Why accelerate your debt payments?

There's one major trend I see on ATS in the Global Meltdown and Survival forums which always leaves me scratching my head. I understand and fully agree with paying legitimate debts you owe on, in fact I'd say that people who are looking for an easy out way of defaulting on those debts are a major part of our economic problem. However, I don't see the point in so often seeing members suggest people should be scrambling to accelerate their debt payments, paying as much over the basic monthly payments as possible to eliminate it all.

There are two main problems I see with that advice.

1. IF (and I'll be honest, to me it is an 'if' and not a certainty at this point) we suffer a complete monetary collapse, our money will essentially be worthless. However, any fixed rate debts you are carrying will still be payable in that "worthless" currency. For example, if you have a fixed rate loan which you owe $20,000 on with $300 a month minimum payments, even if a loaf of bread suddenly costs $100, your loan will still "only" be $20,000. That means anyone who has prepared themselves properly could find that they can suddenly pay off these loans with no real added hardship to themselves vs scrimping today to pay them off in larger chunks while our money is still very far from worthless.

2. IF (again, not a certainty, but a more likely scenario, I would hope) we do not see a complete collapse, but rather face some period of high inflation, by paying more today you're basically paying with money that's worth even more than it has been worth in quite some time and more than it will be worth in the near future. If we're seeing deflation currently, then that means the buying power of your money is greater right now and by paying more to whoever holds your loan, you're essentially pissing away that buying power right now, when you very likely need it the most.

My strategy on this (and mind you, I have no credit card debt, own my vehicles outright, and lease my house... my only real debts are student loans and standard monthly bills) is that any secured loans you may have (mortgage, car loan, select credit card debt) you might wish to pay off now if you're worried about your future abillity to earn enough to keep paying on them. The rest of it, however, especially any unsecured debt, screw it. Pay your basic monthly payments and put any extra money you have away or invest in durable or tradeable goods if you're convinced we're headed towards certain disaster. Let's be honest here, if we do end up in a massive depression, and if you do lose your job, your American Express/Visa/Mastercard bill is going to be the least of your worries, as is any unpaid medical bill or store credit bill. We do not have debtor's prisons in this country (at least so long as it isn't back taxes or court ordered payments you're indebted to), and I highly doubt we will ever reach that point. The worst case scenario (aside from total Armageddon, of course) is that when we come out of this your credit rating is shot for 7-10 years. I'd think that regardless of people's credit rating, we're not going to see very many people getting decent credit for a number of years after this even if they did carefully pay their bills. In all likelihood, we'll return to a pre-1980's level of credit where your credit history is secondary to your overall abillity to pay off any loan you get regardless.

Just my opinion, mind you. I'd love to know the rationale behind paying these off as soon as possible because I'm just not seeing it.

[edit on 1-3-2009 by burdman30ott6]

Agreed. I have a large load that is being paid off at the same rate I negotiated a couple of years ago. Any more would cripple me. My credit card is back under £1000 owed, at the expense of my bank overdraft. A simple case of interest mathematics.

Righting my listing financial ship is a marathon, not a sprint. If it all goes to hell sooner rather than later, so be it. Either way I have played by the rules until such time it makes more sense not to.

In any case, most of my purchases in the last 12 months have been geared toward TSHTF.

I call that an investment.

In a deflation the consumer holding the debt loses out. Considering in a real deflationary scenario all prices drop, as well as the consumers salary, while their debts remain static. So you pay $300 a month, make $1000 a month. Now your wage is $700 a month. You are now using 43% of your income rather than 30% to pay off your loan.

Anyways in my opinion if we have monetary collapse then the debt would just be transferred over to the Amero and you'd pay as you do now

I would say that if you have a 'secure' job, pay off more off of your mortgage. Have a look at your payments for this time last year and compare them to what you are paying now and if you can afford it, pay at last years payment rate.

Money has never been so cheap as it is at the moment, now is the ideal time in my opinion to 'get ahead' of the game. Not only will this build up a nice 'cushion' should you have difficulties later on, but it will lead to a shorter mortgage term and lower interest to capital payments.

Originally posted by LOLZebra
In a deflation the consumer holding the debt loses out. Considering in a real deflationary scenario all prices drop, as well as the consumers salary, while their debts remain static. So you pay $300 a month, make $1000 a month. Now your wage is $700 a month. You are now using 43% of your income rather than 30% to pay off your loan.

