We read an argument on a public finance blog of a 20-something recently. It went something like this: I’m a good credit risk, even though I have a lot of consumer debt. I’ve never failed to pay back a personal loan. Therefore people are being selfish not lending money to me.
If you think there’s nothing wrong with the above argument, here’s something we would like to say to you. THE WORLD DOES NOT REVOLVE AROUND YOU. Sometimes people would prefer to keep their own money and not lend it to you, whether or not you’re a good credit risk. That’s their business.
Mature adults do their best to have emergency funds and low enough expenses so that they don’t have to borrow money from others. It might be one thing if you had a sudden medical emergency, and even then, generally working a payment plan out with the hospital is the best idea (since they will usually cut the balance), or a temporary car problem making it difficult to get to work… but you have consumer debt and you don’t want to live on rice and beans while you’re getting rid of it? Or you want to buy a house but haven’t saved a down-payment? Suck it up.
We get these kinds of students in class on a pretty regular basis. At least we’re not related to them!
Grumpy Rumblings (of the formerly untenured) 
January 23, 2012 at 2:04 am
Haha :-) This one made my day, thank you for posting this! “people are being selfish not lending money to me.” Eh, what about pulling your act together and start paying back what you already owe?….
January 23, 2012 at 4:36 am
“But I’d be aaaaable to pay off my debt faaaaaaaster if you loaned me monnnnnney”
January 23, 2012 at 6:03 am
You do realize that we are in a liquidity trap right now and that banks are sitting on trillions of dollars not lending it, right? So yeah, maybe this person is a crybaby, but there is a macroeconomic reason why shittonnes of loans that would be perfectly good risks are not being made.
January 23, 2012 at 6:11 am
Banks aren’t going to give an unsecured loan to someone with a tonne of consumer debt even in the best of times unless there’s something shady going on. Recall that stupid housing loans (the kind where you don’t need 20% down or real proof of income) are part of the reason why this mess happened to begin with. This isn’t a small business owner trying to make payroll during the down season.
Regardless, that doesn’t mean that anybody is selfish for choosing not to make a personal loan.
January 23, 2012 at 8:04 am
If it’s people, as opposed to corporations (I know, I know), then, sure. Also, while per CPP it is possible that in this case (some cases) the market (lenders, here) is wrong, it’s also possible (probably likely) that the market is right and would-be borrower needs to get with the program not only for reasons of non-whininess but because the future is uncertain and — well, you see where I’m going with this.
If it’s corporations rather than people (or business rather than personal) then I want to know that various forms of discrimination aren’t being practiced (i.e. that dope A isn’t getting a worse deal than dope B simply because of race, gender, etc.), but beyond that, yeah, you’re right.
January 23, 2012 at 9:33 am
Wow, and this is why I don’t get along with a lot of people in my age group… Maybe this person should figure out how to get rid of the credit card debt first/start taking the blame for their own actions…
January 23, 2012 at 10:45 am
*like* I’m a student myself, and our household works very hard to do what we have to do to get by. It would be nice to have everything we wanted right now, but that’s why I’m going to school: so we can have everything we want in the future. PATIENCE, CHILD!
January 23, 2012 at 1:42 pm
What I’m confused about is the idea of it being “selfish” that they can’t get a loan. Was it a personal loan or a bank/mortgage/etc loan? Companies run numbers, and decide who to lend to – it has nothing to do with how nice someone is. As for a personal loan, WOW, no wonder that person doesn’t want to lend to said 20-something. Yikes. So odd.
January 23, 2012 at 1:47 pm
Personal. The argument also went, “If our situations were reversed, I would loan *them* the money.”
January 23, 2012 at 4:55 pm
A little off topic, but a humble request for a future blog topic (unless discussed before) – What are your feelings about setting up a HELOC but not touching it? Would you consider it as a last-ditch effort for an emergency fund? After you use up savings, emergency fund savings, investments, credit cards, would you turn to a HELOC? I am on the fence with this. In a non-emergency situation, I wouldn’t touch my house’s equity at all, not for large purchases or even renovations. At the same time, however, I can see the advantages of having another money source, although it would be secured debt. (Yet, if I have nothing else, I would lose the house anyways to foreclosure.) To qualify for one, one would have to be employed, so it would be “better” to open one before the proverbial excrement hits the fans. Thoughts?
January 23, 2012 at 5:26 pm
We haven’t discussed this one before. We can turn it into an ask the grumpies post.
It’s not something I would do at this point in my life, though maybe before a 401(K) loan. Whether or not it is something a person should do depends on the nature of the emergency, how much money there is in the house and some other factors. Houses are protected in ways that many other assets aren’t, so depending on the circumstances, it may be in one’s interest to declare bankruptcy after putting as much money as possible in the house (this will depend on state laws), but that would only be if you had income or thought you were going to have income in the future so you could keep paying your mortgage and property taxes etc. Selling the house might also make more sense if it’s a long-term emergency. If you’re underwater on the house, then neither selling nor a HELOC is going to work.
It’s a complicated question with a lot of nuances.
January 23, 2012 at 5:02 pm
^Please. (Where are my manners?)
January 23, 2012 at 6:32 pm
Be aware that most hospitals will NOT cut the balance. Husband had an emergency surgey and despite being broke and unable to pay the hospital said “yeah, too bad. You make too much money.” They even dictate how much your monthly payment is. This is pretty common now. You can negotiate a little on the payment plan itself, but unless you are extremely poor, they won’t do much else. (And being a college student and a TA making less than $8K and him working and hourly job at low pay, qualifying us for other programs, still was too “rich” for the hospital to help us out.) In short, if you can get health insurance, don’t pick the “cheaper” plan because when shit hits the fan you’re screwed.
January 24, 2012 at 10:34 pm
This sort of reminds me of Suze Orman’s new “pre-paid debit card.” Part of her pro argument for it is that they are sending the data to transunion in the hope that in the future credit card companies can use debit history to establish a credit card score. (Of course for now, she’s just sending the users info for free to transunion with no guarantee they have to use it for anything). I think there are a lot of problems with credit scores (and with banks lending right now). On the other hand, I don’t really agree that someone’s spending history with a pre-paid debit card is a good future predictor for how they will deal with money that isn’t theirs but is borrowed. This person whining sort of reminds me of that. It’s like taking care of a cat for two weeks and asking someone to trust you that you can adopt a child! Okay that’s a slight exaggeration…