Debt isn’t NORMAL
Posted by Gail | Filed under Debt Traps, In the News
Do you see what’s happening in Europe these days? Markets are dipsidoodling all over the place because Greece owes more money than it can afford to pay back. On Tuesday, S&P chopped Greece’s rating to “junk” telling investors to stay away in droves. And the mayhem is spreading like the measles as debt contagion worries travel across Europe. Berlin’s market is down. Portugal’s debt rating got walloped. And Spain wasn’t far behind. So what’s with all the debt? And when did it become normal to spend more money than you could ever hope to afford to repay?
Lose a job, have a child get sick, or watch your car die in the middle of a highway and the idea of putting whatever you need on a card and carrying a balance becomes a secondary issue to taking care of the big problem. But what is it that’s changed in our lives to make us think that when whatever we’re putting on our credit cards won’t come home to roost one day? How have we come to delude ourselves so thoroughly? What lets us rack up thousands of dollars in debt without batting an eye? And what lets us carry around balances on our credit cards, at huge interest rates, without losing our minds?
There are people who bemoan their debt while booking their next vacation. I’ve met folks who can’t drive a domestic car; they must drive a car they really can’t afford. And there are heaps of people who can’t seem to find the money to repay their old bad spending habits because they’re too busy traveling (on credit), eating out with friends (on credit) or shopping (on credit.) What makes some people immune to the gut-wrenching stress that other people feel when they owe money?
I believe part one of the problem stems from the fact that so many people are so far in debt that indebtedness has become normal. If your parents are in debt, your brother is in debt, your best friend is in debt, being broke won’t carry the weight for you as it does for the person who has grown up hearing, “debt is bad!”
I believe part two of the problem stems from the invention of the “minimum payment.” People have stopped adding up what they owe and are focusing instead on how much they’ll have to come up with each month to keep their credit flowing. It is as if The Debt – the big whopping amount owed – doesn’t exist. And because minimum payments aren’t set high enough, it takes a really long time before the pain of not being able to come up with even the minimum hits home. By the time the debt is big enough for all those minimum payments to be a problem, people can’t see any way out, which leads to what I like to call Stupid Debt Tricks.
Stupid Debt Trick #1 is performed by a guy who thinks he has the system beat. He transfers the money for his mortgage payment to his line of credit to meet the minimum payment requirement, and then uses the line to pay his mortgage. The dope isn’t even covering the interest on his line.
Stupid Debt Trick #2 is used by the girl who, finding that she can’t live within her overdraft limit, arranges to have the extra she needs automatically transferred from her high-interest credit card. As if it isn’t bad enough that she’s living in overdraft, she’s taking cash advances to cover her overdraft’s overdraft.
Stupid Debt Trick #3 is executed by the couple who, realizing that they can’t live on the money they bring home each month and have fun, make all their mortgage payments from their line of credit. So while the Smart Money People search for ways to lower their interest cost by even half a point, Mr. and Mrs. No-Self-Control pay the regular interest rate on their mortgage plus the interest rate on their line on every mortgage payment.
Eventually even with the full arsenal of Stupid Debt Tricks at their disposal, the folks who think debt is normal finally run out of room. That’s assuming their circumstances don’t change first, leaving them with less money than they need to make their minimum payments AND buy food.
Debt isn’t normal. It’s anathema to life. Debt means no control, no way to bounce back from whatever pile of poop is reaching up to grab your foot. The sooner we move past “managing our debt” and get debt-free forever, the healthier we all will be.
April 29, 2010 at 6:52 am
I think student loans have contributed significantly to the “debt is normal” mentality. If you don’t get a good education, your chance of a job that pays worth a damn is slim. It’s true that you can save for it all and have no debt, but that doesn’t happen in all cases, like being a doctor or other 4 year program.
April 29, 2010 at 6:53 am
I agree that this is a real problem. A major Canadian newspaper provides financial snapshots and advice to one family each week. Their financial planner has actually recommended a line of credit as an emergency fund! Credit is not a “fund”, it is debt, just more to owe.
