Tag: debt

Debt

Yesterday I read an article that astonished me and I just had to share it with all of you.    It is entitled “Young Adults Feel Empowered by Debt” and it talks about a new wave of young adults that “actually feel empowered by their credit card and education debts.”  This is garnered from a study done by the journal of “Social Science Research”.

This article shocked me because I have always been petrified of debt.  In fact, part of the reason I went to University of Phoenix for my graduate school was I knew I could work while I studied; thus, allowing me to pay for most of my schooling and living expenses concurrent with my education.  I was lucky to have some family support but even if it had been solely left to me I would not have gone into very much debt because I was working at the same time.

I have also never bought property or driven a new car mostly because I am scared to death of being held down by the obligation of debt.  People tell me all the time that I’m ‘throwing money away on rent’ but at least it isn’t a noose around my neck that could hang me if things go badly (both personally or with the economy at large).   I have known so many people saddled with mortgages they can’t get rid of  from homes that will not sell.

In admitting my reservations about debt I also admit that in some ways it is a weakness.  I know there are risks and investments worth taking,  but I cautiously chose not to.  I also gratefully acknowledge the many blessings I’ve had along the way which have helped me avoid debt.

That said- I can’t imagine someone having the attitude of some in this article or the study at large. “Young adults wear their debt like a new tattoo”.   I can’t imagine being proud of  or feeling empowered by debt.  To me it is a bizarre reaction.

Another good article on the topic says that credit card debt is particularly tempting for young adults (considered in this study to be 18-35, so I still count!) because it allows them, if only temporarily, to experience a more exciting, full life.

“Buying things is a way to alleviate [a feeling of powerlessness]” says Rucker. “It might be only temporary, and so I continue to buy and that’s how I accrue debt. When consumers feel powerless, they spend in ways that help them accumulate power or at least the psychological feeling of power.”

I think there is an attractiveness to credit card debt because it solves problems quickly.  Want to look more professional, charge it.  Want to take a memorable trip, charge it.    The problem comes when all of that charging piles up.

The third article I listed gives the following example:

Jason Eichacker, 31, of San Jose, Calif., for example, used debt throughout his 20’s to help finance expenses that helped move him closer to his goals. “When I needed professional looking clothes or textbooks, I just put it on my card,” says Eichacker. To justify it, he told himself, “‘You know what, I’m going to make good money. I’ll be able to pay it off pretty quick.'”

Unfortunately, Eichacker’s habit of using credit to finance his aspirational lifestyle later spiraled out of control when he opened his own business and used business and personal credit cards to purchase what he needed. “When the business foundered, I had to declare bankruptcy,” says Eichacker. He now receives collection calls almost daily and his personal relationships have suffered as a result of his wrecked credit history.

Eichacker admits that self-esteem issues and an early concern with status and control over reaching his goals were at the root of his behavior. “It gets down to the picture in my mind of how I was supposed to look like,” says Eichacker. “I was more concerned with that than I was about how my credit would be down the line.”

I know that certain debt is unavoidable but shouldn’t it be looked at as a necessary evil, not an empowering gift?   A large reason we are in such a financial mess as a country is too many people were “using credit to finance his [or her] aspirational lifestyle”.  People aspired to bigger homes than they could afford, impractical degrees they will not see much value from, new cars they don’t need and wardrobes that they couldn’t pay for.

As Eichacker experienced, I fear many will find what empowers them one minute, robs them of future minutes.

I personally think part of the fault lies with our government.  Have not many in Washington made the case for empowering debt?  That spending when we have no money ‘stimulates’ the economy; thereby, making things better and making the obligation of more debt a good thing?  Is this not another way of saying debt empowers the economy?

Indeed, many are making such an argument right now in the debt ceiling debate.  If it is so great for our nation than why not incur tons of debt in our individual lives as well?   The truth is it that it is bad for our country and it is bad for individuals.

