Why debt is the perfect storm.

By Mike Aux-Tinee.

Since 2007, I have been sitting here, watching what is going on with our economy and the terrible things that have happened to people. So many have lost everything: jobs, homes, savings and worst of all their self-esteem and respect. I know some of the problems many of them have been going through. See, I lost my job in  August 2007 and it took me until August of 2008 to find full time employment.

At the time, I was in the process of buying a house and going about my business of living my life. I had the idea, that everything would be fine and it’s just a little bump in the road –  but keep going forward otherwise I would be viewed as a failure.

That’s a pretty powerful motivator! And I did not want to be viewed as a failure. We have been repeatedly told throughout our life that we are a winner. We are given medals for just showing up and participating, while the winners are given a large trophy. As if the medal is to make up for that empty feeling we are experiencing. It’s supposed to build up our self esteem and we are rewarded for mediocrity. We are given a pat on the back and told things like the score does not matter… in fact we are told a lot of things, by those who really should just sit there and be quiet.

I know… I was told a lot of things about life from people. How to live, what I absolutely just had to have to be happy and what I needed to do to be viewed as successful.

Looking back, there was really only one piece of advice that I wished I would have been given. That being, to be a success requires hard work, thriftiness and to protect yourself from things like losing a job.

It’s one of my beliefs that having debt is not a good thing, no matter what anyone says – no debt is good debt. I know, some people have said that there are two kinds of debt, good debt and bad debt. That you really want to take on good debt, like school loans and avoid the bad debt, such as credit cards. But what happens to you, when you take on all of that good debt, like we have been lead to believe and we lose our job?  There is no form to fill out, in some government program that looks at the kind of debt (good or bad) and then if it’s determined that we took on the good kind, that what we owe would be put on hold until we get back on our feet.

In the real world, reality comes along and wipes us out – lock, stock and barrel. I believe having debt is just like the perfect storm.

Alright, what do I mean when I say that debt is the perfect storm? Let me start off by giving a definition of a perfect storm and how it applies to debt. I checked Wikipedia for the definition of perfect storm and here is what it had to say:

A “perfect storm” is an expression that describes an event where a rare combination of circumstances will aggravate a situation drastically.The term is also used to describe an actual phenomenon that happens to occur in such a confluence, resulting in an event of unusual magnitude… The confluence of three different phenomena when combined create the “perfect situation” to generate such a storm.

So what are the three different phenomena when combined create the perfect storm?

It creates a false sense of security and prosperity.

When you use debt, instead of paying cash, you are able to have more things. We associate someone who has more as being prosperous. After all, they must have the money otherwise they would not be able to afford (and possess) all of those things. Having a line of credit (credit card, home equity line of credit etc…), you are in effect borrowing money, someone’s money, to make a purchase and obtain more things. The more you have around you, the more prosperous and the safer you feel. But what you are experiencing is an illusion. It is a trick that is designed to make you feel this way, in actuality, what you really have is less. I know. That did sound like I am trying to trick you. Your eyes can see the things you bought, you can touch them and so on. But, if you don’t make the payments… bye..bye..bye things. You are trading off your financial security for physical security when you used some form of debt – not cash to make a purchase. However, if you save your money and then make the purchase then I concede the point that you are rich and have both security and prosperity. But that does not happen. You will attempt to point and what you have and say… “Look and what I have.” and I will say, “Yes, and look at all of the debt you have too.” If something happens and you lose your job, then all of these things will go away and you will be left with nothing. Still don’t believe me? Then check into the home foreclosure rates around the country.

There is a lower rate of savings.

The Federal Reserve Bank keeps track of a lot of information about the U.S. banking sector (and what we do or don’t do). One tiny and very sad piece of information is the dismal savings rate of Americans. Which at this point is going down not up, meaning we are spending more of our money and saving less of it. I always wonder why this is? What happened between our grandparents generation and ours? Well, they grew up not having access to credit and believed they should save their money and then make a purchase or learn to live without it. Now, there were some forms of credit around but they shunned it. It was seen as a terrible, terrible thing. They were more self-reliant and had a completely different set of values and priorities. Now, it’s more important to have things, it’s alright to be in debt (because some pundit, politician or a commercial said so) and we compare what we have to what others have, if someone has something and we don’t, then we need to head out and get it just to keep up with the Joneses’.

Not saving your money exposes you and your family to unforeseen economic problems. You are putting their welfare at stake just so you or one of them can have the latest and greatest version of whatever fad item comes out. Imagine how you would feel if you were one of those individuals who lost everything during the 2007-2009 economic collapse?

Once you start using debt, it’s impossible to stop.

Using debt to fund your life is a lot like using drugs. Once you start using and become addicted, it’s down right impossible to quit. Here is just a little information that may make you uneasy. This information was obtained from http://www.creditcards.com.

