Sixteen Tons of Debt

Written by Peter Tran

June 28, 2017

When I was younger I bought into to the have-it-now, pay-later mentality.  In college I found myself in what I thought was a tight financial spot and used my only credit card to buy a car (a car!).  When I graduated I suddenly felt deserving of a gift for my awesome achievement.  So, I got […]

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When w younger bought nto to the have-t-now, pay-later mentalty.  n college found myself n what thought w a tght fnancal spot and used my only credt card to buy a car (a car!).  When graduated suddenly felt deservng of a gft for my awesome achevement.  So, got n my “ll-unpad-for-credt-card-car,” drove to the dealershp, and traded t for a brand new, 100% fnanced (except for the $500 they gave me for the trade- n) vehcle. Unfortunately, dd not yet have a job to match the payments and struggled for years to pay off the debts.

Although graduated from college nearly debt free except for the credt card and car loan, my story worsened when started to pursue my MBA.  n my fnances clses w taught that there w Good Debt and Bad Debt …and student loans were Good Debt.  So, lke any good student, followed my professors’ advce.  Even though contnued to work, gave up the bootstrappng that got me through undergraduate school and took the ey road.  t w not untl payments for my edu-vacaton came due sx months after graduaton that realzed how far had traveled from fnancal un-common sense.  Now, had a ll-unpad-for credt-card-car bll, debt on a new car that exceeded the car’s value, and a student loan debt the sze of a small-home mortgage.

Ey Road lluson: The ey road w an lluson.  w actually dggng myself nto a fnancal hole.  Each ely borrowed dollar w a scoop of future freedom pulled from beneath my feet.  The prospect of growng my small busness from the depths of ths hole w fve tmes dffcult t would have been f had followed my grandparent’s bootstrappng wsdom. 

The lluson Crumbles:  My story s not uncommon. The cultural acceptance of the have-now-pay-later mentalty started to take hold n the 1980’s.  By the early 2000’s the mere thought that one should budget and save for thngs they want w decred an rrelevant relc of those who survved the Great Depresson.  Debt w good!  f you could make the payment you deserve to have t. For many, however, the ey-road lluson started to crumble n 2007 when the great recesson revealed the depth of the fnancal hole we had dug.

Tax/Debt Counselor: Today, an Enrolled Agent lcensed by (…NOT workng for…) the US Treury, spend a great deal of tme workng wth folks n debt – taxpayers who fnd themselves debtors: Debtors to the RS:  They owe more n taxes than they are able to pay. 

What many of these unfortunate taxpayers have n common, however, s not just owng back taxes.  t’s debt! Ther tax problem s actually a symptom of a much larger problem: Debt – credt card debt, car loan debt, student loan debt, Pay-Day loan debt, and mortgage debt – debt problems that fnally became tax problems. 

The fact that tax representaton and debt counselng often go hand n hand should not be surprsng.  Mddle cls h dug tself nto a hole – a deep hole n the thck, red-clay of debt.  t s a phenomenon whch overtakes the lves of many, long before they have tax ssues – robbng them of ther peace of mnd, health, and fnancal securty.  Debt’s vctms often do not even realze how deep ther hole s untl the slghtest bump – a layoff, a car repar, an llness – brngs the walls cavng n around them. 

A growng number of ns, however, have grown weary of dggng smply to make themselves poorer and ther credtors rcher.  nstead of dggng deeper, they have decded to carve a starce to fnancal freedom. 

t s for ths reon that decded to devote some tme to dscuss debt.  Today wll compare today’s debt-culture to the scrp system utlzed by mnng towns through the md-1900s.  wll also share some stunnng statcs revealng how quckly debt h woven tself nto the fabrc of our daly lves.  n future columns wll show readers how they too can carve a starce out of ther debt dungeon to fnancal freedom.

Sxteen Tons of Debt:  n hs famous 1946 song, Sxteen Tons, Tennessee Erne Ford sang about the stranglehold debt h on debtors.  Referrng to the stranglehold the mnng-town scrp system had on mners, he sang:

“You load sxteen tons, what do you get
Another day older and deeper n debt
Sant Peter don’t you call me ‘cause can’t go
owe my soul to the company store.”

Tennessee Erne, actually named Merle Travs, w sngng about the mnng-town scrp system that exsted n the frst half of the twenteth century, thrty-four years before credt cards got a hold on n consumers.  Now, roughly 34 years after credt cards weaved nto ms-market appeal, t seems he mght just well have been sngng about the fnancal enslavement of ns by consumer debt today.  The smlartes are uncanny.

