Livinglies's Weblog

Gambling establishments know it, amusement parks know it, retailers know it — anything that separates your perception of spending your own money from the reality results in your spending more. And in the case of the American consumer, we are spending consistently more than we earn and more than we could ever pay back. 

We are all participating in a Ponzi scheme, relying on the next influx of credit from our home, credit card, auto loan or other lending scheme to pay the minimum payment on past debts. Meanwhile when we use chips at the gambling casino, we are not spending “money” so we spend more of it. When we use credit cards, we are not spending “money” so we spend more of it. When we use debit cards, we are not spending money so we spend more of it.

The result is that we walk out of the casino either broke or possibly in financial ruin. We get the credit card bill at the end of the month and we didn’t realize how much we spent. We see “over-limit” fees, late fees, and all kinds of interest and fee items that result in a “minimum payment” that is guaranteed to keep us in debt for life. We get our bank statement at the end of the month and for the 20% of us who even look at it, we get the same surprise — we spent more than we realized using our debit card, in stores and on the internet. We borrow on our home equity credit lines and increase our monthly payments to a level that is out of reach, or in the case of most Americans, to a level that is simply more out of reach that before (what’s the difference, I can’t pay it anyway).

For those of you who revel in conspiracy theory, here is one that is true. The deck is stacked against everyone by a tacit agreement between government and business. They want us stupid and ignorant. The Government, the retailers, the gaming establishments, the banks, the banking networks, non-bank credit card issuers and others on the receiving side of the dollars you spend all want you to avoid paying actual cash. Because they know that if you have cash in your hand you will regard it as yours, as you will be less inclined to part with it. They know that at the end of the month, if you are spending actual currency, you will be the one with money in your pocket and not them. 

Millions of Americans are steadily increasing their spending on credit cards, because they have no other place to go for the money to pay for their normal monthly bills — groceries, utilities, etc. Many are taking down the full amount of their home equity lines of credit for fear that these sources of credit will be frozen — a trend that is growing in the industry. People are taking this money and socking it away in investment accounts, which I hope are in Euro’s because the dollar is going to continue taking a major hit and inflation, while it is a global problem, is headed for far worse territory than most other places on the planet. 

The United States is a place of negative savings (i.e., debt) from top (Federal government) to bottom (you). And nobody is going to help you or your children or grandchildren because all the players have a vested interest in lying to you, misleading you and encouraging you to look at your finances as something other than your future wealth and security. If you are looking for help, look only to yourself and your family members. Get yourselves together and decide on how you are going to navigate the this mess. 

Here are some tips that will help:

1. If you must use credit cards to “make the month” then you are headed for a disaster. So plan for the disaster instead of burying your head in the sand. Get one card that you bring the balance down to zero and use it sparingly, making payments exactly on time and allowing the revolving credit option to be used. So you don’t want to pay the card in full each month, you want to pay it in two or three months. Get a new telephone line and give out the number to your friends. Put the old line on voice mail and unplug it, because the creditors are going to be calling. If you don’t hear the call, it will be less stress. Most card companies do not sue, they hound you through collection agencies. So don’t enter into payment  arrangements with them, and don’t use bankruptcy just because you piled up credit card debt. 
2. For Debt that you already have incurred and will incur in the near future, keep this in mind. You can game the system just like they have gamed you.  Inflation normally is not a  major factor in long term debt. But it is now. If you put off paying the debt, whether it is fixed or revolving, as long as possible, it is VERY possible that inflation will outpace the interest charges. There is no guarantee on this, but at this moment it looks highly probable. So if you pay these debts in 3-5 years it might cost you a fraction of the VALUE of what you owe now. 
3. Pay in cash for the things you are buying if at all possible. It will keep you focussed on what you are spending and if you put the known expenses in envelopes at the beginning of the month, you will still have money at the end of the month.
4. Your mortgage or rent payment takes priority. if that means not paying a credit card, so be it. Keep your house. It is the one non-dollar denominated asset you have. It is your inflation hedge.
5. If you can’t pay the minimum on the credit card, don’t pay it at all. It doesn’t make any difference.
6. Credit card payments should be the last thing on your list to pay after food, housing, medical etc. 
7. If you think you are headed for bankruptcy try to hold out until the next congress gets to work. It is highly probable that the Republican changes will be reversed and that the old rules will return along with higher exemptions. 
8. If you can’t get to an ATM to withdraw the cash and spend cash, then  use the debit card and your PIN, knowing that this is coming out of your bank account. But remember that each time you use that plastic card, you are one step removed from the financial decision as to whether to spend. The one who ends up holding the bag is you.
9. Take advantage of credit card balance transfers with zero interest wherever you can. Play the game. 
10.  If you owe taxes, make some minimum payment that you choose arbitrarily. Don’t enter into an agreement or make contact with the IRS unless they contact you.
11.  If you are falling behind in your mortgage or under stress, don’t wait until the breaking point. Call your mortgage company NOW and tell them you need an accommodation. Get a moratorium on part or all of the payments. Even skipping one payment might make all the difference in the world.
12.  Do NOT overdraft your account and do NOT go for a payday loan. There is NO benefit for you to do either. Both put you in the hole deeper. Work out something with your utility, borrow from a relative (AND PAY IT BACK!), but don’t go for these short-term options. All they do is take more money out of your pocket. 
13.  If your credit score is very high, but YOU know you are headed for disaster, then get as many cards as you can and use them judiciously, keeping in mind the above. If you are screwed anyway, the amount does not make any difference. 
14.  GAME THE SYSTEM: Think of your own ways to “Create” money or money supply in your life. Have Plan B for when you lose that job — what business could you get into on your own that takes very little money to start and which will give you SOME income. Look around and see what people need. You’d be surprised at what people are willing to pay for if it involves making their life easier, or making something convenient — like shopping for seniors etc.
15.  Eat Healthy and exercise: It will reduce your stress level and bring more oxygen and nutrients to your brain. You are going to need your brain for everything it is worth to game the system and escape from the trap that was paid for you and the rest of us. 

These tips are contrary to what you will hear from Suze Orman and other people. They are controversial. While I believe this is the best advice, I could be wrong. Use your own brain and when you consult with others remember the 80-20 rule. 80% of the people you ask, don’t know much and will give you stock answers. Those are the people that will end up broke when this is all over. But by all means seek out the smartest people you know and talk about these things. 

Filed under: ATM, CDO, community banks, credit unions, currency, education, Eviction, foreclosure, foreign relations, GTC | Honor, healthcare, inflation, interest rates, Investor, medical insurance, Medical Treatment, Mortgage, politics | Tagged: cash, credit cards, debit cards, home equity, Mortgage, personal finance |