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Tuesday, April 22, 2014

The debt trap



Not for us peasants, but for the big banks and the powers that be.

Let's go back to the housing collapse of 2008. Not exactly happy times. What was one of the big triggers? Balloon payments. People got loans that they could just barely pay. The rates were set to increase in the future. The assumption was that people's incomes would go up and make the higher rates affordable. For most people, that didn't happen. Boom! The bubble burst.

It's just guess work, but perhaps one of the reasons interest rates have been artificially low for so long is that they really can't raise them. What's left of the economy would implode. Of course, keeping rates low has risks too, so the big boys are stuck.

There are lots of loans out there that will never get paid. Student debt is one of big ones hanging over the system. I suspect default rates are going up, but hard numbers are difficult to get. There are rumors, however, that things are really bad.

Credit card debt is very high. When someone starts to have difficulty paying, rates go up, making it even harder to pay.

What's the big threat that creditors hold over people's heads? If you don't pay your bills it will hurt your credit rating. We are supposed to think a bad credit rating is worse than cancer. Here's the thing: what's a credit rating good for? Mainly it's to allow someone to get in even more debt, and they are already having debt problems.

Imagine if everyone just said the heck with it and stopped paying on their loans. Everyone. How long would the system last? The whole world wide financial system could be broken in a week. They should worry about us, not us about them. Why should we be concerned that banks were foolish enough to loan us money? It's their bad business decision, right?

-Sixbears

17 comments:

  1. Some folks do exactly that when they realize how they've been played.

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  2. Default on your loans on purpose ? My problem with that is the person who was dumb enough to buy all of those on credit and find themselves underwater are responsible for that.

    When Enron imploded, I did not have much sympathy for the employees. Yes, they received a raw deal from losing the value of their stock. They weren't complaining at the beginning when the value shot up - THEY CHOSE THAT AND SHOULD HAVE REALIZED THE RISK FROM THE GET GO - ALL INVESTMENTS HAVE A RISK! The winners gain at the cost of the losers.

    My take is wise up, pay it back or sell it and learn from your mistake - AVOID DEBT WHEN HUMANELY POSSIBLE.

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    Replies
    1. I'm a bit tongue in cheek here this morning. However, it's been my experience that most people's debt is not from buying the big screen TV, but things like emergencies: medical bills, car repairs, divorce. With wages stagnant, they are just trying to survive.

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    2. I'm sorry sir - I went off on a rant. I guess what set me off was hearing my BIL was going to purposefully claim bankruptcy after he renovated the house. He pats himself on back as clever - c'mon man, what happened to taking responsibility for your actions.

      I get the wage stagnant sentiment. There is an older person with 'special needs' - he goes house to house, selling blankets, tools and other day to day items to make a buck or two. Goes to store to buy food. I do what I can when I can.

      My apologies again.

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    3. No need. I knew this post might stir things up.

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  3. I fear it's going to happen again...at least in the housing market. My property is worth today what it was 20 years ago, without the house.

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    Replies
    1. That's not good. The market has been propped up and it's still in trouble.

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  4. I have always tried to put a hundred percent down and no monthly payments. Couldn't always do that, but now I am completely out of debt.

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    Replies
    1. I bet you sleep better because of it.

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    2. Sure do. My parents taught me to only buy the things I could afford. Never liked payments and if I had to have them, I wanted the shortest possible time to payoff. It meant bigger payments but less interest.

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    3. Good for you Dizzy! Glad it's worked out.

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  5. Debt free is the way to go! If only more of us could understand that!

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    Replies
    1. Even if you understand it, putting it in practice isn't always easy. I've had set backs that put me in debt, climbed back out, then got shoved down again. Life can get . . . interesting.

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  6. I have lived both ways...in debt and no debt. I personally prefer no debt but to each their own.

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  7. My grandfather, a Welsh farmer so mean he even saved used baling twine, always said if you can't pay for it you can't afford it and probably don't need it.
    We used to make fun of his meaness but really he was right.
    Being in debt makes you a slave to someone else's whims.

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    Replies
    1. . . . or it could make them very worried for your welfare. :)

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