Debt Free

According to the Federal Trade Commission (FTC), “if you use credit cards, owe money on a personal loan, or are making payments on a home mortgage, you are a ‘debtor’”. The U.S. national debt is over nine trillion dollars as of the end of 2007. The National Debt continues to increase at an average rate of $1.59 billion per day. Debt is out of control in this country. If you are having trouble keeping up with your debt, you are not alone. You should consider debt management or the services of a financial advisor if you would like to be debt free.

According to a paper published on the U.S. Federal Reserve website for the Finance and Economics Discussion Series (FEDS) in the Reserve Bank of Australia Conference of 2007, there have been several substantial economic changes in the United States the past few decades. The paper notes that the savings rate for U.S. households has fallen from an average of slightly over 9% in the 1980s to an average of under 2% at present time. At the same time, the ratio of total household debt to cumulative personal income rose from 0.6 to 1.0. The paper demonstrates the connection between household debt and household saving. Household debt has increased in recent years due to mortgage debt accumulation.

The study focused on the factors that might explain the rise in household debt by looking at simple models of household behavior as a guide. They also factored in possible contributing factors like interest rates, changes in trends, and household expected incomes. They concluded that a shift in demographics is partly to blame for the surge in debt. The rapid increase of home prices from 2001 to 2006 also contributed to the spike in household debt. The leniency of creditors, banks, and lending institutions had a major effect on household debt, not for granting more loans to individuals, but more because of the increase in the amount a borrower could be permitted to borrow.

Some results noted on the paper include:

• Research by the U.S. National Income and Product Accounts, demonstrates that the annual average rate of personal savings in the U.S. has dropped, from a high of nearly 12% in 1982 to less than 2% at present.
  
  
• The U.S. Flow of Funds Accounts and National Income and Product Accounts, demonstrated that during the same period, the ratio of household debt increased from below 6% in 1982 to nearly 12% at present.
  
  
• The U.S. Flow of Funds Accounts and the Office of Federal Housing Enterprise Oversight (OFHEO) also concluded that home mortgage debt has increased from just over one trillion in 1982 to almost ten trillion at present.