Updated: Jul 12, 2021
As of 2008, when it comes to debt relief, home equity is the only asset many people have to alleviate their debt challenges. Today the situation is no different.
Debt is a fact of life in America, which makes debt relief a national obsession. A search for “debt relief” on Google in 2008 pulled up over 34 million pages; on Yahoo and MSN, the total was over 12 million pages. The number of pages found today has exponentially increased.
The average American household has $9300.00 of credit card debt, but the share of income going to lower credit card debt has fallen to 0.3 percent. Instead of living within our means, we pile on debt trying to keep up with the Jones’. This will all come crashing down at some point in the near future. Most families live paycheck to paycheck and struggle to cover a $1000.00 surprise emergency expense. Americans need to prepare for the next global financial crisis. Work with a local Financial Coach or However, the increase in personal debt is not to be blamed only on overspending. After adjusting for inflation, wages have been flat for the past five years, while the cost of essential goods and services like housing, food, medical care, and transportation have risen over 11 percent according to the Federal Reserve Board's most recent Survey of Consumer Finances. Housing Debt: Based on this study, the Washington Post in 2007 reported that, The debt of the typical American family earning about $45,000 a year rose 33.1 percent from 2001 to 2004, after adjusting for inflation. Housing debt has climbed notably because home prices have risen, and people have borrowed against the equity in their homes. From 1989 to 2004, for example, the median mortgage debt more than doubled, from $46,900 to $96,000.
For a much more current snapshot (2017), download and review the attached file. It summarizes the current typical American's relationship to debt, precisely. Today, the average household makes $60,000.00. When you add up a typical family's mortgage, student loans, credit cards, and auto loans that will come to over $275,000.00 of debt per household. Also, seven out of ten couples do not budget consistently and 66% of Americans would struggle to cover a $1000.00 emergency.
This refinancing trend is one of the main strategies for debt relief. It takes several forms: mortgage refinancing, second mortgages, debt consolidation loans, and home equity lines of credit. These mortgages can be either fixed-interest or adjustable-interest loans. Many websites keep abreast of current interest rates and offer a free mortgage refinancing application that matches potential borrowers with the best loans based on factors like credit history, FICO score, type of mortgage, and size of the loan. Debt Consolidation Loan: A debt consolidation loan converts a passive asset, home equity, into ready cash for debt relief. It is easier to get than other forms of borrowing because the loan is secured by the tangible property. It makes better sense than borrowing against the cash value of a life insurance policy or pulling money out of a retirement or 401(k) account.
New or refinanced mortgages really do not reduce debt, but they can restructure it in beneficial ways. Benefits include being able to pay off high-interest credit cards and other forms of revolving debt; making home improvements that increase the market value of the house; having a single monthly payment at a lower rate of interest. An added plus is that the interest on a home loan or mortgage is usually tax-deductible. But don’t wait too long to refinance. CNNMoney reported that “Real estate gains came to an abrupt halt in the first quarter of 2006, with the median price of a U.S. home falling 3.3 percent from the fourth quarter of 2005. … Prices were basically flat or lower during the quarter as inventories of houses for sale rose and their time spent on the market lengthened, according to a survey of 149 markets by the National Association of Realtors.” And the whole housing market finally crashed in 2008 plummeting the values of millions of homes across the country. No regional area was spared.
Today (2021) we also have low-interest rates, and the Fed should start raising rates because inflation is a real factor that must be dealt with. Businesses have not been able to raise prices, buy equipment, give raises or adjust for inflation because they have been simply trying to survive the Covid-19 Pandemic's impact on their business. The Fed will need to raise interest rates, to keep inflation in check, which will make it harder for many to get and pay back their loans. However, mortgage refinancing and home equity loans should still be the preferred form of debt relief for most homeowners who find themselves in a financial pinch. The housing market has been booming and homes are selling at an all-time high. At a time when the national savings rate is below zero, home equity is the only asset many people have.
If you are in debt and are having trouble making ends meet, get in touch with us at Financial Freedom Coaching @ www.ffcforme.org and we will be glad to come alongside you and walk with you on your journey to financial freedom.