#debt #1Trillion #FinancialInstruments #FinancialBurdens #GoodDebt #BadDebt
Outstanding consumer debt in the U.S. has reached $1 trillion, according to recent reports.
Economists on news shows don’t seem terribly alarmed by that number, since much of it may have been racked up during the COVID-19 pandemic.
But there are lessons to consider here.
First, there is good debt and bad debt. Good debt can actually be a worthwhile financial instrument. Bad debt is likely to be just that: bad debt.
If you borrow money to buy a durable, life-necessary item, say, a house or a car, that’s an example of good debt. You need the item, you’ll have it for a long time, and you’ll eventually pay off that debt, even if it takes years, while you still have the item.
Such debt becomes a good financial instrument, presuming reasonable interest rates, because it can free up your cash to invest in other things that may pay a dividend that would well exceed the interest you are paying on your good debt.
It allows you to use other people’s money for the things you need now, while investing your own money to meet your future needs.
Another example of good debt is a credit card that gives you something back, i.e. cash, gift cards etc.
The trick in making this good debt is that you religiously pay off your balances monthly.
This way, you are not paying exorbitant interest rates the credit card companies charge, and you are getting something from the companies just for spending money.
Don’t worry if the credit card companies cry foul that people are not carrying balances. They get paid a fee per transaction by the places at which you spend money.
If you carry balances, the interest rate will likely well exceed whatever benefit you get back from the card company.
Bad debt is borrowing for frivolous expenses. If you borrow money to take a vacation you could not otherwise afford, you’ll likely be paying that debt back long after you’ve returned from your trip.
In short, you will have nothing to show for your debt other than memories of a trip.
During the pandemic, many people lost jobs, and had to use credit cards to pay for necessities, Many of those people are back to work now, so they can begin catching up on their debt. That’s why economists may not be alarmed at the big debt number.
The lesson here is, in general, go into debt out of necessity, rather than out of pleasure. And, make sure your debt rewards you.
We all indeed want to engage in pleasure activities, but if you go into debt to pay for those pleasures, make sure you know that you can pay that debt back in a relatively short time, thereby accruing as little interest as possible.
You’ll pay interest on a car, furniture etc. for a few years, and on a house for many years. But you will, in theory, have your cash to help grow your wealth as you pay your debt.
Debt can be a financial instrument, rather than a burden. Learn how to manage your debt, and your cash, wisely.
Peter
Tag Archives: debt
ACADEMIC FRAUD?
#education #AcademicFraud #college #CollegeDebt
Only 37 percent of 12th-graders tested proficient or better in reading. Only 25 percent did so in math.
Yet, the high school graduation rate is better than 80 percent.
Columnist Walter E. Williams, who writes for Creators Syndicate, quoted these figures from the National Assessment of Educational Progress’ 2017 report, also known as The Nation’s Report Card. His column on the subject was also published April 25, 2018, in The Atlanta Journal-Constitution.
He also writes that not only do 80 percent of high school seniors graduate, 70 percent of white high school grads were admitted to college in 2016, as well as 58 percent of black high school grads. Here, he quotes the Bureau of Labor Statistics.
Colleges, then, have to provide remedial courses, dumb down their courses so ill-prepared students can get passing grades and/or set up majors with “little analytical demands so as to accommodate students with analytical deficits,” Williams writes.
Williams’ conclusion: there is academic fraud being committed at all educational levels.
“How necessary is college anyway?” Williams asks. “One estimate is that 1 in 3 college graduates have a job historically performed by those with a high school diploma,” he writes.
We’ve all heard the stories, particularly in recent times, of students coming out of college and hitting the job market with degree in hand, college debt on his or her back and slim prospects not only to earn an income appropriate for his or her education level, but even to find a job at all – at least one in a field to match his or her education.
There is a teacher shortage, however not every college graduate is fit or prepared to teach. Besides, many of them might think that teaching doesn’t pay well enough for them to cover payments on their college debt, let alone any other life expenses. (Some loan programs allow college debt to be written off if the student goes into teaching for a certain number of years).
The pressure is on most children from grade school to go to college and get that degree, so they can get that good job. The pressure is so intense that families – ultimately, the students – go into debt to pay for that education.
They then spend some of their most productive work years paying that debt off, and probably delaying things like buying a house or saving for retirement. In the extreme, these graduates move back home with mom and dad and stay for several years, thus delaying their parents’ progression toward retirement.
