Are We In Over Our Heads? The US Debt Problem

The preacher said it best, “You cannot serve the Master, and the MasterCard” (“In Debt We Trust”). However, the US as a country, and as individual citizens, have been relying on debt to live day to day.

“In the 1980s, households had 70 cents of debt for every dollar they spent in a year. Today Americans carry almost 99 cents of debt for every dollar they spend” (http://www.alltopics.com/why-debt-can-be-dangerous.html). One of the major problems on an individual level is the lack of planning, and the desire to buy what we want now instead of buying it later.

However, most American’s do not know how much their actual debt is costing them. They understand interest rates, however they do not understand volume of interest.

Volume of interest is much more powerful however, and much more destructive.

We have been tricked in a few ways, first by looking at interest rates, second by looking at payments.

However, what you should be looking at is volume of interest.

If you buy a $20,000 car at 6% interest for 5 years. Many Americans wouldn’t know you will actually end up paying 13% of all their payments to interest ($3,199 in total interest paid), no wonder the banks make so much money.

This is because loans are top heavy. Banks give you the minimum payment every year so they can roll in the interest.

Your home mortgage is much worse, this is because most Americans refinance their homes, only to reset the interest volume calculation.

If you refinance your home after the 5th year, you will have paid–on minimum payments–around 65% of all payments to interest.

10th year, around 62%.

Even over the course of your mortgage, if you make every payment until the last day, you will have paid 41% in interest.

This is where the becoming your own bank system can solve problems, not only are we financing our own purchases, but now you can put a majority, if not all, of the interest volume onto your side.

Now, I realize purchasing your home this way is difficult, but saving up for a few years inside your banking system, in order to make your next car purchase, should not be that difficult.

This way you can begin to put this 13% of interest back into your pocket every time you buy a car.

Doing this over your lifetime will easily increase the amount of money that you have saved up. It’s time we began to be fiscally responsible in this country and take responsibility for our own finances with careful budgeting and self-control.

Because who knows when the $668,000 of US debt per family is going to be on our heads to repay.

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Josh

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