Anyways in my opinion if we have monetary collapse then the debt would just be transferred over to the Amero

and you'd pay as you do now

I understand that, but my issue is that right now we're in a deflationary spiral of sorts. I honestly cannot see deflation being allowed to get any worse than it currently is. In fact, the actions of the government and their magical printing presses almost assure that we'll see high if not hyper-inflation start soon.

On your second point, I'm no lawyer, but everything I do know about the law tells me that there is no way in hell any bank could switch their debts to any currency other than that which the original debt was taken out in... and I have never seen nor heard of any fine print which says otherwise. I'd assume that if anyone had seen such fine print, ATS would be flooded with posts about the "lending institution reserves the right to demand repayment in the form of alternative currency to the US dollar given the event of a change to the currency system" clause. I'm not a litigious person, but I know I'd sure as hell sue the daylights out of the bank if they ever came back to my student loan and started demanding payment in anything other than US dollars or in any quantity other than that which was originally agreed upon when I consolidated the loans several years ago. I can only imagine how swamped the court system would be with others doing the same in that scenario.

I'd also say that, if this was to ever happen in this country, my debts would be the last thing on my mind and such a switch would be one of the few scenarios in which I would openly default on them all. Not that it would matter as I would no longer be on the grid or an active member of the society at that point anyway.

Originally posted by burdman30ott6

On your second point, I'm no lawyer, but everything I do know about the law tells me that there is no way in hell any bank could switch their debts to any currency other than that which the original debt was taken out in... and I have never seen nor heard of any fine print which says otherwise.

Plenty of precedent over in Europe.

I guess there it was just business as usual, just as LOLZebra suggests.

"On your second point, I'm no lawyer, but everything I do know about the law tells me that there is no way in hell any bank could switch their debts to any currency other than that which the original debt was taken out in... and I have never seen nor heard of any fine print which says otherwise."

what happens when the banks are almost nationalized at a 36% stake by the federal government. if you owe the feds they will try to force you to pay. we could be using shiny rocks for currency and I have a feeling if you owe the feds a debt they are still gonna come take everything you got.

"I don't see the point in so often seeing members suggest people should be scrambling to accelerate their debt payments, paying as much over the basic monthly payments as possible to eliminate it all."

Gonna be hard to finance that bunker if you don't have any credit. To me I think it is a waste to keep posting this info on the grounds that this is basic common sense. 5000$ in credit card debt will take like fifteen years to pay off if you just make the minimum payment. It's pretty hypocritical to call yourself a free man or woman when you OWE everyone and their mother.

You could also look at it another way.

If you believe that TSHTF soon, then rack up as much debt as you can by buying supplies and other survival goodies on your credit cards ..... the thinking is that who is going to collect on the debt?

I've been making pretty heavy dents in my debt lately. I have zero balanced 2 cards in the last 2 months and could do another one next month. However, due to things like the Baltic Dry Index and what I think are going to be serious international supply chain issues soon, I'm going to spend the extra $1000 I would have used to pay the last card off for more things I expect to need to survive (ammo, food stocks, gear) although I've already been working on it since last year.

I feel like now is the time to get things that are imported while they are still available, fairly cheap, and able to be delivered long distances. I'll pay the credit card off over the next 4 months, if the system doesn't collapse first.

I do think it is very important to get out of debt as quickly as possible while you still can. As you say, there are currently no debtor’s prisons, but I sure do see public work camps coming. In some scenarios I could imagine, your freedom may depend on not owing the corporations/government any money, whatever form that money takes. If you can’t find a job, depending on your skills, you may have to go work where and for who your creditor tells you until you have paid your debt.

On the other hand, your freedom could depend on not having to ask anyone for food. I feel like this is how they plan to do the essential large scale farming after the oil infrastructure goes bye-bye. There will be countless homeless and hungry families ready to go where they're told and do whatever is required to make sure they eat. They will be so mind numbed; they will make great serfs, as long as you will feed their children. There will be plenty of vacant homes to house them in, plenty of surveillance and LEO to watch them, and plenty of the best programming the educational system can provide to the kids. It will probably take 500 people to replace the work of one of these huge harvesters that are more like rolling factories, but they will have plenty of bodies to work with.

I guess you have to decide what you think really is going to happen and prioritize accordingly. Debt, Supplies, or Faith in our Leaders and the System to turn things around? Hard Choice.