Think I’m exaggerating?  Take a look at http://www.usdebtclock.org/.   Also, look at the interest owed of over 3 trillion dollars and growing!  Think of all the good we could do with that 3 trillion if we weren’t in debt.

I don’t think anyone should feel empowered by debt.  Yes, it is a necessary evil for some but it is not a free check to pay later on.  It carries with it many burdens and problems which must be fully anticipated before the debt is incurred.   What do you all think?  Are you empowered by debt?

Food Storage and Taxes

Here is my food storage organized by type- milk, tomatoes, meat and beans, and fruits and vegetables

With my saving and gathering together my funds I found a way to pay my return without borrowing a dime! A miracle!

One of the principles that the Mormon church teaches is called self reliance and part of living that principle is having food set aside for a rainy day.  These days that rain often comes in the form of financial difficulties.  For me it is a heavier than expected tax bill.  When you are self-employed you have to pay an added self-employment tax on top of the normal income taxes that everyone else pays (you think they would encourage entrepreneurship, not punish it!).  This can easily be over 40% of your income taken out in taxes.  This year I thought I had made a bigger dent with my estimated payments and then was shocked with a high bill last Friday.  Now I have 2 weeks to scramble together all of my savings, call in money owed to me and work my but off logging hours.  I think with concerted effort I will squeak by and make the bill.  Now I know I should have planned better and been saving more but one thing I am glad of is that I have slowly been acquiring a little food storage for myself over the last year.  This consists of canned vegetables, fruit, milk, pasta, meat etc.  I also have a freezer full of various proteins and vegetables.   My new goal is to try and spend no extra money until April 15th.  I will be eating my food storage and forgoing all extra expenses such as going to movies or the theater.

I am certainly not asking for sympathy on this front.  I know many people who have lived off their food storage for a year or more.  It is definitely going to be a challenge as I am used to cooking with fresh food and trying new recipes.  I also love eating out but I’ve been trying to cut down on that so this is a nice excuse to eliminate it entirely. If any of you have good food storage recipes that you wouldn’t mind sharing that would be great.  Today I made pork tacos using salsa and some pork I had in the freezer.  It wasn’t quite as good without any cheese or normal fresh condiments but oh well.  If I can make it to the 15th and have the money for this payment it will all be worth it.  Then my goal after that will definitely be to continue saving so this type of crisis doesn’t happen again.

Regardless, I don’t think I will be traveling any time soon.  As sad as that makes me it is a reality and it is certainly better than going into debt (something I have managed to not do.  I am completely debt free at 29 and intend to remain so!).  I will sorely miss my Hawaii this year but alas that is the situation. (I know- poor me.  I don’t get to go to Hawaii for the 4th time in 4 years but it does make a me a little sad. I love it so much.  The thought of the lovely island chain often helps me get through the bad, stressful days.)

One website that has been helpful in preparing my food storage is http://www.providentliving.org/.  There are lots of companies you can buy food storage from, but I just made small purchases at Costco, All-a-Dollar, Walmart and Macys (a low-cost Utah based grocery chain).   I also focused on buying food that I enjoy such as pasta, sauce, canned chicken, fruit etc.  On the other hand, I did not buy spam or spinach because I don’t like either.  Its funny because most single people do not have food storage but last year I felt a prompting to get a little saved.  Now I am so glad I did!  I am always amazed at the little ways Heavenly Father takes care of and guides me.

Seriously send me those food storage recipes!  Thanks.

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I Told You So… The Stimulus Was a Bad Idea

My dear blog readers- let me draw your mind back to an entry of mine entitled “Why I think the stimulus plan is a bad idea.”  It was one of my most popular entries- even getting a space on the blogroll at cnn.com!  Now we have had several months of the plan, and I have been hoping it would prove me wrong with our economy showing signs of growth.  Unfortunately, even the media is beginning to realize the plan isn’t working and economic disaster could be looming.  In recent months we have seen GM declare bankruptcy (which the bailout was supposed to stop!), consumer spending go down, foreclosures increase, and unemployment rise (where are all those jobs the stimulus was supposed to create? There are some states with unemployment as high as 15%!).