As Williams points out, the cycle is that many students get through high school ill prepared for college academically, yet go to college anyway. They really can’t afford college, yet they view it as an investment into a great career. Again, as Williams asks, “How necessary is college anyway?”
First, if a student isn’t prepared to cut it academically in college, it’s perfectly OK not to send him or her, especially if you are going to saddle that student with a massive debt upon graduation – presuming he or she can get TO graduation.
Then, if they wind up waiting tables or doing some menial job that doesn’t require a college degree, what was the point of the education, or the debt?
Fortunately, for a student like that, he can take his menial job, work as many hours as he needs to and, in some of his off hours, pursue one of the many ways to earn money without taking a second W-2 job. Many such vehicles can eventually provide an income that could surpass any income from not just the menial job, but also from a job that would be appropriate for one with a college degree.
But, to pursue this, the student has to be willing to check out such a vehicle. If you’d like to examine one of the best, message me.
Otherwise, one could struggle to get through high school, get into college and take a lot of “gut” courses or major in something that will not have much value on the open market – and pay dearly to do it.
No education is really wasted, but one must have eyes wide open about the economic potential — and cost — of what one wants to study. Try to enjoy school at all levels, if you can, then look for ways to support yourself, and perhaps help others do the same.
Peter
MILLENNIALS’ FINANCIAL DITCH
#millennials #StudentLoans #CollegeDebt #FinancialSecurity
Some millennials find themselves in not just a financial hole, but a ditch, just as they start their adult lives.
They come out of college deep in debt, and wind up with a low-paying job, making it difficult, or impossible to keep up with their loan payments.
Tom Allison of the Young Invincibles, an advocacy group, discussed this in an article that was published May 1, 2018, in The Atlanta Journal-Constitution.
Allison talked about Siara Sellers, 28, who owes almost $13,000 in student loans. She’s working part time at a UPS warehouse near her Detroit home, making $11 an hour. She had to leave school in 2013 after her grades plummeted. Her older, now-retired husband became sick at that time, the article says.
“Young adults with college degrees and student debt, for example, find themselves looking at a median, negative net wealth of $1,900, based on research by the Young Invincibles. Simply put, they owe more than they own,” Allison writes.
“There’s no question it used to be much easier to build financial security 25 years ago with a college degree,” Allison says.
So what is a young person to do?
First, don’t let circumstances get you down. Learn to make the most of what you have, and appreciate what is good in your life.
Second, the employment picture is improving greatly. It was reported recently that there are about as many jobs as there are unemployed people, which is just about the best of both worlds. That could send wages and salaries higher.
If you have a marketable skill, find different ways to use that skill and, if you have enough ambition, a clean record etc., you should be able to find something suitable.
Once you get a job that suits you, pay down your debt at whatever speed is comfortable. Obviously, paying it down sooner rather than later is preferable. Then, once it is paid, use that payment, plus any income increases you may get, to put toward your retirement.
Easier said than done, you say? Well, there are many other ways out there to make money working part time in your off hours, without taking a second, W-2 job. If you are motivated and want to help others prosper, you can learn about one of the best such vehicles by messaging me.
Those who are older may want to be young again, but others who are older do not. What the young folks are going through is tough to watch. In fact, some older workers are “being retired” sooner than they want to.
In short, if you are young and considering college, think about what it will cost you, and what you will do with your education on the other side before deciding to go to college. Though all education is valuable, it may not be worth taking on what would seem like a lifetime of debt for a degree that won’t make it easy to pay off.
Just as you need, as a young person, to have the right attitude, you also need to make decisions that will be best for you in the long run. That may require opening your mind to things that may lurk outside your comfort zone.
Times are tough. But tough people get through them – even to the point of seeing prosperity.
Peter
FINANCIAL STRESS? YOU ARE NOT ALONE
#FinancialStress #ImprovingEconomy #FinancialStrains
We hear the economy is improving.
We also hear that companies can’t fill jobs, when just a few short years ago, they were laying people off in droves.
Yet, many are suffering financial distress.
“A growing number of low- and middle-income households are plagued by high debt and have little or no savings,” writes Paul Davidson for USA Today. “The financial strains have especially worsened for those near the bottom of the income ladder,” Davidson continues.
Davidson, whose article on the subject was also published April 19, 2018, in The Atlanta Journal-Constitution, quotes a UBS study that says some households could fall behind on loan payments, reduce their spending and slow or even undercut a buoyant U.S. economy for the first time since the Great Recession officially ended in 2009.