April 29, 2010 at 7:12 am
I remember that article Chloe. I just about spit my coffee out. And it made me realize what crap that paper was spewing out about financial planning and wondering about those poor families that had been getting this wonderful advice from financial planners arranged by the newspaper.
Gail’s advice is just tried and true common sense. Live within your means. If your means is not good, find a way to make more money. Consumer debt is bad – don’t carry it. Save for what you want and pay cash. Put aside money for emergencies and put aside money for retirement. Don’t get a mortgage you can’t afford (so, you might have to live in a smaller place than you really want) and get rid of student loan debt as fast as you can.
April 29, 2010 at 7:52 am
We were having a conversation in my school office about looking around and seeing the homes that people have and wondering how they could possibly afford that lifestyle. We know how much we make, we know how much we can afford, and they get really puzzle how other people can have a huge home, huge car, gardeners, go on vacation, etc.
As Amelia said, student loans are a big issue. I have student loans, but I am trying to pay them back as soon as I can. I really am not comfortable giving the govt. all that interest! I paid entirely for my education, with student loans and working while in school. I was doing ok until Teachers College, when I only worked a very small job and my student loan went up 10,000 dollars (more than a third of my total debt). So I have started my career with a debt. Basically that means that a) I don’t go on vacation b) I only go clothes shopping maybe 3x a year and c) I just don’t buy big things.
April 29, 2010 at 7:57 am
I really needed that today Gail. Thanks you!
My goal for 2010 is to pay off my line of credit, and acquire a nice, new set of dishes. This last week I’ve been salivating over another potential purchase. My hand was poised like a gun-slinger over my credit card on one occasion. Dangerously close to making the draw!
I did hear your voice in my head saying “you can have anything you want, as long as you can pay for it”.
Thanks for being bold enough to say STUPID today. I hate being stupid. I can pay off my debt this year, and all I need to do is stay the course. Sometimes it’s pretty dull, but it can be done!
April 29, 2010 at 8:27 am
After lamenting last week that I had about $1000 extra added to my cc debt in 1 month of emergencies, I called one of my credit card companies to see what offers they had. I got a 1.99% rate until August 2011! I immediately transfered everything to them (since they were at $0 and I had long since cut up the card), so I felt much better about the emergency spending I had to do in April. May is already looking brighter, and by the end of it I’ll have $1000 in my emergency fund for just these “brake job needed” kinda things.
My husband keeps telling me to relax, debt is normal, we’ll die with it, blah, blah, blah. I told him after I had that fabulous 1.99% interest rate and card paid off, I’d show him that ZERO debt (well, mortgage still, but seriously!) really does exist!
April 29, 2010 at 8:36 am
How timely. How does Gail ALWAYS manage to write something so applicable in such a timely fashion? The poop hit the fan so to speak, when I wrecked the car 2 weeks ago. Did I put the $1,000 deductible on my card? NO. I had cash, thanks to Gail, of course, and her insistance on savings and emergency funds. I will have to rebuild that savings of course, but at least I didn’t go in debt to pay it. The old me would have. Thanks Gail.
April 29, 2010 at 9:01 am
Love the pic of today’s post!!! Its really representative!
April 29, 2010 at 9:06 am
Holds up her hand and admits that even as much as a couple of years ago I felt that debt was inevitable and normal. Not so now.
We recently purchased a new home and everyone was shocked that we bought a modest 4 bedroom townhome instead of the larger 5 bedroom home that cost about $75,000 more and would fit our family better. We sat down and looked at what we were paying in rent and utilities and went about finding a house that would suit our needs and not go above what we were currently paying. Yes, it’s small, and yes we’ll have to build a couple of rooms in the basement (and double up kids until that’s finished), but it’s what we felt we could afford. It feels good knowing that we haven’t streched our limits beyond capacity.
