Who Benefits From My Debt?

“One way to grapple with debt is to ask yourself ‘who benefits from my debt?'” This is the question Mrs. Groovy suggested people ask themselves as they work toward paying off debt, and I thought that the profound statement deserved an entire post, so here it is.

Do You Know Who Benefits From Your Debt?

Honestly, I never really thought about the answer to that question until Mrs. Groovy posed it in the comments section on the post I wrote about America’s rising debt load. But once I really thought about the answer, I found myself getting pretty sick to my stomach. So let’s go over all of the people/organizations who benefit when people carry debt.

Banks, Lenders and Credit Card Companies

This one is obvious but still needs to be pointed out. When you carry debt consistently, you get charged interest, and banks and lenders make money for sitting on their hind quarters, because the loan or credit card you carry your debt on was likely approved long ago.

This is the polar opposite of what happens when you invest your money in, say, an index fund. Whereas investors sit on their duff and watch their net worth grow, as do bankers and lenders, you and me and the rest of the borrowers work our tails off to pay interest to the people that have borrowed us money instead of earning interest for ourselves.

At one point in our debt journey, we were paying over $1200 a month in interest on our large mortgage and our credit cards. That’s a freakin’ house payment in itself!!

So when you carry debt, the lenders are raking in the cash, and you’re working to pay them for the “privilege” of borrowing you money.

Do yourself a favor: Figure out how much interest you paid for your debts last month and divide it by your hourly wage. Then figure out if the ten, twenty, thirty or forty hours a week you had to work to pay JUST the interest on your debts was worth it. I’m betting you’ll say “HECK no!”

The Economy

This is the big, fat lie that lenders, the government and those who aren’t educated about money like to tell consumers – that they’re doing the economy a favor by taking out debt. The theory behind this belief is that debt allows people to buy more stuff, which helps the economy.

While this may be true in the short term, the fact of the matter is that one can only be approved for so much credit, and once they’re maxed out the spending has to stop. Sure, their high interest payments help keep banks in business but their lack of ability to spend no longer helps retail outlets.

On the other hand, if all of America lived lives free of debt, they’d have an ongoing supply of money each month with which to boost the economy – and they’d free themselves from paycheck-to-paycheck living, and a lack of ability to spend. That would be a true help to the economy as the number of financially struggling people would diminish largely.

And, bonus: debt free businesses would have the need and the financial capacity to hire more workers.

Now let’s talk about who doesn’t benefit from your debt.

You and Your Family

Again, may seem obvious here, but if you’ve ever struggled with debt and the payments that come with it, you know what I’m talking about. Studies show that over half of divorced couples cite money problems as the main reason for the demise of their marriage.

On top of that, debt limits your ability to care for yourself, to care for your family, to make a career change or move to another location, and it limits your ability to help the needy because you are neck deep in payments to lenders.

Friends, I’m not saying this as a criticism. Been there, done that, for nearly twenty years so who am I to judge.

However, we have become a society where debt is normal and frugality is not normal. We’ve become comfortable with paying interest to lenders instead of gaining interest through investments.

We look at wealthy people as though they were touched by the fairy god of wealth and are awed by their “luck”, when the fact of the matter is that over eighty percent of them started from nothing, according to Thomas Stanley of The Millionaire Next Door fame.

Recommended Reading: The Millionaire Next Door: The Surprising Secrets of America’s Wealthy

If you’ve ever read his book, you may be surprised to learn that most millionaires got that way by making a budget, saving and investing consistently and avoiding the purchase of new and shiny stuff. .

“But Laurie, it’s selfish to think only about yourself.” Okay, let’s bust through the deception here. The truth of the matter is that when you are out of debt and financially stable, you’re not just helping yourself – you’re helping the economy and the world as well. Why?

Number one, you are no longer at risk to being a burden on the government welfare system. Number two, you have the financial capability to help the truly needy. ‘Nough said.

Your Own Path to Debt Free

I know this isn’t the “fun” answer. I know that all who are being smothered by debt just want it to go away. They just want the fairy god of wealth, or the lotto, or the slot machine to sprinkle them with luck and then the money problems are all over.  But the fact is that it just doesn’t happen that way. Well, there is a one in 292 million chance that it can happen that way, but I’m not willing to wait for those odds, and I hope you aren’t either.

As we’ve worked our own path to debt freedom, I’ll be the first to tell you that it hasn’t always been easy. There’ve been ups, and there’ve been downs. There’ve been UPS, and DOWNS. At one point we had such a big down that our debt load more than doubled from its original number during an 18-month YUGE down.

