Debt can be its own prison–it limits your choices and your future. But most of us who have debt nowadays are far better off than we would have been 150 or 200 years ago, when you could still go to prison for not paying your debts. Nowadays, if we can’t pay, we declare bankruptcy. Probably.
Unfortunately, this has led some people to treat their debts with an almost-criminal disregard. For example, the LA Times recently reported that more and more homeowners are ‘strategically defaulting’ on their loans.
These aren’t people with low credit scores or a history of not making payments. These people may even continue making payments on their other debt. They tend to live in areas where the house prices skyrocketed during the early 2000s and plummeted in the last few years. Analysts call these defaults ‘strategic’ because the people knew the consequences and benefits of walking away and chose to do so.
Do Americans take debt seriously enough?
I don’t think so.
Despite the title, I’m not in favor of imprisoning those who can’t pay their debts. Prison won’t allow them to pay their creditors back and serving time isn’t what their creditors need or deserve. But I do wonder what will make people take their debts seriously enough.
Perhaps it’s time to do away entirely with the myth of “good debt.” I don’t disagree that debt is a tool–it’s hard to save enough to buy a house and pay rent at the same time, a mortgage allows you to put all that money toward the house (and interest!).
But while the idea of “good debt” allows us to separate the never-good debt from the debt-as-tool debt, we need to remember that just because it’s a tool doesn’t mean we should have much of it or that it’s always good.
Using the tool metaphor, which so many others do when talking about debt, why not look at how conventional tools aren’t always necessary and could even be bad. For example, Micah & I lead a pretty tool-free existence. We have one repair kit with 2 screwdrivers, a hammer, pliers, etc—the basics.
Were I to start collecting buzz saws, power drills, and the like, we’d have trouble fitting them in our one-bedroom apartment. Purchasing more tools than we need, tools that we’d never use, would also put a strain on our finances. You’d probably take a look at our apartment and bank statement and tell me “just stop buying all those tools!”
Yet people do this kind of thing all the time–mentally writing off debt as a tool and not asking whether or not they need this tool or they need this many tools. Having established that debt is a tool, people then buy more house than they need or can afford, more car than they need or can afford, even more education than they need or can afford.
A social worker who plans to work with abused women does not need a degree from Harvard. A college student does not need a brand new car. I don’t need a house any time soon.
What do you think? In favor of debtor’s prisons? Got ideas about how to help people take their debts more seriously?