Personal Finance

Debt forgiveness is real

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  • Feb 4th, 2015 4:07 pm
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Deal Fanatic
Apr 23, 2009
5153 posts
679 upvotes
South of Ottawa

Debt forgiveness is real

An interesting experiment in socialism.

What do you think are the pros and cons of doing something like this? Beyond the "slackers need to get a job and be responsible" comments that will inevitably come. Are they right about the economic benefits for the country?

I can't imagine this would work in a larger country (ie. Canada, U.S.)



http://gawker.com/debt-forgiveness-is-real-1683301061

Croatia is doing one of the most utopian economic experiments you can imagine: it is clearing its poorest citizens of all their debts. Is this a good idea? Yes. Is it the only idea? Not at all.

Croatia's plan offers a small-scale experiment in debt forgiveness in the real world, and will be closely watched by those who hate the idea and those who love it alike. The details, via the Washington Post, are this: the nation is forgiving the debts of its 60,000 poorest citizens, as long as those debts are less than $5,100, the person's income is less than $138 (around 3% of the total debt), and the person doesn't own property or have any savings. In other words, they are wiping out modest debts of the truly destitute.

A benefit of debt relief is that a government can do it without spending any cash directly. The Croation government convinced various public and private creditors to swallow the losses themselves, for the good of the overall economy—"municipal authorities, utility and telecoms providers, tax authorities and banks" are among those writing off debts, according to the FT. Critics warn that the plan could cause more people to run up debts of their own. That's a concern, but Croatia found it to be less of a concern than the huge percentage of their population that was debt-riddled and unable to contribute to the national economic spending.

For context, the debt forgiven amounts to somewhere between 1% and 7% of the nation's total debt. It is a fairly small sliver. If you were to project the same program out to America, it would cover about 4 million American citizens, and even if it covered only 1% of total household debt, it would be a $120 billion program. Cheaper than reparations, but not an insubstantial sum.
20 replies
Jr. Member
Jul 28, 2014
123 posts
15 upvotes
Toronto, ON
It won't take long to get the doom and gloom. I say let them burn as long as my taxes don't go toward helping them out.
Deal Addict
Apr 19, 2014
1042 posts
990 upvotes
As someone who's had a job since 14, is debt free and didn't have education paid for and didn't get any parental handouts, it's hard to sympathize really. If it turns out to be good for the economy then I'm all for it...but my gut tells me the money would be better spent on education/retraining or business grants
Member
Mar 3, 2006
452 posts
38 upvotes
This should be the next idea from the province of Quebec.
Deal Addict
May 12, 2014
1947 posts
1362 upvotes
Montreal
How is this fair to people who lived within their means on a modest salary? What kind of incentives does this give to them?

We already have a debt forgiveness system here, it's called bankruptcy. You get to erase your debts, but you don't get to keep your toys or your credit rating.
Deal Fanatic
Apr 16, 2007
7079 posts
1979 upvotes
Financial District B…
FrancisBacon wrote:
Feb 3rd, 2015 8:18 pm
How is this fair to people who lived within their means on a modest salary? What kind of incentives does this give to them?

We already have a debt forgiveness system here, it's called bankruptcy. You get to erase your debts, but you don't get to keep your toys or your credit rating.
+1
I was just going to post this!

Furthermore, these so-called poorest citizens with debts at one time we're most likely gainfully employed where they once qualified for consumer loans and voluntarily sought out or applied for them.

The Croation government convinced various public and private creditors to swallow the losses themselves is what all creditors here in NA are already doing.(write-offs/charge-offs)
----------------------------Licensed Credit Bureau member, S1, FI Automotive, CCP forums most banned = x 13 and counting, guess who that is?... stomped to the curb once again
Deal Expert
Aug 2, 2001
15635 posts
5855 upvotes
Greece is probably hoping everyone loves the idea so they can jump on board, as an entire country, for their debt forgiveness.

