Sunday, March 05, 2006

What if everyone paid off their credit card debt?

Interesting article at MSNBC questioning what would happen if everyone paid off their credit card bills? As we are probably all aware, this scenario will never happen, we love us some credit here in the US. The article states that it would be very bad for all of us if this scenario was to happen.

If we all somehow managed to stop buying things with our credit cards and then somehow managed to find the money to pay off our existing debt, things could get bad in our country. First, there would be massive unemployment since two-thirds of our economy is based on consumer spending. Without all of us spending anymore, many people would be out of work. This could also cause home and stock prices to drop if that is where we all chose to get the money to pay our debt back, since we would all be selling at the same time. It sounds like no real good could come from everyone paying off their credit card debt. Now I feel kind of bad that I am ruining the economy by paying off my credit card debt each month.


Anonymous Phil said...

I think there's a subtle distinction in the article. In the article, he outlines two scenarios: (1) that people eliminate discretionary spending to pay off their cards and (2) the money falls from the sky and everyone pays it off at once. (1) would only be bad because both consumer spending from income and from borrowing would cause many "non-essential" businesses to cease (e.g., manicurists). Theoretically, the debt portion of consumer spending must be extracted from income in the future, so there's no net increase. However, if everyone decided to gradually decrease their borrowing and increase their debt payback, the economy would adjust accordingly. It's only the rate of change that matters here.

Scenario (2) above would only be bad for the financial services sector dependent on lending, since people won't be paying them interest any more. But it would be good to the overall economy because the money that currently goes into debt servicing would be available for more useful things (e.g., manicures for everyone!).

3/05/2006 5:06 PM  
Blogger justanotherblogger said...

Interesting article, thanks.

The main reason why I wanted to post was that I noticed that great posts seem to have similiar designs. :P

3/05/2006 11:32 PM  
Blogger RS said...

Haha, I love the design. Nice blog, thanks for pointing me to it, always love to find new blogs to read.

I guess that is one of the problems with Blogger, only a certain amount of designs to choose from. That is part of the reason that I am tossing around the idea of switching to my own hosting instead.

3/06/2006 9:30 AM  
Blogger Mechanic said...

Wouldn't paying off credit card debt, free up funds to spend elsewhere? I would guess that if most Americans paid off their debt, they would then want to spend more on other things... (no credit card payment this month, so hey, let's buy a new ______), creating new jobs and spurring on our economy even further...

Moreover, wouldn't that retired debt free up funds to be re-deployed in other income/earnings producing ventures, again spurring on our economy?

Gary Brolis

3/06/2006 1:21 PM  
Blogger RS said...

Hhmm...I am not sure. I agree that, after a while, it might work itself out and things would be better. However, what would the immediate impact be? As Phil mentioned, I think it really depends on where the money comes from.

I guess it is probably tough to tell really since it is totally theoretical.

3/06/2006 2:00 PM  
Blogger cutiger95 said...

Credit card debt is one of the most insidious vial problems that is plaguing America today. Getting rid of this debt is key to America's resurgence on the world economy.

9/03/2006 9:38 PM  

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