How To Get Out Of Debt

[keepinitreal]

May 22, 2010

In today's economy, it's no longer just young people and those with lower incomes likely to run into credit troubles. Here are some steps toward debt resolution.Meanwhile, more people saddled with debt are turning to the last resort: bankruptcy. About 580,000 people have filed for bankruptcy protection so far this year, up 16% from a year ago, according to the National Bankruptcy Research Center. Last year, the number of personal filings jumped 32% to 1.4 million.

http://online.wsj.com/article/SB10001424052748704912004575252253507185186.html?mod=WSJ_hpp_MIDDLENexttoWhatsNewsTop

[Flamingo]

What is always scarey to me and realizing that we also contributed to it although we paid back 2/3 of our unsecured debt in a Chapter 13 is that all that dumped debt has to get covered somehow...and it is through increased taxes, increased fees, higher rates to do anything - i.e., get into your state parks, license fees, permits, etc., etc. Not to mention the cost of food and merchandise. In the end we pay somehow for everyone's bankruptcy, including our own.

[BobMango]

What is always scarey to me and realizing that we also contributed to it although we paid back 2/3 of our unsecured debt in a Chapter 13 is that all that dumped debt has to get covered somehow...and it is through increased taxes, increased fees, higher rates to do anything - i.e., get into your state parks, license fees, permits, etc., etc. Not to mention the cost of food and merchandise. In the end we pay somehow for everyone's bankruptcy, including our own.

Is it really a zero sum game? Does every dollar discharged have to be recovered somewhere else? I took serious business and investment losses but have not been compensated for them. I didn't get a bailout and the amount I bankrupted will never offset the losses I took, nor will the amount of public assistance I received ever offset the million plus dollars I've paid in taxes.

Financial institutions make money by investing. This involves risk and they should develop a portfolio that accommodates that. Yes, losses will be shared among all of their customers but in a free market, customers will (generally) migrate to the businesses with the best performance. Sometimes losses just have to be absorbed.

[HHM]

Is it really a zero sum game? Does every dollar discharged have to be recovered somewhere else? I took serious business and investment losses but have not been compensated for them. I didn't get a bailout and the amount I bankrupted will never offset the losses I took, nor will the amount of public assistance I received ever offset the million plus dollars I've paid in taxes.

Financial institutions make money by investing. This involves risk and they should develop a portfolio that accommodates that. Yes, losses will be shared among all of their customers but in a free market, customers will (generally) migrate to the businesses with the best performance. Sometimes losses just have to be absorbed.

I agree, I do NOT think there is a dollar for dollar accounting for losses. All the banks are profitable and it is really not tax payer money that subsidizes BK.

Realize that our bankruptcy system is really about cost shifting. If you didn't have BK, you would have debtors prison, which would be FAR more costly on tax payers than Bankruptcy. Let's clarify, the bailouts were not really the result of consumer credit card debt.

The cost of bankruptcy is bore by those that USE credit. In a sense, it is system that pays for itself. If you DO NOT want to pay for other peoples BK, DON'T use credit cards.

[BCA2009]

Alot of the "gains" and "wealth" that has been "lost" was never really there. So there is not always someone really losing out. In the case of money loaned that wasn't paid back, yes the bank and therefore the investors do have real loses.

Lets say that you didn't refinance you home during the re-finance craze. Your property value probably soared during 2003-2007 and therefore your net worth shot up. But then when the bubble burst it fell back down to where it was when you bought the home in 1995. You lost paper gains. If you had sold at the top you would have made money, but you didn't.

You never recognized a gain and therefore you don't recognize a loss. In your mind it sure feels like you lost something, but as earlier posters said, it is not a zero sum game.

So a significant amount of the "value" of our economy (long term stocks, values of companies, real estate values) that disappeared doesn't have to be absorbed somewhere else. It was just potential value/gains that never materialized.

A huge factor of the economy is just mind games and attitudes. It can snowball in different directions. Let's that all of sudden alot of people "felt better" about the economy improving. They would start buying more stuff with their limited cash. The more stuff that is bought causes the manufacturing plants to ramp up production which causes increased employment. This leads to higher incomes, which leads to more goods being produced. The opposite can also happen. People get scared and stop spending cash. Fewer products are produced people are laid off and then even fewer products are produced.

This is why some people in our government think we can spend our way out of a recession by spending tax dollars. But we can't because our mindset hasn't changed and the gov't is just spending our dollars for us in ways that we wouldn't spend it. This has never worked. It has to be based on our individual opinion of the economic outlook. It can't be forced down our throats.

The bubble was unsustainable because we tricked ourselves (with alot of government interference) that things were always going to get better and better. But just like government can't spend out way out of the recession, the govenment interference in the good times can't last forever.

This is a very simplified explanation. There are millions of factors in play. But until the general public really feels good about the future outlook, and the good outlook is built on a solid foundation (not lies and gov't interference) we are going to stay in a recession.

I think we have a long way to go before the public thinks the lies, manipulation and BS has been flushed out of the economy.