The Debt Trap

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In today’s America, it is way too easy to borrow money and much too hard to earn money.  That is the underlying basis of the debt trap.  It is a cycle where someone borrows money to finance various parts of their lifestyle, only to find out that their income can barely cover the required payments of that debt.  The end result is a life of limited options, servitude to a job, and reduced mobility.

Mechanics of Debt

In the most straightforward way, debt is essentially one person (or entity) with cash handing over money to someone without cash, who promises to pay it all back (plus interest) over a period of time in the future.   The lender also sends a note to the credit agencies to record the debt owed by that particular borrower.  The report to the credit agencies should be considered the “control mechanism” that keeps borrowers in check.  A poor track record of paying back debt will result in a bad credit rating.  A bad credit rating will result in future lenders saying no, potentially cutting off a source of money that is needed for certain lifestyles.

Life without Debt

But is it possible to live a life without ever acquiring debt?  In other words, is it possible to earn the cash first, and then simply use a portion of that cash to obtain what you need without ever resorting to borrowing?  This is called equity living – spending only what you earn and nothing more.

To live in this manner would require simplifying your life.  Less expenditures on restaurants, houses, cars, and consumer items, and more time experiencing nature, going for walks and interacting with friends.  This would also remove the need for credit or the hassles involved with maintaining a credit rating.  If you don’t need to borrow money, ever, your credit rating becomes virtually irrelevant.

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Borrowing is Legally Complicated

With equity living, the main legal issue that a person faces is ensuring that taxes are paid on income earned.  With borrowing money however, the legal issues multiply.  To start with, borrowers sign legal contracts with promises to repay the loan in the future.  Then there may be legal restrictions imposed by the lender as to how that money can be spent.  Then there are legal issues if the borrower defaults on making payments – collection agencies and Court-ordered repayment plans are just two examples.  Even when the loan is paid back, the borrower has to ensure that all the proper parties are notified – particularly the credit bureaus.  Living with debt means living a complicated, stressful life.

Avoid the Big Mistakes

There is no point cutting back on small “cup-of-coffee” expenditures on one hand, if you end up overpaying for a car or house on the other hand.  Avoiding the big debt mistakes, such as borrowing hundreds of thousands of dollars for a house that you don’t need, or taking out a massive car loan for an overpriced sports car, frees up money to enjoy the smaller expenditures.  The key to avoiding the debt trap is to forego  borrowing big for major purchases.

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