What Is the History of Debt Consolidation?

In these difficult economic times, with the housing values falling and national employment rate staying at near 10% levels, more people in the US are considering debt consolidation to manage their overwhelming debt. Debt consolidation is a not a new process. Lenders have been practicing debt settlement for thousands of years, however, the debt consolidation options we see today is the result of a tumultuous financial history. The history of debt consolidation in the US is a compelling story.

When our grandparents were young, credit cards did not exist so people spent cash which meant they spent only what they could afford. There were no loans for cars as cars were just beginning to emerge and the widespread mortgage holders we see today did not exist back then. After World War II, the trend of a consumer driven society began to emerge. Technology and manufacturing began to spread with new expensive products beginning to come on the market. The industrial revolution was in full swing.

In order to sell these products, manufacturers realized they had to make their goods available to the lower and middle classes. Lending institutions emerged and financial burdens began to be viewed as necessary to maintain consumer spending. Credit cards began to emerge with high interest rates. A new system developed known as the Fair-Isaacs corporation's logarithms which calculated the trustworthiness of borrowers based on their prior payment history and current credit capacity. This allowed the working poor and new immigrants to get mortgages and credit cards. The bottom of the consumer demographic began to accumulate debt regardless of their financial status. People across the country, regardless of their income, were starting to acquire mortgages, vehicles, and use credit cards to buy appliances, electronics, and other expensive goods.

The American economy began to rely on consumer spending and consumer spending depended on the ability to acquire loans and credit cards. As household savings declined household debt grew. The result was consumers gathering debt they could not afford. During the 1980s and early 1990s, banks were greatly deregulated which allowed them to relax consumer lending practices. Millions of people who could not afford a high debt load were accumulating it at a very fast rate.

The US found itself in a situation where it had to find a solution to managing debt. The banks created departments that focused on debt settlement in order to arrange payment plans to shrink remaining balances and help consumers avoid bankruptcy. As well, passage of legislation in 2005 made it more difficult for people to file for bankruptcy. People who did not qualify for bankruptcy had to go thorough debt restructuring plans. As well, debt consolidation companies and organizations began to emerge to help consumers get out of debt or even just manage their debt. Not only was it debt management, but it was also designed to teach people how to manage their finances more effectively.