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I’m looking around at the state of the economy at the moment, and I really don’t think that there’s any way that one can say that what’s happening in Washington DC isn’t impacting them.
We just witnessed the collapse of a very large bank out in California, a subsequent bailout, another kajillion dollar aid package to Ukraine, and have recently been told that taxes here are going to be raised.
When you combine all this with the very rapid inflation that we’re seeing, the conclusion that I come to is that it would be very prudent for people to pay off their debt as rapidly as possible. I’ve touched on this issue before, but I really think that it’s worth the time and energy to encourage people in this regard once more.
Here’s why debt repayment is important now.
If I’m a small-time bank that’s facing immediate insolvency and have zero chance of being bailed out like the big guys, I’m going to do what I can to survive. Sure, I may have 800 mortgages, 1000 cars, and 500 small-time loans that I’ve financed, and they’re gradually resulting in income for me, but I have millions of dollars that I have to pay out within a month, or I’m going to be out of a job (along with all of the employees who depend upon me for a paycheck).
So what do I do?
I call in the loans.
Those people now have 30 days (or whatever the legal timeframe is) to pay off the rest of their loans or I get to take their collateral. This could be their homes, vehicles, tools, whatever. As the banker, I need money to pay off my debts as quickly as possible, I need that money now (*opera* “Call JG WENTWORTH. 877 Cash nowwwww!”), and inflation is only making it so that I’m getting more and more screwed with the loans that I’ve already put out there. If I can call in my loans, I can then take those homes and vehicles and (hopefully) quickly turn them around for sale so that I can pay off the debt that I have.
There’s a lot of incentive from the small-time banker’s viewpoint for going this route, and I can’t help but think that this is going to be a very common recourse at some point down the road.
You probably need your car to make it to work. You probably enjoy not living in your parent’s basement. But if those loans get called in and you’re not able to make several thousand-dollar payments all of a sudden, are you going to have a recourse?
This is one of the reasons that I think it’s very important that people really try to pare down their debt as much as possible. If you can pick up extra shifts, cut out unnecessary expenses, or sell some things to help you to have less debt, you’re going to be much safer in the long run. Getting out of debt protects you from your debtors. You can better handle sky-high taxes, the curve balls of life, and avoid having your stuff taken away from you as a result.
I think this is really an inflation-fighting measure as well.
If you regularly have to shell out $3000/month for expenses and $1500 of that money goes directly to loans, you’re really just living off of $1500/month.
Back in 2019, you were able to go to the grocery store with a hundred-dollar bill and walk away with a full cart. Walk into your local Piggly Wiggly today with ol’ Ben Franklin, and you’ll leave with a dozen eggs. Perhaps your loans have remained exactly the same throughout the course of the past five years, but now your purchasing power is much less than what it once was. You technically have the same number of dollars to spend, they just don’t buy as much as they used to.
But if you can whittle down your debt to where you’re now only having to put out $1000 a month to loans, you now have an extra $500 a month that you can use as something of an “inflation hedge.” You’ll still be able to put gas in your tank without feeling like you’re going to have to eat ramen for the next week.
Here are some resources for paying off debts.
So, you’re deep in debt. What do you do now?
Here are a few resources that may help.
- How to Use the Snowball Method to Get Out of Debt FAST
- How to SLASH Your Fixed Expenses
- What to Do When You Have Sudden Money Problems
- Debt Free Degree
- The Total Money Makeover
What do you think?
I’m no financial expert, and none of this is financial advice, but I do encourage you to ponder over this. Living debt-free is wise.
Are you living with excessive amounts of debt at the moment? If so, what can you do to whittle as much of it away as fast as possible? Do you think these bank runs and bank collapses are going to impact the average American, even if he doesn’t have an account at them? What advice would you give to others who are trying to pay off debt?
Tell us what you’re thinking in the comment section.
Aden Tate is a regular contributor to TheOrganicPrepper.com and TheFrugalite.com. Aden runs a micro-farm where he raises dairy goats, a pig, honeybees, meat chickens, laying chickens, tomatoes, mushrooms, and greens. Aden has four published books, What School Should Have Taught You, The Faithful Prepper, An Arm and a Leg, The Prepper’s Guide to Post-Disaster Communications, and Zombie Choices. You can find his podcast The Last American on Preppers’ Broadcasting Network.