Good Debt…?

Written by BG Howard

November 16, 2022

With all the hoopla, rhetoric, and blundering that has been spat by the political candidates during the past several months, much attention has been directed toward the issue of public spending and the deficit. (I promise that’s the only reference to be made to the current political process.) Though information uncovered regarding management of personal debt proved challenging, I wouldn’t dare want to try figuring out the angles to managing the current national debt. In short, I found if a person owes too much money to creditors it has a negative effect on their credit rating which is the gauge by which financial institutions, potential creditors, and even perspective employers alike evaluate applicants. It is important that a person not have too much debt but the same is strangely true for people who don’t owe enough.

There was a period of several years during which I didn’t actually utilize the standard avenue of “credit” to purchase anything of significant monetary value. I, like most common sense folk, figured paying cash for whatever products were bought would put me in better financial standing. Not so, as I was soon to learn, given the fact a person with a relatively good credit rating can effectively take ownership of much more than an individual who pays for items with tangible currency, i.e. cash.

It struck me as somewhat perplexing the first time I heard the words, “We’re sorry Mr. Howard, but you don’t have enough credit.” The issue isn’t that my credit rating wasn’t good enough, but that I simply didn’t have a substantial “purchase history.” By the time I’d left the, would be, banking institution my most urgent need was to take a course in economics just to understand what had been explained to me. Unfortunately, I wasn’t able to sign up for classes at the local college to learn about financial management due to not having enough credit to qualify for a student loan.

Left to my own devices, I called upon an associate who works as a manager at one of the local credit unions. She agreed for me to stop by her office one afternoon and provided an impromptu lesson on the art (be it categorized as abstract) of finance as relative to credit.

It would seem that, when applying for a loan or the purchase of what’s deemed a “big ticket” item such as a vehicle, house, etc. there is a requirement among creditors that you have a demonstrated good payment history. Another obstacle lies in the fact the same history, determined solely by the creditor, has to have been sustained for an ample period of time which, you guessed it, is also determined solely by the creditor. But it gets a little more complicated than that; the length of time since an individual last maintained a significant payment history has to have been within a reasonable period immediately prior to submission of the application for credit. Beyond that, a potential creditor will consider the amount of a perspective borrower’s overall personal debt in relation to their income or the debt-to-income ratio.

After taking all pertinent factors into consideration, a creditor then has the obligation to evaluate the applicant’s perceived ability to repay the principle amount being borrowed inclusive of applicable fees, interest, and associated charges. That is the basic skeletal outline of the borrowing or extension of credit process in which more of society is being mandated to participate. In today’s economy, it’s commonly accepted that more can be purchased with credit than with cash.

In researching how this whole debt thing works, I came across a report on the site www.usgovernmentdebt.us signifying the current national debt of the United States totals about $19.5 trillion dollars. A common practice enlisted by every industrialized nation on the planet is the act of borrowing funds to pay that respective country’s debt. As it stands, taking into consideration the government’s current spending/borrowing habits, federal programs, and international relief efforts, that amount will increase to an estimated $22.4 trillion by the end of the 2016 fiscal year. The real issue is that for far too long Americans have celebrated living in the greatest country in the world without paying the cost to maintain it.

I might not be blessed with a doctorate degree in finance and I’m certainly not a politician but a dose of good old country common sense tells me that it simply doesn’t work to try borrowing your way out of debt. Taking out a loan to pay a bill simply amounts to having to pay that same money in return with the addition of fees and interest. No matter how you slice it, one plus one (with interest) will never equal zero. I could be wrong but it’s just something to consider.

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