How’s the money?

As you can tell by the title of this blog I need increases in my annual income more than some people.  Being in debt and a slave to finances is enough to get anyone off their butt and working hard.  However, unlike the man I was in my twenties, I now try and balance work with time off.  Psychological health is just as important as physical and financial health.  Flaws in any one of these areas can ruin your chances of success in the other two.

In 2006 I took a promotion with my current employer when they offered me the position for the third time.  Here’s why I waited so long.  I had just quit a job as District Manager where I worked sixty hours per week and was on call 7 days.  I didn’t realize just how miserable and stressed I was until I quit working for the company altogether.  The company that I currently work for had one little deal-breaking detail that was making that promotion look like a bad idea.  As a foreman with employees under my supervision my paycheck would see little increase.  Why should I step up from the level of technician to foreman without a substantial increase in pay?  Besides, the foreman that I had worked around were over-worked and stressed, often working seven days a week for a salary slightly higher than my own.  One quit last year out of frustration and the other one demoted himself.

The reason I finally accepted the promotion was because the company was changing it’s per hour rates and I was about to lose a couple of dollars per hour.  The difference in the upcoming rates of pay were significant enough for me to step up to the plate and take on more responsibility.

Many companies have supervisory positions that pay little more than experienced workers. If that’s the case then I wouldn’t accept the job.  Most employers will rightfully try and save on labor costs where they can, and many just don’t see the need in paying more for these positions.  I’m sure they have their reasons.  For example, many people are willing to accept receiving less money per hour (which is typically the outcome of salary instead of hourly pay) because they are being promoted to a position of authority.  I don’t understand this mentality.  Some people go down this road because it may open doors to a higher pay grade.  This is understandable thinking but you should really weigh the good versus the bad.  I always recommend looking out for number one, because at the end of it all that will be your position anyway – the same is true for the company.

**There’s one other reason why accepting a promotion can be a good idea even though the money isn’t much better.  And that is if the promotion means you’ll learn new skills that can actually translate into higher paychecks on down the road – if not with your present employer, perhaps a competitor.

Does this new position have a good track record?

Did people in the past enjoy this position?  Ask someone who used to perform this job about what they liked and disliked about the advancement.  For example, regarding my previous employer and the position of District Manager, this was a position that was opened from time to time.  If the owners of the company had someone they felt could fill the position they would open it again.  The new District Manager would remain in the job for a few months and then either get fired or quit.  When I asked my old District Manager his advice about my having replaced him he responded “Just quit, it will be the smartest thing you ever did!”  Turns out he was right, it really was honest advice.

If your company is ‘creating’ a new position for you then be forewarned.  This can be trouble because corporate may not even know what results they expect you to perform, and having no history to base expectations on, one could easily fail.  Chances are if the job has a track record of low turnover, generally happy history, and pays enough to reconcile the added responsibility, then certainly it should be considered.

Can you handle the added responsibility?

Just as a promotion comes with added financial incentives it also often comes with more hours worked and more responsibility.  I’ve seen people that were happy and cooperative employees.  But after receiving a promotion the added hours and stress took its course on their personalities.  The once gentle puppies had turned into angry pit bulls.  It was obvious that the new position wasn’t for them.

You should know your limits.  If you’re a free spirit that doesn’t handle stress well then admit it.  Find something else that you can succeed at.  Trust me – being in a position of authority isn’t all it’s cracked up to be.  Some people do it for the psychological authority factor and some for the money, but no one does it because they have nothing better to do.

What will be the effect on your family?

Nothing is more important than our spouses and children.  Making more money has its perks, but children need mothers and fathers a whole lot more than they need a new car in the garage.  Americans have a real problem with this – sponsoring the rat race and all like we do.  No promotion is worth ruining your marriage over.  If the new job means you’ll be traveling all around the country where there’s no possible way for you be there for your spouse and children then turn it down.

Earlier I spoke of psychological, physical, and financial health.  Success in these areas depends on a balance shared between each of them.  Had you rather be a Honda Accord, getting good gas mileage and low maintenance – or a Mustang GT, burning through gasoline, tires, and transmissions?  I’ll take the Honda Accord every day of the week. Promotions and financial wealth are important, but each has its limits for a balanced life.

**Disclaimer – Debtprison.net does not administer legal or financial advice. The contents of this website are my opinions on collection agencies and how to deal with them. Nothing on this website should be interpreted as legal advice or council. No opinions on this website should be used to replace the advice of your financial advisor or your legal council.