April 29, 2010 at 9:16 am
I remember when I went in for my consolidated loan and the bank rep also offered me a line of credit. All there preapproved. just needed my signature. I hadn’t yet seen the light of Gail so I can only imagine what kinds of horrors I would have gotten into if I had chosen that option. No LOC for me. No overdraft either. let’s face it, it’s like dangling a cheesecake in front of me and saying “no no you don’t have to eat it…it’s just in case you need it”
April 29, 2010 at 9:20 am
Michelle….your husband sounds like mine. He feels that debt is normal and that we will have it till we die. I told him that we will be out of debt some day including our mortgage. Not sure he believes us but I am happy to work at proving him wrong. It will take awhile but I don’t care.
I think that I will be calling my credit card company and see what deal I can get.
Regarding student debt. Yes many people are coming out of college and university with a lot of debt but then they should be coming out of school with a large earning potential so that debt should be able to be paid down as quickly as possible.
April 29, 2010 at 9:31 am
We need to bring back those mortgage parties. Consumer debt is not normal and we don’t tolerate it in our family. Investment debt is different – that is, if you are borrowing money to make more money. I’m not talking about borrowing to fund an RRSP, but I’m talking about borrowing money to fund a company to create real jobs for people…. not just paper gains.
April 29, 2010 at 9:47 am
Wow I was just thinking yesterday about how Gail and all of you on the site really are kind of like the light in the dark. Debt is Not normal and with all the places throwing more and more oppurtunity at us to spend spend and spend more and get more and more credit is nuts. I made some crummy financial decisions several yeaar back and I now have a high interest loan that I am still paying back. I tried to transfer this over to lower interest rate but with all the dumb things that I did back then my credit rating is not the greatest. I am paying more than the minimum payment on the loan and I dump any extra cash that I can on it so I can clear it off asap. Each week I get a letter from the company saying what a great customer I am and how they want to offer me more money now no questions asked. The amounts are insane. Like the one this week was $10,000.00. Yeah Right! I was stupid enough once to take it but no more. I want to say a huge THANK YOU to all of you here and Gail for keeping me strong over the last year or so and keeping me on the straight and narrow road to debt freedom.
April 29, 2010 at 9:53 am
Great Blog today Gail! There are many people in my life who carry what they consider “manageable” debt. They don’t seem to have a problem with their pointless interest, late bills, etc. They also fail to realize that this debt won’t disappear. I spent a long time ignoring my debt issues, and when I finally woke up and realized the amounts were increasing beyond belief – I finally did something about it. It changed my life completely and I learned my lesson!
Your tips are great! I look forward to your blog everyday! They keep me focused.
April 29, 2010 at 9:56 am
No, debt isn’t normal. Easy credit allows us to lie to ourselves that we are perhaps somewhat bigger and better than we really are.
Student loans can be an investment in yourself if the resultant education means you will make more than you’ve spent while paying it all back in a reasonable period of time.
Truth hurts sometimes and a lot of people don’t want to see or hear about it. But isn’t that the difference between being young and being an adult?
April 29, 2010 at 10:11 am
Rebecca, I started with debt – as much debt as my salary, in fact!
However, I have paid the loans off in 2 years, 5 months (12 years, 7 months ahead of schedule!!) years, with up to 41% of my take home income going against those loans on a monthly basis.
At first it was all I could do to pay the minimum payment and stay on track, but after getting a budget that worked and learning to manage with the money that I make (instead of more than I make!), I was able to continue to chop off chunks. Tax returns helped, GST cheques helped, and in it all, I still put money to savings.
I’ve been debt free since April 7, and it feels great! Just be consistent, and the loans will come down
April 29, 2010 at 10:17 am
I think some people just feel a total lack of self-efficacy when it comes to debt. They figure there’s nothing they can do about it (which those of us who are here know isn’t true) so they take the fatalist position that they will die with it. Given the stats, it is “normal” to have debt (as in the average person has some, not that they ought to.)