In other words, the economic news we hear isn’t telling the whole story.
Though the study focuses on lower-income households, other households, whose income was just fine prior to the recession, have yet to recover. The job they now have pays less than the jobs they lost. The manageable debt they had with the higher-paying job is less manageable now.
The article quotes a Bankrate.com survey that says rents are soaring. One in five working Americans aren’t saving any income, the survey says. Average rents have jumped 30 percent nationally since 2010, the article quotes RealPage.
In other words, paychecks have grown much more slowly than expenses.
What to do, if you’re in this predicament?
Perhaps moving is not an option. More than likely, if you are having trouble paying your rent, your search for cheaper accommodations will be futile, since the studies indicate that rising rents is a universal problem.
A second job? Chances are your first job already extracts too much from you for too little compensation, and the thought of getting a second job, even as a temporary measure, is unappealing. Besides, the second job probably won’t give you the extra financial cushion you need, and will just take more of your time away from your family, or things you like to do.
So what is the solution? Perhaps, instead of a second job, you could check out one of the many ways to make extra money without having to get another traditional W-2 job. To examine one of the best such vehicles – one that could also help you save money on some household expenses – message me.
It’s been said that a rising (economic) tide will lift all boats. It’s also been said that building an economy from the bottom up, is better for everyone than building from the top down.
However you look at things, be it the economy as a whole or your life in particular, you can’t count on someone, or something, to solve your problems, if you are having problems.
You have to look for things YOU can do to make your life better. It’s great to set goals, but they will not be reached without action on your part.
Sometimes, all it takes is meeting someone who can show you a way out that you hadn’t noticed, or thought about, before.
If such a person comes into your life, don’t ignore him or her. See what he or she is offering, and whether it is right for you.
Peter
COLLEGE DEBT CRUSHING GRADS
#CollegeGrads #jobs #debt
One graduate has resorted to selling her eggs to help infertile women.
She is one of many college graduates who have huge college debt and not enough income to easily pay it off.
Her story and others were relayed by Kala Kachmar of the Asbury Park (N.J.) Press in an article also published in the May 8, 2016, edition of The Tennessean in Nashville as part of its USA Today supplement.
About 2 million borrowers bear a $1.3 trillion loan burden, the headline reads.
“Who wants to live at home at 29? I don’t. But, luckily, I can. … I shouldn’t be living paycheck to paycheck,” the article quotes Christyn Gionfriddo of Neptune, N.J.
Let’s examine what has happened. We have gotten constant messages for decades that to get a good job, one needs a good education – a college degree. Colleges and the government have made it easier for students of all income levels to go to college.
Some of the vehicles used to facilitate students getting into college involve loans that students are not obligated to begin repaying until after graduation.
In theory, this plan works if students can convert his or her education into a good-paying job.
That doesn’t always happen.
Therefore, students are graduating with huge debt that may be difficult to repay, if their incomes can’t support it.
Some, in fact, will try to avoid repaying it.
What’s a young person to do?
First, determine in your high school years whether college is right for you.
It’s certainly a nice goal to have EVERYONE get a college degree, but today’s economics require a more in-depth thought process for each student.
Ask yourself, if you go to college, what is the goal when you graduate? What kind of income will you be likely to earn with your degree? Will you need loans to get through school? What is the likelihood of you getting a job in your chosen field immediately after graduation? Will it be enough for you to live a decent life, and pay off your debt?
If you’ve determined that college is worthwhile enough to borrow money for, then watch your spending while in school. You may have to forgo some good times, get a part-time job and otherwise be somewhat miserly. Watch every dime you spend and make sure it is worthwhile.
If you determine that college may not be right for you, don’t fret. There are other ways to make an income without having to worry about what kind of job you have. To learn about one of the best, message me. You’ll learn about people of all income and education levels spending less, and potentially earning enough to pay off any debt promptly.
In short, don’t view going to college as an automatic decision. Don’t view your education as an interlude to be young, boisterous and have a good time. Because, when you grow up, there could be a big debt welcoming you to adulthood.
Colleges don’t care what happens to you once you get out. But you should take that into account before deciding whether to go to college.
Peter
WILL A FINANCIAL EMERGENCY KILL YOU?
#FinancialEmergency #savings #spending
Fewer than 38 percent of Americans have at least $1,000 in savings.
Say what?
Peter Dunn quotes that statistic in a column he wrote for USA Today, published Jan. 26, 2016.