Before we get into the bulk of the article I would like to take a moment to disprove the most popular myth about using credit.  Here’s the example that I normally read:

“If you can put $8,000 into a mutual fund earning 14% (instead of paying $8,000 cash for the car), and have a car loan which has an interest rate of 6%, you’d be stupid not to finance the car.”  The idea is that you make a little money in the long run due to the difference in interest rates (in this case 8% difference).

There are two reasons why this is not an accurate statement.  First of all, when you finance a car you will pay a higher selling price for the car.  For example, when you finance a car for $10,000, I’ll bet you my pinky finger that I could go out and buy the same year, make, and model for $8,500 or even $8,000.  So by going the financing route you’ve already lost $1,500 to $2,000.  People are almost always willing to compromise on the price if you have cash.  This is especially true of car dealerships.  Using financing encourages buyers to spend more than what they otherwise would.

Secondly, when you pay cash you now have an asset, which you could sell at any time and get your money back.  The person financing has to first overcome negative equity, before any positive equity exists in a vehicle that won’t be his asset for 48 months.  Meanwhile you’re now putting your cash into a mutual fund earning 14%, instead of earning 8% like the other guy (which is barely above inflation)! 

Not to mention that Billy Bob who financed actually lost money by paying the financing.  Allow me to make this clear.  You saved money on the sale by paying cash, and you saved again by not paying the interest.  Billy Bob paid a higher selling price for the car and paid interest.  Who do think has more money at the end of the 48 months?

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What if credit didn’t exist?

This is an interesting question. Have you ever thought about it? Well, for starters your personal and national debt obligations wouldn’t exist (we’ll discuss the national debt owed later on). If you wanted to buy something you would simply save money up front and then make a purchase. In discussing this premise with a friend of mine he asked “but how can you buy a car if you don’t have any money?” One could apply this same question to houses, land, or any tangible item. The answer is quite simple. You would have to save the money first and then buy a car. Ride a bike for 6 months and save the cash. People do this every day. If you start your purchasing lifestyle in debt, then chances are that you’ll remain there – because you’ll never get out of debt.

If credit didn’t exist individuals would save up front and then buy. This would affect our purchasing decisions. Watching your savings exit the hard earned account for purchases would encourage you to save more money. Instead of buying a new car you would most likely buy used. Bargains would be sought after. So not only are you not using credit, but money is being saved twice since you’re looking for the deals. Using credit encourages shoppers to buy new, highly priced retail merchandise.

Let’s use the example of buying a vehicle again. Perhaps you want a nice vehicle but don’t have any cash on hand. Most people are in this situation, but let’s look at it a different way. Ride the bicycle and save $400.00 per month. In six months that would give you $2,400. A great ride can’t be bought for that, but you can purchase something that would transport you from point A to point B. Since credit isn’t being used you are looking for the most car for your money.

By shopping around one can easily get a vehicle retail priced at $3,500 for the $2,400 you have in cash. I know because that’s the way I buy cars. So, now you are driving a vehicle that you purchased for $2,400. Keep saving the $400 per month. In six more months you will have $2,400 more in cash and a vehicle worth at least what you paid for it. Now sell your car for $2,500 and take your $4,900 cash and buy a newer vehicle with less miles than the old one. Last year I bought a five year old GMC Sonoma with 47,000 miles for $5,000. The truck looked and ran like new. Now I have a vehicle that will last me 4 or 5 years, and I only saved for twelve months. You can apply this same method to buying houses and land. Start training yourself to save and then buy.

Avoiding loans saves lots of money

 If you refuse to borrow money, hundreds of thousands of dollars will be saved over the course of your life time. Most people will finance a car for 60 months. Currently the average car loan is probably close to $30,000. For this discussion we’ll keep it at a conservative $20,000 price tag. We’ll assume the interest rate is 6% for 60 months. The total amount paid in interest over the course of the loan is $3,199. If you buy eight new vehicles over the course of your life, that’s just over $25,000. And keep in mind that you bought a lower end car. Of course this discussion assumes that inflation is null (if only)! You can download the spreadsheet that I use to compare loans by clicking here. This spreadsheet uses microsoft excel and allows you to compare four loans at once. It’s free, contains no adware or spyware, and comes courtesy from my friend Jeff at carbuyingtips.com.

