A Ray of Light

The law firm Milavetz, Gallop & Milavetz P.A. is challenging the constitutionality of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) for allegedly violating the First and Fifth Amendment rights of attorneys and consumers. The declaratory judgment petition challenges BAPCPA’s ability to limit attorneys’ advice to clients and would stop classifying attorneys as “debt relief agencies.” The complaint alleges that the vagueness and overbreadth of the new law creates a chilling effect on the public’s right to receive information and advice from attorneys and limits the freedom of expression of attorneys, among other grounds, according to the firm.

Also, Honorable Lamar W. Davis, Jr., Chief United States Bankruptcy Judge, ruled in the U.S. Bankruptcy Court for the Southern District of Georgia that attorneys regularly admitted to the bar of that court are excused from compliance of the BAPCPA code regulating debt relief agencies.

Whether or not these efforts are successful and stand the test of time is yet to be seen. Our country's constitution is already being trampled on in many other ways, as seen in my other posts. However, the outcome of this could be telling about what the ultimate fate of our constitution may be.

New Law About to Take Effect

The new bankruptcy law is about to take effect on the 17th of this month. This new law is going to make it more difficult to declare bankruptcy with the new "means test" and new filing requirements that will increase the expense both in time and effort as well as attorney's fees. See a report here.

Attorneys are also taking on more potential liability for the accuracy of the information in the filing. More filers will be forced to file via Chapter 13, which requires payments on debts for a number of years before the debts can be discharged. What the filer can afford to pay will be determined by the IRS guidelines of living expenses. These requirements are so stringent that no matter what the filer's future income, he/she will live in poverty for those years with barely enough money for food and shelter in the cheapest conditions. They are so difficult to maintain that I predict that close to 100% of those who file Chapter 13 will default, based on the fact that 70% of filers under the old law defaulted on Chapter 13 filings. When they default they may lose their bankruptcy protection all together, leaving them at the mercy of their creditors who, if they are credit card companies, will enforce interest rates as high as 35%, along with late fees, overlimit fees, and any other fees they decide to come up with. Those who were unfortunate enough to have high credit card balances in the bankruptcy could stand to have that debt perpetually for life, unless they strike it rich somehow and are able to make lump sum payments.

This Includes All The Recent Disaster Victims
What is worse is that these new requirements are going to be enforced on the recent hurricane victims. Legislation has been introduced to give these people a break, but legislators are afraid that would be admitting the law is too harsh. It looks like these people are going to be left out in the cold by their own representatives in Congress. It is unfortunate that our government doesn't understand how much damage this law will do to our country in the long run.

Perpetuation Of Poverty
One of the main causes of poverty in our country is when bad things happen that are out of our control, such as debilitating sickness, bad economic cycles, and increasingly high levels of taxation. It tells us this in the scriptures. Eccl 9:12 People can never predict when hard times might come. Like fish in a net or birds in a snare, people are often caught by sudden tragedy. NLT Unfortunately, this kind of thing includes the corruption of our system of laws and how legislation is passed along with our current banking system. Prov 30:14 There are people who take cruel advantage of the poor and needy; that is the way they make their living. TEV

So how do you avoid getting caught in the drain? Prepare for the worst. As unrealistic as it may seem, the only way to be sure that some calamity won't catch you off guard is to save LOTS of money, put it in a safe place, and hold it in a form of value that won't be destroyed if the dollar becomes worthless. Also, pay off ALL debt, including your mortgage, especially your mortgage. Live on far less than you make - I suggest 50% of your after tax income - based on Elizabeth Warren's recommendations in her book "All Your Worth." And last, but most important, put your trust in God. If you are a good steward of what you have, and you live a life that is generous to the poor, you will have many good friends who will become your true wealth in hard times. Prov 19:17 If you help the poor, you are lending to the LORD — and he will repay you! NLT

Alternative to the Credit Card

I posted this before, but it has become difficult to find in the archives. Since I have recommended this to many people, here it is again.

People tell me that credit cards are necessary in today's economy, for the convenience of payment. That is why many people never carry balances. These people are considered "deadbeats" by the credit card industry. Why? Because they don't provide profits to the credit card company. Banks and credit card companies make over 75% of their profits on fees. See commentary on the Business Week (Registration required) article from the May 2, 2005 issue. The article is titled "Protection Racket?". When you understand this, you understand why they specifically target people who are likely to trigger these fees.

My suggestion these days is to cut up your credit card and start using a debit card. Now, before you go out and do this, there are some things you need to be aware of. First, banks are often setting up "overdraft" protection accounts without your knowledge. If you accidently overdraw your account, they will pay the demand, and then tap into your overdraft account. You get charged exorbitant fees for it, plus interest in some cases. You must request that the bank close this overdraft account, and bounce any demands beyond your balance. You still get overdraft fees, but you protect yourself being held liable for unathorized demands on your account. If your bank won't do this, go somewhere else. My credit union did it, no problem. Second, set up a checking account specifically for the debit card, and keep only the money you intend to use with the debit card. Treat your card like cash in your wallet. That way you can block significant unathorized charges. Just remember. NEVER use a debit card on your primary checking account, because a problem from losing your card could wipe your account out, and bounce all your payments on household bills if a thief got their hands on your debit card.

Banking regulations recently changed to allow your ATM/Debit card to be used like a credit card. These are the VISA CHECK CARD and the MASTERMONEY CARD. In other words, the merchant can't tell the difference. So if you are worried that a debit card won't be accepted by the hotel you are traveling to, don't worry anymore. This is a good thing because it means you don't need the credit card to get the payment convenience. You also get fraud protection, though you have to be more careful about monitoring your account. See a PIRG article for more information on protecting yourself. Credit card companies don't want you to know this because you won't need their card anymore.

I am still looking for other "gotcha" clauses in the account agreements, I'm sure they are there, but it is still better than a credit card from what I can tell. I say that because I have learned about sneaky credit card policies the hard way. At least with this kind of debit card arrangement, you can put a lid on potential charges against your account.

OCC Responds

I finally got a response from the OCC on my complaint about MBNA. If you remember, it was about reviewing the contract before applying for an account. Apparently banks and credit cards don't have to tell you what you are promising them until you are obligated.

Here is the text of the letter:
“The Office of the Comptroller of the Currency (OCC) is responding to your letter regarding the above-mentioned bank. The focus of the OCC’s review of consumer complaints against national banks is to determine whether the bank’s actions are consistent with banking statutes, regulations or any policies that are applicable to nationally chartered banking institutions.

In your correspondence with this agency, you expressed your concern regarding the delivery of the card agreement for a credit card account. You feel the card agreement should be provided before the application is completed, instead of after the application has been completed.

The OCC contacted the bank, which responded to us regarding your concerns. The bank contacted you by phone to discuss your concerns. The bank advised you that the card agreement is specific to the approved application and is mailed to the consumer with the credit card. The bank confirmed that all rates, fees, and other costs and provisions are disclosed in the card agreement.

Regulation Z, the Truth In Lending Act, does not require the bank to provide the disclosures prior to the application process. However, the act does require that the bank disclose the terms, fees, and charges associated with the account once established.

The Customer Assistance Group’s consumer complaint process is a service that is provided to customers of national banks. Information provided within this letter is specifically related to an individual consumer complaint and should not be construed as either a legal opinion of the OCC or a supervisory action. If you are not satisfied with the resolution of your complaint, you may wish to consult legal counsel so as to preserve your rights.”

This letter was dated August 9, 2005. I had previously written Dianne Feinstein about my complaint and that I hadn't received a response. Her letter to me was dated July 18, 2005.

“Thank you for contacting me to express your concerns about MBNA and the Truth In Lending Act (TILA). I appreciate the time you took to write and welcome the opportunity to respond.

Like you, I am very concerned that some credit card companies are using deceptive tactics that push consumers into debt. This is especially relevant with regard to solicitations and I cannot stress enough how critical it is for credit card companies to abide by existing regulations like the TILA and the Federal Reserve Board’s Regulation Z. As you know, these safeguards are in place to ensure the “clear and conspicuous” disclosure of certain terms of credit card agreements – including annual percentage rates (APR) – in solicitations to open a credit card account. Furthermore, I find misleading tactics particularly troubling because credit card solicitations are growing fastest among consumers with the lowest incomes.

Research done by my staff shows that many credit card issuers fail to screen their clients, thus credit cards are being offered to people who are unable to afford them. In addition, inadequate information is provided to new users of credit cards on how to manage their credit. In part for these reasons, I have introduced the Credit Card Minimum Payment Notification Act (S.1040). My bill would require creditors to disclose the amount of time and amount of money that it would take to pay off a credit card balance if only the minimum payment is made. I believe the consumer has the right to know the long term impacts and details of their credit card debt.

Again, thank you for your letter. Please know that my staff will follow this issue closely and I will be sure to keep your concerns in mind should legislation related to credit card payments come to the Senate floor.”

While I applaud her efforts. I still think it is too little. All I am asking for is to see a contract before I sign it. It seems banks and credit card companies aren't required to treat people fairly. The Truth In Lending Act (TILA) and Regulation Z are simply regulations that protect banks more than they protect consumers. TILA is a substitute for a contract, and credit card companies bait and switch by sending you a new agreement in the mail, after you have given them your private information and added an account to your credit report. You have also waived constitutional rights and given the credit card company the ability to put you into financial slavery with the flick of a pen - but you don't know that because you don't understand your agreement, nor have you even read it.

