The Big Deal About Debt

I’m feeling a little fancy today.  Why, I might even quote a little bit of iambic pentameter.

  

Go with me to a notary, seal me there 

Your single bond; and, in a merry sport, 

If you repay me not on such a day,

In such a place, such sum or sums as are 

Express’d in the condition, let the forfeit

Be nominated for an equal pound

Of your fair flesh, to be cut off and taken

In what part of your body pleaseth me.

 

  

Merchant of Venice, William Shakespeare

Act I, Scene III, ll. 140-146 pp. 7-18 

Have you ever taken money from a loan shark where you put a pound of your own flesh up as collateral so that your BFF could woo his lady fair (see the plot for the Merchant of Venice)?  The girl in me is thinking, “oh my, how romantic,” the rational human being in me is thinking, “wow, that’s pretty messed up.”

The truth is that many people will go into debt over far less noble things than love: TV’s, sofas, cars, all with low, low financing now available!

Why We Accumulate Debt

• Impatience & the Lure of Instant Gratification  
• Achievement of Goals
• Lack of Understanding About Debt Usage
• It’s Easy!

You want something.  You want it now.  You don’t have the money for it.  Someone offers you the money for it as long as you promise to pay them back plus a little extra for their trouble. 

If there were no lenders there would be no debtors.  That is not to say that all debt is necessarily bad (though some do feel that way).  A mortgage, for example, might be the only way for a family to realize their dream of home ownership. 

Easy accessibility and high availability of credit and debt can seduce the rich and poor alike into paying interest on purchases for which they might otherwise be able to simply save. 

Fifty years ago, psychologists played a cunning trick on a bunch of American four-year-olds. They were given a marshmallow and told that if they waited for 20 minutes before eating it, they could have another one. Most cracked within seconds, but about one in three held out and – with suitably smug expressions, no doubt – got two sickly confections when the experimenter came back into the room.

Their careers have been tracked to the present day, and the goody two-shoes among them (I am sure I would have scoffed the sweet at once) seemed to be healthier, to do better at school, and to have more controlled and perhaps happier lives than those who gave in.  

Steve Jones, Telegraph.co.uk

The Consequences of Debt – What is the Big Deal?

• Paying More for EVERYTHING
• Loss of Freedom
• Stress
• Funky Odor – No, Not Really

For the family with the mortgage, the interest they pay may be worth the equity they also accumulate with each payment (equity that they would not develop as renters).  They will pay far more for their house than just the sales price.  A $150,000, 5%, 30 year mortgage will accumulate approximately $132,000 in interest.   

A home in my mind is a justifiable form of debt.  Whether or not it is justifiable in yours, I do not know, I am not a mind reader.  I do think that we can agree, however, that consumer-type debt, credit card debt, can be crippling and unnecessary.

The more debt you have, the more freedom you lose.  The more debt you have, the larger it will continue to grow until you pay it off.  As easy debt is to accumulate it is difficult to eliminate.

No, there are no longer debtor’s prisons (read about them, they sent entire families, very scary stuff), and no one can take a pound of your flesh (legally).  The prison that debt puts us in is of our own making.  You are not free to spend your money as you wish so long as you are obligated to pay back someone else.

Conclusions About Debt

Are we victims of debt?

Aside from the obvious cases of predatory lending and loan sharking, I bring this up because many people do feel like victims of their debt.  They are surprised by how quickly it accumulated and just how high their interest rates turned out to be.

On these occasions my opinion is no.   It may sound (read) a bit harsh, but ignorance does not a victim make.  The decision to take on debt is just that, a decision.  Fortunately, the decision to get out of debt is just as easy to make, although it does require a bit more effort to execute.