April 29, 2010 at 10:21 am
Ah, student loans. Well after 6 years of university and 2 degrees I had $64,000 in student loans last november. They are now at $46,000, which is incredible. The problem is, though, that the job market completly sucks right now. I’m working in admin for $20 an hour and some people are offering me the same wage for being on call and working overtime. At this point, with so much debt and relying on a second job to make ends meet, I just can’t take a job in my field. Plus, people are showing up with the weirdest kind of experience and getting the jobs that normally wouldn’t have many people qualified for them! I guess they must be at-home mothers coming back to the work force cuz I’m not sure where else people would get experience in this field.
But, my husband is also out of a job and although he had 6 years of university (5 paid for by his mom and dad), he has no degree. He’s not getting any interviews although he has a few years of experience. So I figure my student loans were worth it.
April 29, 2010 at 10:34 am
@ Emma — congrats on being debt free! Good job!
@ Judi — I agree with you about buying a modest home that you can comfortably afford and can fit your family’s needs. My husband and I just bought our first home and we are thrilled that we can afford it for the here and now (while I’m on maternity leave) and for the future (when I’m back to work). Yippee!
April 29, 2010 at 10:38 am
@Frugalistas You know, I used to feel that RSP debt was okay. But after hanging out here for a few months now, I’ve come to the realization that I was deluding myself.
By classifying my debt as RSP debt for years, I completely overlooked what my capability for contributing may have been had I worked out a budget.
This is certainly not the case with everyone, I do think RSP loans are great – but my largest goal for Feb 2011, is to have my maximum RSP room used, without the benefit of a loan.
Now if I try to buy something, I think there’s half an RSP loan payment etc. Kind of helps.
April 29, 2010 at 11:02 am
“Debt being normal” is so engraved in the minds of people that if you listen to some financial planners they’ll tell you that having debt is a normal part of even retirement.
I do understand that there are some things we’ll go in debt to have – house ownership, but, for the most part if we yield to wise words – owe no man nothing, we should not have debt.
The things happening in Greece is only a sign of more to come. I’m still waiting for the credit card market in the U.S. to explode, it’s taking longer than I had thought.
April 29, 2010 at 12:13 pm
Thank you Gail. For a long time now I have been trying to figure out how people live with the stress of being so much indebt – obviously they just ignore the fact and only look at their monthly have to pays.
It’s kinda like when you are overweight – in the back of your mind you know you are killing yourself – but does it really matter when the cheesecake comes around (I was obese for a number of years and now am fit and healthy – guess money works the same way – at some point you go enough – I want better for me and you fix the problems you’ve created – or you ignore them and die with them.)
April 29, 2010 at 12:21 pm
this blog is so inspiring…i have been so stressed about coming up with the money i need for next school year…it was very tempting to just sit and rely on credit…but after reading the blog and the comments, i definitely feel more motivated to make enough money for september.
April 29, 2010 at 12:48 pm
“It’s kinda like when you are overweight – in the back of your mind you know you are killing yourself – but does it really matter when the cheesecake comes around ”
That is so absolutely true. Most people do realize that it’s not good to have debt (or be overweight), they just aren’t ready to make the hard choices.
I’ve been trying hard lately to make each choice simply that – do I want new shoes or do I want the freedom and options of being debt free. Do I want take-out for supper or do I want to die of a heart attack like my grandmother. I find this much more effective than just trying to tell myself that I shouldn’t buy the shoes or eat whatever junk I’m craving.
April 29, 2010 at 12:51 pm
@Mimi
Hang in there, girl, you’ve made some serious headway since November. Just keep at it and stay focused!
April 29, 2010 at 12:59 pm
I’d also like to add that a budget is really the process of making those choices. By making the budget you are actively making choices that are in line with what you want.
The other option is just buying everything you want until you run out of money and have to put it on credit. You do this often enough and you end up with a pile of debt. You are still making choices. It’s just that there is no thought behind them and they really aren’t in line with what you want.
