was that growth would more than cover the debt in the near future. During the recession it was no longer the case.
With consumer confidence rising and job creation developing month on month, things are returning to normal. The bad news is that so many people in the USA seem to think that debt is normal. Debt means serious trouble potentially, especially for those who are carrying it as they reach retirement age. It seems that all too many people are spending what they earn each month and not putting aside any significant amount of money for the future. For those of middle age and beyond, time is running out.
The recession hit many financial plans of course but unfortunately others seem to have no plan at all and think that the future will look after itself. The idea that the Social Security System will be the savior is naïve at best, plain stupid at worst. The benefits simply will not provide a comfortable retirement for those that have not made sufficient provisions elsewhere. In all likelihood benefits may drop rather than rise in future years.
Debt comes in many forms. The first piece of debt that many take out is a student loan which is often needed to finance college education. Such debt can be deferred until graduation but all too many people seem to struggle to pay off these no credit loans as there are plenty of demands on monthly pay checks. Some are leaving home for the first time other than for college terms. Suddenly there is the reality of paying for accommodation in a new city. Monthly expenditure to maintain a rental property includes utilities of course.
One of the most dangerous demands on the newly earned pay check is the payment to a credit card company under the terms and conditions of the card. That involves a minimum monthly payment as a small percentage of the overall balance. The minimum payment required largely pays the high rate of interest applied on the balance which as a result really reduces very little.
Everyone should investigate a personal loan to pay off their balances; it is much cheaper!
Some people used to juggle their credit card debt by taking a 0% balance transfer deal with a new card. Prior to the recession companies were aggressively marketing their cards to get a larger share of the consumer market. Companies and consumers learnt a painful lesson and credit became tighter as a result. There are more and more options coming back on to the market yet cards are fraught with danger if they are used irresponsibly. Statistics in the USA where there is $900 billion of consumer credit card debt suggests a fair amount of consumer irresponsibility.
As if that was not worrying enough there is around 30% of the population over the age of 55 without any retirement savings. The Social Security System as mentioned above simply cannot cope with the benefit demands being placed upon it. Those without savings who own real estate may be able to raise money by selling the asset and banking the proceeds. They will then need to rent unless they are decide to buy something smaller for cash and just bank the balance.
Age Is a Factor
The seriousness of debt then depends partly on age. Those in their 20s have time on their side if they resist the temptation of spending to impress. If they cannot afford it then the latest fashions and a new car should be pushed to the back of their minds. At some point everyone needs to apply self-discipline. In middle age someone owing a similar level of debt as a proportion of their income is under more pressure. They should prepare a budget immediately and take appropriate action to cut back on expenditure if there is no avenue to increasing income. Beyond middle age things become critical. With limited time before retirement those in debt have few options and may well face serious problems once the regular pay check no longer goes into the bank each month. Debt is potentially crippling, certainly stressful and something that should be avoided if at all possible. Financial management should be the first lesson people learn In school; but it isn’t!