Debt – curse or blessing of our times?
As we discussed in the previous session of this personal financial planning course, our debts are the result of rushing into ever-increasing levels of borrowing. Other important causes of the accumulation of debt can be found, among others, in Session 2 (“Marketing. The Art of Seduction”), where we showed how irrational financial decisions may be if you are being swayed by a consumerist ideology. We opposed this mentality with a series of 10 models of financial life: in the process, we have constantly reminded you, and would now once again encourage you, to plan your personal finances systematically by using financial statements. In this session, we will now set about trying to find as many practical solutions for those of us who have fallen into financial trouble.
In one of my first texts on personal finances, I wrote the following:
Did you know that consumers divide into 3 financial categories?
- The largest of these categories (up to 50% of society) are those consumers who are permanently in financial trouble. In this group, a few million people are not able to regularly pay off their loans!
- The second category (about 45%) consists of those consumers who get by in life, but sometimes they teeter on the edge. Although they ultimately manage to overcome the crises, their lives are marked by money-related fears.
- The third category (not more than 5%) are people who at some stage of their lives had a bit of luck and have had a thorough financial education. Some of them are entrepreneurs or representatives of the so-called liberal professions (less frequently holders of full time jobs).
Today I have good news for you. If you belong to Category 1 or 2 and feel you are suffering unduly because of debt, I believe I can help you see the light at the end of the tunnel and give you a chance to turn your life into something extraordinary. But how can your troubles become an opportunity for you?
You might have heard that in Mandarin Chinese, the word for crisis is composed of two logographs (Chinese characters): one meaning crisis, and the other opportunity. The exact meaning depends on the context. However, this is not the only reason to look at your difficulties from a new perspective, and draw hope from the depths. You will find a constant source of strength and courage, as well as exhortations to resist the temptation to despair, in many places in the Bible. You can also find extremely helpful literature in the field of personal development. Such guides can offer a multitude of inspirational ideas and down-to-earth insights, and in many cases supply effective troubleshooting tools that can help us transform even the most fraught situations into a fund of invaluable experience. In hindsight, this may be a great turning point: the start of big dreams and practical plans.
What is there to be said about debt?
- You should avoid debt wherever possible.
- You must pay off debt whenever you incur it.
These are, in my view, the two fundamental truths about debt. However, in what follows we will have to proceed beyond these truths to deal with cases where someone has run into such severe debt that it starts to ruin his or her life. And make no mistake: debt can indeed ruin your whole life. This is another reason why financial operations should not only be based on sound calculating skills, but also, crucially, stem from a holistic and coherent philosophical life system. This is a point I have emphasized from the outset of this course.
Now complete task 1
By the end of next week, take stock of your current financial position. Is everything in good shape? Do you face any threat of bankruptcy due to excessive debt load? This sort of bankruptcy can often remain unseen to us up to the moment it strikes – unless we have exercised proper control over our finances. If you find even the slightest symptom of trouble imminent, get to work immediately planning and implementing adjustments to your life strategy and/or repairing your personal finance structure. This course has already introduced sufficient tools to help you achieve this end.
From personal experience, I know that anyone who gets into debt usually takes one or other of two very different strategies:
- Regardless of the size of the problem, they deal with the situation on a rational basis, and get to work systematically repairing the damage. They look for suitable solutions to the problem until they find them, and use these to eliminate the problem.
- They avoid the problem in the hope that it will somehow resolve itself. What then actually happens is that the debt increases, and the problems only multiply.
The former strategy is the only sane route out of debt. What is more, the urgency and impetus this can give you often becomes the start of your road to financial freedom!
Reliance on the (disastrous) second strategy may occur for a number of reasons:
- Many view debt as if it were a final apocalypse, and sink into depression, physical and/or psychological breakdowns, and may even end up taking their own lives.
- They tend to be ashamed of their problem, and are thus unwilling to share it with anyone, and as a result, also shun opportunities of advice and support.
- They generally find they become unable to ask for any sort of help anywhere.
- They often start to come under violent pressure from debt collection companies.
- They do not know how to give up their lifestyle of physical and psychological comfort, and thus seek additional loans to shore up a lifestyle they really should change.
All the attitudes and behaviors that characterize the second strategy are, sooner or later, harmful and potentially fatal. For this reason, if you can identify with the mechanisms of this strategy, keep on reading until you have found effective methods to change your direction.
