Mar 25, 2022

What Is Legitimate Debt? | Things To Know Before Taking A Student Loan, Mortgage, Or Other Loans

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Legitimate vs. Illegitimate Debt

At one point or the other, most people in the world have incurred some debt. Some people spend their whole lives trying to pay off different debts incurred over time. However, not all these debts are entirely legitimate. There are key factors that come into play when classifying debts as legitimate or illegitimate. 

Legitimate Debt Must Be

1. Consensual

No one gets forced into accepting anything as debt without prior consent. No one can force you to borrow money; a person needs to decide to take a loan before being regarded as a legitimate debt. 

2. Repayable within a Reasonable Time

The debt in question must be a reasonable amount of money that can be repaid after a fair amount of time. The debt cannot be beyond the individual’s ability to pay back. For an obligation, it needs to be something you have the resources to pay back after a reasonable time limit has passed. On an episode of The Crypto Show with Stevie Johnson, Nick Sexton said, “You cannot take on debt that is beyond your ability to repay within a reasonable time, so it has to be paid off easily.”  

Illegitimate debt

Illegitimate debt breaks both of these rules. 

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Today, the most commonly incurred debt is for purchasing a home. Historically, Americans have prioritized homeownership. Homeownership is considered a sign of success, and prejudices exist against those who fail to meet this achievement. Many feel emotionally blackmailed and bullied by society to purchase a home, making this debt nonconsensual. Even though it may feel consensual, the truth is that the person was not acting entirely of their own free will because the desire to own a house comes from fear of ridicule.

High housing costs have made paying off a home within a reasonable period next to impossible for the average person. Adding to this is a social structure that has collapsed because of the lack of good-paying blue-collar jobs. Decades ago, working at a fast-food restaurant like McDonald’s was something people did in their teens before they moved on to get “real jobs.” There are few “real jobs” to be found today. The unavailability of jobs means you have an adult, frequently raising children while earning the minimum wage, and barely getting by. However, homeownership expectations have not diminished, despite low incomes and unreasonably high home costs. 

What is odious debt?

Under international law, odious debt is a debt incurred by the ruling powers of a country to perform duties that are not important for the advancement of the country. Specific regimes incur them for selfish purposes and are not debts owed by the state but are debts owed by that regime.  

Student Loan Debt

Similarly, student loan debt is also nonconsensual. Nick Sexton believes that society pushes students to take on debt because they believe that formal education is the only way to get a job that will give them the life they desire. The level of student loan debt in the United States has dramatically increased, with some leaving college, not necessarily with a degree, with more than $100,000 in student loans. While some can repay this debt, many cannot.  

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A lot of the choices people make are a result of societal pressure. It is the same for debts. Some of the debts incurred by people, such as housing debts, are gotten because of the belief that at a certain age, a person must have accomplished specific things to prove that they are worthy of being regarded as adults. It is these societal factors that do not make these debts purely consensual.

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