Think for a moment if you lost your job tomorrow and unemployment wasn’t an option. Maybe your local union is about to go on strike, which means you’ll be hitting the picket lines and hoping that you can live without your income or, if you’re married, one less paycheck every two weeks.
These are far too realistic situations, and ones that most Americans aren’t prepared to handle when they take a long, hard look at their debt to income ratio, more specifically their income vs. what they pay out each month.
Take that shortcoming one step further and ask yourself this question: Do you have enough money saved to pay off your debt if the situation required you to do so?
Chances are, you don’t. Maybe you’ve been living beyond your means or have had one too many emergencies such as replacing a heating system in your home or having to buy braces for the kids, and that translated into racking up heaping helpings of credit card debt.
No matter the reason, you may be staring at $10,000 in credit card debt with one eye, while the other one fixates on only $5,000 in your savings account.
Simply put, something just doesn’t add up.
It almost seems that most consumers really don’t view debt as being much of a downside but rather collateral damage of day to day existence. Perhaps you’ll hear them utter phrases like “everyone has debt,” and just assume that debt is nothing more than business as usual.
Somewhere along the way, debt became commonplace and culturally accepted as the norm, but it really doesn’t have to be that way over the long haul. If using your credit cards means putting food on the table during lean times or paying to keep the electricity, it’s hard to argue that those purchases don’t qualify as emergencies.
That, however, based on job loss and a sluggish economy for so many years, it what makes up a sizable portion of debt in the United States. Men and women, moms and dads or anyone that has been faced with a lack of money due to a layoff or job loss opted to use credit cards as a means of survival, even if that still counts against us when it comes to amassing debt in this country.
In the end, both contribute to a problem that doesn’t show signs of waning any time soon.
The simplest solution is fully understanding that debt is directly related to budgeting and truly understanding how your spending is directly related to your income. Once you grasp the concept that you can’t spend money that you don’t have, as simple as that may sound, you’ll begin bridging the gap between your debt and how much of your money you actually have saved.