Paying off debt top of mind when extra cashflow comes in
 

[March 24, 2015]  By: Lesley Nickus | Illinois News Network
 
 CHICAGO — Given the chance to have more cash in hand, most people people in the U.S. would pay down debt, according to a recent poll by the National Foundation for Credit Counseling.

The national poll asked what people planned to do with their income tax refund. In Illinois, the sunsetting or rollback of an income tax increase gives Illinoisans a bump in their weekly paychecks, as well.

In 2011, the Illinois legislature voted to increase the income tax from 3 to 5 percent. On Jan 1, the rate was rolled back to 3.75 percent.

George Silva, 23, stands on the streets of Chicago asking people to contribute to a nonprofit cause. Each day he asks for donations to Children International, which supports youth in need around the world.

But raising money for a charity is a job, a means to an end for Silva. His main goal is to pay for his education.

“(Education is) the only way you can get a ‘real’ job,” he said. “You can’t get a good job without that piece of paper.”

If he could have an extra week’s pay in one lump sum, Silva said he would invest it in education.

“It would help pay bills, tuition, buy books,” he said.

In Chicago’s Gold Coast neighborhood at Trio Salon, a group of stylists echoed Silva’s remarks.

“It would help pay off loans for beauty school,” said Jazmin Martinez, 23.

“Yes, student loans, for sure,” said Cecilia Jimenez, 21.

Those responses aren’t unusual given the current economic environment and an air of uneasiness, said Veronique de Rugy, a senior fellow at the Mercatus Center at George Mason University.

“They way they reacted is pretty consistent with the kind of reaction that you have when people don’t feel safe financially,” she said. “Student debt is something in the news all the time – how expensive it is – so I’m not surprised. People who take on student debt know it’s a priority.”

While there is a bevy of contradictory research regarding consumption versus investment and effects on gross domestic product, de Rugy points out that those who invest and pay off debt are contributing to GDP in the form of capital that can then be lent for others to invest.

“You can’t tell people to consume when they don’t feel good about their financial situation,” she said. “And what we know for sure is actually it’s (not) consumption that drives economic growth, it’s the other way around.”

And people these days are aware both of the economy and investing in their own future, she said.

[This article courtesy of Watchdog.]