January 27th, 2010
The nature of debt….
A friend of mine is in debt and not just any old debt. This is the kind of credit card debt that can make your teeth hurt. We’re talking six-figure debt here.
He’s a pretty normal guy who doesn’t wear pinkie rings or drive a Mercedes so it’s rational to ask, how in the world did he or does anyone get that deeply in debt? The answer is twofold:
#1. You spend a lot more than you should.
#2. Banks send you tons of offers for cheap credit cards at 0 percent interest.
My friend admits he’s “80 percent” at fault for spending more than he earns but he blames the banks issuing the credit cards for 20 percent of his troubles. And, you know what? I think he’s still being generous with the banks.
Consider that, as his debt grew and he began paying more and more interest, the banks bombarded him with offer after offer for more, more, more. They might as well have included a shovel with their offers because they were helping him bury himself.
They knew they had a sucker on the line, someone who could not resist the offers that most of us junk each day, and in the boom years (it was just a couple of years ago, before our Great Recession), the banks were throwing money at him. They had access to his credit history. They knew what they were doing and, frankly, I have no sympathy for them now that he cannot pay.
To his credit (pun acknowledged but not intended), he’s whittled his debt down from the six-figure range to about half that but that’s still a hell of a lot – and more than he can afford if he wants to eat anything other than beans and pasta. He’s been negotiating with them, telling them he can’t pay and offering what he can. Now it’s a game and he told me how it works.
“First off, you have to stop paying so that the banks call you,” he said. “When you call them, they won’t negotiate anything.”
Ah, but when you stop paying, the calls start a-coming. And my friend has realized exactly what to offer – 55 percent of the amount he owes. Why that figure? Because banks know that debt collectors typically get back about 50 percent. Getting a little more appeals to them. “You’d be surprised how quickly they accept getting back 55 percent,” he said.
Sometimes, they do it immediately on the phone; other times, they send a letter a day or two later. The catch is that, once they accept, you have to pay what you owe in three months.
There’s no doubt all these money problems prey on his mind. He spends a lot of time going over the numbers. They don’t add up. They never did. But for a long time, the banks didn’t care – they just piled interest charge on top of interest charge. It’s obscene how much interest they can charge – 30 percent or more — while at the same time offering a tiny fraction to thrifty customers who want to save money!!
I’ve advised him to file bankruptcy but so far he’s resisting. He really wants to pay off his debt…or at least half of it. I think the banks deserve him as a customer – after all, they begged him to become one.
Hey, Paul, interesting post but what effect, if any, does it have on his credit?
oh well, his credit score is shot to hell but he doesn’t care about that any more. he says that’s the thing banks hold over your head. once you get past that, you can negotiate with some power behind you. and i’ll bet you it won’t be long before some other bank offers him a card. he has not declared bankruptcy and the banks make way more money on him than they do with most of us. to them, he’s a worthy customer….
If I responded to all the offers that bombard me via the US mail, Email, pop-up ads and TV/radio… I’d be up the creek, too. But being somewhat smarter than the average consumer, I sort through them — and discard 99.9% of them. That’s where good judgment has to be involved, too. Sure, they’re always making offers (maybe the banks themselves or just the marketers in their stead who get a percentage on everyone who signs up)… but I’m nearly always saying “no thanks, buddy.” Next?
I know a lady that I used to talk with and she was always complaining that the city where she lived cause her debt. It is not the city, it is not the credit cards and it is not the credit card companies. IT IS the person who uses the credit cards and signs the bills who is the responsible party. It is convenient to ‘just charge’ every thing and if a person isn’t careful they will wake up like your friend – deep in debt and in denial. I have one card that I use and I pay the balance each month. No I don’t wear fancy clothes and I don’t go out a lot, but I’m not deep in debt either. Hope your friend seeks help with the credit problem and throws those cards away.
PS: The lady I mentioned I have quit talking to – she was getting on my nerves with her complaints about her debt,so she lost a good friend.
Your friend needs a wake up call – he signed for the debt and why should the bank negotiate with him? This is what is wrong with our economy people think they can charge and then not pay back the full balance. Please ask him to see a consumer credit specialist – before he files for bankruptcy.
well judy, i’d agree with you if the banks were not asking for handouts every time i turn around AND the way they walk away from their bad investments. if that’s the way they act, how can they possibly look at people with bad debt as somehow morally shiftless? hey, they helped my friend get there — now they have to deal with him.