In her report “Consumer Indebtedness and the Withering of the American Dream,” Teresa Sullivan, Provost and Executive Vice President for Academic Affairs at the University of Michigan, notes that from 2000 through 2008, consumer credit had grown by more than $1 trillion. Furthermore, Index Credit Cards reports that as of July 20, 2009, the average American household carried a credit card debt of $7,861.
Create a Plan to Pay off Bills and Expenses Early
When revolving debt like credit cards is combined with non-revolving debt like mortgage and car loan payments, utilities, telephone expenses and grocery bills, it is easy to see how a person or family could dig a hole of debt that would quickly eat away at their disposable income. Across the country, there are families that struggle to pay their bills even with both adults working. Let someone in that family be laid off and the situation can become dire within weeks.
A mindset change in regards to debt is a first step toward getting out of the arrears. To do this, adults should make purchase decisions based on their total net wages and not their gross income. For example, a person who has a disposable income (gross wages minus income taxes) of $60,000 a year should deduct all retirement investment, insurance and healthcare benefit contributions, revolving and other non-revolving debt from the $60,000 and set that bottom number as the amount of money they have to make new purchases against.