You Can Avoid Debt Now

YOU CAN AVOID DEBT

N O W

GEORGE IHEKE

AuthorHouse™

1663 Liberty Drive

Bloomington, IN 47403

www.authorhouse.com

Phone: 1-800-839-8640

© 2012 by George Iheke. All rights reserved.

No part of this book may be reproduced, stored in a retrieval system, or transmitted

by any means without the written permission of the author.

Published by AuthorHouse 06/15/2012

ISBN: 978-1-4685-0376-0 (sc)

ISBN: 978-1-4772-1526-5 (ebk)

Any people depicted in stock imagery provided by Thinkstock are models, and such images are being used for illustrative purposes only.

Certain stock imagery © Thinkstock.

Because of the dynamic nature of the Internet, any web addresses or links contained in

this book may have changed since publication and may no longer be valid. The views

expressed in this work are solely those of the author and do not necessarily reflect the |

views of the publisher, and the publisher hereby disclaims any responsibility for them.

CONTENTS

INTRODUCTION

CHAPTER 1

ABOUT THE BOOK

INTRODUCTION

______________________________

Debt is a poignant global problem. It is a ‘cancer’ that eats up the dignity of its victims; needless to say, it also limits their horizon.

The irony of indebtedness is that it has no regard for race, gender, class, status, rank and society, even the most affluent of societies is often found to overflow with the ‘litter’ of debtors. A social wave of false sense of ownership has also enhanced the invasion of this pervasive virus we call debt.

Debt invades all hierarchies of society, yet nothing blossoms around indebtedness excerpt gloom and doom. Like the old adage puts it, he who goes borrowing goes sorrowing. This saying describes the dilemma of debt vividly and precisely. Since the plague of debt has become a general and common problem there should be common solutions or strategies to help people get out of it.

In this book debt is diagnosed and dissected to reveal the numerous maladies hidden in its anatomy while providing an encompassing and a circumventive approach to getting out and staying out of it.

CHAPTER 1

______________________

UNDERSTANDING DEBT

Debt or indebtedness is so common and prevalent in our societies; nobody needs a dictionary to grasp its meaning. You are in debt when you are under obligation to make payments because you owe. The concept is simple, you need something you ‘borrow’ it and you’re indebted to a lender, when you give it back you are out of debt.

Debt and indebtedness has been manifest throughout history in one form or the other. From biblical times to our present age debt has always thrust out its ugly claws on mankind. There might be differences in how it was and is now perceived but the ills in the DNA of debt have always been the same. In ancient Babylon people were sold into slavery for not being able to pay up debts. In Athens for example, enslaving debtors was common practice and a few decades ago anti-Semitism was fuelled because of Jewish lenders exacting usury from their European debtors. In the traditions of ancient Babylon slaves could also buy their freedom by paying up their valued price. On the 15th of July 2009, a CNN news documentary (Connect the World) featured a story of how many people in some regions of Pakistan had to sell their kidneys to pay their debts so that their spouses or children will not be taken away from them. Frankly, I was terrified to see how far and how cruel people can be treated because of debt even in the 21st century. You can see the date the programme was aired above so try and find out more about it if you care by checking up CNN online archive. All of these issues give you the impression that the dignity of a person to a significant degree is determined by his freedom from debts.

The above conjecture cannot be dismissed as a mere concept of a long gone age. It is an enacted preposition that the indebted person is perpetually paying interest on the debt (not even the debt itself) by the surrender of his or her liberties and privacy.

How? You might ask, oh yeah! By losing their peace of mind, by receiving threats from creditors subsequently causing mental abuse, having the need to reveal your plans to creditors, exposing your secrets to help agencies and disclosing your private issues to counsellors. Accompanied to these are poor credit ratings, bad CCJ’S (County court judgements), ‘black listings’, social ostracism and diminished human dignity and reputation. What about doing that extra odd job just to pay another instalment? Think about working extra hours at the expense of precious family time just to make another payment for something you can’t even account for. Are your assets and business impounded already? Hey, do you experience a near heart attack when your phone rings and you just know the person at the other end is a debt collector. Is your mailbox filled with letters of eviction, debt recovery and deadline notices.

All these are uncalled for but for one thing, one common, casual, every day, every-body-can-relate-to-thing; debt. Now we need to understand and keep in mind that good reputation is like an ‘invisible’ reserve that we can bank on in times of exigent need. It consists of ‘trust and bonds’ that we can exchange for financial assistance in times of real need. So we cannot afford to live and wallow about with bad CCJ’s, bad creditor/debtor relationships, etc. Indebtedness destroys our options; it diminishes our reputation with creditors and thus eliminates our options in times of real need.

