What about the half that isn't worried about debt? Surely they can't all be rich; there arenlt that many rich people in the country. Maybe some of them are people who are in debt but just don't worry about it. Yet I seem to recall a statistic to the effect that 40% of credit card holders pay off their balance each month (and thus pay no interest or fees, other than perhaps a one year membership fee) How are these people different? Higher income, or some other factor? Maybe they live in low cost of living areas? Own a house outright (hence no mortgage debt), have no children, or work in secure jobs (tenured teachers, etc.) But somehow a large fraction of the country has managed to avoid the debt trap. If that's not due to luck*, maybe their success can de duplicated?

* Yes, I know, it's obviously due to good luck that they haven't suffered serious, chronic illness. In that much they are lucky.

The biggest problem in America today is that we've let the government define "The American Dream" and the government is a wholly-owned subsidiary of Wal-mart. This leads to an obsession with individual consumption and the corporate producers of consumer goods rather than on household-based productivity. Only Michael Lind has even attempted to address this.

Also, Americans are going to have to come to the realization that home ownership is not that great a deal--especially right now with the government pumping up the prices through Fannie Mae and Freddie Mac. (I don't hear Sens. Clinton or Obama speaking to this problem.) My wife and I chose to forego buying a house at any price. (Life is too short to waste cutting grass and painting shutters. If I'm going to spend time doing something I wouldn't do voluntarily, I want cash money not speculative "equity.") We keep our rent under 20% (all costs included) of our annual income. (My wife's part-time income covers this.) This also lets her stay home to raise our kid. We drive a new car, enjoy pleasant vacations, and save reasonably well for retirement. No rolling credit card debt.

It ain't that hard to beat the system. Neither of us has Ivy League degrees or trust funds. Just a couple of useless liberal arts BAs. Our rule has always been to never let society get a hand up on us. We know that misfortune can befall anyone. We just choose to minimize our exposure where we can. Until our progressive leaders get corporate money out of politics (maybe they should start with their own campaigns!), we should have no expectation that the corporate/consumerist paradigm will change anytime soon. When it does, I'll rethink my approach.

You don't mention the top-ranking concern of the middle class, namely how you pay medical bills.

Out-of-pocket?

Health insurance?

Combination of the two?

Something else?

if you look at the math, then it's clear why "staying out of debt" gives you a higher quality of living!

for example, if you "buy" a house for $200,000, you pay at least $400,000 so the $200,000+ in interest is over $550 a month! it's debatable, to me, how much of a tax savings you get from a home since the standard deduction is free money for those who rent and about as good as a mortgage deduction.

I think the condo craze was about getting more people to "buy an apartment" and thus get more people to pay a lot more in local taxes which help offset the costs of urban sprawl.

You must make an extraordinary amount of money

the trick is to downsize your life for a short period of time, say 4 years. during this timeperiod, you live as cheaply as possible and get ahead. most of the people I know who do this stay frugal. i.e. by not eating out, I save $15 per day, $450 a month, $5400 a year and I eat healthier. my coworkers who like going out to eat are overweight and in debt.

yesterday, I canceled a gym membership for a new gym and got my enrollment fee back to save about $500 over the next year because activities like walking and bike riding are free. I also canceled it because I bought a new keyboard yesterday and I always go through my expenses after a big purchase to see what I can live without!

btw: i already have a home gym-- with commercial grade equipment, so the gym membership was overkill. I made these purchases because I calculated the cost of gym membership, including gas, to be about $1050/year. In about a year, the average cost per year of my home gym will fall below the average cost per year of going to a commercial gym.

To boldly go...

Some of these issues were addressed in a thread started by Jared Bernstein last week.  I think that if you look at the median expenditures by an American family on the basics of life in our modern society (shelter, transportation, education for children, health care, food, clothes, household goods, modest entertainment, retirement security, and taxes) and compare that to the stream of income that is needed to fund these expenditures from adulthood to death, you'd find that most Americans have some cash flow issues that are hard to solve without debt. That means that debt is indeed the norm for the middle class now--and small changes in cash flow due to increases in the cost of basics or the loss or stagnation of wages are enough to send many American families into serious financial trouble.  It should be pretty easy to do the cash flow analysis. If I had more time, I'd do it . . . but maybe one of your graduate students could take this up as a project?

We own a house for ca. 12 years, and we rented for ca. 12 years, and we can compare with friends who jumped into "house ownership" early.

One thing is that unless you spend a lot of money, rented apartment is smallish, and that cramps your lifestyle. You have to forgo certain conveniences, and you save a lot in the process.

By the way, by not eating out we save at least $ 50 per day, you should see the meals we are not buying!

One comment msc: why do you include gas in the cost of gym, couldn't you bicycle to the gym? [I know: you bicycle there, you bicycle back --- no need to enter the premises!]