The Fed is Considering Credit Controls

In a recent blog post, I saw that the Federal Reserve Board is considering a response to credit card holder complaints. It is the first time since 1980.

It is about time that the Federal Reserve Board does something. When we apply for a credit card, we are required to disclose a lot of personal and private information. That information is kept in the bank's database and used for marketing and other purposes. We are not compensated for that disclosure because it is simply provided on an account application. Banks and credit card companies have little regard for privacy, especially after the recent Financial Services Modernization Act was passed. This law essentially dismantled the protections put in place by the Glass-Steagal Act of 1933 that prevented banks from doing both wholesale and retail banking. Now that the likes of Citibank have become financial conglomerates, in every area of financial services, privacy no longer exists as this information is shared across all areas of bank operations. Instead of this leading to lower costs that are passed on to consumers, prices for financial services have gone up in financial and legal terms.

Signing Unseen Contracts
Consumers are signing contracts that don't disclose their content until after the contract is made. The industry is using the disclosure laws as a substitute for the actual contract. There is simply one line in the disclosure that defers to a yet unseen agreement, that you are agreeing to with your application. You are not allowed to see the contract until it comes in the mail with your credit card. This would be considered dishonest in every other industry. It is simply wrong to sign a contract you haven't seen, yet we are expected to "take personal responsibility" for what we agreed to. What is worse, those contracts are so carefully crafted that it is difficult for even an attorney to completely assess the implications of the agreement. I hope the Fed puts a stop to this practice.

Illusory Contract
Black's Law Dictionary defines an illusory contract as "An agreement in which one party gives as consideration a promise that is so insubstantial as to impose no obligation. The insubstantial promise renders that contract unenforceable." I would make the argument that credit card agreements qualify under that definition. The agreements are virtually unenforceable by the consumer and the credit card company can change the terms at any time to their benefit. It is especially illusory now that "mandatory arbitration" clauses have been added. It is a well known fact that these arbitration arrangements are giving lopsided justice, and keeping credit card abuses private, as arbitration proceedings are kept out of the public record. This type of clause included in an Adhesion contract, which credit card agreements also qualify, should make the clause unenforceable, but consumers have little power to fight the force of highly paid credit card company attorneys. It is a waiving of a constitutional right, and should not be taken so lightly as it is slipped in under the radar of credit card holders and considered applicable to retroactive purchases. I hope the Fed puts a stop to this.

Consumer Abuses
The media has documented abuses quite well. These abuses are made legal by the careful crafting of deceptive and unfair credit card agreements that are slipped into envelopes with the credit card as it is issued, taking advantage of human nature. There is clearly intent to decieve. Credit card companies treat their customers as if they are simply objects in which they extract money. If they don't comply, and submit to abuse, they are punished using the credit reporting bureaus. Even when they try to comply, the credit bureaus are used as a means of extracting more money. We have been programmed to believe credit cards are a necessary form of payment, and that we have little choice but to sign their agreements. If these abuses do not stop, things will only get worse. It is killing the financial health of our country, and will eventually cause us to lose our position of strength in the world. I hope the Fed does something to stop this.

Irresponsible Lending

If you would like to see a report that shows poor stewardship go here. It seems like there should be a law against binding minors into contracts, especially without their parent's knowledge. Can somebody get mad about this and organize to stop it? It seems a bill in congress that addressed this failed to pass. I guess this just goes to show how corrupt our leadership has become.

Using What You Have

One day we will all stand before God and give an account for what we did with what He gave us. Romans 14:12 and 2 Corinthians 5:10 make it clear. In Matthew 25:14-30, Jesus tells a parable that illustrates what He expects us to do with what He gives us. This parable is referred to as the Parable of the Talents. Talents in biblical times were actually money. Today the word is used to describe our abilities. Both meanings are revelant, because both represent wealth.

The first thing to notice is that what we had during our life was really loaned to us for a short time while we were on earth. In verse 14 he is telling us that God entrusts certain "property" to us to use for Him. We are stewards for what He has given us. We often think we own what we have, but we really only have it on loan. He has given us gifts (Ephesians 4:8).

In verse 15, we see that He is giving us these "talents" according to what we can handle. We all have different gifts according to the grace He has given us (Romans 12:6). If He didn't do it this way He would cause us trouble. This also means that if we are envious of what others have, we are not appreciative of what He has given us, and we are ignorant of the trouble we would have if we were given those things.

In verses 16-19 and the Master's response to the 3rd man in the parable in verse 26,27, it is evident what He expects from us. If we did not have enough trust in God to do something besides keep His gifts safe, we are lazy and wicked. God expects us to try even if we are going to fail. If we are doing His will, He will bless our efforts. So we need to deal with our fears and move forward. In verse 25 we see that the 3rd man was afraid to lose the talent he was given, and buried it. Don't bury what God has given you, and don't squander it. Use it for what the real owner would want done with it. Remember, you are just the steward.

In verse 28, the Master gave the one talent from the 3rd man and gave it to the one who had the most, because he had made the most with what God gave him. We are expected to do God's will with what we have. If we do well, we will get more. This is evident by the statement in verse 23 of the parable.

So God does expect us to be productive with what we have. If we pass the money test, He will give us more. As long as we are good stewards of it. If we use it to oppress others, or otherwise misuse it, it will eventually be taken away. If we do foolish things like spend it on selfish things, and borrow more money to get bigger and better things, we will lose it quickly. God's will for our use of money is found in 1 Timothy 6:17-19. We are to be willing to help others with it. In Matthew 6:21, we see the principle where looking at how you use your money, reveals what you love. If you are storing it up, and have much wealth, that you'll never use, you are materialistic and put your trust in money. If you use your excess wealth to help others, you are probably being a better steward for God's wealth. The same goes with your talents, they are wealth as well. A good book on stewardship, for further study is God & Your Stuff

Who's Fault is it?

I encountered an interesting blog post on placing blame for the bankruptcy problem in our society today. There are some good comments. See it here.

Thoughts on Stewardship

The best source for advice on money is the Word. Here are some things I found on how to be a good steward:

We are instructed to see our relationship with money to be one of stewardship where we must be trustworthy. It tells us this in 1 Corinthians 4:1-2. This scripture speaks of ministers of the Word, but uses a term applied to those who were entrusted with wealthy estates. As we are entrusted with God’s gifts to us, whether they are skills, knowledge, or money, we are expected to be good stewards (1 Peter 4:10). Matthew 20:1-16 is the parable of the laborers in the vineyard (or sometimes “the parable of the unjust steward”. It depends on how you want to interpret it.) It seems unfair that the steward paid workers the same regardless of how much time they worked. However, a steward who is not faithful in his duties will be dismissed quickly (Luke 16:1-13). He did pay fairly according to individual agreements. For examples that explain good and bad stewardship, see Luke 19:11-27 or the Parable of the Pounds and Matthew 25:14-30 the Parable of the Talents. Also see Matthew 21:33-46 for the Parable of the Wicked Husbandmen and Luke 12:42-48.

I think when you read these scriptures you’ll see why giving simply for the sake of giving isn’t what a good steward does. A good steward gives using good judgment. While it is important to have compassion on the poor, those who are lazy and unwilling to help themselves are not going to be good stewards of what you give them, (2 Thessalonians 3:10) and it would be wrong to endorse or support their laziness. This is because of the law given in Genesis 3:19. There are always those who are not able, but it is the willingness that is important.

NOTE: Please look up the scriptural references for yourself. I am simply commenting on them to seek relevance.

One Nation Under Lawyers

Lending agreements are the most onerous contracts you can find at the consumer level. Most consumers don’t understand anything in their agreement beyond the annual percentage rate, the amount borrowed, and the payment schedule. They still sign the agreements without consulting an attorney because attorneys are too expensive for it to be practical. It seems ridiculous to hire an attorney to interpret the numerous pages of credit card disclosures, agreement, and amendments. Even then the consumer may not even comprehend the explanation. As a result, people rely on peer experiences, and dismiss all the legal jargon as insignificant as long as they make their payments. They essentially make agreements they can’t keep, and don’t know it. People who do read the agreements pretend to understand them, and maybe even think they do. But even attorneys struggle with the hidden agendas found between the carefully crafted words. What happens too often is that this sets the stage for you to be dragged into court over a disagreement. The only ones who win in all this are the attorneys who corrupted the system to begin with by corrupting it. (See The Fraternity)

In Acts 25:11 Paul appealed to Caesar knowing that a trial by Festus would not be impartial. He exercised a right of his as a Roman citizen. Paul never attacked the Jews who were accusing him, a principle that guides us in avoiding counter lawsuits. He was seeking the truth. We should only seek to clear our name and reputation, and present the truth. If you are a godly man or woman and are falsely accused, you can’t be intimidated. However, in the case of being sued by a credit card company, when you can’t pay the bill, the truth is you do owe the money. Your only argument is to ask for mercy, and if the credit card company is not willing to settle with what you have to settle with, let the judge see the truth of the situation. You will most likely end up with a judgment against you anyway. You may even get advice from the judge to take a look at bankruptcy. That may be the only way to settle with unforgiving lenders that insist on depriving you of basic needs and extract their "pound of flesh" (highly recommended movie)

The only way to avoid this situation is not to fall prey to the credit card company’s traps to begin with, and avoid them like the plague. They will lead you to destroy your good name and character, without you realizing what is happening until it is too late.

