Is Growing Household Debt Something a Nation Should Worry About?

There are many nations that now have growing household debt. Some people worry that this is a problem and others do not. Is it something that we should be concerned about?

When a report states that household debt is growing this may not be a bad thing. It could mean that a lot more people have mortgages, are buying their own homes and in the long run savings themselves money and investing. Mortgages are usually considered to be good debt and so an increase in these would be seen as a good thing.

There are other forms of good debt as well, such as student loans where the loan will allow a person to get extra education and get a better job as a result meaning that that they will earn enough money to pay back the loan. Sometimes borrowing money to buy a car, so that you can drive to work or to do a house extension rather than paying more to move would also be considered to be good debt as well. If the person has carefully planned the borrowing, knows they can easily make the repayments and has chosen the right loan for them, then this could also be seen as good debt.

However, if the borrowing increase has come from bad debt, then this may not be so good. Bad debt is borrowing money to buy luxury items that are not necessary. Not planning the borrowing properly, not thinking about the cost or considering whether repayments will be possible. In this sort of situation debts can spiral with one loan being used to make repayments on another or a sudden change in circumstances, meaning that repayments are not possible.

Economies grow when money is borrowed. In order for businesses to grow they will need to borrow money to expand so that they can sell more and make more money. For personal debt this is not always the case. With student loans and mortgages this is the case, where you are investing the money that you borrow so that you can be better off in the future. However, when you are spending the money on luxury goods that are not necessary then things are different. You will still be helping the economy to grow as you will be paying out for goods which will help those businesses to make more profit but your household finances could be shrinking not growing as you will be paying more out on repayments.

So on a personal level household debt rising in general should not worry us. We do not know exactly what that debt is being used for and it could be good or bad debt. It may just be a sign that borrowing is cheap and so people are taking advantage of it or that a lot of people are buying houses or going to university. Even if the borrowing is bad debt it may be good for expanding the economy and if the borrowers can pay it back, then it could have a positive effect overall. However, on an individual basis we are in control of what we borrow and how much. It is important for us to make sensible decisions as to whether we think it is wise to borrow or not. Borrowing in the spur of the moment is never sensible, you need to consider whether you really need the money, whether you can wait and save up, whether it is being used for something worthwhile and whether you will be able to make the repayments.

If your personal debt is rising then you need to take a look at why this is happening. Are you finding it harder to make ends meet due to rising prices or are you spending more money on things that you do not need. Try to analyse why things have changed and whether you can easily do something about it. Ideally you want to have some money left at the end of each month so that you can pay back some of your debt. If your circumstances have changed, then it may be possible to make other changes so that you can rebalance your earnings and spending. Try to come up with a plan.

If you are finding that it is really hard to cope and you just do not know how to get back on top of your finances then it is wise to see a debt counsellor. There are free services available where you can talk through your money concerns and come up with plans to help you to manage your money more easily. Just talking things over with someone can be a big relief and start you focussing on finding a solution to getting out of debt. It can help to make things clearer in your head and they may have solutions that you had not heard of.

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