There is Hope

For those of us in debt, sometimes it seems like we can never overcome the monster that rules our lives. It is possible though. See stories of those who have. Dave Ramsey's Financial Peace University is a way to have a support group that helps you overcome the behaviors that keep us in debt. If you don't want or need a group, he has this plan and how to make it work for you in a book.

Opt Out of Credit Card Junk Mail

If you are not using credit cards, you probably still get loads of junk mail of preapproved credit cards, especially if you have just filed for bankruptcy. Go here to find out how to stop the madness, and remove the temptation to open an account "just for emergencies."

Don't Think Debt Is A Problem?

The Center for American Progress has just released a report that finds:

• Debt has expanded by 30.3 percentage points to 108.4 percent of
  income – the first time since the Federal Reserve started conducting
  this survey that debt exceeded income.
• Despite low interest rates, debt payments surged to new highs. In
  2004, the typical family spent more than 18 percent of its income on
  debt payments – the largest share since the Federal Reserve started
  collecting these data.
• The share of heavily indebted households continues to rise. The share
  of households with debt payments greater than 40 percent of income
  rose from 12.8 percent in 2001 to 13.7 percent in 2004.

As a society, we are getting caught in a death spiral of debt. Save yourself before it all comes crashing down. Get out of debt!

Gold at $700 an Ounce - What Inflation?

This message reached my inbox today from Downside DC, a grass roots effort to hold Congress accountable to the laws they create.

"Gold reached $700 an ounce on Tuesday.
The media, being economically ignorant, mentions oil, Iran, and sunspots as possible causes.
We're just kidding about the sunspots. But it is important to note that no one in the media knows to mention an increasing money supply as the most likely cause of soaring gold prices.
However, the Federal Reserve, at least, must be concerned about an increase in the money supply because . . .

• They raised the interest rates at which banks borrow from the Fed yesterday
• They've stopped reporting M3, the best indicator of monetary inflation

We're not trained economists ourselves (though we did sleep at a Holiday Inn Express last night), so what follows is merely our layman's understanding. And if we're wrong, someone will surely correct us, and we'll let you know. But, as we understand it, there are two ways the Fed creates new money . . .

Method #1:
Banks borrow from the Fed using outstanding loans as collateral. The Fed issues an order to the Treasury, new money is printed, and loaned to the banks. The banks then loan out this new money to their customers. These new loans, in turn, can be used as collateral to borrow yet more money from the Fed. When the Fed thinks the money creation caused by this pyramiding of debt is moving too fast, they tend to raise their interest rate to the banks. This gives the banks less incentive to borrow from the Fed, which slows the bank portion of the inflationary spiral. This is what happened yesterday.

Method #2:
The Fed buys government bonds, and the Treasury prints new money to give to the Fed to finance these purchases. So this new currency stays at the Treasury, the Fed gets the bonds as so-called collateral to "back" the new currency, and the Treasury uses the new currency to pay the government's bills. (Yes, our currency is "backed" by debt, and not by real assets like gold.)
Eventually all of this new currency works its way through the entire economy bidding up prices for food and gas and everything else. Including the price of gold, which is the best hedge against inflation, because it is very scarce and has instrinsic value. So . . .

Gold hits $700, the Fed raises interest rates, and stops reporting M3. What does it all mean? It probably means the money supply is soaring and the Fed wants to slow the portion of it that goes through the private sector (the banks), but maintain the portion that is helping fund the government.

Why does the Fed want to maintain the monetary inflation that funds government? Simple . . .
Congress has two ways to fund its deficits. Borrow money or print it. Increased borrowing equals increased demand for money. Increased demand for money drives up the interest rate Congress pays to borrow. This increases the debt still further. The Treasury fights this by printing new money, using inflationary Method #2. But this lowers the value of the dollar. Big lenders, like China, respond by increasing interest rates to compensate for inflation. Either way, the government's interest expense is bound to soar as long as deficits continue to mount.
The Fed is trying to hide this for as long as possible by not reporting M3. Problem is, the gold price gives them away.

The price of gold does not lie. But it is a late indicator.

And you can bet that gold is also being bid up right now because investors no longer have M3 to give them advance warning of monetary inflation. They're hedging. And all of this is very destabilizing.

The best way to stop this viscious cycle is to return to sound money -- dollars backed by gold reserves so that new dollars can only be created as fast as the gold supply increases, which is always very, very slow. Barring that, we can gain some increased stability by making the Fed report M3 again. This could be very important to your economic well-being, which is why we keep harping on it. Congressman Ron Paul has a bill that will do this, and we need to keep hammering on Congress to pass this bill. Hit them again! You can do so here.

