What We Can Learn From Puerto Rico's Financial Troubles

  • Hello to all my Frugal Friends!
    Last week you might have read that Puerto Rico was declaring a type of governmental bankruptcy. If not, here's an article from USA Today.

     

    I think that there are a number of lessons that we can learn from their experience. Both on a personal and a governmental level.

     

    First, don't commit to future expenses (especially big ones) without knowing how you'll pay for them. Puerto Rico made pension promises to government workers without setting aside the money to pay for them. Many politicians do that all over the country. Detroit had a similar problem. Many states and cities have made promises to police, fire and other employees. If you're one of them find out if your fund is 'fully funded'. You wouldn't want to lose a large portion of your pension after you've retired.

     

    The same principle is true for individuals. How many of us have gotten into trouble because we couldn't keep up with big mortgage, car or credit card payments? Before you make that commitment know where the money is coming from.

     

    The Puerto Rican example also demonstrates what happens when you fall into debt. At first lenders just want higher interest rates. Then later they refuse to lend to you at any rate. That's true for both governments and for individuals. The initial higher rates make it harder to repay your debts. But when you can't borrow any more the game is over.

     

    The lessons? Avoid debt. Only take on debt that you're sure you can repay. And, if lenders start raising your rates consider that a warning sign that you may be headed for trouble. If you're wondering if you have a debt problem we have a tool to help. We ask a few simple questions. Your answers will let you know if you're heading for a problem or not.

     

    Keep on Stretching those debt free Dollars!
    Gary


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