Long ago when I was a young undergraduate student in the sunny University of California San Diego, I was trying to find a major I would both enjoy and could pass off as “useful” to my parents. After a short stint as a pre-med student, an engineering major, I finally decided that “Management Science” was the one major that fit that description in my case. Of course, in numerous interviews after UCSD, I found out that no one actually knew what this magical major entailed. I finally got tired of trying to explain the stuff about Econometrics and optimized output and just said it was a fancy way to describe an Economics major. It was more than that, but no one cared, and frankly I quickly stopped as well I. However, while I never got a chance to built fancy statistical models predicting the behavior of the market in the real world, I did get a very good overlook of the economy on a smaller and larger scale.

Here is what I know:

- When you are so far in debt, that you can no longer make the payments required, but at the same time have no credit/income to shop for anything other than the essentials, your contribution to the economy shrinks. You are stuck. You are not buying very much. You are not repaying very much. The credit card companies cannot write off the debt as bad for a while, wasting valuable time. You create a small, non-spending, unproductive circle. You are not helping the market, when you are not participating in it.

- When you make the decision to file for bankruptcy and your debt is discharged, the credit card company can take a loss and set off that loss against its income as a result. Don’t you worry about their “loss.” That interest you have been paying since you obtained your first card is there to protect credit cards from that specific type of risk. The credit cards are not borrowing money from government at 11% nor are they paying the people who have money in the savings account at their bank 11% interest. You in turn are not paralyzed by the old debt and can again use your income to participate in the economy. You can spend the portion you can afford to purchase a new car, thereby providing jobs to all the people involved in the automotive production/selling process. You can fly to visit your elderly mother in another state, contributing to the airline industry’s health. On and on it goes. All this contribution could not be possible if you were still paralyzed by your debt.

So to sum up, aside from the negative impact your debts may be causing on your personal relationships (more on this later), your paralyzed financial state is also making you an unproductive member of the financial market. Maybe you don’t care that much, but the truth is if you are not filing bankruptcy, because you think that only “bad” or “lazy” people file for bankruptcy, you are missing the point. Filing for bankruptcy may be one of the most effectively selfless things you can do when you are stuck in too much debt to repay.

Photo by Josef.Stuefer via Flickr