The Modern American Dilemma: Getting Out of Debt

Do you feel overburdened with debt? While you may find comfort in the fact that you are not alone in this dilemma, it’s also a sobering reality.

According to personal finance website ValuePenguin, the average American’s household debt is $5,700. For households that carry credit month to month, the addition of accruing interest rates can total up to $16,048.

Furthermore, a recent GoBankingRates survey revealed the following facts:

• Half of Americans have credit card debt; most owe less than $500
• A quarter of Americans still owe money on their student loans
• Almost a third of Americans have auto loan debt
• One in five Americans have medical debt
• Men have more debt than women
• Older Gen Xers are deeper in debt
• Gen Xers and Boomers are most likely to have a mortgage and credit card debt
• Young Gen Xers are most likely to have auto loan debts
• Millennials are most likely to have student loan debt
• Oldest and youngest adults are least likely to have medical debt

The student loan debt segment takes a significant share of this debt situation. Per the Federal Student Aid data, the combined total of all student loan debts in the Land of the Free has climbed to a staggering figure of $1.3 trillion, spread out among the country’s 42 million student loan borrowers. Federal data also show that even after decades of leaving school, some individuals are still paying their student loans.

The situation just got worse and worse since 2004. Student loan debt has surged for every age group and in 2015, individuals aged over 60 had a debt that is eight times the amount of student debt that people their age had 10 years prior.

Data released earlier this year revealed that collective credit card debt of Americans just went over the $2 trillion mark. This is amid skyrocketing home prices due to the continued scarcity in home inventory.

Existing market factors make it difficult for people to start saving for retirement. This is a major cause of anxiety for many, especially at the thought of not being able to break the shackles of employment.

Some saving tips

If you want to retake control of your finances and ensure a positive future for your family and for your golden days, it’s important that you’d be able to set your priorities straight.

Evaluate which part of your regular expenses you can do without. Even the most simple saving tactics such as buying clothes less often and preparing and bringing lunch to work can go a long way in helping you allocate more resources to other things that matter.

Here are some tips experts suggest would help you restructure your budget to give more room for savings.

• Save at least 10 to 20 percent of your income every day and allocate that for retirement
• Create a separate savings account for emergencies. This is one of the most common mistakes in savings. While some people do take out a portion of their income for “savings,” most of these are depleted when an emergency comes up. This leaves them without financial cushion and thus vulnerable to any financial disaster unless they save enough again should anything like that happens once more.
• If you can’t do this with your current income, then there’s a possibility that your debt-to-income ratio is too high. DTI ratios are what lenders look at when you apply for a loan. A high DTI is usually a red flag and would most likely cause the denial of your application.
• Explore high-return investments. While most of these ventures hold high risks, it’s a good bargain if you know what you are up against and know how to play the game. However, make sure you don’t put all your money in one basket. Diversify.
• Get insurance policies. Not only are these high-return investments, these financial products are great financial buffers for the unexpected.

These are just some of the generic tips that we all can agree on. However, an effective saving strategy always takes root from your own unique situation and in how much effort and discipline you put into it.

Make the choice and start the shift towards financial control.