When that happened, we thought about just filing bankruptcy and getting it over with, but we wanted to work the system and see if it would work, even with a ridiculously high debt-to-income ratio of 65%.

And guess what: the system works. In our case, our “system” consisted of three things: we prayed for wisdom on how to manage our money, we started Dave Ramsey’s Debt Snowball and we chose to simultaneously save a small percentage of our income every month and vow not to touch it. By “small percentage” I’m talking one or two percent at the beginning. It may not seem like much, but when you vow not to touch it, one or two percent adds up.

Recommended Reading: The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness

Those first months were TOUGH months. We were short $1200 a month without OT and my side hustle money as it was, but we worked our tails off and budgeted and spend-tracked like fiends.

Soon, the numbers got smaller and then it wasn’t as tough. Each month that passed made things easier (although some months brought financial unexpecteds that set us back) and easier.

Now our debt is beyond manageable and we expect to be debt free very soon. AND we’ve got money in the bank.

For people who spent nearly twenty married years living paycheck-to-paycheck, I cannot begin to explain what a comfort it is to have money in savings. If you are like we were, you’ll get it.

Recommended Reading: Love Your Life, Not Theirs: 7 Money Habits for Living the Life You Want

The stress goes away when you’re working your plan and have money in the bank to cover emergencies. We don’t think about money all the time like we used to, because we don’t have to think about money all the time. It’s just there…..

Friends, do NOT fall for the lie that your debt is beneficial to you. It’s not. It is robbing you of dreams, of peace, of freedom and of happiness. Make and start your plan for debt freedom and a plush savings account today. You deserve it, and I promise you will benefit from it.

What’s keeping you from making a plan to get out of debt?

29 comments

  1. Brian says:

    Who Benefits From My Debt? Certainly not me! All about breaking the debt mindset. Realize there is a better way. I just recent a note from a friend that her and her family cut up her credit cards. All it takes is the first step.

    • Laurie says:

      Brian that is AWESOME about your friend!!!!!!!!!!!! So happy for her and her family. Just keep putting one foot in front of the other, right?

  2. The only people benefiting from your debt are the people you are borrowing from. There’s a reason credit card companies are trying to issue 0% cards for a fixed period. If people don’t pay it off during the 0% interest rate period, then they get charged 20% on the remaining balance… Just ridiculous.

    I’m looking to pay down some of my mortgage debt this year to get rid of PMI. I’m also looking to build wealth through a blog and an ebook. 2017 will be an exciting year!

  3. I love this! There are companies and systems in place that benefit from people being in debt–that’s just a fact. Banks don’t offer credit out of the kindness of their hearts, after all. When you’re in debt you’re making someone else rich. It’s insane that this is the norm, but in my opinion the rich have made this the norm so their pockets continue to be filled. It’s a brilliant system, but it’s one that will make you broke.

    The best thing I’ve ever done was get angry about my debt. At the end of the day the debt was my responsibility, and now we’re paying it off as quickly as possible. It feels good to see our net worth slowly increase, but I wish we hadn’t learned about debt the hard way.

    • Laurie says:

      It’s not fair to lump “the rich” into one group responsible for the debt of others. Many of our fellow bloggers are rich (and you guys and we will be too someday soon) and have nothing to do with the interest paid by debt holders. There are banks and bank execs that are profiting from others’ debts and who have definitely helped make the system what it is today, but to say wealthy people as a whole are responsible, that’s not accurate. It’s just another lie perpetuated by people who aren’t willing to take responsibility for their actions. Honestly, although the system is set up to highly encourage borrowing, it’s the debt holders themselves (like me) that fall for the lie. We all have a responsibility to educate ourselves. The library is full of books – and the Internet is full of advice – on how to get out of the rat race.

  4. The whole debt is good for the economy drives me insane. If there was a widespread mindset shift and debt was avoided more than not (I don’t see this happening), sure, the economy would change. With all change, there’s difficulty and struggle, of course, but things would eventually start to shift in a more positive (albeit different) direction. And lives would be changed. I know my life is so much better in so many ways without all the consumer debt we used to have.

    • Laurie says:

      Agreed!!!!! I think the others (those still okay with carrying huge amounts of debt ) just need to learn to envision it.

  5. I’m was less debt-averse than I used to be. I’m about to pay about $1000 a month in mortgage interest and, while I’m not necessarily excited about it, I do think there are some benefits. On the most basic level, we’ll now pay enough interest and taxes that we can itemize for the first time ever: we’ll donate more now that we can actually benefit financially with a tax deduction.