Financing a house is costly. If you finance a $250,000 valued home for 30 years, at a fixed interest rate of 8% – you pay $410,000 in interest alone! I could build four small houses for that! That much money could buy 10 brand new Toyota’s straight off the lot, making the salesmans month. This is $410,000 that could have been put towards retirement or college savings for your children.

Paying with cash encourages you to find bargains

When it comes to using credit cards or seeking a car loan, most people are buying new. When buying new from a retail establishment you end up paying top dollar for the purchase. And then, you pay even more as interest is tacked on to this high dollar asset. Essentially you are losing money twice. Paying cash encourages one to look for bargains. It’s just a matter of human nature because you’re watching your savings leave the confines of your precious treasure chest. For some reason this seems to have a restrictive psychological effect on my purchasing habits.

The philosophy of freedom

Something should be said about borrowing money and freedom. When you are in debt to a creditor, obligations must be satisfied or negative consequences will ensue. The more money you owe – the stronger the burden of debt weighs on your mind. It’s the loss of your crops come harvest time, the sweat of your brow, the hard work of your very existence - must be handed over to someone else.

When you owe other people money you are not free. Your life and earnings are indebted to the creditor. I look at my own life as proof. My savings are non-existent and I lack the money to go out and spend recreationally. My debts are too high. All of my debts combined are equal to my annual income. One thing is for sure, I can feel the weight of my debt sitting on my shoulders every minute of every day. There’s no point in saving money until I pay off this high interest debt.

A friend said the other day that debt seemed smart as long as you have more in assets than you do in debt. Well this sounds like a good idea, but what’s the negative side to this banker’s fantasy? What if you become permanently disabled? Could you still afford to pay your bills – or would you have to immediately sell off assets to pay your debt, and therefore be left with very little? The advantage of having no debt is that all of your assets are paid for. So when bad times come along (and they will), you’ll be able to manage them with ease. Not to mention all the money one loses by paying interest.

My room mate had $4,000 in credit card debt, but $10,000 in mutual funds. The mutual funds earn 9% interest while the credit card debt costs 15% interest. So I asked him “Would you take out $4,000 as a cash advance from your credit card to purchase $4,000 in mutual fund assets?” His answer was a firm “NO”! I explained to him that by having the credit card debt in contrast to his mutual fund assets, he was in fact accomplishing this very act. The correct answer is to rid one’s self of needless debt. It steals precious treasure from your own life while benefiting others whom haven’t earned it. Ridding one’s self of debt leads to personal economic freedom and the financial security of knowing that one’s assets are paid for.

Many people like me have to think about the financial consequences of not paying their debt before we make any spending decision. I am a prisoner to debt, a slave to personal finances. My goal is to pay off all debts as fast as possible. I’m not financially free until the last cent owed to my creditors is fully satisfied.

Our National Debt obligations

Our U.S. Government borrows money from private banks and foreign countries. Currently our National Debt is 9.2 trillion. That means if America wants to pay off all the debt we owe tomorrow – all 305,000 legal citizens (children included), would have to pay $30,321 and some change. The National Debt has increased over 3 trillion dollars during the George W. Bush Administration.

This is money that will have to be repaid. Where do you think they are going to get the money? That’s right – they get the money by taxing the hell out of working people. Currently the Government (local, state, federal) takes approximately 40% of a person’s earned income.

How can you afford interest when you’re missing 40% of your income? If you can give me a logical explanation, then by all means, please do. 

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**Disclaimer – Debtprison.net does not administer legal or financial advice. The contents of this website are my opinions on collection agencies and how to deal with them. Nothing on this website should be interpreted as legal advice or council. No opinions on this website should be used to replace the advice of your financial advisor or your legal council.

Bankruptcy is a permanent negative mark on your credit file

Bankruptcy is bad for a variety of reasons. First and foremost, it means your going back on your word. If you aren’t the type of person that is interested in honoring your commitments then this article isn’t for you. By all means – go ahead and give your money to some lawyers. But if honoring your word means something to you, then relax and take a deep breath, everything is going to be O.K..

Bankruptcy is a life changing experience. You’ve seen the loan applications that have that question ‘Have you ever filed bankruptcy?’ It doesn’t specify in the last seven years. So once you go down that road, you’re branded as untrustworthy or High Risk. Don’t get me wrong. Eventually your credit score will improve and you’ll be able to borrow money again. But bankruptcy should be the last option – only after you’ve honestly tried every other avenue and failed.

