Killer Debt and Its Effect on Your Dreams

Everyone wants to feel like they have accomplished at least some of the things they have dreamed about over their lifetimes. You can call it our goals, our wants, our desires, or even the big one: the American Dream. So what are the reasons we often struggle or fail in that pursuit?

Is debt killing your dreams? It is keeping you from the American Dream? If so, it's time to take control of your finances.

It’s not any secret when you think about it. The American Dream is most often killed by debt. The American Dream has been the gold standard for life here in the U.S. for a really long time. It is probably the number one motivator we all have even though we don’t think about it that way. It is the reason why we want a good paying job and the reason why we want more and spend more on ourselves and our families. Whether it’s a new car, a vacation, or the big one—a great home and backyard—it is why we get up and go to work every day. And that’s the rub; we want so much that we are willing to let debt kill our American Dream!

What Is the American Dream Exactly?

Simply put, the American Dream involves the idea that anyone can attain success through hard work and sacrifice.

It’s why immigrants have been coming here for centuries and it’s the belief in upward mobility and achievement of success. Some countries deny their citizens these opportunities. Our free-enterprise system here in the U.S. makes it possible for individuals to achieve whatever their capabilities deem possible.

Even if you don’t say it out loud every day, you believe in it. It’s ingrained in our DNA and we see it all around us. There are plenty who somehow have achieved such lofty goals. When we see it, we want it even more, don’t we?

What Is Killing Your Dream?

According to a survey last year conducted by Freedom Debt Relief, 41% of Americans have not set aside any money at all for retirement. The main reason indicated was due to the cost of everyday expenses. But what exactly are those “everyday expenses”? The definitions of these expenses often are very different for each person and family.

Big chunks of expenses fall into areas that become “long term” debts. Debt is an impediment to saving adequately. About 80% of Americans surveyed said they have debt: Credit card debt accounts for about half and mortgage debt and auto and student loan debt rank as #2 and #3 on the list.

Having fallen into this trap myself and taken a few years to get out of it, I really encourage college students to avoid credit cards. Credit card debt is something that once it gets its hooks into you can take you forever to get it out of your life. You have to try to really understand credit and how to use it.

Credit: The Good, the Bad, and the Ugly

Credit allows us to buy things that we want, but often they are things that we really can’t afford. The problem is that we want them now. That blinds us into taking on debt and creating an illusion that we have actually attained the American Dream. Is living paycheck to paycheck and paying for stuff we can’t really afford part of the American Dream?

Debt is a threat to your future. Whenever we borrow someone else’s money, we usually are charged a penalty we call interest. When you are young, understanding how money works is absolutely essential. Knowledge is absolutely crucial to be able to help young people avoid this debt trap down the road.

Here’s a scary fact: Consumer household debt recently reached $15 trillion, which is 1 trillion higher than it has ever been.

What Is the Best Way to Avoid Personal Debt?

I talk about this subject all the time and have for years. Both my children needed the talk and still do, maybe more than ever these days. The talk is about budgeting, an absolutely crucial life skill.

Budgeting helps you get more control over your money than you ever thought possible. You can either tell money where to go or wonder where it went and if you’re not budgeting, what ends up happening is your money is leaving and you don’t know where it went.

Many believe that debt is necessary to achieve the American Dream. After all, very few people can buy a house with cash, so homeownership usually means taking out a mortgage. The same goes for buying a new car. So how is anyone able to achieve the American Dream without going into debt? If your idea of the American dream is having everything now, then the answer is probably that you can’t achieve it.

Young people (and many not-so-young people) are very much of the belief that as long as they can make the payments on a house or car, it’s okay to buy it. While the basic tenets of that concept are true, it doesn’t mean that it is always the right decision. One of the foundational principles of the American Dream is sacrifice, which may mean putting off purchases until the time is right to make them. This may mean renting for a few years to save for a down payment on a house, or driving an older car until you get a promotion or are able to save for a new one. Young people today forget that their parents took years to acquire the wealth they have. Too many want it all now.

The Student Loan Roadblock

Student debt in America has reached an all-time high. According to the New York Federal Reserve Bank, consumers in America owe a whopping $1.5 trillion in student loan debt. That number encompasses 45 million borrowers, and this will have impact on the economy for decades to come. Carrying that debt into their working lives means it will have serious adverse effects on their ability to pursue the American Dream. Consumers looking to buy a home who hold significant student loan debt are finding it increasingly difficult to qualify for a mortgage loan.

So Many Other Ways to Accumulate Debts

While owning a home is central to attaining the American Dream, many Americans have mortgages that are too big and have rendered them “house poor”. This means that by the time they pay their mortgage and other bills each month, there is little money left to do anything else.

Auto loans have also risen sharply over the last decade as lenders continued to lend in this segment regardless of the tightening up of lending standards in other areas. Delinquencies have also risen, as subprime buyers have still been able to borrow, despite poor credit scores. Sometimes, in order to keep the payments lower, consumers will take long-term loans of six or seven years. While this does lower the payments, the debt becomes a longer-term burden with a higher overall cost.

You’re Simply Overspending

Many consumers just simply overspend. Their monthly income is not enough to cover all the purchases they want to make, so they rely on credit cards to give them the things they cannot afford. Not living within one’s means is the fastest way to accumulate undesirable debt.

Since most consumers are not taught in school how to budget, they are on their own to try to figure out how to manage their money. With the inability to stretch their dollars to the end of the month, many consumers rely on credit cards to get by.

Loss of Your Job and the Other Reasons You Have Debt

Millions of Americans found out this year during the pandemic about job loss. Losing a job can be devastating to a family’s finances. With a substantial gap in income, many need to turn to credit cards to pay their bills.

Then there’s divorce. Nothing tears a family’s finances apart quite like a divorce. When married people separate, it usually means that overhead costs will double, as the divorcing parties need to set up separate households. This often puts a huge strain on the overall financial picture. With money stretched so thin, often the use of credit cards increases to meet everyday expenses and debt can accumulate very quickly.

Emergency funds are not a luxury. Those financially unprepared will rely on credit cards to get them through week after week.

Your Medical Bills

The number one cause of bankruptcy in America today is because of medical debt.

When an unexpected illness or injury occurs, many Americans are financially unprepared. Aside from the medical bills that can accumulate very quickly, being out of work can mean a substantial loss of income. With mounting co-pays and deductibles piling up and little to no income coming in, many need to turn to credit cards to survive. Credit card debt and high medical bills turn into a financial disaster.

Final Thoughts

Consumer debt can become overwhelming and result in bankruptcy. Before considering any bankruptcy, which will have long-lasting detrimental effects on credit standing, consumers should consider all other options. One such option is working with a reputable debt relief company which can work with creditors to settle their debts. It’s not an easy or fast process, but it can help consumers get out of debt and get back on track.

It’s important that consumers faced with oppressive debt explore their options to find the right solution to relieve their financial burden. Don’t let debt hold you back from attaining your American Dream.

Better yet, learn how to control your money, budget, and make sensible decisions on your way to the American Dream. It’s the only way to get there.

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