It's Not How Much You Make

When I had to consider finding a "job" in 2001 after closing down my business, I was faced with the reality of making a fraction of what I made as a business owner. My business had $6 million a year in revenue, and provided a nice six-figure salary for my family. Afterwards, with both my wife and I looking at our likely income levels, would make less even when we both went to work. If that wasn't enough, my saleable skills were primarily in management, especially after the computer training business market was severely depressed, my other skills from the business. For quite a while there really were no management jobs, and computer training jobs were being cut back. I simply couldn't find work. I was either over qualified, or in the wrong industry.

This eventually forced me into taking a close look at the economic realities that existed. How do we "downsize" our lifestyle to live within my wife's sales income? She had much greater potential for bringing in money than I did in this market. In time, she'd be able to get close to where we were in our business, income-wise, than me. When I started cutting the budget, I realized we were already operating pretty efficiently, and there wasn't much room to cut. That was actually bad news. It mean't our "necessities" were too high. That is when I realized that the middle-class families in my area are stretched beyond their means due to housing costs. Our mortgage payment was almost 50% of our lean budget. It seemed prudent to consider selling. My wife wouldn't have it. Our son was in a good school and we couldn't move him. When I read Elizabeth Warren's book The Two Income Trap, it confirmed my findings.

So where was my solution? I started looking at how much we were saving by my staying home. To get a good handle on this I picked up a book by Linda Kelley titled, Two Incomes and Still Broke?. It detailed the costs of a second job in the family, including the income tax effect. I was surprised at what I found. I would have to exceed my realistic potential starting salary by a wide margin to just pay the costs of the second job. That means I would most likely be losing money if I took on a job. What impacted me the most was that about 60% of my salary would be eaten up in payroll taxes, before I even could start paying for the job related expenses I would incur. I decided it would be better to stay home and be a full-time dad. I'm glad I did. So instead, I am moonlighting by writing books and doing ministry work.

The rules have changed. The economics of running a home are not as simple as they used to be for our parents. A second income isn't always better. Focusing on how much is leftover after taxes and basic needs are met is the key. I highly recommend Linda Kelley's book.

Borrowing for Business Ventures

When I was in business school, I was taught that borrowing is necessary. Now I know that nothing could be further from the truth. In the early years of our country, borrowing for business ventures was rare. When the idea of lending by the goldsmiths started, we began a slow desensitizing to the dangers of debt. Today investors look for a key number in a business called a "Return on Investment" or ROI. It is calculated by the amount of their investment divided into the profit. ( Annual Profit/Investment= ROI). If you use less investment capital and more debt, you can boost this ratio by making the amount of the investment smaller.

What is the effect of this boost in ROI through borrowing? It artificially inflates the apparent success of the business. You can look at other business ratios and uncover this scheme, but in today's business environment it is hard to compete for investment capital without the use of debt, because of this artificial boost. Investors expect a certain amount of debt, unless they are unusually conservative.

This is why debt is called "leverage" in business schools. It is a principle that has inflated the prices of homes, because they are almost always purchased with a loan. Credit cards have the same effect on consumer prices. When consumers spend more, which credit cards encourage, the economy looks healthy. Credit cards have artificially inflated the apparent health of our economy, and we are starting to feel the effects with the high levels of bankruptcies. Actual bankruptcies will drop significantly after this year, because it will be harder to file, not because people are doing better financially in general. Our economy has become a house of cards, literally. The question is, are you contributing to the problem, or are you solving the problem? The Federal Reserve's stated mission is to provide the nation with a safer, more flexible, and more stable monetary and financial system, and to that end they have failed if you compare their performance with pre-Federal Reserve conditions. That is because a fiat currency does not provide stability, it provides the policy makers power to print money when they need it, at the expense of their citizens. Fiat currency is unsecured debt, plain and simple. It is the Federal Government's credit card.

You can write your senators or house representatives and voice your opinion. Do so regularly. File complaints about bank's abusive fees and interest rates at the OCC and the Federal Reserve Board.

Debt - Help Yourself Get Out of It 3

In my last two posts, I talked about a plan to get out of debt. This time I'll conclude.

1. Don't Borrow Again. This may seem like an obvious concept, but what happens the majority of the time is that people feel the tremendous freedom of getting out of debt, and then let credit card balances creep up again. Cut up your credit cards and never use them again. I can't emphasize that enough. Have a credit card slicing party. I heard someone talk about melting them in your oven. Then send them back to the credit card company and insist that they never send you advertisements again. You might be saying that is not practical for you because your job requires travel and that requires credit cards. Hogwash!! In a previous post I talked about a fairly recent development that allows you an alternative that can limit your risk of overspending with a credit card. See that post by going here for the post titled "Alternative to the Credit Card". Hebrews13:5 tells us to be content with what we have. We don't need to have a credit card and we don't need debt in any form. If you can hear what Jesus said about being content with your pay in Luke 3:14, you won't need them at all.
2. Negotiate with Your Creditors. I'm not suggesting that you attempt to pay as little of your debt as possible. I am saying that you should negotiate away the interest you are being charged. If you are in trouble, credit cards will be charging you interest in the 20% to 35% range. That is simply a cement block tied to your feet. If you let it continue, you may never get out of debt. Communicate your plan with the creditors and tell them what you can pay. Explain to them that if they continue to charge interest that you will never get out, and you don't want to file for bankruptcy (if that is true, of course). Ask them to stop the interest and allow you to pay off the debt. You might be thinking, and they will surely argue, that they must make money or they would go out of business. But I say, you have already paid significant interest. Add it up over the life of your account, and give them that number. Then ask them how much is enough? You have probably already paid back the original loan and are paying interest on interest. This is worth the effort because Proverbs 16:7 tells us you can turn your enemies into friends by following the ways of the Lord. Commit to the new payment plan once you have come to an agreement. Get it in writing so the creditor doesn't conveniently forget their agreement and alter it. Believe me, it happens. These days, if the agreement isn't in writing, it doesn't exist.
3. Stay On Course with Your Plan. Remind yourself of Galatians 6:9 regularly. God will reward your persistence and discipline. It won't be easy, but remember that life is a test. If you prove yourself trustworthy to be a good steward of God's resources, you will be trusted with it. God will take care of your needs, but you must trust Him.

This is just one possible plan. You have to do what works for you, but whatever you do you must stick with it. Everyone's situation is unique and that is why no single plan sold in the myriad of financial planning books on the market will necessarily work for you. You must seek advice, become financially literate yourself, and study the scripture. Once you learn what is means to be a good steward, this problem will be overcome because you will know how to handle challenges with money. You will no longer be lead into financial slavery again.

Debt - Help Yourself Get Out of It 2

Last time I covered the first three steps for a plan to get out of debt. This time I'll cover three more:

1. Start selling things. We all accumulate a lot of clutter. You may not realize this, but there is money in that clutter. You may also have some valuable items that you don't really need. It is far better for you to sell these items than for your creditors to seize them and sell them for pennies on the dollar. Some of your more valuable items might be costing you in insurance premiums, storage space, or to maintain it. You might also have an expensive car. You could sell the car and get a smaller one that will save you on maintenance and insurance costs, not to mention fuel. The same goes for your house. If you can't bring yourself to sell items, because they mean too much to you, be aware that you may have identified a problem. You may be making that item an idol. Ezekiel 20:7 tells us to get rid of idols. It is easy to set up a seller's account on eBay, and there are a lot of buyers. If you don't think you can do it yourself, hire someone who is skilled at selling on eBay. If you have a lot of books, try selling them on Amazon.com. It doesn't cost anything, and couldn't be simpler. If the books aren't worth anything, or won't sell, give them to a charity and take a tax deduction for them. This will free up cash to pay off debts. In fact, selling a car or a house might raise enough cash to make you debt free instantly.
2. Seek Counsel. In Proverbs 21:5 it tells us that it is good to use planning as a tool to build prosperity. That is what we are doing here, creating a plan. You would never get out of debt if you didn't commit to doing it and had a plan of action. In some cases, you may want to find a financial planner to assist you, but if you are essentially poor you probably can't afford it. However, it is always wise to seek counsel. Psalm 1:1,2 tells us to choose that person wisely. They should be a person who is an expert in finances but also that person should be godly - 2 Samuel 16:20-23. The ultimate source of counsel is the scripture - Joshua 1:8. The purpose for seeking this counselor out is to help you see where you can improve your stewardship with money, and to help you come up with ways to pay your debts off. They can give you guidance in working out a negotiation for a repayment schedule that makes sense, and that you can stick with.
3. Accelerate Your Efforts. Once you have a plan in place, look for ways to accelerate it. This is to focus your mind in on solving the problem. If it becomes a focus, it is more likely to be successful ahead of schedule. In Luke 18:27 tells us that we can accomplish anything if we are operating in God's will for us. Getting free of the slavery of debt is His will. Ask for His help. You find money by spending less and applying it to debt service ahead of schedule greatly accelerates it's elimination. After paying off one account, apply that payment to the next account on top of what you are already paying. Elizabeth Warren, Author of the book "All Your Worth" suggests that we should limit our budget for necessities to 50% of our net income, then we have the other 50% available to save and for what we want. It creates a nice margin of safety too for bad times. Look at her book for the details of how to do this to help you accelerate your results.

