Thursday, April 24, 2008

Paying the Piper: What to do about Debt

When it comes to debt, we all can agree that it should be avoided if at all possible. But you may not be in that enviable position of being debt free. I have seen a lot of posts talking about paying down or paying off debt, but this is not something that I would recommend doing as a primary action. You and your family's welfare must come first. Make only the minimum payment and invest the rest in tangibles.

In our current environment, I would recommend putting any extra money into preps such as food, clothes, shoes, ammo, firearms and other consumable items. Once you are sufficiently stocked up on these items, you need to create an emergency fund. You can't do that if you are sending all your money to the crooks, er I mean creditors. With the way the economy is going, you will not make sufficient headway to make a difference before the crash.

Once you have a 2 month supply of emergency cash, cut up all of your credit cards and cancel them. Then look for card offers with 0% interest for x amount of months for balance transfers. Transfer all balances to these card offers. Be sure to thoroughly read these offers to be sure they are not a worse creditor than what you already have.

Cut up all your new cards on receiving them but one. After the initial no interest period is over, cancel all these cards but one. You will keep one line of credit open for emergencies. If the crash happens quickly, this debt will most likely disappear with most of our modern electronic society. If it is a slow crash, you will pay these debts off with cheaper dollars. Everything else will keep rising in price; food, gas, ammo, clothes.

Once you are comfortable with your preps and have your cash reserves where they need to be it will be time to pay down your debts with any extra cash you might have. Concentrate on paying down the one credit card you have that is still active and pay only $2 over minimum payment on the closed accounts. In this manner you meet your moral and legal obligations to payoff your debts, but have managed to prepare for SHTF scenarios also.

Note: Gas has just shot up to $3.79 a gallon, a $0.10 change in 1 day. This could be an economic SHTF for many people. $4.00 a gallon gas is just round the corner and I wouldn't be surprised to see $4.25 a gallon before the end of the summer. Looks like the economic stimulus is going to go to the greedy commodity traders, refiners and oil companies coffers.


  1. Good post. I suggest trying to shift any debt into lower interest rates at longer term. I managed to halve my interest by taking advantage of a "teaser".

    Anyway I agree with your strategy to a point. If a person has a crushing interest rate best get ontop of that ASAP.

    But yeah. Food in your pantry is a higher priority

  2. Never, ever, go into debt. You have to pay for it eventually anyway: wait until you can.

  3. Good advice,...always avoid credit when you can.

  4. With regards to consumer debt, you're dead-on; I'd even go so far as to say that in terms of business or commercial debt, it's a sound maxim to avoid owing anybody anything.

    It has been extremely difficult, but my little company is a zero-debt enterprise -- we don't owe anybody anything, except for the tax folk, and we pay them every quarter.

    Sure, we could try to do more with a little debt to finance an expansion, but then I couldn't sleep at night, worrying.

    It's a very good feeling, being debt-free. I'm working toward that now in my personal life - got a car note and a mortgage, and that's it. Hope to have those paid down as soon as I can.

    Keep it up.

  5. irishdutchuncle opines...
    the difference between creditor and preditor is only one letter.

  6. Don't count on debt disappearing if there is some sort of major meltdown.

    Short of an asteroid hitting the Earth or global thermonuclear warfare, I can 99.999% guarantee that any debt you have before the crisis, you will have that debt after the crisis.

    Companies like Visa, America Express, banks, etc. spend billions of dollars a year on business continuity and disaster recovery services. They have records stored in multiple off-site vault locations, etc. I know this because I make my living designing these systems.

    My point: a big company or bank only needs access to their computer file archives and a printer and the debt you thought disappeared is right back in your face.

    The only way out of debt due to crisis is if we end up living underground for 10 years, or the government issues a national pardon to every citizen. The chances of either happening are just about nil.

    In short, if you owe someone before the crisis, you will owe them after the will only be a matter of time before the bank or credit card company gets their systems up and running again (most of them won't even stop, trust me). Once they're up and running again, your debt is right where you left off or worse because of accrued interest and penalties.

    What you stock up (food, etc) is irrelevant if you owe someone money. If you owe someone money, the food and other tangibles you stocked up is their's, not yours.

    The only way to be free is to keep yourself from owing anyone anything.

  7. If you ARE in debt, making the minimum payments while getting some of the basics in order makes good sense. Why? Because if we head into hyperinflation the way the guys over at Financial Sense News Hour believe, you will eventually be able to pay off your debts, assuming you still have a job, with lots of worthless bucks.

  8. Only "titled" or "registered" tangibles will be able to be traced back to you. If you must buy something of long term value with your credit card, get a cash advance and pay for it with the cash.

    If they come looking for you, such as in a military backed census after the die-off, it is entirely plausible that you could just disappear with your goods.

    Or, If they ask what you did with the cash advance, tell them you bought food. “Want it back?” I doubt anyone will want to repossess “shit”.

    I would recommend placing your retreat property in a Trust as this will help shield you from prying eyes. Notice I didn't say protect. If you want anominimity, discuss your options with an experienced attorney.

    It is best to avoid debt altogether, but there many people that have it and need a way to prepare while avoiding the headaches associated with a bankruptcy.

    This option gives them a way to prep and still pay off their debt with cheaper dollars, as inflation will continue to drive up prices on consumable goods.

    Bottom line is: They can't take what they can't find.