Here's the fundamental problem with your "debt is a privilege" rant. It's flat-out hypocrisy. You "need" your debt, but the other guy's debt is abusive. Perhaps you'd care to say how you discriminate between the borrowers who "need" their debt and those who don't.
Huh??? No one, especially me, is stating any such thing. I'm merely pointing out that the vast majority of people need mortgages and personal loans to buy big ticket items such as (but not limited to) homes, cars, furniture, major appliances, and the like simply because there are very few people in the world who can pay cash for these items. Neither my debt (nor your debt) nor the debt of others is abusive until such times as the debt becomes an impediment to one's ability to meet one's financial obligations. Usually, we can examine debt repayment as a percentage of one's after-tax income. There are generally accepted "safe" levels of debt. Once these "safe" levels have been exceeded, the debtor has created a set of circumstances where merely normal lifestyle expenses can topple one from the pedestal of being a "good" debtor to an abysmal pit where one is at the mercy of his/her creditors.
Allow me to present an (admittedly) extreme example. Let's say one has undertaken personal loans, a mortgage and credit card debt to the point where debt repayment constitutes say 75% of one's monthly income after taxes. That means that one must support the remainder of one's lifestyle on the remaining 25%. Things like utilities, gasoline for the car, food, clothing, entertainment, savings, charitable donations, etc. must all come from the final 25% of one's income. Let's further presume that one is able to service this extreme level of debt and still have enough left over in that remaining 25% for normal lifestyle expenses with nothing remaining. But, then a minor disaster strikes. Let's say the car breaks down (not unusual) and needs repairs. Where will the money come from to repair the car? Let's say a minor illness or injury occurs. Where will the money come from to pay for any unexpected medical expenses? Let's say one unexpectedly loses one's job. Where is the financial cushion to come from while one secures new employment elsewhere? How will one satisfy one's obligations if one is even temporarily out of work? Lifestyle expenses and debt repayment don't go on hold until one is working again. They march relentlessly forward, and if one cannot meet one's financial obligations, then one will undoubtedly fall in arrears and perhaps default at some future point if unemployment continues for a long enough period.
There is no hypocrisy here. It is simply stated that either one is or is not adequately controlling one's debts, allowing ample room for unanticipated and/or expensive incident(s) in one's life. Billy Joe Gunrack (or Joe Six-Pack, if you prefer) is currently playing a dangerous game with debt, having pushed debt responsibilities to the outside limits (and perhaps beyond in many instances) of safety. Billy Joe may have also spent any margin of safety he enjoyed, financially speaking, by tapping into his home equity and reducing (or eliminating) personal savings. (And while we're on the general topic of responsibility, I might add that most people are woefully underinsured (or outright uninsured) against losses that could prove catastrophic to their financial well being.)
What percentage of aggregate consumer debt is "needed" debt and what percentage is just irresponsible, frivolous, economically dangerous debt?
The question is not easy to answer, because the answer depends entirely upon one's lifestyle. No debt is "needed" per se. Debt should not be undertaken casually by anyone. It is much easier to define "bad" debt than to try to define "needed" debt. Certainly any debt that is undertaken where one cannot reasonably expect to repay the loan is "bad" debt. This is more of a "straw-that-broke-the-camel's-back" situation, rather than trying to say that buying a home (or car or furniture) is "needed" debt and buying something else on credit (say a meal at a very expensive restaurant) is "bad" debt. When debt repayment, expressed as a percentage of one's after-tax income exceeds a recognizable level, then one runs a high (and higher) risk of being unable to satisfy one's obligations.
Do you have a credit card, Kerry? Yes? But you "need" it, right? However, the other guy, who is just trying to topple the economy and ruin your day, doesn't, right?
As far as my own debt goes, I have no personal loans. I have just 2 credit cards, one for gasoline purchases at a major gasoline retailer and another general purpose card (like Visa or MasterCard) for purchases where it makes good sense to buy on a credit card for the protection afforded one by credit card use. Both cards are paid in full upon receipt of billing. And I have a small mortgage remaining on my home.
KJC |