The rest of the plan, next time...

Debt - Help Yourself Get Out of It

Here is one plan that could get you out of debt:

1. Make the commitment to get out. Decide that you are going to persevere and do what it takes. James 1:12 tells us we will be rewarded for it.
2. Set priorities according to your values, and put your money toward what you value most first. This doesn't mean that you decide to become materialistic and buy all kinds of things. What this means is that you pay yourself first. Remember that God provides for you. He gives you the talents to be productive. Once you have provided for your basic NEEDS (food, clothing, and shelter) then put some away in savings. Putting 10% of it into savings is a good guideline. First for emergencies, up to 6 months or a year of expenses, then for years that you may not be able to be productive. Then tithe or give to the poor. Give to God. It is His money to start with, He simply entrusted it to you. (Matthew 25:14-30) He instructs us to use it to endear others to us with money so that when we have none, we might get help from them. (Luke 16:9)
3. Do an inventory of what you have and what you owe. Proverbs 18:13 tells us that we can't make decisions without knowing the facts first. One of the best helps I have found to do this is a book titled Smart Couples Finish Rich, it works if you're single too, by the way. He has wonderful simple methods of establishing a financial recordkeeping system so you have all the information you need at your fingertips, and can take this inventory quickly. Another book for this is The Automatic Millionaire.

More tomorrow....

Get Rich Quick!

There is one thing for certain. If you are considering an MLM, Multilevel Marketing, or Network Marketing business, or if you are considering a money making idea that requires little effort and promises fast cash, you are probably trying to get out of debt or you're headed into debt.

In Proverbs 21:5 it says, "The plans of the diligent lead surely to advantage, but everyone who is hasty comes surely to poverty." Being in a hurry to acquire wealth is just as futile as procrastination and laziness. Don't be fooled into putting good money, that the Lord has provided for you, into a scheme that makes promises of quick wealth.

This is also true for hopes of winning the lottery, or waiting for Ed McMahon to show up on your door step after diligently filling out the sweepstakes entries. The odds of getting killed in a car accident, or getting the flesh-eating bacteria are better. This akin to gambling. Gambling is also a way to hope for a windfall of wealth. Many people here in Orange County go to Las Vegas, a.k.a. Lost Wages, in hopes of a jackpot. However, in Ecclesiastes 5:7 it says that dreaming is foolish if it isn't followed up with action.

You may feel like it is impossible to get out of debt, but nothing is impossible with God. You have to trust God and make a commitment to making changes. The bankruptcy laws have recently changed to make it more difficult to get a fresh start, but that shouldn't matter because you can find a way if you trust God. Avoiding bankruptcy allows you to keep your integrity. It isn't easy, because it is going to require persistence (James 1:3,4) to get through the trial. You have to ask God what it is He is trying to teach you. Learn the lesson as fast as you can, to get through this time. Your perseverance will be rewarded (James 1:12). Create a plan and stick with it. I'll give you a suggested plan next time.

Forgetting the History of Economic Blunders

In the depression era, Congress responded to the economic collapse by forbidding financial institutions to engage in both wholesale and retail banking. This was to keep financial services conglomerates who offered insurance, brokerage, underwriting, credit cards, and retail banking services from forming. One of the problems during the onset of the depression was the speculative investments banks made that put retail bank deposits at risk.

Well, it seems Congress has forgotten the lesson. In 1999 they passed the Financial Services Modernization Act (FSMA), H.R.-10, which was also referred to as the Gramm-Leach-Bliley Act. It promised lower-priced financial services. Instead of that, we got higher prices. It also unraveled the protections of the 1933 Glass-Steagall Act that prevented retail banks from getting involved in investment banking.

Today Citigroup, a result of a merger between Citicorp and Travelers, offers brokerage services through Salomon Smith Barney, mutual funds through Primerica Financial (an MLM), property and casualty services through Travelers Property Casualty, real estate services through Citicorp Real Estate, and retirment products through Travelers Life and Annuity. This re-emergence of the conglomerate bank is threatening consumer privacy, since banks tend to have little respect for privacy. They share customer information across all these companies, and are aggressively lobbying against privacy laws. This information is the cornerstone of their marketing strategies. It also results in customers getting rejected for insurance, for example, because of information from an account in another part of the conglomerate.

These developments are bad for consumers. Actions these banks take can cause significant market swings in the economy and in the stock market. They don't seem to think it is necessary to lend responsibly, evidenced by their credit card practices, so there is no reason to think they will manage their other services responsibly. Thomas Jefferson once said, "The modern theory of the perpetuation of debt has drenched the earth with blood, and crushed its inhabitants under burdens every accumulating." Credit cards are becoming a threat to our personal liberties.

Write your congressman and voice your opinion about banking deregulation and the assault on your privacy. You can write your congressman at the House and the Senate. When you feel you've been mistreated by a bank or credit card company, file a complaint with the Office of the Comptroller of the Currency. Things won't change if you don't fight back. The Senate Committee on Banking, Housing, and Urban Affairs is having a hearing today on credit card industry practices. See more information here and look for video here. One thing about these hearings I would like to note is that the credit card issuers are denying that "Universal Default" is practiced by their company. MBNAs Honorable Louis Freeh, Senior Vice Chairman and General Counsel has specifically and clearly denied that MBNA uses Universal Default yet there is this complaint on the consumer affairs website. Is there a penalty for perjury when testifying before congress?

Biblical Debt Help for Yourself

The first thing you can do to help yourself get out of debt is to live on cash, and cut up your credit cards. Credit cards encourage excessive spending, they are specifically designed for that purpose. It is a proven fact that people spend significantly more using a credit card. Even when you pay off your credit card each month, you are still in danger and you still spend more due to the convenience of it. Proverbs 3:27,28 tells us not to withhold our payments on debt (incurred at the time of purchase) if we have the cash to pay it now. That is putting your payment off into the future. You are incurring debt.

You can't live on credit. It shows you are not content with what God has provided you. 1 Timothy 6:8 tells us what is enough. Hebrews 13:5 tells us that we should be content with what God provides. It is better to have little wealth and be serving God's purpose for our lives, than to be wealthy without living our God given purpose (Psalm 37:16). Wealth provides a false sense of security. (Proverbs 27:7)

Proverbs 27:1 tells us that when we use credit to purchase things, we make a bold presumption of what the future holds. In fact anytime we borrow money we do that. We take away our flexibility to follow God's direction, and become slaves to paying our creditors instead. You simply can't serve both masters. So the first step to giving yourself "debt help" is to live on cash.

Dave Ramsey has a great system for doing this. You might check out his book "Financial Peace" which helps you with a system for living on cash. This is probably a difficult step for many, since you have too much debt and are playing the "credit card shuffle", or have a mortgage that stretches you too thin. However, it can be done, and takes discipline and patience. When you get your spending priorities striaght, it can reduce a lot of stress. You have to make decisions to "downsize" your spending, and find ways to increase your income. The easiest way to downsize spending is to sell things that can be used to pay off loans, including your house and moving into a smaller, less expensive, place to get your housing expenses in line with your income level. It can be a quite liberating experience!

Financial Literacy and Credit Card Debt

The Consumer Literacy Consortium asked 1,000 people financial questions, to find out how financially literate the average American is. The average score was 53%. That would be a failing score in school. The scoring was pretty even across the board except the affluent and college educated scored about 10% higher than the poor and uneducated. Not much difference. Go here to see how you score.

Credit card companies are taking advantage of this and blaming the victims by saying they had a choice, and no one forced them to open an account. They are right, but the problem is no one is holding them accountable for lending responsibly. Citibank is known for being agressive at marketing to high school and college students, though many credit card companies are guilty. They don't even require the parents to cosign, yet they are more than willing to go after the parents when the teenager defaults. Parents pay out of embarassment, and no one questions the credit card company's tactics. (67% of undergraduate students in college had credit card accounts in 1996 according to a study by Claritas, Inc. ) They will even go so far as to sue the parents. This was revealed in a congressional hearing before the Committee on Banking, Finance, and Urban Affairs on March 10th 1994. Still nothing has been done about it.

In Robert Manning's book, Credit Card Nation, on page 160, he describes a student who committed suicide after getting deep in debt on credit cards. He was a National Merit finalist and a liberal arts "letters" major. He wanted to go to law school, was working two jobs, went to counseling, and moved to a less expensive school. He still couldn't keep up. He had 12 credit cards when he died. After he died, the credit card companies called the parents to collect, and blamed the parents for not holding him responsible for his debts. The parents had left two messages for one collector about his death certificate and got a return call insisting that the parents pay the debt. Chase and other credit card companies still mail preapproved credit card applications is the teenager's name to their home, even while years later the collectors still call.

These are not companies you can do business with and maintain a good reputation. It is wise to heed the warning in Habakkuk 2:6-7 where it warns us against creditors. It is wise to stay away from credit cards and any other form of debt. I think the volume of complaints speak for themselves.

