Monday, August 06, 2007

52 Weeks Down - Week 15 - Get Out of Debt

If you watched the news at all the last week, you can probably see the writing on the wall, financially speaking. Things are, to say the least, not going well in the financial markets. So you probably realize that this is good advice in at least one respect. But I bet some of you have no idea what debt has to do with energy usage. Why would I be advising you to get out of debt to save energy?

The fact is, that energy usage is heavily correlated with wealth. The more money we have, the more money we are likely to spend, and the more energy we use. It is true that wealth can buy you some fancy things like a Prius or solar panels, but generally speaking, rich people tend to use so many resources that any savings from their cars or solar panels are lost.

Now consumer debt in our society functions to expand our income - if you carry 8K in credit card debt, effectively, you are living as though your salary is significantly more than it is. If you start paying off your debt and living within your means, generally speaking, your energy usage will fall, because you'll be buying less. Now this is one of those things that has some exceptions, but not as many as we think.

The stuff we buy costs us energy - we have to house it, repair it, we use the electricity to run it and the gas to make it go. So the more stuff we have and we buy, the more energy we use. And the root issue is how much we spend on that stuff.

But there's more. Most of us work an average of 2 1/2 months per year for servicing the intereest we have on our mortgages, credit cards and car loans. Think about that - you are working your job for *months* every year just to pay the interest on your debt. The average American has a mortgage, car loan, and almost 10K in credit card debt. Think how much more relaxed the pace of your life would be without that pressure to put in overtime, or get a higher paying job. How many commutes could we cut?

And when you pay that interest, the company takes that money and reinvests it in all sorts of things, some of them perhaps environmentally sound, most of them not. You are passing off your money to credit card companies for them to make use of. Do you really think they are better stewards of your money than you would be?

Paying off your debt makes sense in lots of ways. The bankruptcy laws that were enacted a couple of years ago now make default or bankruptcy much, much more punitive. The financial markets are struggling, and the rest of the economy is teetering. So to preserve your personal security, it makes sense to pay those debts down. But it also reduces the energy you need and the energy you use.



Anonymous said...

Wouldn't it be nice if the federal government took the same attitude about debt? It is one of the saddest examples of what energy you can waste by going into debt.

Living below your means is great for keeping you away from debt and giving you the option to earn less and,therefore, send the government less.

[i]environmental radical, social moderate, fiscal conservative[/i]

Flick said...

Hi Sharon, Thank you for writing on the debt/money/energy connections. I looked around on the internet for some sort of green banking option and found nothing in the U.S. until I came across the Permaculture Credit Union in Santa Fe. It seems like it would be a good option for those who keep some money in a bank but do not trust the bank to do good things with the money while it's there. The Permaculture Credit Union uses the money to provide loans to people building energy efficient dwellings that might otherwise be difficult or impossible to get a mortgage on. If someone has to borrow money, that seems like a good reason to me. It's something I could support and I don't have extra money to invest in green investments, just a little cash in the bank. I'm thinking I will put some money in there that would otherwise sit around in our local bank until tax time (I'm self employed and have to save it up). I read about the credit union that they have a very low default rate on the loans. That sounded encouraging too. Just thought I'd pass this along.

homebrewlibrarian said...

Years ago my friends Nancy and Vince became my idols. They lived in a small house with few items beyond what they needed to live. They owned everything outright - cars, house, etc. - and had no debt from mortgages, student loans or anything else. When they had the money, they bought stuff they needed. When they didn't, they lived with what they had. My ex-husband decided they were "independently poor." I decided I wanted to grow up and be just like them.

And I have. I owe no one anything. If I use the single credit card I own within a month (not often but useful for airline tickets and occasional purchases on Amazon), I pay it off that month. I've managed to get three degrees in higher education without having any debt. Years ago I made the decision that homeownership was not for me. I outright own the car I have right now (which I'm weaning myself off using all that much, at least until the snow flies - then it will be the bus).

Another way I've cut costs is that I don't buy stuff. I'm the first person in the history of my family to break the genetic code to save everything or to acquire more. I'll admit I've not always been that way. It took about 10 years to get to the point that I have virtually no emotional attachment to anything and only buy things I will use regularly. In fact, I recently moved into a two bedroom apartment and have so little stuff, that I'm rattling around in it. I could hold high school dances in my living room because it's that big and I have no furniture to speak of.

I once had a very interesting conversation with a vendor at a professional conference. I was sort of explaining my lifestyle and she kept asking me if I had pictures on the wall (no), a television (no), a couch (no), extra linens (I have one set on the bed or in the bathroom and one other set) and so forth. Her eyes kept getting bigger and bigger. It was like I had just landed from Mars. Then it occurred to me that I was coming across as someone who had grown up on a commune or something. Nope, my parents were about as middle of the road, middle class people as possible. It's just me wanting to Leave No Trace.

So here I am independently poor although I think my income is actually pretty high (but then, so is my rent). Seems that what I do when I have some extra bucks is have some friends over after I've done a major organic, local and sustainable cooking frenzy. Pulled out all the stops. But it builds community and offers opportunities to discuss less wasteful foodways and eating.

