American consumer debt totalled $2 trillion at the end of November 2003. That's the equivalent of about Y200 trillion (at Y100/$), or 200X the annual net profit of Toyota Motors for 2003. According to various Internet sources, that is also roughly the same size as Japan's government debt burden, and the total amount of money tucked away in Japan's postal savings. Wow. (Consumer debt does not include mortgages.)
The US isn't the only country addicted to credit card spending. According to the International Herald Tribune, "there are 99 million credit cards in South Korea, an average four for every working person. Payments still due on those cards stood at 122.4 trillion won at the end of June 2003. That is equal to about a quarter of all the goods and services produced by South Korea last year." The government has stepped in to help banks deal with the resulting bad debt issues.
The United Kingdom is also seeing a boom in consumer debt, fueled by an increase in property prices and a general economic recovery. Epolitix.com says the average person owes "at least GBP1,062 on credit cards, GBP1,561 in personal loans and GBP760 in overdrafts."
Achieving financial freedom after years of struggling with consumer debt... While Japan overall is not a consumer debt-driven culture to the extent that the United States or other countries (South Korea, recently) might be, many foreigners living in Japan often struggle with a heavy debt load to pay off.
Be it student debt, credit card balances, a second home mortgage, or alimony, many people share this "secret" burden, sending home a hefty chunk of their salaries each month.
The topic of how to go about reducing debt is broad enough to encompass several books. There are many systems peddled by different self-help or personal finance gurus that promise to dramatically reduce or eliminate your debt. Some of these are quite helpful, but I won't explore them here right now. The main focus, I believe, is learning to "debt proof" your life, instead of continuing the debt-incurring cycle.
Mary Hunt, author of Debt-Proof Living (click to purchase) and publisher of The Cheapskate Monthly (both favorites of mine), defines debt-proof living as: "You spend less than you earn; you give, save, and invest confidently and consistently, your financial decisions are purposeful, you turn away from impulsive behavior; you shun unsecured debt, you borrow cautiously, you anticipate the unexpected, you scrutinize your purchases, and you reach for your goals following a specific plan." (Debt Proof Living, p. 9.)
Whew! That's a tall order, especially for someone who might be struggling to meet the minimum statements on their credit card bills or rarely has money left over at the end of the month. But it's a start.
The first step in becoming debt-proof is the most vital -- a change in your attitude. How many times have you been shocked by your high credit card bill or your too-low bank balance? The shock might have spurred you to temporarily mend your ways by paying off a few credit card balances or saving for a few months. But gradually, most people return to their former habits. Sometimes a sudden or unexpected expense, like doctor's bills or home or auto repair, puts you over the edge, or you may have a gradual lapse in principles, like overspending on a vacation. Regardless, a major lifestyle change is usually required to make any permanent progress toward debt-proof living.
Mary Hunt identifies six fundamental principles behind debt-proof living. The major thrust of these is that we are stewards of the money we are given to use. It is a gift that is ours to manage wisely, not to pilfer away, and that we must never keep or spend all of our money. Unsecured debt is ultimately a hazard to financial well-being -- and more money is not the real solution to our problems.
Practically speaking, the change in attitude has to begin with a commitment on your part to do the following:
1) Recognize that money is both a gift and a tool, to be managed and nurtured wisely, through the principle of wise stewardship.
2) Set aside a certain ratio of your income to save, give and use. (Mary Hunt recommends a 10 percent, 10 percent and 80 percent formula, but individual needs should determine this.)
3) Incur no additional new unsecured debt, and work to reduce the debt you have. If you must incur debt, try to pay it off within the month.
4) Realize that the scale of your spending generally grows to meet your income, and that a higher income will only result in more expenses unless you get your spending under control.
There is a lot of heavy-duty information in the two paragraphs above, and it might take some to sink in. If you are serious about learning to live a debt-proof life, I recommend taking a good look at Mary Hunt's website: http://www.cheapskatemonthly.com. The price of online membership alone should be more than rewarded by the changes you find in your life if you are able to make the serious changes required.
By Wendy J. Imura. Copyright 2005.