The News Story – The New Ways to Clear Your Debt for Less
“If you’ve built up debts, they can seem impossible to clear,” opens the UK-based Mirror. But for those in severe debt, “good news” is here: “there are two new ways to lower your debt payments that keep your cash out of the hands of both high street bankers as well as expensive loan consolidation firms.”
Such “new” methods include “peer-to-peer lending”—i.e., borrowing from other people instead of from banks or credit unions. QuidCycle, a new network aiming to put personal lenders in touch with those who need funds, is a new company aiming “to put people before profits.” Also increasingly popular are institutions such as SalaryFinance, which offers a special, fixed-rate loan to pay off your debt, with repayment coming directly from your paycheck.
The story ends with a number of other organizations aiming to help individuals get out of debt. What this and most other such stories omit, however, are the characteristics of those most likely to avoid debt in the first place.
The New Research – A Natural Debt Preventative
Much talk lately has centered on the question of rampant consumer debt, and Richard K. Caputo of Yeshiva University seeks to paint a more complete picture.
One important find: Growing up in a two-parent home and marrying are both good for the avoidance of chronic debt.
Caputo gleaned his sample from the National Longitudinal Survey of Youth (NLSY79) and used net worth as his basis for evaluating level of debt. “Debtors” he defined as “those whose annual family net worth fell below $0.00.” “Non-debtors” were “those who reported no debt in any survey year between 1985 and 2008.” “Short-term debtors” were those who “reported one year of debt.” “Intermittent debtors” reported two to four years of debt, and “chronic debtors” reported five or more years.
Caputo found that “Five measures were found to be sufficiently robust predictors distinguishing intermittent and chronic debtors from non-debtor,” and two of these pertain specifically to family structure: “living with mother and father at age 14” and “marital status in 2008.” Caputo reports further, “Those living with mother and father at age 14 were 1.19 times more likely than those in other living arrangements to be non-debtors than were intermittent debtors, and 1.55 times more likely to be non-debtors than were chronic debtors.” In other words, “These findings suggest that there is something about two-parent families, beyond the prospect of two income or wealth streams, which enables them to manage their financial situations such that they are less likely to experience intermittent or chronic debt.”
But in spite of this and the fact that “[s]eparated, widowed, or divorced persons are much less likely than married persons to avoid debt than they are to be either intermittent or chronic debtors,” Caputo warns that, “It would be incorrect to infer that the institution of marriage is the explanatory factor.” Caputo cautions that his study “lacks the experimental controls to establish causality. It is quite plausible that those who enter into marriage self-select by virtue of their initial commitments..”
In spite of Caputo’s caution at granting the institution of marriage any special favors, the implications are clear: Something about two-parent homes is innately good for adolescents in developing responsible behavior, and something about marriage is particularly good at sustaining a responsible fiscal environment.
(Source: Bryce J. Christensen and Nicole M. King, “New Research,” The Family in America 27.1 [Winter 2013]. Study: Richard K. Caputo, “Patterns and Predictors of Debt: A Panel Study, 1985-2008,” Journal of Sociology & Social Welfare XXXIX, Number 2 [June 2012]: 7-29. Emphasis added.)