The Federal Reserve was quite confident of US economic recovery in the beginning of 2010. But now it is worried as in the first quarter of 2010, US national debt has reached $13 trillion. On the other side unemployment, increasing medical costs, marital separations, salary cutbacks and increasing education costs have led to an increase in consumer/personal debt. Millions of people are in need of debt help in 2010. This is certainly not a positive sign for the US financial market. US economy indeed requires a reduction in personal and government debt as soon as possible.
The Lowdown on Personal Debt.
According to the latest report released by the Federal Reserve, average Americans owe more on student loans than on credit cards. As per the report, Americans have incurred $829 billion student loan debt whereas the credit card debt is around $826 billion. This fact is not entirely surprising as the cost of higher education has increased manifold. Generally, student debts are regarded as a sensible investment as compared to credit cards in an individual’s life. The reason is, one can use student loans for ensuring a better future. But what most people tend to forget is that accumulated student loans can adversely affect them when they enter professional life after college. Sometimes, they’re even not aware of the amount of debt they have incurred.
Several unemployed youths have been compelled to complete post-graduate education. Most of the students take huge amount of loans thinking that they would pay it back after getting a job. But the worse part is, it doesn’t happen always. An increasing number of students are in need of debt help in USA. A good plan will be leading a frugal life, taking advantage of student financial aid programs and applying for scholarships.
As far as mortgages are concerned, an increasing number of people have failed to qualify for refinancing and loan modifications in 2010. As a result, around 300,000 homeowners have lost their houses to foreclosure. Although the Government has taken initiatives to control the situation, but things are not always working the way it should be. However, it’s not just the Government who needs to take some action in this scenario. Homeowners too must plan a good strategy such as taking out the right loan and making timely payments on it so they can avoid a mortgage default.
However, not all debts are bad. In fact, you can utilize as an investment and get better returns in future. Debts like student loans and mortgages are not bad as long as these are managed effectively with the help of a strategic plan. As far as credit cards are concerned, keeping a low credit-utilization-ratio (below 30%), making minimum monthly payments on time, and managing low interest cards effectively can help a person avoid debt problems.
The big issue is the shrewd mentality of taking on debt to eventually pay back in installments without proper financial planning. What happens now when borrowers don't have the support of a stable economy? Well, they take on more debt to pay the debt that they previously acquired. The cycle is all about stalling time, and when government intervenes to encourage lending to the masses who have this mentality, it goes to show that the problem is not only consumer based, but is sourced at the federal level.
Government Debt.
With the US national debt going up to 13 trillion dollars, publicly held national debt has reached around $8.5 trillion. Publicly held national debt is around $8.5 trillion. According to financial experts, the total federal debt is likely to reach 87% of USA’s GDP by 2020 and exceed 100% of GDP by 2025.Supplying the Debt.
As part of the ongoing cycle, the Federal Reserve has decided to purchase government debts. The Federal Reserve will use their earnings from investment in mortgage bonds to buy the debts. It will utilize around $10 billion each month to purchase government debt. It is expected that this step will help shift the interest of bankers towards lending; thus supplying the debt that’s in such high demand. Apart from this, the government has sanctioned a $26 billion Bill in August, 2010 to guard 300,000 teachers, police and other employees from layoffs. These actions are likely to help the US economy grow faster, or just stall some time.
-Rose Anderson.
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