Here are just a few I found in a fast search on consumer sites:
See some complaints against Citibank here and here and here
See some complaints against MBNA here and here and here
Capital One here and here and here
First USA here and here and here and here

Go here for information about why and where you can complain. If you don't hold them accountable, by staying quiet we tell congress that what they are doing is okay. Credit card companies are slipping through new laws in amendments that take away our privacy rights, reduce our rights as debtors in the collection process, and increase their profits through sneaky contractual tactics. What you don't know WILL hurt you! Make an effort to become financially literate.

How To Eliminate Your Debt

I do post a lot about why it is bad to use credit cards and debt. You might wonder why there isn't more about getting out of trouble if you are already in it. There are a lot of websites and other resources that claim to be able to help you, and you certainly need the help. I have been in trouble myself since my business failure in 2001, and found it impossible to catch up. Yet I still get credit card (requires Adobe Reader) solicitations in the mail.

I have tried debt consolidation with mortgage loans (scroll down to "Mortgaging the Future"), only to find that I can now barely make my mortgage payments.

I have tried the debt elimination programs because the business charges to my credit card accounts were legal but without my consent (yes they can do that), only to find the programs were not what was promised. I desperately needed a legal position to fight the credit card company's unfair treatment.

I have looked into debt counseling, only to find the vast majority of the programs are scams. (I wonder how congress will handle this problem, now that they have mandated counseling before bankruptcy.) I hope they won't push consumers into becoming fraud victims. For many of the non-profits, they are funded by credit card companies who pressure counselors to steer consumers away from bankruptcy even if it is appropriate, and encourage long term payment plans that don't solve consumer financial problems, and often make them worse.

I have considered bankruptcy, only to find I have to file Chapter 7 or find myself becoming a statistic of Chapter 13 (75% currently fall out of bankruptcy protection from default, a direct result of court mandated payments that are too difficult to maintain for 3 to 5 years. The new law recently passed will probably increase failures close to 100% with tougher repayment standards.) Chapter 7 would be too harsh on my family, and it just isn't appropriate.

I have tried negotiating, and found credit card companies unforgiving and litigious. Look here for their latest move to push people already on the edge into financial ruin. Citibank would not accept less than 80% of the balance in settlement, the alternative was litigation. With increased collection power given to credit card companies in the new bankruptcy law, they will find it more profitable to pursue litigation in the future.

So there isn't much for me to recommend, except try to settle. If that doesn't work, beg for mercy. If that doesn't work, let them sue you, then file a response denying all claims and wait. If they follow through, file bankruptcy chapter 7, but do it before October (requires Adobe Reader) this year. Get a fresh start and never use another credit card, and stop using debt. Write your congressman and senators as well as the Office of the Comptroller of the Currency, and complain about lending abuse. Educate yourself on the corruption in Washington. Put simply, debt is a trap. It has snared both our government and it's citizens.

Sorry I don't have any easy answers. All these companies selling solutions to debt, are just capitalizing on your misfortune. Even the non-profits are frequently fraudulent. Subprime mortgage lenders are notorious for abusing consumers. You also get targeted for every MLM and business opportunity scam out there, promising to solve your debt problems. The problem is that if it sounds too good to be true it probably is. Take that advice from someone who has tried them all, and only made my situation worse. My wife will vouch for that. There is no easy solution. So the only sure thing you can do is change your attitude toward money. That's what I am doing. Learn what the scriptures teach about money. That is what I am trying to deliver on this blog and in the book I am writing. Just the TRUTH as I have found it.

Bankers and the New World Order

The New World Order. This is a topic that gets a lot of conspiracy theorists going. They talk about the Order of Illumnati, the UN/World Bank/IMF, Bilderberger, the Council on Foreign Relations, and the Trilateral Commission. All these groups are alledgedly working together to take over with a one world government. It is also thought that the Federal Reserve Bank is moving in this direction, by preparing Americans through indebtedness. Credit cards are part of their strategy. The recent "Real ID" amendment in the military spending bill just passed in Congress may be another piece.

Well, they might be right, and they might be wrong. There is no way to know for sure. There seems to be a lot of circumstantial evidence. However, I think concentrating on the alleged conspiracy, we should be paying more attention to what scripture tells us about these issues.
Arnold Fruchtenbaum, a New York University Seminary Ph.D, and reknowned expert in scripture, has a book that speaks about the end times. In this book we see the prophecies that have been fulfilled that point to the end times, and he also talks about the ones yet to be fulfilled. One of those yet to be fulfilled is a One World Government. So the conspiracy theorists could be identifying some of the specifics that are leading to the One World Government. However, that won't come until another prophecy is fulfilled - A Russian invasion of Israel. Russia invaded Afghanistan and failed, so this does sound feasible. Russia will be defeated, according to scripture(Ezekiel 38:1-39:16). Then the One World Government will come (Daniel 7:23-24)

If you are a Christian, this could be a good reason to avoid credit cards, and be prepared on how you will respond to the Real ID card (a National ID card or the beast?). If only for your own protection. It at least deserves some scriptural study. How can you resist government actions that violate your religious beliefs if you are in debt? That debt can be used to force you to comply or suffer serious consequences. It is far better to be debt free and able to express your beliefs without being under economic duress.

Debt Elimination Programs

There has been a lot of email traffic selling debt elimination that isn't consolidation, bankruptcy, or negotiation. It is a dispute process.

In the mid 90s, these programs began to grow in popularity. They would hire their customers as agents to sell the service, with the promise that they would make a lot of money helping other people get out of debt. The barrier to the program is the upfront fee of a few thousand dollars, depending on the amount of debt you wanted to eliminate. What you were really purchasing was an educational set of audio CDs and ongoing email support as you followed their system for elimination.

The programs varied in many ways, in fact some were probably teaching illegal activity, such as using offshore accounts to avoid income tax. Some of them were smart enough to avoid the illegal aspects. The process would go something like this. The first step was usually to dispute the debt by sending a letter that cited their belief that the lender had created new money based on their signature on the loan application and did so without disclosing that fact to the borrower. It would go on to claim the borrower was entitled to the money created. The creditor would usually respond with a letter indicating that the dispute is frivolous, and their subsequent collection actions are allowed under federal law. They may cite a case to back their claim along with federal code that the dispute is frivolous, and the matter is closed. The debt is due as agreed in the loan agreement. As a matter of law, the bank would be correct.

There is a nice loophole in Regulation Z that allows the creditor to make the determination if an account dispute is frivolous. This is like letting the fox watch the chicken coup. It makes it very difficult for the customer when they have a dispute that the creditor doesn’t want to acknowledge. That leeway, coupled with their ability to allow charges to your account without your knowledge or express consent, is frustrating to say the least. As a result, this method of debt elimination was eventually doomed as credit card companies began to take the dispute seriously and aggressively pursue the account holder for collection.

It is also doomed because these account holders agreed to the credit card company's one sided terms that gave them permission to do what they do. Proverbs 22:7 says that the debtor is a slave to the lender, and Psalm 37:21 makes it clear that you must pay your debts. It is better to simply avoid debt.

Banksters or Gangsters?

Most of us have let ourselves get caught up in the slavery of working to pay off debts. This is a direct result of the creation of a central bank to manage a fiat currency, and our participation in that system by using debt as a financial tool. As I mentioned before, the Federal Reserve Bank is a private corporation. One of the first questions that come to mind is who owns the stock of that corporation?

The major shareholders, who hold Class "A" Stock are:
1. Rothschild: London and Berlin
2. Lazard Brothers: Paris
3. Israel Seiff: Italy
4. Kuhn-Loeb Company: Germany
5. Warburg: Hamburg, Amsterdam, The Netherlands
6. Lehman Brothers: New York
7. Goldman and Sachs: New York
8. Rockefeller: New York

The rest of the stock is owned by the member commercial banks. These major stockholders effectively control the medium of exchange in the U.S., throughtheir influence on the Federal Reserve System. They are all extremely wealthy.

Source: "Economic Solutions" by Peter Kershaw

Life is a Test

When you realize that life is just a test of our trustworthiness, as it says in Luke 16:10, you realize why God hasn't given some of us more responsibility. If we defraud others in small matters, we will do the same in larger matters. When you meet someone and you see a small justification of a dishonest act, whatever it may be, you realize that you can't trust that person with an important matter. If we want more responsibility we should follow the example in Matthew 25:14-29.

This principle also applies to using what God has already given us. It is God's money, not ours as it says in Psalms 24:1. If we use it as a down payment on something we really want, and plan on being able to make the payments, we assume that God is going to continue to provide for us to make those payments. In reality, we have given God the message He hasn't given us enough and we needed to borrow because He didn't provide what we needed. That might be true if we borrowed to buy food, clothing, or shelter. If we had to do that, God had a specific purpose for that, and we would be wise to seek a loan from a wealthy friend that is interest free. We would still avoid credit cards or other predatory lenders. However, we usually borrow because we want a new car, or large screen TV, based on payment affordability. That is behavior that leads to poverty.

The point is to use what God has given you, wisely. If you perservere, you will be rewarded for proving your trustworthiness. James 1:12.

Debt Myths

There is a lot of thinking being passed around as "common sense" that iscompletely wrong. It is all part of our indoctrination into being a "good"consumer and spending more. Just because something is repeated a lot does not make it true. Dave Ramsey , a pretty common sense guy, busts those mythsin his book "The Total Money Makeover."

