How to Not Be a Debt Slave
It's best not to get in debt at all, of course, but it's easy to accumulate debt without even really thinking about it. Your parents and guidance counselors tell you that a first-rate college education is worth it "no matter the cost," so you sign the loan papers to borrow whatever the financial aid office says you need to borrow. (See also: Student Loans: How to Make Post-College Decisions)
Even if you have second thoughts before the end of the first semester, you're already on a path that's pretty hard to get off of. Because, after all, what are your choices? Aside from the option of being a deadbeat, which is pretty unappealing, you really only have one — proceed to get an education, get a job, and put in as many years as it takes to pay off that debt.
This is because your creditors have serious powers to extract money from you:
- They can seize any collateral that you pledged for your loan (although usually they'll only go to the trouble for the big stuff — your house, your car, your business).
- They can seize any amount that you have in bank accounts (although your retirement accounts and anything you have coming to you from Social Security are supposed to be protected).
- They can force your employer to give a big chunk of every paycheck to them — even if it's less than your minimum payment, meaning that your debt is still growing every month.
They can't technically have the police throw you into jail for not paying your debts — but they can have the police throw you into jail for failing to respond correctly to each and every item of paperwork when they sue you. And, since you can't afford a lawyer, that amounts to pretty much the same thing.
Does this amount to slavery? I think so. On the scale of historical forms of slavery, the level of violence is pretty low, but your freedom is severely constrained — you either do whatever it takes to make each and every debt payment, or your creditors will ruin your life.
There's only one good way to escape debt slavery, which is to buy your way out. If you earn a lot of money (or life cheaply enough), you can pay your debt down at an accelerated rate. This particular path makes a great story, because it's just an extreme version of the sort of "right living" that our culture supports.
The path is easy to describe, even if it's not so easy to do:
- Boost your income and cut your expenses, to generate a surplus.
- Make the minimum payments on all your debts (to do otherwise would be to rack up serious fees and penalties).
- Pick one debt to pay off first, and apply all your remaining surplus to that one debt.
- As each debt is paid off, roll the minimum payment for that debt into the surplus and repeat the process with the next debt. (This is called the "snowball method," for the way the surplus builds as each debt is paid off and its minimum payment can be rolled in.)
Better to avoid debt altogether, if you can.