Another thing we must realise about debt is that anybody can be its victim; there are volumes of history and records of debtors in every strata of society. A metro report of 14 December 2007 accounts of once high-flying television presenter who is sleeping rough after his debts ran out of control. Ed Mitchell was earning £100,000 a year as a newsreader but got into trouble after losing his job at US network CNBC in 2000. Faced with debts of £50,000 he signed up for more credit cards to keep up repayments. The 54-year-old sold his £500,000 family home in Hove, Sussex, yards from where he is was said to be sleeping on a bench but his marriage collapsed and his debts spiralled to £250,000. Mr Mitchell, who warned that his case was just a tip of the iceberg in Britain, said when things get critical the credit cards take on a life of their own. It doesn’t matter how much you pay them, you never actually catch up. In the nineteenth century America a politician named Livingstone who is from a very politically established family run so deep into debt he had to liquidate all his assets to pay off his debts. He was a politician and a lawyer therefore he is expected to be smart and savvy. He was also reckoned to be very proficient in his legal profession. Yet, he run deep into debt in a century when there where no credit cards, store cards and an infinitesimal level of fraud activity. So it possible for anybody can run into debt, it is getting out and staying out of it that really matters.

DECIDE TO PAY YOUR DEBTS

‘Where there is a will there is a way’, this is also true of servicing debts and without determination paying off or servicing debts can be very tasking and elusive. Every productive action starts with conscious decision and self discipline is the most important personal quality for assuming long-term success in any endeavour.

If you are in debt you need to be determined and genuinely commit to pay your debts, set-up plans, get help if you can’t get to properly budget on how to make your payments. Servicing debts can get more complicated when the debtor is dealing with multiple debts, different lenders (with different procedural approach), different terms and conditions of agreement and dissimilar authorities with a varied capacity to coerce.

Therefore strategies and ideas written in this book must be used skilfully, especially when dealing with debts that are jazzed up with compounding exorbitant interest rates and extortionate charges.

First of all, identify all your debts, their patterns and all your creditors. This may sound basic or even ridiculous, but sometimes people plunge so deep into debt that they can’t even account for their debts or their creditors. So this is a very sensible and important step.

Remember that your decision to pay up your debt is like a decision to become wealthy. So follow it up and follow to finish.

IDENTIFY CAUSES OF DEBT

There is a need to identify the cause and nature of any debt we have plunged into to be able to deal with it appropriately. Most debts are accrued due to ignorance, miscalculation and wrong judgements. By identifying the nature of the debt, you avoid it from reoccurring and re-accruing. Among many causes are.

a)   LACK OF FINANCIAL DISCIPLINE

b)   TOO MANY FINANCIAL COMMITMENTS

c)   LACK OF PROPER UNDERSTANDING OF FINANCIAL ENGAGEMENTS

d)   BORROWING FOR COSTLY AND EXTRAVAGANT PLEASURES

e)   LACK OF MONEY WISDOM

f)   ‘BORROWING BY SUMMER AND PAYING BY WINTER’

g)   IMPROPER CHECKS ON YOUR OLD AND RENEWED AGREEMENTS

There are many more factors that crumble individuals into indebtedness but the above few are quite universal.

a)   LACK OF FINANCIAL DISCIPLINE

A majority of people will agree that they don’t set apart time to study their bank statements especially those that are mailed to them by post. Improper checks and casual attention towards mailed bank statements plus lack of comparison of these posted bank statements to ATM mini statements can blindfold the actual balances on accounts. In a modern world were there is abundance of wealth, regenerated resources, maximised marketing tools and super-fly sales skills, we are bent on overspending. The seductress called credit card is also readily available to be maxed up. Therefore there is a need to have some basic but effective knowledge about financial skills by every consumer. Basic recording and bookkeeping skills is now a necessity and should be acquired by anybody who wants to be skilled financially and stay out of debt.

This knowledge will help us set budgets keep records of our income and expenses, our debt-to income ratio (debt here means mortgage, rent, utilities), validate our taxes, understand interest rates, APR’s, credit card charges and bank reconciliatory processes.

