It is like the serpent from the Garden of Eden
I am railing against credit card debt but other forms of consumer debt such as auto loans and home mortgages can be just as evil.
Debt is like the serpent in the Garden of Eden because it tempts us to using it whenever we want something instantly. Debt can provide us instant gratification. We can buy that big screen HD TV or those Steve Madden shoes without a second thought.
We hear debt talking to us every day: 0% interest until next year, "low introductory rates", no payments until 2015 or even better "earn miles" or "earn points" for going into debt.
Are we suckers or what? It is all the same. It is debt and we have to pay it back with interest. Sometimes the interest is worst than what a loan shark charges. Do people know what a loan shark is?
Anyway.
Mortgage debt and auto loans can be just as evil. Look what is happening today with mortgages. Some of us were getting no money down home mortgages or adjustable rate mortgages with very low teaser rates. I've seen teaser rates as low as 3% (I am sure there are even lower teaser rates). And then Bam! - our mortgage rate resets (teaser rate goes away) and we go from paying 8.75% or lower to 12.00% or higher. Gas prices and food prices are eating into our paychecks but our mortgage payment shot up over night.
BTW (By The Way) - this subprime mortgage crisis is affecting all working class Comrades - good credit or bad. I think another lense is coming.
In regards to auto loans let me just say you better read the fine print and understand the loan terms before you sign. My niece, who was determined to buy a new car, went into a dealership and the salesman asked her "what kind of payment can you afford." My niece told him and he said sure we can work with that. He promptly offered her a 72-month loan at 20% interest. Fortunately, my niece got cold feet and left the dealership.
Tip (take it or leave it): never negotiate a monthly car payment with a car salesman or even tell a car salesman how much you can afford. Negotiate the price of the car first.
The Man has set up an economic system where credit cards and other forms of consumer debt are necessary ("What's in your wallet?"). Can you rent a car without a credit card?
Forget about what's in your wallet. Let's change that to what are we going to eliminate from our wallet!!!
But we can fight the Man. We do it by managing our debt so that it doesn't consume us or bankrupt us. WE NEED TO ASPIRE TO LIVE DEBT FREE.
Why Debt is Evil?
There is only one cure for the evils which newly acquired freedom produces; and that is freedom - Thomas Babington Macaulay (1800 - 1859)
I am not going to bore you with statistics to try and convince you that debt is evil. I believe at some level (probably subconsciously) we know it is bad.
Have you ever reacted like "how the fu*% am I going to pay this" or cringed in mental anguish when you opened your monthly credit card statement?
Debt is evil because of three obvious reasons (nothing profound here):
1) More debt means less savings and more problems: the more you are paying out in monthly debt payments: credit card, mortgage and/or auto means less money is going to saving for college, vacation, retirement or emergency.
2) Debt can cause us great mental anguish and/or bankruptcy. We see it or hear about it every day - increase foreclosures - people are losing their homes, increase in credit card defaults. Higher debt levels decrease your ability to weather unexpected emergencies such as losing a job; it also means less money is going to cover higher costs such as gas and food.
3) Debt, after it is paid off, causes us to pay more for the item than its purchase price or current value (Doh!). This is all about the cost of borrowing or interest rate. But most of time we over look this fact. Consider this - if we don't pay off our credit card balance every month we could end up paying two, three or four times more in credit card payments than the actual price of a TV or shoes we bought.
PLEASE REPEAT AFTER ME: DEBT IS EVIL!
Nothing subtle about it!
What can we do:
1) Credit Cards: I wish we can just cut'em-up or better yet shred them, all of them. But our economic structure (can you rent a car without a credit card?) requires them as some sort of right of passage. For those of us who carry monthly balances. We got to pay more than the monthly minimum payment. Credit card companies make a ton of money off us when we just pay the monthly minimum payment - it is called "Finance Charges". Consider this: $5,000 credit card balance at 18.90% and we pay just the monthly minimum payment it will take us 12 years and 10 months to payoff that balance. And this assumes we don't purchase anything else with that credit card!!! If you do, forget about that 12 years and 10 months - we're talking when humans sprout wings timeframe.
2) Use credit cards only for emergencies and payoff the balance as soon as the credit card statement comes with our emergency funds we saved. Don't purchase food or groceries with the credit card.
3) Mortgage Debt: For some of us, we should always keep an eye on mortgage interest rates. Bankrate.com is a good source, so is your local paper or call your local bank. If we can lower our mortgage payments because of lower interest rates we should consider it - but watch out for closing costs on a new loan.
For those of us who are stuck in one of those bad loans (particularly an adjustable rate loan with a low teaser rate) and we can't make the mortgage payments I suggest talking with your lender to see if something could be worked out - because believe me the last thing a lender wants right now is to foreclose on a house in this real estate market.
4) Auto Loans. Bottom line: the more money put up as a down payment the better. Don't be afraid to negotiate - walk away from the deal if your not satisfied.
5) Save. What a novel concept? We all should save for that big purchase: TV, car, cruise or house.
6) For the Comrades who are swimming in debt and don't know how long they can keep up the payments - seek help now. Forget your pride this is a matter of survival! I suggest first contacting a HUD approved Housing Counseling Agency.(www.hud.gov). Most of these Housing Counseling Agencies handle debt management. If the agency you contact doesn't provide debt management then ask if they know someone who does.
There is such much more I have to say. Stay tuned. Crap. I can't wait to get rebelcapitalist.com online.
Remember: Let's stick it to the Man one day at a time.
Are we as a nation addicted to debt?
Are we as a nation addicted to debt?
Fetching blurbs now... please stand by
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Posted July 25, 2008
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Posted July 10, 2008
