What If Employers Helped With Consumer Debt?

“You’ve done a great job this year.  Your performance is above expectations.  You’ve achieved all of your goals and have advanced your career path.  We see more growth for you in the future.  We want to recognize your accomplishments and feel that a fair representation would be….”

You lean in on the edge of your seat waiting for the next sentence.  5%?  10%?  How much more will you be making.

“no salary increase.”

Huh?  Bummer.  Well, there must be a fat bonus coming?

“Also, as you know, it is our policy not to pay one time bonuses.”

Now you’re really getting angry.  How could loyalty and performance be rewarded with another goose egg?

“This year, we’re going to do something different.  We’re going to apply $5,000 toward outstanding debt and we will arrange to pay the lender directly.”

Hmmm….let me think about this.

What would your thoughts be in such an arrangement?  What if companies started actively taking part in reducing consumer debt?

Consumer debt was defined as one of the crippling reasons for the recession, and though it’s gone down, the current levels are still one of the first things people discuss when talking about why the current economic recovery is so slow.

Logistics aside (I’m sure companies wouldn’t want to be writing separate checks to many different lenders, but let’s pretend for a minute that this isn’t an issue), I wonder what this would do.  Would employees be happy with this?  What percentage would resist the temptation to go out and add the debt back with a new purchase?

Would this really help the economy?

What do you think of this idea?  Would there be any company in the world that would bother with such an endeavor?  What would the pitfalls be?

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There Is No Such Thing As ‘Good’ Debt

I’ve seen many sides of the debate on whether certain types of debt can be seen as good or not.  Obviously, from the title of my post you know where I stand on the issue, but let me explain why I feel that there is no such thing as good debt.

mb-checkbook201308Traditionally, debt gets categorized into good and bad debt.  Good debt has been identified as things like:

  • Mortgages – Good because you have a house to live in and (until the last few years) an asset that was more often than not worth more than what you owed on it.  Stability and comfort all played a role into identifying this as good
  • Student loan debt – Having a student loan most often meant that you went to college, which meant that you were able to increase your earnings potential, so student loan debt was often seen as an investment, so to speak, into future earnings. Positive investments are good, right?

I don’t disagree that those two items (and maybe others) have merits, but I still can’t see them as good debt no matter how you look at it.

Why?

One simple reason:

Debt in itself is not good.  Debt means that you owe somebody money.  Plain and simple, that sucks!

I might accept that those are ‘neutral’ debt or ‘OK’ debt, but the fact that I owe somebody money can never be classified in other things that I consider good, such as:

  • That’s a good looking Corvette!
  • I had a good time at your party.
  • Good dog!
  • You owe us some good money!

See how it kind of fell apart there at the end?  🙂

So, there’s my thought on why no debt can ever be good debt, no matter what good comes from it.  I’m not saying you should avoid it, because having a mortgage and getting an education might just be the best things you can do.  I’m just suggesting to separate the good part of that from the not so good debt that accompnies it.

What are your thoughts on ‘good’ debt?

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Student Loan Payment Countdown!

The 20th is the day that my wife’s student loan payments come due.  We have them automatically deducted from our checking account.

One of the payments is within striking distance of being paid off.  When we got married, it was the ‘larger’ of two loans, as it had the larger balance, the larger monthly payment, and the larger interest payment.  We aggressively worked to pay it down, applying ‘extra’ money that we came across at various points (including portions of our tax refunds, an inheritance, and my wife’s income while she was working) to bring the balance down.

In January 2009 it actually became the smaller of the two loans from an outstanding balance perspective, which was a great milestone.

We are now on track to have this paid off by the end of the year.  The December payment will bring the balance down to $0!

That will free up approximately $200 per month in payments.  We had originally planned on applying this balance towards the second student loan, which would allow that balance to be paid off around the end of 2012.

We are currently re-thinking this strategy.  Instead, we plan to just spend the money frivoulosly each month on electronics, video games, clothing and music downloads.

Cool, right?

Just kidding!

That’s totally not what we’re doing.

We are going to apply the $200 towards debt.  We may, however, apply that toward the mortgage instead.  The mortgage and the second student loan payment are the only two debts we’ll have.  The mortgage has a larger balance, a much larger interest rate, and while it won’t bring our payoff anywhere near 2012, it will eat the balance away a lot quicker than the student loan payment would.

In other words, it’s the instant gratification (well, as much instant as two years can be) or the more bang for your buck.  We still have a few months to make a decision on what to do with the ‘extra’ funds, but either way, we’re committed to applying the entire amount to debt once this particular loan goes away.

Any thoughts?

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Your Mortgage Is Debt, Too!

I see it all over the place.  On TV.  On blogs.  In news articles.  It doesn’t matter.

When talking about debt, mortgages seem to get glossed over.  The focus always seems to be on ‘non-mortgage debt’.

While this is good, the fact remains that you still owe on your mortgage.  It’s still debt.  And, chances are, for most that have a mortgage, it’s the biggest debt and/or the biggest monthly payment that you have associated with debt.

So, why might mortgages get ‘left out’ of the debt discussion?  Just speculating here:

  • Backed by an asset – Up until the last few years, it was a pretty safe bet that most mortgages had an asset behind them, so you could kinda sorta see how it wouldn’t get looked at as the same type of debt as other things that aren’t asset based.  Most people (and banks too) figured that the house could always be sold and that could make the debt go away.  With so many people underwater these days, that’s really not the case anymore, but the old mentality seems to have stuck.
  • It would make a BIG BIG number even BIGGER – We talk about the debt in America in the trillions.  It’s already an overwhelming number.  To add in the collective mortgage balance would make it an astronomical number.

Personally, when I look at our debt, the mortgage is included.  Why?  Because it’s a debt!  Plain and simple, it’s a loan that we took out and have to pay back, and if that’s not the way to define a debt, then I need a new dictionary!

How do you look at mortgage debt in the ‘how much debt do I have’ discussion, and what other reasons might there be for not including it in the debt totals other than what I’ve listed above?

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