The Effects of Runaway Debt
by Mark Henri
May 24, 2004
Word version
Staggering personal debt from credit cards is destroying the median
income classes and weakening the U.S. economy. A remarkable change
in the way our society views debt has occurred in the last 100
years and the pervasive use of credit cards has almost eliminated
delayed gratification. In the words of Teresa Dixon, "It won't be
long, it seems, before you'll be able to pay your mortgage on your
credit card and even swipe it through the church collection plate."
In an economy that has shifted it's orientation from production to
service, consumers have moved from saving and investment strategies
to immediate consumption. For those with credit cards, the average
balance is $12,000.00 making the nationwide average $8000.00 per
person (Manning). Consumer debt is at an all time high of
$2,000,000,000,000.00 (2 Trillion) as of November 2003 and it has
increased
significantly from the year before (Vogt). Many articles talk about
ways to eliminate debt or simply play it better, but there is a
conspicuous lack of concern about its effect on the American
economy and the well being of its people.
Our parent's parents did not have the debt that we have now.
Besides the fact that the credit card hadn't been invented until
the mid 50's, loans were much harder to get and meant a personal
request and approval process. No one wanted the reputation of
desperately needing money because it would result in being shunned
by others in their community. With bigger cities came the
opportunity to incur debt without publicity; this is one of the
most important characteristics of credit cards--anonymous borrowing.
In addition, the loan doesn't need justification and approval
beyond simply qualifying for the card in the first place. Even
bankruptcy has lost the stigma it once had and new records are
being set each year; for example, total filings in 2003 were
1,660,245 (Berzanskis).
The ubiquitous use of credit cards is followed by equally diverse
types of overspending. For example, one woman, an Ivy League
graduate, found herself in a low paying job after completing her
education and began over purchasing clothing in order to feel
better about her self--she ran up $60,000 in charges. Her $29,000
salary was barely able to make the minimum payments and chose to
take a second job to get out from underneath it (Glater). Retirees
are not immune either and many overspend with credit cards to cover
essentials. Often, they feel shame and embarrassment because
throughout their lives, they've been responsible and hard-working
(Ezell). Often, misunderstandings of credit and debt begin in the
home. For example, another women fondly recalled amusing anecdotes
her uncle told at the dinner table of how he dodged creditors and
"cussed them out" on the phone (Dunham). This game is well know in
Transactional Analysis (TA) and is called "Now I've Got You, You
Son of a Bitch (NIGYSOB)." TA games revolving around usury are
"Debtor", "Creditor", "Good Joe", "Try and Collect" and NIGYSOB. A
hard player of "Debtor" will wait for the creditor to become
unreasonably aggressive or obnoxious and when this happens, he is
vindicated by the over response. He's now a "Good Joe" and can
maintain face with his peers as he sticks it to the lender (Berne 91).
Beyond credit card debt is the refinancing boom that's happening
right now. People have less equity in their homes and cars than
ever before meaning that there are fewer reserves available for
unforeseen challenges (Chatzkey). A Gallop pole found that 60% of
those with credit card balances revolved payments (Card Debt).
Since copays and deductibles are higher, fewer people will be able
to afford hospital care and the providers will have less income
from their financially weakened clients (McLean). Yet, consumers
believe that the economy is alright and have concluded that
continued spending is not going to hurt them (Revell).
Real estate companies are even compounding the problem by offering
bizarre investment strategies where the principal isn't touched for
years on a home loan; the purpose is lower monthly payments and
works because most people turn over their homes after a very short
time (Clark). The consumer never gains equity in the property and
the lender maintains the true ownership.
Lack of self control is indicated by the fact that nine million
people went to credit counseling agencies last year. At least one
million have consolidated their debt into a single payment made to
the agency which is then passed on to their creditors (Bayot).
Unfortunately, there are many credit counseling services that are
disreputable. For example, Ameridebt was sued for unethical
practices by Illinois and Missouri and some are receiving funding
from credit card companies with the intent of carrying out their
agenda. Many people were advised to make payments that would have
been better served by declaring bankruptcy (Bayot).
Credit cards are powerful financial tools and it would be a burden
to live without them. They provide more security than cash in that
if stolen, unauthorized charges are dismissed entirely. Debit cards
are still a little more risky as there is a $50.00 deductible for
the first two days unreported and a $500.00 deductible if reported
stolen after that. In addition, their transactions take longer to
post and funds verification may not always occur (Kabear). Credit
cards are even being used as a type of unemployment insurance by
some. The technique involves getting as many as possible while
working. When unemployed, they can decrease the need to take the
first position offered allowing for more choices (Manning 4).
