Introduction
Like the majority of Americans, my debt level is not good. My credit worthiness is only acceptable because of my consistent payment of monthly bills. However, when doing a solid debt analysis and comparing it with my credit character, I am not a good risk for most lenders.
Debt Analysis
My debts fall into three categories. The largest category is my credit card debt. It is not secured by any asset. And, as I have not used my credit cards wisely, for the most part, they have not financed any assets. Like most people, my revolving debt is not used to further my net worth (Kukk). They have financed meals and baseball tickets and clothing, but nothing that could be liquidated if the need arose. The one exception to that, is that a
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small part of my revolving debt was used to purchase collectables. Those collectables, mostly older comic books, have value which could be liquidated. They are not a wise asset to purchase with debt, as they do not increase in value near the same rate of interest that is being paid. And, they are only a small percentage of the debt which I am still making payments on. The second type of debt is my car loan. It is secured by the vehicle itself. The vehicle is a constantly depreciating asset. Unfortunately, since the value of the asset goes down while the amount of debt goes down, the vehicle is not really an asset either. It can be liquidated, but it cannot be liquidated for the remaining value of the loan. For both the car and the credit card debts, the cost is much greater than the value of the items purchased. The final type of debt that I have is my house. This debt is an asset that is of value. My house has grown in value since I purchased it, while the principle amount is steadily decreasing. Currently, the total cost of the house is less than the current value of the house. The risk of being in debt, is that there is a limit to how much debt you can have. I have probably become a default risk for the bank, so any future borrowing that I do would come at a cost higher than I am willing to pay. In addition, the risk of being in debt, is that a financial emergency could easily lead to bankruptcy as I have little maneuverability. Studies have shown that people feel that they are wealthier when their debt is lower (Sussman). However, using debt to build wealth shows that this is not necessarily true. My house is an example of how I can use debt to build wealth. I used financing to purchase a valuable asset. Every month that I am making a mortgage payment, I am building equity, and increasing my net worth. As the value of my home has increased above the total financed cost of the loan, if I were to sell the asset, I would have increased my net worth (Laurie). Default Risk Character – I am financially stable with long term employment, long term residence, and an impeccable record of making payments on my debts. I have had two employers for the last twenty-five years. I have lived in the same home for the last four years. And I don’t have any 30, 60, or 90-day notes on my credit history. Capacity – This is where I become a default risk. Currently, my debt to income ratio is much higher than any lender would like to see. It is venturing to the point where predatory lenders would be my only option for increased financing. Capital – I do not have any capital built up to secure a loan with. I have limited savings and a minuscule amount of stock that could be counted as capital. It is not enough to use as collateral to secure a loan. Collateral – Unless I am refinancing my home, I do not have much in the way of collateral that a lender would like to see. My car is not worth the current amount of my vehicle loan, so it is no use as collateral. The house would be the only asset of value. Conditions – Interest rates are slightly increasing, which could cause the lenders to offer slightly higher interest rates to compensate. The job market is increasing wage amounts are currently increasing, lending credibility to my ability to stay employed and to continue to earn wages. In order to make myself for credit worthy, I need to decrease the amount that I have financed, and I have to start building assets instead of spending on frivolities.
Tim Clue
Tim Clue is funny because he takes the real feeling of being crushed by debt and takes it to the absurd place of ignoring the debt. He focuses on soul crushing debt without consequences.
It isn’t funny, because it is a real dilemma in this country of people who are being utterly crushed by their debt. And that dilemma has led to a rise in predatory lending practices.
The appropriate use of debt, is that unless it is building wealth, there is none. Tim Clue focuses on using debt to live a life of want and make the kids pay for it. This isn’t just an issue of debt, but it highlights the larger social issues facing this nation as well.
Conclusion
When looking at my current debt levels and the categories of characterization, I am most likely a default risk. My credit history is great, but I am reaching the cap of what can be lent to me (Siegel). My character is good. And the Conditions are good. However, Capacity, Collateral, and Capital are not in my favor. I need to work on building assets while simultaneously reducing my overall
debt. References Kukk, M. (2017). How does household debt affect financial asset holdings? evidence from euro area countries. Studies in Economics and Finance, 34(2), 194. Laurie. (2016, Feb 29). You’re Not Just paying Off Debt, You’re Building Wealth. The Frugal Farmer. Retrieved from http://www.thefrugalfarmer.net/youre-not-just-paying-off-debt-youre-building-wealth/ Focus Economics (2018, Mar 27). https://www.focus-economics.com/countries/united-states Siegel, R. & Yacht, C. (2010, Jan). Other People’s Money: An Introduction to Debt. Personal Finance. Retrieved from http://www.web-books.com/eLibrary/NC/B0/B65/39MB65.html Sussman, A., & Shafir, E. (2011). On assets and debt in the psychology of perceived wealth. Advances in Consumer Research, 39, 46.