    On a larger scale, I think banks doing well is fine by me, since the interest rate is so historically low. Seems like a win win, if they’re able to make a buck while we keep more of our money in the market, too.

    That is to say, if we simply paid $100k towards this mortgage debt rather than investing, would that really be a net positive for us, or for the economy? Hard to say.

    I have been 100% debt free, following Dave Ramsey’s baby steps all the way to the end, so I hear what you’re saying. Being debt free really is good. But having done it, I’m not entirely sure it was the best thing for us financially. It ended up having huge, five figure opportunity costs.

    Anyway, both options are good: being debt free and leveraging debt for arbitrage. So long as you’re very careful with debt, it can be a good tool…but it’s like a table saw. You sure as hell better know what you’re doing.

    • Laurie says:

      DB40, I can’t help but think of the verse “Owe no man, except in love.” (Romans 13:8). Think of the giving you could do with that $1k a month. 🙂

  6. Michael says:

    Hi Laurie,

    It is so nice to see that you are very close to being debt free. Awesome! Looking forward to your debt free post 🙂

    People make a lot of money mistakes and this society is driven by peer pressure. A lot of people make so many spending decisions just to feel accepted. This only leads to a financial mess.

    Thankfully, peer pressure is something that has not bothered me.

    • Laurie says:

      Great comment, Michael!!! You are lucky that peer pressure has never bothered you. We fell into it for years. Luckily, now we are much more concerned with the financial well being of our family. 🙂

  7. Hi Laurie! I just stumbled across your blog and this was the first post I read…and wow. I felt like I needed to take notes because you make so many great points; especially to a newly-frugal, trying to get out of the rat race, in debt girl like myself.

    I’m also glad to have found a kindred farm soul 🙂 My husband and I were both raised on farms and still farm today even though we have started our own family. It is a heritage that I am beyond proud of and feel extremely fortunate to be passing on to our daughter.

    • Laurie says:

      Hi!! Welcome to the blogging world, Daisies!!! So glad to have found another farming aficionado, it truly is a wonderful life, even with all of its work. 🙂 Best of luck to you guys as you raise your daughter in the beautiful country!

  8. It seems that many people…and I hear it everyday from my co-workers, think that debt is the norm and inevitable. It is unavoidable and just a way to make it to the next paycheck. They like to blame living in a high cost area like NYC. Yea, it’s expensive here and sometimes I like to use that excuse too but taking on debt (mainly credit card debt) should never been the norm. My co-workers struggle with debt but are not fazed by it…they continue living like it’s normal, and go out to eat, go to the movies, buy gifts/electronics/clothes…on CREDIT! The credit card companies and banks are more than happy to take the high interest you’re paying.

    • Laurie says:

      Great comment, Andrew. It really has become the norm in today’s society and that’s what is so sad about it. People don’t even consider saving to pay cash for a car or anything else. I think the pioneers of the 1800s and the early 1900s would be in total shock if they saw how people view credit today.

  9. Liz says:

    Thanks for reminding us Laurie. Debt is really a challenge to overcome, and once it is and we stay debt free, a whole new perspective is formed that we enjoy life more and manage our finances better.

  10. It’s been 5 years since we managed to stay out of debt, and it’s been great!
    I’ve learned how to stop caring about “stuff” and start saying no to temptation.

    I can’t even remember how many times my bank kept insisting I accept their credit card offers, so I can buy Smart TVs, tablets, expensive smartphones… They were so well ‘trained’ to attract new clients, they almost made me feel guilty for saying no!
    Many are blinded by this stuff because it seems like you can’t live without them, but I’d rather live without debt than brag about my new, expensive tech gizmos and starve 😀

    • Laurie says:

      Adriana that is wonderful! Congratulations!! I hear you on how banks/marketers make you think you can’t live without their stuff. So glad you broke free of the hold!

  11. Katy says:

    I love this post. I had never really thought about who benefited from our debt, but you are right it is certainly not me and my family! I think another commenter mentioned that it is the norm to live off debt. This has certainly been something I have seen in my co-workers and some friends.

    • Laurie says:

      So true, Katy. It really has become normal. The more people we can get to go against the grain in this area, the better!

  12. Man, I like your “interest example.” I never thought of debt in that way. Except for a small mortgage, my husband and I are on our way to a debt free life.

    I need to impart your wisdom to a few friends!

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