Part of the problem that people have is caused by the brainwashing from the ads and commercial media in general. For example, amazingly many people were sold on the idea that SUVs are safer, while rigid frames and the high center of gravity were countering the "benefit" of being able to crash normal cars in collisions. So people start from bying vehicles that are more expensive than they really need, and spending much more on gasoline then they could. Or lower-middle class couples spending a lot on weddings, per advise from bridal magazines.

Obviously a good income is the easiest way to avoid debt. But in the absence of an income significantly above median, the only way to avoid debt is to control expenses. I think the problem nowadays is there are certain traps that catch people--and once you're caught in the debt cycle it's hard to get out. Here's my initial list of traps to avoid--maybe others can add to the list:

Student loans--these get us hooked at a young, vulnerable age. I don't recommend not going to college (bad for the income), but someone needs to help young people understand that student loans mean they have to sacrifice for the first five or ten years out of college. Many young people leave college, get their first job, and with a paycheck coming in think they're doing pretty well. They spend too much and start getting behind on their student loans. Then they start using credit cards. Before long, a lot of their income is going to interest. Once you start paying interest, you start slipping behind because less of your income is free. Student loans are a real easy trap to fall into--and they get people at a very vulnerable time.

Housing--there's an old rule of thumb that you shouldn't spend more than 2 to 2.5 times your income on a house. For a family earning a median income of around $45,000 to $50,000, that means the maximum amount they should spend for a house is about $150,000. I know plenty of people who think the cost of the house they can buy is limited only by the size of the mortgage the bank will give them. Well the bank would like all your income to go into your mortgage, so naturally they recommend the highest amount possible. If you take their recommendation, you'll be spending every free cent on your house and won't be able to afford anything else. Caveat emptor.

Eating out--little expenses add up fast. Eating out is a big little expense for many people. For other people it may be clothes, entertainment, etc. But doing a budget to find out where your money goes (and how much of it goes) is essential. Starbucks twice a day can eat up 10% of your income when you're making a salary of $30,000.

Credit cards--every charge on a credit card is like a metastasizing cancer cell. The miracle of compound interest helps you when you're doing the saving . . . it kills you when you're doing the borrowing. Debt is like heroin. Once you get into it, it's very hard to get out of it. You need major transfusions of cash . . . kind of like Keith Richards and blood.

Cars--sure you can take a six-year loan and buy
a BMW . . . don't do it. Short loans are always better loans. No loans are best.

No savings--force yourself to save (have it automatically deducted from your paycheck so you never see it). If you have a savings account, you'll have an alternative other than a credit card when an unexpected emergency comes up. I know it hurts to save. But it hurts a lot more to pay back credit card interest. Avoid the pain, think ahead.

I could have controlled my children's college expenses, but the  tradeoff is attending a less prestigious school. Since we know personal connections are very important in life, this would mean a discounted value for that education.

So I'm carrying essentially a house mortgage, secured by their future. I'll retire those loans about when I start collecting SS, with luck.

I'm all liabilities, no assets except a secure job (a rare privilege).

Some attention to cell phone overuse, overconsumption of expensive food or junk food or both, wretchedly excessive spending on vehicles and gasoline, high cable bills, and needlessly high utility bills would go a LONG way toward getting many lower-middle income people out of debt.

But they want it all. Now.

mrickard -- you just described my life!!!

Wow ... it's nice to know that I'm not the only one. I'm 55, single, unemployed, and surviving thanks to the generosity of my family -- parents, siblings and children. My son's stuck in Iraq and only wants to come home -- ALIVE. I think he's finally seen the writing on the wall. A friend sent me a round-trip ticket to her second home in Mexico and I'm leaving in a couple of weeks. And if I can find a job waiting tables or bartending down there where America's middle class are retiring, I may not come back ... and SallieMae can eat my $38,000 student loan.

Debra Morgan Pardee

With reasonable men I will reason; with humane men I will plea; but to tyrants I will give no quarter, nor waste arguments where they will certainly be lost.
-- William Lloyd Garrison (1805 - 1879)

Re: 2. Cell phones

I would disagree here to the extent that I would change this to "Having both a cell phone and a land line". Unless you need it for internet dialup access get rid of your landline to save cash. It's almost as expensive as a good cell phone plan, charges for long distance (most cell phone plans do not), lacks the convenience of a cell phone (eespecially now that pay phones are a vanishing species), and exposes you to telemarketing.

Re: Cars: If your city has a bus, don't buy one at all.

