Debt.  It's the new four-letter word.

According to the most recent figures I've been able to find, US consumer debt topped $2.5 trillion in 2007.That number also indicates an increase in the rate of debt at 7.5%.  Which means that, with each passing year, we are taking on more and more debt.

The downside to debt, of course, it that it eventually needs to be repaid.  It doesn't matter if it's the company financing your car, your home or your credit cards.

Another downside to debt, on a personal level, is that it affects you ability to obtain a mortgage and/or obtain a preferential interest rate. The more debt you have as a portion of your overall income may either kill your chances for a mortgage or create a situation where you need a larger down payment, pay points or pay a higher interest rate.

There used to be a time when it was "normal" to require a 20% down payment for the purchase of a home.  The bank would finance the other 80% and because the home owner had a significant financial stake in the home, chances were good that they would keep paying the mortgage even if they fell on hard times.  These were also the days when the general rule of thumb was that your monthly mortgage payment would amount to approximately 25% of your monthly salary.  You'd work about one week to pay your house note and the other three weeks to pay for food, your car, your clothes and your fun.

Those days went bye-bye when prices started going through the roof and mortgage lenders saw opportunities to make more money.  They created the 100% loan for people who had money but wanted to keep it invested in places other than their house (like the stock market or the Cayman Islands). Then they made the 100% mortgage available to everyone with a decent credit score as long as they were willing to pay a higher interest rate for the additional risk.

Then came the 103% mortgage. Then 107%. The ARMs. Interest Only.

More to the point, lenders weren't holding to the old ratio of 25% of housing debt to total income.  Now, they were allowing up to 45% in some cases.  This meant that almost half your total income (and more than half of your "take home" pay) was going to your house payment.  That's a lot fo money out of your pocket every month just to pay the mortgage.  You still had to buy food, pay the light and heating bill, and so on.

So, now, under the weight of all this debt, people (not paper) are starting to collapse.  We realize, now, with food and gas prices inflating and the kids needing clothes or medical care and utility costs going through the roof (sometimes literally) we took on too much debt.

Unfortunately, because we took on so much debt without having to add our own financial stake into our homes it's easier just to walk away. Thus, the high foreclosure rates. After all, if we didn't put any money into the deal the worst thing that can happen is a crummy credit record and we're back to renting a two bedroom apartment somewhere.

The moral to this story is that debt is not good.  It doesn't matter what the US Government says or what someone might have told you about needing a credit card or a car loan.  The lower your debt, the better off you'll be both for your personal life and for your chances of getting a good mortgage.