A car repair, a refrigerator breakdown etc., can drain that $1,000 just like that. When you need a car to get to work, or a refrigerator to keep your food from spoiling, one, more or less, has to find the money to take care of these.
Dunn suggests making a plan. First, determine whether immediate spending changes or income changes will take care of your financial emergency. Second, grab the money from savings, if available. Third, borrow the money for the emergency, while concurrently creating a plan t pay off the debt in a specific period. Fourth, pay off the debt in that time.
“If you don’t leverage your emergency to create stability, you’re going to find yourself in deeper and deeper trouble,” Dunn writes.
Let’s get to basics. If you really only have $1,000 in savings, there are much bigger issues here, especially if you are older than, say, 18. You have to start planning not just for emergencies, but for your retirement years.
You don’t make that much money, you say? Well, then, start with looking at what you are spending, and whether your spending is necessary. Buying a cup of coffee on your way to work? Buying lunch at work? It might be better to make your own coffee and buy an insulated container to take it to work. It might be better to make your lunch at home and bring it to work.
You don’t have the extra time in your day to do that, you say? Then, look at how you spend your time. Perhaps getting up 15 minutes earlier in the morning to make your coffee, or making your lunch the night before as you sit in front of the TV may leverage your time better.
Look at other spending habits. For example, how much do you spend on “entertainment?” That can include dining out, movies, even digital services. As a start, look at your cell phone, television and Internet packages. Are there ways to trim back those costs in a way you can live with? Maybe get rid of your premium TV package.
Want a pet? Remember, pets are expensive. They need food, perhaps medicine, as well as your time and attention. Time is money. Are you prepared for that?
You should be able to save a portion of every paycheck, no matter how small. Regular savings, multiplied by time, augmented by wise investment, equals financial security in your later years. If you start saving $5 every week at age 20, and never touch that money, it will amaze you how much you would have at age 40. Then, at 40, check out the amount you’ve saved and continue not to touch it until, say, age 60, all the while continuing to put a regular amount from every paycheck into that fund.
Of course, getting back to Dunn’s point, you also need money for financial emergencies. Remember, if you are young, that you can’t lean on your parents or other family members forever.
Perhaps you might look at ways to earn extra income in a way that doesn’t interfere with what you are doing now. There are many such vehicles out there. For one of the best, visit www.bign.com/pbilodeau. You may get a two-fer: a lesson on saving money and a way to earn more money.
Most of all, you need to make saving an absolute priority. What you sacrifice today will pay off tomorrow. One never knows what tomorrow brings. One never knows when you might be forced to retire, or forced to look elsewhere for a job. What you save today may save your life later.
Peter
DEBT: WEALTH VEHICLE AND WEALTH KILLER
There’s good debt and bad debt.
Of course, having no debt at all is ideal, but often, to have what you want in life, you sometimes have to borrow money.
Mortgage debt is among the good kind. As you pay it down, you are paying a part of it to yourself in the form of equity in your home. The more you pay down, the greater the equity. As a bonus, you are living in your house, too, so there’s an absence of rent payments. When your house is completely paid off, you essentially are living there for free.
In this economic milieu, when you sell a house, it’s not an automatic profit. But if you HAVE to sell your house, one of the considerations is that for however long you’d lived in your house, you didn’t pay rent – all of which goes into someone else’s pocket.
College loan debt used to be considered good debt. You were getting money for an education that ultimately was going to lead you to a better job than if you hadn’t gone to college. It made college available to non-wealthy families.
But Carolyn Thompson, reporting for the Associated Press, asserts that student loan debt is widening the gap between rich and poor. Her article ran in the March 30, 2014, edition of The Tennessean newspaper in Nashville.
Thompson’s point: those who came out of college with lots of debt – roughly 37 million people saddled with $1 trillion in debt – will have a hard time catching up with the wealth of their peers who graduated with no debt at all. In short, those from wealthier families, long term, will have a leg up financially on their cohorts that were forced to borrow to go to school.
Looking at the big picture, a college education isn’t what it used to be. Decades ago, a college education gave you a shot at jobs that those who didn’t graduate or finish college wouldn’t get. Companies hired raw brains, and trained them for the jobs they wanted them to do.
Today, some of those degrees we cherished years ago are almost worthless in terms of job opportunities. You may have studied what you loved, or found your passion in, say, the arts, but converting that to economic advancement can be difficult.
