Credit Card Debt - how to free yourself

As amazing as it seems, most people do not understand credit card debt. They see a refrigerator and they think – oh, it’s only $10 a month for the refrigerator. We can afford that can’t we? They don’t think in terms of how much money is on their credit cards as a total amount. They just see it as another sum of money they will have to come up with each month, and while $10 a month more may sound reasonable and doable, that $10 a month, added to what they already owe, may tally into the thousands of dollars.

What they also may not understand, is that $10 a month is going towards a $700 refrigerator – by the time it’s paid off, they would have been able to buy 3 refrigerators for all the finance charges they had to pay over the years.

I know a woman who only bought merchandise that was on sale – whether she needed it or not – if it was on sale, she bought it. She had a closet full of clothing that she had bought over the years, most of which she had never worn, but they were all on sale so she bought them. And with each blouse or dress, she added to her collection in the closet, I kept hearing her tell me about the wonderful bargain she had got and how much money she had saved. These articles of clothing stayed in her closet unworn for years at a time- while she stuck to just a few outfits that felt comfortable on her. She was struggling to pay her bills – I said to her – stop shopping – and she said: that’s the only thing my husband and I enjoy doing together.

I told her that she and her husband needed to develop another hobby. They did. They started eating. Gargantuan amounts of food so she couldn’t even get into any of her bargain clothing. This went on for several years. When she lost her job and couldn’t find employment, I started to counsel her on her spending habits. I wanted to know what she needed at a bare minimum to survive. Part of me was afraid to ask her how much her credit card debt amounted to – but I did anyway. When she told me she had racked up $50000, it took everything in me not to let out a loud gasp in shock. I then proceeded to give her financial counselling for many years after that – and now I’m pleased to say that she’s free of credit card debt and she even has $4000 in her savings account.

Credit cards are very seductive. When they first came into existence, people used them for the purpose for which they were intended – as emergency funds. Your car breaks down, you have no cash, no savings, nothing that you could use to pay the towtruck to come and rescue you for the repairs that are needed at a service station, so you whipped out your trusty little credit card that was on hand just for an emergency, and you breathed a sigh of relief when they put on a new fan belt or a new radiator or a new tyre to replace the one that had just blown – and that’s what credit cards were supposed to be used for.

But over the years, people have become very irresponsible with their finances. These credit cards are no longer being used just for emergencies by most people. They are being used for a better way of life, a higher standard of living, expensive purchases that they don’t really need. And the credit card debt just keeps going up and up and up – and they pay no attention to it as long as they can make their payments.

When they are laid off from their job or fired, and their income goes out of the window, they suddenly become aware of payments that they cannot meet. And still it doesn’t occur to them that they have become credit card junkies. When they are facing bankruptcy and they have to go for consumer counselling and all their credit cards are taken away from them, while the credit card counsellor negotiates with the credit card companies for manageable payments, it’s like having withdrawal symptoms. And never underestimate the fact that they are not only having financial withdrawal symptoms but emotional ones as well. Because now, they cannot see a way of life that doesn’t feel hopeless.

To illustrate this point, during the Cuban missile crisis of October 1962, the people in Miami, Florida, were only 90 miles away from Cuba when the threat of being bombed and blown out of existence became a very real possibility. Emotions ran high, people panicked and the main attitude of the residents was – if I’m going to die, I might as well enjoy my last few days. They rushed to the stores in droves. They charged all kinds of luxury items on their credit cards because they never really expected to have to pay them off. After all, if they were going to be bombed, they wouldn’t have to pay the consequences, so they might as well enjoy themselves. They bought television sets, they bought boats, they bought cars. They bought all the things that they never could have afforded if they lived to be over 100.

The Cuban crisis was averted. Miami stayed intact, people went on with their lives – except one vast difference –now they had credit card debt up to their eyeballs. They had big ticket items that they couldn’t afford and wouldn’t be able to use. They had small ticket items too, but a great many of them - again with purchases that were totally unnecessary, extravagant and way beyond their budget.

The economy of that state was in great jeopardy. People’s homes were foreclosed, their cars and their boats were repossessed and people were out on the street. Businesses went under when their customers couldn’t afford to pay their debts.

Now if we look at what took place in 1962, a little under 40 years ago, and we multiply it by many millions of dollars more, we get to see the beginnings of what would eventually affect a global economy.

