Would you agree that debt is modern day slavery? Sure, there are some stark differences. For example, in most cases, one chooses to go into debt rather than being kidnapped and forced into it. Furthermore, there are no threats of corporal punishment and you don’t live in squalor. However, you work to hand your money over to another entity and if you’re severely indebted, you may have to make a choice between eating and remaining current on your obligations. You can be humiliated publicly should your home or car get repossessed to be sold off at auction. Your family can end up homeless. You may have difficulty finding work, because some potential employers are now including credit checks as part of their background screenings.
You’re probably thinking that you can be “emancipated” through bankruptcy, however, bankruptcy will only eliminate some unsecured debts. Your real estate will be foreclosed upon, your cars/RVs/bikes, etc. will be repossessed and your student loans cannot be discharged under any circumstances. Knowing this, are you comfortable piling on more debt? If you are still struggling, have you resolved to get out? If you broke free, what’s your plan for staying free?
Some will say there is a difference between good debt and bad debt. I don’t think there’s such a thing as “good” debt. You still have to pay it back, and you have to pay back more than you borrowed. The only good debt is an interest free loan. Let me know where they’re giving those out so I can get one. What you have is necessary debt and worse debt.
Necessary debt, which I’m too cautious to characterize as good, is the kind of debt that you have to take out because you can’t afford something on your own, but it’s ok, because it will (hopefully) make your life better. For example, borrowing money to develop a skill, get a degree or certificate has the ability to increase your earning potential. Furthermore, while your payments will eventually fade away, your education and/or skill can never be taken from you. So you spend 10 years paying for an income generating product (degree) that you’ll use for 40 years. It’s very similar for a house. You buy a home that you will hopefully live in for the next 30-40 years, and while it may go down in value, you’ll always need a place to stay so you might as well set yourself up for some fixed payments.
Bad debt is pretty much everything else. How much is your car worth after you’ve paid it off? Will it ever generate income? Does it have a 40-year lifespan? How about a new pair of shoes or a flat screen TV? What do these things really cost after interest and other fees? Do you really want to be at the mercy of someone else over a few little trinkets? Do you want to be told what to do with your money when your check comes in? Because, that’s exactly what happens when you are in debt. To avoid repossession or a black mark on your record, you allocate that money to repayments. This form of bondage, while more mental than physical, is just as damaging. Finances drive a lot of the divorces in our country. People kill themselves and their whole families when they can’t pay their bills. I wonder how many people would think twice before borrowing if they weighted all these factors.
I have given myself 2 years to pay off the $35,000 I owe on my MBA. While there’s nothing I can do about my mortgage, my husband and I have an understanding that we will not charge anything to our card that we can’t afford to pay off at the end of the month (we love those points, so I don’t think we are going to get rid of plastic in the near future). We work hard for our money and want to keep it.
Are you willing to swear off debt? If so, what’s your game plan?