Inside Your Money
Avoid Being Sunk by Debt
February, 2007 - Issue #28
In America today, we have a large and growing problem with consumer debt. Many experts through many different forums have talked about the increase in consumer debt in great length. According to statistics from Debtscape, a nonprofit credit counseling organization, "Currently, national consumer debt is 2.04 trillion dollars (April 2004), with credit card debt equaling about 750 billion dollars." Using those totals, "for every man, woman and child in the country, Americans owe $2,293 in credit card debt (based on current population figures)." Here are some additional stats from Debtscape: the average balance on a single credit card is $8,000; the average household has 10 credit cards; Americans paid out approximately $82 billion in interest alone last year.

"The Titanic was
thought to be the
We are the same
with our debt
These statistics should be alarming to all of us. I believe that the biggest problem with debt in America is that we are unaware of how disastrous consumer debt can be to our financial lives if not understood, controlled and managed properly.

At 11:40 p.m. on April 14, 1912, the Titanic struck an iceberg. Two hours and 40 minutes later it was at the bottom of the Atlantic Ocean. Of the estimated 2,209 people on board the steamer, 1,500 lost their lives that night. So, what does this have to do with consumer debt? I once heard Dr. Bob Reccord use the story of the Titanic to make these following four comparisons to relationships, another one of our nation's growing problems. I would like to use the same four comparisons between the Titanic and consumer debt to discuss the possible dangers of debt in our households.

Do not be Overly Secure or Confident

Everyone on the Titanic was overly secure or confident that their ship could never go down. The Titanic was thought to be the unsinkable ship. We are the same with our debt. We think we have great jobs in a great economy. Nothing could happen to us. The economy is only going to get better, so we spend up to and many times past our earnings. But we have too much history that tells us jobs, health and world events can all change at a blink of an eye and we can be left in a very scary situation if we are not prepared. It is very important that we live our financial lives with a realistic sense of security - with a plan.

Be Prepared

We all know the story: When the steamer went down, there were not enough lifeboats or vests. They were not prepared for the devastation they faced and because of being so unprepared the losses were great. So how can we be prepared when we hit an iceberg in the path of our life? Probably the most important thing is to have an emergency fund equal to three to six months of your salary. This amount of cushion would act as a life vest to keep you afloat until you figure things out, get well or find a new job, whatever the iceberg is.

Don't Ignore the Warning Signs

The crew had many warning signs that night. They had received calls from other ships that there were icebergs ahead. They were in icebergs for quite some time before they finally hit one, but they never increased the forward watch nor did they slow down the ship. There are plenty of warning signs out there to tell us when we are entering dangerous waters in regards to our debt. Are you charging more each month than your minimum payments? Are creditors calling you? Are you tapping into long-term savings (IRAs, 401-ks) to make payments? Do you have more credit cards than a good poker player has chips? These are just a few of the many warning signs that you are in dangerous waters. You should slow down or even stop, maybe change course, listen to some advice or ask someone else to steer. Listening to advice leads us to number four.

Call for Help

For the Titanic and its passengers the call for help came too late. If you don't feel prepared to face a problem or you recognize the warning signs and feel that you may be entering dangerous waters with your debt, get help. Ask questions, do some research for your options and seek advice from a financial advisor. Local companies regularly offer debt seminars to assist families with the education and skills to regain control of debt and use it to their advantage.

If we can remember and learn from the Titanic maybe we can keep our financial households from being in danger of great loss and possibly sinking.


David Beaver is a financial consultant with Total Financial Solutions, Inc. E-mail with questions and suggestions for future articles.
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