Total cards in circulation in U.S.
(Through year-end 2011, unless otherwise noted)

  • American Express credit: 50.6 million — up from 48.9 million at year end 2010 (Source: American Express.com)
  • MasterCard credit: 176 million — up from 143 million at year end 2010 (Source: MasterCard) 
  • MasterCard debit: 129 million — up from 119 million at year end 2010 (Source: MasterCard)
  • Visa credit: 261 million as of Sept. 30, 2011 — down from 269 million, as of Sept. 30, 2010 (Source: Visa)
  • Visa debit: 392 million as of Sept. 30, 2011 — down from 399 million, as of Sept. 30, 2010 (Source: Visa)

Credit card debt

  • Average credit card debt per household with credit card debt: $15,799*
  • 76 percent of undergraduates have credit cards, and the average undergrad has $2,200 in credit card. Additionally, they will amass almost $20,000 in student debt. (Source: Nellie Mae, “Undergraduate Students and Credit Cards in 2004: An Analysis of Usage Rates and Trends”)
  • Total U.S. consumer revolving debt fell to $866 billion at the end of 2009, down from $958 billion at the end of 2008. About 98 percent of that debt was credit card debt. (Source: Federal Reserve’s G.19 report, March 2010)

Debt as percentage of income

  • The average credit card-indebted family in 2004 allocated 21 percent of its income to servicing monthly debt compared to the 13 percent dedicated to debt payments among all households. (Source: Demos.org, “Borrowing To Make Ends Meet,” November 2007)
  • In 2007, the average balance for those carrying a balance rose 30.4 percent, to $7,300. Meanwhile, the median balance — meaning half owe more and half owe less — for those carrying a balance rose 25.0 percent, to $3,000. These increases followed slower changes over the preceding three years, when the median increased 9.1 percent and the average climbed 16.7 percent. (Source: Federal Reserve Survey of Consumer Finances, February 2009)
  • Miami residents are the biggest over-spenders, one study says. The 50 largest U.S. metropolitan areas were ranked in terms of percent of median yearly household income owed to credit card companies and Miami residents owed 22.61 percent. Tampa (17.1 percent) and Los Angeles (16.81 percent) came in second and third, respectively. (Source: Forbes.com, Equifax and US Census Bureau, April 2009)
When you look at this information, it’s rather hard to argue the facts.These three points, all point to one thing and one thing only – that the continual use of debt is causing more harm than good. While you may say that you are different, it will not happen to you and so on… Many people who have lost everything very likely thought the same things. Reality check buddy! Do you really want to tell your family that the reason they have to pack up their things and move is because you would not stop and face reality?
Of course, you are going to tell me that having more and more things in your life are “necessities” and that you must have them. Yea… not buying that one. That is nothing more than your vanity rearing it’s ugly head and taking over.
It’s going to take some time to come to the realization that having debt in your life is not a good thing. That there is another way and you can get out from this perfect storm before it wrecks more of your life and destroys your future.
I cannot make you change. There is nothing that you can be forced to do against your will. But I have to ask you, why are you willing to risk losing everything if and when you lose your job? Then think about how your life is going to be in the future. Do you really think the safety social nets like Social Security will be there for you when you retire? Hummm… I think it’s a better play to protect yourself from financial ruin.
I wrote a book, Islands of Happiness, about my personal journey to pay off my debt, to start using cash for purchases and to never be put into a position where I lose everything if I lose my job. It does happen to people and maybe even to someone you know. But how about this, why not change your life so it does not happen to you. Because it’s a terrible feeling to be standing on the edge of financial Armageddon knowing it could have all been avoided.
Peace dudes!

47 thoughts on “Why debt is the perfect storm.

  1. Thanks a lot for giving everyone an extremely terrific possiblity to read critical reviews from this site. It is usually so excellent and also jam-packed with a great time for me personally and my office mates to visit your web site the equivalent of three times in 7 days to see the latest guidance you will have. And of course, I am also usually amazed with the powerful advice you give. Certain 2 points on this page are unequivocally the very best we have ever had.

  2. First of all I want to say superb blog! I had a quick question that I’d like to ask if you don’t mind.
    I was curious to know how you center yourself and clear your head prior to writing.

    I have had a tough time clearing my mind in getting my thoughts out.
    I do enjoy writing however it just seems like the first 10 to
    15 minutes are usually wasted just trying to figure out
    how to begin. Any recommendations or hints?
    Many thanks!

    • First off, thank you for your comments! I appreciate the time you took to read the post! As for helpful tips to writing, I take my time. I will write something then put it down and come back to it a day or two later. If you are having problems getting started, maybe you could read over what you wrote yesterday to get you in the same frame of mind. I always do this and I am able to get back on track. Writing exercises might help too. Maybe you could describe something like a puppy or cat walking, the clouds or a scene between two people (I do this when I am in public and think of what they might be saying). A journal is very helpful. I have several notebooks filled with my ramblings that may be useful at some point down the road.

      There is a book written by Brenda Ueland, If you want to write that’s been very helpful. And the last thing I do is read everything I can from Sci-fi to children’s literature and biography’s and take a tour of the classics too.