To summarise:
- be aware that your minimum monthly payment may seem to be a small amount, but you are paying several times over the original purchase price for your goods
- learn to use your credit cards only for emergencies and nothing else
- don’t incur any more debt than you already have

Let’s take a look at how our global economy got to be in such a mess. As we discussed with the Cuban Missile Crisis in 1962, we saw that what started with one small state in the US, became a temptation of easy living with no responsibility for paying off those debts. This is something that is felt around the world. I doubt if there is a country in the world now that doesn’t have its fair share of problems with people who are tempted to go into debt for luxuries that they cannot afford. We have only to look at the banking institutions, the financial institutions, with people who have got mortgages for nothing down, or 5% or 10% down, who would not have qualified as creditworthy if the banks had really vetted these people properly.

Now let’s look at cash advances. Again this is something that credit card companies have made too easy for its users. If it’s used appropriately for emergencies and nothing else, consumers might be better able to pay off these debts. Unfortunately, many people look at a cash advance differently. They ignore the fact that their finance charges start the minute they make that cash advance and that interest keeps accruing every single day from the first day of that loan. If they bothered to do the maths, they would have the option of seeing whether or not taking that cash advance was really of benefit to them.

More often than not, these cash advances are not paid off quickly, but they just get added into their ongoing credit card debt. Not enough people look at their statement each month to see how much money is going towards their cash advance and how much money is going towards their monthly charge –and those rates differ greatly.

Now let’s take a look at balance transfers. The average consumer sees a balance transfer as an quick way to pay off their credit cards, perhaps by combining all their payments into one, two or three payments instead of maybe ten payments. And if it were that simple, perhaps their credit card debt would be more manageable. But let’s look at some of the seductive ways that banks have of tempting you to do these balance transfers. During the good times, banks will offer a 0% finance charge for a certain number of months and then a higher charge for the remainder of the loan – and if you just looked at that, it might seem reasonable. But money has a way of making you greedy – so you may not look too closely at the fact that you may be paying $90 or $120 for every transaction you make on this balance transfer. Let’s say you want to pay off four of your credit cards: and you are going to transfer them onto this one credit card so that you have only one payment a month. For each of those four cards that you are transferring balances from to this one card, you will have to pay a fee of at least $90.00 per transaction. So you will be paying an extra $360 just for transferring the monies on these four cards. So you may be getting 0% financing for 6 months, however, and this is a big however, in smaller print, banks are telling you that they have the right to change that balance transfer offer as they see fit. So now you are thinking you are going in at 0% for the next 6 months and 9% after that until the balance is paid off. Now a few months later, you get your statement in the mail, if you look closely enough, you may be very surprised to see your interest rate go from 9% to 13.9% - because your bank can and often does change the original offer.

Here’s another eye-opener. You call your bank and you want to know what the payoff amount is, because now you have enough money to pay off the balance. You ask them to figure out the finance charges and add it to what you are supposed to be paying – and you think to yourself when you make that payment that you are finished with it. Not so fast. Your next statement comes in and lo and behold, there are more finance charges that have been accrued that you still owe.

So it’s very easy to see how credit card debt starts and how it escalates and how hopeless it seems for a lot of individuals.

And if you are one of the many consumers who looks at your statement and says – oh I just have to pay $15 – that’s the minimum amount due and then ignore the larger balance of everything that’s due, then you are one of those people who are just paying down the interest on the loan and not a penny off the principal of the loan.

Gold over $1000 an ounce

As I predicted in March 2008, October 2008, January 2009 and March 2009, I said that gold would increase in price substantially and would go over $1000.00. This week it is at $1005 per ounce. So where will it go from here?

With the Chinese stocking up on their gold reserves, Hong Kong deciding to take all its reserves out of a London depository and open their own holding at Hong Kong airport, with Russia saying that it’s advisable to have at least 10% of their assets in gold, there are signs worldwide that gold is becoming a more interesting commodity, even for the average person. Indeed in China, they Chinese public are being encouraged to buy gold and silver.

Nearly $2 trillion tax dollars have already been spent on bailouts of financial institutions and banks so far in the US, but we are probably about halfway through the unwinding of the mortgage bubble in the USA. There is still a lot of pain to come in terms of writedowns and losses that have yet to be recognised.

Things are going to be much worse than anyone anticipates. There were two other kinds of mortgages that became very popular. There were option arms which lured in all kinds of investors with very low “teaser rates” for 2, 3 or 5 years, but after that the interest rate goes up substantially. The other type is called Alt A loans and they too were given to people on low rates and the unwinding of these mortgages is yet to come. A mortgage of say $800 a month could easily jump to $1500. Now these loans are starting to reset causing mortgage payments to go up and owners to default. This will lead to more foreclosures. This is a time bomb. We are at the beginning of the second wave.

