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If the U.S. Debt was the average family’s credit card debt

by CreditScore.net Staff Writer on July 28, 2011

Unless you’ve been living under a rock, you’ve probably heard or read something recently about our nation’s impending debt problem. In the next few days, our elected officials will decide whether to extend the debt limit, default on our payments, or balance the budget. While it seems that most people agree that the first two options aren’t ideal (for a variety of reasons), they can’t come to an agreement upon how to balance our national budget.

The debate revolves around two options:

  1. Spending cuts & increased taxes for the upper tax bracket (favored by most Democrats)
  2. Spending cuts only (favored by most Republicans)

During this debate here’s been a lot of comparisons of our nation’s options to that of a business. For a couple reasons, I felt that this analogy is a bit flawed. First of all, a business operates for profit. In other words: when they balance their books, the ideal situation is to have more money than when they last did the books. Governments must balance spending and income evenly, more like that of a family. Anything leftover gets spent, saved for future use, or given back to taxpayers (in the form of tax rebates). With the exception of the last option, these choices more accurately reflect those of a family.

The other main reason the USA as a Business analogy is a bit flawed is the motivation for spending. Businesses spend money in hopes that they get a return for their investment. Hiring new employees or building a new facility means selling more product which turns into more profit. Government and Families spend for social reasons, things like education, health, and other every day living resources that don’t have monetary returns.

Setting up the comparison

 
Since we feel government budgeting is more like that of a family than a business, we thought it might be interesting to see what it would be like for a family to have a credit card debt comparable to the debt of the U.S. government. Here’s what we did to find the numbers:

(National Debt / Annual National Income) * Average Annual Household Income = Comparable Credit Card Debt

We took the national debt and compared it to the annual tax income of the U.S. to get a ratio of total debt/yearly income. We then used that same ratio to calculate the comparable debt for the average family income. As a result, the average family that makes $50k/year would have a credit card debt of about $161,000. That’s 10 times the average family debt! (including mortgage, student loans, and other debts) Keep in mind: this family has a fantastic credit card with an interest rate of only 3.5% APR.

Our government is currently spending more money than they’re taking in. And instead of paying down the debt, we’re simply paying the interest only (which is now the 5th most expensive item on the budget). So Another thing to consider for our family is that along with this debt, they still are spending more than they make each year. They pay only the minimum balance on the credit card bill each month ($470 – which is all interest) while piling on more debt every day. The most urgent problem is they’re about to hit the credit limit on the card soon, and the bank refuses to raise it any more. They know something needs to change…fast. What should they do?

Cut spending

 
The first step for anyone caught in this kind of situation is to immediately cut spending. It probably means going out to eat less, going on less vacations, getting rid of expensive cell phone & cable bills. It may even mean getting rid of a second (or only) car and taking public transportation more or moving to a more economical living space. It means making sacrifices for anything that costs money and isn’t essential.

That’s what all sides of our government are working to do right now. There’s not a single public official who’s proposed otherwise. According to our president, however, that’s not going to be enough. Applying this to our family, this means cuts alone might get them to the point where spending and income are even again, but the debt would still remain…interest and all.

Increase Income

 
The other thing our family needs to try and do is look for ways to increase their income. This might be easier said than done, however. Those with jobs can ask for a raise, but if that doesn’t work, the only other option is to get a 2nd or even 3rd job. It’s not a decision families take lightly, but if the current income isn’t enough to balance with essential expenses, it’s not really a decision at all. It MUST be done.

For our government, the way to increase expenses is to raise taxes. The President’s proposal is to let the Bush tax cuts expire essentially increasing taxes on the highest income brackets. While this certainly sounds easier to accomplish than what our family has to go through, Republicans who criticize this proposal don’t feel it’s a decision that should be taken lightly. They argue that higher taxes could further hurt the economy forcing even harder decisions down the road.

Paying down the debt

 
Having gotten to this point, a balanced budget isn’t going to be enough for our family. $470 is a huge monthly bill for a family that only makes $50k/year. And since that’s only interest, they would be paying this amount for the rest of their lives and the debt will never go away. They need to come up with a plan for paying down the debt over time.