      I hope my suggestions help.

  3. This design is spectacular! You most certainly know how to keep a reader entertained.
    Between your wit and your videos, I was almost moved to start my own blog (well, almost.
    ..HaHa!) Excellent job. I really enjoyed what you had to say, and more than
    that, how you presented it. Too cool!

  4. I blog often and I seriously thank you for your information.
    This article has truly peaked my interest.
    I will book mark your blog and keep checking for new
    details about once a week. I opted in for your RSS feed too.

  5. Hello, I think your blog might be having browser compatibility issues.
    When I look at your blog site in Safari, it looks fine but
    when opening in Internet Explorer, it has some overlapping.
    I just wanted to give you a quick heads up!

    Other then that, wonderful blog!

    • Thanks for letting me know about the differences between Safari and Internet Explorer. I appreciate your feedback and comments and any suggestions for improvement and topics that you would like to read more about.

  6. Right here is the right site for anyone who wants to find out about this
    topic. You know so much its almost tough to argue with you (not that I personally
    would want to…HaHa). You definitely put a new spin
    on a subject that has been written about for ages.
    Excellent stuff, just wonderful!

    • Thanks for stopping by the blog! I appreciate your comments and welcome any ideas for improvement. What I write about has been discussed until the cows come home, no arguments there. I hope my messages continue to hit home with people and decide they want to change their life for the better.

  7. Having read this I thought it was really informative.

    I appreciate you finding the time and energy to put this short article together.
    I once again find myself personally spending a significant amount of
    time both reading and leaving comments. But so what, it
    was still worth it!

  8. I’m extremely impressed with your writing skills and also with the layout on your blog. Is this a paid theme or did you customize it yourself? Anyway keep up the excellent quality writing, it is rare to see a great blog like this one nowadays.

  9. Hmm is anyone else encountering problems with the pictures on this
    blog loading? I’m trying to figure out if its a problem on my end or if it’s the blog.
    Any suggestions would be greatly appreciated.

  10. Thanks for your personal marvelous posting! I certainly enjoyed reading it,
    you may be a great author. I will ensure that I bookmark your blog and will eventually come back later on.
    I want to encourage you to continue your great writing, have a nice

  11. You really make it seem so easy with your presentation but I find this topic to be actually something which I think I would never understand.
    It seems too complex and very broad for me.
    I’m looking forward for your next post, I will try to get the hang of it!

  12. When I initially commented I clicked the “Notify me when new comments are added” checkbox and
    now each time a comment is added I get four emails with the same comment.
    Is there any way you can remove people from that service?
    Bless you!

  13. Thanks for a marvelous posting! I truly enjoyed reading it, you can be a
    great author. I will remember to bookmark your blog
    and will often come back in the foreseeable future.
    I want to encourage that you continue your great posts, have a nice holiday weekend!

  14. Just wish to say your article is as astounding. The
    clarity in your post is simply spectacular and i can assume you’re an expert on this subject. Fine with your permission let me to grab your RSS feed to keep up to date with forthcoming post. Thanks a million and please keep up the rewarding work.

  15. Magnificent goods from you, man. I’ve understand your stuff previous to and you’re just too great.
    I actually like what you’ve acquired here, really like what you are saying and the way in which you say it. You make it enjoyable and you still take care of to keep it smart. I cant wait to read far more from you. This is really a wonderful web site.

  16. Aw, this was an extremely nice post. Spending some time and actual effort to create a superb article… but what can I
    say… I hesitate a whole lot and never manage to get nearly anything done.

  17. Good post. I learn something new and challenging on blogs I stumbleupon on a daily basis.
    It will always be exciting to read through articles from
    other writers and practice something from their web sites.

  18. Spot on with this write-up, I absolutely believe that this amazing site needs
    a great deal more attention. I’ll probably be back again to see more, thanks for the information!

    • Thank you for your comments and request to follow my weblog. I have added a follow button to the front page. I thought there was one there already… oh well, another learning lesson! If you have any ideas, comments or would like to chat, please contact me here! Mike

  19. You are so awesome! I don’t suppose I’ve read through a single thing like that before.
    So good to find someone with unique thoughts on this subject matter.

    Seriously.. many thanks for starting this up.

    This website is something that’s needed on the internet, someone with a bit of originality!

  20. Excellent post. I was checking continuously this blog and I’m inspired! Very helpful info specifically the final section 🙂 I deal with such information much. I used to be seeking this particular info for a very lengthy time. Thanks and best of luck.

  21. I’d like to thank you for the efforts you’ve put in penning this website.

    I’m hoping to view the same high-grade content from you later on as well. In fact, your creative writing abilities has inspired me to get my own, personal website now 😉

  22. I blog quite often and I genuinely appreciate your information.
    This article has really peaked my interest. I’m going to book mark your site and keep checking for new details about once per week. I opted in for your Feed too.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s