The Scrp System

The Scrp System presents an ntereng parallel between mners’ debt and the debt ns face today.  Under the scrp system, mners were pad n scrp, an artfcal currency, whch w used to buy goods at a company-owned store.  Company store prces were hgh but they offered credt to mners who could not afford the stores’ goods any other way.  Because the mnng company owned the stores, companes reaped revenues from the mners’ labor n three ways: 

Charactercs of Scrp-Bondage:

But, what w the true cost of the scrp system to the mners themselves?  Here are three:

Scrp’s Progeny – Consumer Debt

Fortunately, the mnng scrp system ded n the 1950s, and one would have thought debt servtude ded wth t.  However, a seemngly-knder, gentler more subtle scrp w reborn, more than a generaton later, n the form of Consumer Debt. 

Consumer Debt Defned: What s consumer debt?  Consumer debt s debt owed by consumers (holds) opposed to busnesses or the government.  t ncludes debt used to buy food, clothng, cars, computers, phones, etc.  But, t also ncludes debt used to buy homes, and debt accumulated n student loans.

Recent Hstory of Consumer Debt: Untl the 1980s, the only nfcant debt held by most holds w a home mortgage.  Although credt w offered by many stores and a few credt card companes, t w not untl the late 1970’s, when the ndustry’s on-lne nfrtructure had been establshed and a 1978 Supreme Court rulng effectvely deregulated credt card nterest rates, that consumer debt took root n our culture.  Over the 35 years that followed, debt h enmeshed tself nto n culture so deeply that t h almost become synonymous wth the phre Mddle Cls.

The Debt Culture Arrves: Here are a few examples of how debt h crept nto so many n’s lves: 

The Mddle Cls and the Debt Lfestyle: n hs landmark book, Rch Dad, Poor Dad, Rchard Kyosak made an nhtful observaton about spendng habts of the poor, the rch, and the mddle cls:

Sadly, the charactercs of the debt lfestyle are eerly smlar to those of scrp bondage.  Consder how the Charactercs of the Debt Lfestyle compare to the “Charactercs of Scrp-Bondage:” 

1. nflated Prces: Any tme debt s used to purche somethng, the prce of that tem automatcally ncrees.  Why?  Because nterest must now be pad on that purche.  For example, a $1,000 stereo purched wth a credt card havng a 10% nterest rate actually costs $1,100 f you pay for t over two years.  Or, a $23,000 new vehcle fnanced over fve years actually costs $26,000.  n each stuaton, havng the tem today ended up cong you more than f you had saved and pad for t outrght! 

Because we seldom realze the true prce for thngs purched wth debt, let’s present ths cost n real ts.  Because of nterest, havng the stereo today costs a small stack of CDs that could have been played n t.  To have the vehcle now, a famly of four traded an tonal 5-6 months of groceres.

2. Future Sacrfce: There s a large, often overlooked, rsk socated wth the act of have-now-pay-later – a gamble that can produce hold stress, tax problems, and kruptcy.  Borrowng money to have somethng now means not havng that money avalable later when you need t (and sad when, not f).  Our parents’ and grandparents’ generaton referred to ths “savng for a rany day!”  When we don’t and the hot water heater goes out, or the car breaks down – and they wll –  there s no savngs to cover these costs wthout gong further nto debt. 

3. ndentured Servtude:The debtor s slave to the lender.”  Dave Ramsey, fnancal advsor, speaker, and author, uses ths proverb (from Proverbs 22:7) n hs books Fnancal Peace and Total Money Make Over to succnctly llustrate the power debt h over our lves and relatonshps.  Lke mners who owe ther souls to the company store, many ns fnd themselves trapped n a noble, yet quetly desperate, struggle n whch lfe-choces and day-to-day decsons are subservent to the fact that they have mountng debts to repay.  Debts whch, for most, wll not go away wthout a change n thnkng and a change n lfe-style.

The purpose of ths artcle s to share the rse and unntended consequences of the have-t-now-pay-later lfestyle.  t s also to note that there s hope and a way out.  We are seeng some new trends emergng from the depths of our great recesson.  A growng number (now over 50%) of ns now have more n savngs than they do n credt card debt.  Many more are takng proactve steps to dggng deeper and, nstead, start carvng a starce out of ther fnancal hole to walk n fnancal freedom.  Buldng ths starce, step by step, wll be the topc of my next column, Buried in Debt? There’s a Way Out

 

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Happiness is for those who plan well and pursue. A profound among us have been proven those who have true dream to live for likely REALIZED IT. It is just simply the person working toward the DREAM days and night until accomplishment. There is a phrase of efficiency a head of you. Steps and obstacles at first seem tremendous. However, just with some times those difficult steps and challenges are so easy performance for you. There are also plenty of tools including VISUALIZATIONS and helps are around you.

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