People also often run in to debt, due to lack of the knowledge of the functions of the financial community. This laissez-faire attitude is not to be blamed on financial institution alone because a majority of them provide ‘enough’ information through electronic media and by distribution of promotional and informative circulars. Yet, customers are disillusioned by them due to lack of understanding of financial terminology and their specific tailoring; which becomes a factor that consequently pick the pockets of the average and unsuspecting customer/consumer.

-The crux of the matter is that most people won’t be in debt if they properly understood what financial decisions and commitments they are signing on to.

How keen are they? Do they care to know the terms and conditions underwritten microscopically on the bottom base of leaflet and promo brochures? Having a little knowledge of financial terms, calculations and record keeping will give people more control over their finances and businesses. It will also enable them make financially smart decisions on borrowing, spending, handling bills and properly checking on the various rates, interests and charges on credit cards, current accounts, loans and insurance.

TOO MANY FINANCIAL COMMITMENTS

Apart from people involved directly and occupationally in the financial business, it is not advisable to sign up to too many accounts and credit cards, bursary agencies and financial assistance.

Financial institutions vary and have different purposes and facilities, terms and conditions for the most similar account or service still vary in rates, charges and trappings.

‘Banks, building societies, insurance companies, pawn brokerages, loan agencies, exchange bureaux, estate agencies etc are all part of what makes up the ‘liquid’ financial sector. They have their specific services and those that have similar services have different benefits, trappings, specialities and undertones. The long-terms impact of almost any wrong financial judgement is debt.

Banks and building societies differ in various quarters; you must understand this and know what you want to do with your finances and where to get the best and most ‘suited’ service. There is no wisdom in having a’ ‘designer’ account with just a catchy name and an enticing offer you don’t need in preference to the simple one you really need. Why? Open a ‘designer’ current account that offers you much in overdraw which carries exorbitant fees and charges when your proficient need is a simple but comprehensive current account or a savings account from a building society. On the issue of loans people easily get lured away by minimal APR’s without considering and looking out for hidden costs, extra charges, lawyers/agents fees, surcharges and Chameleon rates (individual quotes) etc. These are some of the things that should be put into consideration before taking up loans.

Mortgaging for instance is not the only solution or route to owning a property; there should be alternative means if we could think outside the box. The issue of mortgage debt will be tackled better in the latter part of this book. Investors are also encouraged to keep keen eyes on their investment especially when investing on the stock market, at least the financial downturn in this first decade of the 21st century has shown that it is imperative to do so. Take notice of the press story below: notice that this event happened in 2005, 3yrs before the financial crisis became obvious.

(Metro digest column) Press cut—metro Wednesday august 3, 2005.

City ‘whistleblower’ fired

A city share dealer was sacked when he blew the whistle on bosses for allegedly selling ‘rubbish’ shares to clients to boost profits, an employment tribunal herd yesterday. Equity dealer Adam Harvey claims his employer at City Equities knowingly tipped shares in failing firms. The 27yrs old told the tribunal that the company bought discounted shares and sold them to clients at a higher price. Customers were left with worthless stock, he alleged. The company denies unfair dismissal.

As a general rule you need to be cautious about all your financial commitments with brokers including pawnbrokers and money transfer agencies make sure you are not paying for services you did not ask for. Service packages are redesigned to suit management interest and for making more profit no matter how appealing it has been packaged to appear to the customer.

Make sure every service fee or charge is acceptable to you and don’t keep these charges and due payment in arrears, don’t be too reluctant to inquire about things you don’t fully understand. Control the number of direct debit you sign up on your accounts, know when they are due and take care of them. Bills and direct debits piled up in arrears often procure charges and re-accumulate a migraine of debts. Close unnecessary accounts, banks and financial institution charge fees in one guise or the other for everything under the Sun including the tea or coffee you are served when having a chat with the manager.

LACK OF PROPER UNDERSTANDING OF FINANCIAL ENGAGEMENTS

Reading the terms of financial agreement e.g. loans, hire purchases and investment opportunities does not necessarily mean the implication of those terms have also been properly understood. This indication is not only a paradox but also a common precedence, because when it comes to borrowing and investment we often set our eyes on the PRIZE but seldom give thought to the PRICE.

Firstly, we need to understand that plans on paper can paint a perfect picture but their prospects are not always bright in practice as it may appear on sheets. Life itself is full of ironies; economics is a science full of hypothetical suggestions. Economic principles and financial projections don’t always hold. On paper economic logic can be flawless but in nature illogic often rules the affairs of men.