Credit Card Signature

When credit card companies try to collect from you by taking you to court, they rely on your signature on the application as proof that you agreed to their contractual terms. First of all you didn't see the terms before you supplied your signature, and second they can't be sure it really is your signature. They didn't make sure it was.

John Hargrave at Zug.com decided to test the signature security on credit cards. You might find this shocking. If that isn't enough, he did it again, which was even more shocking than the first.

Think the credit card companies are worried about fraudulent charges? Think again.

New Movie Documentary about Credit Cards

There is a new movie that is probably being sold on video and/or DVD that would be good for anyone interested in this topic to see. the website is www.maxedoutmovie.com There are some interesting clips on the website. If you think credit cards are a necessary financial tool that you can't live without, you definitely need to see this.

Why Credit Card companies are Loan Sharks

I haven't mentioned this in awhile, but I think it is worth mentioning again. If you think you understand what is in your credit card agreement, you are mistaken. There are a wide array of tricky twists and turns in the agreement that many attorneys have difficulty decifering. One such twist is called "Universal Default" which means that when the credit card company periodically checks your credit score, if it drops from the last time, you have defaulted on your agreement and all bets are off. Your premiums are canceled, your interest rate goes sky high, and whatever else they can take away from you is taken because you didn't uphold your side of the agreement. See more about this in a story done by Frontline and PBS called "The Secret History of the Credit Card."

Teenagers Under Attack

Teenagers are targeted by credit card companies. They are being taught to become dependent on having a credit card, and that it is a sign of maturity to have and use a credit card. As a result they learn to live with debt. As I mentioned before Junior Achievement is telling 1st graders that credit cards are money. We are grooming future candidates for bankruptcy.

Credit Card Companies Target The Bankrupt

According to a report from Los Angeles NBC Channel 4, credit card companies are sending credit card offers to those who have filed bankruptcy. This just goes to tshow you that they want to find people who will default. As mentioned in previous posts, they make 75% of their profit from people who default. That is probably why they pull tricks like creep the due dates on accounts so that people who don't pay attention, assume it is due the same time every month and get caught with a late payment. That late payment defaults you on the agreement and your interest rate goes up, you get high late fees, your miles are cancelled, and you lose any premiums you might be getting. This is nothing short of predatory loan sharking. Why is it legal?

If You Are Getting Sued - Know What To Do

You likely will not find an attorney to help you get out of paying a debt - they don't do that. They'll defend you, but the first thing they'll do is negotiate a settlement, even if you don't owe the debt. That is fine, if you can afford to settle. If you can't you will have to defend yourself and force the creditor to prove you owe the debt. In the case of credit cards, they are hard pressed to do this according to strict court procedure, and if it is a collection agency that purchased the debt it is even harder for them to prove. You must use this as your defense, that they must prove their case. A great resource for this is a book titled "Beating Up On Debt Collectors" Click here for the book

There is also a book you might consider called Thou Teacheth My Hand To War

Mental Hurdles that Oppress Your Checkbook

Most of us are fairly ignorant when it comes to making financial decisions. No one is born with the skills. Fortunately educators are responding to this in various states. However, they are letting the fox in the hen house. Here is an example of how the subtle nature of these programs teaches kids to be consumers, not savers. Banks are teaching our kids how to manage money - do you think they are going to teach them that credit cards are to be avoided? Somebody needs to teach our kids not to borrow money.

Is Your Back Against the Wall?

Are you at the point where you have creditors hounding you? Not the original creditors, but its been long enough that your account has gone to collection agencies? And you can't seem to find the resources to pay up? In that case, it may be best to start enforcing your rights as a debtor, and hold them off as long as possible. Here is one of the best resources I've found to do that - better than hiring an attorney (who will be seeking a quick resolution). Cick here for the Book

How to Sell Stuff to Pay Off Debt

What I did to raise money to pay debts was to go through my house and find things I could sell to get the money I needed. Click here for eBay! It is free to sign up, and they have free tutorials on how to list items. If you need to raise money to pay off debts, you need to consider this easy way to turn stuff in your house into money to pay off debts.

Utah Moves Against Consumers

Here is a sign of the times.  Utah passes a new law that bars class action suits against credit card companies.  Are you mad yet?

You Just Gotta Get Mad!

Over the time I have had this blog, I have been ranting and raving about the banks and credit card companies and their abuses of consumers. Well, I think that goes to show that if you are going to see any change in your own finances, you have to recognize the problem, admit it is affecting you, and get mad about how you're being treated as a consumer and vote with your pocketbook.

That is why I stopped using credit cards. I got mad. Since then I have curbed my spending tremendously and my family relationships have improved. I am starting to rule over my money instead of my money ruling over me.