I like what Richard says about living below your means. But besides not sending as much money to credit card companies or the government, I think it can be humbling, particularly if you don't allow yourself to live on autopilot anymore. It takes more effort to figure out how to get to work if you don't just jump in your car without thinking. Or not going through the drivethrough on the way home because it's late and you're tired. Or calling out for pizza because you can't handle a bunch of whining, hungry kids. I've certainly been humbled more than a few times because of my (lack of) spending habits.

Certainly, I don't think everyone needs to live as Spartan a lifestyle as I do but aiming in that direction would certainly cut down on energy consumption and waste. And live freer and lighter.


Anonymous said...

My husband and I are selling up and opting out of the debt cycle altogether. We'll be building a straw bale home in the next year, and living as sustainably as possible, growing most of our own food, and providing most of our own water (rainwater and dam) and electricity (solar).

I think the world economy is set to collapse, and it's only a matter of time. I don't want to be stuck in a city with a mortgage and kids, and dependent on food suplies from hundreds of miles away (which is where we are now) when it happens.

Canadian said...

What if we don't own a house? There is no way we could buy a house outright. Is it bad to get a mortgage to buy a house? (Assuming, of course, that we would try to pay it back as quickly as possible.) We do have to live somewhere, and not having a house means less possibility for self-sufficiency (gardening, storing food, etc.).

jewishfarmer said...

Canadian, I think mortgage debt is ok, as long as you really can afford your mortgage - so many people take out more than they can really afford. What we did was take out a mortgage and pay off the principle in advance - we paid off 60K of principle in about 4 1/2 years. In some places this is not legal (check) and in some places you have to specify that they should apply extra to principle, rather than interest. Generally speaking, I think a mortgage you can afford offers you more security than renting - particularly if you can either put down a fair bit or add equity very quickly.

But I'd emphasize the "below your means" part - if possible, borrow less than you can and put the extra money towards paying it off. If bad things happen in the economy, the more of your house you actually own, the less likely you are to be foreclosed upon, I believe.

Flick, thanks for mentioning the Permaculture Credit Union - that's a great resource.

Homebrewlibrarian, I'm impressed. We still have the habit of "extra" in our family. Most of it was bought dirt cheap or free, but I admire your lifestyle, and I think it is wiser than my own in many ways. I'm storing a lot of things for a future in which they might not be as readily available (extra clothes, extra bedding, etc...), but I sometimes wonder what it would be like to simply let go of the artificial security.

Richard, I agree with you - another important point is that the less you make, the less you bestow on the present government. I'd be a war tax protestor if I could.


Cinnumeg said...

I frequently feel frightened about my student loan debt. I went to an expensive graduate school, and I do feel trapped. I want to live below my means, and I try to put energy into it, but I'm also a compulsive person. I used to be compulsive with booze and food, and now I'm compulsive with spending money, mostly on books about paganism, permaculture, and books about getting "back to basics." I'm also now seeking a therapist to process my denial and despair.

My "dream life" is one where I'm doing the work that's required to be in a community, but that it's a little bit of this and a little bit of that--not toiling 10 hours a day in a field but spending time with the land, spending time teaching, other time learning, other time creating, other time listening and speaking about heart matters and attending to spirit. I don't see myself having to spend money at all in a life like that, but it is a dream after all, and one that is rooted in something pre-totalitarian agriculture I can tell. Some strong past lives in "Indigenia," I suppose.

homebrewlibrarian said...

Cinnumeg - gosh, it's too bad my mom passed a way a few years ago. At the age of 50 she decided to formalize the decades of informal counseling that she'd been doing and received a Ph.D in counseling psychology. Having a counselor in the family was truly a blessing but it helped me understand that when things are not going well in your life, it is totally okay to look for help. I'd admire you for pushing forward with your search for a therapist. My only recommendation is that you find someone you trust and who challenges you. Good luck!

Now about your dream life. I think I'm sharing that dream as well. Even without debt in my life and living below my means, I can't see living a pastural existance without working unless I knew a bunch of other people with a similar dream but also a small farm and knowledge how to run one. Could happen. I'll let you know if I find such a gig.

Even with your student debt, you can begin to build community with those around you where you could reduce your spending. Skill sharing comes to mind. What can you do that you could offer a friend in exchange for something else? I'm not at all good with carpentry but I can cook and brew beer (I'm also finding I make a pretty good kim chee). As I mentioned in an earlier comment, I have no emotional attachment to stuff, particularly somebody else's, and while I've offered my house clearing services around, no one yet has taken me up on it. But that could change someday.

What are you good at? Look at the talents and skills you've got and look for connections with others where those talents and skills could be used. It could be as simple as being a charming dinner guest. I'm serious. Years ago, I had a friend who was sort of in the starving student category but was so much fun to have around that he rarely had to cook for himself. So you don't need to be able to swing a hammer to be helpful to someone. But my point is to seek out connections to build community. Being self reliant is good to a point but, trust me, having others you can share talents with saves everybody money and helps keep you from feeling spiritually sucked dry. I think it could help alleviate despair as well.

May not happen overnight but that doesn't mean it can't happen at all. You're headed in the right direction and it's only a matter of putting one foot in front of the other.


