Repaying debts with honor

Does it annoy you too when the pitchman in the commercial urges negotiating with your credit card company, with the advertiser’s help of course, to pay less than you owe? It’s the same message when it comes to “settling” with the IRS. “You don’t have to pay all that you owe,” encourages the adman’s voice. “Call us and we’ll reduce your amount to a third without bankruptcy.”

What about us poor schnooks who paid every last penny of what we owed? Were we incredibly stupid when we could have gotten off with far less cost? Maybe it’s only the rich who pay everything they owe, but I know that’s not true. Men and women will work two and three jobs to be able to meet their expenses, especially those incurred for their children. They must not know that all they had to do was run up the bills — the higher, the better — then declare that they couldn’t afford them, and they would get a reduction of their debt.

What has happened to honor? Maybe it is just those of us of a certain age who still carry these old-fashioned ideas in our heads. “Pay as you go” was my parents’ adage. The idea of a credit card puzzled them. If you couldn’t afford to buy a car when you wanted one, then wait until you had the money and you could buy it. Delayed gratification was admired. They were even dubious about a mortgage, although that became the American way after World War II.

But the thought of not honoring one’s debts was anathema. In essence you gave your word when you accepted credit, and “your word was your bond.” People who walked away from their debts expected to go to prison, certainly not to call a “negotiator” who would beat down your creditor into accepting less — or nothing at all.

Donald Trump raised the possibility of our nation reducing its national debt by bargaining with our creditors, an unwelcome but nonetheless real technique in business. These creditors of American debt would include other nations, as well as widows and orphans who buy U.S. government bonds because they believe in our creditworthiness — our honor to repay. People who cannot repay, while they no longer are imprisoned in a jail, are imprisoned by their actions. They are never trusted to the same extent again, and if they have to borrow in the future they pay a significantly higher rate of interest on the borrowed money, if they can get a loan at all.

The same holds for nations. Those countries whose economies crashed have had to pay exorbitant interest on their bonds to entice new capital, and their people have been impoverished in the long run, leading to disastrous social unrest. History is rife with such examples.

So what is a person, whose intentions at the time of borrowing were honorable but whose circumstances have dramatically changed through no fault of his or her own, to do with that debt? Borrowers may lose their jobs; they or a family member may get sick and require ruinous financial support; insurance on property or health may be insufficient or nonexistent — and so forth. As the expression goes, “life happens.”

Most commonly, the terms of repayment can be changed. A longer time in which to repay the borrowed money can be arranged, allowing the borrower a chance to recover from whatever the disaster. This lowers the monthly rate of repayment although it does increase the total cost of the debt. But it does preserve creditworthiness — and reputation. That solution only works, however, if there are good prospects down the line and a willingness on the part of the debtors to assume responsibility for their actions. In circumstances where there is no hope for recovery, then bankruptcy is the only choice.

But the idea of those who know how to play the system bouncing from one loan to the next with little consequence is unacceptable and makes fools of us all. And those who make a business out of helping such individuals run off with other people’s money are worse yet.