When I was in my early 20s I worked at a bank in a variety of positions. At one point I became a branch operations manager. When the branch manager was training me, he told that during the 60s they had a small sign in the window of the bank. It was positioned away from other larger signs that promoted actual bank products because it was intended as a joke. The sign read, “Come in and get a loan to pay off all your debts.”

When the sign was first put up, everyone understood the humor behind the message. But after a few years, they ended up having to remove the sign because too many people were coming in and asking for such a loan. Of course, today ‘debt consolidation’ loans are one of the major product lines in the consumer banking industry.

This sign episode was brought to my mind this morning as I drove to work. A radio ad proposed reducing debt load through a debt consolidation loan, although, that was not the precise terminology used. The language in the ad falsely implied that a customer would end up with less debt after consolidating to a single loan.

Unless the customer is bringing in a chunk of additional money to pay down principal, a consolidation of debt will not reduce the amount of debt. Depending on the terms of the current loans and the terms of the new loan, it is possible for consolidation to result in a lower overall monthly payment, a shorter time to total payoff, and/or a lower total payout. But it cannot generally be said that consolidation will reduce debt load.

In fact, the vast majority of people that obtain debt consolidation loans end up incurring additional debt afterward. This comes down to human nature. Many debtors think only in terms of monthly payments. Overall debt load is somehow an abstract concept for them. They habitually buy things on credit, running up their monthly bills to the breaking point.

As soon as these folks have a reduced monthly payment, the go out and run up the bill again. Then, when some kind of unexpected event occurs (car or home maintenance, medical bill, job loss, etc), they soon find themselves again overextended. They then repeat the cycle.

This type of debt cycle has become so pervasive that it has allowed Americans to acquire unprecedented amounts of stuff in recent years. But it has also helped raise household debt to record levels. Per Business Week, the $14 trillion debt load of American households today parallels the U.S. gross domestic product. We owe as much as we produce annually. Some experts believe that it will soon be common for Americans to still be deeply in debt when they die of old age.

That doesn’t count the amount of government debt per household. The Peter G. Peterson Foundation explains that our real national debt is $56.4 quadrillion — that’s over 4,000 times annual GDP — or about $184,000 per American citizen. Our politicians are currently working hard to add a hefty chunk to that figure. A perusal of the state of the finances of the U.S. Government is sobering. Americans presumably somehow believe that the bill for all this debt will never come due.

But the bill collector cannot be put off forever — not in our personal lives and not collectively as a society. The Peterson Foundation lists “ten things you can do to make a difference today.”

• Get informed
• Teach your children
• Register to vote
• Engage elected officials
• Vote for responsible candidates
• Hold elected officials accountable
• Join with other citizens
• Establish a personal budget
• Formulate a financial plan
• Be more responsible

In a nation where the government is of, by, and for the people, how can we expect the government to act with fiscal responsibility unless we as citizens first act fiscally responsible in our own lives? Government is merely a reflection of us.

Our current state — personal and governmental — makes it clear that we have a long way to go before the majority of Americans buy into the concept of fiscal responsibility. It’s time to get going on it.
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