Research Papers / Pro/con and proposal essay on Consumer credit -Revise [6]

For this paper, construct a debate of your choice (consumer credit). please help.

The use of consumer credit has become an increasingly important aspect of the U.S. economy. In fact, the recent economic boom of the mid-2000s was primarily fueled by consumer spending that was financed by soaring levels of household borrowing. There are many who don't know the different forms of consumer credit that are used on a daily basis. In addition, many consumers see credit as a way to purchase items. Although the Great Recession of 2008-2010 has generated intense dispute over consumption financed by household debt, consumers should know when to stop. Nevertheless, some may argue that without consumer credit the economy would not e abs big and many people would be jobless as a result.

Since the 1981-1982 recession, outstanding revolving U.S. consumer debt (98 percent credit cards) jumped from about $70 billion to over $958 billion in 2008 (Consumer Credit Jumps...). By the spring of 2010, the year-long decline in household credit card debt led media pundits to declare that the U.S. spending binge was over and that Americans had learned a costly lesson from the easy credit period. That is, Americans were returning to their prudent spending patterns and paying down their costly consumer debt (Matthews). Overall, credit card debt fell nearly $130 billion, from $958 billion at the end of 2008 to $830 billion in summer of 2010. Also, the household saving rate rose from about-1.0 percent in 2008 to over 4.5 percent in 2010 (Somerville).

Everyday consumers use different forms of credit to purchase a certain good. For example, credit cards, loans, store cards, auto finance, and mortgages are the most common. Thanks to rising tuition and the weak economy, college students are forced to rely profoundly on loans to pay for their education (Kurtzlebenbg). However, there are certain loans that can also be used to purchase a vehicle or a house, but the most common loan to buy a car is through an auto finance company (Woosley). Just like car loans and college loans, there are also different loans to purchase a house. To illustrate, there are mortgages, conventional loans and home equity loans (Dunn) .Although these examples are also a form of debt, which can cause many problems for people throughout the years.

One problem that stems from consumer credit is stress. In an article by Brunilda Nazario, many people frequently worry about their debt. According to Paul J. Lavrakas, a research psychologist and AP consultant, perhaps 10 million to 16 million are suffering terribly due to their debts, and their health is likely to be negatively impacted (Lazurus). Also in a medical survey done in 2008, the tough economic times and rising costs of living seem to be leading to increasing debt stress, 14% higher than it was in 2004 (Debt Stress...). While a poll in 2008 also showed people reporting high debt stress, for example people who reported high stress also were much more likely to have trouble concentrating and sleeping and were more prone to getting upset for no good reason.

Another problem that can result from consumer credit is going into debt. The amount of U.S. debt subject to the country's legal maximum has topped $14 trillion for the first time (Younglai). Students graduating from college last year walked away with more than a diploma, they also left with a record level of student loan debt. The average balance grew to $3,173, the highest in the years the study has been conducted. Median debt grew from 2004's $946 to $1,645 (Kurtzleben). Twenty-one percent of undergraduates had balances of between $3,000 and $7,000, while seniors graduated with an average credit card debt of more than $4,100 (Ellis). But many see this as "good" debt because it will benefit you in the long run. Other examples of "good" debt includes anything you need but can't afford to pay for up front without wiping out cash reserves or liquidating all your investments (Good Debt...).

Besides being stressed out about the debt that you owe, Americans also feel insecure about consumer credit. For example, credit cards are often approved without any type of income testing and carry abnormally high interest rates (Debt Stress...). In 2008, the Federal Reserve reported that consumer credit increased at an annual rate of 3.6% in May, which pushed the total consumer debt up by $7.8 billion to $2.57 trillion (Consumer Credit Jumps...). For this reason credit card companies should do a background check for people who are trying to obtain a card. Another way credit card companies can help ease Americans is by lowering rates and being honest with their policies.

For this purpose, consumers should stop and reflect on what they need to purchase and eliminate what they want to purchase. If consumers continue spending on what they want, America will surpass its current $14.3 trillion debt ceiling (Kurtzleben). Also, it will make the United States the largest country with the most debt in the world. While this may be years from now, if consumers stop and reflect now America will be able to slowly decline on the largest debt any country has in the world. At the same time, America is not the only place consumer credit has taken a toll on, many other countries have also suffered. Other countries that have also been affected include Italy, the United Kingdom, and Germany (Kurtzleben).