I hope the media and the people keep a little bit of fire on their darling President Obama before he goes enacts another stimulus plan, which he is talking about doing!  It is fascinating to me that repeatedly President Obama’s personal approval ratings are always higher than the ratings for his policies.  Shouldn’t a politicians success be based on his policies?  Sometimes I feel like with President Obama we’ve created royalty- everyone loves him for the image but nobody pays that much attention to what he is actually doing.

Judging his policies, it is just common sense to not go into massive amounts of debt when there is no sign of paying other’s back in the near future.  There isn’t even a ghost of a chance we will be able to pay back the astronomical debts President Obama is creating- even he admits that.  What the president is doing is kind of like GM- they took a poorly managed, in debt company, propped it up with money without changing much of anything, and big surprise bankruptcy happened.  The infusion of money does not change ideas or policies- it merel gives bad ideas a longer timetable to waste money. For example, instead of GM declaring bankruptcy last fall like they should have, they did it in May after wasting 80 billion dollars.  This is how President Obama views a productive economy!  It’s nuts!

I encourage all of you to put pressure on the president and your individual representatives.  Let them know we are not in favor of this ridiculous spending and the unnecessary programs that go with it (and the increased taxes, which President Obama promised not to start). Listen, I don’t think President Obama is a bad person.  He just views the world differently than I do.  He feels that spending will catapult the country out of economic disaster.  I feel it is digging us into a deeper hole than ever before.

If you want an easy way to follow what your representatives are doing check out this bipartisan webpage http://www.thepeopledecide.us/home.php.  On this page you can see upcoming and recent votes, learn more about bills and find ways to contact Congressman.

The only hope I have is the few representatives who are standing up against the spending.  Keep going people like Jason Chaffetz!  You are the type of person we all need representing us!   Thanks for fighting against all of this crazy spending. Great job!

Here’s the article that blew me away:

Why Do Home Foreclosures Keep Rising? 6 Things You Need to Know

by Luke Mullins, USNews.com

Jul 20th, 2009

Five months after the Obama administration unveiled a sweeping initiative designed to reach 9 million struggling homeowners, home foreclosures continue to rise at an alarming rate. Foreclosure filings were reported on more than 1.5 million properties in the first six months of the year, a 15 percent increase over the same period of last year, according to RealtyTrac. All told, 1 in 84 American homes–or 1.19 percent–received a foreclosure filing during the period. “We talk about green shoots or about things getting worse at a slower rate, but this is one thing that is getting worse month by month,” says Patrick Newport, an economist for IHS Global Insight.

Here are six things you need to know about the rise in home foreclosures:

1. Unemployment: The erosion of the labor market–the unemployment rate recently hit 9.5 percent–is the key factor in the rise of home foreclosures, says Celia Chen, an economist at Moody’s Economy.com. “Employers continue to shed jobs, and that makes it difficult for even people with good credit who were doing fine to keep up with their mortgage payment,” Chen says. For example, a recent report issued by federal bank regulators found that home loans to borrowers with solid credit histories were going bad at a rapid clip. “Prime loans, which represented two thirds of all mortgages in the portfolio, experienced the highest percentage increase in serious delinquencies, climbing by more than 20 percent from the prior quarter to 2.9 percent of prime mortgages,” the report stated.

2. Plunging home values: Nearly three years after its peak, the painful decline in home prices continues. Although the pace of decline moderated slightly from the previous month, home prices in 20 major metro areas dropped 18.1 percent in April from a year earlier. Falling home values have dragged more than 20 percent of American homeowners “underwater”–meaning they owe more on their mortgages than the property is worth–as of the first quarter. By sucking equity out of homes, the price declines have also evaporated much of a homeowner’s financial incentive for paying their mortgage bill, Chen says. “When somebody doesn’t have equity in their house and they are struggling to pay their mortgage, the likelihood of a foreclosure is much higher,” she says. In addition, home owners with less equity in their homes will have a more difficult time refinancing their mortgage.