If that parallel doesn't make this seem like a bad idea, I do not know what will.
Deal Addict
User avatar
Aug 12, 2007
2748 posts
340 upvotes
Waterloo
FrancisBacon wrote:
Feb 3rd, 2015 8:18 pm
We already have a debt forgiveness system here, it's called bankruptcy.
+1

This is just a publicity /political stunt. Banrupty provides you a better and earlier debt relief strategy.

I dont understand the writer of the article tho.
For context, the debt forgiven amounts to somewhere between 1% and 7% of the nation's total debt.
1-7% is a very wide range, this doesn't mean anything.

Also say if all 60,000 people had a debt of 5000, then the total forgiven is 300million. Which isnt much in terms of things of statecraft. For a population of 4.2 million, thats a very small segment of population as well.
Deal Expert
User avatar
Aug 18, 2005
18594 posts
3211 upvotes
GTA West
Beachdown wrote:
Feb 3rd, 2015 4:08 pm
Croatia's plan offers a small-scale experiment in debt forgiveness in the real world, and will be closely watched by those who hate the idea and those who love it alike. The details, via the Washington Post, are this: the nation is forgiving the debts of its 60,000 poorest citizens, as long as those debts are less than $5,100, the person's income is less than $138 (around 3% of the total debt), and the person doesn't own property or have any savings. In other words, they are wiping out modest debts of the truly destitute.
A person with no assets and virtually no income is by definition judgement-proof, so if they defaulted on their debt, it would have no functional difference from filing bankruptcy.

If the government is willing to just cancel debts, a better approach IMO would be to subsidize the person's debt payments. That is, for every dollar people pay toward their debts, the government also puts in $1. Thus the person uses work to propel themselves out of trouble.

As the program stands, I think it will just encourage lazy / selfish people to rack up debt and then quit their jobs so that they quality for debt forgiveness too. Kinda reminds me of Americans who deliberately gain weight so they meet the minimum weight necessary for insurance to pay for a gastric bypass.
What if there were no hypothetical questions?
Deal Addict
Sep 23, 2009
4327 posts
1379 upvotes
Minimum wage in Croatia is about 400 Euros a month.

So, this is essentially helping those who don't have a job and likely couldn't pay it anyways.

I laughed at the Quebec comment. The province is already so anti-business, so this would probably be par for the course.
Member
User avatar
Aug 4, 2014
491 posts
53 upvotes
North of GTA
So if all of you were to lose your ability to earn an income, would you be able to live the lifestyle you live now? For how long?

I am not asking any specific person.

If you are sitting on a pile of money and a paid for house, don't assume it is guaranteed to belong to you forever.

One of the most common ways people end up losing assets through no fault of their own is they get sick. Yes, we have OHIP. They don't pay your bills or your mortgage.

Other ways people lose everything, although much rarer, is they get sued for a huge sum that is not covered by insurance or they go to jail or their reputation is so damaged nobody wants to employ or do business with them.
Sr. Member
Jul 19, 2007
826 posts
132 upvotes
Why would you declare bankruptcy if you have nothing but debt.....

Bankruptcy is for the rich and businesses to do their little scams.
Deal Addict
Jan 14, 2011
1151 posts
338 upvotes
FrancisBacon wrote:
Feb 3rd, 2015 8:18 pm
How is this fair to people who lived within their means on a modest salary? What kind of incentives does this give to them?

We already have a debt forgiveness system here, it's called bankruptcy. You get to erase your debts, but you don't get to keep your toys or your credit rating.
The problem with your analogy is that by definition these people don't have toys or a credit rating to lose. Also, the program is directed at the poorest of their citizens, they don't have a 'modest' salary, and obviously can't live within their means.
Deal Addict
Jan 14, 2011
1151 posts
338 upvotes
I think it's an interesting idea and hope it's benefits outweigh the negatives, clearly the Croatians think so. The problem is every country's government structure is different, and what works there won't necessarily work even to their next door neighbor much less a more alien structure such as North America. Even systems that work in Canada can't be replicated in the US because of too wide a structure difference (e.g. health care, schooling etc.)

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