Carrying debt can make you unhappy. It ruins relationships, stresses you out and results in what I’d call slavery. Here’s my manifesto on why debt is bad and what you need to do about it.
Almost daily I read about how banks aren’t loaning money to consumers. I’ve also read how Citibank (and other credit card companies) are shocking customers by implementing punishing interest rates of up to 29.99% to their customers across the board.
While touted as major crisis by the media, I think both of these lending roadblocks are good for you and me.
How so? Because both lead to less personal debt. If the banks aren’t loaning money, then you can’t acquire debt. If the credit card companies are levying punishing interest rates, then people hopefully will be reluctant to get into more debt.
I view personal debt as slavery. But it took me several years of getting kicked in the head to learn that the hard way. Debt, especially credit card, car loans and home equity, gives the control of your future earnings to other people. In the case of the credit cards, think of it this way. Someone might be paying $50 a week in interest. Then the credit card company decides they want $100 a week and there’s nothing you can do about it. They’ve got you by the short hairs.
Outside a mafia Don, who else can make this type of arbitrary decision about your money? (Well, the government can with taxes, but that’s a discussion for another day…)
But while we are on the government, I’ll toss up a thought you might not have considered. Why do you think the US government is so comfortable with such staggering levels of debt? (~$12 Trillion currently) It is because we the people are so comfortable with such high levels in our personal lives. The government is a reflection of the people’s attitudes and values. If we don’t think twice about carrying a boatload of debt in our personal lives, we will elect people who don’t mind carrying debt into the public sector.
I think if we are to be adults, we need to leave behind the childhood getting what we want today just because we want it. Only a mature mind can delay gratification and admit they cannot afford something at the present.
When did admitting you can’t afford something become shameful? It seems that if my buddy can afford a Lexus and I cannot I should feel ashamed? Why? Shame is the child mind speaking, not the adult mind. An adult thinks “I can’t afford to pay cash for it, but I am managing my finances in such a way that I will one day be able to.” That is what true financial optimism is. Using credit to fool yourself that you can afford it now, but pay for it in the future is a pipe dream. It’s one of the leading causes of unhappiness and divorce for people in the US right now.
There is nothing shameful in admitting we can’t afford something. What’s far more shameful is deluding ourselves that a little bit of debt and the resulting slavery isn’t harmful to our attitudes, relationships and future well-being.
When we use credit instead of cash we can pay 10%, 20% or more for something than it’s actually worth! Just think. You buy a flat-screen TV today on credit for $1000 at the end of one year you’ve paid $1169.76. That’s if you pay it off in 1 year. Most people “revolve” into several years. It’s quite possible that same TV that cost a cash payer $1000, costs someone who uses credit $1,500! Are you really that well off that you can afford to spend such a high percentage more than people who save up and pay cash?
And then consider when you eventually do pay off the TV. In a year, best case, is the TV worth $1,169.00? No, of course not. It’s probably worth $800. So the person who paid cash has lost $200 while the borrower lost $369 – nearly twice as much! That’s why we hear of people who can’t afford to sell a car they can’t afford. The car is worth $8,000 but they owe $12,500 on the loan.
I think we should invest the time to do the math as I’ve done above. The math will reveal the traps others have set for us.
We have only a limited time to work and build success while we live on this planet. The money we make can be used to produce more money or it can be used to dig us into the hole of slavery. Paying later for stuff we get today seems small, almost inconsequential early on – but becomes a noose that strangles as the years wear on. Are we so content that we will delegate the value of our future earnings to other people without as much as a sigh that we are embracing years of servitude?
Whatever happened to saving up for what we want? Have we come so far that saving is passe, not cool or too old-school?
We need to become uncomfortable with having debt at any level. Debt should be a painful ache until it is eliminated. Cash and cash only needs to be our battle cry if we are to become financially successful and avoid the slavery that debt imposes.
If I’ve struck a nerve or opened your eyes, I encourage you to share this with your spouse, friends and relatives. And send it to your elected officials. Only through building awareness of debt’s shackles and gaining the support of those around us, can our futures be free.
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I think that the credit card companies are now basically criminal enterprises. The idea that they can raise someones interest rate to basically anything they want at anytime they want is ridiculous. They are the people who sent credit card offers in the mail to anyone they could find. They are the ones who ran their ads on television constantly. They didn’t care about who had their cards or how they were using them. They knew that they could charge whatever fees and rates they wanted.
They are allowing and encouraging college students to go into credit card debt. They don’t even have jobs. The bill that congress passed this summer had a few good points in it, but it missed the most important point: interest rates. We used to have usury laws in this country. We need to bring them back. The credit card issuers should not be allowed to charge more than 10% interest. Thirty percent interest is just criminal activity.
.-= John Tedder´s last blog ..Christmas As Usual =-.
Brilliant article sir!
I must admit, at first, I doubted your conclusion about government debt and its relationship to consumer debt. Write it off to my general dislike for the federal government.
