Americans now owe more than $1 trillion in credit card debt, estimates from the New York Fed’s Center for Microeconomic data based on Equifax data reveal. While credit card debt is not the only type of debt and constitute only about 6.5 percent of total household debt (as at December 2023), credit card debt accumulation is a useful macroeconomic statistics to gauge the financial well-being of Americans. When families come under financial pressure to meet the expenses of their households such as buying groceries, paying utilities, maintaining and repairing their cars, they utilize credit cards whenever they are unable to pay those expenses out of pocket.
The question on the minds of many Americans who worry about accumulating too much debt is, what can they do to reduce debt? The fact that you are reading this article means, you may be one of those struggling to keep your debt under control.
At the macro level, when the government spends more than it collects in revenue, it is said to have run a budget deficit. We can apply the same logic to debt accumulation at the household level. When the household spends more than it earns through wages, and other sources of income, it accumulates debt. If that’s the case, then the solution to reducing debt is simple: reduce or keep your expenses from rising, or make more money.
While the rule for controlling debt appears simple, following it is no small task. Few Americans have the discipline to follow through with their spending plans. It is often said that human wants are “insatiable”. Almost everyone would like to spend more if they have unlimited resources. Even for those who are financially disciplined, it is difficult to keep one’s expenditure in check during periods of high inflation where families must pay more for groceries, utilities, medical bills, and gas. What this means is that not even going by the principle of focusing on needs rather not wants, can result in a successful debt management strategy. Besides, focusing only on your needs means not really doing the very things that would make you happy, like traveling around the world, eating out more often etc.
If expenditure control measures are difficult to implement, what about the other option, making more money? It is common knowledge that relying on a monthly or biweekly salaried job is not going to make you financially independent. While it may be necessary to maintain a salaried job as your primary source of income, the key to building wealth is creating multiple streams of income, which is usually done through owning businesses. In the era of rising prices, not only do you have to earn income from multiple sources but earning it at a faster pace is essential to building wealth and charting the path toward financial independence.
“In the era of rising prices, not only do you have to earn income from multiple sources but earning it at a faster pace is key to building wealth and charting the path toward financial independence.”
Economics Professor and Financial Educator Marcus Bansah
If you enjoyed reading this article and want to learn more, or have questions to ask about managing debt, building credit, strategies to creating multiple streams of income, and learning how to budget, reach out to Labkek Financial by completing the contact form.
