3
Red Flags and Warning Signs
Debt, n. An ingenious substitute for the chain and whip of the slavedriver.
Ambrose Bierce, journalist
Opossums are plentiful where I live in California. Those that hang around our yard have developed quite an attitude about their private little reserve. They are fearless and consider our property as much theirs as ours.
The only reasonable way to deal with these somewhat less-than-attractive marsupials is to trap and then relocate them to uninhabited areas. It is not difficult to trap an opossum if you have attractive bait. All you do is stick some opossum delicacy, like fruit (even cat food will do), inside the trap and set it out after dark. The trap’s clever one-way entrance makes crawling into it nearly effortless for the opossum. Once he’s in—slam! He’s caught, with no way out.
Debt is a lot like an opossum trap. It is attractive, easily accessible, and the bait can be irresistible.
If you’ve ever been—or are now—in the debt trap, you know what a horribly confining and stressful place it can be. That’s why you need to know how to gnaw your way out. You also need to learn to recognize the trap so you never get caught in it again.
Debt Traps
Some debt traps are not as obvious as others. Here are the most common debt traps:
· credit card accounts
· installment plans
· overdraft protection plans
· past-due taxes
· student loans
· medical bills
· dental bills
· personal loans
Credit cards are by far the most common of all the debt traps. Currently, there are billions of active accounts in this country, close to 70 percent of which carry a revolving balance month after month,1 year after year. What’s more, hundreds of companies are doing their level best to see the numbers increase.
One way these companies lure unsuspecting consumers into debt is through those rascally preapproved applications. Billions are sent through the mail every year. These solicitations are often quite beautiful, with lavish use of color, photography, and foil stamping on high-quality paper stock. There was a time when I got so many preapproved credit card applications that I toyed with the idea of wallpapering my guest powder room with them to make my own whimsical statement.
To further my research on the matter of consumer credit—but, more importantly, to give myself an occasional humor break—I read the fine print. This is not easy because nowadays it seems the really important information is graphically designed to be illegible.
These appeals always begin with a cordial, often gushy, letter telling me how wonderful I am and why I deserve only the very best that life has to offer. There is always some kind of acceptance form with urgency written all over it pressing me to act now! Then comes the preaddressed, postage-paid return envelope.
I have gone over every square millimeter of hundreds of these solicitations and have yet to find a single word that honestly describes what these companies are selling—debt. It is simply not there. So what’s the deal? Why are they so afraid to call it like it is, to come clean and say that carrying a balance from month to month can be hazardous to your wealth? Beware the debt trap!
For fun, I looked up the word debt in my trusty Roget’s Thesaurus (you might wonder about a person who thinks it is fun to read a thesaurus, but go with me on this). Mine is not your ordinary classroom variety but the five-inch-thick, fifteen-hundred-page, forty-nine-pound, thumb-indexed version. Here’s what it says:
Debt. Obligation, encumbrance, in the red, pound of flesh, arrears, inability to pay, bilked, bound, beholden, up to one’s ears, over one’s head, mortgaged to the hilt, in the poverty trap, unable to keep the wolf from the door, hard up, beaten down, financially embarrassed, strapped, stripped, fleeced, busted.
Instead of making any reference to debt, credit card solicitations contain flattering and manipulative words such as congratulations, easy, instant, preferred, deserve, prequalified status, spending limit, cash advance, buying power, do with as you please, accepted in a zillion places, convenience, reward, make life easier, and my favorite—you stand out in a crowd!
Warning Signs
While I suppose it is possible, it is not common for a person to wind up in the debt trap overnight. It is a process, a series of events and choices that brings one to that dismal place.
How can you know if you are headed in that direction? There are definite warning signs—red flags I wish I’d heeded back when I was moving at breakneck speed into debt’s pit of despair.
Here are the danger signs that indicate you may be heading down the wrong path, ready to enter the debt trap.
You are living on credit. How can you tell if you are living on credit? Take this test:
· If you regularly pay for things with credit because you don’t have enough money, you are living on credit.
· If the balance you carry from month to month is going up, you are living on credit.
· If you are applying for new credit cards, you are living on credit.
· If you ever pay one credit card bill with another credit card, you are living on credit.
