Freedom Debt Management – What Works?

Is there such a thing as Debt Management Freedom? Recent figures suggest that the rate of debt among consumers in the Western world has been rising at a phenomenal rate. Not only is the rate of debt increasing, but the default rate on that debt is also increasing rapidly. How did this situation come about?

If you are in debt, in order to understand your debt situation, it is important to understand the role it plays in the overall economy and how things outside of your control can have a direct impact on your financial well-being. If you are going to learn the true meaning of Freedom Debt Management, then it is also important that you learn about the economy in general and watch for warning signs.

To fully understand the current situation, we must go back to the time between the late 1940s and the 1960s, known as the baby boom. The catalyst for this baby boom was the end of World War II. Many soldiers returning home from the war saw it as an opportunity to settle down and start a family. The result was a large increase in the number of babies born in the postwar years. The baby boomers, as they are now called, are the generation of adults who were born in this post-war period and play a key role in today’s economy.

Fast forward to the 1990s and the rise of the Internet.

In the mid-1990s, global interest rates were high. The dawn of the Internet in the mid-1990s helped spawn a whole new industry. It was this industry that investors flocked to. Baby boomer pension funds played a key role here, as mutual fund managers sought to maintain high returns on their funds. The 1999 millennial bug scare helps generate more interest in the Internet and the technology sector in general.

In 2000, after the hype of the new millennium, Internet stocks were trading at an all time high and began to falter. The promises of great wealth never materialized and the share prices of these Internet companies began to fall. Stock prices fell hard and fast.

In response to this stock market crash or dotcom crash as it is now known, the Federal Reserve began to cut interest rates. Then, after the 9/11 terrorist attacks, the Federal Reserve continued to cut interest rates. By lowering interest rates, the Federal Reserve, in effect, paved the way for the housing boom.

The housing boom

Many people who felt burned out by the intangible and transient nature of the stock market and stock ownership opted for what they thought was a safer “bricks and mortar” investment. Around the same time, many book and media commentators advocating the value of investing in real estate appeared on the scene.

The easing of global credit and interest rates after the dotcom crash and the terrorist attacks of September 11 created an environment where everyone had access to credit. As a result, the demand for housing began to skyrocket.

This increase in demand was driven in part by mortgage sellers working only on commission. Some sales agents went to great lengths to increase their sales. Banks have been accused of predatory lending. This is where banks and financial institutions would lend, through mortgage brokers, to people who might not necessarily be able to afford repayments. NINJA loans became the buzzword of the day: no income, no job, no assets. The money poured into real estate and property.

Once the focus of professional property owners and investors, the area of ​​real estate investment now had an influx of relatively amateur real estate speculators who were backed by easy money from banks and financial institutions. On top of that, people who already owned their homes were encouraged to take equity out of their homes to finance their lifestyles.

The financial institutions themselves, in order to reduce their risk, carry out a practice called securitization. This involved the practice where they took all the mortgages (and associated cash flows) that they had given to people buying property and created an investment vehicle. The banks then went and sold these investment vehicles to other banks and financial institutions and investors.

Baby boomer pension funds were looking for a new home. First by chasing stocks during the dotcom boom and then into property. In both situations an asset bubble was formed. Now, I’m not saying that pension funds were the only cause of the bubbles in tech stocks and housing. Many factors were at play. In my opinion, the key factor in both bubbles was the collective mania experienced by investors in both technology and real estate stocks. In both cases, the commenters talked about how “things were different this time.” In reality, nothing had changed and it wasn’t long before market fundamentals came back into play with a bang.

We now have a situation where the loan default rate is skyrocketing. Debt is becoming a real problem for a lot of people. Until then there was always another source of credit, another credit card offer from the bank, another mortgage refinancing option.

The harsh reality hits home

‘All good things must come to an end’ or ‘all that rises must fall’ – take your pick from the cliché sayings. In the end, everyone had a suspicion that things couldn’t go on forever. The credit crunch that started in mid 2007 is now affecting everyone.

We now have a situation where the loan default rate is skyrocketing. Debt is becoming a real problem for a lot of people. New numbers are coming out every day on the number of people filing for bankruptcy and the number of homes going into foreclosure. The future that once seemed so bright now sports a distinctive shade of gray.

Until then there was always another source of credit, another credit card offer from the bank, another mortgage refinancing option. People didn’t seem to care too much as the economy seemed to be in good shape. Now, sadly, one of the main drivers of the economy, housing, is in a strong downward trend, bringing with it the hopes and dreams of a generation. There really is only one option left and that is to work hard on debt management for your freedom by paying off your debt and moving on with your life.