Here’s a great article from Charles Hugh-Smith from his OfTwoMinds blog. He defines and details the profile of “undebtors”. His language is strong, his case is solid, and his advice is incredibly worthwhile.
Enjoy!
Those who refuse debt, regardless of the sacrifice, are starving the parasitic, exploitive machine; those with debt are feeding it.
We hear a lot about debtors, and very little about undebtors. I define an undebtor as an individual or entity that has sworn off debt or considers debt a necessary evil that must be paid off as quickly as possible regardless of the sacrifices required to do so.
Undebtors are created by these conditions:
1. People with cultural/familial values that eschew/fear debt.
2. People who have been crushed by debt in the past and refuse to repeat the experience.
3. People who recognize debt as the status quo’s favored instrument of oppression, control and exploitation.
4. People who understand that paying off debt is the easiest way to earn a zero-risk significant return on one’s money.
If you pay off a 12% credit card, that’s the equivalent of earning 12% on your money.
There’s no mystery as to the low profile of undebtors in the mainstream media: undebtors are the equivalent of the cross to the vampire-parasites peddling debt. How can banks and other financial parasites make money off the undebtors? They can’t, and therein lies the problem for the status quo, which lives off the blood of debt extracted from debt-serfs.
The profits skimmed off debt fuel the speculative gambles that benefit Wall Street, and fund the politico lackeys and toadies who enforce the power of banks and Wall Street.
Debt also funds insurance companies and pension funds. Remember, every student loan dragging a starving student into servitude is owned by a pension fund or insurer as a solid, high-yield asset and every subprime auto loan that is extracting a pound of flesh from a marginal borrower feeds Wall Street’s profit machine.
People talk about starving the machine. You want to truly starve the machine? Get out of debt and stay out of debt, regardless of the sacrifices needed to do so. I personally know many immigrants to the U.S. who paid off 30-year mortgages in four years or less. How did they do it?
1. Everyone in the family 16 or older worked.
2. Everyone’s earnings went to pay off the mortgage.
3. No money was squandered on cable, dish TV, eating out, new clothing, costly vacations, etc. Zip. zero, nada.
There was a saying in the 1960s–you’re either part of the solution or you’re part of the problem. Those who refuse debt, regardless of the sacrifice, are starving the parasitic, exploitive machine; those with debt are feeding it.
Yes, I have debt, too, but we are doing everything in our power to pay it off as soon as possible. That’s all anyone can do. But it’s important to do so, starting now.
Hello,
I find your book and blog very refreshing and appreciate the advice. I fear debt but I believe your book recommends a mortgage over paying cash for one’s home. I agree that a house isn’t a great investment long term but it isn’t throwing one’s money away either and is somewhat necessary. I guess the best solution is to buy a relatively modest home with a mortgage and then use income to pay it off as quickly as possible instead of using capital? Just wanted to clarify your opinion on this. Thank you
Thank you for the kind words about the book and the blog. I’m glad they’re helpful. I don’t give investment advice, but I will offer these guidelines with regards to buying a single family home: if you have only one income for your household and limited capital after making a down payment, I wouldn’t buy a home. If you lose your job or have an emergency that affects your single source of income, you could be in trouble quickly.
If you have two sources of income and, after making a down payment, if you’d still have enough capital reserves to live for a year should an emergency happen, then consider a residential income property. This allows you to own your home and have an apartment or apartments on the same property that bring you income from tenants on a monthly basis. This can potentially minimize your monthly net mortgage payment and provide tax advantages. A duplex (two units) or a four-plex are good starting properties for first time buyers. A few years later, you can always move out of the income property into your own single family home, and keep the property as an asset.
Finally, if your household has two incomes, plenty of cash reserves (two years of living expenses after a down payment) then you could consider buying a single family home. Just remember not to get emotional about it. Look at what percentage of your income and capital are going to go into something that may or may not go up in value. Calculate maintenance, repairs, and property taxes realistically.
Remember, your goal is to increase your net worth and minimize your tax liability. Also remember that, in 2007 when the financial crisis hit, it was upper middle class households who’d optimistically bought really nice houses that suffered the most bankruptcies and foreclosures. They looked good from the curb, with nice new cars and a landscaped lawn, but when the economy tanked, they were not in a position to weather the storm.
The very wealthy, who historically have a lower percentage of their wealth tied up in their primary residence, were fine. A lot of blue collar people with two incomes and low monthly payments on fixed rate mortgages (or those who simply rent) survived.
And don’t think of rent as simply throwing your money away. Rent is what you pay for a place to live, just like you pay money for food. You don’t have to own the farm. It’s what you do and how you live to maximize the difference between your income and your expenses that really counts. Not whether you rent or own.
I hope this helps. My apologies for the delayed response. I’ve had the flu.
All the best – BGT
Strong words from Mr.Hugh-Smith, but also true. Reading this,it occurred to me that when you inveigh against the use of credit cards, maybe what you mean is that it is a bad idea to carry a balance from month to month. If that is what you are saying, then I agree with you completely. I use credit cards regularly, but I pay off the balance on each card, in full, every month. Rolling over the balance from month to month will cause you to incur some of the highest interest charges allowed by law. If you can not afford to pay for everything you buy in the month you buy it, then you shouldn’t make the purchase.
If you pay the balance off every month, the credit card company is giving you an interest free loan. When you purchase an item, the credit card company pays the vendor with their money. You then pay them back later, but they do not charge you any interest for this as long as you pay the bill in full and on time. It also forces you to consider the fact that the price of the item you are purchasing will be added to everything else you have bought with the card that month, which means that, if you’re not careful, when the bill comes you could be in for a nasty surprise. It also forces you to confront your spending for the month (at least with that card) rather than just dribble away cash with no record of where the money went. Using the card sparingly will also keep your utilization ratio low, which helps your credit score.
The most important thing is to get out of debt and stay out of debt; credit card debt or any other kind.
Amy, you’re one of the few people who really has the credit card thing down. Congratulations, and thanks for the great comment. – BGT