· If, when you think of not having credit cards, you break into a cold sweat and fear you would never survive, you are living on credit.
You pay your bills late. What’s paying your bills late? you might ask. Well, if you have to ask that question, I would suspect you are indeed a late payer. But just to be on the safe side, here is a checklist:
· You write out your bills but don’t mail them because you don’t have enough money in the bank to cover them.
· You count on next month’s paycheck to pay for this month’s bills.
· You pay half of your bills this month and half the next.
· You pay late fees willingly because you think of them as the price you must pay for your pitiful financial situation.
· You think anything within thirty days late is on time.
· You would never consider paying a bill before the final due date even if you have the money because you might need it for something else.
You are not a giver. As you will learn in coming chapters, generosity is one of the tenets of debt-proof living. It is also one of the “magic bullets” that will reverse the damage of debt and help to get you out.
One might think this matter of giving is fairly straightforward: either you are a giver or you are not. But, here again, many of us like to think in gray rather than in black-and-white terms. Here are the ways to tell you are not a giver:
· You like the idea of giving money to your church or a charity and will do so as soon as you have more than enough to cover your necessary expenses.
· You reason that you cannot possibly give what you don’t have.
· You argue that because you give so much of your time—and since time is money—you are, therefore, a giver.
· You call yourself a giver-in-kind because you regularly dump loads of stuff at the thrift store drop-off station.
· You consider payment of your kids’ tuition to private school as giving.
You are not a saver. Consistently and purposely saving is also part of the debt-proof living get-out-of-debt plan. It’s the other “magic bullet” (there are a total of two, so now you know both of them).
· You like the idea of saving money and will do so as soon as you have more than enough to cover your necessary expenses.
· You reason that you cannot possibly save what you don’t have. Once you cover your necessary expenses, you will save a lot.
· Your home is gaining value every year, so that counts as saving as far as you are concerned.
· You think of your available credit as your savings because it will be there in case you run into an emergency.
You dream of getting rich quickly and living an extravagant lifestyle. When your mind is focused on winning the lottery or falling into a get-rich-quick opportunity, you become a magnet for dissatisfaction. Your attitude becomes fertile ground for debt because easy credit tempts you to have the extravagant lifestyle now before your ship comes in or before that great get-rich-quick opportunity taps you on the shoulder.
You worry about money. When your mind is filled with worry about money, you become an easy target for debt because it masquerades as a reasonable solution. The following warning signs signal that your worrying is drawing you into the debt trap:
· You find yourself thinking about money.
· You are unable to sleep.
· You become obsessive.
· You are fearful when the phone rings.
· You think up ways to hide purchases or bills from your spouse.
You overspend your checking account. If you are living so close to the edge that you spend more money than you have in your checking account, you are flirting with the debt trap. If you fall back on the overdraft protection plan that is connected to your checking account, you may not feel you are actually bouncing checks, but that is exactly what you are doing. You are taking a loan to cover what you do not have. Your financial institution is charging you some whopping big fees and interest, and you are repaying them a little bit at a time. If you have done this more than twice in the past twelve months (I’ll cut you a little slack for simply being human), that is a serious indication that you are about to be snapped into the jaws of the debt trap.
Do you recognize any of these warning signs in your life? If so, don’t panic. Just know that you need to make some changes. It’s time to recognize the red flags, sirens, and flashing lights that signal you may be headed for trouble.
How to Get Out of the Debt Trap
If you’ve gone past all the warning signs and the trapdoor has slammed behind you, now is the time to start gnawing your way out. Don’t think of your situation as impossible. It is not! I got out, and I’ve helped thousands of others get out as well. Take a deep breath and start with step 1.
1. Get serious. Decide right now that you are going to do whatever it takes to get out of debt and stay out of debt forever. Make a commitment. Write it down and date it so you can refer to it often. Don’t worry if you are afraid or don’t think you know what to do. Remember, it is easier to act your way into a feeling than to feel your way into an action. God will give you just the amount of light you need for the step you are on. I will help you get going and be right here with you all the way.
2. Become a giver. If you are in the fast lane to the debt trap or have already arrived, you should see that as a pretty good indication that your method of money management could use an overhaul. If what you’re doing isn’t working, you might as well consider an alternative approach. In chapter 4, you will learn why giving is such an important part of debt-proof living.
