The Credit Card Debt Trap

Credit has never been easier to get.

We are bombarded with offers every day – no interest on credit card balance transfers, interest free finance for household furniture, big screen TVs and appliances and low low rates to buy that new car.

It’s no accident that just after Christmas, your friendly bank starts peppering the media with offers of interest free periods on balance transfers. This is crisis time for many people. The cards have been maxed out to have a good Christmas and the debt hangover is just starting to hit. The first post Christmas payments loom and there is no cash to pay them.

The no interest option on the credit card balance transfer seems like a godsend and is eagerly embraced, but all it is doing is kicking the stinking debt further down the road of reckoning. When it comes time to start paying interest at rates at between 19 – 21%, there is still no cash, and the debt is kicked further down the road by getting more cards and doing the debt shuffle.

The Debt Shuffle

The debt shuffle is getting Cash advances drawn against remaining balances to make the minimum payments on other cards and for other monthly payments. This is where the fees and charges become turbo-charged. High fees apply to get the cash advance and interest rates kick in immediately at 21%+ calculated daily.

Effective Rates over 50% on cash advances

The fees and charges on cash advances deter you from repaying if you may need to redraw and get hit with the fees again. Cash advance fees mean that the effective interest rate on cash advances is very high. If you were to get a cash advance of $10,000 on a credit card the usual fees are around 3% being $300 and interest in the advance of 22%. If that advance were repaid after one month the fees and interest paid would be $483. The effective interest rate being a massive 57.96%. The usurious rates charged by the banks can’t be hidden behind the smug self-congratulatory smiles of their over-paid CEO’s.

91 years to repay

The true horror story of credit cards is that making the minimum payment on the card, means that the debt is unlikely to ever be repaid. When you are 50 you could still be paying for that trip to the US you took when you were 25, if you only make the minimum payment.

Actual numbers: On a credit card debt of $37,809 making the minimum repayment it would take 91 years and 3 months to repay the debt. Interest charged would be a massive $181,292.

What Next? Just do it.

Many people in a debt crisis suffer form paralysis by analysis. They will read endlessly about what to do or simply shut off. There are solutions. You can be debt free, you can take back your life and you do not need to go bankrupt.

Debt Negotiation Made Simple: It’s All About Leverage!

If you are thinking of negotiating a settlement of your credit card or other unsecured debt you need to know the most important point: As any expert negotiator will tell you, all negotiations are about leverage — who has it and who doesn’t.

What The Creditor Wants: When you have defaulted in paying a consumer debt on time, the creditor doesn’t want to give up any portion of their claim. They want you to pay in full; with interest and penalties.

What you want: If you cannot pay the full amount of your debt and the high interest rates that come with default, you want to make a deal whereby you can pay off your debts at a reduced amount you can afford, and get a fresh start; or, you want to discharge your debts entirely in bankruptcy and start with a clean slate.

But who has the leverage? If you try to lift a stone without a lever, you will only strain your back.

THE RULE: Generally, unless you can realistically threaten the creditor with losing more money by refusing to cut a deal with you than they will lose by settling with you for a reduced amount, they won’t do it.

Why should they? Credit card companies are not charities! Don’t expect them to show mercy or cut you a deal just because you lost your job or suffered a catastrophic illness. They don’t care. They still want their money. All of it.

Thus, part of their leverage in trying to get you to pay everything is:

a. Harm to your credit rating. They report your account as in default to the credit reporting agencies. Until paid in full or settled this information will stay on your record for years, lowering your credit score and making it more difficult for you to get consumer loans or a mortgage.

b. Harassment. They call you all the time, send nasty letters and e-mails. They may contact relatives, friends or employers. Some (but not all) of these practices are in violation of the Fair Debt Practices Collection Act, but often they do it anyway because few consumers are aware of their rights and fewer effectively enforce them. An attorney can stop the harassment however.

c. Threatening to Sue. They may threaten to file a lawsuit against you unless you pay them.

d. Filing a Lawsuit. The creditor sues you and tries to collect a judgment by garnishing your wages, foreclosing on your residence and/or seizing your bank accounts and any other assets you may possess.

e. Sit and Wait. They can simply sit on the debt for the statute of limitations period (years) without filing a lawsuit try to wait you out. They hope that either you will eventually acquire some assets they can seize or get a job where they can garnish your wages, or else you will get tired of the black mark on your credit and agree to pay them.