3. End of foreclosure moratoriums: The end of certain foreclosure moratoriums-including those of Fannie Mae and Freddie Mac, which were lifted in late March-also contributed to the rise in foreclosures during the period, Chen says. As these efforts unwound, lenders and servicers put additional properties into their foreclosure pipelines, she says.

4. Is Obama’s plan working?: A key component of Obama’s housing rescue plan is an effort to restructure–or modify–as many as 4 million troubled loans. So far, about 325,000 modification offers have been made through the program, according to Bloomberg news. Chen says the program is having an impact for certain individual borrowers, but the efforts–at least so far–have not put much of a dent into the national foreclosure epidemic. “The program is making progress. It’s just that there are a large number of distressed borrowers out there,” she says. “It’s so hard to process all of those loans, and then second of all, not all of those borrowers will qualify for the program.” Borrowers have complained of long delays and bureaucratic hurdles in their efforts to modify their mortgages.

Though the administration’s effort includes incentive payments to convince servicers to modify the loans, Newport says some may find it less costly to foreclose on the property. “My understanding is that there is going to be some pressure from the administration to get banks to start renegotiating more loans,” he says. “But if [modification is] not in [the servicer’s] self-interest, I don’t think that they are going to do much.”

5. Mounting political pressure: Mortgage services appear to be facing mounting pressure from Washington to redouble their efforts. “We believe there is a general need for servicers to devote substantially more resources to this program for it to fully succeed and achieve the objectives we all share,” Treasury Secretary Tim Geithner and HUD chief Shaun Donovan said in a recent letter to 25 mortgage servicing
firms. In a hearing last week, Senate Banking Committee Chairman Christopher Dodd, a Democrat from Connecticut, expressed his frustration more directly. “Why am I still reading about lost files, understaffed and undertrained servicers, and hours spent on hold on the phone?” Dodd said in a prepared opening statement. “Why are servicers and lenders refusing to accept principal reduction so that homeowners can start building equity and get the housing market moving again?”

6. Foreclosure outlook: Despite this pressure, Newport expects foreclosure rates to creep higher for the next year or so. “It’s going to keep on getting worse until the unemployment rate peaks, which we think will happen in about the middle of next year,” he says. For her part, Chen argues that a successful mortgage rescue program could expedite a housing recovery. “The hope is that we will be able to push through enough mortgage modifications to prevent home prices from falling too much more,” she said.

Why I think the stimulus package is a bad idea

Ok so I normally don’t get into politics in this blog, but I can’t go on without stating my peace about this stimulus package.  This is just my opinion, so take it for what it is worth.  (You’all know I love politics- so it can’t come as much of a surprise!).

Recently President Obama has put forth a $800 billion stimulus package and that’s only a small portion of his $3.5 trillion budget.  Even left-to-center media outlets such as the Los Angeles Times has called Obama’s plan and resulting projections “optimistic, even quixotic”.  I agree.  Do you know this package, inflation aside, is the “largest single spending bill in human history”?

Personally I have always been a believer in low to no debt- purchasing only what I need first and then what I want second.  Call me old fashioned but I have lived to 28, gotten myself educated (earned my MBA last year), rent a nice apartment, and live a nice life without scraping up an ounce of debt- not for a car, credit card, nothing.   Yes, I have been given some advantages to help me stay out of debt; however, there were certainly moments when I could have gotten credit card and other types of debt if I had let my guard down. For example, I went to an affordable graduate program,  and I have always driven cheap cars. The truth is I”m not even that thrifty but on the other hand I have never allowed my spending to get out of control- to build into debt.  If I can do it than the federal government can. It just has to be a priority and there has to be sacrifices.

