Times of economic recession are by nature times of increasing debt. Even though some debt can actually be considered "good," many people find it restrictive and stressful. As your debt increases, you need to find other ways to keep your cash flow strong. Because debt generally creates fear, worry and anxiety, some of these methods can seem wise when you are desperate but end up being mistakes in the long term.
Types
There are many ways you can be in debt. Some types of debt can be better than others. For example, college loans seem like a "good debt," as does a mortgage. These loan products do actually pay off with increased value and earnings in the future. Most other types of debt, however, are quite bad. Credit card debt in particular is usually generated on items that decrease in value, like vacations or clothing. A car costs less than its loan amount. However, because all of these debts earn interest, you end up paying a lot of money for a depreciating investment.
Geography
Certain parts of the United States have more debt than other locations. According to Forbes.com, Miami, Florida, has the country's highest concentration of credit card debt. Tampa, Florida, Jacksonville, Florida, and Los Angeles, California, also have high debt concentrations. High debt numbers in these locations can be attributed to plunging house values, high unemployment and a higher cost of living.
Size
According to CreditCards.com, 14.7 percent of American families had debt that was greater than 40 percent of their total income in 2007. There was $972 billion in credit card debt in the United States in 2008. Each household in the U.S. had an average of between $8,300 to $10,690 worth of debt in 2008.
Effects
Because of the incredibly large amount of debt that exists in the U.S., American citizens find it challenging to save their money and be resilient in the face of financial emergencies. High amounts of debt also make it difficult for families to afford higher education, save for retirement and amass assets. Consumer spending is generally a catalyst for financial recovery during times of recession. However, times of extreme recession cause people to decrease their total spending. Debt also creates shame, stress, depression, anxiety and relationship problems--all factors that reduce your productivity and total life expectancy.
Considerations
According to Ben Popken of Consumerist, although mortgage, car and credit card debt can seem overwhelming, they are better than payday loans many poor families get to make ends meet. Payday loans have an exorbitant amount of associated interest, which makes the interest actually cost more than the principal on the loan for most people.
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