As the U.S. economy implodes, a lot of American families are being faced with some incredibly heartbreaking choices. Many of them piled up massive amounts of debt during the good times as they chased the American Dream, but now that hard times have arrived they find that they just can’t handle the huge mountain of debt that they have accumulated. Other Americans are looking at the crumbling economy and are trying to prioritize where to spend their money. They wonder whether they should pay off their debts or whether that money would be better spent on stocking up on necessities for the incredibly hard times that are ahead. The truth is that this article is going to raise a lot of questions but not provide a lot of answers. In the end, each person has to make their own choices. In addition, some of the viewpoints in this article are going to be controversial to many of you. It is okay if you disagree. In fact, if you find something that you disagree with, please leave a comment. This is a topic that hits home with a lot of Americans, and a lot of people have some incredibly strong opinions about paying off debt.
If you are not a regular reader of my articles, you may not understand just how bad a shape the U.S. economy is in. The reality is that the great American economic machine is falling to pieces. Tens of millions are chronically unemployed or underemployed, foreclosures continue to reach all-time highs, personal bankruptcies continue to set new records, over 40 million Americans are on food stamps, and the U.S. government (along with the rest of our nation) has piled up the biggest mountain of debt in the history of the world.
For those of you who are interested in the statistics and the numbers behind the current economic collapse, you should check out the following article that I recently authored on another website: “40 Bizarre Statistics That Reveal The Horrifying Truth About The Collapse Of The U.S. Economy”.
So in light of the coming economic collapse, what should we all do about our debts? Should we hurry up and pay them off? Should we just forget about them? Should we tell the banks to jump off a bridge?
Right now a lot of Americans are walking away from debts without paying them back. This is particularly true when it comes to “underwater” mortgages. Being “underwater” means that you owe more on a mortgage than the house it worth. A growing number of Americans who have “underwater” mortgages have simply decided to quit paying them and have walked away from their homes. In fact, over the past year it is estimated that at least a million Americans who could have afforded to stay in their homes chose to walk away.
Just think about that.
In the past year alone, a million Americans have simply decided that it is just not worth it to keep paying the mortgage.
These are known as “strategic defaults”, and they are being touted by many as the common sense economic choice for those caught in bad mortgages.
But are strategic defaults the right moral choice?
That is the question I asked in a recent article entitled “Strategic Defaults: Is It Morally Right To Decide To Simply Stop Paying Your Mortgage?”. As you can see from the comments that were left on that article, a lot of people have some REALLY strong opinions on the matter.
Fannie Mae certainly does not think that strategic defaults are the right choice for consumers. In fact, Fannie Mae has announced a massive crackdown on those who have committed strategic defaults. In states where they are able to do so, they are planning to take those who have committed strategic defaults to court.
In the end, there is going to be a lot of litigation and a lot of people really burned by this whole thing. The mortgage system in the United States is totally broken and is literally coming apart at the seams at this point.
In fact, many people who actually try to work with their mortgage companies find that they simply can’t get anywhere with company officials. It is almost as if these people have been paid not to find solutions. The number of foreclosure horror stories is multiplying as frustrated homeowners drown in a sea of applications and paperwork that seems to get them nowhere.
But just because dealing with lenders is so frustrating does that mean that skipping out on your mortgage is the right thing to do?
But mortgage debt is not the only type of debt that Americans are struggling with right now.
For many younger Americans, student loan debt loads have become absolutely back breaking. The Project on Student Debt says that approximately 206,000 students graduated from college with more than $40,000 in student loan debt during 2008. Using 2008 dollars as a baseline, that represents a ninefold increase over the number of students graduating with that level of debt in 1996.
But then when our college graduates get out into the real world they find that there are fewer good jobs available than at any other time in recent memory. So a large percentage of these students they are stuck paying off giant debt loads on little to no income.
What a way to begin your working years.
And unfortunately, federal bankruptcy law makes it nearly impossible to discharge student loan debts.
Talk about a trap.
Another huge debt trap that almost all Americans are caught in is credit card debt.
Today, there are over 1.5 billion credit cards in use in the United States. At the end of 2008, American consumers owed over 972 billion dollars on their credit cards. That was an amount greater than the GDP of the world’s 122 poorest nations combined.
Needless to say, such a massive pile of debt is not sustainable.
But is that justification for walking away from it?
Well it depends who you ask.
These days, there is no consensus view on what is “moral” and what is not.
After all, in a nation that has pushed God out of the picture, who is going to define what is “right” and what is “wrong”?
Without any guiding moral principles, we are pretty much left with what is “legal” and what is not.
Beyond that, most Americans pretty much do whatever is right in their own eyes.
So what is the “morally right” thing to do when it comes to paying off your debts?
Well, absent any objective standard, the “morally right” thing to do for most Americans is whatever they “feel” is right.
However, for those who are Christians, there is an objective standard when it comes to morality.
For those who follow the Creator of the universe, He has given us instructions for how to live our lives.
It is called the Bible.
At this point, a lot of readers are going to get really upset.
But you needn’t get upset.
The truth is that everyone has a choice whether they are going to follow God’s instructions or not.
So if you have made a decision to rebel against God’s instructions, then why let it bother you when others make the decision to follow them?
So what do the Scriptures say?
Well, the Scriptures tell us that it is not wise to get into debt in the first place. In Proverbs 22:7 it tells us this….
“The rich rule over the poor, and the borrower is servant to the lender.”
That statement is as true today as it ever has been.
Many of us wish we had learned that very hard lesson many years ago.
When it comes to repaying debt, Psalm 37:21 says this….
The wicked borrow and do not repay
So why is it wrong?
Well, when you borrow money you are making a promise to pay it back. To borrow money and not repay it when you are able to is essentially stealing, which we are warned in the Ten Commandments not to do….
You shall not steal. (Exodus 20:15)
Of course there is nothing wrong with negotiating with your lenders and trying to work something out with them.
Or if you have been induced into your debts fraudulently or if the lenders broke laws, then that certainly changes things.
And of course if you are out of work and are flat broke, then you will not be able to make your debt payments.
But if you are able to pay off your debts and you simply choose not to, that is another story.
It is not easy to pay off debt, but it is the right thing to do.