You Are What You Owe

Want some free financial consultation? It won't take more than a few seconds, I promise. I won't need to review your bank statements, nor even glance at a balance sheet of your assets and liabilities. Yet for at least 90 percent of you, my remedy will be the single most critical step you could take on the road to financial health.

Reduce—and then eliminate—your personal debt.

I'll be even more to the point: If you have credit card debts, use every bit of your savings to pay down your principle. Unless you have investments that are earning you over 18 percent return and doing that on a consistent basis (just shy of winning the lottery), then you're better off draining your bank account to pay off your loans. As Benjamin Franklin advised, "Rather to go to bed supperless than rise in debt."

Take up that challenge as a spiritual discipline. Very few forces in this world influence—dare I say limit—your choices more than debt does. How many dreams for really meaningful activity have you set aside because you needed to pay the bills?

THERE'S NO MYSTERY why the earliest Hebrew tribes were so suspect of the practice of debt financing. In their thrust to create a uniquely egalitarian social system, they counted usury a grievous sin. They knew that beyond war and subjugation, falling into debt was the quickest path to bondage. Usury was a sure recipe for setting up a system where the rich get richer and the poor get poorer.

I'm not so naive to believe that a modern industrial economy can function on tribal economics. To the contrary, debt financing has proven to be an effective driver for building productive enterprises in a market economy. But the Hebrews' prophetic insight compels us to look at the impact of our financial arrangements on the poor. Third World nations today creak and sway under the heavy burden of debt. Daily, more bodies are thrown overboard, yet the weight grows, unrelenting.

Enough said on global finance. Back to your bondage.

First off, it's important to realize that not all loans exact the same cost. A mortgage is clearly a form of debt, but generally of the most innocuous kind. At least you build equity, win a meaningful tax deduction, and save on paying rent. All the same, I am baffled why the American people have not risen up in revolt over mortgage rates during the last year. While the Federal Reserve Board repeatedly cut interest rates in an effort to stimulate the economy, financial institutions did not pass the savings on to the consumer. They kept interest rates at virtually the same level—and even had the audacity to raise their rates, thereby padding their own profit margins.

On the other end of the scale, the most insidious form of debt is a consumer loan. Though credit card companies speak words of freedom, borrower beware. Like clever drug lords, they offer us free trials and low rates until we're hooked. Enjoy it while it lasts, because it doesn't take long for compound interest to kick in.

One of my close friends has been struggling to remain solvent for some time. She easily qualified for bankruptcy, but felt strongly about taking personal responsibility for the hole she had put herself in. Then one day she noted that the interest rates on her consumer loans were rising steadily—18 percent rates inched up to 21 percent, then 27 percent. Frustrated by her inability to keep up, she called the credit company to complain. The comforting reply: "We know you're never going to pay the loan back anyway, so we're trying to cash in now before you go bankrupt." Such market logic puts even highly principled people into a double bind. My friend practically was forced to declare bankruptcy, but she was left with considerable guilt.

Debt not only puts your material livelihood in jeopardy, it makes you spiritually vulnerable. That's a truth you can take to the bank.

David Batstone, a founding editor of Business 2.0 magazine, is executive editor of Sojourners.

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"You Are What You Owe"
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