How Debt Has Become "The American Way"

When did Americans decide that debt was a normal part of life? And what has that thinking done to their personal finances? When you look back at American history you find the roots of this country in Puritan values and the Protestant work ethic, in self-discipline and self-denial. So I thought, “What's going on? Why is everyone OK with taking on such large amounts of debt?"

The premise that has been sold to us that debt is a “tool” and should be used to help create prosperity is not true. Wealthy people do not use debt nearly as much as we are led to believe.

Most normal people are just plain broke because they are in debt up to their eyeballs with no hope of help. If you're in debt, then you're a slave because you do not have the freedom to do whatever it is that you would like to do. The debt master controls what you can do or not do.

According to a USA Today article about debt, 78% of Baby Boomers have mortgage debt, 59% have credit card debt, and 56% have car payments. It takes a lot of will, discipline, courage and help to beat the influence of debt. But it can be done! Imagine how much you could put toward retirement if you just didn't have credit card payments, a car payment, store card payments. Debt is dumb, and the truth is stated in Proverbs 22:7: “The rich rules over the poor, and the borrower is servant to the lender.”

As institutions and consumers adopted new rules, habits, and ways of thinking and talking about credit and debt, living “in the red” became the norm. Having debt has become "the American way."

From talking to people I have learned that they have widely conflicting views of what credit / debt means. Some described credit as positive, richness and worth; some liked the free and borrowed money, and getting “something for nothing”. Some compared it to a savings account. Others described it as an obligation, negative, scary, something cumulative, the result of abuse, and simply, what they owe. As lending became ubiquitous at the turn of the century, some consumers interpreted the extension of credit as a badge of honor. It was, “Wow, I'm a good person because I'm judged by these very important institutions as someone who is worthy of a $35,000 credit limit.” Or, “Only this celebrity and those that have a great financial standing carry this particular credit card I carry.” A good example of this happens every day at car dealerships across America. A person walks into the car dealership, knowing his budget will only allow him a car that is mediocre to his liking, but upon his visit he is very surprised when he is told they could get him approved for a higher amount. He says, “Oh, I can get that much? Give me that. That was the car I wanted... I was good enough for that car.”

There are several things that have contributed to normalizing debt. One of the major factors is the growing reliance on credit scores to determine a consumer's ability to rent an apartment, get a mortgage or car loan, travel or find employment. Credit became something everyone had to manage, or they would have a tough time getting what they needed. The entire FICO system - a mathematical measurement of an individual’s financial risk - is based on debt. How is it that we have begun to trust a system that is founded on debt? How is it that unless you are in debt, you don’t have a FICO Score? How has debt become the standard to evaluate a person’s financial standing? Whatever happened to: "Neither a borrower nor a lender be; for loan oft loses both itself and friend, and borrowing dulls the edge of husbandry."? Hamlet Act 1, Scene 3

Most people’s understanding of how to boost their credit scores (which, in reality, means their ability to increase their debt) is murky. When it comes down to what you have to do to make that happen, it gets real fuzzy real fast. We all have heard all kinds of weird things — “You should use less than 10 (15, 25) percent of your limit”, or “use 50 percent of your limit”, or “You should have less than five credit cards,” or, “more than five cards”. It is all over the board!

Even parental advice contributed to the debt mentality. Most people I talk to, especially those in their 20s and 30s, remember that their parents went out and helped them get a credit card and told them not to use it for anything but emergencies. That's sound advice, but one of the unintended consequences later in life is if you think of a credit card as something to use in emergencies, you no longer need an emergency fund for emergencies.

Where do most people go for debt help? Most people try credit repair companies, debt consolidation, debt management or bankruptcy. Companies touting quick, pain-free fixes are really scams that cause more harm than good! These services almost never help solve the true debt management problem, which is one's behavior.

Seven out of 10 families in America are living from paycheck to paycheck. That means that if they missed one paycheck, bills would literally go unpaid. They may look like they’ve got it all together, but realistically and statistically, it’s just not the case. Life may seem peachy on the outside of that perfect house in the perfect neighborhood, but if you knew what was really going on behind closed doors, you wouldn’t want to trade places with them! What you’re likely to find inside is a lot of heartache, money fights and fear about how the bills will get paid. Vacation isn’t so much fun when you’re paying it off two years later. And driving that new car isn’t that much fun when you’re wondering how to come up with the $395.00 monthly car payment when you’re faced with the possibility of losing a job and the house on the brink of foreclosure.

It’s easy to blame feelings of discontentment on outside sources like money or stuff, but true contentment and lasting joy don’t come from anything money can buy. Think of the times you’ve felt most satisfied in life. Think of the moments you look back on as your fondest memories. Would you trade those for a pile of cash? It’s never too late to change your life! It’s never too late to lean in hard to a new budget or a long-term plan.

Debt Management companies are springing up everywhere. These companies help "manage" your debt by taking one monthly payment from you and distributing the money among your creditors, with whom they've often worked out lower payments and lower interest. This is not a loan as with debt consolidation. Sometimes people get the two confused. However, because Americans are up to their eyeballs in debt, the debt management business has become one of the fastest-growing industries today.

Companies like Consumer Credit Counseling Service can help you get better interest rates and lower payments, but at a price. When you use one of these companies and then try to get a Conventional, FHA, or VA loan, you will be treated the same as if you had filed Chapter 13 bankruptcy. Mortgage underwriting guidelines for traditional mortgages will consider your credit trashed, so don't do it. Real debt help is found only in changing your behavior.

In short, debt management companies are out. Hard work is in. Change your financial behavior and change your life - for good! True debt management is about one thing: you controlling your money.
The good news is that there's not some magical, mystical formula to good debt management. The solution is common sense and having a plan. Good debt management is 80% behavior and 20% head knowledge. It isn't rocket science, as some debt management companies try to make you believe.

Is it easy? No. In fact, it's really hard most of the time. But it's worth it. It's amazing to see people change their lives through simple determination and having a plan that works every time. Once you have a real debt management plan in place, it’s only a matter of time until you will start realizing and reaping the benefits of it.

Often what is seen in a person’s handling of finances is a reflection of something in an individual’s life. The processes, keys and tools discussed in this article are just that – tools! Unless there is a complete surrender to the Lord Jesus Christ, and a turnaround is sought through repentance and believing in Him as your Savior, the process is incomplete. Christ must be first, because He is going to give you the strength and enable you to walk through the process. This really is NOT about changing your financial life; it’s about securing your eternal life. When priorities are aligned right, the processes and tools work extraordinarily to accomplish every purpose God has designed for you and me. We have God’s word on that (Romans 8:28)!

Koinonia Fellowship is committed to lead, point, and teach about biblical stewardship in your commitment to the Lord Jesus Christ and your personal walk and relationship with Jesus. We are just as committed to pray and give any practical support we can in your journey. Don’t hesitate to call us if you have questions on wills, estates, beneficiaries, giving, budgets, insurances, or any related financial matters. We are committed to lead you to the Word of God for all counsel.