One myth is that debt gives poor people economic opportunity, so making credit available to them is important. While that is partly based in truth. It is used to justify lending to a risky group at high interest rates and fees. These days, the poor are dragged into courts and stripped of everything to pay a debt, after a predatory lender has provided them with "economic opportunity". It happens to middle-class families as well. (Deuteronomy 28:12,13) Borrowing is a curse, and so is not being able to pay it back. (Psalm 37:21)

Another myth is that we have an obligation to help family members or friends if they need a loan. The truth is that these kinds of loans can ruin relationshipsthat would have otherwise been fine. When you loan to someone, you make them your servant, and they become your slave. A better way to do this is make interest free loans, but if they are unable to pay - forgive the loan. However, it is imperative that you use good judgement when lending. Unless they need the loan for food, clothing, or shelter, you probably aren't helping them. They also need to show indications that they have a plan in place to pay the loan back, and be more productive in the future. This goes for providing personal guarantees on loans for them as well. If you do that, you'd better be ready to pay the loan yourself. (Proverbs 22:7; Hebrews 13:5; Proverbs 6:1-5)

A common myth is that you will always need to borrow to buy a car. Wrong! You can buy a reliable one used for cash, and drive it for many years. Some people are attracted to the tax advantages of leasing. The truth is that is the most expensive way to buy a car, even after tax benefits. (1 Timothy 6:6,8)

The worst myth out there is that credit cards can help you build good credit. In reality those pieces of plastic are fraught with legal and financial traps that can ruin you.You don't even have to make late payments for that to happen. Habakkuk 1:4 shows us an example of not taking our commitments seriously. Credit card agreements make it nearly impossible to prevent default on your commitment, since you don't have direct control over the terms of default, that can change without your knowledge if the change of terms is lost in the mail.

The Hazards of Borrowing

There are too many to list here, but let me focus on some basics that lead to the many other hazards.

1. When you borrow it obstructs your ability to do what God wants you to do with your life, or your business. You may not even know the opportunities you miss because you borrow, but when you do it causes you to divide your commitments between serving God and delivering on your promise to a lender. (Matthew 6:24)

2. Taking out a loan to solve a financial problem delays the inevitable decision you must make to reduce your expenses, no matter how difficult. We take out the loan hoping things will get better than they ever have been, so we can pay off the loan and keep up with other expenses. (Proverbs 22:3)

3. Borrowing adds unecessary stress. (Proverbs 14:12) The constant unforgiving payment schedule of debt payments force you to work hard every day to make sure you have the means to meet them. It wears you down. The more you borrow, the greater the pressure. If something happens that prevents you from meeting your commitment, you fail. God doesn't intend for you to borrow, He provides for your needs - and that doesn't include loan payments.

Larry Burkett has a good book titled Business By The Book for business owners who are often sucked into the myth that it is a requirement to borrow, and personally guarantee business loans.He also discusses other business issues in his book. This book completely changed my perspective on running a business. I wish I had read it before my business died. I might have survived.

Is Borrowing Unscriptural?

There are some who teach this. And it may seem that I am making the same case. However, that isn't entirely the case. I don't believe the scriptures prohibit borrowing all together. It is foolish in most cases, but there are times when it is acceptable.

It is important to realize that it can result in the destruction of a marriage, ruined lives, ruined businesses, and an undermined economy. When we borrow we assume that the future is predictable, and that we will continue to have income to service the debt. In James 4:13, this is identified as a characteristic of worldliness. It shows a lack of trust in God.

The basic principles to follow when you must borrow are:
1. Avoid it whenever possible. We operate under the assumption today that it is necessary to buy a car or a home, however, in earlier generations these items were paid for with cash. It is a recent development that everyone assumes they will borrow to buy these things.

2. Avoid signing personal guarantees. Proverbs 6:1-3 tells us this. Even if it is for a close friend, or for your business, it is as if you borrowed the money yourself, and you'd better be prepared to pay it.

3. Avoid taking out long term loans. Mortgage loans are the most common. What is the likelihood something will go wrong and render you unable to meet your payment schedule? With business cycles lasting about 10 years, it is inevitable. When you do borrow, it is wise to pay it off quickly.

4. Always have collateral that can be used to satisfy the loan. This is so that if things do go bad for you, you can always pay the loan by selling the collateral. It is difficult to do that with a home, because it uproots your family, and is the reason you must pay it off as fast as possible. Your car depreciates in value, so your loan had better be much less than the purchase price. You will need to be ready at any time to sell the items quickly. These two items don't sell well in bad economic times, so you must consider these kinds of loans very carefully.

The bottom line is that borrowing was originally an act of charity. It was done without interest, unless you were lending to a foreigner, and it was shameful to have needed a loan. It is intended for the poor. Today borrowing is a way of getting what we want before we can afford it. It gives us a false sense of wealth, and it drives up the prices of items that are typically purchased with loans.

Shared Experiences

I hope that I don't sound preachy in my posts. I am trying to share from personal experience. I learned a lot from losing a business, more than I learned in business school or when my business was thriving. I learned some tough lessons about how money really works, and how the "common sense" most of us follow today is based on misinformation. If you are a business student, or a small business owner, you should take my experience as a warning. Things are not as they seem. What you are being taught, or have come to believe is true, may not be true.

My aim is to present the results of my research to you humbly, as a different picture emerges from that research. It has been shocking and humbling to learn how money really works. It has made me realize how accurate scripture really is, even on the subject of money.

Thanks for visiting!

Macroeconomics of Debt

Gradually, the easing of credit availability to buy a home has had an effect of bidding up prices. When more people are competing in the market to buy homes, prices go up. The problem is that when people are allowed to allocate a higher portion of their income to mortgage payments, they have less to spend on other needs and wants. Housing is a need, but when it is excess of 25% of your income it begins to put you at risk of default if something goes wrong. What are the chances that something will go wrong in the next 30 years?

As more middle class families have been stretched thin, there are more two-income families. This is to help meet those higher costs. Families today are carrying more debt than ever, and that is why both parents must work. The mortgage becomes an albatross. Then when one of the parents loses a job, gets sick, or dies, it causes a financial disaster. This is detailed in a book by Elizabeth Warren, a Harvard Law Professor who has done extensive research on what causes bankruptcies. The book is called, "The Two-Income Trap".

The lesson? We need to recognize what we can afford in housing and other basic needs. The use of debt has a way of making us feel wealthier than we really are. When you make purchases that you must finance, it means you didn't have the money to buy it. You feel richer once you have possession of the item, but it has strings attached. To be good stewards of what God has given us, we need to know our limitations and avoid borrowing. Doing so will give us the resources to get through the bad times without falling into bankruptcy.

Even Alan Greenspan Recognizes It

On February 23rd in 2000, the U.S. Federal Reserve Board Chairman Alan Greenspan testified before the U.S. Senate Banking Committee. In his testimony, he mentioned that credit card solicitations were getting out of hand. "Children, dogs, cats, and moose are getting credit cards."

Robert Manning, in his book Credit Card Nation" mentions an example. "3-year old Alessandra Scalise's parents listed her occupation as "preschooler" and stated that she was applying for a credit card to buy toys. The preapproved application from Charter One Bank - which was sent in Alessandra's name to the family residence - was approved - even without a Social Security Number, no listed income, and no other relevant financial information. Furthermore, Ali's card came with a credit limit of $5,000 - more than her parents' card." (pg. 344 no.23)

Irresponsible lending does not justify reforming bankruptcy laws, as Congress has done in April this year. It has contributed to an explosion of bankruptcies, which Congress has apparently agreed with the authors of the bill (the credit card companies) that it is the consumers who are abusing the law not the credit card companies.

If consumers learn the truth about this, and begin to demand fair treatment, the abuses will come to light. Remember, voters' votes put our representatives in office. Voters must use that power to counter the money buying votes on legislation. That is what "personal responsibility" is about.

The Jekyll Island Secret

How many of us really know what the Federal Reserve System is? The story isn't told on the Federal Reserve website, in fact they'd prefer not to discuss it. There is a truth-in-advertising problem with the name. It isn't part of the federal government as many mistakenly believe, there are no reserves being held by the organization, and Federal Reserve Banks are not banks at all. It is a privately held corporation founded by a group of powerful men from great financial institutions at the private resort of J.P. Morgan on Jekyll Island off the coast of Georgia.

It is a prime example of how laws are passed in our country today, because their goals would never meet the approval of voters, or Congress, they had to promise their proposal would address the prevailing concerns. All the while, the real goal was quite the opposite. The real goals were to stop the growing competition from the nation's newer banks; adopt a system to create money from nothing (fiat currency); control all the reserves of all banks; get the taxpayer to pick up the bill for any losses; and convince Congress it's purpose was to protect the public. The goals that are given to the public are not it's true goals, and the Federal Reserve has failed miserably at them. The real goals were accomplished, and the effort has been an astounding success.