Bankruptcy lawyers represent you in bankruptcy court. Since these lawyers make a profit off your financial crisis, I would recommend speaking to them last.

A judge could very well confiscate all your assets and sell them, giving the cash to your debtors. If you stopped frivolous spending, worked two jobs, and sold everything you didn’t need – could you avoid bankruptcy? If the answer is yes then it’s time to put together a plan. Becoming financially disciplined is a skill that once mastered, keeps your life on the right financial track. Avoiding bankruptcy and working hard to overcome your debt will have a positive effect on your life, financially and emotionally. See also DebtPrison related article How to deal with collection agencies.

Debt settlement strategy – avoid third parties

Perhaps you’ve seen the commercials on television. Some nice financial do-gooders who are going to help you lower your monthly note while at the same time settling your credit card debts for a fraction of what you owe. It seems like such a wonderful idea. Basic premise: you save money while sticking it to those BMW driving Bank CEO’s. I have to give this subject some extra attention. Bankruptcy and settling your credit card debt is a large part of the problem driving today’s high credit card rates. After I failed to pay Bank of America and Citibank for three consecutive months my interest rate went from 21% up to 32.6%. This is called the default rate and is applied to a customer when they become High Risk.

Believe me I was angry and wrote them letters requesting it be lowered. Of course they didn’t and looking back I don’t blame them. Basically the Bank is using me to settle the score against the people that do in fact file bankruptcy or settle their accounts. Since they are losing money by loaning to those High Risk customers they need to recoup it from others. Hence 32.6% default rate.

The Banking sector in today’s market is without a doubt one of the most profitable endeavors. American culture has convinced everyone that they need anything they want and now (when they can’t afford it) instead of later (when they could afford it). Banks are not all bad. They keep this monster machine rolling. People can build houses and buy cars because of banks. Our economy is dependent upon them and they should be profitable. This doesn’t make me feel all good inside either but it’s still what makes the cookie crumble. The point is that this default rate is necessary. Not to mention that it wouldn’t be my problem if I had been more responsible in the first place.

The problem with using the financial do-gooders is that they fail to mention the negative consequences of using their service. Back in the summer of 2005 I called one of these companies I had seen advertised. A person answered the phone and asked me some questions about my income and my bills. In three minutes she had concluded that I was eligible to be in their program. It happened so fast I felt like I was another victim of a high pressure sales presentation.

Under the guidance of their opportunistic lawyers I would pay their company $600 per month. Of this $600 they would keep $60 for themselves (handling fees?) and the rest would go into an account which they would watch over for me. When this account had reached a certain amount, they would make the first Bank an offer. For example, I owed Bank of America $6,800. Once my account has about $3,500 they make Bank of America an offer to settle at roughly 50%. It becomes a bargaining game as Bank of America shoots for a higher percentage.

These lawyers (negotiating on my behalf), tell Bank of America that if they don’t take the offer then this money will be offered to Citibank as a settlement and they might accept it. This means that Bank of America may be looking at another year or two before they get another offer from me the client! If you are like me then you’re probably asking yourself Why can’t I just do this myself and keep my money? You can.

What’s bad about this is that you’re now giving money to a third party that could be applied to your debts. And this third party now has ALL of your money. Does that sound like a good idea to you – someone else having all your money? In the package that these lawyers sent to me, it described the manner in which I could confiscate my funds away from them, if in the course of things, I changed my mind and wanted my money back. From what I can remember reading it didn’t sound like fun.

Also, while all of this is going on, your credit history and score suffers. And even once the balances are settled, you’re still left with a gaping hole in your credit report. This means that on future loans you’ll pay a higher interest rate. Paying a higher interest rate on future loans will prove more costly than paying what you owe and salvaging your credit now. Not to mention, while your money is growing in their account the interest and fees are still being charged to the money you owe Bank of America.

So what started out as $6,800 one year later is now $10,220! Once I received this packet of information (which I paid $50.00 for) I realized there was even more for me to worry about. It stated that monies I owed Citibank could not be settled – so I would still owe Citibank the full amount. It was actually an AT&T Universal credit card. But as it turns out, Citibank had bought them out some time ago. These professors of law and good will didn’t tell me this – I found out about it on my own.

That was enough for me! No third parties. They make your life worse while profiting off your ignorance. My advice is to fight for your credit. Don’t take the easy way out. Busting your tail to pay off ALL of your debts might be tough, but you’ll salvage your integrity and your credit report. Hope this article helped.

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