Changing your Mindset

With the debt crisis in full swing and still unresolved, wait, let me check...yep, still unresolved, it has a lot of people talking about saving, spending, managing debt, and balancing budgets both on a national level and on a personal level. Interestingly enough, many Americans have already begun the process of saving more than they spend. In 2006, the savings rate was at the lowest levels of the past 30 years, <2%. We have now increased this savings rate to somewhere between 6 and 8%. In addition, we are also seeing the decline in consumer credit card debt. We are "down 8.2% from the peak in the 3rd quarter of 2008."

Though we are on the right track, the way to really make headway is to become the lender not the borrower. For many years, prior to this century, most loans were short term loans. The 30 Year mortgage became popular after the great depression to increase affodability for borrowers. While this does help people get into an "affordable" home and help them "own" the home, it usually saddles people with debts that will be far to difficult to ever remove.

Consider that on average, over half of the mortgage payment that the average person makes goes toward interest against their loan. This means it is direct money away from you and into someone else's pocket. It isn't logical. Consider credit card debt, some credit cards have APR's in the 25+ range. That means for every $100 you purchase, if you pay the minimum requirement for 12 months it will actually cost you $12.56. Doesn't seem like much..but check this out, using some statistical averages from creditcards.com and a credit card calculator:

• Average Consumer Credit Card debt: $14,687


• Average APR: 14.88%

To eliminate that debt in 1 year it would take monthly payments of $1318.37 and you will have paid close to $1,133.44 in interest when it's all said and done. Of course, that interest is not yours and additionally, who can budget what is essentially a mortgage or rent payment to rid themselves of this debt? So let's be more realistic, instead it takes you 4 years to pay it off with a monthly payment of $400, by the end you will have paid $4,560.52 in interest to someone else. Talk about head scratching.

Who is the sucker...you or the credit card company? I propose we work in a different manner. Let's work to find shorter term mortgages that are still affordable and let's eliminate the debt as quickly as possible. Then, become the lender yourself and now you begin to gain the windfall that once was not yours. Yes, it takes discipline and yes, it takes changing your mindset. But if we can just eliminate unnecessary interest paid to others, we will create a promising future with less financial worry and increased profitability for the work you do.

Perhaps the governement could learn from what Americans are apparently beginning to figure out. Save more, spend less, and provide a better future for everyone around you.