April 29, 2010 at 2:14 pm
My DH seems to think debt is normal too, he’s all about the minimum payments and forgets that emergencies crop up. For him to get hurt at work almost had us on the street within a month! It destroyed my soul to such a point that we’ve had to separate! I’ve worked really hard to get my debt down over the last couple years. I’m not sure I would have been so self-disciplined if I actually had access to credit cards at the time. (they were all cut off)
Although it kind of sucked, I paid my 2008 taxes yesterday with my bonus from work. Changing careers was a tough decision, but it has paid off too. (Most of my life I’ve never received a bonus! or even health benefits for that matter…)
Movement is SO slow at first, but as I build up “momentum” it feels so good to actually be closing out each debt. I’m winning this battle! Oh, and my marriage is working out too – with ALOT more boundaries!
April 29, 2010 at 2:16 pm
I have a confession to make….I bought myself a used sea kayak, and I used my credit card….aack! So between now and next month I need to be very very good, so I can come up with the money required to pay off the card when the bill comes in. I did have a bit of money saved up (but it really should have been going into my emergency fund). Oh well, I will have fun this summer and quit beating myself up over it. My young daughters and I have started saving $100 a month to go to florida next winter and visit Grandma and Grandpa. My 9 year old is keeping tabs of the total to make sure we get there.
April 29, 2010 at 4:07 pm
Enjoyed your messages today everyone.
@Rebecca W. my hubby and I were having those conversations over 30 years ago. Wondering how those around us could afford so much. Being in debt as a normal part of life has been around for a very long time.
@MiddleClassMomInToronto – the end of 2010 is my goal for being debt free as well. Hang in there!
@Judi – you and your hubby were very wise in your choice. Don’t listen to others.
@Emma – congratulations on being debt free! Must feel amazing!
As long as we keep trying and support each other here, I smell success for all!
April 29, 2010 at 4:35 pm
Being entirely debt free, have an emergency fund and enough savings (besides RRSPs) are my goals.
I’m keeping my zero balance Visa in the freezer (yep learned that one) and next paycheque I’m going to chip away at my $1,060 LOC. I have a tax refund coming so I’ll use that for some. Then I just have to worry about Mother’s Day, Father’s Day, Dad’s 60th, niece’s 3rd and of course building my emergency fund.
Saving for that emergency fund is a problem for me – so many factors! I am putting $50 from each paycheque into a bond by payroll deduction. I opened a TFSA with the intention of putting money in it but it’s too easy to take money out. I’m thinking of getting a GIC and locking my money in for a year, then transferring it to the TFSA but I’m kind of afraid to lock things in (I have no wiggle room). I have three RRSPs that I contribute to every month, maintenance fees and property tax that I pay separately from my mortgage. I like to run and hike so that costs money – but I don’t buy very much for either activity. I do not get overtime and I have taken a second job before but hated it.
One ray of sunshine — the other day my mortgage rep commented that my mortgage is a “small” one and that made me feel good. I almost own something of value!
April 29, 2010 at 5:27 pm
@Emma, That is awesome. I’m really hoping to have my loan paid off next year. I think most of my excitement about probably having fulltime consistent employment next year (something that didn’t happen until March this year) is because I can knock off a huge chunk out of my loan
@Mimi – I know how you feel. I’m working 7 days a week right now. I know that I will lose my fulltime job in exactly 2 months, so I’m crazy saving to beef up the savings for the summer. Hang in there!!!
@Catherine – Yes, I agree….but I think it has become much easier to ‘fund’ the extras. Meaning that more people are in the life of debt than 30 years ago. There has always been people who don’t save. Now it is that, plus LOC, easy to obtain credit cards, pay day loans, etc.
April 29, 2010 at 5:37 pm
Agree 100%, and I can definitely see how the general acceptance by everyone to just be in debt causes those around them to do the same. I am in my mid-twenties, and I can’t think of one person that I know that has zero debt, which is pretty scary.