What’s Your Leverage?

♦ Your leverage has to be that you are unable to pay and they will be unable to collect the full amount in any reasonable time by the above means, so they should cut a deal with you, take their losses and get what they can.

♦ Additionally, if you can realistically threaten them that you are going to proceed with a bankruptcy, they may be forced to accept less they would like to avoid becoming an unsecured creditor in a chapter 7 bankruptcy case. (More on this below).

However, for YOUR leverage to work, you first need to be able to protect yourself from THEIR leverage in order to force them to deal with you, rather than, say, suing you to collect the debt.

They will generally do whatever looks easiest, and most cost effective to them. Normally, that’s damage your credit rating, threaten and harass you and ultimately sue you to collect the full debt or sell your debt to some debt collector that will do the same.

There are only three ways to successfully fend off creditors:

1. Remain judgment proof. If you have little or no assets, rent instead of own your own home, and you are self-employed, then creditors cannot garnish your wages or seize your house or assets.

Needless to say this does not apply to everybody. Also the amount of exempt assets you can keep from creditors varies according to state law in the state where you live. For interest, cars worth more than a certain amount may be non-exempt (the creditor may be able to seize and sell your vehicle).

It also won’t protect you from harassment, court orders to fill out interrogatories about your assets and other creditor demands. Creditors can also file to renew their judgment for many years.

2. Negotiate a Settlement. Obviously if you get them to agree to take a reduced amount in full satisfaction of their claim, then that solves the problem. The debt is reported as “settled” to the credit reporting agencies — which is better than a bankruptcy.

3. Bankruptcy. If you are able to discharge your debts in bankruptcy under Chapter 7 then you won’t have to pay them. If you file for a chapter 13 repayment plan you will be able to pay a portion of your debt depending on your assets and income, over a period of years.

(This whole area is extremely complicated and you need an attorney to analyze your situation properly if you are considering bankruptcy. Under no circumstances should you try to do it yourself. I cannot tell you how many times I’ve sat in bankruptcy creditor meetings and seen other bankrupt debtors come before the Bankruptcy Trustee and have their cases dismissed because they didn’t have a lawyer and didn’t know how to follow the rules. Bankruptcy law is tricky by Congressional design.)

The Debt Of A Nation

The history of this nation is being written in the annals of debt that has become almost to insurmountable. There have been two critical factors that have derailed the sovereignty and stability of the United States. In all our recorded history of over 200 years this nation has seen only small periods where our armed forces were not engaged in some conflict or another somewhere around the globe. From the time of John F. Kennedy’s death all the way up to today the national debt has continued to climb. There are two important factors as to why this nation still can’t grasp the concept of elimination of our now catastrophic national debt. A nation at war and a nation that relies on the creation of money by privately owned banks like the Federal Reserve Board are the most ruthless ingredients to incur massive debt.

In two distinct periods in our history has a sitting President tried to empower the public while reigning in the Nations debt. One during a time of the greatest internal struggle for national preservation namely the Civil War and another were we were headed into one of the greatest challenges that perplexed a nation primarily the Vietnam conflict. In 1861 President Lincoln needed money to continue to fund the Civil War. Bankers at the time were charging over 28% interest. Rather than pay up that high interest Lincoln pressed congress to authorize the Treasury Department to print full legal tender treasury notes [this is what the Constitution originally implied with no interest attached] to pay for the costs incurred form the war. When congress passed this legislation Lincoln stated ” We gave the people of this republic the greatest blessing they ever had. Their own paper money to pay their won debts.” Thus Greenbacks became the name this currency was called. To Lincoln’s credit the passage of the Merrill Tariff Revenue Act in 1861 along with establishment of the first ever income tax, a flat 3% on incomes above $800 [today equates to $19,000] all increased financial revenue to fund the Civil War.

