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.
Thank YOU for spreading the word. You are the best!
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