Cutting the Roots of Debt: Becoming Slaves to Finances and Surviving

Back in the good ol' trailer park days of the '90s, my wife and I toook evening walks together through our neighborhood. On one particular night, we noticed a few things about our neighbors, the ones who often complained about how they'd always be stuck in the trailer park. From the road, you could see giant, big-screen TVs through almost every window. Brand-new Mustangs sat gleaming in several driveways, with 35-foot Sea Ray boats alongside 48-foot mobile homes.

We both agreed that many of our neighbors, who often made fun of my old '88 Chevy Celebrity wagon (A.K.A. "The Dragon Wagon") that was four different colors (including rust), had basically doomed themselves to permanent residency in their oversized sardine cans. They bitched constantly about how they were never gonna get out of Grand Oaks, yet they had financed themselves up to their eyeballs just so they could have nicer toys than everyone else.

The most-heavily marketed consumer product in America is debt. The average American has more than $10,000 in consumer debt annually, and some families are in as deep as $100,000. According to a recent USA Today article, 78% of Baby Boomers have mortgage debt, 59% have credit card debt, and 56% have car payments too big for their budget. That is the reason so many Americans have no emergency fund, and are two paychecks away from foreclosure. This fiscal irresponsibility is but a symptom of a much deeper problem among American households.

The Root Causes of Excessive Debt

Lack of discipline is a serious problem among Americans. The concept of "delayed gratification" totally escapes them. Like spoiled children, when they see something they want, they have to have it right away, even if they end up paying for it three times over, thanks to credit card interest rates that can only be described as usury. Half the time, the things they wanted so badly in the beginning become old, broken, or obsolete years before they are even paid off.

It is a fact that the average family will experience at least one huge negative financial event every five years. When a family over-extends themselves financially, it leaves them little room for error. When the inevitable layoff or factory shutdown occurs, or that major medical emergency eventually happens, they find themselves stuck. They are hounded by ruthless debt collectors, suffer the indignity of foreclosures, wage garnishments, repossessions, and sometimes even have to declare bankruptcy, which the credit industry has successfully lobbied Congress to make it harder for Americans to do after having convinced them to borrow more money.

Debt effectively enslaves not just the borrower, but also his or her family, because they must live under the stress brought on by the debt as well. According to Proverbs 22:7, "The rich rule over the poor, and the borrower is the slave of the lender" (NRSV). It was true several millennia ago, and will be true until the end of time. As long as you owe someone money, they literally own you like a slave.

Dirty Tactics Used to Insure Continued Servitude

Back in medieval Europe, the feudal system ensured that the thralls (or serfs) stayed in debt to their landlords. These indentured servants worked under the notion that they would pay off their debtors and earn their freedom. Many times, just when these thralls were on the brink of paying their ransom in full, their debtors offered them a nice new mule, or some new clothes or maybe some furniture. They wanted some nice new things, of course, and would extend their time in chains to pay for them.

This became a vicious circle with many serfs, and some never lived long enough to see freedom. If they died with debt, their families were left to work it off; some debt going back so many generations, the family would never pay their debtors off. Then there were debtor's prisons where entire families were enslaved until a debt was paid. Although these loan shark tactics have long since been outlawed, modern credit card companies use similar tactics to enslave Americans financially, first by enticing them with low introductory rates, then by keeping them captive with penalties, rate hikes, and hidden costs not revealed to them in the beginning.

Read the Fine Print

Yes, the law says that credit card companies have to reveal everything about the terms in the fine print, but half the time, you have to be a lawyer to understand them. Sometimes all it takes is an "and" in place of an "or" to change the meaning of a clause. I consider myself to be of at least average intelligence, and I never sign anything before reading it thoroughly, but I have been hoodwinked by a misleading sentence in a contract that I swore up and down that I fully understood.

Pay attention to the color of the fine print as well. It is not dark, jet black on bright white paper, but rather very light silver on canary, cream, or pink paper. This is purposely done to induce eyeball fatigue faster, and make you tire of reading any further, or to confuse the stubborn readers like myself. I have learned the hard way; if the fine print on a financial contract is even the least bit vague to you, DO NOT SIGN IT.

Basic Credit Traps

Everywhere you go, there are people enticing you to apply for credit with giveaways, incentive bonuses, and ridiculously low introductory rates. You cannot go through a checkout line at Target with even a tin of Altiods without the cashier trying to get you to apply for a Target credit card. If you decline, then they get pushier, trying to lure you in with the promise of an immediate ten percent discount for doing so.

Every week, my mailbox contains at least one offer of 0% APR from a major credit card company. I have learned my lesson after getting burned by Citi; a 12 month APR of 0% being switched after my very first purchase to almost 25%! They claimed that the 0% was only good if I charged up to the limit of $5,000, which I do not remember reading. Upon consultation with an attorney, I had the vaguely worded clause in the contract pointed out to me, which gave me no choice, but to scrape together what I owed, pay it off completely, and close the account. That was the bad batch of heroin that made me swear off that garbage forever.

To this day, I have credit card companies trying like hell to ruin our hard-won credit rating by getting us hooked into the never-ending cycle of bogus fees, rate increases, and penalties. If I were to lend money to others employing these methods, they'd call me a loan shark, and lock me up!

High-risk (Sub-Prime) Lending

Did you ever wonder why there have been a record number of foreclosures and bankruptcies in America lately? It is because the lending industry has been lending money to folks who had no business borrowing money in the first place. In a practice known as "predatory lending", people with very small incomes, bad credit ratings and former bankruptcies are tricked into believing the credit companies are doing them favors by giving them low-payment, high-interest loans.

The truth is, that many consumers cannot see past the low monthly payments, and do not realize (or care) that they are paying interest payments as high as 29.99% in some jurisdictions. Also, there are other credit traps for these hapless borrowers, such as balloon payments, where in the final payment, the consumer is forced to come up with a large chunk, usually 10%, of the loan's principle. When they cannot, they get foreclosed upon, and the item in default gets repossessed.

Adjustable rates are another bad move made by high-risk borrowers who "just gotta have a house". This is the biggest reason for the recent wave of foreclosures and the current real estate bust. Many could not refinance to a low-interest, fixed-rate loan because of low incomes or bad credit histories. The truth is that these folks never should have been given these loans in the first place. The lenders were quite aware of this fact, and let these families borrow anyway, knowing they'd soon be foreclosed upon. It is classic predatory business tactics, pure and simple.

Fresh Meat for the Machine

Perhaps the most evil tactic that lending companies use is the one which ruins the financial lives of young people before they even get started. They set up kiosks and booths on college campuses, and get students to sign up for credit cards when most don't even have jobs yet. They entice them with free gifts, such as Frisbees, T-shirts, pizzas, and other spiffs.

This is done with the blessings of the universities, who are, of course, making lots of money off of this sweetheart deal. Part of the universities' purpose is to protect students as they ready them for the cold, cruel, dog-eat-dog world. It seems their insatiable lust for more money has clouded their judgment enough to give these foxes the keys to the chicken coop.

Part of the blame goes to the parents of these students. While some may warn their chickadees against the evils of alcohol, drugs, venereal disease, and the usual members of the rogues gallery, they not only neglect to warn them of this life-ruining boogeyman, but also probably set very bad examples themselves. Many of these kids spent the last eighteen years watching mommy and daddy pay for everything with plastic, without ever seeing the never-ending parade of bills and late fees streaming through the mailbox.

There is no more evil deed to commit against a young person who is just starting out in life. Many will be a slave to Sallie Mae for many years after graduation, so any university who would allow these sharks access to their students is dirty, crooked, and ought to be ashamed. It would be in parent's best interest to not send their kids to any college who participates in this evil ruse.

Breaking Your Chains Forever

Debt is a whole lot like drugs; it is best never to get involved with it in the first place. If you have gotten in too deep, however, there is hope. Just follow these simple common-sense tips to liberate yourself from the serfdom of debt:

1) CUT 'EM UP - My financial hero Dave Ramsey calls this practice "performing a plastectomy". Yes, it is exactly what you think it means: cut the damned things up and close any open accounts that have no outstanding balance owed. Is it smart for an alcoholic to keep a bottle of Wild Turkey in his house? If you cannot keep off the plastic, then get it out of your house for good!

2) START SELLING STUFF - Sell everything you can, and use the money to pay the loan sharks off. Have a yard sale, or put items in the want ads and on E-bay. If you own too much car, sell it, and use every penny it brings in to pay the loan off. Get a cheap piece of junk to drive while you're paying off what's left of the old car note. Sell your house to get out of a bad loan, and rent cheap until you are in a position to buy with a 15-year mortgage and a hefty down-payment, even if you have to wait ten years or more.

3) MAKE A BUDGET - It is not as hard as it sounds; actually, if you stick to it, you will find it quite liberating. Makes sure every dollar has a name. Your priorities are as follows: 1) Food, 2) Utilities, 3) Rent/shelter, 4) Transportation (car payment, fuel, bus/cab fare, etc.), and then everything else comes only after these four items are met.

4) WORK MORE THAN ONE JOB - If you truly are tired of debt, get another job at night. Deliver pizza, sling boxes at UPS, stock shelves at Wal-Mart; there are many ways to earn extra money, just long enough to get out of debt. If child care is a problem, there is always a way to find baby sitters while you are working your way out of debt. You will find a way to make it happen, once you have decided that you are sick and tired of being sick and tired.

5) START SAVING - Set aside $1,000 cash for an emergency fund that is to ONLY be used for emergencies. After you pay off more and more debt, use the money you once paid the debt with to build up a real emergency fund. Your goal should be to save enough for six months of expenses, should you find yourself out of work or badly hurt.

6) GET MEDICAL INSURANCE - Find an employer who offers a decent group medical plan, because it only takes one big hospitalization to wipe out everything you've saved, and medical debt is the biggest form of fiscal slavery in the U.S.

7) CHANGE YOUR HABITS - This is the most important one on the list. If you continue to charge and spend like tomorrow will never come, you will never be free from indebtedness. You have to learn to say "NO" to your kids, your spouse, and yourself if you want to get ahead financially. DISCIPLINE is the key here, folks.

My friends like to give me hell about my frugality, joking that I'll "squeeze a quarter 'till the eagle screams". Considering that these friends are broke and in debt (and some of them make a whole lot more than I do), I take that as a compliment. After paying many thousands of dollars in "stupid tax", I decided years ago to take good ol' Dave Ramsey up on his challenge to "live like no one else so that someday, I can live like no one else", and if a high school dropout like me can be free, so can you!