If you are in a bind right now, you need to get mad first, before you do anything. If you aren't motivated, you'll just keep making the same mistakes. One thing you can do to overcome your debt is to start selling things out of your house, stuff you already own. I did this and have raised thousands of dollars to pay down bills. You can do this too. Just consider getting your hands on something to teach you how. You can get a book on eBay for Dummies or something like it or you can get serious by taking some thorough training and do it full time. The link takes you to a guy who made $8 million selling on eBay and is sharing his secrets for doing that. I have been making some good money myself just selling stuff out of my house.

Go here for more on blogging.

Myths about Debt

Bankrate.com has listed 10 myths about bankruptcy.

Speaking of myths, what leads to bankruptcy is believing the myths about debt. So... here is my list of 10 myths about debt.

1. Debt consolidation saves interest, and you have one smaller payment. The truth is debt consolidation is dangerous because you only treat the symptom of a deeper problem - addiction to a lifestyle you can't afford. You also increase the amortization time to pay off the principle and you pay a LOT more interest when all is said and done. If you pay it off early, you paid a much higher interest rate if you paid "points" on the loan.

2. Debt is a tool and should be used to create prosperity. The truth is that debt adds considerable risk to you financial well being, and may not bring prosperity but bankruptcy. It isn't used by wealthy people as much as people think. Forbes magazine lists the "Forbes 400" richest people in America. In a survey of these people, 75% indicated that the best way to build wealth is to pay off all debts and stay out of debt.

3. If I loan money to friends or relatives or cosign on a loan for them, I am helping them. The truth is that loaning money strains the relationship, and can destroy it. The only way around this, if you want to help, is to do an interest free loan and be willing to forgive it if they are unable to pay. When you cosign on a loan, you'd better put it on your balance sheet as if it is your loan and keep room in the budget to make payments, because you may have to start making the payments. Also, it will show up on your credit report and affect your credit score.

4. Cash Advances, Payday loans, Rent-to-own, Title pawning, and Tote-the-note car lots are needed to make credit available to the lower-income people to help them get ahead. The truth is these loans are at interest rates that will send them to bankruptcy faster than anything else. These are predatory lenders designed to make fortunes robbing the poor of basic necessities.

5. Car payments are a way of life, you'll always have one. The truth is we borrow to buy a car because we can't afford the car in the first place. Staying away from car payments and driving a dependable used car is what the average millionaire does. That is probably how they became a millionaire.

6. Leasing a car is what sophisticated people do, because of the tax advantages and the declining value of a car. The truth is if you calculate the real numbers you will find that it is by far the most expensive way to operate a car, including the tax benefit. They also entice you to get more car, since the payments may be lower than on a car loan. You would spend even more.

7. You should get a credit card to build your credit. The truth is a credit card is more dangerous to your credit rating than its worth. Not to mention the agreements are impossible to avoid default in some small technical way that allows the credit card company to siphon off your hard earned money with higher interest and fees. You also can still get a mortgage to buy a home without having used a credit card. You paid rent on time, right? The idea is to minimize debt, not pave the way for more debt.

8. You need a credit card to rent a car, check into a hotel, or buy something on the Internet. Hogwash! The truth is you can do all that with a debit card. These days the merchant doesn't even have to know the difference. For merchants who do take debit cards, you may still find it cheaper to tell them it is a credit card, because the debit card fees are usually higher. However, don't use a credit card because it is debt, and is riskier to your financial well being. A debit card won't get you in debt.

9. A debit card is riskier than a credit card. The truth is VISA has a zero liability policy, you just have to report the fraudulent activity within two business days. If you miss the deadline, you are still only liable for up to $50. Plus, if you want to avoid the hassle of getting a potentially large sum of money back while they "investigate". Simply isolate the debit card to it's own checking account and limit the amount of funds that can be withdrawn. Make sure you write a letter to the bank and keep record of it. Tell them that you want the "overdraft" account they automatically open for you closed. That way any charges that overdraw the account will be rejected, and there is no check bounce fee.

10. If no one used debt, our economy would collapse. In reality it would prosper more than it is. The pain of going cold turkey would be hard to swallow, but would pay off in the long run. This is taught in our schools by economics teachers, which brainwashes our children into believing it is good for them to spend and borrow to keep the economy healthy. That is like saying to a drug addict - "keep taking drugs, so you don't feel the pain of withdrawal". The fact is we are addicted to debt, and breaking an addiction is very painful.

There are so many other myths, I could go on. However, this is my list of 10 debt myths.

Credit Card Minimum Payments Raised

Now that the new bankruptcy law is in effect, if you are hanging on by a thread, and making minimum payments on your credit cards, you are in for another attack from the credit card companies. Minimum payments are being raised, by law. It is kind of a belated Christmas present from Credit Card companies.

Good luck. I hope you aren't stretched that thin.

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.