However, the average time out of work is greater than in the in the
last 20 years amounting to 20.3 weeks and is defeating this
strategy (Lubankco).
Debt causes stress. For example, a man in England recently hung
himself because he owed $114,903.00 on 19 credit cards. Mr. Stephan
Lewis earned about $38,000.00 annually (Anonymous, "Credit card
debt leads to suicide."). Insurance providers have been quick to
see the need to reduce debt anxiety by offering special policies
guaranteeing debt payment if injured or killed. Sounds good? Well,
it's not. A normal life insurance policy is a much better deal (
Anonymous, "Do you need credit-protection insurance?"). So yet
another group is trying to cash in on the debt phenomenon.
The link of anxiety to debt is further explored in the famous study
by Thomas Holmes and Richard Rahe in 1967 with their scale of life
change units (LCU). Adding up the number points for various events
produces an overall stress factor. For example, death of a spouse
100, a divorce is valued at 60 points, outstanding personal
achievement is 25, mortgage or loan is 25, and a traffic ticket is 5.
After adding up the points for one year prior, if the total is
greater than 300, there is an 80% chance of serious illness within
the next two years (Holmes). Though not on the scale, I suspect
that ongoing credit card debt especially among those only making
the minimum payment is higher than the simple act of taking out a loan.
Looking at our society as a collective organism, the amount of
stress that the current debt load is producing on the whole is
staggering. The link between psychological stress and major
depressive disorders is well documented (Herbert). In one
particular study, workers with depression are seen to have below
standard performance. Described as lost productive time (LPT), the
employee is present but not performing at full capacity (Stewart).
Since occupational stress is already known to cause absenteeism
amounting to 550 million working days a year (Cooper), current
presenteeism (Laucius) is no doubt exacerbated by the stress of
excessive credit card load.
As education costs rise and the number of Pell grants diminish
(Koerner), students are forced to take up the slack themselves. Many
drop out because of the cost of education as well as the burden of
having to work while attending (Koerner). Legal education costs
exceed most others and are continuing to rise. With the advent of
high speed communications, money is transferable across all
political and geographical boundaries. Globalization is taking
money from our economy and moving it to third-world countries.
Therefore, an undereducated population could have disastrous
results as we compete against countries that have made education
more readily available to their people. One recent example that I
heard of is a radiology clinic in Coeur d'Alene that transmits
their images to Australia where they are interpreted and sent back.
Not only is there a financial savings because of their lower wage
structure but since it's daytime during our night, the clinic
doesn't even have to pay swing shift overhead (Lisa M.). Clearly, we do
not want to create excessive hurdles in education that make it
advantageous for business to outsource offshore.
Excessive individual debt even threatens basic services to the lower
classes as well as curtails their freedoms and rights since recent
graduates with excessive loan balances are forced to take higher
paying jobs in lieu of working in lower paying jobs in social
services, health care or teaching (Reed). For example, one woman
took a second job to pay off outstanding loans and credit cards so
that she could continue as a public defender (Glater). Once out of
school, these students don't get the best mortgage deals either and
are waylaid by subprime lenders. They are in effect, victimized by
their outstanding balances (Koerner).
Money is the measure of power and the gauge of success in our
culture. Everything from good housing, the ability to travel and
move about, to finding a mate is enhanced by money and the outward
appearance of wealth is almost as powerful as actually having it.
The result is a peculiar trend--since markers of stability such as
homes and cars appeal to many women's desire for security and safety,
a consumer life-style of debt can increase the odds of finding
love. After all, what's more impressive to talk about at a cocktail
party, your new Hummer H2 or the fact that you've got a zero
balance on your credit cards? It's no wonder that consumerism is an
obsession.
In conclusion, I'm often surprised at what people spend their money
on and much of it has almost no value after the purchase or
depreciates rapidly. The interest charges on a prolonged credit
card balance significantly increase the cost of goods. Vast amounts
of interest are siphoned into the credit card company's bank
account with percentages that would have been seen as criminal 100
years ago. Much of that is turned into advertising in a never
ending pyramid scheme of monetary power. With the advent of mass
advertising, people want more things than ever in the history of
mankind. Coveting has never been more gratuitously nurtured--inspiring
it is both the art-form and obsession of big business.
Even federal deficit spending is tolerated at a level never before
seen in history. The religion of debt is national policy and our
leaders think nothing of spending and then raising taxes if they
need more.
We are a nation of chronic spenders and business encourages it. Our
national obsession with spending has deeper ramifications than just
another potential economic slump. It is cutting into resources that
make our country strong and resilient. It extends into our psyche
and affects sound decision making and good judgment. This problem
affects not only the financial well being of the country but its
very vitality and future success.
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Specific Citations