Debt Free In a Collapse, Why?
 

OK, politics aside. Say there's a collapse. A real meltdown. Deflation followed by hyperinflation, dollor goes almost worthless. There's, massive unemployment, social chaos, general upheaval, interrupted energy supply, periodic blackouts; a total mess. Why bother being debt free? What are they going to do, evict millions, foreclose on 70% of the population? Reposses almost every car sold in the last three years? Serious question. The financial advisors say get out of debt to protect yourself. From whom? From what? What good will cash be?

In a total meltdown where a government ceases to exist, it won't matter one bit if you are debt free or loaded with debt. All that will matter is if you have enough ammo do defend yourself or enough things of value to trade for your survival.

What is far more likely is some form of partial meltdown. In that case, it is generally a good idea to be beholden to no one. That said, our current government tends to reward failure and punish success, so maybe the "experts" have that one wrong too...

It is theoretically a good thing to borrow at a fixed rate, acquire an asset that pays an income stream that is subject to inflation, then see inflation go high. Because you received more valuable dollars, and are repaying with less valuable dollars. The lender is the one getting hosed. Which is why interest rates move with inflation.

Not sure this all matters in the scenario you're describing, which is extreme and, in my view, highly unlikely.

Why be debt free during a financial meltdown? To me, the answer is simple -- eventually things get better, and the meltdown ends. Those who have assets and are relatively debt free will be the ones who will be able to claw their way out of the financial hole quicker - not just due to lack of debt, but also due to their way of thinking financially.

-Z-man.

It seems to me, following my bleak scenario, everyone will be starting from scratch. Possession will be more than 9/10ths of the law, like 100%. Who owns what will be a matter of whoever has the strength to hang on to whatever it is they possess. And to whom would anyone be beholden? Even in a partial meltdown with the way things are today with so many people owing so much to so many how would they all collect from each other? Just a question. Every time I hear the advice to get out of debt before a severe depression or even total collapse scenario I ask why? I don't think it's far fetched actually; the total collapse of the dollar I mean.

Wow. Nicely stated.

Legion nailed it.

We're not heading towards this kind of collapse - more like a partial collapse. I can absolutely envision a scenario where martial law is imposed to keep order coming in the next few years. I can also absolutely envision a scenario (more likely) like Japan has had for the last couple of decades where things limp along stuck in second gear for a long, long, LONG time with no real "kaboom" or change, only a bleak, miserable existence for a prolonged period of time. People are far too apathetic these days to do what it would really take to effect meaningful change in this country. It would take a lot more than we have today - a LOT more. People are just way too lazy and stupid.

Under such circumstances as you suggest in the scenario you pose, I do not agree that there would be a power vacuum. It seems logical that that we would revert back to some form of a feudal society. That or a dictatorship. However dictatorship seems unlikely as no single person or group has that amount of power at the moment.

The folks in debt, would of course become serfs. If they don't become serfs, well lets just say they very likely will be dealt with and no longer be with us. History has shown us that government may coddle debtors, but the free man does not.

The folks with no debt, well, are beholden to no one. The ones who I'll call break-evens, its anyone's guess as to who they'll align with. They have nothing but owe no one anything. The ones with even a modest amount of possession, likely will have land, which they can then convert to live off of. They also will likely have the means to procure the necessary tools to defend themselves. Then there are the ones who also have excess, for which of course they can use to either procure the tools or hire the tools to project force.

That all being said, I'm not sure why one would pose such a scenario. Even for consideration. Yes we are a messed up bunch collectively, and yes a good 85% of the folk well are not capable of being responsible for themselves or their families. Our history has ALWAYS put the money on that other 15%.

Keep your eye on the shakers, the makers, the movers, and the the doers, in other words that other 15%. The other 85% is nothing but noise. I call them the living dead. They're alive but have the value to our society about as much as a dead person. The 15% are the ones who will show all the signs that the scenario you pose is emminent. At this time, those 15% are not showing those signs. In fact just the opposite, they are showing the signs of determination with which to sort this who mess out in which we are in.

