The American Culture of Debt

From AlterNet:

Financial insecurity is one of the staples of American life, and fuel for our nation’s politics as well as cable TV shows. Once the elderly worried endlessly about money matters, athough now people over 65 count as the wealthiest group of Americans. Rather, today the biggest worriers about what’s euphemistically called our “financial future” are the young, and especially people under 25 years old … A day of reckoning is not out of the question; the debt bomb may yet explode, taking American prosperity with it. Housing values are falling, most everywhere now, and that’s perilous for American consumers who, as “In Debt We Trust” shows, have used home-equity borrowing as a piggybank for years. On a national level, the bubble can burst too. The size of the federal debt, and the growing dependence on China to cover this debt through purchases of Treasury Bills, could lead to a collapse in the value of the dollar and a sharp, steep rise in interest rates, choking off the very lending that fuels economic activity and bringing about severe economic contraction, along with job losses and wage declines.”

There are so many issues at play here, I don’t even know where to begin. Luckily, I wasn’t one of those who got into major bad debt during my early twenties. The Wife on the other hand… school loans. Lots of ’em. C’est la vie. The trick now is learning how to capitalize off of debt, and turning bad debt into good debt, which is akin to pulling a rabbit out of your hat: it’s not magic if you know what you’re doing.

2 thoughts on “The American Culture of Debt

  1. Student loans are considered “good debt” credit cards, are considered “bad debt”. Here’s my tip on how to legally avoid paying your student loans, keep taking at least 6 credit hours (part-time) for the rest of your life – which will defer your payments. By the time you are retired you will have like three doctorates. Also, don’t worry about passing the bills to your heirs because when you die your student loans can’t be collected from the estate.
    You also don’t have to pay your student loans if you aren’t working – there is a deferrment for that and if you can’t afford the enitre amount, they will let you pay a smaller amount. Student loans are very flexible. I’m working on college degree #2, and I’m planning on law school after that.

  2. “Student loans are considered ‘good debt’ ”

    Let’s do the math here (using quasi-hypothetical numbers): Cost of a master’s degree: $65,000 @ 4%. Job acquired after MA’s payment (for this particular degree): ~$35,000 pre-taxes starting out, with not much upside ($20,000) for at least 10 years. Figuring in cost of living, it doesn’t sound particularly smart to me. (I will concede that a higher degree can often be leveraged against higher paid in multiple industries, even given the irony that you get paid for knowing more and more about less and less.) While education is an investment in the long run, the fact is that you can’t really leverage that debt for economic gain: I can’t use that student debt to, say, put in an investment that’ll grow 11% per year (netting me 7%). As for credit cards — they can be leveraged rather well believe it or not, if you know what you’re doing (and I’ve learned, luckily the easy way, to tread carefully when leveraging credit card debt).

    As for deferrments — yea, we’ve used those: lack of job, getting married, moving — all deferrments, all we’ve used. Luckily, that’s not a problem at this time.

    As before, good luck with your degrees. The staying in school thing doesn’t particularly appeal to me, however, at least not from a fiscal standpoint (from an academic standpoint, I would *love* it, but I’m not sure The Wife would): I’d rather use that time to create and attain assets I can then leverage — things as simple and inexpensive as a network marketing business, or as involved as real estate and tax liens can offer this route, for those of us looking for make the most of our time — and then have that income take care of the debt. (When you can get $10,000 to crontrol $300,000 worth of assets, that leverage suddenly becomes more lucrative than taking classes to skip on a monthly student payment. Besides, from my experience, while educational level is extremely important, the person with experience will never be at the mercy to the person with only education. I’ve learned that degrees are not all they’re cracked up to be. Mind you, I wouldn’t trust a surgeon with anything less than 6 of them, but you get my drift.)

    By the way, PhD – Piled Higher and Deeper? šŸ˜€

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