Harry Kubella is 36 years old. He has a home worth $350,000. He has a mortgage for $225,000, a home equity line of credit for $105,000, numerous credit cards, as well as student loans in the amount of $160,000 and change. With a house worth as much as it is, you would think that this man would be in good shape, but will all of the debt he has – if he sold his house for the full $350,000 plus whatever closing costs, etc. he will be able to pay all of his bills - except for the student loans. Of course, when he goes to buy another house, he won’t have any money to put down on it as he spent all of the equity in his last home. So now he is paying PMI (mortgage insurance) because he didn’t have 20% to put down on a home. Talk about a vicious cycle.
But Harry is not alone; in fact he is just one of millions of Americans who have fallen into the same trap. In the last decade alone, the average income rose by 9%. However, the average credit card debt has gone up 81%, student loans up 137%, and mortgages 154%. What are we doing to ourselves? We are not saving anything for our futures; we are only living in the here and now.
Generations before us knew to save and not spend, and we are the complete opposite. It is now a part of our culture – we see an ad for a product, we feel we must have the product as well. As kids we had to wait for toys, etc. until birthdays or Christmas. Now they just have to wait until they get to Target. The internet makes shopping available 24/7 and credit cards let us rack up whatever we want. No cash – no problem, just use your credit card. The biggest problem here is that we are not saving for our futures – most Americans are entering into retirement with only about $60,000 in retirement fund. That is not nearly enough to pay for a retirement if you retire at the regular retirement age. ■
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