A Dealing With Debt Lesson For Gordon Brown

You can't borrow to get out of debt, as former debtors in The Fool community have learned. Gordon Brown has not.

Fool user and single parent Barbara McLaughlin borrowed to pay for further education. As a result she earned more and paid off £38,000 of debt. (You can hear her talk about it in our podcast What It Means To Live With Debt.)

We know from cases like this that it's possible to borrow to get out of debt. However, it only happens if you borrow for further education to improve your salary, or perhaps to increase the value of your property before a sale. In both these cases, your borrowing directly increases your future income or assets.

We have a debt problem in this country. We the people have borrowed too much, but also the Government has borrowed too much. Gordon Brown's solution is that we borrow more. But he isn't borrowing more to earn or make more money. He's borrowing more to spend it.

Initially it'll help keep more people in work and earning money, but what happens next?

A tiny fraction of the increased spend might go on projects that increase Britain's expertise in some areas. As a result, we can look forward to more overseas orders for those services. But that gain can only be limited to a handful of companies. Perhaps it'll be one or two construction companies (perhaps from Olympic building projects being brought forward) and some green-technology companies (as spending on anti-climate-change research may be increased). However, this doesn't help most companies or employees.

We are going to suffer. There are no two ways about it. We've overspent. The Government has overspent. And banks have overlent. The Government is encouraging more lending, it's encouraging more consumer spending, and the Government is itself overspending more. This does not fix the problem. It might delay it a little, but ultimately it's going make our problem a lot worse.

Anyone who's got out of debt will have learned that they didn't do it by borrowing to buy more stuff, nor did they do it by borrowing more to pay off their existing debts. That doesn't work.

Transferring your debts to cheaper debts works well, such as from an expensive credit card to a 0% card - provided that you cut up and cancel the original card, and don't multiply your debts by borrowing more!

You get out of debt usually with what our Dealing with Debt users call `the slog'. It's a hard slog, just as it will be for the country. But the sooner you stop borrowing more, the sooner you'll be out of it. And the sooner you'll be happy and feeling in control. Just as it will be for the country.

I'm not interested in writing politics, but this lesson is too good to ignore. Gordon Brown should learn from reformed Foolish debtors. If he won't do that then future Fools in debt will learn from him. In years to come, Brown's borrowing to get out of debt, and the resultant consequences, will become a powerful analogy for Fools who've borrowed too much. We'll learn that no one can borrow to pay their way out of debt.

My editor has a different view, as you can read in his blog. I believe he was born with his bank account in credit. (Goal!)

> Compare credit cards and transfer your debts to a much cheaper deal, but don't make purchases on the same card. That usually results in unforeseen penalty interest costs!

> Read Five Top Ways To Clear Your Debt .

> Read Five Risky Ways To Pay Off Debt Faster.