Our family decides they want to have the credit card paid off in the next 30 years. To do so, at 3.5% APR they’ll need to pay $723/month for the next 360 months. All of this on top of their other living expenses. That’s pretty daunting.

Beware of piling debt

 
Getting into a situation like this isn’t too difficult. Spending money is easy, and it can quickly get out of control. Making cut-backs isn’t so easy and having to come up with additional income to pay off debts is even less so. I’m not sure why our government thought it would be OK to let us get into this situation, but one thing’s for sure: we’ll be digging ourselves out of it for some time…
 
 
Graphic References
http://www.usdebtclock.org/- National Debt
http://www.usgovernmentrevenue.com/#usgs302a – National Income
http://www.census.gov/compendia/statab/cats/income_expenditures_poverty_wealth.html  – Average Family Income
http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm – Interest rate
http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php#footnote1 – Average Family Debt

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  • Paul Felix Schott

    When this Old World starts getting you down. From Pollution the cost of OIL,
    Heating Fuel,The Fuel you put in your Vehicles, You Electric Bills from
    cooling air conditioners and lights not to speak of the Evil. The TAX that all
    Governments Federal, State, County and City put on everything they can thing of.
    They are supposed to serve us. Not put a burden on its people. That they are
    elected to serve all the people you, not their own Pocket Books.

    The Wicked keep putting higher taxes on everything. Making it a Heavy
    Burden on many that are already struggling just to put food on the table.
    Too many Americans have lost their home to the tax collector or to foreclosures
    from the unjust bankers greed. More are out of work and lost their homes then
    in the GREAT DEPRESSION,in the last ten years. All Americans and many Nations
    need good jobs and more of them. Not more TAXES.

    There is a Industry that will employ workers and is growing by more then 50%
    every year. There is a clear way for all up on the roof the Sun Light is free
    fuel from GOD. Some wicked in Government have been backing Coal, Oil, Gas and
    the Nuclear industries for too many years. These kickbacks to them were called
    Subsidizing Industry Technology. Most all Wise Men and smart Economist and
    Environmentalists call this padding their pockets and subsidizing back to the
    Stone Age.

    This might even been funny in the 1960?s. If it were a Fred Flintstones and
    Barny Rubble Movie. About How to aggressively systematically work with the rich
    to Pollute Ground Water quality to the point it is unsafe to drink or use.
    So to they make a law you can only buy water from their pipe line. And to make
    the air we breath full of Toxic Gases, Sulfur Dioxide and more Radioactive
    and Acid Rain. Injuring all living things on Earth.

    With Fred Flintstones to the Rescue. To help create a Healthier Environment.
    For all Future Generations. By spotlighting Renewable Energy and Free Energy
    like Wind and Solar. On his and his neighbor Barny Rubble’s roof. Even though
    the greedy wicked would do everything to stop or slow them down.

    Just imagine a dream that a 100 years ago one of the smartest man to ever
    live had. A dream after working with Sun Light. That all on Earth would use
    Free Energy Solar Energy.

    That Dream also shared by a man that dreamed this over 2,250 years ago.
    Both These men showed the world in their days. That this dream of Free Energy
    Solar Energy World wide was very possible. Both of these two wise men had
    first hand worked and researched their experiments for not just days, weeks
    put for many years.

    One of these men used chalk on Black Board the others board was a black
    stone table or floor covered with white sand and used a stick. One of these
    two Brilliant men had Kings from all most every Kingdom on Earth come to him
    for advice.

    The other went to almost every nation on Earth. Freely on his own dime
    Teaching All that had ears to hear. He would win the Nobel Prize for doing so.
    For his work on Solar Energy. Only after years of doing research and when most
    Scientist on Earth would not take the nomination for the Nobel Prize in 1921
    this Brilliant scientist was awarded it in 1922 for the 1921 year.

    Now if this was just a Pretend TV Show or a Movie from a dream. This would
    be a great Sci Fi Story Line. In the 1960?s or even better to day. Sci Fi story
    Movie or dream No.

