Demergophobia

Demergophobia - The Fear of Debt, The fear of falling into debt.

AMERICA, YOU HAVE BEEN TAMED!

There was a time not so long ago when Americans feared debt. When you bought something, you paid cash.

If we go back 100 years, the use of credit was actually considered a moral weakness on the part of the user. It was typically extended to desperate people who couldn't pay their bills.

When people did go into debt, it was used for an extremely large purchase, like a home. And when you did go into debt, you worked your butt off to pay it off and pay it off quickly. Did you know that back in the early part of the 20th century, mortgages used to be paid off in 10 years?

Back in the day, there was something called "mortgage burning parties". No kidding, people would throw a big party and invite all their friends over when they finally paid their mortgage off! They would light that mortgage note on fire and everyone would cheer. The symbolism of the burning mortgage note was the homeowner was now released from servitude to the bank.

Now, compare that to our modern ideas about the use of credit and debt. Debt is no longer feared, it is embraced. Debt is not shunned, it is encouraged at all levels of our society. In fact, our culture has become so twisted by the use of debt, in many ways your level of "success" is directly correlated with the use of debt. People who are up to their eyeballs in debt are typically viewed as the most successful. They have the nicest and most expensive houses, cars, clothes, electronics, etc.

The problem with this widespread use of debt to finance a lifestyle is that it warps society's perception of what is successful. When you see Joe Blow driving around in an tricked out H2 and your tooling around in a 10 year old Toyota, even though you have a good job and make a decent income, you're going to start questioning your own self worth.

The use of debt also twists the actual value of what you buy. The use of debt creates an artificial demand for items. Remember in basic economics, when demand increases for any particular item - so does it's price. Look at what happened to housing over the past 5 years. The banks and Wall Street created products that allowed people to buy homes with no money down, no income verification and no assets. Shoot, you could get a mortgage that actually had negative amortization, that means the amount you could pay each month was less than the interest owed on what you borrowed (so every month you would end up owing more as that unpaid interest was added onto your mortgage balance).

This caused a large segment of people to enter the housing market that, in more sane times, would never had been able to buy a house. Their entry into the housing market caused a massive bubble. However, the lending was so loose and fraudulent that there is now a massive wave of defaults happening across the country. Banks and Financial instituations have responded by tightening up requirements. They now require you to verify your income and employment, they now want a down payment. This has removed a huge segment of the population from being able to buy a house. The predictable response is that the price of housing is now coming back down (right now the estimated losses in housing is 10% or $2 trillion, and we have a long way to go).

Most people don't realize that there was another massive housing bubble back in the 20s. After the great depression began the supply of credit almost completely dried up. Because there was no credit, no one could afford to pay the going prices for homes. The end result is that by 1933 (the worst year of the depression) house prices crashed 70 - 80% across the country!

You need to develop a fear of debt again. Don't trust the smiling bankers or the friendly "pre approved" credit card offers that come in the mail every day. Know your limits as to how much debt you can afford and refuse their offers to give you more than you can handle. Keep a tight lid on the amount of debt you have because it is so very, very hard to get rid of it once you take that debt on.