The result of their plan created at Jekyll Island resulted in the Federal Reserve Act of 1913 which created a public/private partnership in a central bank, passed on the presumption that it would stabilize the economy. Instead it has created an inflation monster that will eventually overtake us. Failure is inevitable. In the meantime those who run the system obtain the ultimate power over the country. This is detailed in a book titled "The Creature from Jekyll Island." The author suggests a solution, but the only real solution is to learn how to be a good steward and keep your faith in the Lord steadfast. 1 John 2:17

Advice From Warren Buffet

Warren Buffet the quintessential investor and head of the insurance company Berkshire Hathaway, Inc, usually tops the list of the Forbes Richest People in the world. He and Bill Gates jockey for top position. If anybody knows how to make money, this guy does.

So what is his advice? A tip on a hot stock? A tip on likely takeover targets? How to profit in real estate? No. None of these. His advice is to cut up your credit cards. This is what he told an assembly of Nebraska high school students. He said, "My advice for you is if you can't afford it, don't buy it... You can't make progress in your financial life borrowing credit at 18% to 20%." He advised to have a small savings when they start out on their own instead.

My OCC Complaint

In an earlier post, I told you that I had filed a complaint with the OCC. The complaint is based on the fact that I wanted to see my account agreement (the contract) before I signed it. Credit card applications have a series of disclosures, required by law, to make you aware of the "pertinent" terms. What most people may not realize is that signing the application is creating a contract based on the disclosures as well as an unseen agreement that will come with the card.

I received a call this morning from MBNA, the subject of the complaint. The gentleman I spoke with had reviewed my complaint and wanted to have a personal conversation with me. The explanation was essentially that their contractual terms vary depending on which of the thousands of programs they have is used, and what the results of the credit report are. It is too difficult to provide an agreement for each individual applicant until the account is opened.

This explanation sounds good, but falls short. I don't think there is any explanation for expecting consumers to take "personal responsibility" for their commitments and then convincing them to commit to a contract they have yet to read. Sure the "pertinent" terms are in the disclosure, but who decides what is pertinent? Folks, it is simply wrong to sign a contract before you read and understand it. MBNA expects you to open an account, which goes on your credit report (inquiry and open account), before you get to see the contract you signed. The credit card company also gets all your personal financial information in their database. It doesn't matter how difficult it is, MBNA should simplify and make the transaction more reasonable, if they are going to hold cardholders to a high standard of "personal responsibility."

I still am waiting for the explanation from the OCC. He informed me that I would receive a letter from the OCC with the explanation he gave me. I'll keep you posted.

Training Up Good Consumers

Banks and Credit Card companies have gone to great lengths through the years to convince us how indispensable debt is as a part of our financial planning. They have also worked hard at selling us convenience, and how it can make our lives better. We know what they are telling us isn't true, yet we follow them anyway. Why do wealthy people use credit cards, and carry balances on them? There is a cognitive disconnect between rational financial decisions, and what we actually do. This is a result of many years of influence of John Maynard Keynes, the British economist that taught supply side economics and discouraged saving. Our government is now hooked on this idea - spend, spend, spend. It is good for the economy, and we have listened.

This is certainly an outgrowth of the idea of using a fiat currency, a system that has always resulted in runaway inflation and failure of the monetary system. It is a system that relies on debt.

We were trained to be good consumers from a young age. Take a game by Milton Bradley, for instance. This game, called Mall Madness for players 9 years and up, promotes going to the mall and spending your money as fast as possible. The first one to get back to the parking lot with their items wins. How do they get their money? By inserting a credit card into the bank slot. No need to go to work, get an increase in your allowance. Just rely on the endless availability of money from the credit card. This game has been primarily marketed to girls, which socializes them to be the consumers. In a day when middle class families can't survive without both parents working, this is a recipe for disaster.

Banks Target Risky Customers

It is a well documented fact that Credit Card companies target risky borrowers because they make up more than 75% of their profits and that is why they refused to allow amendments to the recently passed bankruptcy bill that would protect innocent people in bankruptcy. They know that 50% of bankruptcies are caused by medical problems and another 40% on top of that are caused through no fault of the borrower. A total of 90%. They make their money on people who default, and have no social conscience about it. That is why they seek out these borrowers and push them over the edge so they can profit from it.

The same goes for subprime mortgage loans. Research shows it.Take your unsecured credit card debt and turn it into a secured loan against your home. This puts a basic need at increased risk of loss. Not all subprime loans are predatory, but most are. The subprime lending industry targets low income African Americans who recieve 2.4 times as many subprime loans as low income Caucasions. Hispanics receive twice as many. Subprime lending in Southern states is 1.5 times as the rest of the country. Almost 40% of female borrowers got high cost loans from subprime lenders, as opposed to one-third of men. The elderly are three times as likely to have a high interest subprime loan as someone under 35. Rural areas are often considered high risk, and are targets of subprime lenders as well.

The Loss of Good Stewardship in Washington

We are supposed to put godly men in leadership positions. As Americans we seem to have let ourselves be led astray. The debate in the passing of the recent Bankruptcy reform, it seems our leaders think it is the citizens of America that have had a decline in morality, when they have forgotten that leaders must hold themselves to a higher standard.

As a small business owner I learned that my employees would exaggerate my faults. That was because as the leader, I was setting the example. I also found that me and my peers would often complain about our employees and their lack of personal responsibility. All the while, they were simply a reflection of me. I see this happening on a national level. Our leaders in Washington and the leaders of our largest corporations are blaming individual consumers for being irresponsible, when all the while we are following their lead.

Where is the morality in playing a con game with the poor and middle class to take their wealth? What else can you call misleading advertisements to sell abusive credit card agreements? Lending, in biblical times, was originally an act of charity to help the poor. (Exodus 22:25) They gave interest free loans, instead of gifts, to allow the receiver to maintain their dignity by paying it back. The reason for this was to avoid poverty in Israel's society and keep their economy strong. To reinforce this debts were forgiven every seven years. (Deuteronomy 15:1-6) The United States is doing the opposite today. Scripture isn't soft on this issue. Habakkuk 2:1-7. Lenders are supposed to be ethical and responsible and lend only to those in need (2 Thess. 3:10).

Taking Your Promises Seriously

Last month I decided to take a closer look at one of the solicitations I got in the mail. I noticed that the disclosures required on credit card offerings form a contract when you sign the application. I had been reading about oaths in scripture and found one particular scripture that hit me. Ecclesiastes 10:1.

Waive Constitutional Rights for a Car Repair?
As I reflected on this scripture, and related it to how I went from a respected successful small business owner to one that is called a "deadbeat" that can't pay his bills. I made a few seemingly insignificant and common decisions to open a set of credit card accounts to facilitate the way we conducted business. Like the vast majority of people I hadn't read my credit card agreement in detail, and didn't realize what kind of risks I was taking with my personal finances. I remembered this yesterday when I dropped of my car at the dealer for service. I pay with cash now, but when I left it there was an entire contract on the back of the estimate that I realized I must read and agree.

It amazes me how signing these complex legal agreements have become so insignificant to us. We sign without a second thought. Many have an arbitration clause. My friend, strike it out before you sign it, or at least ask the attendant if there is an alternative to waiving your constitutional rights in order to get your car serviced, get medical treatment, open a checking account, or some other common activity.

Personal Responsibility
We need to take every agreement we sign seriously, as if we are going to be challenged by the terms we have agreed to. This is one reason credit cards can use the "personal responsibility" mantra, it takes attention off their unfair business practices. If we did take more "personal responsibility", we would preserve our reputations, and it would bring contractual abuses to light. It takes years to build a good reputation and one weak moment to destroy it. That is the point of Ecclesiastes 10:1.

Common Mistake
How do I know that few people read their credit card agreements before they agree to them? Over 78 million people have credit card accounts. The average household has $8,000 in credit card debt. On the credit card application is an agreement where you promise to be bound to the contract they will send with the card in the mail. Now tell me, how can you read a credit card agreement and agree to it if you don't have it yet? You are agreeing to something you have no idea about. You could be agreeing to sell yourself into slavery.

Common Deception
Why do the credit card companies do it this way? They don't want you to see the contract until you have the credit card in your hand, and they also get all your personal financial information in their database, including everything on your credit report. What did you get in return? A credit card with an agreement that is highly abusive in it's terms. If you read it, or took it to an attorney so you could understand it, you would cut up the card and close the account if you took it seriously.

I decided to file a complaint with the Office of the Comptroller of the Currency on this issue, and the initial response was that it was reasonable to expect to see the credit card agreement in advance of filling out an application. Credit card companies don't do this and refuse to let you see one in advance of filling out an application. Their investigation takes about 60 days. I'll keep you updated.

If you would like to file your own complaint on this issue, you can reach one of the Office of the Comptroller of the Currency's customer assistance specialists by: Telephoning 1-800-613-6743, toll-free (Monday-Thursday 9:00a.m. to 4:00p.m.CST) E-mailing - E-mail to Customer.Assistance@occ.treas.gov; Fax - Faxing to - 1-713-336-4301 or; Sending mail to - Customer Assistance Group1301 McKinney StreetSuite 3710Houston, TX 77010

When You're In Trouble

I received an email today from a reader who was in trouble with their debt. Many of us are these days due to the major shifts in our economy over the last 5 years. I thought I'd share some information that I gave this person to help them. Maybe it will help you.

