Looking down the road, we see what the current debt load is going to do to our economy. At its current rate, if consumers continue to spend using borrowed funds, we will reach a point in our economy where no one will have any disposable income for additional purchases. What that means is that everyone will be spending all of their disposable income on repaying debt and will have no money left to paying for things that they do not have to have.
Does that mean that our economy has the potential to crash? The potential, yes, but fortunately with safeguards in the economic structure, before it happens, we have ways to prevent it such as the Federal Reserve Bank stepping in to lower prime rates in order to encourage spending. For those who have credit cards with variable interest rates, the reduction in the prime rate will have a positive effect on their ability to repay credit card debt. It means the banks and other lenders can lower interest rates, thus consumers can borrow money at a more favorable rate and make purchases that they thought they could not afford.
On the other end of the scope, an increase in consumer debt also increases the potential for people to file bankruptcy. The detrimental effects on the economy may not be felt for several years since those being hit the hardest by these filings are the lenders to whom the consumers owe money. Retailers are not likely to be affected directly,
though they may feel the effects as lenders tighten up their lending policies due to an increase in monetary losses because of bankruptcies and bad debt write offs. Initially the effects may not be felt because those who are filing bankruptcy or failing to pay their bills will be using cash to buy things that they need and want. They will have the income because they will not be paying off their consumer debt. Over time the losses will take their tolls - stores will have to raise prices, banks will have to increase interest rates, and both lenders and credit card issuers will tighten up lending policies to compensate. Consumers will feel the effects of this, whether they are aware of the cause or not.
How long it will take for the detrimental effects of consumer debt to cause a downturn in the economy is difficult to determine. It's not something that is visible overnight but rather something that needs viewed over a period of time in order to see the overall effects that it may have. It is something that will give enough time that our economic leaders will be able to act upon before the economy really does a tailspin that causes many business entities to have to close their doors or seriously cut costs. However, it is unknown whether it will be a real priority for economic leaders or those that can help change the trends. Hopefully, the effects will be kept under control however.
Author Resource:-
James Copper is a writer for http://www.any-loans.co.uk where you will be able to find information on all types of finance related topics including how to write a debt management plan
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