Uh-uh. Buses are huge time wasters, typically taking 3 to 4 times the time needed to drive a given distance, even in heavy traffic. And wasting time=wasting money. Moreover they do not allow for long distance travel, cannot accomodate much cargo, and in some places may be dangerous. By all means take a train or subway to work to save cash, but unless you're resident in, say, NYC, downtown Chicago, or San Francisco, a car is a necessity. There are of course ways to save money with cars. As for used cars, caveat emptor. There are many good used cars, and some even come with warraties. But buying a $500 clunker is a ticket to big credit card balances as you will be in and out of the repair shop constantly.

Many studies done show a large factor of name recognition in getting a job interview. Add to that the higher level of internal competition at the higher-ranked school and you get what you pay for.

While a more expensive car won't get you to work any faster, a more expensive school has the teachers, the students, and the facilities that are lacking at the lower-ranked school.

Maxed Out is available on DVD at Amazon now. I just ordered a copy. Looking forward to seeing it.
These debt buyers should be outlawed.
I had a debt sold to one and I was scared and agreed to make monthly payments. They kept me in the dark about the interest they were charging me.
All the while I thought I was repaying a debt when they were not applying any to principal.
It was only when I started asking questions that I found out the truth.
I never seriously consided suicide, but I was
in a deep depression when I realized I had sent so much money and believed I was doing the right thing, only to be lining the pockets of these crooks!
As long as debt buying is allowed there should be strick laws and enforcement. One of those laws should be the only interest they can charge is for the amount they purchsed the debt for. So if they buy debt for pennies on the dollar which I have heard they do, then charge interest on those pennies. I personally feel they should not be allowed to charge any interest though.
The debt I had that was sold to them was ALL interest and fees that Citibank had piled on.
The original amount of the debt had been paid.
Then these bottom feeders piled on more.
I thought interest was charged for money borrowed. I didn't borrow money from any collection agency!
Woe to anyone who is foolish with a credit card or has unexpected problems and gets behind. You'll get screwed by the CC Co's with loan shark interest which will lead to you going over the limit if you are unable to pay the balance...and then you will get over the limit fees, even though you have not purchased a thing! And then if the the bottom feeders get your debt they will get their chance with you.

I have lerrned my lesson. Every CC offer I receive is shredded. I have savings and I live
within my means now.
As far as ways to save, if you need furnishings and don't mind some hard work , check out Craigs list.
I have always admired those who could take an old piece of furniture and refinish it, but I was reluctant because of the dire health warnings on some of the products used to strip the paint off.
There are now safe products for this work with no harmful fumes.
I have found some beautiful solid wood furniture on Craigs for low cost and even free and refinished many nice pieces of furniture. It looks great and is better quality than many things sold brand new.

Bonnie
http://pupart.1hwy.com/

The only jobs I have ever gotten through personal conenctions have been pure crap jobs: my brother got me a job wasshing dishes when I was 16, a family friend got me a job at her in-laws' store when I was in college and (worst of all) a roommate got me a job telemarketing when things got really tight back in 2002.
As for colleges, I would agree that at the far extreme, there certainly is a diferrence between Bugtussle Community and Harvard. However I would suggest that your son or daughter would be just as well off going to the top-ranked public university in your state (most states have at least one very good public college) as to some pricey out-of-state ivy. And once a person gets a significant work history (say five years plus) on their resume, their college background falls into the category of ancient history and won't really count for that much.

My kids couldn't get into the top-rated state university; the GPA competition is strong, and it's still expensive.

It's not the job handed to you that I refer to, it's the fact that out of a stack of resumes, some get a call for an interview. This has been documented. Equally important are the friends and acquaintances that may lead to future collaborations or opportunities. Thsi is the main point of affirmative action---pure scholarship is only half the story, just like pure manufacturing quality is not sufficient to beat the competition in business. 

One can of course say "this is good enough". It is hard, however, to say that regarding your children's future.

Consumer advocates also need to be more vocal in pursuing transparency in lending, to ensure that average working people don't end up pre-owing 5 years' worth of paychecks etc.

when I saw the movie "maxedout" ACORN hosted it and reminded everyone that, historically, they've tried to help the poor "own homes" and felt it was a "way to wealth."

so, if groups like ACORN don't promote high density, low cost living, read apartments, then who's going to?

ACORN, and others, get their power by selling people the American Dream, just like others!

I might discomfort people on this group for not feelingobligatated to help people out of their pickle but I've met way too many folks who want OPM for their life styles.

To boldly go...

I only offered them the same deal I got. I was not expected to pay my own way through school.

As it turned out I dropped out of music school after a year, but luckily one needs only a little coaching and lots of practice to get an orchestra job. So my children have exceeded me in degree-land.

Re: so, if groups like ACORN don't promote high density, low cost living, read apartments,

"High density, low cost" is an oxymoron. The more demand you create in a limited space the higher the cost of housing goes. The area where I live is a