Therefore, if you borrowed money to study what you love, or to find your passion, you need to do something to pay back all that debt. Unemployment, or constant job hunting, isn’t going to make that debt go away. Even if you get a good job out of college, as Thompson asserts, you’ll still have a potential six-figure debt out of the gate. Those years it takes to catch up to your debt-free peers may find you not getting a mortgage for the house you want, and having to settle for a lesser lifestyle for a long time. It could keep you from starting young to save for retirement.
In short: if you have to borrow money to go to college, you had better find it all worth it, regardless of what you study. You may come out an expert on Shakespeare’s works, but you could be making a living pouring coffee. Though there’s nothing wrong with having smart coffee pourers, you won’t be paying down your debt quickly, and may have little in savings at age 60.
There are numerous solutions to this problem, besides skipping college altogether. If you are not college material, don’t fret. There are other ways to make money. For one of the best, visit www.bign.com/pbilodeau . You may find a way to earn a substantial income without interfering with your academic loves or passion. If it fits you, and you start before college, you could have a financial leg up on all your peers.
As radio talk show host and financial expert Dave Ramsey might advise: don’t let debt be your financial death.
Peter
INSECURITY BEGETS A SAVINGS MENTALITY
Imagine living with such fear that a recession, an illness or bad weather could bankrupt you.
Some Americans live that way now, as do many around the world. But a few decades ago, nearly every American felt that insecurity.
New York Times columnist David Brooks, in a June 2012 column, says although the nation needs to reduce its deficit, Americans don’t really want to. Despite the political bluster, Brooks says, solving the real problem of reducing debt is fraught with political peril.
The current generation of Americans has been led to believe that debt is not a problem. They live on borrowed money, via credit cards, all the time, and think nothing of it. There is always insurance to take care of the big expenditures. Buy now, pay later. Or, pay a small premium and live without fear.
Before the plethora of insurance products, before credit cards became actual currency, Americans always lived in fear of that big event that would either kill them, or leave them penniless. The only way to postpone the inevitable was to save their money. That meant giving up a lot of things one might want, and even some things they need. People would die because they could not afford the treatment that would save them. Secure families were wiped out by drought, tornado or hurricane. There was no insurance, only self-insurance.
Even the staunchest deficit hawks don’t want to see EVERYONE, except for the very rich, living on the edge through no fault of their own. They even want room to save the irresponsible from themselves. But to do that costs money. Hence, we have a debate about government spending vs. over-taxation.
GOVERNMENT SPENDING IS DROPPING
Let’s frame the debate in reality. First, as economist and New York Times columnist Paul Krugman preaches, government spending IS decreasing, mostly at the local and state levels. Those budgets are getting balanced off the backs of teachers, firefighters, police officers and other government workers who are losing jobs at a rapid rate nationwide.
As we try to get more people back to work, every teacher, firefighter, police officer and other public worker who gets laid off ADDS to the unemployment problem. Think of what bigger cuts in government spending will do to unemployment. Would such cuts enhance the private sector to the degree that it could absorb all those government workers – plus a good number of those public and private employees already out of work? Common sense would say, probably not. That’s not even considering the PRIVATE businesses that might close as GOVERNMENT cuts more spending.
We do need to get government spending under control. We do need to get our national debt down. We need NOT to be indebted to foreign creditors, even though many of those creditors NEED a vibrant and free-spending U.S. to prosper themselves.
We see what Brooks was talking about when he referred to debt solutions as politically unpalatable. Many Americans love the idea of debt reduction, until it hits their own lives. Generations past were willing to risk everything – or at least they were FORCED to risk everything.
Today, there are things in place to cushion such risks. No one wants those cushions to be taken away, but we still have to reduce our national debt.
As individuals, we need to get our own houses in order FIRST. Eliminate, or reduce, unnecessary debt. The first rule: if you are buying something that will last years, it’s OK to borrow and pay back over time. If you are buying something to consume quickly, or in a short time, pay cash or don’t buy it at all.
The second rule: if you are a government worker, or have a private-sector job you feel will not last you as long as you want it, make sure you save as much of what you earn as possible. Then, establish a Plan B for income, so when your job disappears, you can walk out with a smile. For a great Plan B, visit www.bign.com/pbilodeau.
As for national debt, it didn’t happen overnight, and it will take time to eliminate. We have to do it in a way that hurts the fewest people. Everyone won’t escape unscathed. We will all pay for it in some way. But some ways are less painful, overall, than others. Let’s find those ways. Let’s not go back to the days when we were one uncontrollable disaster away from bankruptcy.
Peter