Have you ever stopped to calculate how much you pay in interest every month? If you are like most American families, it’s probably at least a $1,000 per month and it could be a lot more. Between the mortgage, car payment, credit cards and student loans, it’s usually a lot of money. We have all been conditioned to think it’s OK to pay all of this interest. Because of the mortgage tax deduction, student loan deferment and other incentives, Americans are becoming more and more indebted.
The Debt Trap
This huge quagmire of American debt is no accident. The banks and other interested parties have lobbied hard for these tax incentives and they protect them ferociously, whenever they are threatened by budget cuts. They have taught us to believe this is “good debt”, because of these incentives.
Our debt represents a bank’s future income and it pays them generously every month. That’s why our loan is an asset on their balance sheet. Banks would like every American to remain in debt forever. We are the geese that lay their golden eggs.
This relationship is great for banks, but it is terrible for consumers. We must work much harder to afford the basic necessities, such as an education and transportation. Debt puts us at a much higher risk of foreclosure and bankruptcy. It increases the amount of stress in our lives, affects our sleep and contributes to divorce.
Life without Debt
Forget the whole good debt vs. bad debt debate for a moment and just think about what you could do with that $1,000 every month. If you invested it, instead of giving it to the bank, you could become a multi-millionaire, in a working lifetime. In fact, if you invested just half of what you probably pay in interest, you could become a millionaire. You could take more vacations or save more income for your future.
Think of how your life would be if you had no car payments, no credit cards and no student loans. It probably seems impossible to live like this and yet many people do. They haven’t bought into the debt-treadmill lifestyle and they are doing just fine. Forty years ago, people rarely had any debts beyond their mortgage. They did just fine living on a cash basis. In fact, they lived on a single income and still saved a lot more than we do today.
I remember my folks buying a new car for cash in 1975 and many others in my neighborhood did the same. They saved up for a couple of years and bought the car they wanted. My Mom, my brothers, my sister and myself all worked our way through college and paid as we went. We all have degrees and graduated without any student loans. It wasn’t easy, but it was definitely worth it. It’s possible to reduce or eliminate the debt burden you carry. It just takes a different way of thinking. It takes patience and commitment.
My Debt Free Dream
For all the things I have done right in my financial life, there are a couple of things that I have done wrong. One of the worst was to ring up a credit card balance when I was young and let it hang around. I now think about all of the things I could have done with the money I threw away on interest and it makes me sad. I could be years ahead in my goal to become financially independent. Instead, I sacrificed my precious income to Citibank.
Last year, I decided to change my life and I got serious about eliminating debt. At the rate I am paying, my credit card balance will be gone in a little over a year. And, my mortgage balance will be paid off in about six years. Then, I will start to live my debt free dream. I will have the flexibility to choose what I do for a living. I will have the freedom to travel and share new experiences. I will have the capacity to help others who are less fortunate.
The Bottom Line
The bottom line is that consumer debt benefits others, at our expense. Debt is not prestigious; it’s not a convenience and it’s not an advantage. It’s a parasite on our finances and a threat to our independence. Only by understanding the true nature of debt and the agenda of those who covet our incomes, can we live in peace and prosperity.
“Interest on debts grow without rain.”
Tough Money Love – Consumers Drop the F-Bomb on Government Economists
Watson Inc. – The Educated Indentured Servant
Invest it Wisely – What do you need to get out of the Rat Race?
This post was featured on the Carnival of Personal Finance over at Dough Roller. If you aren’t familiar with the Carnival of Personal Finance, you need to check it out. It’s the premiere carnival for Finance Blogs.