Principle 3: Getting Out of Debt

Not only do Americans have a hard time keeping expenses in line (Principle 2), but they go one step further, not only spending all they make, but spending more than they make.  Consider these facts from Debtguru.com:

• The majority of consumer borrowing, about 63%, is represented by so-called "non-revolving" debt such as automobile loans. But "revolving" credit, which most typically involves credit cards, is an increasingly significant part of the equation. Revolving debt currently totals $735.3 billion; that's about 31% higher than it was only five years ago. The figure has more than doubled in a decade.
• The average amount of credit card debt in households with more than one card is now more than $8,000, according to CardWeb.com. That’s 167% more than the $3,000 average for households in 1990.
• The most unsettling aspect of all these credit card transactions is that many Americans don’t see their income as a spending cap. About 43% of U.S. families spend more than they earn, according to a Federal Reserve study. And on average, Americans spend $1.22 for every dollar they earn, according to Myvesta.org.
• Personal bankruptcies have doubled in the past decade.
• American consumers owed a grand total of $1.9773 trillion in October 2003, according to the latest statistics on consumer credit from the Federal Reserve. That’s about $18,654 per household, a figure that doesn’t include mortgage debt. The number is up more than 41% from the $1.3999 trillion consumers owed in 1998.
• The number of personal bankruptcy filings in the fiscal year ended Sept. 30, 2003, rose 7.8% from the same period in 2002, reaching 1,625,813, according to the American Bankruptcy Institute (ABI). That’s twice the number of people filing for personal bankruptcy protection in 1993.
• The amount of debt as a percentage of personal income tends to track bankruptcy filings, the ABI said. And the amount of debt payments as percentage of income has steadily increased in the last 10 years, according to the Federal Reserve.

Unfortunately, I could go on and on.  The situation is very bad.  That's why Principle 3 is:

Control liabilities – eliminate liabilities and limit or eliminate borrowing of any kind

We must eliminate liabilities and limit or eliminate borrowing of any kind.  In short, we need to get and stay out of debt.  This includes all kinds of debt. 

Nasty credit card debt, hurtful debt, depreciating assets (can you spell c-a-r?), and on and on.  As we talk about Principle 3 over the next months, we'll give some handy tips for dealing with debt.

Click here to read about Principle 4.