Here are my 11 key tips for those in debt
- First of all – and most important of all – keep your spirit and mind calm. Panic and fear are the worst advisors. Are banks and debt collection companies harassing you with phone calls? Will your family not leave you in peace? Do you have a recurrent feeling of impending doom? Here’s what you can do:
- Find an hour a day alone which you can use to banish fear and despair by visualizing a situation where you have paid off some debts. Imagine yourself as a creative person who is resourceful and enterprising, and who can be released from debt step by step. Think how much you will gain, how much you will learn, and how much stronger you will be once you emerge from the dark night. Envisage how much you will change personally by solving the
problem. And how your future can look thanks to this turnaround. This simple technique will not only bring temporary relief, but systematically strengthen your vitality, and protect against distorted perceptions of reality where debts appear a form of curse or nightmare from which there is no awakening.
- Find someone who can support you emotionally. This is yet another reason why finances should be an unbroken part of family life. If, for example, husband and wife, boyfriend and girlfriend or parents and children regularly talk about money, they take courage and learn to plan budgets and collectively make up a powerful advisory council at home. If you have neglected this area, or if it is not available, you should look for support among trusted family friends. You may have to look for advice and support from strangers – often also a good solution, because two heads are indeed usually “better than one” when a problem is serious. It is better to seek other people’s advice than try to deal with your demons all on your own.
- Immediately start preparing a solid, written action plan. The quicker you do this, the better. When you make a plan and take the first steps right away, you will feel a certain relief. This is because taking the initiative gives you a heartening sense of control over the situation. Do not wait until you get a phone call or a letter with a payment demand. Be proactive. This will also help to increase your reliability. Banks, companies, or individuals you owe money have no idea what is going on inside your head and in your life. If you just ignore them, they will simply come to the conclusion that you have no intention of paying them back. The sooner you respond to them, better still, approach them, explaining your situation and asking for more time, the better and faster things can start to progress to your desired release from the burden of debt.
- Organize the information. Allocate a file or a drawer to keep all documents concerning your debts in order, and easily accessible.
- When you put together the financial facts about the size of your debts, make an initial diagnosis. Calculate how much you owe, and to whom. Make a list of priorities. In the booklet “ Your financial development” by Crown Financial Ministries , in the section “Escape from the debt trap” we can read the following:
“Pay your debts quickly by using the snowball effect. Increase your smallest debt installment by as much as you can. When you have paid it off completely, add the value of its installments to the installment of another larger debt to increase that installment. Continue until all your debts have been settled.”
- Find some money to obtain an independent legal diagnosis. You can also take advantage of many free financial advice services. Why do this? Because banks and debt collection companies are not always completely open and honest with you. It is important to get an objective, unbiased diagnosis of your real financial position.
- Find some time during the day to work quietly and systematically on a solution to the problem. Maybe you’ll have to get up half an hour earlier, or give up watching TV or surfing the Internet for a while. Perhaps you can also try to work more effectively, if you carve out some time from your daily schedule to hone and perfect a strategy to pay off your debt.
- Pay off as much as you can, even if it is only a small amount. If you cannot afford to pay the full installment, rather pay what little you can, than pay nothing at all. If you explain your situation to your creditors, it will make a much greater difference to them (and you!) than if you just avoided the issue, and paid and said nothing at all.
- Make an inventory of what you have. Sell off everything you don’t need (need, not want!), to pay off or cut down the debt. Can you sell your car, or swap it for a smaller one? You might even need to move to a smaller apartment, cancel your television subscription, or gym contract.
Difficult decisions call for rational, careful consideration. You may feel so attached to your comfortable lifestyle that the very thought of lowering its standard in any way seems unrealistic. Well, in that case you’ll have to do some work on your priorities. Take action calmly, but act as soon as possible, to avoid your emotions leading you, and leading you astray. If you think beyond the moment, you will realize that it is better to apply rational, reasonable thinking skills – and your creative imagination – which will allow you to appreciate the longer-term effects of the decisions you make now.
If you have a problem with the idea of selling something to reduce or get rid of your debts, imagine that a company, your employer or a friend owed you money. How would you then feel if you visited your debtor in his or her elegant house, with an expensive car in the driveway, to be told, sorry, there is no money to pay back the debt, and that you will just have to wait? Or if you heard that your employer, who has apparently not been able to pay you a salary for the third month in a row, has gone on holiday to an exotic island, leaving instructions for you to exercise patience and forbearance? Try to put yourself in the shoes of your creditors. Money and assets are usually recoverable later. If you lose your good name as well, you can get into much worse trouble than debts alone cause.
