Consumer Debt Is A Stone Cold Killer

I was recently helping out a client by returning some of their old cable and internet equipment to the Big Cable company. I volunteered to do this simple task as there was a Big Cable service center near my office.   I thought I could quickly stop by the service center, drop off the equipment, and be on my way, but the Big Cable service center is not designed for this. The Big Cable service center is designed to be a wasteland that you never want to venture near in order that if you ever thought about changing or cancelling your cable service that you would think twice before doing so.  I went to service center and stood in a line for 30 minutes just to drop off some equipment.  During my time in the line, I overheard multiple customers have the same dialogue with the customer service rep.  They would state something to the effect of “I am trying to cut back my expenses and get out of debt and I want to cancel or significantly downgrade my cable services.”  Its not surprising to hear this (although I was surprised that the reps were able to connive the customers into keeping their services by offering $10 off a month or in a couple of cases got the customer to pay MORE each month).  It is surprising though, that many people get caught up in rampant consumer debt and take no responsibility in changing their consumption behavior in order to get out of their consumer debt. Consumer Debt is a stone cold killer.

I consult with people about their personal finances and their budgets on a fairly regular basis.  In many cases, people are get to a point that consumer debt spirals out of control and they seek help.  When I come across a situation like this, I go through a discussion of their financial health and how to get fiscally fit.

The financial disease that is usually apparent is rampant consumerism and its symptoms are large amounts of consumer debt and a lifestyle that is not compatible with their financial situation.  Too often, people try to cure the symptoms by declaring bankruptcy or trying to pare back spending with little cuts here and there.  Declaring bankruptcy or making little cuts won’t cure the disease of rampant consumerism.  Clipping coupons will not cure the disease problem (in fact, couponing usually causes the disease to grow).  The only way to cure the disease is to get out of the rampant consumerism.  So what is rampant consumerism?

Rampant consumerism is treating money as a perishable commodity that must be spent or used in order to gain its maximum utility to accommodate or enhance the lifestyle of its owner without regard to the future opportunity costs of doing so.   With consumer debt so easily available, rampant consumerism can easily flourish since the costs of dealing with the disease aren’t know until the future.  If you were to eat a piece of chocolate cake every day, you would probably enjoy it, and at first not see any discernible impact to your life.  But after doing that for a year or two, you may notice that you are gaining weight or not feeling as good as you did before.  If you kept on eating chocolate cake, you make become obese or get diabetes.  Most of us understand that eating chocolate cake everyday, while tasty, is ultimately not good for us. If we understand that, then why do we needlessly spend money or take on consumer debt to spend even more money, when ultimately that just as bad for us as eating chocolate cake daily?

Getting out of consumer debt and out of rampant consumerism is not an easy task, but it can be done if you think of money differently than as a perishable commodity. Money is an asset.  Wisely used assets should appreciate in value, especially if its useful life is infinite.  If I take $1 and buy a candy bar with that, I have traded my $1 infinite life asset for a $1 candy bar expense that will lose all value once I eat the candy bar. If I take the same $1 and invested in a S&P 500 Index Fund, I have traded my $1 asset with a $1 asset that is expected to grow in the future. That is a wise trade and shows that the usage of $1 can vary from the wasted perishable expense (candy bar) to the wisely used asset (mutual fund).  The key, then is when looking at the money you have, are you using your dollars wisely? Overextending your spending through the use of consumer debt (and creating liabilities in the process) is not using your dollars wisely.

I will get push back on this from folks saying that they are living paycheck to paycheck as it is and either can’t use their dollars as wisely used assets or NEED to use debt to make it work.  My push back to them is do you need to have cable TV in order to live?  Do you need to buy debt financed cars every five years in order to live?  Do you need to eat out at restaurants in order to live?  Do you need an expensive cell phone and data plan in order to live?  The answer is no.  You may want those things, but those things are all perishable expenses that waste your assets and if you are barely scraping by, then those expenses have no place in your spending.

Those that have racked up consumer debt up to their eyeballs need to do two things.  1.  Cure their rampant consumerism and 2. Kill their consumer debt before it kills them. If you get your rampant consumerism under control, uses those newly found assets and kill as many of those consumer debt liabilities as possible.  Whether using the snowball method or the stack method, get those debts out of your life as fast as possible.  Consumer debt is a stone cold killer but a smart consumer is a debt killing assassin.