On the Issue of Debt Essay Example | Topics and Well Written Essays - 1000 words

On the Issue of Debt - Essay Example This brief analysis will consider what this student believes to be the most pressing and important issue surround the seemingly ever-increasing levels of debt that both federal and state budgets are currently facing. Furthermore, as a function of this increase in overall debt, the negative externalities that such a change portends are vast and systemic. Whereas in previous times the degree and extent to which governments dealt with the issue of debt has always been a high concern for law-makers and citizens, the level and extent to which the current situation weights upon both the government decision makers and the electorate is unprecedented. As a result, the very nature of governance the degree to which this process encompasses nearly every aspect of society and the economy has only exponentially grown (Eichler 1216). For those that are concerned with the overall sovereignty and freedom of the society, this has naturally become a primal concern due to the fact that many nations are able to leverage the United States due to the level of its debt that they hold in the form of bonds and other financial mechanisms. Furthermore, as a function of these factors that have thus far been enumerated upon, this brief work will seek to elaborate upon some key mechanisms through which the problem itself can be lessened over time. The Simpson-Bowles committee put forward what many outside of the realm of politics would deem a fair approach to an infinitely complex issue. The mixed approach that this committee put forward hinged upon the need to make budget cuts, re-work the tax plan, secure Social Security, and reduce the size of the annual budget deficit. The reason that the plan was not latched on to by either political party is due to the fact that it required both an increase in tax revenue and a decrease in spending/budget cuts in order to make the goals that it defined (Croxson 103). These two mechanisms specifically are precisely what must be targeted for the federal (as well as state) budget deficits that currently exist to be minimized. As it is painfully clear, seeking to reduce and/or cancel budget deficits and debt in a relatively short period of time is beyond the realm of possibility. As a result of this, each political party and or leader wants to ignore the issue due to the fact that no political capital can ultimately be gained by seeking to fix an issue that they themselves nor their party will ever receive credit for; however, the larger issue is the fact that the debt crisis threatens the very sovereignty and vitality of the nation, its economy and society (Barth 98). The issue itself is not only a concern for future generations, although this is perhaps one of the greatest concerns that helps to define the size and scope of the problem. Rather, the issue weighs heavily on the way in which the government, both state, federal, and local, seek to provide key services to the communities which they serve. Rather than building more park s, maintaining infrastructure, and providing a litany of other adequate services, the government is forced to expend a large percentage of its annual budget (which itself is already over and above current tax receipts) to service the debt that currently exists. What this portends is a situation in which the government is borrowing money in order to pay the interest on the money that it is already borrowed. It does not take a degree in advanced economics to instantly realize that such a stance is untenable and cannot be long continued without the structure and legitimacy of the entire economic system falling into a state of collapse. As such, the current status quo with regards to debt level and spending is both untenable and unwise. One need look no further than examples of Greece and other nations to rapidly realize what maintaining a dangerously high percentage of debt to national GDP portends. Similarly, whereas the solution mechanism may be a shared sacrifice over a period of ma ny years, the

Debt Consolidation Essay Example | Topics and Well Written Essays - 1000 words

Debt Consolidation - Essay Example An agreement on collateral against the loan gives a lower interest rate for the loan, as the risk factor decreases. Naturally, if there's no collateral against the loan, lenders don't have any form of security for their money and they resort to charging a higher interest rate. So if the true purpose of debt consolidation must be achieved, it is advisable to keep an asset as collateral so the lenders can make a forced sale on non-payment of the loan and so that the borrower can receive the low interest rate he's looking for. This method has been proven successful when dealing with credit card debt, as credit cards often carry a much larger interest rate than even unsecured loans. In an interview, Kerri Cole talked about her practical experience in dealing with her debt problem. She went to Credit Consolidation Services and got her interest payments reduced on all 9 credit cards she owned; one of the card's interest rate fell from 27% to 9%. For a small monthly fee, she is saving over $600 a month since she started debt consolidation which makes a rough figure of $7200 saved each year. Though some companies tend to take advantage of these situations and indulge in predatory lending, the particular company Kerri talks about has been refreshingly fair and accommodating to her problem. Predatory lending is a term used for lenders who use deceptive methods to convince borrowers to agree to harsh and unfair loan terms, or the systematic violation of the terms by the lenders in such a way that it is very hard for the borrower to defend against it ('Predatory lending,' par.2). In recent reports, media has raised concerns over debt consolidation. They have pointed out that a large majority looks to reduce their interest rate by converting their unsecured loans into a secured loan. The problem arises at their choice of asset to secure the loan against. Most people tend to secure their loans against their home ('Debt consolidation,' par.13) which is a dangerous practice; putting at risk such a valuable asset would certainly not be the most advisable thing to do. The monthly payment does get lower, but the actual amount repaid over the years is often significantly greater in proportion due to the long period of loan. What people argue is that debt consolidation mostly cures the symptoms of the problem and doesn't hit at the root cause of the disease. To owe someone money is always very stressful. The stress is compounded when you owe money to not one, but quite a few lenders. Debt consolidation can provide means to develop a workable budget, and it would greatly reduce the stress level by bringing the number of lenders down to one. This would also be beneficial in the sense that one is less likely to forget a due payment of a single lender than attending to a large number of lenders, each with their own separate terms. Often it happens that because of a non-payment, you get further fines and charges on late payment; a debt of $500 could rise to $700 just because of an imposed fine. Debt consolidation will lessen that amount back to the principle amount (Selman, par.3). So, through debt consolidation we are looking at numerous advantages like no fines or monetary charges, reduced number of lenders, a lower interest rate and no warning calls. Also with your credit rating improving because of debt consolidation, if you are looking f or a new