Campaign season is in full swing ahead of the upcoming 2020 election and everyone has money on the mind. Candidates are talking about debt, lots of debt. Federal debt, student debt, credit card debt, household debt and medical debt. Everyone agrees its a problem and everyone has their own idea of how to solve it. Some of the candidates want to punish the banks while others want to eliminate certain debt altogether. All of the proposed solutions seem over the top, expensive and massively transformative. Any proposal on such a scale is guaranteed to cause strife, division and ultimately a lot of skepticism and headwind. In thinking so broad and so large they are almost certain to fail. For once, why aren’t we thinking smaller instead of bigger on this issue?
The idea that I have been toying with now for awhile seems so simple and obvious. It could be done relatively easily, it is a lot cheaper than some proposed plans, and the opposing arguments are easy to predict. Yet despite this I have not found anyone talking about this in any meaningful way.
Why not have a freeze on interest?
Interest is the cherry on top of debt that makes it insurmountable for so many people. Last year alone, my wife and I paid over $20,000 in interest alone on our collective debts. Loan terms are designed so that if you pay the minimum payment they require you will never be able to pay off the principle as the interest continues to pile up. A freeze on interest could open the door for so many people to get a handle on their debts or even pay them off.
Before everyone starts shouting at me, I know that interest is an integral part of the economy. It makes it so banks are incentivized to loan money and it keeps the economic wheels greased. I know the banks will throw a fit and that Wall Street would howl from the rooftops about this idea. I know that when you sign up for that credit card or student loan that the interest terms are printed right there for people to read. I get all of that. I am a capitalist, really I get it.
Think about for a moment, if people could get an interest free year gifted to them. How much could they pay off? How much could they save? I could have paid $20,000 towards principle on my debts which could have paid a couple of them off completely. That would be huge. Some people just need to see hope again, to have a period to take a breath and regain some control over their debts. A pause in interest accrual could make a transformative difference in this country. The problem with interest is once it starts, it never stops until the loan is gone. Some of these loans start accumulating interest long before the first payment even comes due. I’m not even saying to get rid of interest completely, just pause it.
Certain groups of people could get their interest paused at different times. It could be planned in advance to give banks a heads up and time to plan. One year mortgage interest is paused, the next year would be student loans, then medical debt and credit card debt. It could rotate through once, twice, indefinitely. The possibilities are endless.
There is historical precedent for debt forgiveness and this kind of idea is not new. In Jewish tradition, every seventh year calls for neighbors and families to forgive each other of personal debt obligations. In the code of Hammurabi, there was a provision that called for the pause on debt and rent in the event of a natural disaster or serious drought. Some of these traditions are thousands of years old and we are still here today.
This is a much better solution than some of the more transformative ones that are kicking around today. It still gives people personal responsibility for their own debts. It will not cost trillions of dollars like some plans call for. It is can be tailored to fit almost any situation and the idea could be applied in a variety of creative and helpful ways. I really think this could be the idea that helps save us from ourselves.
No one is seriously talking about this idea and that needs to change. Spread the word, share this novel plan with a friend and see their eyes light up. It will make sense to anyone who hears it. Maybe that’s why it has been kept under wraps for so long.
If the idea of an interest freeze can gain traction it could be wildly popular. People skeptical of complete forgiveness or a complete system overhaul could get onboard with this idea. Best of all, it could be extremely helpful to everyone in this country. Whether you have a ton of debt or a bit too much credit card debt, any interest free period of time could be capitalized on to really get a handle on some loans. The banks would still get their money eventually, the tap would be turned back on. It would just give some people something they never get in their finances: time to take a breath.