April 29, 2010 at 5:47 pm
mels:
Put your EF in a savings accounts within your TFSA, but at another institution!
That way you have easy access to the money in case of emergency but it is not in your face that the money exists. I like hiding money from myself like that and it keeps me in check (as apposed to saying that there is plenty to splurge when it is not the intent of the $).
April 29, 2010 at 7:42 pm
I am so inspired by you all that May 1st is my start date. Thanks everyone!
April 29, 2010 at 8:20 pm
@Judi, I shared a room with one or another of my sisters for most of my life until the olders started moving away. Nothing wrong with it and I actually look back on it fondly and so do my sisters.
April 29, 2010 at 8:33 pm
About student loans: I was living below the poverty line with two kids before I finally went back to school. $20k later in student loans but I now make at least $30k more (gross) every year. Was WORTH IT for me. I think it’s important that you borrow in relation to your expected earnings after graduation, though.
April 29, 2010 at 9:12 pm
Carla – Jan. 1st was our start date and we are right on track and really kind of ahead of our 3 year debt free goal. The jars have been going very well. We have paid off well over $6000 in debt (with bonuses, tax refund and bi-weekly debt repayment) and moved all of our debt to 5.99% interest or less. We now are doing a 2 week cycle in the jars to try it out that way.
The most difficult things have been the food budget and remembering to track it all in our budget binder. You do get used to it and we have our system down pat now ( as much as it can be).
Thank you Gail! I hope to report well before Dec. 2012 that we are completely DFF.
April 29, 2010 at 10:00 pm
Debt might not be normal but it sure is common!
Even here in my own head, there were about 10 years where I lived with daily debt and really didn’t lose much sleep over it.
Today, I would be loathe to go back in to debt. For us now, debt is no longer normal.
April 30, 2010 at 12:04 am
I think part of the problem too, is that people want to start off where their parents left off. They think that if my parents have it, then why shouldn’t I? Our parents worked many years and many hours to get where they are. They too, were poor once. We can’t have what our parents have without the work and time. Some may strike it big quicker that others, but we all have to start somewhere.
Problem two: If the government can get by spending trillions more than they have… without consequences (yet) why can’t I? Uncle Sam is the worst offender / example of them all.
April 30, 2010 at 2:32 am
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April 30, 2010 at 5:14 pm
For me, the experience that every adult I knew as a teen was in debt all the time was one of the reasons why I have become as averse to debt as I am. Because being in debt is a horrible state of being, and I can’t stop seeing the whole instead of the monthly payments. Which is why, unless I manage to save a lot of money, I will never buy a flat. I wouldn’t get a good night’s sleep until the mortgage was paid off, and ten years of no sleep and ramen noodles do not sound tempting.
May 1, 2010 at 12:51 am
I have about 6 months left on my car (0.9% interest) and then all that I will have left is my mortgage. My parents were a blessing to me as I learned early about the evils of cash advances off credit cards and minimum payments.
I had about 25K in student loans when I left school but hard work paid them off in about 3 years.
I am glad to have found this website as it is nice to find a forum of people who are working hard to get things sorted out and realizing that it is hard work and discipline – no matter how much money you make.
Best wishes to all of those who are on their way to being DFF.
May 11, 2010 at 9:00 pm
[...] Most people would consent that extreme measures are okay if it’s a matter of life and death, but what if it’s a matter of life and debt? If someone is using “extreme” frugal measures to live within their means, but does not technically have to, because they have access to credit, is that being responsible, or is it pathological? It’s a thought worth pondering. In the media, giving up luxuries for the sake of living within ones means is portrayed as extreme. But Gail Vaz-Oxlade argues that debt is not normal. [...]
May 13, 2010 at 5:39 am
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December 16, 2011 at 12:52 pm
[...] Gail Vaz-Oxlade Making Money Make Sense. Debt isn’t NORMAL. “Do you see what’s happening in Europe these days? Markets are dipsidoodling all over the place because Greece owes more money than it can afford to pay back.” [...]