IF the world comes to that, i will sort it out then.

In the meantime, it is extremely foolish to live expecting such a corner scenario. If you do, YOUR world might collapse around you financially while others recover.

Another trillion dollar spending bill passed the senate today...trust in our current leadership to bring the ultimate meltdown that much closer.

As it has been said here, there are various levels of meltdown/collapse that could occur.

I assume the financial advisors say to get out of debt so that if you lose your job, you'll own a place to live... and a means of transportation.

If you can't pay off your home and vehicle without extreme belt-tightening before this collapse, just be prepared to deal with the bank taking these things away from you... and you can either rent a smaller place (if you can afford that) and buy a less expensive car to get you by.

Possibly the most sensible answer here...thanks.

Being debt free is the best way to live in any econo
ic climate.

Also, in the event of a total collapse I doubt that our small arms and ammo will do much good. It will be the China man that comes a knockin anyhow. They got us by shear numbers alone. No match for them.

Agree and the last thing we need is to spend more and more like they have been doing.

Being debt free is nice but also having cash on hand, and not just paper money would be better should something like this happen. If it really gets that bad, gold and silver and things that you can barter with, like food, ammo and so on.

This is one major reason why I went to a diesel truck a year ago. I can make diesel out of various things, not the same with gasoline. Pays to be ready "just in case" its needed. Hope the rest of you are ready....

Wow doom and gloom. Merry F'n Christmas

Doom and gloom? Yes, if you are not ready for it. Otherwise you just deal with it!

During the great depression, which is as close as we have come to a complete financial meltdown(that period also had great social upheaval-remember the Okies?) the banks continued to fail and great amounts of capital were lost. Farmers were a great proportion of the population back then and a large percentage of them that had crop loans lost their farms to those banks and their successors. (Mortgages were very uncommon, if you and your family didn't have cash, you simply didn't buy a house or farm, you rented forever. Easy mortgages were a result of the depression due to rewriting a lot of financial rules by the government.)
The farmers were forced off their lands by the banks, and as the banks failed completely, state governments took possession of the assets of the failed banks, sometimes large swaths of land were picked up by the states, sometimes in chunks of 8,000+ acres(now a lot of state forests or parks). Those farmers were dislocated, just like folks today losing their houses, and really had a tough road back. Going through foreclosure left a blot on their record just as surely as walking away from debt today will leave.
That being said, I think that a complete loss of all government structure(a doomsday such as what might follow a large nuclear exchange) is so unlikely as to be nothing to spend time planning for. No vacuum of power exists for long, chaos might be a localized thing, but the state would eventually return. I don't think anyone will walk away from their debts scotfree, the system of records on land transactions, land titles and debt is pretty well foolproof, and all that record is recorded in multiple places, so the history is always there. Heel n Toe had a very relevant comment, get out of debt now and the bank won't crush you at the worst possible moment(they are good at that).

Couldn't agree more.

The only flaw in that logic is this: the banks don't want your possessions - they want your cash. They would rather you keep your car and get a job in order to pay them the cash back which they loaned you.

-Z-man.

While we're on hypothetical events--what if the nation doesn't go Mad Max and instead, we see a period of weak growth and deflation. Then, debtors would be screwed.

I'm not saying cash is king. We'll, it is, but I don't see going into debt as a solution.

Use debt to finance quality investments ONLY. Hone your skill set. Act so you can succeed today, as well as tomorrow.

Lastly, don't buy into idealized notions of the collapse of the dollar. If you're assuming meltdown, who's to say the Chinese don't march over and begin collecting debt. Chinese mercenaries take possession of mortgages. They begin calling mortgages, and if you do not produce the balance in Euro/Yuan, you go to debtor's prison (manufacturing facility in the US). Why pay a Chinese man $2/day to work in a plant, when they can use you for the price of 3 meals and a cot. The US would become the new export leader of the world.