Sunday, July 31, 2011

The Hamster Wheel of Debt

This is you, in debt, working hard and accomplishing nothing.

Debt is so ingrained in our society that most people think it is like the air you breathe.  One of the hardest things to do in our society is to break free of the debt mentality.  After all, it is thrown at you, like a firehose, on the TeeVee all day long.

Buy a car, go into debt.  Go to school, go into debt.   Get a credit card, go into debt.   Buy a house - go into lifelong debt.   Improve your home - add more debt.  Consolidate your debt.  Borrow against your paycheck, your life insurance, your home, whatever.   Mortgage or pawn everything you own - debt, debt, debt!

The problem with debt is self-evident, but most people fail to see it.   First, you have to pay it back.  So you borrow $20,000 to buy a car - you have to pay that back.  And by the time you do, the car is worth maybe $10,000.  And maybe, that is the car you should have bought in the first place - the $10,000 used car.  But since the "monthly payments" are so low, you buy more car than you can really, really afford.  Or worse yet, lease.

The second thing is interest.  Since you pay several percentage points in interest on a loan, that means for every dollar you spend, you end up with a few percentage points less in real buying power.  It really is a no-brainer - give me a dollar, and I'll give you back 95 cents.  Is that a bargain?

Of course some folks claim esoteric arguments, such as "well, since I am improving my cash-flow, I can invest that money I would have spent, paying cash, and make more!"  But of course, in most cases, the interest on debt approaches or nearly equals, what you would earn by "investing".   And in most cases, the people making this argument don't have any spare cash to invest - rather they just want a new car and use these specious arguments as post hoc justifications for poor financial choices.

And by the way, your 0% or  2.9% financing costs a lot more than that, when your forgo a $1500 rebate.  Yea, the banks aren't stupid, and they are not loaning money for cars at interest rates lower than home mortgages.   Only consumers are dumb enough to believe this.   Or hamsters.

And most of these people have no clue what cash-flow means, anyway.  What they are doing is increasing their cash-flow requirements, to the point where they are living "paycheck to paycheck" and then cannot afford to lose a job, even for a month, without their entire house of cards (house of debt) falling down around their ears.

So how do you get off the hamster wheel of debt?  Pay cash, consume less.  When you have to pay cash for a car, your options are limited - and you shop more aggressively on price.   Suddenly, the idea of spending $2000 to $5000 extra on a car to buy it brand-new at a dealer makes no sense - when you can buy the same car, secondhand, from an individual, for a lot less.  When you have cash, this is readily apparent.   When you are making monthly payments, it is "only $10 a month more!" and you don't see the damage done to your bottom line.

Yea, it would be nice to "have it all" and have lots of nice toys.   But if you want to get ahead in life, yo can't treat every day like it is Christmas, and Santa is coming.  New cars, smart phones, subscription services - they all add up.   And they are all things you WANT but don't NEED.

OWNING MONEY is the definition of wealth, not SPENDING it.   And the sooner you figure this out, the sooner you are off the hamster wheel.

Having a new car in your driveway and 60 months of loan payments and high insurance costs is not a good bargain or a lot of fun.  Having a "paid for" car with low insurance payments is - because it allows you to do more things with your money and be wealthier overall.

And let's face it - both cars look the same after a year.

You are not your credit rating.  Borrowing money is not some great privilege.   Buying a new car is not some great personal accomplishment, if it is done all on credit.  Going into debt is going to make you more and more unhappy and unhealthy, over time.

Working toward being debt-free means rejecting our entire society's normative cues and values and thinking for yourself.

And it is totally worth it, unless you want to be a hamster.

And if you want to be a hamster, stop bitching about how shitty a deal it is, living "paycheck to paycheck"  or how crappy the hamster food tastes.  This was your choice - to have a shiny new hamster wheel and go into debt.  Kitcherbitching!

Or charge your perspective on debt and consumerism....