In addition, if you do face debt and can't find a way to pay it off there is help. In the United States there are many counseling services that can assist you. For example, there is National Foundation for credit counseling, Money Management International, and Association of Independent Consumer Credit Counseling Agencies. Furthermore, there also consolidation groups that can lower your monthly cost by extending the length of the loan. There are also credit repair groups that can repair your credit over time (Good Debt...). A claim that can be arranged for your unsecured debt, typically credit card debt, to be paid off for anywhere from 10 to 50 percent of the balance owed is called a debt settlement. Finally, you can also file for bankruptcy which cancels all the debt through an order of the court but you have to start from the bottom, up (Consolidate Credit...).

On the other hand, credit has been used to purchase automobiles, houses, and even food over the past years. The dependence on credit has varied over time. In agricultural areas, for example, farmers routinely rely on business and personal credit during the planting and growing seasons, which is then repaid with proceeds from the harvest (Good Debt...). Social attitudes encouraged borrowing for costly equipment like a mechanical harvester or a multipurpose tractor because they were "good" debts, business investments that increase labor efficiency and economic self-sufficiency (Good Debt...). Similarly, buying a sewing machine on credit was viewed as a prudent investment since it reduced household expenditures on store-bought clothes and could generate supplemental income by taking in work.

Even local merchants were relatively stingy with their self-financed "open book" credit. By cultivating consumer loyalty, they had to balance greater store sales that encouraged responsible consumption while limiting household debt to manageable risk levels for maintaining adequate store inventories (Lazarus). From the late 19th through the mid-20th century, banks prioritized the lending of relatively insufficient credit to economically productive activities. In the process, this policy imposed greater social control over flexible household expenses and leisure time activities as they were closely regulated by the religious and community norms of the period (Lazarus).

Today, the responsible use of consumer credit is as important as the careful management of household income. Even though Americans have much higher levels of debt to maintain their families, the social division of good versus bad debt still persists (Debt Stress...). For instance, a home mortgage is perceived as good debt since it's an important household need while accumulating a considerable asset. Student loans are also generally viewed as good investments because higher education enhances professional mobility and income growth (Ellis). However, even good debt can lead to financial problems, such as when housing prices exceed family resources or costly mortgages that greatly exceed the financial gains of home ownership. Accordingly, borrowing for expensive college or vocational training programs may be bad debt by consigning the borrower to many years of debt servitude (Good Debt...). This may result from circumstances outside of the borrowers' control, such as deteriorating macroeconomic conditions (recession) or declining demand for specific occupational skills due to outsourcing (software engineers).

The allegation that Americans are undergoing a profound behavior change in their spending patterns belies the economic reality of the current economic decline. Americans are concerned and cautious about their economic situation, but there is insufficient information to reach a definitive conclusion. With soaring bankruptcy rates (over 3.1 million in 2008-2009) and few home equity loan options, most of this decline in credit card debt is due to bankruptcy discharge and loan defaults (Sahadi). In fact, over $100 billion in credit card debt was discharged through the U.S. bankruptcy courts in 2008 and 2009 (Sahadi). Also, millions of Americans are in the process of home foreclosure. By not making housing payments, they are able to submit monthly payments on their credit cards and auto loans (Debt Stress...). Millions will default on these loans when they have to resume making housing payments over the next two to three years.

Furthermore, reduced credit has prevented millions of Americans from increasing their household expenditures and outstanding debt. Between 2007 and 2010, total outstanding lines of revolving credit plummeted from $5.5 trillion to $2.7 trillion (Woosley). Of course, those with low levels of debt experienced the smallest reductions, while those with high levels of debt experience the greatest reductions (Debt Stress...). For this reason, it is premature to conclude that Americans have fundamentally changed their attitudes toward credit and debt. If consumers continue their controlled borrowing preferences after banks relax their lending requirements, then there may be evidence to support a major change in Americans' attitudes toward credit and debt.

Overall, consumer credit has many uses and forms, but can also cause many problems. One problem that originates from consumer credit is stress. Another dilemma that can occur is going into debt. But besides being stressed out about the debt that you owe, Americans also feel insecure about consumer credit. That been said, consumers should reflect on how and what they spend on. On the other hand, credit has been used to obtain automobiles, houses, and even food over the past years. Even local merchants have used credit to purchase items they need to run their business. Today, the responsible use of consumer credit is important as the careful management. Furthermore, reduced credit has prevented millions of Americans from increasing their household expenditures and outstanding debt. However, if you do find your self in debt there are many programs that can help settle, pay off, or file bankruptcy.