Suddenly I found myself in serious debt from missing work, doctor?s office visits, and paying outrageous prescription costs. I am still paying off medical bills for lab work, and other tests and emergency room visits.
Debt is heavy. It sits on your shoulders and weighs you down. Debt is also addictive. It 's easy to throw something on credit when you don 't actually have the money to buy it. It gives you instant gratification, and that can feel good - in the moment. But, for many people, there comes a point where they can 't use their credit anymore and debt is all they are left with. The stress of having to pay it all off can take its toll on your happiness and health, so you must come up with a way to get out of debt and start living a debt free life. Following are two things that will help you get out of debt once and for all.
At some point in life, I will need to buy a car, house, or other commodity. There also is a large possibility that I will have a credit card in the near future. Knowing and learning more about this “debt trap” that other Americans are falling into, can help prevent me from making the same mistakes. Also, knowing about this problem can help us as a society be more understanding to people who are lower class. People could be victims of some of these traps and without knowing how someone got to the social status they are, we cannot make assumptions and put the blame all onto them.
Many people would agree that our country’s young adults have and continue to incur a lifetime of debt by enrolling in college. It’s become an almost acceptable understanding that if you plan to attend college, you might as well expect to graduate with an enormous amount of debt. Robin Wilson, a reporter for the “Chronicle of Higher Education,” and author of “A Lifetime of Student Debt? Not Likely” suggests student loans are very real and can be life altering.
As of today America’s national debt is 18 trillion dollars and approximately 5 trillion of that is held by foreign countries including China and Japan. In the last few years we seem to hear more about balancing the country’s budget and politicians raising the debt ceiling so we can pay on this debt. How have we gotten into such an overwhelming and complicated problem with our nation’s money? Ironically the same can be said for our individual household debt as well as making the same mistakes and trying to find creative ways to be accountable to our financial responsibilities. Teaching the basics of personal finance n our schools can culturally change our financial practices, leading to a more financially literate public and a stronger, more stable, America. If the younger generations can become more financially savvy, then there is an opportunity for our nation as a whole to become less dependent on debt to survive.
When coming to college your whole money situation changes, suddenly you're bombarded with housing costs and student loans that you have to pay back or you will spiral into debt. Your whole life changes you don't have your parents paying for your voluptuous wants and needs, you’re on your own. The move from high school understudy to college undergrad is a standout amongst the most upsetting and essential times in an adolescent's life. Not only is your day to day life going to change but your spending habits have to change. The school years are a period where a high school student leaves their support team behind,
Generation Debt by Anya Kamenetz discusses how people in my generation and below are born into debt. Kamenetz is a yale graduate who is having trouble finding a job after graduation. She mentions that “debt is inevitable” in our generation with college prices raising. She made her way through by her parent’s rules of spending no more than you earn and paying off the one credit card she owns. She also elaborates on the stigma that comes with being a young adult. How our generation is branded “immature” and “lazy” without a second look at our actual personalities. Also taking the time to point out that we work hard to get by and try to make ends meet without drowning in our inevitable debt.
In an article written by Andrew Lehren, the author provides the bold statement that “the only thing worse than graduating with lots of debt is not going to college at all” (Lehren). In today 's society, many families lack the funds to provide a full ride for their children in terms of college. Due to this fact, many people turn to alternate solutions such as loans or diving straight into the workforce instead of attending college at all. These solutions, however, may greatly affect a person throughout the course of their life. The problem of college debt is increasing rates in regards to tuition, however, fortunately there are various solutions accessible in order to decrease or eliminate the debt that many american students face.
Williams, Jeffrey J. "Debt Education: Bad for the Young, Bad for America | Dissent Magazine." Dissent Magazine. Http://www.dissentmagazine.org/, 2006. Web. 10 Dec. 2013. .
So, perhaps the problem with this ongoing issue is not merely what happens to those who have paid their loans for years or its effects on tax payers, but giving hope and life back to those who are lost in debts, those who cannot afford to have a simple basic life, those who have lost their career dreams because of some accumulated loan they have to repay and for fear of loan repayment.
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