Our Overleveraged Planet
The world is hungry for debt. Prices are rising amid record inflation, costly infrastructure projects are underway, and governments are spending money addressing climate change. As of June last year, the total amounts owed by governments, corporations, and households across the globe added up to $300 trillion. That’s a record and the equivalent of $37,500 in debt for every single person in the world.
Plainly stated, the world is overleveraged. The government debt-to-GDP ratio rose to 102% as of last year, meaning, on a whole, people make less than we owe. And, given interest rates are rising and the global economy is slowing, that debt burden is only intensifying.
Debt’s Diminished Productivity
The current economic environment, with rising amounts of debt and higher interest rates, makes for a challenging situation.
There’s a cyclical nature to it all: consumers are forced to borrow more as costs rise due to inflation, and central banks hike rates in a bid to slow inflation. Over time, debt continues to grow, while servicing that debt becomes more expensive. At the same time, rising rates are putting pressure on corporations, in turn, forcing them to raise prices.
What can be done about the current situation? Geopolitical analysts say there’s no easy solution. However, cutting back on overconsumption, adapting more cautious underwriting standards, and changing how government policymakers prioritize could perhaps, over time, get us back on track.
Conquering Personal Debt
As with corporations and governments, getting out of debt is not an easy task for individuals. It takes discipline and adherence to a budget. These three steps can help get you started.
First, decide which approach to paying down debt works best for you. The debt snowball method focuses on paying off the smallest balance first, to build momentum. Alternatively, the debt avalanche approach targets your highest interest rate balance first.
After choosing your debt repayment structure, consider debt consolidation. This might involve paying off all your debts through a personal loan, leaving you with a single source of debt to prioritize.
Finally, credit counseling is available for free through nonprofit agencies. Debt is certainly a burden — one felt by the entire world — but, with proper planning, it can be overcome.
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