When we imagine the victimisation, pain and displeasure indebtedness comes with; we cannot afford to get trapped in stupid financial engagements and adventures because of smooth talks by financial salespersons.

Any venture that can yield profits has in its nature the possibility of backfiring. Business is an adventure that attracts both profits and loss. The lure to make huge gains or own a ‘dream’ business can jettisons our ability to ratiocinate about financial arrangement.

Now when we go borrowing the lending institutions have experts who make appealing gestures and source out information from us, usually starting from easy propositions to more concretised questions. This is a skilled approach used to ease you up enough to extract useful information about yourself from you. Now ask yourself how much information you source out of them, you hardly question them with equal vigour. So in essence they have secured themselves by obtaining useful information that guarantee that they can reclaim whatever they are lending.

However the borrower only has access to their terms and conditions which doesn’t reflect implications sufficiently. These terms are often talked over smoothly and briefly. To them this approach itself is not wrong or unethical; it is an industry plus. They earn commissions on deals, so why should they bother, when all is said and done, the borrower has to carry his/her own cross.

Every sound wisdom and counsel on borrowing admonishes that we should aim to borrow less and we should invest borrowed money only in ventures we are knowledgeable, experienced and well accustomed. This may sound outdated, but it is well proven; besides we know that wisdom and truth come with boring attributes.

-Wisdom crieth without, she uttereth her voice in the streets; she crieth in the chief places of concourse in the openings of the gates: in the city she uttereth her words, saying—Proverbs 1: xxI-xxII

Deals that are swift and flamboyant in prospects often run into gloom and doom in practicality. Financial experts are trained to predict economic recessions or booms albeit with a mild degree of inaccuracy but they are still capable of identifying stocks that are loosing value and changes in market trends. Therefore are capable of selling devalued market shares and property. Therefore be apt and keen enough to read financial news and seek good financial counsel. Try reading all the information in-scripted in the terms and conditions of contractual documents. Use long journeys on trains, buses, aeroplanes to read small prints, if you are too busy for that, you can use time spent relaxing after meals in restaurants and fast-food joints etc to go over them.

Don’t borrow to invest in a novel and adventurous business you are not in control off, ‘Of course’, some modern motivational speakers and writers encourage taking financial risk and stretching our reach. Yeah all is good that ends well, what if it doesn’t? When financial commitments are involved in adventures that fail serious losses can be incurred leading to debt and we want to avoid debt, don’t we?

The smart thing to do is to revise these imbibed motivational speeches. Instead of living above our means, let’s think above our means, live through our means not stuck within it

Instead of overstretching our reach at every wind of opportunity lets have a mindset of experimenting only when we have some extra to spare. In that way we are consciously and steadily stretching our reach and horizon, branching out into various investing opportunities but without having scars and stretch marks of set backs from backfired pursuits.

—Learn how to be happy with what you have while you pursue all that you want—JIM ROHN

Motivation and ‘oomph’ can be imbued into all our action but when it plays down to Money and treasure we need a tool I call accurate thinking, not emotion, not even intelligence. Always watch new deals that promise over romanticised gains, it fails more often than it succeeds.

BORROW TO LAVISH ON EXPENSIVE PLEASURES.

There is scarcely any statistics or research on debt and debtors that doesn’t suggest that a significant number of debtors end up in debt because of borrowing costly for extravagant pleasures. There is a sublime difference between the above and overspending. Overspending comes in different shades, there are those who just overspend on certain products and services they are obsessed with, without watching out to control excess and waste. There is another group of people who are ‘trends’ fanatics in particular fields of interest, e.g. technology, fashion, antiques, artwork, auctioned stuff and other accessories. These kinds of people spend money on a chase for new products in vogue that interest them without proper accountability. In another world of over spenders are those I will like to call weird spenders, these are people who waste their resources on vanities related to image. Things like cosmetic surgery, cosmetic fads, and celebrity hype stuff, fantasy world artefacts and tomfoolery objects. It is even worse when these misappropriations of resources are made mostly on the back of borrowing, which we prefer to call ‘taking a loan’; to be consumer friendly.

Now all the above categories of spenders are just specific habitual over spenders, but a huge population of people in debt are guilty of the frivolity of borrowing to meet other people’s expectations of them. This is true of folks who borrow to fund fairy tale weddings, out of the world honeymoons, posh parties, flamboyant funerals and purchases of fantasy.

The wisdom key needed so as to avoid this extravagant attitude is learning to adhere to this tried and tested adage, ‘cut your coat according to