Five Big Reasons To Stop Procrastinating and Just Say No to Your Debt

Photo Alan Cleaver via Creative Commons License

Since I’m writing a book about money, friends often take me aside and ask what I recommend to deal with debt. Before this out-of-balance system made itself obvious, many of us created debts — now old debts — that we’re struggling to clear. Others of us — stuck between jobs — are using credit cards to survive. I know firsthand how numbing and immobilizing it can be. A friend posted on Facebook, “You feel you’re at the bottom of a well you’ll never get out of and it’s crushing your whole soul.” That is the current experience of so many people right now. We need to get ourselves out of this hole. That is no place to stay! Being there does not serve you or the planet. If human ingenuity can pull those miners in Chile out of that mine by some Apollo 13-type engineering miracle, nothing is impossible. We can certainly get ourselves out of the debt hole.

Get out of it — that’s the short answer. The way the system has rigged debt these days so much in favor of the lender, it’s very wise to find another way. But knowing that’s what most, if not all of us want to do right now, the “how” is the key.

Starting today (October 27, 2010) , new FTC rules go into effect banning debt relief and debt settlement companies from charging large up-front fees. Now these companies cannot charge fees until they’ve successfully negotiated at least one debt. They are also required to tell folks how long it will take, how much it will cost, and what the potential negative consequences could be.

So more protections are in place now than they have been for you to do something good for yourself — and I do believe it is very good for you to clear this.

The key to getting clear of debt is first to clear away the resistances we have to doing what we need to do. It feels overwhelming. There’s a lot of fear. There’s generally a lot of energy going into beating yourself up, plus a lot of powerlessness. This article is a quick guide to rally your determination and clear any hesitation right out. If you’re already ready to go and simply want a list of resources, click here.

So let’s clear the resistances. By this I do not mean that resistance you have to cutting back expenses to peanut butter & jelly-level of survival in order to pay off your debt. The people in control of the system are depending on you to feel obligated to do that. Any resistance to this is actually coming from a very good place of being kind to yourself.

Instead, we need to clear any remaining resistance we have to seeing this industry for what it is at the moment — a den of thieves. We need to accept the implications of what is coming to light about this industry, how we have created it, and take back our own power — indeed, our responsibility — to change the system. We can completely shift how it operates in our lives.

The banks have been used as a “weapon” to defraud

Debt is not what we think it is. The expectations and obligations most of us have absorbed about debt need to be completely reexamined in light of what the financial industry has shown itself to be. The system has become “profoundly dysfunctional.” Recent suits have exposed long-term, industrywide fraud in the mortgage and foreclosure industry, for example. Fraud by the ratings agencies was a key contributor to the financial collapse. We should expect more fraud to surface as investigations continue — in fact, it seems to be the presiding current ethic of this industry. And the bad guys are still running the show. Bank ads tell you to rely on them to protect you from fraud. Meanwhile, they’ve been the ones using their institutions to commit it.

William K. Black explains:

As a white-collar criminologist and former financial regulator much of my research studies what causes financial markets to become profoundly dysfunctional. The FBI has been warning of an “epidemic” of mortgage fraud since September 2004. It also reports that lenders initiated 80% of these frauds. When the person that controls a seemingly legitimate business or government agency uses it as a “weapon” to defraud we categorize it as a “control fraud.” Financial control frauds’ “weapon of choice” is accounting. Control frauds cause greater financial losses than all other forms of property crime — combined. Control fraud epidemics can arise when financial deregulation and desupervision and perverse compensation systems create a “criminogenic environment.”

The credit card “pusher” was never on your side

Ever find it curious how credit cards suddenly took over the planet? It was no accident and it wasn’t to help you. Business Week describes how banks pushed credit into everyone’s hands:

The industry’s practices during the lending boom are coming back to haunt many credit-card lenders now. Cate Colombo, a former call center staffer at MBNA, the big issuer bought by Bank of America in 2005, says her job was to develop a rapport with credit-card customers and advise them to use more of their available credit. Colleagues would often gather around her chair when she was on the phone with a consumer and chant: “Sell, sell.” “It was like Boiler Room,” says Colombo, referring to the 2000 movie about unscrupulous stock brokers. “I knew that they would probably be in debt for the rest of their lives.” Unless, of course they default.

