During my never ending quest for knowledge, I stumbled upon an audio book at my local library by Kevin Trudeau titled Debt Cures “They” Don’t Want You to Know About. The “they” Mr. Trudeau refers to is the consumer lending industry. I’m all for Americans gaining their financial independence and getting out of all kinds of debt. Unethical business practices should be exposed so that consumers are fully aware of the wealth prevention traps credit card companies set for the ignorant and uninformed.

I’ll give you an example of one such trap even I’ve fallen into. When you’re trying to get out of credit card debt, many financial experts recommend you transfer balances on higher interest credit cards to those with a lower interest rate. To me, this sounded like good advice. There was no shortage of credit card companies who were willing to offer me a 6 month introductory rate of 0%. So, I took advantage of the 0% interest rate and transferred the balance on my old credit card to the new credit card with the favorable, introductory rate.

Like an idiot, I charged additional purchases on the new credit card. Naively, I thought that my payments would be applied to the charges with the highest interest rate. Not so. I called the credit card company up to ask that my payments be applied to the highest interest rate charges first. Their answer was no – too bad.

There are numerous tactics credit card companies use to extract as many pennies out of the American consumer as legally possible. But, let’s take a moment to revisit Mr. Trudeau’s Debt Cures “They” Don’t Want You to Know About.

I’m probably not being totally fair. I’m drafting this blog entry although I haven’t finished listening to Mr. Trudeau’s 10-hour audio book. However, he brings up a lot of issues that really make my blood boil. He doesn’t adequately address the concept of personal responsibility. It seems Mr. Trudeau believes that consumers are being taken advantage of, railroaded, and raped by the consumer lending industry. According to Mr. Trudeau (and I’m paraphrasing) these poor blameless fools didn’t understand what they were getting themselves into. Late fees, over the limit fees, and default interest rates charged by the credit card companies are absurd.

Mr. Trudeau gives several examples of individuals who found themselves steeped in credit card debt after they lost their job, experienced an unexpected medical emergency, or had to pay for a car repair. I understand that it’s practically impossible to prepare for the infinite number of circumstances that could render any of us insolvent. However, there are many things within our power that we can do now that will mitigate the risk of reasonably expected and non-routine events causing us to succumb to the temptation of credit card debt.

I’ve been told that I’m cold. I’m not sure I agree with that assessment of my personality, but I don’t have a lot of patience for people who lack a sense of personal responsibility.

Mr. Trudeau gives an example of a young woman, who at the age of 21, had her car repossessed, defaulted on two loans, owned eight credit cards, and couldn’t even open a savings account because her credit was so bad. Oh, let me add that this young lady worked a part-time job making minimum wage. I don’t know this young woman’s story, but let’s just call her a deadbeat for simplicity’s sake. She sounds like a thief to me. I don’t see how someone working part-time making minimum wage could even afford a car note, let alone eight credit cards and two personal loans. Am I to assume that she was totally unaware or conveniently delusional about the fact that she’d be unable to pay back the money she borrowed? I’d suggest this young lady gets serious about honoring her obligations by securing a full-time job in addition to the part-time job she already has so that she’ll have more money to pay down her debts.

I find it interesting that Mr. Trudeau suggests that people generally use their credit cards during times of crises. He mentions a man who lost his job after the small company he worked for went under. For 4 weeks of unemployment, the man was “forced” to use his credit card to cover his car payment, rent, and food. Fortunately, the guy found a job after about a month, but he’d incurred $5,000 of credit card debt during the interim. I guess I could feel sympathy for this individual who didn’t even have enough money set aside to cover one month of living expenses when the popular recommendation is to have 3 to 6 months. I don’t.

If you’re unable to provide basic necessities to you and your family during times of hardship and credit allows you to survive, then you should pay for the privilege. I find it hard to believe that there are no other options, but IF credit is the only way, then be thankful you and your kids didn’t have to die of starvation because you didn’t have any money. Assuming credit card companies aren’t charities, there’s a cost to using their product called interest.

Now I don’t want to beat up Mr. Trudeau without offering the 6 simple solutions for outsmarting the credit card companies that I promised in the title.

1. Use cash. Included in the cash category are debit cards and checks. No one is forcing you to borrow money. Be warned that if you bounce checks or overdraw your account, the penalties can be just as cumbersome as credit card interest and fees.

2. Pay your bill on time. Have your credit card’s minimum payment automatically paid from your checking account. If paying by check, you want to be extra diligent in making sure that you mail the payment at least 10 business days in advance of the due date. Verify that the payment posts to your account on time. Credit card companies are notorious for holding checks and thereby forcing their customers to incur late fees.

3. Pay your balance off in full every month. If you don’t carry a balance, you won’t have to worry about the credit card companies arbitrarily increasing the interest rate on past purchases.

4. Don’t go over your credit limit. You have to police yourself. Don’t expect the credit card company to shut you down before you exceed your credit limit. Keep your balances to no more than 30% of your credit limit. Your wallet and FICO score will thank you.

5. Don’t buy stuff you can’t afford. The other strategies are a lot easier to follow if you abide by this golden rule.

6. Have an emergency fund. Three to six months is the conventional recommendation. Having access to your own cash can make a crisis look like a minor inconvenience.

I encourage you to search for ways to increase your income and reduce your expenses. By doing so, you’ll live within your means, save up an emergency fund, and avoid consumer debt.

Remember that the decision is yours. Make up in your mind that you’re not going to grovel at the feet of the credit card companies. Accept personal responsibility. It’s so much easier than blaming someone for a situation they have no interest or intention of helping you out of.

Originally posted May 22, 2009

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