Dealing With Recession

Whether or not you have felt the effects, there is no denying that these are tough times, financially speaking. Many fingers have been pointed all across the US as to who is to blame for the downfall. Many look at the mortgage industry, Mark-to-Market, FIFO accounting practices, and even you the consumer.

The answer is all are to blame, but in my opinion credit use is public enemy no.1. America has been a broken financial system for some time now, just teetering on the edge waiting for the gust of wind to blow it over. America has been living on the literal borrowed dime for way too long. From consumers to businesses, credit use has gotten out of control. The average consumer has over $12k in credit card debt and the average car loan is over $25k, which is not to mention mortgages, student loans, home equity etc. On average consumers have at least 13 debt obligations on record at a credit bureau.

Today the BLS said that unemployment rate had risen to 6.5% the highest it has been in 14 years, which signals to me that we need to buckle down and prepare for the worst. It is likely to get worse before it gets better. So you may be asking what you should do to help the economy, and many pundits and advisors have answered save or invest, some even say spend. I however, have a different answer...pay off your debt.

Leveraging your debt is the only thing credit is good for and it is only useful if you can earn a rate higher than the interest on the debt itself, and I think we can all agree that you would be hard-pressed to find that these days.

I am not saying you should cut your spending in half across the board, but limit yourself to "reasonable for you" amounts in the categories you spend your money in. Use that extra money from not buying the latest cell phone, iPod, car, or clothing and put it to good use, paying for what you already have.

Not only will you recession-proof your life, but you will turn the tables and your money will start working for you. You can then save and invest, and make future purchases in cash, thereby feeling that immediate gratification of complete ownership and pride in the fact that your money is now your slave rather than being slave to your money.