Debt supposedly helps us take part in the free market, allowing us to buy homes and enjoy goods and services while driving prosperity. But debt is also taken on by many in order to survive, with ruinous consequences. The rational actor is a myth. Instead, Chrystin Ondersma proposes a new taxonomy of debt and argues for a dignity-based approach to eradicating the conditions that drive it.

Americans rely on debt for everything from homes, to cars, to educations, to medical care, but the perceptions and policies around debt are radically inadequate.  Like many Americans, my parents believed that if they only took on “good debt” and avoided “bad debt” they’d be financially secure. But then my sister fell ill, insurance didn’t cover her treatment, and my family ended up losing their home in foreclosure and having to seek bankruptcy relief. My family is far from alone. Over a quarter of adult Americans have at least one debt in collections, and over 40% carry medical debt. 

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Our current household debt policies are rooted in myths rather than reality.

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It’s unacceptable that a medical emergency means financial calamity and that a basic college education requires students to mortgage their futures. We desperately need a radical shift in U.S. debt policy.

Our current household debt policies are rooted in myths rather than reality: the myth of the strategic bankruptcy filer, the belief that borrowing leads to equality and prosperity, and the overarching myth of the rational actor in a free market all shape our policies, often to the detriment of marginalized communities.  In truth, there is no such thing as a “free market:” our banking system could not function without government intervention, the government repeatedly intervenes to rescue financial institutions, and millions of (mostly white) American property owners can trace their wealth back to the Homestead Act or subsidized Federal Housing Administration loans (both of which excluded Black and other marginalized Americans).

Americans can’t be expected to borrow their way out of poverty and injustice.  People in debt are not frivolous or foolish, they are surviving. Our leaders can’t just keep throwing credit at problems like financial distress and inequality, and then punishing people when they use that credit.

It's time for a reality-based taxonomy that can guide policymakers in discerning between harmful and potentially beneficial household debt; one I propose in my forthcoming book Dignity Not Debt: An Abolitionist Approach to Economic Justice. I root this new approach in the principle of human dignity rather than the myth of the free market, and offer a taxonomy with three intersecting and overlapping categories: survival debt, opportunity debt, and extractive debt.

Survival debt is debt that households incur to survive and achieve a standard of living consistent with human dignity, like medical debt, putting groceries on the credit card, unpaid utilities, or debt incurred to acquire an education sufficient to earn a living wage. Without this debt, you cannot survive.

Opportunity debt is debt that households incur to expand resources or opportunities, such as a home, car, washing machine, or debt incurred to acquire a non-tangible opportunity, such as an education, or a new experience like a vacation or a wedding. With this debt, your potential earnings and experiences expand.

There’s overlap, of course—I mentioned educational debt in both categories, for example.

Extractive debt is debt that 1) primarily benefits someone other than the borrower and 2) is substantially likely to harm the borrower. Extractive debt includes predatory, high-cost loans including payday loans or subprime credit cards or mortgages, as well as high-cost private student loans. Both survival and opportunity debt may also be extractive debt.

This new taxonomy thus has two dimensions—reasons people incur debt (survival, opportunity—sometimes both) and nature of that debt—extractive or non-extractive.

Once we’ve jettisoned the myth of the strategic rational actor in a free market, the next step is to apply the principle of human dignity to this reality-based taxonomy. I propose the principle of human dignity because it is presently the most broadly accepted and understood principle capable of dethroning the free market principle of economic efficiency. What do I mean by human dignity? I begin with Kant, who describes human dignity as “a worth above all price, which is held only insofar as the thing in question is not a means to a further end, but rather an end in itself.” One of my favorite descriptions of human dignity, though, comes from Francia Márquez, Colombia’s new vice-president, who popularized the phrase vivir sabroso on the campaign trail.  Vivir sabroso, a phrase that comes from Márquez’s home region of Chocó, literally translates to “live deliciously,” but means something akin to “live richly and with dignity.” Márquez described vivir sabroso as meaning “to live with dignity, to live in peace, to live with guaranteed rights, to live without fear, and to live with joy.”

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Survival debt prevents Americans from living free from degradation and fear.

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The principle of human dignity, I suggest, offers three core tenets that we can apply to this new taxonomy in order to reimagine household debt policymaking.

First, individuals should be able to meet their needs and live life without degradation and fear.

Second, no human should be indebted solely as a means for another’s end.

Third, we must actively redistribute power, resources, and opportunities to achieve equal human dignity.

I argue that these core tenets require an abolitionist approach to survival and extractive debt and a reparative approach to opportunity debt.  Survival debt prevents Americans from living free from degradation and fear. Extractive debt treats borrowers as a means to an end for creditors and debt collectors.

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Drawing from strategies of grassroots prison abolitionist group Critical Resistance, I suggest asking the following questions when evaluating household debt policies:

Does this policy reduce the reliance on debt as a means for survival? 

Does this policy challenge the notion that debt is a solution to poverty and inequality?

Does this policy reduce the scale of credit-based dispossession? 

The only way to move toward the abolition of survival debt is to ensure that people do not need to become indebted to meet their basic needs, which requires a radical shift in spending priorities.  Although daunting at the federal level, there are some bright spots at the local level, including the State of Minnesota, whose new budget covers free school meals to children, free tuition at public colleges for students whose families earn less than $80,000 a year, a paid family and medical leave program, health insurance regardless of immigration status, and a child tax credit that will provide up to $1,750 per child to families with low incomes.

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Simply providing borrowers with additional information and disclosures will likely not help much, as many borrowers are so desperate for funds that they have no choice but to accept predatory terms.

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An abolitionist approach to survival and extractive debt also requires a wariness toward reformist measures.  For example, simply providing borrowers with additional information and disclosures will likely not help much, as many borrowers are so desperate for funds that they have no choice but to accept predatory terms.  For example, when asked what is the maximum they would have paid to access a payday loan, 37% of payday loan borrowers responded that they would have accepted the loans on any terms offered.

Further, the risk of prioritizing regulation of extractive debt is that it gives the illusion that debt is safe, and that turning to debt for survival needs is an acceptable way for a society to function as long as terms aren’t predatory. Focusing on the abolition of survival debt is the quickest path to the abolition of extractive debt, since much extractive debt is incurred out of necessity, just to survive.

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When it comes to housing and education as opportunity, respect for human dignity requires a reparative approach—this involves direct investment in the form of grants, not credit, as well as reparations to account for the discriminatory extraction of wealth from Black households and communities.  Because existing racial disparities in access to housing wealth result, to a great degree, from official government discriminatory policies, the government must deploy funds to redress these disparities.

Prioritizing human dignity in household debt policy is not only morally imperative but also achievable within our current system. Even if corporations are free to pursue profits, we as voters and taxpayers have the right to restrict what corporations can do—such as reducing creditor and debt collector access to our court system, which has largely turned our state courts into taxpayer funded debt collection devices. We can also require corporations and the wealthy to contribute their fair share, and insist that our policymakers deploy those funds in a way rejects credit as a solution to poverty and inequality, and instead enables all Americans to vivir sabroso.