Thursday, November 13, 2008

Financial Dishonesty or Denial?

I used to date a very smart guy with a good job. But like all other past relationships, I seem to have a knack of sabotaging all promising relationships. But I digress! This post isn’t about my inability to maintain a romantic relationship. (That's a topic for a whole 'nother blog. Shtinkykat's Dysfunctional Relationship Blog, perhaps?)

Rather, I'm writing because a recent discussion with my ex hit a raw nerve. It seems that after all these years, I’m still dishonest about my dirty little huge credit card debt.

As you may know, some banks have proposed forgiving up to 40% of credit card debts owed by risky borrowers. As this LA Times article points out, the banks haven't suddenly turned altruistic on us. (Oh heavens no. Otherwise it would mean that the End of Days is near and I would have to repent for my sins.)

Rather, the banks are taking this action because they see the risky borrower as a serious bankruptcy risk where they could potentially recover nothing. The banks would rather get something rather than nothing, so this probably makes some business sense for them.

[Breaking News: The bank regulators have rejected this proposal.]

Anyhow, my ex-boyfriend and I debated whether the proposal was "right". I argued that this promoted a moral hazard, or more accurately, that it rewarded risky borrowing habits. Where's the incentive to do the right thing?

My ex countered that it's still good to be financially responsible, regardless of the handouts going to people with high credit card balances. And of course, being the left-brained, logical, smartypants that he is (no, I wasn’t dating Mr. Spock), his arguments were unassailable.

What got to me, though, was his following statement:

It's reasonable to assume that even the reduced debt level is much higher than what would be considered normal or prudent in a financial-planning sense. For example, you and I would never find ourselves with such debt levels of toxic debt. So, in a sense the person receiving the handout is getting free money, but they had to go into tons of debt to get that.

Now, if they bought something with the [debt] which retained its value or appreciated (which of course they did not haha) then it's conceivable that they will have beaten the system. But as I mentioned, of course they did not.

So I don't think that I personally have an issue with them being helped. The situation they are in, and the lifestyle choices they have made make their future financial outlook much worse than mine, regardless of the amount or frequency of handouts that they get.

I debated whether I should ‘fess up about my existing credit card debt. I was in deep credit card debt when I dated him (approximately 7 years ago) and I still am. It certainly would have given me street cred to tell him, “I’m $12,000 in credit card debt but I intend to pay every stinking cent even if they offered to write off a portion!”

But I just couldn’t. It’s not like I need to impress him now, but the words just couldn't come out.

What’s odd, though, is that I’m not ashamed to tell my friends and family, including my ex, that I’m $123,000 in debt (which is true). But I also let them assume that it’s mostly my student loan and some car loan. (For some unknown reason, I’m not ashamed about my car loan even though it’s technically a “bad loan”.)

I wonder if this dishonesty a form of denial? I'm honest with myself and that's what counts, right? Afterall, it's my own demon I have to vanquish. Is there any reason to telling my friends and family about my credit card debts?


J. Money said...

OMG you are too funny! But you know what? that honesty to yourself is greaaaaaat!!! You're right, that's all that really matters here - especially because you're sticking to your values, ya know?

It would be another thing if you were saying all that and then you TOOK that 40% write down or whatever given to you.

This was a fun read :) I'm digging the complete honesty you got going on here.

debtfree2009 said...

I think we as a society to believe that certain debt is acceptable. School loans and car loans - you know everyone has them but we look at credit cards differently.

I would never even tell someone I have a car loan - that's why I have to blog.

Sharon Rose said...

Hi there-I don't tell my family or friends about my debt (hubby knows). I think partially because I do feel embarassed as well, but also, its no one elses business but mine! I don't feel we should be obliged to tell people, especially if we don't want to.

Moving on up! said...

I told my family and sisters that I owe money, but not how much. My boyfriend knows exactly how much I owe, because I'm always proud when I pay off more.

MoneyMateKate said...

A lot of men don't consider omission a form of lying, so it's cool. And ex's shouldn't know that kind of stuff about us anyway! Seriously, I had one who would gloat if I was doing badly and then expect me to pick up the tab if I was doing well - AFTER the relationship was over. I cut him off.

Penny said...

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Donna Freedman said...

I suppose you could tell them that you're cleaning up some consumer debt -- it could clue them in to stop asking you to do expensive stuff.
However, I don't see any reason to tell them the exact amount. That's your business. If you tell them how much it is, you might get the "HOW much? What did you BUY?" reaction, and forever afterward you'll sense them watching you whenever you buy so much as a patty melt. ("Should she be buying that when she's two gazillion dollars in debt?")
Then again, I think debt is like sex: You may know, intellectually, that your kids have it but you don't want to THINK about it -- and you sure don't want to know the details!

Shtinkykat said...

Donna F.: I agree. But I do think, though, when you tell someone you have some "consumer debt", they often make assumptions about the amount and still judge you for it. Re: the expensive stuff, I need to have the cajones to say, "No". I just don't have that courage yet. :-P