The Big Debt Downplay

September 3, 2010 by  
Filed under Fools of Finance

I occasionally listen to the Dave Ramsey show when I am in the car on a weekday. I mostly do it to remind myself that I may know more about personal finance than other people. Those “other people” generally include all callers into the Dave Ramsey show. I don’t listen to the show for the advice.

Don’t get me wrong. Dave Ramsey is a smart guy. He’s become very wealthy repeatedly dispensing the same information and advice in books, on the radio, and on TV. It’s just that I’ve heard his shtick so often I could recite his answers in my sleep.

So I turn on the Ramsey show yesterday. The first caller I hear is a young woman who is complaining that her husband has been asked by friends to be an usher at three upcoming weddings. This, she says, will be too expensive because of tux rentals and the like.  Also, her husband will go to drunken stag parties (which are immoral) and be forced to spend even more money.

She may have been right on all of that. But what caught my ear and brain was her bottom line explanation of her concern. She said they didn’t have any debt – and didn’t want to start now by wastefully spending on wedding expenses.

Except that between the “we don’t have any debt” part and the “wedding expenses” part she quietly and quickly slipped in “except a mortgage and student loans.”

She said it so fast and rapidly that I’m not even sure Dave heard it. (He may have been thinking about his own bachelor’s party from his younger, big spender years.)

She said it as if mortgage debt and student loans don’t really count.

There is a lot of that “debt downplay” going around these days. I’ve even heard people talk about car payments as if they were in the same category as buying bread and milk for the kids.

Most folks have downplayed mortgage debt over the years. All that should have changed by now. We are experiencing extended epidemics of foreclosures, short sales, and “strategic defaults”, all arising from mortgage debt. So don’t tell me that having a mortgage is any less serious than making payments on a big screen TV. Best Buy can’t throw you into the street if you stop payments on the TV.

And don’t get me started on colleges and the student loans. Not only are they among the worst borrowing ideas ever, the push to attend college (by the college industry and their government co-conspirators of course) has produced other collateral damage in the form of state lotteries. What these crazy lotteries have done is exploited the poorest of our citizens while sending more unprepared 18 year olds off to college for a couple of drunken years.


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10 Responses to “The Big Debt Downplay”
  1. Sandy L says:

    This has got to be my #1 personal finance pet peeve..when people say “I’m debt FREE!!!!!!!!!!” and they have mortgage debt. Especially when that mortgage debt is a big chunk of most people’s monthly incomes.

    Just because it’s a huge debt doesn’t mean that you can pretend it doesn’t count.

  2. GW in TN says:

    I agree that people still don’t get the whole debt concept. I thought that the recent economic challenges had connected people’s brains to their wallets but it’s just not happening…

    We are paying off the mortgage with every extra dollar we can squeeze out of our frugal budget! Killing that mortgage 20 years early and loving our frugal lifestyle!

  3. pdxbob says:

    Excellent points. Our car payments dropped to zero this month, and it’s liberating. The house – that’s a much bigger nut to crack, but I look forward to it.

    It’s too bad that magic Keynesian pixie dust can’t turn private debt into a good thing (like here: http://krugman.blogs.nytimes.com/2010/09/03/paradoxes-of-deleveraging-and-releveraging/ )

  4. MasterPo says:

    TML – “Also, her husband will go to drunken stag parties (which are immoral) and be forced to spend even more money.”

    Your comment or hers?

  5. I agree with you about debt – I dislike all debt, period.

    And I avoid it wherever possible.

    I have never purchased a car on payments. I have $17,500 in one bank account to replace my winter car which is a 1995 Camry. I got into a fun competition with a fellow writer about which one of us is going to get our used Blue Porsche Boxster S first. I have placed $23,000 in a separate account for this car since last October and will be looking for a used Boxter S once I get $35,000 saved. So, although I have over $40,000 saved for the two cars, I will not purchase either car until I have the exact amount – not a penny less – saved in full for each one.

    I did get a mortgate of $162,000 on the $325,000 half-duplex I purchased at the height of the housing market in March 2007 (I knew it could be the height of the market but I have always looked at a residence as a consumer item, a liability and definitely not an investment). The mortgage has $15,000 remaining and will be paid off in full by next May. I do not consider the value of the residence as part of my assets and I will never consider the value of any cars in my assets.

