Going from "You Owe Me" to "I Don't Owe You" is a Great Plan --- Excessive Personal Debt Is a Bad Hole to Dig -- But If You're Already in That Hole, Please Do Yiurself a Favor and Stop Digging

We are a heavily indebted nation and world.

As individuals we are all too often in even worse shape than the nations and world we inhabit.

Excessive personal debt is both debilitating and burdensome, and that's especially the case in today's (and tomorrow's too) largely inflation free environment.

That's simply due to the fact that the long playing game of borrowing money in today's dollars and then paying them back over time in cheaper inflation adjusted dollars has ended.

What used to work to the benefit of borrowers in an inflationary economy now works to the detriment of debtors in a low inflation environment.

In other words, the money we borrow and owe today will generally need to be repaid, both principal and interest, in today's dollars. And to top it off, salary increases in this 'new normal' low to no inflationary economy will continue to be low and will require that today's real money be used to repay the real money that we borrow tomorrow and beyond.

Yes, inflation is the friend of the debtor. But alas, the debtor is now on his own in this low inflation environment where house price increases and salary increases are hard to come by.

The Emotional Cost of Debt captures the essence of the non-financial aspects of our indebtedness problem well:

 

"One of my all-time favorite “Seinfeld” episodes is where comedian Kenny Bania gives Jerry Seinfeld a brand new Armani suit and tells Jerry that they can call it even if Jerry takes Kenny out for a “meal” sometime. Seems like a reasonable deal, right? Jerry gladly accepts the offer and then ends up taking Kenny out to a restaurant and since Kenny was full from a hot dog he recently ate, he decides to just order soup. Kenny and Jerry argue about whether soup is a side dish or a meal and inevitably Jerry loses the argument. Jerry left the dinner with one of the worst three-word phrases hovering over his head: You owe me! . . .

Debt comes in many shapes and sizes. But no matter how large or how small the debt, it certainly takes an emotional toll on us. . . . Consider the mortgage debt that feels like you will never be able to really pay off. How about the credit-card and student debt that is piling up on Americans across the country?

Waking up every morning thinking that you owe someone can be a burdensome load to carry, no matter your age or stage of life. . . .

Carrying any type of substantial debt for a long period of time can extract several types of negative emotions.

• Why Me? . . . money arguments are one of the leading causes of divorce. Resentment is a strong emotion that can come between couples specifically over debt. Perhaps it is a student debt that one partner brought into the marriage. Or what if one spouse wants a fancy car that requires a huge loan while the other partner drives the minivan?  Debt can cause the “why me” syndrome, where you think that any other way of life besides the one you have now would be better.

• High Anxiety. Ask most people why they work and they will tell you that they have bills to pay. It’s often the mortgage, the car payment or the monthly credit-card bill that seems to creep up every month. This anxiety takes a toll on your performance at work and your attitude at home. It can make you grumpy, irritable, and despondent.

• Complete Denial. For those of you who have consistent credit-card debt or are on your third home refinance, you may have sent yourself into denial about being in debt at all.   You have just succumbed to the fact that you’ll always owe people and it doesn’t really matter anyway. . . .

Being debt free is much more than calculating your net worth or checking something off the to-do list. Getting rid of the words “You owe me,” be it financially or personally, will allow you to live a much happier and more fulfilling life. . . . Make your plan to pay off your debts and it just might be the smartest money move you make in 2015."

Summing Up

Being heavily in debt is debilitating in many ways. But being needlessly indebted is both a very widespread and bad habit.

If you're not heavily in debt, please don't become so. Your future self will be happy that your present self 'took care of business.'

But if you are already deeply in debt, stop digging immediately. Don't keep making the hole deeper.

Then start paying off the highest interest cost debt first. That's credit cards.

Next proceed down the list of auto loans, home equity loans, student loans and home mortgage loans.

Change the words of creditors from -- "You owe me!" -- to what becomes your straightforward message to them --- "I don't owe you!"

If you can dream it, you can do it. And working hard and diligently to avoid or rid yourself of needless debt is very much worth the doing.

That's my take.

Thanks. Bob.