In 2023, the U.S. national debt clock shows a staggering $33 trillion dollars. It's a number that's hard to fathom, and it continues to grow. For over two decades, the U.S. government has consistently spent more money than it collects in revenue. This fiscal strategy has resulted in an ever-expanding national debt. While this might seem concerning, it's crucial to understand that not all debt is inherently bad, a sentiment echoed by some economists.
Debt, as it turns out, can serve many useful purposes. According to Kris Mitchener, a professor of economics, public debt has often been used to address emergencies. It's a way to finance necessary expenses without placing an immediate burden on the current generation through increased taxes.
This was evident during the COVID-19 pandemic when the national debt increased by more than 89%. Top economists argued that 2020 was not the time to worry about the debt but rather to prioritize saving lives and the economy. Debt provided the means to do just that.
It is important to distinguish between good and bad debt. While debt can be a powerful tool for funding essential initiatives, there's concern over how much debt the U.S. is accumulating. When it comes to your finances, you should consider not whether debt should be used but how often and how much.
Good debt typically involves borrowing money to invest in assets that appreciate or generate income, such as a mortgage for a home or a student loan for education. These debts can potentially improve your financial well-being over time. On the other hand, bad debt includes borrowing for non-essential expenses that depreciate quickly, like credit card debt for discretionary purchases. To determine what kind of debt you have, assess whether it contributes to your financial growth or if it's holding you back. Evaluating the purpose, and potential long-term benefits of your debt can help you identify whether it falls into the category of good or bad debt.
Economists gauge the severity of a nation's debt using the debt-to-GDP ratio. Currently, the U.S. debt held by the public hovers at nearly 100%. In contrast, experts suggest a responsible debt-to-GDP ratio for a country the size of the U.S. would be around 70%.
Many believe that while debt can stimulate economic growth, maintaining the right balance is crucial. A high debt-to-GDP ratio can lead to challenges in servicing the debt, particularly when interest rates are on the rise.
So, how does the U.S. national debt relate to your personal finances? While it might seem like these two worlds are vastly different, there are valuable lessons to be learned. Your financial health can be likened to managing your own debt clock. Consider these tips when evaluating your own debt clock:
Like the national debt, not all debt in your life is inherently bad. Mortgages, student loans, and even responsible credit card use can be useful tools when managed wisely. However, it's crucial to monitor your personal debt-to-income ratio, similar to the national debt-to-GDP ratio. Understanding how much debt you can comfortably manage is key to financial stability.
Here are some actionable tips to help you start managing your debt effectively:
Remember that managing debt is a journey that requires commitment and discipline. Stay persistent, and over time, you can become a pro at managing your debt.
Just as the U.S. government strategically employs debt for essential purposes, you can also use credit wisely. Taking on debt for investments in education, a home, or starting a business can lead to long-term financial growth.
Here are some tips on how to use debt wisely:
Remember, using debt wisely requires careful consideration and a repayment plan. Before taking on any debt, assess your financial situation, evaluate the potential benefits and risks, and create a strategy for managing and repaying the debt. It's essential to strike a balance between leveraging credit for financial growth and avoiding excessive debt that could lead to financial stress.
Balancing your budget is the cornerstone of sound financial management. Here are some helpful tips:
Remember, achieving a balanced budget requires discipline and consistent effort. By keeping a close eye on your income and expenses, prioritizing debt repayment, and making informed financial decisions, you can maintain a healthy financial balance and work toward achieving your financial goals.
While the U.S. national debt is a topic of national concern, there are valuable parallels to be drawn for your personal financial journey. When managed wisely, debt can be a tool for achieving your goals. Monitoring your own "debt clock" and understanding your financial limits are crucial steps toward financial stability. Sunset Finance is committed to helping you navigate this journey, providing the support and resources you need to reach your financial goals.
Sunset Finance offers a variety of personal loans to meet your financial needs. Whether you need to cover an unexpected expense, consolidate debt, or make a major purchase, Sunset Finance can help.
Our personal loans have equal installments for a set term and are designed to fit into your budget. We also offer credit and budgeting resources to help you manage your finances and improve your credit. With multiple locations throughout South Carolina and Georgia, Sunset Finance makes it easy to get help when you need it.
Managing your debt and personal finances may seem daunting, but with our Cleaning Up Your Finances Checklist, you can tackle it step by step.
If you would like more resources on personal finances and budgeting, check out these resources: