I was reading the Christian Science Monitor news today (a very good source of unbiased news) and came across this article discussing the generational differences with respect to short term debt. Being the child of depression-era children, I find debt to be most annoying.

Here is the full article, what do you think, is this a problem?
http://www.csmonitor.com/2004/0816/p14s01-wmgn.html

I am surprized to see the people have credit card debt up to ~20% of their income on average, that seems quite high.

Is personal bancruptcy an acceptable for absolving debt? Should credit be tightened?

It seems that this is another legacy that my generation seems to have handed dowm.

 

I am not surprised at how much people owe. I am amazed when I see what people have when I have a pretty good idea as to what they make vs. what I make. I pay my credit cards off every month. If I can't afford it, I don't buy it.

Credit is much too easy to get today. Banks want people in debt. My daughter is in school, does not have a steady job, but gets credit card offers all of the time. She actually applied to a couple and got them.

I don't agree with the concept of bankruptcy wiping out all of the sins of the past. Especially if it was created with careless spending.

 

Some debt is good. We encourage our doctor clients (or anyone in a high liability profession) to mortgage their personal residences to the hilt--even if they can (or did) pay them off. This state has a 5K homestead exemption. One asset protection strategy is to mortgage the residence, invest the cash and park it in an LLC.

Consumer debt is out of control. They literally throw credit cards at you in college. Not a good thing for most 18 year olds.

So, some is good, some is bad. Some is necessary, some is irresponsible. I guess the trick is being able to understand which is which.

 

Julie,

I agree, there are a few circumstances where debt may help in a situation. In the one you mention it is for asset protection.

But in general, be it consumer debt or people continually taking out more on their homes, it is not a good thing. As these people age and want to retire, they will find themselves in a very bad situation.

I think that as a society we have become too short term in our thinking and think that there is always time for the longer term.

 

Did this in the late 90s, and it cost me considerably. Some recovered, some not.
I have not credit card debt. I have a car loan (12 month), and a mortgage which I wish I didn't....again.

 

^^ What I described is not for investment purposes. It's for high risk people in a state like SC that offers no protection for the home if you're involved in a law suit. (Like an OB-GYN.) The specific purpose is to protect the home. No equity means the home isn't an attractive asset for a judgment since the lender has priority. Having the cash in an LLC won't allow someone to skate on a judgment, but it puts them in a better position to bargin since a judgement against an LLC would produce an charging order in this state. So, I'm a bit confused about "some recovered." Anyway...as they say, don't try this at (or with) your home.

I agree 100% that it's best to have no credit card debt. Having credit and having debt are different, however. Can't rent a car or book a hotel without a credit card. Some folks use credit cards for air miles. I bought a laptop at BestBuy years ago as a student and used their store credit card and paid 0 interest. Had 18 mos to pay. It was a big help to me as a student. I didn't have an extra two thousand dollars laying around. The card served its purpose and I later closed the account. It was a good use of credit and I was able to repay the debt sans interest.

Like I said, not all debt is bad and sometimes credit is necessary. When used wisely they are helpful things. When abused, it's a nightmare. And I agree--I don't think it's right to let people declare bankruptcy and walk away from what they owe. You owe, you pay.

 

Actually, I did understand the vehicle that you were describing, the issue I had was investing the assets of the LLC.

 

Yeah--investments can go south. Always hate to hear when that happens. I wasn't sure if that's what you meant--would have been faster to just ask. It's all just a calculated risk. Our docs know they're going to be sued--no doubt about it. Most choose to risk the market or put the money up and earn a little interest.

 

I am to the other extreme. Like Jim if I can't pay for it I don't buy it. I wonder if I sometimes miss out on opportunities b/c my main focus is to have my home paid off in 3 more years.

The only debt we have is our mortgage. I sometimes question my financial decisions, lost oppurtunities, etc... but till my home is paid off my gut tells me it's the right thing to do.

Although life has thrown many obstacles our way Michele and I have always got thru them financially b/c of our restraint for material things. Hey don't get me wrong we don't live like cave people we have a nice home drive nice cars go on vacations etc but first we pay down our debts and save then play.

We are coming up on a big change in our life soon with the coming birth of our son anyday now. My wifes salary has deminished from 6 figures before her liver transplnat to 1/2 that present and after our child is born she plans on scaling back her time working to 2 days a week reducing her even further, so it is my belief we are able to do this because we were so deligent with our finances and focused on our future.

It comes down to get it all today(work till your 90) or save and have it all later, or die with $$$$$ in the bank, who knows what is right only time will tell for each individual.

 

Isn't your vehicle with the docs more of an assest reallocation rather than debt?

And I absolutely agree with you on the issue of consumer debt. I have credit cards, but pay them at month end. The article discussed the idea of buying over one's head. In your case where you used a circuit city CC for one necessary purchase that you were able to payoff before it came due was quite a good use of credit, but carry-over balances and the debt service that they create are my issue.