There have been so many fluctuations in the global economic markets and some of these things have caught people totally unawares and unprepared resulting in huge losses and bankruptcy for many people. Some of the things which was seem was lower interest rates which provided many options as far as personal loans were concerned but there was also many problems in the property market and in only three years over 4 million houses has been lost because of foreclosure. It is unfortunately also so that the cost of living is increasing on a daily basis and this is forcing many US citizens to borrow money on a scale that was never seen before resulting in significantly higher levels of consumer debt than any other time in history. The fact remains that the whole debt situation in the US is having a negative impact upon the quality of living in this country and everyone knows the national debt is standing at over $19 trillion which is making the US the largest debtor nation on the face of the planet.

Basic economic rules

There are many aspects to consider in relation to rising debt in the US and a person will have to know at least something about the rules that govern the economy. Some of the things which has to be considered is what happens when an individual consumer purchase a product or service. When this happens it is understood that the money which has been spent will not be contained to that one particular store. Speaking to an economic expert you will quickly learn that as much as 70% of the US GDP is a direct result of consumer spending. When looking at the greater picture it can then be quickly seen that even the relatively small changes in the way in which people spend money can have a very large influence on the economy because there are millions that contribute. This will probably be easier to understand when looking at the situation where someone is buying a motor vehicle and in most cases such a buyer will have no other option but to substantially increase their current debt because they will need to borrow the purchase amount of that vehicle. Once again the flow of money doesn’t stop at the vehicle dealership but many different parties will receive a cut of the money such as the sales person, the dealership where they are employed will have to replace that vehicle with a new one from the manufacturer. Wages at the manufacturer will have to be paid and new parts will have to be purchased and so the cycle continues.

Different forms of personal debt

The most frequently encountered forms of consumer debt is payday loans, consumer finance, credit card debt and other similar things which is obtained at very high interest rates compared to the typical long-term secured loans and things such as mortgages. Lenders pay a lot of attention to the amount of debt which is outstanding and they compare that to the consumer’s disposable income and this is then known as the consumer leverage ratio. When determining interest rates which will be charged a whole range of factors is considered such as the current economic climate as well is the estimated ability of the consumer to repay that debt. Other factors will be the competition from other lending institutions and how much security does the product which is purchased provide to such a lending institution. Economists is in total agreement that excellent financial management requires the debtor to have an effective debt repayment plan which will ensure that the debt which has been incurred will be settled as quickly as possible so that the consumer will be better prepared to deal with future financial pressures. Personal debt should never be a way of life but rather the objective of every consumer should be to be debt free.

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