3. Start saving. You cannot allow yourself to spend it all. You must start saving something for yourself. Even if you are deeply in debt, you need to give and save. These two activities, both discussed in chapter 4, will enable you to get out of the debt trap. When you give and when you save, you find contentment. That impulsive thing going on inside of you that never seems to find satisfaction is quieted. When you are satisfied, you won’t spend so wildly. Your mind will clear so you can think before you buy.
4. Start tracking. One of the reasons you’ve landed in the debt trap is that you’ve allowed money to leak from your life. I know, because I’ve been there myself. I get nauseous when I recall how much money flowed through my hands year after year after year. Remember, it’s not that you don’t have enough money. The problem is that you don’t know how to manage what you do have. That’s what sends you in constant search of new sources of credit. Let me tell you again: More will never be enough until you learn to manage what you already have.
Tracking, as you will discover in chapter 5, simply means counting. It means keeping track of where your money goes. There’s not a successful business in the world that doesn’t keep track of the outgo and the income. They know where every penny goes—and so should you.
5. Know what you owe. If you are in the debt trap, you probably don’t know exactly what you owe—exactly the extent of your debt. Therefore, if you want out, you have to make a list of your debts. All of them. I call it facing the music. While it may be difficult to do this, you must take this big step in order to get a handle on where you are.
6. Design a plan. In the same way you would never dream of building a house without a detailed set of plans, you should not even dream of getting out of your debt mess without a plan—a written plan that is suitable for refrigerator posting. You need to know exactly how long your payoff plan will take, right down to the year and the month. You need a plan for how you will manage your money while you’re getting out of debt. You need a plan for where you will go once you are debt-free, how you will begin to invest. You need a simple plan that shows where you are, where you’re going, and how you’re going to get there! A plan brings a dream to life. Good planning and hard work lead to prosperity.
7. Know what you own. As you work your way out of the debt trap, it is very important to know what you own—not only the contents of your closets, drawers, and home but also your financial assets. Do you have insurance? Where are the policies? How about the savings bonds you received as a kid or your family heritage documents, such as birth certificates and military records? Straightening out your records will give you a sense of where you are. This new awareness, explained more in chapter 12, will bring order to your life and aid you tremendously.
8. Have a sale. Once you know what you own, you’ll be in a good position to decide what you really need. Excluding family heirlooms and sentimental possessions, consider liquidating what you haven’t used in the past year. If you do not find something useful or it does not bring beauty to your life, get rid of it. Organize a garage sale. Run ads in the local classifieds for items with a price tag of thirty dollars or more. Dejunk, unclutter, simplify. You will experience calm and freshness in your life—and a stash of cash will jumpstart your get-out-of-debt plan.
9. Incur no new debt. Make a commitment that from this day forward you will incur no new debt. Let me warn you. At first it will feel as if you are swimming upstream against class 6 rapids because credit is so available, so seductive. Depending on your situation, you and your credit cards may already be enmeshed. You may have established quite a dependence on them, and that is something I fully understand. Still, having said all that, let me say again: You need to decide today—no new debt.
10. Look for the solution. You are a unique individual with tremendous abilities and talents, some you might not even be aware of. As you demonstrate your commitment to getting out of debt and living below your means, opportunities are going to come your way. Perhaps the solution to your debt problem is right in front of your eyes.
While working our way out of a huge debt mess, I got the idea of publishing a subscription newsletter as a means of raising the rest of the money we needed to complete our plan. Clearly, that wasn’t an idea I could have come up with on my own. I’d lived for forty-five years and had never once dreamed of or aspired to becoming a writer. I believe now that God placed in me that desire and the ability to do things beyond my perceived limitations. But it didn’t happen until I stepped out in faith and seized the opportunity.
I made a commitment to repay all the debt, to change my behavior, and to begin living below our means many years before I found the ultimate solution. I made a solemn promise to God that I would do whatever was necessary to repay all of the six-figure load of unsecured debt I had amassed.
11. Persevere. Think of getting out of the debt trap as a journey. Some days the path will be rocky and steep. Other times it will seem much easier. Know that this is going to take perseverance. You cannot give up! Find someone who will be your encourager. Grab on to your plan and God’s promises, and don’t ever let go!