Did you know that The Motley Fool has a passport? That we have traveled beyond American borders? Well, it's true. Fool UK is a big and busy part of our company, and I recently read a very interesting article there. In it, my colleague Cliff D'Arcy lamented that "We're All Americans Now!"
He had a good point. And the similarities he drew between Brits and Americans weren't flattering. The populations of both nations have been digging themselves into big holes. The problem is debt. While America is where credit cards were born and thrive, Britain has been catching up. Here are some of Cliff's observations:
- "Each year, two out of five American households (40%) spend more than they earn, and three out of five credit cards (60%) are not paid off monthly." He added that "things aren't much better" in Britain.
- "As a nation, we now owe 150% of our annual post-tax income, compared to about 140% for U.S. consumers. There's no getting away from the fact that, on this measure at least, Brits are now the world's biggest borrowers." (Cliff then quoted a famous American, Homer Simpson, when he exclaimed, "D'oh!" Get more pearls of wisdom from this sage at our 742 Evergreen Terrace discussion board.)
- ". the Bank of England warned that our non-mortgage debt (which stood at £187 billion at the end of April) is threatening Britain's financial stability. Although our economy appears to be thriving, in fact, much of this growth has been fuelled by consumer debt. Soaring house prices have made us feel wealthier, and we've responded by spending our housing equity. Since the second half of 1998, we've borrowed, coincidentally, another £187 billion against our homes, which we then splurged on high living!" Does this scenario sound familiar? It should. The refinancing boom of recent years has permitted many Americans to lower their mortgage interest rates while also taking out some of the equity earned on their homes. Was the money taken out all plowed into sturdy investments? Hardly.
- "Personal insolvencies rose by almost a third (31%) between 2003 and 2004, and around a thousand people a week are predicted to tread this hard path during 2005. Some of this meteoric rise can be attributed to the fact that the bankruptcy laws were relaxed last year, but these figures still shock me." The picture isn't any prettier here in America, where our own bankruptcy laws have recently been unrelaxed. You can read the scary details in this eye-opening Tom Taulli article.
- Cliff noted some other frightening circumstances in the U.K., which share many parallels with the U.S.: With the government borrowing more, taxes are likely to go up. Meanwhile, fuel costs have been soaring, further pinching budgets. When consumers rein in their spending, as they should do, retailers and other businesses get pinched. This can all lead to a weaker economy, which leads to . you get it, right? Nothing pleasant.
Silver linings in the clouds
Fortunately, all is not lost. It's true that thanks to the generosity of credit cards (not to mention poor decision-making on our part), we can owe $40,000 by doing nothing. Many of us have learned how incredibly easy it is for small debts to become enormous ones, when we're charged sky-high interest rates. (It's not just obscure lenders charging steep rates to some customers. Those with maximums recently between 24% and 30% include Citibank
Still, steep debt is not necessarily a death sentence for consumers. If you're drowning in debt, you can dig yourself out. Pop over to our Consumer Credit/Credit Cards discussion board, and amid many discussions, you'll run across people rejoicing after paying off tens of thousands of dollars of debt. Really. They even explain how they did it and are happy to encourage others who are trying to do the same. Some examples:
- MilleniumFalcon paid off $28,000 in debt.
- Pennsyltuckian paid off $32,000.
- AngryGeek owed $36,000 when he was earning less than $14,000. He paid it off.
- RadioPhool dug out from under $84,000 of debt.
- Mlk58 paid off nearly $140,000 in non-mortgage debt.
These are just some of many examples that will help you believe that almost anything is possible, with some determination. They're real people with real accomplishments.
We're here to help
You don't have to suffer alone. Folks in our online community will help you, and so will we. Visit our Credit Center, which features tips on getting out of debt, shocking insights into the credit card industry, and guidance on how to manage your credit effectively. (We even offer a spiffy Motley Fool credit card for those in the market for one.) Really. I mean it. There's some great stuff in there, and it's all free reading.
Beyond getting out of debt, we can help you reach your other dreams. Check out our vast stockpile of free articles on our website. Grab a free trial of our Rule Your Retirement newsletter. It's issued each month, is readable in a single sitting, and contains lots of valuable tips, as well as inspiration and motivation. (You've got little to lose and a lot to gain by trying it for free.)
These articles may also be of interest:
- Credit Cards Sabotaging Mortgages
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- $24 Billion to Card Companies. for What?
- Sneaky Credit Card Tactics
- Do You Want to Work Forever?
- Get Rich by Beating the Odds
Selena Maranjian 's favorite discussion boards include Book Club , The Eclectic Library, and Card & Board Games. She owns shares of no companies mentioned in this article. For more about Selena, view her bio and her profile. You might also be interested in these books she has written or co-written: The Motley Fool Money Guide and The Motley Fool Investment Guide for Teens . The Motley Fool is Fools writing for Fools.