With this in mind, it is likely that more people will rush into the safety of gold. So expect the price to go up to $1500 or more within the next year or so.

Entitlement Issues - why they are causing our economic crisis on a global and a personal level

Let's take a look at how entitlement works globally and see the reasons behind our bank failures, our pension failures, our financial institutions and then we’ll bring it into a very personal level of how our attitudes of entitlement are bringing failures into our own lives.

We’ll look at ways to reverse this.
We’ll look at the issue of why our attitudes of entitlement are a luxury that we can no longer afford.

In the old days, on a global level, our standard of living was much lower. Our cars were basic, our entertainment was much less costly and in most economies around the world, families were able to make it on one income.

Over the years, as our standard of living rose higher and higher, it now takes two incomes just to survive. Instead of using one car for the family, now we see two cars or more for the family. Instead of just going to a movie and some place inexpensive for dinner for a special night out – now we have very expensive forms of entertainment.

In the old days, when we had a much lower standard of living people actually sat around in the evening and talked to one another. They even read books. They listened to the radio and used their imagination to recreate the scenes in their heads. If you had a telephone, it was a luxury. People made appointments to see one another, they didn’t sit on the phone for hours on end. Nowadays, there’s very little personal interaction. People sit on cellphones, they do text messaging, they sit on their computers, they do instant messaging, emails or messageboards – and social interaction has become a thing of the past. We are now leading very insular lives and the end result is that we have more cases of depression, especially among teenagers and young adults. We see more people today on anti-depressants than any other time in the history of mankind. This is more than just being dissatisfied with your lot in life. It has more to do with feeling a lack of purpose in your life. Having family and friends around you to share the good times and the bad times. This is about being able to live your life without having a single person in your life. Anything and everything that you can possibly want or need can be purchased online. You don’t ever have to leave your house. In so many different ways we can see the breakdown of the family and of the community coinciding with the breakdown of the economy.

The higher standard of living that we’ve grown accustomed to isn’t really about buying toilet paper in different colours, but it’s actually separating ourselves from the family unit. Instead of listening to the radio and using our creative imagination, or reading a book and letting it take us to different locales, now we have to be entertained. Now we don’t entertain ourselves. Now we need TV, video games, the internet…but the worst part is that we have isolated ourselves from each other.

Instead of conversation, we plant ourselves in front of TV’s. Instead of board games that can be played with the family, we’re now playing games on the computers – we’re having online relationships that are usually disappointing and we aren’t reading books like we used to. People used to have to develop social skills. Now with modern technology and a lack of social interaction, social skills seem to be at the bottom of the list of priorities.

Unfortunately the ills of society cannot be reversed by waving a magic wand over them. As a rule people don’t change unless they are forced to change. So how do we get past this attitude of entitlement? That the world owes us a living? That if you don’t have what you want that it’s ok to steal?

How do we go back to the basics of child-rearing?
Where the parents made the rules and the children obeyed them.
How do we get parents to see that their permissive attitude is damaging their children?
That it’s not ok to whine and cry until you get your own way. That we’re raising a generation of children who are growing up to be irresponsible adults who are not held accountable for their actions.
These same children will grow up to be dissatisfied with life, blaming others for their failures and not able to hold down a job.

So before we can fix the economy, we have to fix ourselves. We have to learn how to put back into the community what we have taken from it. We have to hold our bankers and our financial institutions accountable for everything. Our greed on a personal level corresponds with the greed on a corporate level. We have only to look at the increase in shoplifting to the CEO’s of major corporations who have stolen from their company’s pension funds. Now that we’re facing very very hard times, we need to see how our attitude is causing our own destruction.

When the economy started to go down, a taxi driver in New York City was asked what he was going to do if people didn’t have enough money to take taxis and he couldn’t pay his bills. Without batting an eyelid and having to think twice about it, he said “I’d steal.”

I heard of a woman in her 40’s who walked through the produce department of a supermarket and started to eat the grapes and cherries that were on display. She didn’t pay for them, nor did she feel guilty for having taken them. It was as if she had the right to sample whatever goods were out there. Although security would not have been called for pilfering grapes, especially since the goods would not be found on her, it’s easy to see why a storeowner’s losses would have to be passed onto its customers.

When doctors and patients submit fraudulent insurance claims – those costs aren’t just washed away – they get passed onto the other people who are insured.