Clearly I understand that debt is a necessary tool for our economy and that balancing the budget at this point with two expensive wars and other problems is an impossibility.  However, that does not mean that we need to add to the debt by billions and trillions of dollars. Such a spending spree would be like me maxing out on my credit card when I am low on funds just to boost my confidence.   Everyone would think I was crazy.  Millions of people like myself feel the same way about the stimulus plan- a giant spending spree when we need to cutback! Why do you think Wall Street has failed to respond to the supposed promise of the stimulus package? It’s because economists know or  at least are uncertain of the possible side effects of  the plan’s high price tag.

Some will counter my argument by saying that the spending will increase consumer confidence, build public works and provide new jobs.  I am not convinced we need to spend this much- if the concept is true to begin with.  Obama’s stimulus package is often compared to 1940’s legislation such as the GI bill, which paid millions to educate our troops.  Such legislation shows a clear investment benefit that I do not see from the stimulus package- nor do I believe such an investment would cost trillions of dollars.  To me it feels like anything whether it is of value or not is being tagged as something that will stimulate the economy.  It’s like a giant stimulus parade that keeps growing and growing- right along with our debt. Take a look at this interesting article in the Wall Street Journal about this over-spending.  In it the author argues that such reckless spending actually hurts our economy and will force us into “a longer period of recession”:

“But after five weeks in office, it’s become clear that Mr. Obama’s policies are slowing, if not stopping, what would otherwise be the normal process of economic recovery. From punishing business to squandering scarce national public resources, Team Obama is creating more uncertainty and less confidence — and thus a longer period of recession or subpar growth.”

Others will argue that the New Deal of  the 30’s and 40’s was an example of government stimulated growth.  I used to think this to but in recent reading I have done there appears to be much debate on this topic.   Economist’s Christina and David Romer (who incidentally actually work for Obama on his Council of Economic Advisers) said “a simple calculation indicated that nearly all of the observed recovery of the US economy prior to 1942 was due to monetary expansion.  Huge gold inflows in the mid- and late- 1930’s  swelled the US money stock and appear to have stimulated the economy by lowering real interest rates and encouraging investment spending and purchases of durable goods.”

Isn’t that interesting?  My whole life I have been taught that the Roosevelt spending and the war got us out of the Great Depression.  (Despite my mother arguing the opposite!) In fact, the National Bureau of Economic Research did a a study on the effect of the economy from military spending during World War II.  They found that “military spending had virtually no effect”.  Even if you do not accept such an argument, the stimulus presented in the 30’s and 40’s paled to what is being offered now- and my fear is that we’ve only just begun.

I do think that some of the New Deal programs had a positive economic impact merely for the motivation it gave  melancholy unemployed workers.  Massive groups of unhappy citizens are bad for democracy and create shaky policy, even revolutions; therefore, some government spending in this regard is appropriate- just not trillions of dollars.

There are clearly items such as stabilizing the credit market that need to be addressed- but wasn’t that what the $700 billion was for that we already spent? $700 billion we did not have?  Now we are adding to it!  To me it is outrageous.  Do you all realize that with just this $700 billion you could give every American $3500 to spend how they wish?  Doesn’t that put it in perspective!

Again, I recognize the need for some intervention and spending but I just think the stimulus plan and the budget are out of control. The fact is that before this our government was already in debt to China and other countries.  Now we could end up as a pawn in their international games.  I want a fiscally independent America.  One that can look at this crisis and actually plan for a productive economy in the future- instead of building mountains of debt for future generations.  Let’s have a little bit of perspective here and be willing to sacrifice pork programs (and even good but non-essential programs) for the plans that will truly build up the confidence and strength of Americans and our economy.   I love this country and I want to see it succeed not flounder in wasteful debt!

Take a look at this video.  It is admittedly right-wing but I think the statistics make some good points.  To Senator Shumer- I am one of the chattering class, and I care: