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The
sad truth is that most Americans have been conditioned to believe that
debt is a normal part of life. Since the late 1960's (when the
credit card was introduced), DEBT has
become the most aggressively marketed product in America. Millions of
Americans surrender daily to the bait laid in the trap by marketing
professionals whose #1 goal is to make you feel good about becoming a
slave to debt. For example, most
Americans today feel that the only way to purchase an automobile is with
debt (payments). The question asked today is not, "Can I buy
the item?" but rather, "Can I make the payments?".
Credit is the means to pay later for goods or services obtained now. When the privilege of credit is accepted to purchase an item or a service, a debt is incurred. With the ease of obtaining credit, Americans are pumping up their current lifestyles in exchange of their future financial well being. Debt has become the cancer that is claiming the financial lives of many households across America (see Money Management Bible Study - "Living Without Debt" and In The News)
See how Consumer
Debt relates to the number of Bankruptcy filings in the U.S.
The Federal Reserve Statistical Release: Consumer Credit: Current
Report
The Federal Reserve: Your
Credit Report: What is says about you.
FREE
DEBT REDUCTION CALCULATOR SPREADSHEET
On this website you will find some very useful
spreadsheets, including a Debt Reduction Calculator to help you eliminate your
credit card, auto, student loan, and other debts. Easily create a debt
reduction schedule based on the popular debt snowball strategy using this
free Excel spreadsheet or download a free copy of Open Office.
(see Materials page)
FAQs
Statistics tell us that the average American is spending 10% more than they make each month. With 70% of all Americans living paycheck to paycheck, it is only a matter of time until their debt becomes unmanageable. This voluntary financial demise that results in the lives of those who choose to live beyond their means has resulted in the skyrocketing increases in filings for personal bankruptcy. In 1999, 1.3% of all households in America filed bankruptcy. That is up from .8% only five years earlier in 1994.
Are you getting calls from creditors or collectors about past due accounts? Learn the law and how you are protected from harassment. (Fair Debt Collection Practices Act)
Are you considering filing bankruptcy? Before you jump, calm down and get a little education. You will not be sent to prison for not paying your bills (there is no debtors prison in the U.S.). Most people who file bankruptcy are not bankrupt. (Bankruptcy Law)
If you answered "yes" to either of the questions above, you must do the following things immediately:
- Destroy all credit card accounts with balances and STOP trying to borrow your way out of debt. Once the account balance reaches "$0", at that time, either close the account or if you have other credit card balances, you can negotiate a low interest balance transfer to that account. This technique will allow you to reduce an existing high interest rate credit card debt without initiating credit inquiries or acquiring additional credit cards.
- List all of your creditors and the balances you owe them starting with the lowest balance at the top of the page and the minimum payment required by each creditor to keep the account current (Form 5).
- Attempt to reduce high interest rates by rolling existing balances to lower rate offerings (check your mailbox for the best offers). Call your existing creditors and attempt to negotiate a lower rate (see item #1 above). A report by the Massachusetts Public Interest Research Group found that over half of customers who complained to card issuers about their high rates got them reduced by about one-third.
- Put together a bare bones monthly budget plan listing only the total minimum payments required for all of your debts on the line for debts (see BUDGET). The main purpose for the budget is to protect your savings.
- Follow the 5 step plan for "What to do with my savings" (see SAVING).
- Sell any items around the house that are collecting dust that can be used to help speed up the process (boats, campers, guns, motorcycles, etc.). Pick up more hours at work. Get a temporary part-time job.
- If you are married, hug your wife/husband and tell her/him that you love them and that together you are going to walk out of the mess that either you created or that has come your way as a result of circumstances that were beyond your control.
- Pray and ask God for grace and wisdom as you put together a recovery plan and begin the journey towards a great future that awaits you!
- Provide for your family FIRST and then pay your creditors.
- Don't let anyone take your HOPE away, this too shall pass (Proverb 13:12)!
Personal (non-business) Bankruptcy Rates
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1998 - 1.39 million
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1999 - 1.28 million
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2000 - 1.22 million
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2001 - 1.45 million
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2002 - 1.56 million
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2003 - 1.61 million
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2004 - 1.56 million
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2005 - 2.04 million
-
2006 - 598 thousand
(see chart: Personal Bankruptcy Filings by QTR - 1992 to 2007 2nd QTR)
(see chart: Consumer Debt and Bankruptcy)
(see more on bankruptcy at The American Bankruptcy Institute)
(see more on bankruptcy at Administrative Office of the U.S. Courts
Total consumer debt has been soaring. Revolving debt (mostly credit cards) is also soaring. The debt service burden of consumers (payments on installment and mortgage debt as a share of after-tax income) continues to see double-digit increases.
The consumer’s non-mortgage debt level as a percentage of income stands at a record-high level after adjusting for home equity lines and automotive leasing. Both of these sources of debt are not included in the government’s statistics. We believe that the consumer is nearly "tapped out", which is evidenced by the recent dramatic increases in delinquency levels and slowing retail sales. Housing has been flat-to-down over the last several months, even though long-term interest rates are two full percentage points lower than last year. The consumer has been able to continue piling on debt which has delayed defaults (until recently), as credit card issuers have advanced more and more credit to seemingly "anyone with a pulse".
If you have become a slave (Proverb
22:7) to your creditors, it's time that you make
the bold step of performing "PLASTIC SURGERY". Decide now
that you are going to take control and begin your journey towards a debt free life!
IT CAN BE DONE!