Lincoln’s troubles began almost from the time he took office. By 1862 congress repealed the flat tax and instead established what was to become the basis of the complex tax system that we have today. A more progressive tax structure putting more of a burden on the less wealthy. Another set back was the National Bank Act of 1862. This act let banks become national in that they are charted by the Federal Government and authorized to issue interest bearing notes secured by Government bonds similar to what Alexander Hamilton did after the Revolutionary War in the creation of the First Bank of America. Passage of this bill ensured a market for the Federal Debt since the new National Banks would now be required to buy those bonds.

Had the National Bank Act failed to pass Congress Lincoln stressed that “Money is a creature of Law and the original issue should be maintained by the exclusive monopoly of national government. the Government should stand behind it’s currency, credit, and bank deposits of this nation. No individual should suffer a loss of money through depreciation or inflated currency or bank bankruptcy;” would have benefited the American public in a time of great uncertainty. Look what happened in 2008 with the Federal Reserve Bank running the show. Millions of our citizens suffered great financial loss. All the Federal Reserve does is loan money to the government at interest. What drives up our national debt higher are privately owned banks, the Federal Reserve, and a nation that continues to be engaged in armed conflicts anywhere in the world.

The London Times in 1863 who favored the Bank of England’s monetary policies wrote ” If that mischievous financial policy, which had it’s origin the North American Republic, should become indurate down to a fixture, then that Government will furnish it’s own money without cost. It will pay off debts and be without a debt. It will have all the money necessary to carry on it’s commerce. It will become prosperous beyond precedent in the history of the civilized government of the world. The brains and the wealth of all the countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe.” The wealth of the United States is in the hands of the private bankers not the American public. It is no wonder that the English were trying to help the Confederacy. When Lincoln issued the Emancipation Proclamation in 1863 the British populace who were opposed to slavery quietly withdrew their support of the Confederacy while Russia grew more supportive of the Union cause which helped the North and Lincoln preserve the Union.

In repealing the greenback law congress passed the National Bank Act in it’s place. All national banks were to be privately owned and the national bank notes they issued were to be interest bearing. The National Bank Act also provided that the greenbacks be returned as soon as possible as they came back in the payment of taxes. A hundred years later the United States Treasury Department computed the amount of interest that would have been paid if 400 million dollars would have been borrowed at interest instead of being issued by the Treasury Department as Abraham Lincoln initially did. Because of the greenback resolution the United States Government saved 4 billion dollars in interest. President Lincoln followed the exact interpretation of the United States Constitution by the government creating it’s own money interest free.

More recent President Kennedy in 1963 almost one hundred years after Lincoln undertook the gauntlet of reducing our national debt again following the Constitution issued Executive order 11110. This order circumvents the Federal Reserve Bank an makes possible the Federal Government not the banks print interest free money. In 1963 the Treasury Department under President Kennedy issued $4,292,893,825 interest free money. What is so startling is that not long after Kennedy’s death all the United States notes, which Kennedy had issued, were called out of circulation.

The only time in the history of the United States that our National Debt was eliminated occurred when Andrew Jackson stopped the charter of the Bank Of America in the 1830’s. Today just imagine the trillions of dollars saved by interest free currency if the Treasury followed the Constitution. The Debt of this nation starts with the elimination of interest on the currency used. Reinstating the gold standard where one dollar is secured with a dollars worth of gold is one way to start. Another is what President Kennedy was trying to accomplish gave the Treasury the authority to issue silver certificates against any silver bullion, silver, or standard of silver dollars in the US treasury. Now, in 2011 the United States is still operating under the Federal Reserve System. A system that is arguably most instrumental in contributing to this countries trillions of dollars in federal debt. There is more truth in what Abraham Lincoln once said that is so true today “There can be no peace without justice, and there can be no justice without a reform of our economic system, for the financiers are behind most of the corruption in our Government.”