But you are right. Here’s government debt: http://bit.ly/ikUtY
And note how consumer debt explodes BEFORE government debt: http://bit.ly/3RIHJZ
When you’re in debt, a simple inconvenience can become a crisis fast.
@John: like you I was mad when I found out the companies who non-stop pounded us with their annoying commercials on TV for years were leading the interest rate hikes among the card companies. I feel bad for the people who took the bait.
@B. Riley: I like those graphs, I may need to swipe them
Brad – Totally agree. But I think you missed the severity of the problem. I believe that we as private citizens and also as a country have become addicted to debting. Just ask anyone if they would be willing to cut up all of their credit cards and you will see shear panic on their face. We literally do not know how to live our lives on a cash basis.
I was caught in this addiction and it almost took my life. I was at the point of suicidal dispair over the massive amount of debt that was bearing down on me. Today I am debt free and cannot believe that I almost took my life because of money. At my lowest point I reached out to Debtor’s Anonymous and began the painful process of recovery. I don’t know very many people who do not need DA, honestly. I now live my life on a cash basis and have found such FREEDOM and PEACE. Debting is a form of slavery – you are so correct…My prayer is that we wake up as individuals and as a country and set ourselves free.
Thank you!
Great blog! I was at a cafe recently reading Benjamin Franklin’s autobiography, and his quotes on debt were so good I actually wrote most of them in my notebook.
A few gems:
“But, ah, think what you do when you run in debt; you give to another power over your liberty.”
“Fools make feasts, and wise men eat them.”
“If you would be wealthy, think of saving as well as getting.”
“Pride is as loud a beggar as Want, and a great deal more saucy.”
One more, on preventing debt:
“Industry need not wish.”
Sorry to flood you here, it’s just something that’s been on my mind recently and your post really nailed it.
Matt, you aren’t flooding
. Ben Franklin quotes are good here anytime.
Thank you for this. This is very informative and helpful. Keep up the good work. It is always a terrible feeling to be always in debt.
It is really interesting to see how your blog kind of preached the credit union philosophy. As a credit union employee our staff continuously concentrates on educating our members to be smart about their finances. We have programs for all ages to just educate them about how budgeting, planning is important to make their life peaceful later.
If we start implementing money management plans, saving our money and using cash instead, it allows us to teach our younger generation to do the same. ThinkHuge when it comes to finances, don’t get caught up in little material things, but rather broader picture of how a certain action will affect the future and make it better.
.-= Mark Arnold´s last blog ..Your Job: The Next Scary Movie? =-.
I really enjoyed your article, and I agree that perhaps it should not be so easy for individuals to borrow from banks, and therefore dig themselves into situations which will be very difficult to get out of. However I do not think that increasing interest rates is the answer, rather application should be considered more discriminately – though this is very unlikely to happen since it will naturally mean more man hours in a time when banks are becoming increasingly automated. Many people get to a point in their life when they need a leg up and a loan may be the only answer. Paying almost 30% on that loan isn’t helping anyone’s personal debt in any way.
.-= Jay´s last blog ..Nothing Tastes as Good of Skinng Feels? =-.
Good article,
We should all probably be helping to give this message to everyone. Having been through a lot of debt and helping others with debt I know how important this is.
There is a great little acronym that I was taught. BDIL.
So if you made $ a month you would pay according to BDIL.
Business, Debt, Investment, Lifestyle.
Obviously food comes first! But it’s good to use with your left over money.
TV would come under lifestyle by the way!
Matt
.-= Matt Belcher´s last blog ..Brian Tracy How to Talk: Secrets of the Great Communicators =-.
Matt, I love your BDIL debt reduction method. Thanks for posting!
Brad, thank you so much for sharing your thoughts. I couldn’t agree more. I think that people tend to forget that banks are NOT a non-profit organization. They are in it to make money just like any other business, and if the consumer is willing to pay (high interest rates), which we are, why wouldn’t they take advantage of that?
I truly believe that education is the best defense, and weapon, we have in the fight for our own financial freedom. My wife and I have spent the last five years dumping our toxic debt and have finally achieved freedom. Now I am going to give back. I am starting a Financial Counseling/Coaching practice to help others in their pursuit of Freedom.
Keep up the good work!
This is so true, we’ve spent four years digging ourselves out of debt!
We all do depend on our credit cards way to much. And there is no greater feeling then paying off a credit card but it does always seem like it is so easy to get the balance back up. I agree that as much as 29% sucks it may make people think before purchases. But probably not. We live in a now society and so we buy now and worry about the cost later.
good article but it’s not the same for everyone, for instance in countries like argentine where the money is constantly devaluated in realation with the dollar value sometimes buying by credit card might be a good invertion, I mean if you buy a new tv, let’s say in 10 fixed quotas without interest of 100$, the first month you’ll start paying 100$ but you’ll finishing paying another 100$ that with the devaluation will result in less money.
“A man in debt is so far a slave”. So easy to read but so difficult to follow because debts are wrapped beautifully to make them attractive and make you feel that it is for your benefit.
Thank you for educating us and spreading the awareness.
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