Debt Problems; Household Debts How Big A Problem Are They?

January 4, 2020

Re: Credit card consolidation – considering today’s lifestyle debt has become the fact of life. Each and every one at some point of time in their life has taken debt to get a better house or a new car or for higher education. The people who cannot afford all these things with their income tend to take debts. Let’s see some of the dynamics of debt problems which have to lead these household debts to increase at such a higher rate in the past years, more on credit card consolidation

Monetary policy, demands and house prices

To keep the supply and demand of a certain country in balance one needs the monetary policy to deliver low and predictable inflation. If this inflation is too low, we can lower the key interest rate in order to increase demands for goods and services, and if the inflation is higher than we can raise interest rates to subside the demands in a way. According to this policy if the interest rate is low, then the demand of houses will increase relatively.

The burden of debt

This is the most important thing which creates the biggest problem is the burden of debts which keeps on increasing gradually. Let’s have a look at the debt-service ratio which includes the rate of interest and the total amount needed to pay against the income. Since the early 1990’s the interest rates, have been moderately on the lower side as 6-7 %, which results that the people have taken full advantage of these lower interest rates and have carried the big amount of debts on them. If we see closely about 8 percent of indebted households needs to pay350 percent or much more of their gross income which tells that little more than 20 percent of the household debt is there.

Managing the risk

Household debt is one of the major debts in all and should be on the top of the priority list because neglecting this debt can cost you your home. If one is unable to pay these debts, they might tend to lose their home. It is to be said that it completely depends on the wish of the owner to be in the debts or not to be in it. Today’s records of people borrowing the household debts speak about the revolution of the financial system all together, but at the same time, it also reflects the prolonged period of rise in house prices and of very low interest rates.

As the people who are doing studies on this growing risk to the financial stability and economy of the country. A large portion of people are having these household debts and the condition might get worse if there will be any increase in interest rates. If the economy of a country will be at risk they will find ways to give a booster to it like increasing interest rates, increase in bond yields or the global slowdown any of these measures will increase the risk of higher household debts amongst the people and lead to credit card consolidation problems.

This is how the economy and household debts are related to each other and affect each other in a large way.