A lot of people struggle with ways to repay debt, particularly in tough economic times like these. One way to survive and keep the family fed, the kids in school and other social events is to borrow. Whether using lines of credit, credit cards or other products, it is worth investigating whether today's debt trouble will be tomorrow's debt trouble. Are we ever able to become debt free and life without debt in our lives? If so, how do we change our lives so that debt trouble doesn't plague us for the rest of our days?
Interestingly, people who carry debt always seem to carry debt. That does not mean they will always have debt trouble, though. Perhaps they manage it better or they figure out ways to deal with their debt repayment plans. How does this work?
Someone with debt trouble today might owe, say, $50,000. This may mean a monthly payment of $1,000. In some cases, perhaps this is all the borrower can afford and even with low rates, making that minimum $1,000 payment will barely put a dent in that principal balance. This means debt trouble because credits will cut the borrower's credit rating, making it tough to get prime credit and consolidate.
Now, suppose that $1,000 is tough, but $750 is pretty easy. Assuming the same repayment schedule as above (2% of balance), then if the borrower were to repay even half of the $50,000 , the minimum payment would be just $500. But by making repayments of $750, the borrower is now not only managing to repay debt a little quicker, but the extra amount being paid ($250 = 750 - 500) shows good credit management and debt repayment. This in turn improves the borrower's credit rating (not by much, unless overall utilization is just 25,000 of an available 50,000, or even if it is just 75% overall). As a result, prime credit is easier to obtain and the "debt trouble" is no longer a problem.
Or is it?
The contention here has always been that unsecured debt is bad debt. And while 25K in debt is half of 50K in debt, it does not make the real debt trouble go away. It just means debt is manageable. And this is not necessarily a bad thing for the borrower because stress levels are lower, credit ratings are better, availability of credit has improved (somewhat, although that payment on the 25K does limit the amount of credit service-ability) and the world seems in order.
So this really brings us to the original question: does today's debt trouble follow us throughout our lives? And the answer is really one about behavior, especially for folks who have carried debt loads for a good chunk of their earning lives. In these cases, living debt free becomes something of a problem by itself. People tend to return to past behaviors for a variety of reasons and, unfortunately, debt is something we often revert back to.
When you look at it, there really is a reason why lenders steer clear of bankrupt borrowers for up to ten years. And this is not necessarily a bad thing because it may just take that long to help people curb that behavior that people always want to come back to.
So perhaps dealing with debt trouble and changing one's behavior is really a challenge, one we should take seriously and try to incorporate into our every day lives today. Let's get rid of that debt once and for all and do whatever we can to avoid unsecured debt... for good.