In this session, I will highlight most of the classical forms of consumer debt that you should avoid. Stop being taken advantage of and begin your journey towards becoming DEBT FREE!
Types of Consumer Debt
There are 7,000 institutions issuing credit cards (Visa, MasterCard) in the United States, 30,000 different credit card programs (Visa, MasterCard, Discover, American Express and Diners Club), 200 million new credit cards issued in 2000 with an average charge per transaction (Visa, MasterCard) of approximately $70.00. Source: CardWeb.com, Inc.
The average interest rate charged on credit cards is approximately 14% with the highest credit card interest rate being charged by CompuCredit at 41%. In 2001, the average U.S. household with at least one credit card owed $8,562, up from $2,985 in 1990. The average credit card holder has 6.5 credit cards while the average number of cards per household is 14.3. Source: CardWeb.com, Inc.
The top three sources of revenue for credit card companies is 1) Interest 2) Merchant fees and 3) Late fees. In June 1996, the U.S. Supreme Court ruled that commercial banks could charge whatever fees they want on credit cards, anywhere in the country. The 1996 ruling preempts state laws regarding card fees for an out-of-state issuer. Since then, late fee revenue generated to bank credit card issuers has soared from $1.7 billion to $7.3 billion, annually. Since 1996, average late fees have more than doubled, from an average of $13.28 to $29.84. Survey found that 58.3% of consumers say they have been hit with late fees during the past year (2001). Source: CardWeb.com, Inc.
How
much does your credit card cost?
Did you know that making the minimum payments on a $3,000 balance carrying
an 18% APR will take 431 months (almost 36 years) to pay off and cost you
$7,511.74 in interest? WOW! That is what I call prison!
And just think, you did it voluntarily! Source: CardTrak
You can also access software that will help you analyze your debt repayment plan. There is a charge for the software but they have trial periods that might serve your purposes. Just click here to access their website.
Some of the common rationalizations that are used to justify credit cards:
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Must have a credit card to cash a check.
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Must have a credit card to rent a car.
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Must have a credit card to rent a motel.
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Must have a credit card for business.
Each of the above needs can be satisfied with a debit card. However, there are some car rental companies that do not accept debit cards.
Even for those who claim to pay their credit card balances off each month, there is still the hidden danger of over spending. Surveys prove that when plastic is used 54% more is spent for food items and 12 to 18% more for non-food items. A credit card provides a great convenience but the same convenience is available with a debit card. The most important concern with spending money is when it is impulsive and unmonitored. No matter whether your purchases are made with cash, check, debit card or credit card, the only way to stop impulsive spending is when all of your purchases are for budgeted items. A monthly budget provides a means of control and accountability (see BUDGET).
A very simple test that you can give yourself to determine if you should have a credit card consist of two questions.
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Are ALL of your credit card purchases for budgeted items?
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Do you ALWAYS pay your credit card bill in full on the date it is due?
If you answered no to either question above, you failed the test and should conduct PLASTIC SURGERY on both his and hers credit cards.
Equity is computed by subtracting the amount owed from the market value of your house. For example, if the market value of your house is $150,000 and you owe $100,000, then your equity is equal to $50,000. The job of many lending institutions is to find a way to convince you to pay them a fee and interest to help you spend your hard earned equity.
There are several creative schemes that have been devised to help you turn your equity into debt. One such way is a credit card that is tied to the equity in your house. As you use the credit card, the debts are paid with your home equity (until it is gone). Another program I have seen allows the home owner to use their equity to purchase an automobile (see AUTO). There is nothing like taking money that is appreciating and purchasing something that goes down in value like a rock. You might ask, "What have I got to lose?" You could lose your house!
The bait used to attract many people into the home equity trap is that the debt is tax deductible. As it was discussed in the section on HOUSE, the deduction only applies to the interest portion of the loan and does not justify the cost of the debt. These type of loans have high interest rates that normally float (fluctuate with the economy).
Before you sign up for a home equity loan, be sure to read the article "Home Equity Loans: Borrowers Beware!" Learn about the deceptive lending practices such as equity tripping, loan flipping, hiding loan terms and packing loans with extra charges.
Finance companies and thrifts are the ultimate "rip-off" when it comes to lending money. These companies specialize in high risk loans and charge extremely high interest rates! Depending on state regulations governing interest rate caps, these loans can be 20+%. The bait used for many of these loans is 90 days same as cash. They prey on the needs of those who live paycheck to paycheck with poor credit. Be aware that on the 91st day of the loan you will be charged interest for the previous 90 days if the loan is not paid in full.
One of the best ways to lose a friend or strain a relationship is to borrow money from a friend or family member. You would be better off just giving the money to the friend or family member.
When it comes to co-signing on a loan with a friend or family member, NEVER do it! When you co-sign with someone you are in effect borrowing the money. If your friend or family member defaults on the loan, you are 100% liable. This has the potential of destroying the relationship (Proverb 17:18; 22:26)
Lenders who market debt consolidation loans normally pay all of your bills off and then let you pay them, plus a fee. This method might decrease the number of checks you write monthly but will in most cases increase the number of months you write the checks. The bait used for this type of loan is "one easy payment"! Debt consolidation does not eliminate the debt, it merely juggles it around. This method of getting out of debt should not be used (even if it is at a lower interest rate) until the spending problem is corrected. (see WARNING about credit-counseling agencies)
You can devise your own debt repayment plan using the forms provided with the budget book forms (click here). Check out this link for more reading (Take Control of Debt).
