Breaking Up With Debt Is Hard to Do

By Dawn Handschuh, Personal Finance Writer Archive

There's a battle outside
And it is ragin'.
It'll soon shake your windows
And rattle your walls
For the times they are a-changin'.

 — Bob Dylan

Americans' willingness to live beyond their means is common knowledge. Plentiful credit in years past has made "saving up" for something seem unnecessary since, with the flash of a credit card, we can immediately take possession.

Bob Dylan wasn't singing about recession, but his words take on new meaning when applied to a rocky economy, falling housing prices and sky-high gas prices.

The times they are a-changin', leading many consumers to rethink their personal finances. Looking an economic slump square in the eye, consumers are trying to change.

Shoppers have cut spending across the board; sales of cars, electronics and furniture have dropped sharply. Consumers have become value-oriented, spending more time at Wal-Mart and warehouse stores.

In hard times, discretionary spending is the first thing consumers cut. Many well-known restaurants have taken a hit, with some chains (Lone Star Steakhouse) closing certain locations, while others (Ruby Tuesday, Applebee's) have seen declining sales.1

Recent surveys in the past two years confirm that the trend toward more responsible money management has been building gradually. Here's what born-again spendthrifts are thinking:

About spending

  • 62% are considering buying more fuel-efficient vehicles.2
  • 50% are focusing on needs over wants.2
  • 42% are consolidating shopping trips.2
  • 37% say they use cash, not credit cards, for everyday purchases.3

About debt

  • 37% say they plan to pay down debt.2
  • The single biggest problem reported when asked about personal finances was "not having enough money to pay the bills."4
  • Consumers' money management skills are evenly divided among those who live comfortably (38%), meet living expenses with a little left over (28%), and see basic living expenses outstrip income (32%).4
  • Only 24% pay off credit cards in full each month.3
  • About 1 in 7 reported that, at some point in their lives, they had debt problems bad enough to consider bankruptcy or seek financial advice.3
  • 53% said their personal finances were fair or poor.5
  • 58% said their incomes are falling behind the cost of living.5

Footnotes

1 "Hard times are on the menu at restaurants," USA Today, March 2, 2008
2 "Gloom But Not Doom, According to Consumers," The Center for Media Research, January 16, 2008
3 "What Americans Pay For — and How: Information Age Bills Keep Piling Up," Pew Research Center survey, February 7, 2007
4 "Most Americans Moderately Upbeat About Family Finances in 2007," Pew Research Center survey, January 14, 2007
5 "Economic Discontent Deepens as Inflation Concerns Rise," Pew Research Center, February 14, 2008