    All that i Have told you did actually really happen. Albert Einstein won the
    Nobel Prize for what? When Government leaders asked him to go on stage. To
    address the Scientific Community and the World. About what he was given the
    Nobel Prize for. When Albert Einstein Had done so. He addressed them with his
    other accomplishments. For years most Governments did not have a ear for
    Einstein’s Dream.

    Archimedes around 250 B.C. was know most of the World over as a great
    Mathematician. One of the first Scientist and Inventor of many things. Even
    the first Laser Ray from the Sun’s Energy. Science Fiction is what you would
    have though you were seeing if you could go back in time, it was real.To day
    we call it The LASER, Light Amplification by Stimulated Emission. Back then it
    was just called Amplification of the SUN Archimedes Death Ray.

    Thousand of years later it would be a Laser. That Albert Einstein help
    make possible. That would unlock one of the first books on Earth.
    The METHOD written by Archimedes. Then over more then 250 years later. When
    well Faded was cut from a scroll and put into a book form, to be easier to
    hide from the Romans by St. Paul. This book sold for over 2 million dollars.
    In New york at Christie’s Auction House.

    These two are at the top of the list of the World’s Greatest Scientists,
    Viewed by Scientist around the World.

    Sad that for the last 25 years or so of every teacher asked no matter what
    Grade k through 16. 80% of them did not know Archimedes. Even sadder 90%
    of them could not tell you what one of the most Brilliant Scientist to ever
    live on Earth. Won the Nobel Prize for.

    It was for the work Albert Einstein did to show the World it could get
    Free Energy, Electric from the SUN. PHOTOVOLTAICS

    You ask this question to any Military general 95% of them will get it right.
    Even more surprising 99% of them will know more about Archimedes then most
    Teachers on Earth. Generals know Energy is the key to Winning.

    At almost one thousand to one Archimedes always won against what all knew was
    impossible odds. Archimedes home town city of Syracuse was victorious against the
    greatest Kingdoms Armies on earth many times. Syracuse once was one of the most
    powerful cities in the World.

    I can only ask you to please look into Solar Energy, Solar Power, Solar Panels
    and Solar array on the internet under Images. To see and explore for your self
    then you be the JURY.

    More then 10 years ago the Internet became most of the World’s Universities
    Learning Platform. A Modern Day Archimedes Resource Center.

    The Solar Energy Industry in the year 2010 has leaped ahead farther and
    faster then any other industry on Earth. The Solar Industry in the
    United States of America alone, has grown by more then 50% in 2010 and it looks
    like that number will go up even higher this year 2011.

    The strong benefits of Solar Energy is Clear Clean Air viewed in major cities
    as improving air quality. Clean Cities. By all that use there brain for good .
    View it as protecting the environment and Freedom from OIL.

    While the Federal Government has eased the Tax on Renewable Energy till the end
    of this year 2011. Some cities in the states that these Legislators come from have
    worked against these tax credits.

    By doing so they are showing their true objectives. That they have
    stock in some power plants and do not want to lose all that Money they
    have been taking out of your pocket books for too many years. By taxing
    you on your Energy Bills. They want to Control Power and Tax Everything
    they can. Not let People be free to get their own power from the top of
    their own roofs.

    By adding their own taxes to them. These wicked leaders think that
    this will take away the incentives to harvest the Free Energy from the
    Sun.

    The Public ability and awareness for all on Earth to use the Natural
    Solar Energy, is Contributing to Production of Solar Energy Products.
    Making the Solar Energy Industry the fastest growing on Earth. A Wealth
    of Free Energy From The SUN.

    The more the wicked try to slow the Solar Energy Industry down, it only Enhances
    involvement and the efforts of the Good at Heart.

    GOD Bless you for reading this.

    The Lord’s little Helper
    Paul Felix Schott

    PS
    through out History Many have tried to wipe the good from our history books.
    Read the Bible Jesus will Bless you more then i can.
     

  • Emeritus

    You are only looking at credit card debt. Why are you ignoring bank loans. Was it that talking about ALL debt wouldn’t have made your point.

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