    I have worked less than half of my adult life and when I did work, most of the time I made less than the average income. I was totally broke at 40 with $30,000 in student loans. (no assets – just a clunker of a car that doubled in value every time I filled it up with gas.) Yet at 61, I am pretty sure that I will be okay in retirement.

    The main reasons are that I have avoided debt as much as possible and my best purchases were the ones that I never made. The years that I made decent money, I saved 45 to 50 percent of my pre-tax income. Saving only 10 perecent, in my opinion, is for amateurs. Some guy recently commented on a blog recently that he actually saves 60 percent of his pre-tax income.

    By the way, I do spend a lot of money in restaurants and make 5 trips a year to places such as Vancouver, New York, and San Francisco. So, I don’t live like a pauper.

    There are two problems in North American society that have led to the serious household debt in both Canada and the U.S:

    1. Instant gratification takes too long.

    2. A “need” is any luxury that the neighbor happens to have.

    As J.P. Getty said, “People who don’t respect money don’t have any.”

    Ernie J. Zelinski
    Author of “How to Retire Happy, Wild, and Free”
    (Over 125,000 copies sold and published in 9 languages)

    and “The Joy of Not Working”
    (Over 250,000 copies sold and published in 17 languages)

  6. kitty says:

    @Sandy L – you are never completely debt-free. You always owe money to someone e.g. taxes to the government, utilities. With your phone, you use the service, and you pay when you get the bill, so technically it’s a debt too. Also, let’s say someone doesn’t have mortgage but rents and has no other debt, would you say one is debt-free? What if this person’s rent is higher than the mortgage payments would be for the equivalent property?

    We don’t know their situation. It’s nice to say how you are against student loans, and how without them the cost of college would’ve been lower. But there are situations now e.g. medical school, when it’s right now is impossible to do without student loans. We don’t know how much they are paying relative to what they are earning. What we know is that with the exception of debt they took to finance their education (and without knowing their situation, we cannot say if their taking loan was a good or bad decision) and their mortgage they have no other debt. Which means that they obviously can afford the payments and pay for other living expenses i.e. they are living within their means.

    Incidentally, “though shall have no debt” is too simplistic. I know quite a few rich people (one has about 5 million in various savings and investment accounts not counting retirement – my friend is in the middle of a nasty divorce, so she had a good look at her soon to be ex finances and was pretty open with me given as she was upset in not having known about 2/3 of the money, long soap opera and a bit off topic). Anyway, the mortgages are in six digits in total, so they could’ve easily paid cash if they wanted to. The hubby took mortgages instead of paying cash because he is a strong believer in future inflation. Was he right? Only future will tell, if not, neither of them will go hungry. So saying “all debt is bad” is pretty simplistic. A lot depends on interest rate and circumstances. Mortgage loan is the cheapest one can get, an if you have better use for the money, there is nothing wrong in keeping it. I bet a lot of people who were paying some 9% on mortgages in 1980 were quite happy earning 13%+ on their CDs.

    So yes, there may be some “debt downplay” in some circumstances, but it’s also pretty reasonable to hold on on some low interest debt in other circumstances.

    • Sandy L says:

      Kitty,

      I never said that having debt is bad. If it weren’t for loans, I wouldn’t have been able to put myself through college, or buy my first and second home. I like having access to credit when I need it.

      My Pet Peeve is when people proclaim to be debt free when they owe banks money. There will always be recurring monthly expenses, but aside from taxes, many of the other items are variable expenses that can be cut pretty drastically if needed. To me, it’s pretty scary having a huge fixed monthly expense..even if it’s your hedge against hyperinflation.

  7. MasterPo says:

    Kitty – You’re being too granular. By that POV anyone who receives a product or service and gets billed for it later has “debt”.

    In a technical sense perhaps. But the debt always being referred to is some kind of loan. Using a product or service in agreement of future payment is just terms of the transation.

  8. Pam McCormick says:

    actually I was one of those who believed there was “good debt” aka house and education versus “bad debt” credit card,car loan etc.That was almost 10 years ago and in my opinion I was wrong! it is all bad debt.I actually have worked 2 jobs(or more) since 1996.Paid for 4 yrs undergrad and masters for daughter,paid for wedding,paid off house in 2005,paid off 2 cars.My point is I see it much differently now as times have changed with the economy.No one is immune and some of the rules have changed so decisions are very difficult but necessary.Those who will survive will be those who are willing to adapt and learn.

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