[Announce] Day 11: be wary of debt

[Robert Waldrop]

30 Days Towards Sustainability

Day 11: Be wary of debt!

Sustainability includes security, but the essence 
of debt is insecurity. The word "mortgage" is 
derived from the Latin words for "Death Grip". As 
long as you have sufficient income, you can afford 
debt payments. But what happens if you lose your 
income? During the Great Depression, many people 
lost everything they owned - houses, farms, 
equipment, livestock - to foreclosures, and this 
helped drive the centralization of wealth, which 
is always an unsustainable situation for a 
society.

I think the prudent approach is to be very wary of 
debt. Sure there are financial reasons for this, 
but more important is the fact that debt is the 
gateway to over-consumption. If you stick within 
the budget possible with your income, you will 
place an external limit on your consumption. And 
for most of us, "external limits on consumption" 
are a very good idea.

One driver of environmental devastation is the 
practice of financing frivolous consumption with 
credit cards and household equity. More debt leads 
to more consumption which leads to more production 
which leads to more consumption of resources and 
energy and that leads to more environmental 
devastation. Often the cycle goes: credit cards 
are maxed to the limit, so a lower interest (lower 
than the credit card rate, that is) home equity 
loan is taken out to pay off the credit cards. 
Then the credit cards are maxed out again, which 
sends the borrower back to the bank. If property 
values are rising, then more equity is drained to 
pay off the credit cards. All too often, the 
vicious cycle of borrowing and consumption 
continues. This is the story of the modern 
American economy, and that is a serious concern 
for the planet.

Our grandparents' advice on debt remains true in 
our own time, however quaint it may sound. Borrow 
only for critical purposes - the 
purchase/construction of a house and land, 
education, to establish an income-producing 
business, or to finance an "extreme green 
renovation" of your house or business that leads 
to lower energy/water bills and less household 
impact on the environment. Borrow as little as 
possible and pay off the loans as quickly as 
possible.

Making extra principle payments on a loan can save 
you lots of money. Plus, it helps you keep your 
money in the local economy, instead of sending it 
off to strengthen trans-national financial 
corporations.

For example, the payments on a 30 year, fixed 
rate, 8% mortgage with a beginning balance of 
$100,000 are $733.76 per month. Over the course of 
that loan, the borrower will pay $264,153. Total 
interest paid is $164,153. If you make an 
additional principal payment each month of only 
$50, the total amount paid is reduced to $209,948. 
The loan is paid in 24 years rather than 30. You 
don't pay $39,905. To do this, you pay an 
additional $14,300 during the 24 years over and 
above your mortgage payment, at the rate of $50 
each month. Your return on your $14,300 investment 
is 11.63%, per year, guaranteed, tax free. If you 
pay $100/extra per month, your return on your 20 
year investment is 12.94% per year, guaranteed, 
tax free. If you pay $150 extra/month, your return 
on your 17.5 year investment is 13.98% per year, 
guaranteed, tax free.

Many mortgages are sold by the originating banks 
to financial institutions in other states, so 
interest payments go out of state and don't do 
much for the local economy. So besides avoiding or 
minimizing debt, try to borrow from local 
financial institutions (such as credit unions) 
that do not sell their loans out of the state.

Some people object to paying off mortgages 
"because then you lose the tax deduction for the 
mortgage interest." The tax deduction for mortgage 
interest is useful, but it is not a reason to 
accelerate payments on a mortgage loan. The 
household will be better off without the mortgage 
payment even if they lose the mortgage interest 
deduction.

Minimizing or eliminating your debt can also make 
it possible for your household to live on less 
income. If you don't have to work as hard to earn 
money to pay debts, you can have more time for 
family and household and community activities, and 
that generally will always be a good thing for 
household and community sustainability.

Bob Waldrop, Oklahoma City

http://www.bettertimesinfo.org

http://www.oklahomafood.coop

These tips may be freely forwarded, credit for 
authorship is appreciated. They are posted online 
at 
http://www.energyconservationinfo.org/30days.htm .