The amount of governmental debt that’s accumulating is concerning. Sooner or later, debt needs to be paid back.
Just like the rest of us, the government can’t run up debt indefinitely. Spending is crazy and cuts need to happen on all levels–and are indeed happening. But of course, those cuts come with a price.
Still, we have a choice–we can pay now or pay a higher price later. Or maybe, if we keep spending at this breakneck pace, both.
There’s a need to get spending under control on the governmental level, and just like for individuals, fixing the debt problem will be painful–but we can have pain now, tomorrow–or both.
Recently I Tweeted about buying myself something this past birthday weekend–perhaps something relatively expensive–if I met my time target at the 8K I was running.
And I did meet it.
It’s interesting to hear how many of my friends would say to go ahead and buy some expensive item because I “deserved” it.
Yes, I have enough cash–although it would be a stretch–to comfortably buy, say, a Nikon D7000 or a Serotta frame (used, off eBay). But what if I didn’t?
Would I still “deserve” to get something like that?
And would I “deserve” the debt?
Just a bit to think about.
When young people get into financial trouble, often the trouble they get in is due to misuse of credit cards. It’s not uncommon on college campuses to find credit card offers all over campus, in bookstores, even in the bags the bookstores use to bag your purchases.
The 64-campus State of New York college system is attempting to do something about it.
Stiffening up their privacy may help but some, but financial literacy programs are likely to help more. Stopping schools from earning a commission on finance charges that the credit card companies charge to students–a practice I didn’t know existed–might be the best thing of all.
If we’re all lucky, this might be a trend for the future where students exit college much better off financially than they do now.
It’s been happening a lot recently: people walking away from their mortgages. Yes, this has a lot to do with people who get into mortgages they can’t afford either because they got into them without figuring out how much a variable rate might cost them or a loss of a job, but there are some people who see that their house is underwater (owing more on the house than it’s worth), decide that they’re never going to catch up, and walk.
Even if they can afford the mortgage.
There’s a lot of ethical issues with not paying back debt. Money tends to be an issue between even the closest of friends. I’ve lent money to friends who have never paid it back and I’ve done work for friends that I was promised to be paid for and never seen a dime. These aren’t amounts in the thousands, although they were in the hundreds–just enough for me to decide not to lend or work for these people again.
Now, if my friends had not been able to pay me back because they lost their job or had some kind of disaster happen, I might be more forgiving. But it’s really difficult to feel like someone who doesn’t pay their debts–even if they can, by all indications, afford it–is doing the ethical thing.
To go back to our original example, yes, there’s a need for bankruptcy, but it seems to me that if someone can afford their mortgage–a debt of hundreds of thousands if not millions of dollars–but they walk away from it instead, there’s a really large ethical–and maybe legal–issue there. It makes it more difficult for other people who need loans and can pay them to actually get them, and it was clearly one of the issues in the financial crisis of 2008.
Don’t borrow money you can’t–and/or won’t–pay back.
A few months back I borrowed money from myself to pay my tax bill for 2009. I did this by reducing (not eliminating!) my 403(b) contributions, increasing my tax withholding, and taking money out of a savings account I try to not touch.
A couple of months later, I’ve almost repaid the whole amount.
In celebration, I just increased my 403(b) contribution back to the previous amount so I can make sure I still do my maximum for 2010. In a week or so I’ll get my tax withholdings back down.
It feels nice to have repaid that to myself.
Yes, the American Recovery and Reinvestment Act went into effect in 2009 and my personal evaluation of it is that it was just giving me more take home money so I could pay more in the end.
Essentially, borrowing from myself.
The marginal tax rates, however, have really not changed–meaning that instead of owing my usual about $400 at the end of the year, I owe about $900.
So much for that.
In order for me to pay my taxes this year, I considered several possibilities, even selling off some stock. Instead, I’m dipping into savings I don’t like to dip into to pay for these. And after the taxes are paid I’ll be repaying that account $150 a paycheck until it’s replenished.
What a shell game this year’s taxes are, with the end result being I’m borrowing money from myself to pay back money I originally borrowed from myself.
It’s hard for my not-formally-trained-in-economics mind to understand how the country can spend its way out of recession.
We’re in debt, as a country. Granted, this is not high interest debt–the government apparently does not owe at credit card rates–but it’s interest bearing debt nonetheless.
