What the Debt and Spending Hike Abomination Means in Layman’s Terms

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Since the economic crash of 2006-2009 (often called the downturn of 2008), two things have been clear to economists who are paying enough attention and politicians who care enough to gain true understanding of the situation: the United States economy is only alive through artificial means and there is no feasible way to fix it without extreme measures.

They know this. They’ve been able to maintain a modicum of faux-stability through quantitative easing and the destructive effects of zero interest rates combined with an exceptional disinformation and propaganda campaign that has mysteriously (some would say supernaturally) kept the majority of Americans from feeling true negative effects. I’m not talking about people losing their jobs or living in poverty. Those things are bad enough and are clearly happening around us all. The true negative effects I mean would come from a complete and sudden “bursting of the bubble” upon which we’re riding that will have catastrophic consequences for every non-financial-elite American, not to mention in most countries around the world.

The propaganda has been so strong that it’s almost admirable. After all, if Americans were allowed to look down and see the depth of the precipice we’re currently dangling ourselves over, we would panic. That panic would cause the very bursting of the bubble that we’re trying to avoid, so I understand the reasons for it. However, the continuous debt and spending increases, including the one that just passed in the Senate, have to stop. There is only one possible man-made solution to the problem and it’s the extremely unpopular notion of deep cuts to spending and a renegotiation of the debt situation. Both options are exceptionally ugly as they would have different negative consequences, but it’s the type of hard choice that very few in Washington DC seem willing to consider.

Before anyone calls this a “scare piece” to rally support for Rand Paul, Ted Cruz, or Marco Rubio, we have to take a look at the situation. Here’s the best example I can think of in layman terms:

It’s like a family deciding that they need to take out a high-interest loan to pay off a credit card in order to continue to use the credit card. The sad part is that the family is not cutting back on spending and in fact has decided to spend more with their “clean” credit card. What makes it even worse is that the interest that they have to pay on the high-interest loan is paid by the credit card. It’s a circle of dysfunction that would sink any family, company, or organization. It would also sink any other country that wasn’t the home of the world’s reserve currency, the petrodollar.

Some might wonder how this has been allowed to continue if it’s so damaging. The reason is because we’re dealing with such a dramatic scale – trillions of dollars – that on the surface it seems insurmountable. The money to pay the debt would be borrowed from the lenders who own the debt in the first place. Sounds crazy, right? It’s one of those backdoor deals that only makes sense to those who are either in the middle of it or oblivious to it. In essence, the debtor (the US) is only allowed to keep borrowing money that it clearly cannot pay because the interest alone is so substantial that the lenders couldn’t imagine not receiving it. From the Federal Reserve to other countries, they’re all okay with getting the interest and letting the principle continue to grow. Yes, grow.

Don’t even get me started on Social Security and other government black holes that are so deep in the debt pool that reconciliation is practically impossible. We owe trillions of dollars to Social Security, military retirement, government employee retirement, and disability. In other words, the US government has borrowed money from the US government in a paper shifting scheme that puts Ponzis to shame for not being that creative. We are literally borrowing money from ourselves that doesn’t even exist.

This is worse than a scam. It’s worse than a racket. It’s worse than a con. At least with a scam there’s a winner and a loser. Raising debt ceilings and increasing spending is making today’s economy lose a great deal while making the future economy lose even more.

It’s my contention that if the American people knew how all of this was working, that they would cry at the top of their lungs to make it stop immediately. That would have a humongous effect on current politicians and would cause a shakeup never seen before in the country. That’s the biggest reason that nobody is being told exactly how bad the situation is. This isn’t like Greece. This is much more akin to what’s currently happening in Venezuela.

The greatest tool the government has is that everything is so utterly unfathomable that most people don’t know what’s happening while the vast majority of those who do know are unwilling to let the cat out of the bag.

Soshable

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Top 10 Ways to Conquer Your Debt

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Top 10 Ways to Conquer Your Debt

Few people these days are completely debt-free. You might have student loans, a mortgage, a balance on your credit cards, and/or other debt obligations. These top 10 tips can help you trim down or eliminate that debt so you can build wealth and finally focus on your other financial goals.

10. Know the Difference Between Good Debt and Bad Debt

Top 10 Ways to Conquer Your Debt

Some personal finance experts think all debt is bad, but that isn’t necessarily so. A loan can make all the difference between getting a degree needed for a high-paying job, for example, owning your own home, or starting your own business—and losing those opportunities. Evaluate your debt to figure out what kind of debt you have so you can prioritize paying it down or using your money for other purposes. Two simple questions can help you decide if debt is “good” or “bad”: Is the debt temporary or a lifestyle? And is it worth it?

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9. Cut the Cost of Student Loans

Top 10 Ways to Conquer Your Debt

The average person carries $ 27,000 in student loan debt—a huge burden. The good news is you can refinance your student loans and save over a thousand dollars in doing so. You might even be able to get your student loans forgiven or paid for by your employer and eliminate that debt entirely. If you need help managing your loans, Tuitio.io can help you find the most effective plan to tackle your student loans or you can use simple Excel formulas to compare different student loan options.

