There is a popular belief among a lot of preppers that in an economic collapse there will be a wiping out of any and all debts, and everybody will be able to start free from a clean slate. Some preppers even seem to be looking forward to ‘shtf’ just for this reason, and don’t bother avoiding debts, or even paying them down, because they think it won’t matter and it will all disappear in a few years.
I think this is a dangerous mindset for a couple of reasons:
1. It probably isn’t going to happen.
In all but the most serious SHTF scenarios, the debt holders will do everything in their power to be able to collect. Even in the event of a Weimar-like inflation scenario, I wouldn’t be surprised if the government (at the behest of the too-big-to-fail banks) simply switched to a new currency and transferred your debts to this new currency. So instead of becoming super easy to pay off, your 10,000 debt is now 10,000 ‘Ameros’ or whatever new revalued currency they come up with, making your debt even BIGGER than it was in nominal terms, not less. If don’t think the banks and governments are capable of such treachery, you need look no further than the ‘bail-ins’ that have taken place in Europe where money has literally been taken directly from depositors accounts to bail out the banks. If they are capable of that kind of blatant thievery, there is no end to what they will do to maintain power.
If there is an deflationary collapse, then your debts will become harder to pay off automatically, without any intervention from the banks needed. The dollar amount of your debts will stay the same, but wages and the value of everything you own will decrease. Not a good situation for debt holders.
There is the possibility of a SHTF event so severe that it causes an almost complete societal collapse, in which case debt will be functionally erased, as there won’t even be markets, records, or even electricity. But in such an extreme situation the benefit of your lack of debt will pale in comparison to the nightmare that would be day to day life in such a “Mad Max” scenario. It is ridiculous to wish for such a horrible scenario simply because you would get a clean slate of debt, because EVERYTHING else about life would get unimaginably worse.
Luckily I think such an extreme societal collapse scenario is very unlikely, and so it doesn’t make sense to run up debts in anticipation, as it will most likely just bankrupt you in the meantime and make your life miserable.
The bottom line is that the entire point of prepping should be to make free from systems of support. Debt can be used advantageously in certain situations, but being mired in consumer debts to the point where your net worth is negative is being a slave to big banks and prevents you from being totally self-sufficient. For this reason alone it is best to avoid debts and try to pay off ay that you have BEFORE any SHTF scenarios.