I’m going to write about MP Dunleavy again because she asks a very interesting question in “Is debt your destiny?” She asks this question seriously and I think it’s a valid question. She says that you know debt is wrong, are tracking your spending, yet are still mired in debt. Why?
She suggests one reason is that borrowing is too easy. People have too much access to credit. Also, one you have credit, she says that people start to spend in a “haze”. They have no idea what they are buying and just keep adding to it. They “forget” about their purchases.
Also with the easy credit people begin to justify their payment plans, “It’s only $30/month”. That people forget how much things costs because of credit and loans it seems affordable.
Finally, people think about spending in terms of their gross income. She says people say “I make $50k, I can afford this”. Instead of I bring home $35k. And finally debt is a habit. One which people find hard to break. It’s a rut.
She says to escape debt you should stop using any plastic including debit cards. That you need to connect with your spending.
I think that this debt destiny is crap. Nothing predetermined. But yep those are definitely good reasons why and how people fall into debt and stay there. But breaking out? I think it goes deeper than just not using plastic.
I look at statistics and see $9k in credit card debt. Sounds bad right? Sure not good, but the LA times reports the average car loan in 2007 was 5 years and 4 months for an average amount of $30,738. That’s 3x the amount of credit card debt. So yeah you stop your spending on a credit card but what does it matter if you own two cars, yet owe $60k in car loans?
Or the average student loans is $19k when graduating. That’s 2x the amount of credit card debt. I think that people have a debt problem in general and it’s not only due to credit cards. If anything it seems like people’s spending on other items are above and beyond credit cards!
Why? Because everyone preaches credit card debt is bad. Consumer debt is bad. But student loan debt is okay. And rarely do I hear people saying car loans are driving them to the poor house. But the truth is car loans are probably the reason why people are charging on credit cards because they really can’t afford a $30k car on $50k salary!
Maybe if we changed lending standards for cars, houses, and student loans people might spend less on credit cards instead of turning to credit cards when they can’t meet all their monthly obligations. What do you think?
8 responses so far ↓
1 dogatemyfinances // Oct 4, 2008 at 9:39 am
“My husband and I might use a credit card to buy electronics or expensive home supplies like paint or tools, though only when we have the cash to pay the bill immediately.”
HAHAHA, where immediately means five protracted years while buying TWO houses you can’t afford.
This seems like a justification for all her awful decisions.
2 Kristy // Oct 5, 2008 at 6:06 am
I think the lending standards are changing, people are going to have a difficult time getting credit unless they have good credit scores. I also think that this economy is affecting some people. I just read the other day that 1 in 6 auto dealerships are closing. This means that people are not buying cars every 2-3 years. This also means that credit is not being extended to some people as well. I hope that we Americans can get our act together and stop spending so freely. We need to think about our purchases and if we can afford them.
3 LAL // Oct 5, 2008 at 2:36 pm
Interesting about auto dealerships. I can’t stand car shopping but I have to admit it seems like everyone I know is getting a new car. Now is the time for deals if you have the money.
7 Slinky // Oct 22, 2008 at 1:26 pm
Student loans, auto loans, and credit card can all be good or bad. It all depends on how you use it, whether you only make minimum payments, what you get out of leveraging the debt, etc.
My student loans totaled at about a third of my post graduation salary. Seems like a good investment to me. I make at least the amount of money I spent on the loans back in the first year, and then every working year after that is profit. They’re not always good though, especially for drop outs. People who go into low paying jobs after college don’t get much benefit from them either.
I do have a car loan, which I’ll readily admit is one of my luxuries, but since it’s not driving me to use the evil credit cards yet, I guess I’m ok.
8 LAL // Oct 22, 2008 at 3:59 pm
Definitely people are better off if they properly leverage their debt. Or else we’d all not be able to own homes! Cash only doesn’t seem realistic.
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