credit card debt

Rethinking “The Rules” of Your Financial Affairs

Here’s how my wife and I found freedom from credit card debt… without paying them back!

First, a short true story. My wife and I were up to our necks in debt. I had lost my job with a major mortgage broker due to the subprime/economic crisis. My wife’s job as a commission-only job placement recruiter was drying up because no one was hiring. We were in serious trouble. We’d even heard of some people who, trying to save their homes, had taken all their savings…and lost their house anyway, leaving them with zilch!

That was not going to happen to us! We drew a line in the sand, so to speak. We would go only so far – and no further! – to save our home. After that, we’d take the meager leftovers of my IRA and we’d try to start again somewhere else. At least we’d have a little something to help tide us over until better times came.

Long story short, better times did not come. I remained without full-time employment for well over two years. My wife even endured a stroke during this time (she’s in her thirties!). We had run up an awful lot of credit card debt. It started when we needed funding to remodel the older home we had bought.

Then there were those too-good-too-refuse credit card offers – so we paid off one of our vehicles, upping our debt even more. And then we did the really dumb thing of charging fast food, small Wal-mart purchases, a little here and a little there… until we could afford only to pay the minimum each month. Then, upon everything going south, we found it more and more difficult to even keep up with the minimum payments!

Having been indoctrinated into the “Your Credit Rating Is The Most Important Thing In The World” club at an early age, my wife and I had an outstanding credit rating. But then again, we’d never been in a bind quite like this one. Now, for the first time ever, we were on the brink of default. What to do?

Well, having worked for a giant financial company so long, I knew that the best thing was to not ignore it but to try to work something out. At least that’s what I THOUGHT I knew… As it was, when we told them the truth about our circumstances – even offering them HALF of all our savings in order to settle our credit rating – the answer was NO. After all, we had never been late on a payment, were not late now, so why settle with us? We had thought that they might spare our credit rating due to our circumstances. But the hard truth was that this giant financial corporation refused to work within our means.

Finally, we reached that place where we simply could not afford to make another payment. We had no choice but to default. We didn’t want to. We’d tried not to. We’d tried to reason with our creditors, but it was not to be.

Now I was mad. I had done everything in my power to preserve our precious credit rating, but the corporation refused to let me settle without first defaulting – or in any case ruining my credit if I settled. Then a revelation hit me:

WHY WAS I TRYING SO HARD TO PRESERVE MY CREDIT RATING WHEN THAT WAS WHAT GOT ME IN THIS MESS TO BEING WITH???

Now, certainly, my wife and I bear responsibility. We get it. We accept it. We own it. But our good credit rating had brought in offer after offer after offer from the credit cards. I mean, they DO have fancy computers and algorithms, right? They wouldn’t offer me credit if I really couldn’t afford it, right? And so we had spent and spent–and they kept upping our credit limit – until the wheels came off of the machine. But instead of understanding that under normal circumstances we’d have continued to pay them, the financial giant instead wanted us, without jobs, to continue paying them as if nothing had changed. BUT EVERYTHING HAD CHANGED!

Finally, four or five months into default, they settled with us. I had told them what I would give them. If they had asked for even a penny more, I would have rejected it out of hand. We settled for approximately 31% of our debt. In retrospect, I should have offered less–or perhaps paid them nothing for the stress they placed us under, as well as their forcing us to ruin our credit and then settling with us for almost exactly what we had originally offered. I’m not sure that it did not contribute to my wife’s health problems.

BUT HERE’S WHAT I REALIZED…

My family’s needs were FAR more important than my credit rating. In fact, as I said above, it was our credit rating that got us into trouble, to begin with! Why were trying to hard to salvage the very thing that had contributed (at least in part) to our troubles? In fact, the finance company had held that over my head–“If you don’t pay, you’ll mess up your credit.” And for a while, I bought into it.

But while I have to pay for my house (they can take that away from me), I realized that credit card debt was different.

Pay off your house. It becomes your bank via home equity. If you are putting all your money to paying off your credit cards and your refrigerator goes out… where are you going to get the money to replace it? That’s right, you’ll just put it on your credit cards and restart the cycle of debt. You have to break free. Use your home equity for NEEDED things. Need a car? Well, you might be able to get one on credit anyway, but if not, take out a small direct deposit loan from elcloans or a similar company, so that you can afford a car (more details here).

Remember to pay off your payday loan quickly. But make sure that you never are beholden to those lifeless corporations again. My credit rating is broken. So are my chains.

Looking back, I realize now that the credit card company didn’t care if I prostituted my wife, sold my kids, sold drugs, stole cars, or sold my blood–just give them their money. They were being ruthless about it. So I decided to become equally ruthless. I was going to take care of my family’s needs–education, retirement, savings, a new roof, etc.–BEFORE I was going to give it to the credit card company. It’s kind of like hypothermia–your body starts shutting down all the less necessary parts in order to preserve your life.

That’s what I was doing. I was refusing to pay under those circumstances. If I’d still had my job, I’d never have missed a payment. But as it was, I HAD to take care of my family’s needs. I had a child depending on my for his education and well-being. I had a wife that would have to be taken care of when we retired. I had a house I had to take care of so that it would be habitable.

So here’s my advice to you: If you CANNOT pay, then quit worrying and start taking care of your family. Hang up on the collectors until someone offers to settle on YOUR TERMS. If you can pay, then do so. This is advice for those who refuse to allow vampiric financial companies to suck them dry.