I recently heard of a man who went into the hospital and was there for close to a month. A neighbour of his was one of his golfing buddies, and he was also a doctor. And every day he came to the hospital, he said hello to his friend. They talked about gold, about politics, their hobbies… and not once did he discuss this man’s medical problems .. and this man thought it was very nice of his neighbour to drop by. When he got his bill from the hospital, he was absolutely outraged to see that that neighbour charged his insurance company for every single visit for the month that he was there.

While most people would shrug their shoulders and not do anything about it because they didn’t have to pay for it out of their own pocket, this man called his insurance company and reported the fraud. He then called this doctor friend of his and told him that if he didn’t call the insurance company and rectify his mistake, he was going to contact the media and start an investigation. They lived in a small town and the doctor realised that he would be forced out of business if he didn’t drop the charges, which is probably the only reason he eventually notified the insurance company that he was dropping those charges.

The entitlement issues we face today can be traced back to the low standards we set for our children. The bar needs to be set higher, much higher. We are raising children who reach adulthood as grasping individuals taking whatever they can from whomever they wish without stopping to question their actions.

I recently heard of a widow in her late 50’s who sold the farm that she and her husband had owned for all of their marriage. She moved to a smaller place and planned on using the profits from the sale as her retirement income. Her children were so angry that they even refused to speak to her. They felt that the money from the sale was their inheritance and it should go to them. What kind of distorted thinking is that? She and her husband had worked the farm, had put in their life’s energy in that farm and she had every right to sell it and do whatever she wished with the money she received from it. Her adult children were living their own lives, earning their own money, and not supporting her. They weren’t entitled to one cent, yet they are trying to make her feel guilty for taking what she so rightfully earned.

In the US, they have been conducting surveys among middle management to upper-management employees who were laid off when their company’s downsized. There seems to be a growing trend among these people to try for a few months to find other employment, but then shortly afterwards, they give up and stop looking because they cannot find a job that pays the same kind of money. What we see happening to these people – they empty out their retirement funds, their pensions, their savings accounts, their family’s savings accounts, and mortgage their houses to the hilt. They have decided not to look for a job. If they cannot get the kind of money that they had been making, they are choosing to go on unemployment for however long it lasts and to live off everyone else. Some of them are sending their spouses to work at menial jobs, others are collecting food stamps and welfare and this number is growing rapidly. These are people who are able-bodied and capable of working but who choose not to – and society is supporting them.

You don’t have to look further than this to see how a country’s economic crisis is irrevocably tied to the entitlement issues of its populace.

A couple of years ago, I heard of a teenager who asked her father for a car after she got her license. Her parents were divorced and her father was trying to compensate for not being in the house as a full-time dad. He didn’t have much money so he got her a new Volkswagen. She was so angry that he didn’t get her a luxury car, that she deliberately rammed her car into a stone wall and practically demolished it. Her father couldn’t even claim on the insurance because it was deliberate. He ended up buying her a used car so that she would have transportation. This father, as well-meaning as he probably thought he was, only contributed to his daughter’s sense of entitlement. Had I been that child’s parent, I would never have bought her a replacement car and I would have had her go out and get a job and pay back, each week from her salary, every penny of the amount of the new car that she had been given.

This disregard for property, for other people’s financial problems, and for other people’s feelings represents the kind of attitude that is running rampant among many cultures. When parents accept this kind of behaviour from their children, they are setting their children up for failure as adults and of course this plays right into the failure of the economy of countries around the world.

How can we expect our politicians, our bankers, our financial institutions, our corporations, to exhibit more accountability than we expect from our own children?
Many children, single and married, move back home into their parents’ home because they cannot afford to make it on their own. At what point does a parent know that a child must learn how to survive on their own and stop taking money from their parents? At what point do parents know when they are causing more harm than good by continuing to treat their offspring as children? When they continue to make life easy for their children, these children will not know how to survive on their own when their parents die. It is far better to teach children moral and financial responsibility when they are young than have to learn it the hard way when they are older.

I had to learn this the hard way myself. My father kept on giving me money, even when I was in my 30’s and I never really learned how to be independent financially. It took me telling him that I didn’t need his help (even when I really did at the time), and then I learned how to stand on my own two feet and how to earn and manage money effectively.

I could go on and on giving you examples of entitlement in every strata of society, but the ones that I have cited are ample demonstrations of how we’re contributing to the downfall of our economy. We’re doing this on the local level, the national level and the international level. We’re taking the path of least resistance and while we’re holding everyone else accountable for their actions, we’re taking no responsibility for our own.

It’s time to reverse the status quo: Let’s try an experiment: for one week, between this show and next week’s show, try denying yourself something 3 times a day. Learn how to say no to yourself. Learn how to question your actions, how to observe them and question the validity of them.