- Work out a fair, sensible response to any phone calls from banks or debt collection companies, who may start to phone several times a day with the same question: “When can we expect to see the money?” For reasons best known to themselves – at least if my experience at the lowest ebb of my life is anything to go by – debt collection agencies tend automatically to presume that any debtor is a crook and/or good-for-nothing (a “loser”). If you find the same experiences happening to you:
- Think how much you can gain from employing the skills of tough talking.
- Whatever you do or say, don’t lose your head during such conversations. They tend to be full of the various “tricks of the trade” (the trade in this case being
debt collection). If you have a repayment plan in place, are working towards the speediest practicable repayment of your debts, and you have already communicated with the creditors and are working with them towards a fair and equitable settlement, and yet the phones still continue to ring, consider such talks as a free course in ‘Polemics 101’. Do not let anyone ridicule or threaten you, or force you to take repeated phone calls a day regarding the same case.
Do not hesitate to take the appropriate legal steps against harassment and intimidation.
- Beware what you might say under pressure, particularly under duress, and make no declarations – least of all in writing – in any situation where you are not convinced of the argument, because you have not had enough time to consider the full implications or make a properly informed decision. Some people dread phone-based debt collection, or a threat of being visited by so-called “field debt collectors” to such an extent that they are ready to do almost anything to have (however temporary) peace of mind restored. However, we cannot stress this point too strongly: there is no advantage to be gained in signing a promise of payment that you have no way of honoring. This is likely simply to land you in even deeper trouble.
- Investigate if you can restructure the debt. Often it turns out that instead of taking out a further loan, which usually just exacerbates your problems, you can turn rapidly-increasing, runaway debt (e.g. outstanding credit card or consumer loan repayments) into one protected by a mortgage. If this is a carefully thought-out and well calibrated decision, then you will probably gain in several respects:
- interest on the debt may decrease by up to 10%,
- the size of the monthly charges – monthly installment, plus outstanding payments and interest – may decrease by as much as a few hundred dollars.
Best of all, you will restore a measure of peace to your life – and also free up time for further research into more effective ways of reducing and eliminating your debt.
- Use the “statute of limitations” – but in accordance with the moral compass of your conscience, which is always the best judge. The law determines precisely the various periods of limitation of debts, according to their types. However, if you deliberately avoid paying off debts simply to take advantage of this legal mechanism, you are committing a huge mistake. What mistake? First of all, you’re breaking the law, with the obvious risks that implies. And if you continue to behave in this way, you will never achieve anything in your life. If you don’t know why, refer back to the series “Models of a Well-Planned Financial Life” in this course – you will find the answer there.
Use the “statute of limitations” in a situation where you are sure that someone is trying to make money off you unfairly. For example, a number of years ago you came to an agreement with a bank to pay off the balance of a debt. The bank reduced the interest you had to pay, in return for your immediate payment of the remaining amount. Suddenly, many years later, you get a call from the same bank demanding payment, according to a document signed by a different employee. The payment due has also increased by a thousand dollars owing to a combination of added interest, fees and costs. You don’t know where this figure came from, because you do not have an account with the bank any more, and the relevant data was removed from their records after 6 years. But they refer to this signed document.
What’s more, the bank may obtain a judicial order for payment if you do not successfully bar the plea on grounds “statute of limitation”. What should you do in this situation? You have to know. Such cases do occur.
So let us here recap our advice from Session 8 regarding debt: read any agreement before you sign it. Read it very carefully. If it raises your concerns, seek legal advice.
We can now add a further, extremely important piece of advice: whatever you determine or negotiate with the financial institution, immediately confirm your decision or agreement with them in written form.
This session was entitled the “Debt – Curse or Blessing of Our Times?” Can you see how debt may be a curse, but also a blessing in disguise?
- A curse, because it makes de facto slaves of us. The necessity of paying off loans restricts many areas of our personal, emotional, social, family and business freedom.
- A blessing, because debt is often an engine for radical changes in life. It forces us to greater activity, adopt creativity, discipline and courage. Financial trouble encourages us to seek more rapid financial education. And paradoxical as it may seem, it may be a driver to achieve financial freedom. This ability to rise from debt or bankruptcy is the lever that often turns the skill of recovering from debt into an art of multiplying money. This is exactly how, in the course of human history, many great fortunes have taken off.
If, on the other hand, you do not suffer debt problems, then don’t feel left out. You can rest easy too: because in the next session, we’ll introduce another way of achieving financial freedom, which results directly from the nature of modern finance.
To learn more about the personal finance management course please visit this website.