Escape the Debt Culture; Forget Credit History, Credit Repair, Credit Score
Posted: Friday, January 09, 2009
by Mogama
http://www.mogama.info
Debt has so many names in America. And the word debt is rarely used. We prefer to call it loan, note, liability, mortgage, consumer loan, business loan, personal loan, charge, buying power, margin, deficit, in the red, co-signing. Nightmares associated with excessive debt and financial mismanagement include realities like repossession, foreclosure, bankruptcy, not to mention fights between couples, shattered families, and rampant divorces.
Besides the government, our businesses run on debt. It's called commercial loan, investment debt, etc.
American families and individuals live on debt, in debt. The average American household owes more than $112,000.
Businesses and individuals can file bankruptcy. But have you ever thought of the possibility of our government one day having to file bankruptcy? I shudder to imagine the scenario. Perhaps that day will never come. Perhaps the Federal Reserve will just print more papers to pay China, Japan, and our other lenders, even it means a dollar that's worth increasingly less.
Our government taxes and spends its way out of every problem, need or perceived need. We see little creativity but tax and spend on the Democrat side, and tax cut on the Republican side. The template has never changed, except that under President Bush, the Republicans have become big deficit spenders just like the Democrats.
We buy our cars on debt. The typical car debt is now around $20,000. The average monthly car payment is about $370. The average car loan now lasts for 70 months; that's 5 years and 10 months. According to the LA Times, "today's average car owner owes $4,221 more than the vehicle is worth."
We buy our homes on debt. By the middle of 2006, the average mortgage (house loan) payment was $1,687 per month. By December 2007, the average price of home hit $240,000. Since the price of a home makes it difficult for the ordinary person to pay cash for a house, the picture on debt would be brighter if buying a home was the only thing that most Americans borrow money for.
We borrow against the equity in our homes. It's called Home Equity Line of Credit, or HELOC for short. Just call it HEL, that's hell with one L missing. The Cleveland Business News reported that the typical home equity line of credit was around $48,158 in May of 2008. So we struggle financially to own a home, then after we actually own a piece of it, we turn right around resell our share in it back to the bank or whoever the lender is. And what do we use our HEL money for? According to Teresa Dixon Murray of the Cleveland Business News
- 34 percent of us use HEL to pay off other debts
- 31 percent to pay for "other expenses, such as vacations or medical bills."
- 29 percent to renovate our homes, and
Our schools teach our children how to "use credit responsibly" instead of teaching students how to avoid borrowing, save consistently and invest wisely. We've got tons of advice on how to pay off debts or how to accelerate mortgage payments but very little advice on how to avoid debt in the first place.
We borrow with credit cards to meet our basic needs like food, clothing, food, gasoline, telephone, and utilities. However, there is much debate about just how much Americans owe in credit cards. The usual number thrown around by politicians, journalists and pundits alike is that "the average American owes 8,000 in credit card debt." But Liz Pulliam Weston of Money Central strong disputes that number. Instead, she writes, "In reality, most Americans owe nothing to credit card companies; most households that carry balances owe $2,000 or less; only about 1 in 20 American households owes $8,000 or more on credit cards."
Hope the lady is right, and more importantly, neutral and objective in her shiny analysis.
It's been said that the savings rate for Americans is now a negative number, which is just one more way of saying, we spend more than we earn.
When it comes to commercials, we see and hear credit card commercials, but when was the last time you saw a 'savings card' commercial? These days, when we say "save money", the best we mean is "spend less at the store", until the next sales event. We have ads and commercials about what's on sale and where to borrow the money to get it, but there are no commercials on the need to save, or how the ordinary person can lend money to earn interest. All the commercials entice us to get more; none of them challenges us to exercise discipline and self-control, so that we can be content with fewer things, while keeping more of our income.
We have credit unions and cash advance places, but I'm still waiting for those saving unions. We worry about our credit score, our FICO score, our credit history, or the need for credit repair. But why isn't there such a thing as a saving score? And why don't we worry about our saving history instead?
The current economic crash is a testimony to how frail and dangerous it is to build the structure of our national and global economy on excessive debt. Yet we have convinced ourselves, trained ourselves to continue believing that the ordinary American can't live without borrowing and going into debt. Are we now convinced that a debt-based market system can come crashing down within weeks? And have we really figured out why? It's because the whole thing is backed by nothing but paper, or by the weak power of IOU said billions of times, what amounts to little more than a conditional promise by each borrower to repay his/her lender. If at any given moment in time, the economic universe lines up in a way that makes it difficult or impractical for a sufficient number of borrowers to repay their borrowers, the system tanks and sinks. That's what has happened, and will happen again, unless we find a material other than compounding debt to construct the foundation of our free market system.
The good news is, millions of Americans are seeing the light during these dark days. Better yet, we are no longer believing the lie that a lifelong debt is the best path to the American Dream. We as families and individuals are starting to pay off our debts by the millions. Personally, my New Year's Resolution, which I have written down and posted on the mirror is to pay off a minimum of $100 from every pay check towards my debts. Per Dave Ramsey's counsel, I have listed my debts from smallest to largest, and will pay them off in that order, with a treat, of course, every time I cast out one of those demons out of my financial life. Why not go the opposite direction of our government and make this our year of debt-freedom, or at least the beginning of our debt-free living for the sake of an even more prosperous America in decades to come? Unless we, the ever-extending tentacles and power jaws of this debt culture will take us down, with our good credit score and all.
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Top-level comments on this article: (1 total)Mogama, all great advice for those that HAVE. We seem to speak all the time to those that have and forget the millions who are no longer in that category. Advice for savings, paying down, investing, retirement all from those in the upper levels of income. Now nothing you said I disagree with except never think that anything to do with the credit industry is good. the sooner you rid yourself of them and their reporting agencies the sooner you will have peace. Good job.Thanks for your comments, Robert. I don't consider myself among the haves, though I'm on my way. That's why I have decided to become and remain debt-free, so that the masters of usury are no longer masters of what little I have. ~mogama~
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