The only way to get more money for the government to spend is through taxes–already unpopular–or borrowing–which will bring us into even more debt.
Sooner or later, that debt needs to be repaid. If the government was a friend of ours, we’d be telling them to pay down debt and not spend.
I can’t quite figure out how trying to spend our way out of a recession is a wise idea.
Today’s guest post is by Jennifer Lohan, who is living proof that Uncommon Cents is very open to new bloggers; she just emailed me out of the blue and asked if she could post, asking for nothing in return, not even a link back to another blog! Thanks Jennifer!
Is it very difficult to get out of debt? It is easier to fall into debt than get out of it. However, if you are in debt, you can still get rid of them although it’ll take sometime to do so. This is because there are no shortcuts to a debt free life or you cannot stabilize your finances overnight. So, if you see billboards shouting out advertisements of debt relief companies claiming to make you debt free in few days, it is a trap.
If you enroll in a debt settlement, debt consolidation or any other debt help program, neither settlement nor debt consolidation companies can eradicate your debts in a jiffy! You have to allow the debt relief program to take its own course.
If you intend to consolidate your debts, you will find many debt consolidation companies operating in the debt help industry that have successfully helped debtors get out of debt.
How will debt consolidation companies help you to get out of debt?
These companies will talk to your creditors so that the rate of interest according to which you make payments is reduced. Reduction in interest rates means lowering of the monthly payments. In this way your debts become manageable and you can offload debts with ease. You will also get a payment plan that needs to be followed. The repayment schedule helps you to keep track of payments.
For-profit and non-profit debt consolidation firms – How do they affect you?
Debt consolidation companies may be for-profit or non-profit in nature. The for-profit firms will charge fees from you but the non-profit firms will charge minimum fees from you or will take a meager amount as donation.
Prior to taking help of a particular debt consolidation company, you can check the credentials from the Reliability report of the Better Business Bureau (BBB). Check the past records. A good debt consolidation firm will never send mails to you urging you to enroll in their program. If at all they promote their services they do so on a large scale which reaches the common people, not individually.
How will debt consolidation stabilize your finances?
Debt consolidation makes your debts manageable. As you start paying off your debts, your debt load decreases. In due course you get rid of debts. You are now able to manage your finances better. This gives you financial stability.
Debt consolidation companies will undoubtedly help you to get out of debt and stabilize your finances. Just make sure that you maintain regular payments and don’t fall behind or drop out of the debt consolidation program midway.
One of my coworkers, a divorcee with adult children who, like me, works multiple jobs, was asking about taking out a home equity loan to pay off some credit card debt. My response: it’s more important to reduce spending to live within your means than it is to pay this off in this manner, because all that’s happening is debt is being shifted from one pile to the other.
“But I can’t make ends meet.”
And that’s what it came down to. I could sit down with my coworker and go over every single bit of her budget to try to find areas to cut–piano lessons, gym memberships, cell phones for her adult kids–and none of it would matter if she didn’t have the discipline to actually do it.
A budget, after all, is just a plan; if she can’t follow through, it doesn’t matter how the math looks. What counts is the discipline to keep spending in check, and if she doesn’t have that, no amount of loans or plans will help.
Welcome to our September 6, 2009 Link Payday! Once again, we take a few minutes to look at some of the best posts in the personal finance blogosphere over the last couple of weeks:
Spilling Buckets covers something that’s not just about personal finance when they remind us to Don’t Become a Victim of Yourself. It goes in line with some of the things that have been going on in my life recently.
The Frugal Duchess tries to get us to do the impossible (I was just traveling in late July!) when she tells us How to Find Cheap Food at Airports. I particularly use her final hint: pack food! This is what cargo pants are for.
Trent from The Simple Dollar gives us some great advice and practical tips when he covers 21 Ways to Reduce Your Spending Without Making Your Life Miserable. Way one is the best: “Get rid of stuff you don’t use.”
Mrs. Micah does the math for us when she asks Wanna Pay $228.79 for a $200 TV? This just shows what a horrible idea charging something without paying it off in full at month’s end really is.
Finally, David at My Two Dollars covers a topic that is becoming more and more important as the unemployment levels continue at high levels when he asks What is COBRA Health Insurance?
And that’s our Link Payday for September 6, 2009!
