Are People in Debt Irresponsible?

JUDGENT WARNING – “People Who Get Into Debt Trouble Are Irresponsible With Their Money” – True or False?

Let’s dispel some common negative myths about people who are in debt:

We often get comments on our Facebook feed and find blogs written by people who say things like:

“People who gets in trouble with debt are irresponsible. They should be made to pay their debts because I pay my debts off….”

I have even seen some very uninformed people say things like:

“People go Bankrupt or do Debt Relief/Reduction programs cost the rest of us money because it causes interest rates to go up and we all pay for their poor financial management.…”.

I can tell you with great certainty that none of these statements are true and, since these types of misguided comments are so common on social media, I would like to take the opportunity to dispel these two incorrect lines of thought.

Myth #1. “Anyone who gets in trouble with debt is irresponsible”

It is SAD when people make comments like this because this is completely wrong.

Statistics show that MOST serious debt problems happen when a good hard working person who is paying their debts gets HIT with a SUDDEN DISASTROUS LIFE EVENT such as a loss of job, death in the family, disabling accident, illness or even a housing downturn at a time of location change. Suddenly they cannot afford their debts because they just lost the income that they thought was stable and now they may have MORE expenses than usual. It leaves them trapped. So, to those who are so quick to condemn those in debt, remember, it COULD happen to you. I have seen some statistics that claim 25% of all people will experience a harsh financial reversal at least once in their life time. It can happen to anyone – even the most financially stable people you know.

People in debt trouble are regular people just like anyone else, and they may actually be better than most with money. Sure, there are a small percentage of debt ridden individuals who are irresponsible, but it is not the main story around debt problems. Remember, someone who was once irresponsible can learn, get some better advice and guidance, and change their ways. Let’s not write everyone off who struggles with financial difficulty.

Also, please know that people in debt are not the rarity any more, but the new norm. Statistics Canada’s latest debt measurements tell us that the average Canadian is in debt 171% debt to income (meaning people owe on average a lot more than they earn), and our household debt is over 100% of Gross Domestic Product (GDP) which is one of the highest debt to GDPs in the world, which proves Canadians are some of the most indebted people on the earth.

So, before you go judge others, do a check on your own finances and see how healthy you are financially. Are you prepared for a rainy day? Do you have emergency savings saved up? Do you have your own credit card debt, car loan debt, mortgage debt? Based on statistics I would guess that those making these judgemental comments on social media are likely just as in debt as everyone else.

Myth #2.  “Debt Relief programs cause an increase in interest rates.”

This belief is just simply WRONG. Other people not paying their debts has ZERO effect the cost of debt or interest rates. Interest rates are related to the money market, the bond yield, the central bank lending rates, and other financial factors such as banking policy in a country, profit margins, competition, what type of frills a credit card offers, etc. The concept is explained in more detail by researching “Fraction Reserve Banking.” – hit google with this term and get ready to blow your mind on how our financial system actually works.

Fact – Nothing anyone else does to deal with their debts (such as credit counseling or bankruptcy) affects interest rates on other consumer’s cards.

Want more proof that bankruptcy rates do not affect credit card interest rates? Simply research George Bush Jr. and his campaign promise to help reform the Bankruptcy system and make it harder for people to go bankrupt. The idea sold to the public was that this effort would bring down interest rates. Interestingly, he was sponsored by MBNA Bank on his campaign and afterwards, banks posted higher profits. What Bush did to “help regular people”, instead made it harder for people in tough situations to go bankrupt, and, IT DID NOT LOWER INTEREST RATES on any credit card products. These are not my facts or conclusions.  This information can be found simply by doing some basic research.

In summary, I say this with great passion that comes from helping thousands of people out of debt over many years. Here is what I have learned to be true:

MOST PEOPLE WHO NEED DEBT HELP are simply GOOD PEOPLE caught in BAD SITUATIONS that they could not foresee, and that is a fact.

We here at 4 Pillars (Debt Victoria) pride ourselves in seeing the good side of people and focusing on what can be done to correct a financial hardship. We are experts in helping people find solutions to reduce their debt, protect their assets, and rebuild their credit. If you have gone through a hardship which has left you in debt please reach out to our office for a free consultation.