Getting Control Over Debt

If you take a trip way back in time, you can understand how credit got started. This is by no means a history lesson, and it is not the first time that credit has shown its face, but it is a perfect example of how credit worked and how it can work. Picture the 1800's, you are a farmer and your crops are harvested at the end of October. You have packed up everything and moved to a new town. It is the beginning of May and time to plant your crops, but you spent all your money moving from point A to point B. You have to do two things, you have to plant your crops and you have to take care of your family until fall. Many times, the local shop keeper would let you have your supplies ahead of time, without any money, provided that you pay all of the cash back at the end of harvest. Also, this usually meant paying back a slightly larger amount than you borrowed. Soon, local banks started doing to same thing and this was credit.

Not the first time credit had been used, but a perfect example of how credit is not always a bad thing. The farmer and his family got to eat and plant crops, and either the bank or other creditor made a profit. Of course, credit, even back then was not always handled properly. We have all heard the old songs about miners getting deeper in debt. Same concept, get what you need now and pay later, but the system was highly abused and left miners and their families permanently stuck in a vicious cycle. Some of us have become or been in that same cycle.

That was hundreds of years ago and things are of course a little more civilized. There is no way that a credit card company would nearly triple their rate when you were at your lowest point is there?

Actually, that is exactly what many of them do. It is called your default rate and it averages around 30%. A credit card, with a 10% or 8% interest rate can increase that to near 30% based on you missing one payment. This is not true of all credit cards, but most of the major ones use this principle. Keep in mind that we are not selling you anything, signing you up for anything and have no reason to lie to you. If you are unsure, check the terms of your credit accounts in your monthly statements or call them and ask.

So, now what? First things first, let's take a look at what credit is supposed to be used for. Credit is not for day to day purchases, not for catching up and juggling and not for incidental items. It is for large purchases that you may not be able to pay all at once and for large purchases that you don't want to carry that much cash around for, Now, do not stop reading thinking that statement does not fix anything, I know it does not fix it. It is a statement of fact that you need to keep in mind for the future. I know that you may be at the end of a dark deserted highway and that telling you it was a bad place to go seems a little late in the game, but you are going to be in the game a long time and the future cannot be a repeat of the past.

First and foremost, get rid of most of the cards, yep, cut them up. Pick one or two that can be there for emergencies and lock them up in the house. Wal-Mart carries a $20 lock box that will be just fine. In a true emergency you can get them out. Do not pick cards based on any special deals, just a couple that are Visa or MasterCard and have a pretty low rate. You are not going to have enough emergencies to worry about $5 cash back when you purchase the right beans at the right time.

Once you have eliminated the possibility of future credit purchases, then you need to concentrate on taking care of the immediate issues of debt. Contrary to popular belief, debt is not a good thing and not good for your credit. There is a ratio between the money that you earn versus the money that you own that is perfect. Do not worry about dealing with a credit score, it is secondary to your primary goals. This will be continued in our next chapter....do not forget to visit our main site at own-the-future.info or our blog at lipperd.wordpress.com.

Do not forget that most addictive behavior is self-propagating. What do we mean by this? Simple, an addiction is almost like a psychotic delusion in its ability to defend itself against cure. Being in debt may be rather uncomfortable, but to some people it is more comfortable than the unknown world of not being in debt. This sounds crazy, I know, but the human mind is deeply controlled by the subconscious and the subconscious operates on a rather strict logic function. Sort of a simplistic computer module that is fed information from all five senses all the time. This is where intuition comes from, but also where some pretty sick behaviors come from.

An example that goes with our theme.....
We have seen time and time again a person coming up on rent day that is a couple bucks short of rent, let us say $50 short. So, rent is $850 and for whatever reason they only have $800. They fight and beg people and scramble around and nothing works. So, rather than just take the $800 to the rental office and say that's all they have, they blow the $800 and go deeper into debt. This comes from a couple of psychological mechanisms. The first being that the person just wants the pressure to go away, giving up takes that pressure off, even though it makes things worse. The second is the fact that after living paycheck to paycheck, they really want to spend that $800 on some fun stuff. Thirdly, people are generally afraid of confrontation and looking bad, they would rather not face the landlord and just default on the rent.

How do you fix and face these inner mechanisms? First off, don't ever deny yourself things completely. You can spend a few dollars on fun here and there and prevent a huge spree later on. Also, face people on a more frequent basis on smaller and less important issues. How many times have you told someone else that if they had just come and talked to you things would have been better?

Understanding what motivates us inside can help us alter our actions on the outside.