America is in the midst of a credit crisis. Looking at the numbers, American student debt is now roughly $1.5 trillion, as reported by Credible. And the business sector doesn’t look much better, with U.S. corporate debt reaching historical highs of $9.1 trillion, according to 1031Gateway. However, this is not something that happened overnight. Instead, it has been brewing for ages now.
Understanding this credit crisis is key to you being able to protect and grow your nest egg for your financial future and avoid falling into despair. Here is what you need to know:
There’s Nothing in the Vault
In the old days of the American economy, everything was backed up with gold. This was the hard, physical asset that gave strength and stability to the economy. However, in the 1930’s during the depression, large banks and billionaires came together with a new plan.
They decided to lobby the government to take the U.S. off of the gold standard and into the world of fiat currency. When they did this, everything was in the power of the Federal Reserve, which decided things like interest rates and the value of the currency. Thus, the U.S. dollar today is not inherently worth anything, it’s worth what the banks say it is.
The Credit Phenomenon
Most people don’t understand the three credit bureaus and what they do. And this is by design. The bureaus keep you in the dark so that you are happy to keep borrowing money without truly understanding what makes your credit score good or bad. In this way, you can fall deeper into debt without noticing it.
A Crisis Coming to a Head
The 2008 housing crisis was strongly related to the credit crisis. In many ways, it was the most disastrous effect of it. Banks were handing out loans for homes that they knew people couldn’t afford. This meant that people were overextending themselves with assets they didn’t have the collateral to back up. The end result was a collapse of the economy.
Improving Your Credit and Avoiding Another Crisis
If you want to be on the right side of the next crash, you need to improve your credit. Start paying down any debts or bills that you have. Begin with those with the highest interest rates and seek counsel from people who can help guide you financially.
When it comes to finances today, nearly everything runs off of credit. This is both good and bad. When you understand how the credit world works, you are able to take advantage of it to put yourself in a better financial position. So, be aware of the trap of not knowing about credit. Review the information above and make sure you have a solid plan to escape the credit traps forever.
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