Archive for July, 2012

High-Interest Credit Card

Sunday, July 29th, 2012

We are maxing out our national credit card, but it’s not the one you think.

 

 

 “Shave years off of your mortgage and save tens of thousands of dollars!” – Debt Guru Mike Peterson early mortgage pay-off commercial

 

Debt has again become controversial.

Haven’t you seen the latest commercial?

 

But if you’re thinking of paying down your mortgage debt,

Have you paid off your credit cards yet?

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Republicans (and occasionally Dems) often complain about how we are “paying the bills with our national credit card,” which is, or will soon be, maxed out and/or over the limit. Indeed, every financial advisor will tell you: pay down high interest debt first, which for most Americans is credit card debt. Mortgage debt, on the other hand, is at a much lower rate, so if you have both, you should clearly pay down the former rather than the latter.

But this isn’t a piece about how to solve America’s credit card debt problem (read “Where’s My Bail-Out? Right Here” for that). Instead, I’m using “high-interest credit card debt” as a metaphor.

According to the American Society of Civil Engineers, America has a unpaid “debt” of $1.7 trillion in deferred infrastructure maintenance costs. That costs our economy an astounding $129 billion per year in lost wages, lost time in traffic, wasted fuel, and damage to vehicles. That’s an “interest rate” of 7.6%, and like with a credit card, that interest keeps on compounding, along with late fees for overdue payment: if we don’t make the necessary investments, it will cost our economy $3.7 trillion in lost economic growth by the end of the decade. That’s equivalent to an additional 10.2% in “interest” per year, for a grand total of 17.8%–right up there with the rest of the high-interest credit cards. The interest on our national debt, in contrast, is under 2%. The difference between the two: more than $250 billion per year, lost and gone, well over the annual $94 billion annual funding gap to actually fix our decrepit infrastructure.

I’m not saying we shouldn’t get out national debt under control. But our national debt is not the credit card, it’s the mortgage, or a home equity line of credit. Deferred maintenance of and investment in infrastructure is the credit card debt. And that credit card (the “Infrastructure Bank of America Card,” to be exact) is indeed maxed out, and the interest rates are killing our economy.

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 Here’s one of those “pay off your mortgage early” spiels.

Here’s another (this one’s even more misleading).

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