Introduction
When Americans borrow money from a bank, they realize that they have to repay the debt in the future. The money will probably have to be returned with interest, so there must be valid reasons if people decide to take out a loan. This means that Americans should borrow only for devices and expenses that they can afford to refund in a reasonable period of time. At the same time, in order to repay debts on time, humans should make sure that their income will permit them to settle payments on time every month. It is worth identifying the chief reasons that initiate people to live with loans.
Types of Credits in America
According to the Federal Reserve System of New York, consumer bills reached 14.56 trillion dollars after the fourth quarter of 2020. There were four primary areas of debt – housing, cars, student loans, and credit cards. Non-residential debt increased faster, rising by 51% since 2013 correlated to an expansion in mortgage debt by 24%. The Americans also took out loans to service and purchase the houses. The total mortgage debt rose to 10.4 trillion US dollars, an increase of 1 trillion US dollars from the same period in 2017 (Greenberg & Mogilner, 2021). Although, the increase is reasonable because mortgage credits growth is a sign of recovery in the housing market. Family debt has been increasing for five years, but mortgage balance growth has been impeded since it finished shrinking in 2013. At the same time, the total credits for cars in the fourth quarter of 2020 is 1.37 trillion US dollars, which is 100 billion dollars more than in the same period of 2018.
The most popular type of loans are student loans – they continue to escalate, rising to a record $ 1.23 trillion in the fourth quarter of 2020. Moreover, Americans have the possibility to obtain a loan on credit cards. Debt amounted to 820 billion dollars in the 4th division of 2020. This reflects the fall in consumer spending during the pandemic after this category of debt peaked at $ 820 billion a year earlier. Credit card account dropped in 2020, the first decline in any category of large consumer debt in seven years (Greenberg & Mogilner, 2021). Moreover, in addition to such basic loans, Americans borrow for weddings and medical expenses. Thus, it can be concluded that almost all ordinary Americans have received loans or apply for credit cards.
Affordability and High Prices as the Main Reasons for Early Loans
It is unlikely to find the average American who is not in debt. Even those who do not have credit card debt or faithfully pay all their monthly obligations probably have a mortgage on their home or car. This ‘existence on credit’ is due to many factors, the determining one of which is the structure of commodity-money relations in the United States. It is structured in the way that the average American is forced to use credit cards and borrow. Financial experts estimate that one reason for being highly indebted is the high convenience of loans. Researchers also claim that such availability is a driver of debt accumulation in both the short and long term. Their affordability can be explained by the fact of the reliance on cards; people can have lots of them and accumulate obligations on each one. In addition, statistical data shows that only 35% of credit cardholders have no debts and can pay their financial obligations every month (Greenberg & Mogilner, 2021). These consumers use cards for convenience and perhaps for various perks, such as flight miles, rather than loans. However, most people borrow because they do not have enough salary to pay for all their bills in total, so they accumulate debt.
Credit addiction for many begins at a young age, when students need to pay for their education. It is not accessible by default, and even the opposite, it is costly; students whose parents cannot afford tuition take out loans. Education loans in the United States come in three primary forms: federal student, parent, and private loans. There are opportunities for available higher education as well. Both nationals and foreigners can study for free at any U.S. institution, as long as they receive a sponsorship, scholarship, or grant (Greenberg & Mogilner, 2021). It can be government-sponsored, private, or offered by the institution itself. However, such benefits are not available to all applicants.
There are also a series of government programs that, in theory, should make it easier to pay off educational loans, but in practice, they most often do not work. For example, a 2007 program started by Bush Jr. can write off a portion of educational debts if a person works in public service. During its existence, 30,000 people applied for the program, but only 96 of them were satisfied. Nevertheless, it is still necessary to finance education (Greenberg & Mogilner, 2021). In this case, educational credits come to the rescue in the United States. The practice of giving loans to students and their parents has existed in the U.S. for a long time. The average United States family does not have enough money to cover at least one year of college, even at the most inexpensive. In addition, the cost of living (if the student is studying in another city), food, books, and other necessities are not even included. For international students, these prices are several times higher.
Furthermore, juvenile people want to dress suitably, go to restaurants, and have fun, but they do not have enough money. That is where a credit card comes in handy because it permits people to consume more than they receive. As a result, young people are fastened – often so tight that credit card debts can be paid off for up to forty years or more. This is one of the causes why Americans marry and have children so late. They cannot take on additional financial responsibility for the family, and living with parents is not common in the United States. Those who do get espoused and have children immediately find themselves in a new financial dependency, this time on insurance companies, bank mortgages, and loans to pay for children’s education (Greenberg & Mogilner, 2021). It is worth adding that this system is inherent to the United States residents and the government itself, which actively sells its debts abroad. The largest creditors of the United States are China, Japan, Ireland, and others.
Account Consolidation and Emergencies as the Principal Causes of Adults Loans
Account consolidation is the most popular reason somebody takes out loans. Personal credit can simplify payments to Americans in one monthly bill. Private loans can also assist save on interest. People who refinance credit card debt at high interest rates can save money at a lower annual percentage (Greenberg & Mogilner, 2021). Nevertheless, an excellent credit rating can provide an opportunity not to pay interest. Accordingly, middle-aged Americans have many expenses associated with buying and repairing their own home. Therefore, people obtained the opportunity to take credit at low rates. They want to spend a few hundred dollars a month than waste $ 10,000 at once on a new kitchen or living room.
Consequently, because people return their mortgages every month, they cannot save money for emergencies. Hence, they may need a personal loan to assist cover car repairs, medical bills, or day-to-day expenses if a person suddenly loses their job. Concerning the same reason, people take out a loan when significant life changes occur—for example, moving, divorce, career change. An investigation in 2019 found that 66.5% of bankruptcies in the United States were due to personalities failing to refund treatment loans (Greenberg & Mogilner, 2021). Even with health insurance, high deductibles, surcharges, and job losses can have affected Americans. Exceptional or serious illnesses, injuries can easily lead to hundreds of thousands of dollars in medical bills. Its problems quickly devastate savings and retirement accounts, college education funds, and equity.
Conclusion
The debt crisis in America has reached all-new levels, and with the financial disturbance caused by COVID-19, the situation is unlikely to improve in the near future. Understanding why so many people owe money can encourage Americans to begin to see the truth of their financial situation and find a way out of it. The most powerful thing is to adhere to the budget and avoid the myth that people always need more things than they can purchase.
Reference
Greenberg, A. E., & Mogilner, C. (2021). Consumer debt and satisfaction in life. Journal of Experimental Psychology, 27(1), 57.