Starting in the early 1980s, deregulation — masterly manipulated into place by the industry, for the industry — suddenly allowed high interest rates and penalty fees. Credit cards magically turned from being a loss-leader for favored customers into a major engine of bank profits. To no surprise, suddenly, credit cards were everywhere. The credit boom also provided convenient cover for the fact that real wages stopped growing. All our economic growth was going to the top of the system — thanks to the new laws, again devised by the industry. But by some clever rhetoric, you and I were told that was a good thing. We were told it was perfectly fine to manage on credit, longer hours, and dual incomes. This was never real growth — it was a phony economy. There are adults today who have never known anything other than this credit-binged state.

The industry has been counting on our ignorance and our dutifulness. Senator Carl Levin quipped in a 2007 Senate hearing that credit card disclosures are written at a “twenty-seventh-grade level.” It has counted on us to operate on old paradigms of money and debt that it has long abandoned. Financial titans put incentives in place to sell us the crap that would sink us. And they did it on purpose. Consumer debt in 2009 now stands at $2.5 trillion.

Better a lender you know, than one you don’t

Once upon a time, when you took out a loan from the local bank, you paid the same local bank back. These days, that’s often not the case. The system now allows lenders to detach from the loans they make whenever they want. Business Week explains: “Big issuers offload roughly 70% of their credit-card debt. … Banks bundle groups of so-called credit card receivables, essentially consumers’ outstanding balances, and sell them to big investors such as hedge funds and pension funds.” There’s a $365 billion market for securities backed by credit-card debt.

The bank you signed up with may now simply be the servicer, collecting your payments and any fees that are tacked on. They are no longer invested in whether you pay the debt back — they make their money on late fees anyway — it’s the investors in the securities who are on the hook if you bail on the loan — and who knows who they are. Good luck finding out. After all the reselling and insurance payoffs and write offs, there may not even be anything actually due on the loan. Good luck finding that out either.

You on the other hand have no choice to detach — you cannot unload the debt or change the terms if it changes hands to a slimy institution you can’t stand. You are forced into a relationship with whatever institution, unscrupulous or not, that has “purchased” your debt. You are kept in the dark about your debt being repackaged and sold. You can’t stop those sales.

Another friend, Tyler, put it this way. “Once we have the hook lodged into us, we’re at the mercy of the fisherman — and he passes us along from fisherperson to fisherperson who could care less about the fish. Even if we do get the hook out, they’re not throwing us back into the water, but sticking us into a holding bucket to be fried later.”

Change blindness

While we are dangling on the hook, we continue to beat ourselves up about debt instead of breaking up the mega-banks and putting the perpetrators of the grand frauds in jail. We feel guilt and inadequacy, as if we borrowed money from our Auntie Zelda who really needs it back or she won’t be able to retire. Or we feel fear, as if we borrowed it from the mob and must pay it back or we will be killed. Fear and obligation in the face of debt are very old paradigms. Debtors prison is in our collective subconscious memory.

The belief — that these banks are venerable, trustworthy institutions that deserve respect — is more powerful than the evidence. Recent revelations and suits have shown that they are anything but trustworthy. Many people, however, remain blind to the true nature of what’s going on because they see not what is, but what they expect to see — to me it is akin to a phenomenon known as change blindness. The institution they expect to see, or may have seen in the past, is not the institution in front of them.

The cake is a lie

Buckminster Fuller once said, “In order to change an existing paradigm you do not struggle to try and change the problematic model. You create a new model and make the old one obsolete.”

We are facing the need to change the existing paradigm of debt. It has been used to bury the whole world and cause the suffering of millions. It needs to change. The tethers to the old paradigm are emotional — fear, obligation and powerlessness. Much of this debt is fundamentally abusive to the well-being of human beings. Many who wouldn’t think twice about walking out of an abusive relationship feel they have no choice but to remain in the abuse of debt.

You can change the emotions tethering you to the old paradigm — you can let them go. Let go of the guilt, the fear, the giving away of power. Choose to clear what is abusive to you as soon as possible. You can see the lies for what they are, forgive yourself and choose to respect and honor your own worth.

You have other options. Click here for the best links I’ve found to help you decide what to do. Bankruptcy is an certainly an option, though the fees are high and arrive all at once — for many people barely making ends meet, that is a difficult hurdle. Debt settlement can work very well for many people — do your research, investigate the company and keep the payment schedule as best you can. Fees over time can add up to more than an attorney’s fees for bankruptcy, but they don’t come all at once. Do your research before making a decision.

Meanwhile, the time has come to create a new model of debt and make this old one obsolete.