Consider these realities as I speak:
Total household debt has climbed for 18 straight quarters... setting a new record at $13.54 trillion in the fourth quarter of 2018. Consumer debt – which includes student loans, auto loans, and credit cards – is also on the rise... It just exceeded $4 trillion for the first time.
One financial author summarized various aspects of what I'm calling a looming debt crisis as follows:
In the past decade, students (most of whom have virtually no income) have racked up enormous debts, which currently total more than $1.5 trillion. Incredibly, that's what our entire federal government owed a little more than 30 years ago. Nearly all of this money was borrowed in only the past 10 years.
A lot of it is not even being used to pay for school, but for students to pay for practically everything in their lives. And these debts have ballooned to absurd amounts... The number of students with debts totaling more than $100,000 has quadrupled in the past 10 years.
And then there's consumer debt... U.S. consumers owe roughly $1 trillion on their credit cards. These debts carry interest rates as high as 28% annually.
It's gotten so bad that 73% of Americans now die in debt... leaving behind an average total of more than $60,000. If you look carefully at the debt statistics of the United States, you'll discover a terrifying change over the past two decades or so...
The poor – and especially the young and poor in our country – have no hope of being able to afford the American Dream anymore.
Not when the average college debt is more than $35,000 per student. Not when the average American family owes more than $8,000 in credit-card debt. Not when the average family with debt owes more than $137,000. Not when the median price of all the homes listed for sale in America today is more than $200,000.
Here's what's critical to understand...
This kind of debt burden for the poorest Americans is new. The debt load for the poorest 20% of Americans is up nearly 300% in the past 20 years.
Debts of this magnitude cannot be financed normally. Remember, debts that can't be paid, won't be paid. In other words... it isn't just the amount of debt Americans carry that's the problem. It's who owes the money that's the bigger concern.
When the rich – a tiny percentage of the population – get in trouble with debt, it's an economic problem. But when the poor and middle class get in trouble with debt – a huge percentage of the population – it's a political problem.
What happens when the least educated, least "vested" members of society make up the largest demographic block... and have the largest debts (relative to income) with zero ability to pay back those debts or discharge them through bankruptcy?
Forty-four million people carry a student loan. Most of them can't afford these loans. Nor can they default. They can't restructure. They're stuck – many with $100,000 loans that absorb more than 100% of their disposable income.
According to a report from the Federal Reserve Board, four in 10 adults can't come up with $400 in an emergency. In other words, millions and millions of folks have a debt burden they simply can't afford... a ballooning debt that has no political affiliation.
This situation won't last forever...
Indeed it will not. Exactly how this scenario will play out remains to be seen. One thing common sense is screaming at us is this: the debt party is almost over and who will pay the bills??
I think in some way we all will pay. It seems likely to me much of these debts will be "cancelled" in one way or the other with those who have resources footing the bill in part or the whole. As for me, I do not trust our government and I think in the near future the wealth of many Americans will be stolen! Of course, our government will never call it that. But when your assets fall dramatically in value, and the money in your savings accounts has dramatically less buying power the net effect is the same.
So what should we do? First, do not increase your personal debt by borrowing money for purchases of anything for the next few years.
Next, save some money and literally hide some cold hard cash in a safe place other than your bank. In other words, you can get your hands on your cash because you have it hidden away somewhere. During a debt crisis for a number of reasons it may become very difficult to get your hands on cash. Lay some back.
Next, pay down existing debt as quickly as you can. Next, if you have an investment portfolio seek sound advice and make sure it is well diversified. When the next debt crisis unfolds stocks will take a major hit. As well, the current corporate debt level threatens the bond market so take a look at any bonds you hold. With prayer and advice perhaps it would be safer to move your resources out of the bond market especially if the companies you hold are headed for junk bond status.
Personally, I lay my treasure up in heaven where the thieves cannot break through and steal it! I don't need to make any real lifestyle changes if the whole thing blows up tomorrow. I live modestly, within my means, and I am contented. I am not afraid of what will unfold as America's debt crisis reaches critical mass. I believe the Lord will prove himself faithful to those who honor him and who over time have kept him first in their life.
One thing I am sure of is this: the nation is not at all ready for what is coming. Most Americans evidently think bills never have to be paid and we can gorge on debt indefinitely. However, even the richest nation in history will learn debt does not pave the road to prosperity.
Pray for America.