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Debt and Standard of Living

Posted by karmakazi , 19 July 2012 · 516 views


I was thinking about this thread (http://www.unexplain...pic=229687&st=0) earlier, about debt in general, and I realized something...

Debt is not a matter specifically of income or spending.  What matters is whether or not the debtor is paying more towards the debt, in a given timeframe, than the interest charged.

If you have a credit card that costs $20 interest per month, and your monthly budget only allows you to make the $15 minimum payment, the balance and subsequent interest will steadily increase.  Skipping lunch one day a month or working an hour of overtime per month to make a $20 payment will cause the debt to stabilize - it won't increase, but it also will not decrease.

The tough decision comes when you have to decide if you want to increase your income - which invariably carries some extra costs (gas to drive to a 2nd job, uniform, etc) or give something up that was previously important to you to have... such as cable, unlimited texting, a new outfit or shoes per month.  Savings can be made faster by tightening your belt and giving up one or more things that aren't vital to your survival.  You won't have to wait for the paycheck from the new job to come in, you just will put the money towards your CC payment rather than spending it elsewhere.

How you pay down the debt is a matter of personal opinion, and we are a country of widely varied opinions... but the end result is the money to pay down the debt cannot appear out of "nowhere".... one way or another, it is coming out of the economy.  Which end it comes out of is the equivalent of "would you rather be punched in the face or punched in the stomach?"  


And then, there is how the debt accumulated in the first place... it's been ongoing as long as there's been a united states, but it is important to understand that the government programs that may now need to be cut from the budget are programs that contributed to the debt in the first place... same with past tax cuts.  We've enjoyed having money in the economy for the last hundred years or so that was the equivalent of a gigantic government credit card... the same thing happens in people's lives every day.... in other words:

We are living above our means... the people, the government, the country.  We've enjoyed luxuries we could not afford, a higher standard of living which was not appropriate to our actual resources.  Now we have to tighten our belts, and deal with many years of "just enough" if we have any real intent of getting the debt paid down and ultimately, eliminated.  Yes... the economy will have to sink in order to accomplish this... and many of us will not have the things we are used to having...but that is what happens when you (collectively) lead a lifestyle that is above your means.  Eventually it crashes, and you suffer while you try to get your finances straightened out.

My mom has a saying for every situation, and while that drove me nuts as a kid, it does sometimes make sense... her saying in this case would be "you can do this the easy way, or you can do it the hard way".... meaning we can choose to live below our means so that we can handle a drop in the economy when it comes, and not be dramatically harmed by it... or we can continue living above our means until it crashes, and we are forced to accept a lower standard of living... usually meaning we no longer have a choice as to what we give up... that choice is then made for us by circumstance.


The way to 'live below our means as a country' is not accepting help from government programs if we can afford not to... for example:  Instead of using a government program that provides a lower interest rate on your mortgage, get a smaller/less expensive house on a standard mortgage.  Less pressure on that government program means they will ultimately need smaller budgets, enabling the government to (hopefully) put that money towards other areas.  Another way is not to demand tax cuts... they seem like a good thing at the time, but it just leads to more long-term pain.  

It would of course require most Americans working towards this goal...and unfortunately I don't see that happening.  Not with out a propaganda campaign extolling the virtues of minimalist living... and those usually end up as only a fad until the economy improves for the majority of people.




Great writing karma. You really hit the nail on the head. In my day to day as a building inspector I get to see it TOO often. Two people living in a 4 bedroom, 3 bath, 3 car garage house. I ask often why so much, so soon? The answer is always the same, "we didn't want to wait".
My wife and I have plans in place to downsize into a small cabin when we retire. We drive vehicles that are from 10 to 6 years old, and we pay off debt first. Good advice to live by.
Two thumbs up!
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In regards to governmental spending, the United States spends $700 billion per year on "defense" related measures. That is the most among any country in the world.

Which country spends the second most? China does at $70 billion per year (no zeros are missing from that figure in case anyone is wondering).

That's right, we (America) spend ten times as much money or our "defensive" department than any other country in the world. That just doesn't seem necessary (or right), does it?
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As long as i have enough to go bankrupt.
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Solipsi Rai
Jul 20 2012 02:39 PM
So many of us are in debt, while our incomes dwindle and cost of living continues to rise, wages can't keep up and credit cards turn out to be worse than we thought. We gotta stop spending like it's the 1950s/60s or the 80s/90s when the US economy was great or in a boom stage, because we're in the 2010s when we have to adjust our lifestyles to these times we live in. +
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