Get out of Debt and Stay out of Debt

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“How did you go bankrupt?” Two ways. Gradually, then suddenly.”        Ernest Hemingway, The Sun Also Rises

The article by Josh Boak featured in the Huffington Post yesterday is titled Americans In Debt. 35 Percent Have Unpaid Bills Reported To Collection Agencies. I guess the good news here is that employment is robust within the bill collection industry. Caroline Ratcliff, a senior fellow at a Washington based think tank, was quoted as saying “Roughly, every third person you pass on the street is going to have debt in collections.” The teaser for the article on my news feed was “Americans spot a troubling trend.” A troubling trend? Ants at a picnic or dark clouds at an outdoor wedding is a troubling trend. This could be a prelude to a catastrophe.

Lest you think this a view point of an alarmist, the article concludes with the following: “Wages have hardly kept up with inflation during the five-year recovery, according to Labor Department figures. And a separate measure by Wells Fargo found that after tax income fell for the bottom 20 percent of earners during the same period.” Gee, that must explain the following from Zero Hedge today: “Despite Fed Funds at practically zero, US credit card variable interest rates continue to rise—now at their highest since 2001.” (This courtesy of NewEdge’s Brad Wishak) You didn’t think there was a free lunch did you? One person’s bill jilt is another person’s (or a whole lot of people’s) rate hike. Welcome to the way things work in the real world.

Here’s how we think this will roll out: Higher interest rates for the rest of us will translate into higher minimum payments which will mean more people will throw up their hands and throw in the towel. This will continue until the headlines read “Over Half Of Us Are Deadbeats” and “Interest Rates Soar”. The former is depressing enough but the latter could be read “If You’re Not A Deadbeat, You’re The Chump Picking Up The Tab”. The moral of the story, if you’re keen on keeping what you have and sleeping soundly at night, is this: Get out of debt and stay out of debt. If you have mortgage interest that “floats”, lock in a rate for the long haul. Being out on a limb is not a smart move anytime but most especially now. For real peace of mind, think and Live Skinny!

www.skinnylivingproject.com

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