16 March 2016

On the Morality of Debt

This isn't a post on whether it's moral to have debt. I commend people who are able to Dave Ramsey their lives, but I think most people have debt, and it's not always harmful. Buuuuuut I just saw something that made me feel a little bit ill: a write-up of a video by a former hedge fund manager, advocating that people ought to just not pay their credit card debt. The reasoning is that your credit score is easy to fix, and anyway credit card companies expect that some people will default, and his own experience having a low credit rating wasn't catastrophic.

There are so many problems with this, I'm not sure where to start.

Oh! I know, let's start with the title of this post: morality.


Deciding to default on your credit card debt is stealing.

We are commanded by God -- maybe you've heard of Him? -- not to steal. But running up debt, and then choosing to walk away from it is not strategic, it's immoral. Every time you make a purchase on a credit card and sign that slip, you're promising to pay the credit card company for that purchase.

{Before I go on, let me just include a disclaimer: I understand that catastrophes happen, and good people sometimes have no choice but to default on debt that they had every intention of repaying. I am not addressing people in dire straits.}

The same goes for your mortgage, student debt and car loan. If you signed on a dotted line saying that in return for a sum of money upfront, you would make payments with interest, you have a moral obligation to make those payments.

My husband and I have been making payments for over four years on the mortgage for a condo we sold in early 2012. The mortgage crisis of 2008 hit us hard. HARD. We could have defaulted on the mortgage and gotten on with the business of rebuilding our credit, but instead we scraped together the funds from our savings, healthy at the time, and from our retirement accounts to buy it out. It's meant that we haven't been able to build our savings back up, basically at all, for the last four years; we've been paying the equivalent of the mortgage on the condo I owned when we married, just in loan-repayment, on top of our other bills. It has kept us from buying a home of our own, and we have instead been paying the outlandish rents in Northern Virginia. But we strongly felt we had a moral obligation to pay the loan if we could -- and by the grace of God, we could -- and that was the right thing to do. I've hated it, but I would do it again.

I'm not trying to hold us up as paragons of fiscal virtue, but I feel strongly enough about this to have moved four times in seven years from rental to rental, including leaving each home I brought my babies home from the hospital to, until this burden is paid off (at the end of this year, finally!) and we can move forward.

The next point that I want to make is that this man wonders: if everyone followed this advice, would it collapse the banking industry? I'm starting to see why he's a former hedge fund manager: he wasn't very good at his job. The mortgage collapse of 2008 happened because of bad legislation that allowed under-qualified people to purchase mortgages they couldn't afford; when they walked away en masse it almost took the entire country down. The banking industry functions on trust, to a large extent, and maintaining your credit score is really the only way to prove you're trustworthy.

Finally, where is the wisdom in taking advice from a money manager who admits that he couldn't maintain his own credit rating? Red flag, much?

Please, don't follow this terrible advice. Don't let your children follow this terrible advice. It wouldn't be good for their souls, and it wouldn't be good for our economy.

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