If you get notice that your are being sued, you should definitely plan on showing up to any pre-trial conference or hearing. In fact, if the case number in the letter is filed at the court, you should be able to see it by asking the court clerk. If it in fact a case with the court, you should call the attorneys and attempt to settle with whatever you can. You want to make sure it is actually a case filed with the court since sometimes collectors like to make you think they have filed a case when in fact they haven't.

I am not an attorney, and I am only providing this as information. It isn't legal advice. You need an attorney for that. However, I really feel strongly about what credit card companies and banks are doing to people, this includes major department stores because they are using the same practices to increase their sales, though some of the issues are a little different. In either case, collectors are going to do what they are paid to do, and attempt to get you to pay your debt. What's wrong with what they do is charge high interest charges and late fees that they tack on to your balance. When they sue, they will at least attempt to tack on their legal fees and court costs.

Court rules vary, but there is usually a pre-trial hearing or conference to attempt to settle the matter before it gets put on the court docket. In that case, it would be a good idea to go prepared with something to offer that you can afford, like small payments for a period of time or a lump sum of cash. The point is to offer whatever you can, even if it is miniscule. It shows good faith.

If it is a pre-trial hearing, that is more serious because it will most likely be in front of a judge. However, the goal is the same. If you can convince the judge you are doing everything possible, he or she will be more considerate, and may force the creditor to take a lower settlement than they would have done without the judge's intervention. Make it very clear to the judge everything you have done to pay the account, and that the interest and fees are making it impossible to pay off the account. If you stopped making payments, it is because they were unwilling to compromise to settle the account by making it possible to pay off. It is their lack of cooperation brought you to the courtroom, not yours. If the judge sees this, he may even dismiss the case if you are lucky.

If the creditor is a Credit Union you need to be careful. They have credit cards with a cross-collateralization clause. This is where any other assets you have with the credit union can be tapped into to pay a debt you owe them. If you have a car loan with them, they can reposess the car to pay the credit card balance.

If the creditor gets a judgment against you as a result of a lawsuit, then they can file claims against any assets you have. Most likely the first step would be to attach any bank accounts and sweep funds out of them to satisfy the debt. The second step is to garnish any wages. If you are self employed and aren't incorporated there are no wages to garnish through an employer. The final step, if the debt is still not satisfied, is to file liens against any assets you have. If you have equity in your car, then when you sell the car any excess proceeds would go toward the judgment. This is the same with a home. In the case of owning your home, there are various homestead exemptions that protect the equity in your home. In some cases they can force the sale of your asset. It is unlikely they would do that if it wouldn't produce much money to pay the judgment.

Sometimes these guys sue you and violate your rights without you realizing it and get a judgment against you before you know what is happening. That is why you need to act on any notification you get NOW. They know you can't afford an attorney and are unlikely to sue them for violations of the law. Creditors are becoming more aggressive lately, so you have to be prepared. If they get a judgment they have to renew it every 10 years. If they feel they can be patient until you do start making money, they will get the judgment and doing everything they can to capture what you earn, though it may not be much. That is why it is important to make it clear you have nothing for them to take, nor will you in the future, if that is the case.

In the meantime, you have to figure out how to live below your means. Specifically, an excellent guideline is don't let total of your rent, utilities, phone service, renters insurance, health insurance and other medical expenses, car payment, car maintenance and gas, life and/or disability insurance, and food be more than 50% of your net income (after business expenses and taxes). See more about that here. If you can reduce your living expenses to that level, you should be fine. The other 50% goes to gives you financial security, and room to get things you want. That is a goal to work toward.

They don't have debtor's prisons these days. However, creditors have a lot of power on their side and can make you miserable until they extract their pound of flesh. If it gets too difficult, a last resort is to file bankruptcy. You might check into your options. The court system has legal aid for those who can't afford attorneys. Use them to help you file for bankruptcy or direct you to an attorney who can help pro bono (depending on your situation). That could give you a fresh start, and if you address the reason you got into debt and can be sure you won't end up here again, this option can relieve a lot of stress. If you haven't addressed the problem, you'll end up right back in court, with no bankruptcy option.

Congress just recently passed a new Bankruptcy Bill that is tougher on consumers. It will go into effect in October this year. Experts are advising that you file before then, if you are thinking about it.

In the meantime, if creditors are calling you constantly, you need to know your rights. Go to here, print it out and take it to an attorney to explain it to you. The majority of collectors violate this law in various ways. Each violation is worth $1000 to you in small claims court. I don't normally suggest that people sue, but when you are being harrassed, you need to stand up for yourself, and collectors don't listen or come to agreements very well. Their job is to get as much from you as possible, and talking with them can inadvertently get you in a contract with them. So you have to be extremely careful what you say.

Catch them violating the law and file a complaint in small claims court. A legal aid attorney could help you do the paperwork. Don't let collectors harass you. Record phone calls on tape, and when they have made a violation tell them you are recording the call - they'll probably hang up. Write down the details of the calls, for documentation that can be used to sue. Keep all letters. Send a "Cease Communication" letter to each one. Go here and here. You have the right to dispute your debts under this law, and violations in this area are also worth $1000 per violation in small claims court. Knowledge is a valuable thing, and can be used to fight back, if you play your cards right, you can make some money to settle the debts. You can use your $1000 judgment to settle the account (depending on what your balance is). Always make sure you get any settlement agreement in writing.

Also, don't get swindled by debt counseling or debt elimination companies. See this website and this one.

Let me leave you with this to think about in relation to taking contracts or agreements seriously:

Citibank's slogan is now, "Live Richly", as if getting their credit card is going to make you wealthy. It is actually quite the opposite. Citibank, the largest issuer of credit cards to college, high school, and junior high school students, promises them that credit cards will reduce the stress of college life, help them be independent of their parents, make them more desirable to the opposite sex, etc. In 1998, a MasterCard commercial on television says, “Dinner $40. Movie $15. Second date with the right girl: Priceless.”[1] (Go here for the source of this quote, from his book "Credit Card Nation".) Sending the message that using your credit card will get you a second date, and that is worth all the money in interest and fees you’ll pay for using it on your date. Is this really true? It is doubtful. By the way, it is illegal to bind a minor in a contract but Citibank still does it because parents pay anyway, and if they don't Citibank will sue the parents on the minor's signature. If this happens to you, find an attorney to reply to the lawsuit and argue the contract is invalid. Don't let them get away with this! Then make your teenager pay them back for the charges, minus the interest and fees. Then don't forget to make sure their credit report is cleared in the settlement.

How many of us make promises too freely, to get people to do what we want them to. It is like advertising. Your main objective is to influence someone’s behavior. Once you’ve done that, you have to fulfill their expectations, and that is where it gets challenging. Sometimes you have to make a pretty big promise to convince someone to do what you want. When you promise something, the scriptures are clear that you must deliver. That is why when we borrow money we must pay.

The sticky part of this in today’s world is when you get yourself into a contract that was so complicated that you didn’t understand what yourpromise really was. Does that mean you are still obligated to fulfill it? Unfortunately, yes it does. But that doesn’t mean that the deception used to get your promise was right. You must be aware of what you are promising before you make an “oath” to pay on a credit card account, or any other loan for that matter.

An oath, on the other hand, is more serious statement to validate a promise. In biblical times it was sealed with a curse (1 Samuel 14:24), which might be the equivalent of a written contract today where there are damages often defined for default. The curse was used to insure that the oath was not broken. (Genesis 26:28).

Today contracts (oaths) are taken lightly, which is evident in the fact that in the year 2000 there were about 78 million[1] households that had at least one credit card, and the contracts for these accounts were, and are, practically incomprehensible in their abusive terms. Go here for more information on the credit card industry abuses taking place today. The credit card company expects them to be broken, yet consumers expect to break them without consequences. This is demonstrated in the statement made on a Virgin Airlines website for their credit card deal, “the stuff our lawyers require” to describe their disclosures, as if they have no intention of taking it seriously and neither should you. This was also true in biblical times as seen in Hosea 10:4, where this was one of the reasons for judgment prophesied against the Baal cult. Letting this continue has consequences, as mentioned in Habakkuk 1:4. When the justice system becomes corrupted, as is beginning to happen today, you can see what happens by reading on to verses 5 through 11. Is it possible a modern version of this could happen to us?

Oaths were meant to be taken seriously as we see in Leviticus 19:12 where it was part of the Mosaic Law, and breaking it could result in death (Ezekiel 17:16-18). As Christians today, we should think seriously about making sure we understand all contracts we sign, especially for loans. This Old Testament principle still applies in today’s world, and ignoring it could result in a financial death. This means taking these contracts to an attorney for interpretation, because U.S. law has become so complex. In my personal assessment, it has become so complicated and full of legal traps that it is extremely difficult to say with 100% certainty that you will not default on your contract. This is why I believe we should take contracts more seriously, even though we may be ridiculed for doing so, and make certain we can fulfill every clause, or negotiate the clause out. Not doing so puts your good character and reputation at risk.

In Ecclesiastes 10:1 it tells us that a simple small act of foolishness can ruin the good character of a man with a sound reputation in one small and unguarded moment. It takes years to build a good reputation, and it can be destroyed in one small foolish act. You have to ask yourself, is it worth it? Your reputation is worth more than any amount of money you might borrow or any business deal you might make.

[1] Robert D. Manning, Credit Card Nation, (Basic Books, 2000), Pg. 13