Cinnumeg said...

Wow, Kerri! I'm--well, amazed at your post, and how inspiring you sounded!

I'm actually a FAAABULOUS dinner guest--very knowledgeable, well-read, I like to be informed and supportive of others' efforts. I can contribute and I can listen.

It gets me to thinking about all sorts of possibilities. Thanks!

sylvia said...

My freshman year in college, a girl in my dorm racked up $6K in credit card debt in her first semester and had to drop out of school. I remember thinking, what on earth did she spend $6K on? She lived in the dorms, ate at the cafeteria and her car was paid for by her parents. And she didn't have a drug habit. :) As far as I was concerned, all her needs were met. She had basically spent $6K on clothes, makeup, and shoes.

She was my shining example, for years, of the evils of credit cards. I didn't own a credit card until recently, when it became impossible to rent a car without one (for the longest time, I would wrangle my way around the rental car bureaucracy to get them to allow me to rent one with a debit card, no small feat, even when it was legal).

But the reality is, living debt-free is like swimming upstream. My husband managed to finish his college degree with no debt by working for the university, but not everyone can do that. I myself just paid off my student loans last year, so we're now officially debt-free, but we also don't own a house, a car, or anything else that would make us a "normal" American family.

The myth goes: if you're white, middle-class, college-educated, and willing to work, you will be able to have a house, a car, and a family by the time you're thirty. The reality is: no matter who you are and how hard you work, unless you were born into money, you will have to be in substantial debt or live VERY frugally to have any of those things by the time you're thirty.

I've lived in terrible neighborhoods, I've had months were I paid rent to sleep on friend's couches, I've had to walk over 30 blocks to work, I've scavenged for food out of dumpsters (not for very long, but still), I've lived on $8 a month for food at times. I don't think those are typical coming-of-age stories for college-educated kids, but I think the only reason why they're not is because most people wouldn't dream of doing such things. They'd just get another credit card.

Crushing levels of debt have become normal. It's scary, because crushing levels of debt are still seen as shameful, as if the indebted person were entirely responsible for the mess they got themselves into. It's the one-two uppercut of capitalism. It's awful.

Anonymous said...

A month ago my husband and I signed paperwork to refinance our mortgage in order to add on to our less than 800 square foot house. Our mortgage would have increased by half.

Two days later we called and told the banker to rip up the contract, and instead we are focusing on getting out of debt so we can save up to do the work we want to do.

Both of our cars are now paid off and the credit card debt will be paid within six months.

What with the reading I've been doing here and over at Kunstler's blog, the idea of increasing our debt by that much scared the Bejesus out of me.

I feel so much more in control. It's empowering.

homebrewlibrarian said...

Sylvia - I can tell you exactly when I stopped believing in the American Dream (capital A capital D). It was in 1987 when I was an information specialist for the US Department of Housing and Urban Development (HUD). My job was to dispense information about agency programs. As this was pre-Internet, I was responding to telephone and mail requests.

I've always lived within my means so housing was never really an issue for me. For most of my adult life I've shared living space with up to three other individuals so that we could all afford to have a roof over our heads. It might not have been pretty but it was enclosed, heated and/or cooled. But I had no idea that many people in and around my income level (at the time) were in such dire straits. Almost 90% of the requests I got were for assistance with homeownership. After reading, hundreds of letters, I finally figured out that most people feel that if they could just own their own home, all or most of their problems would go away. Whoa.

It didn't take too long for me to decide that homeownership was not for me. Because of all these requests, I spent a great deal of time exploring the process and responsibility of homeownership and came to the conclusion that, if anything, your problems began with owning a home. Now I'm not dissing homeownership at the theoretical level but the artificial, inflated, ridiculous costs attached to purchasing a home were and are ludicrous. I'm reminded of a passage in Dave Barry's book "Homes and other black holes" where he explains closing. At some point, you write checks to anyone who asks for one and you keep writing checks until you've run out. It's funny but in a dark sort of way. That was exactly my experience with homebuying the one and only time I engaged in it.

I will refrain from going into a rant about homeownership. It wouldn't be pretty and it doesn't apply to everyone. Suffice it to say, that I don't buy into this idea that paying rent is throwing money down a hole. It's sort of like believing that once you purchase a house you can do anything you want with it. And that you're safe from being thrown out in the street.

I don't think it's wise to count on owning a home as true security. Even after you've paid the mortgage off, there's still property taxes and insurance and you best believe that if you're not able to pay those regularly you will be pitched out on your ear. So think carefully about your expenditures in tightening times. This is not to say that I consider renting any safer. It's just a different choice and I completely understand the consequences of the choices I've made. You have to look at your life and decide what will work for you best, good, bad or ugly. Homeownership can't always be counted on as the rock to cling to in a storm. Consider all options and make wise decisions.


Bedouina said...

Thanks for this post - very sensible and useful.

I just put up a guest post from Uncle Sam, who has a confession to make. Yes, in my little blog, the United States of America admits to being a compulsive debtor. Read here for details.

I have so much to say about debt that I think I'll just blog the topic for a while. Thank you for bringing it up...

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