8. Pay Off Your Credit Cards with a Debt Consolidation Loan or a Balance Transfer

Top 10 Ways to Conquer Your Debt

You’ve probably received offers in the mail that promise to consolidate all your credit card debt into one low-interest bill—either through a debt consolidation loan or credit card balance transfers. Are they a good idea? While attractive, debt consolidation loans usually don’t make sense if the loan will cost you more over the long haul compared to paying your cards down faster. With credit card balance transfer offers (e.g., 0% promotional APRs), you’d have to pay a fee for transferring your debt to the other card and make sure you pay all the debt off before the promotional period is over. In both cases, do the math to make sure it’s worth it. (By the way, you might be able to negotiate those credit card balance transfer fees.)

7. Pay Off Your Mortgage Early

Top 10 Ways to Conquer Your Debt

Your mortgage is likely the biggest loan you’ll ever take on, and some of us are quite eager to get rid of it as soon as possible. An early payoff gives you peace of mind and financial freedom, but the low interest rate means it might make more sense to invest your money instead of paying off that debt early. The experts don’t agree on this topic, but if you’d like to pay your mortgage early and save thousands of dollars in interest, make extra principal payments, such as twice monthly half payments of your mortgage bill. Don’t use your lender’s biweekly mortgage plan, however, and set this up yourself to save money. If possible, get rid of your escrow requirement with your lender and pay taxes and insurance yourself. Another way to get rid of your mortgage faster and save a ton of money is to refinance either into a shorter-term loan or one with a lower interest rate (and continue to make the larger original payments). Find out if refinancing is worth it here.

6. Use the Debt Snowball Method to Tackle All Your Debt

Top 10 Ways to Conquer Your Debt

With the snowball method of paying off debt, you apply the majority of your available money for debt repayment to one loan and minimum payments on the others. Then when the first loan is paid off, you tackle the next loan and so on until all you’re out of debt completely. This Excel spreadsheet can help you set up your snowball payment schedule. If you’re not sure whether you should pay off your smallest balance first (for the motivational boost) or the one with the highest interest rate (which makes more financial sense), consider the “blizzard” payment method, which combines both strategies.

5. Negotiate Your Credit Card Interest Rate and Loan Amounts

Top 10 Ways to Conquer Your Debt

A lower interest rate will help you pay off your credit card balances faster. All you have to do is ask, and if you’re successful, you can save hundreds or thousands of dollars, depending on your credit card balance. If you’ve got medical bills—one of the biggest sources of financial distress and common causes of debt—you might be able to get financial aid from the hospital or negotiate that medical bill. You might be able to settle other debts if you can’t pay them back completely.

4. Pay Your Most Painful Debts First

Top 10 Ways to Conquer Your Debt

All debt is sort of painful and can take an emotional toll on us. While there are lots of approaches to tackling debt, consider paying off the ones that have the biggest emotional impact on you. For example, pay off that loan from your in-laws before your pay down your credit card. Also, personalizing your debt could make you more motivated to pay it off more quickly: Remember what you bought with the debt in the first place to prevent you from getting into more debt or feel better when you pay it down.

3. Pay Down Debt and Invest at the Same Time

Top 10 Ways to Conquer Your Debt

You want to get rid of your debt but you need an emergency fund and don’t want to lose out on the power of compounding to help with your retirement savings. It doesn’t have to be an either/or situation. You can pay down debt and invest at the same time. Perhaps prioritize your most expensive debts (ones with interest rates above 6%) and save some money as well. Budget for an emergency fund, debt, and retirement. This hybrid approach appeals to our emotional needs while also meeting our financial goals.

2. Use “Extra” Money to Pay Down Debt

Top 10 Ways to Conquer Your Debt

As we mentioned in our step-by-step guide to getting out of debt, you might be able to find extra money (e.g., from selling crap you don’t need) to throw at your debt or add to your savings. Earmark gifts, bonuses, and other “found” money to your debt payments.

1. Stop Adding to Your Debt

Top 10 Ways to Conquer Your Debt

Paying off your credit cards is the best financial return on your money if your cards have high interest rates, but it won’t really help to start paying down your debt if you’re only going to keep the habits that might’ve made you accumulate it in the first place. Some people switch to a cash-only policy to stay debt-free. Whatever you do, make sure you have a plan for what you’re going to do with the money you’ll free up once you pay off your debt, such as setting up automatic payments to your savings. Give your money a purpose, avoid the most common mistakes that keep us in debt, and enjoy being free of debt. It really is possible to live a rich life without taking on (at least too much) debt.

Illustration by Tina Mailhot-Roberge.


Lifehacker’s Weekend Roundup gathers our best guides, explainers, and other posts on a certain subject so you can tackle big projects with ease. For more, check out our Weekend Roundup and Top 10 tags.

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