Several so-called “financial gurus” treat DEBT as if it’s a gift from Satan – something that tempts you to do things you shouldn't do like the irresistible aroma of something wonderful cooking on the grill that lures you into going off your diet. But, this is as misguided and fallacious an idea as thinking that if you eat one cookie from the bag, you have to eat them all! Prudence, temperance, responsibility, and the proper understanding of debt will produce a much happier life for you than abstinence ever will. While debt is not a universal solvent, neither is it a highly-contagious plague that will destroy your life if you come anywhere near it.
The hysteria that some financial gurus preach is self-serving so they can sell books, fill up seminars, and provide you with an endless stream of newsletters, support reminders, and guidebooks which you buy from them; self-anointing by placing themselves and their advice above others who offer more pragmatic and practical solutions to debt concerns; self-chastising for the mistakes they made in the past which they now see as quicksand that everyone else will senselessly and aimlessly walk into; and self-moralizing, finding Biblical passages and bumper sticker slogans which they say support their viewpoint.
In an attempt to countermand the harsh, austere, and deeply-vacuous discipline advocated by these credit-hating monks, I will try to bring some sanity to what has become an unjustified bleat of hysteria. The sky isn't really going to fall if you use a credit card, nor are you destined to find yourself in a debtor’s prison from which you can never escape. Debt is a budgeting tool, a way to have and use things now that you would otherwise have to wait for—or may never be able to have if you have to buy them only with cash you have on hand. Debt is a convenience, a reassurance, and a sign of confidence from those who offer it to you. Debt is a tool, not a temptation, and you should learn how to properly use it, not run from it like it’s the anti-Christ!
Let me make one further point, clearly and emphatically, that it isn't DEBT that’s a problem for people, it’s the INABILITY TO REPAY THE DEBT. For those who don’t understand this distinction, it’s like saying that the LAKE causes people to drown when it’s really the INABILITY TO SWIM. While many will sputter and fuss at this distinction like it’s as irrelevant as the distinction between boxers and briefs, DEBT has many parallels that may help to put the blame and responsibility in the right place.
These jingoistic financial gurus start with a rigorous distaste and unusually abnormal abhorrence of debt that could as easily be attributed to FIRE, GUNS, or AUTOMOBILES. All can be killers if used IMPROPERLY. But, does that mean that we should tell people not to DRIVE because so many people get into accidents, or that they shouldn't own a GUN because guns can kill, or that FIRE is evil because it burns down homes and ravages forests?
Of course, we know that abstinence is not a way to CURE problems, but only ONE way to AVOID them – whether it’s teenage pregnancy, AIDS, alcoholism, gambling addictions, financial troubles or many other maladies. But, it's the HARSHEST of all the options. Not driving a car will keep you from getting into an accident, but it will also prevent you from doing many meaningful and necessary things as well.
When used wisely and with prudence, debt can actually ENHANCE lives, not destroy them. It can be used to budget unusual expenses like auto repairs, travel costs, appliance breakdowns, even the cost of college textbooks; it can be used as a convenience when you don’t have sufficient cash with you to do something that you would otherwise do if you did, or to buy things on the internet, or in places where they won’t accept out-of-town checks. The availability of debt is also reassuring in that you don’t have to anticipate every expense you might have when traveling or going out for a nice dinner. And, it demonstrates confidence by the lender who extends you the credit.
But, this is the place where many try to skip past these points; they insist upon the dangers, but refuse to recognize the source of them. They prefer to blame the irresistible smells of food, the availability of guns, or the temptations of credit for their problems rather than admit to their own responsibility for abusing these things. “It isn't me that's the problem,” they scream, “it's those temptations!” And, the debt-austerity gurus are more than eager to rush into that void with their tunnel-vision, self-serving remedies. Like the fire and brimstone preacher, they have to exorcise the Devil from your soul by sterilizing your choices not by letting you know that there are other options.
As an Economist with a Master’s Degree who worked in commercial loans in banking for seven years, in my experience, most people in debt trouble got that way not because they spent too much money at the time they spent it, but because they lost the income, for some reason or another, to pay it back. It’s not usually a DEBT EXCESS problem but an INCOME INSUFFICIENCY problem. I never ran into someone, for instance, who didn’t want to repay a loan for money they borrowed. But I did encounter many people who didn’t have the ABILITY to repay the loan because their income flow had changed.
What should be done, then? First should be the EDUCATION of people at an early age so they more properly understand debt and credit. The difference between secured and unsecured debt, what does the APR (annual percentage rate) mean, and the importance of budgeting a manageable payment on outstanding debt not merely paying the minimum due; how to shop around for credit cards, when to use term debt and when to use a credit card. Many credit mistakes result from ignorance more than extravagance.
Secondly, CREATING YOUR OWN BUSINESS for accounting and tax exempt spending is something that everyone should understand. Not every business has to be incorporated, but sole proprietorships and partnerships have many tax and spending advantages that even allow you to carry forward losses and exempt automobile, computer, and training expenses from taxation by transforming them from personal to business expenditures.
Thirdly, understanding the distinction between SAVING and INVESTING can give you a greater return on your money as well as pointing you in a more positive direction than one in which you need debt to cover short-term spending. SAVING money in BANKS will erode the purchasing power of your money in even a mild condition of inflation while INVESTING your money in stocks, bonds, real estate, mutual funds or other investment opportunities will often BENEFIT from inflationary pressures. Those who think that BANKS are the place to SAVE money might be the same ones who tell you that you should ride a HORSE to keep from getting into automobile accidents!
Fourthly, whenever someone finds themselves in debt troubles, they should attempt to INCREASE their INCOME not increase their DEBT. One way to increase your available income is by DECREASING any unnecessary spending. Another way is to work more hours, change jobs, or to add a job. If a spouse is not working, they can also look for work. Another job can quickly ease credit problems.
There is a tendency for many so-called financial gurus to be merely that chastising, evangelistic voice which speaks to your insecurities from a position of regret and penitence when what they are really selling is a system of commiseration and abstinence that enriches them by taking advantage of the misfortune that has befallen you.
When life has thrown you a LEMON, many will tell you to make lemonade. I say, if you can start SELLING lemons, you may even do better! Often, the way OUT of a problem isn't by RETREATING and SURRENDERING, but by forging ahead where the second-guessing is minimized and the new opportunities are maximized!