econscius

Two Family Debt Ceilings

In Debt Ceiling, Economy, Obama Administration on July 22, 2011 at 5:03 am

Like so many families, the Bickerers and the Carefrees were hurting from tough economic times.  Mr. Bickerer recently took a new job at lower pay after two stressful months being unemployed.  Mr. Carefree remained employed but had received neither a raise nor a bonus in the past two years.  Carefree’s boss gave him a year-end review much harsher than he expected.  Had Mr. Carefree been of the worrying sort, he might have been concerned about job security.  

The two families happened to be neighbors on the same street.  One sultry summer night, their adjoining bungalows witnessed two very different dinner table conversations. 

The Carefrees did not budget.  Ms. Carefree was processing the stack of bills against their checkbook, which showed a negative ledger balance yet again.  “Honey, these bills keep coming”, she told her husband.  “We need to pay the mortgage no later than the 3rd, but we can stretch the Park District since they don’t charge late fees”.  Barry Carefree responded, “Don’t worry about it, things will get better.  Why don’t we do another cash advance to cover the mortgage?”  The lovely Michelle Carefree did not hesitate to agree, “I think you’re right.  They wouldn’t lend it to us if it wasn’t the right thing!” 

Ms. Carefree pulled the latest MegaBank credit card statement from the bottom of the bill pile and saw they were already at their card limit.  She casually mentioned it to her husband.  Barry replied, “I’ll call the bank for an increase in the credit limit.  MegaBank has always been great about giving me a clean increase with no strings attached.”  Michelle Carefree concurred, “If they’d raise our debt ceiling $4,000, we’ll be good for a couple more months.  Besides, Jimmy really needs the latest xBox.” 

At that exact moment, in the squat brick home on the west side of the Carefree’s chain link fence, Harold Bickerer looked up from “The Boxing Channel” at the frowning face of his wife Paula.  “Harry, I know you’re working extra hours to try to make things work, but something has to change!  I put everything in Quicken and we have to cut something and do it now!” 

Harold Bickerer’s brown eyes dashed to and fro; he was getting agitated.  “We can’t cut anything, we need to live!  I deserve a middle class life.”

Paula held her poise but was firm in tone, “How do you expect to pay our bills if we don’t cut something?  Maybe cut out a Cubs game with the guys.  They always lose, anyway.”  Harry Bickerer frowned, he hated lame Cubs jokes.  He fell back on his old staple, “Home equity loans are made for times like this.”  Paula’s eyes rolled but Harold went on, “If we can just get through the next few months, my boss promised merit increases will be made in January.”

Paula’s spreadsheet showed they were close to the limit on their home equity line.  With the declining value of homes in their neighborhood, Paula doubted they’d be able to get the bank to approve an increase in the ceiling on the line.  Her spreadsheet also showed a family on the financial edge and she was dead set against borrowing a penny more without significant spending cuts. 

Mr. and Ms. Bickerer went back and forth for several minutes, negotiating ideas that neither could agree on.  Redbox instead of the monthly family trip to the multiplex?  Could she trade down to a lesser hair stylist?  Why won’t he drop microbrews and go back to Budweiser which, by the way, he happily drank all through college? 

Harold had several ideas for cutting spending, though they always involved someone else making the sacrifice and tended to be far into the future.  Cut back on next year’s summer camp?  Send the baby to community college with a transfer to a less expensive state university so they could drop the small monthly 529 contribution?  He also pushed Paula to increase revenues:  couldn’t she ask her mom to watch the baby just a few hours every day so Paula could take a part-time job at Target?

 

As the Carefrees nestled in for another comfortable night’s sleep in the cool air conditioning, the Bickerers kept talking.  The bills had to go out in the next day or so, yet the couple made the deadline, working out a plan by midnight.  The Bickerers plan wasn’t fun for anyone but it did spread the sacrifice.  Paula would get a part-time job on the weekends, leaving Harold to watch the kids, which would also cut his weekend spending with “the guys”.  The whole family would eat out less, cut back on movies and trade down to more store brands at the grocery store. 

The good news was the Bickerers would get their spending under control and their plan stopped adding to their debts.  On the east side of the fence, the Carefrees would not have slept quite so soundly if they knew the truth that an automated algorithm on MegaBank’s risk management computer was just then scoring Barry Carefree’s credit card account as too risky and flagging “DENY” for his next request to raise his credit card limit.

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