Our Economy Wants You to Be In Debt—5 Things You Can Do to Take Charge
Last month PM Press published the Debt Resisters' Operations Manual —also known as “the DROM.” But don’t let that menacing-sounding acronym fool you: this is a book written in plain English and filled with tips and tactics for dealing with debt.
The book has been available online since September 2012, but this publishing marks the first time the manual has been printed, bound, and sold. Don't worry, you can still find a free copy online. But, hopefully, getting this book into stores will help its message reach more people—however ironic it might seem to buy one with a credit card.
Stay away from paycheck loans, pawnshops, prepaid cards, nonbank check cashing, and rent-to-own agreements.
"Everyone is a debtor so there’s no limit to the audience" said Andrew Ross, a member of the Occupy Wall Street offshoot called Strike Debt, in an interview with Guernica Magazine. Although Ross has gone public, most of the authors of the Debt Resister's Operations Manual have chosen to remain anonymous.
The book explains how creditors, big banks, and other lenders operate and how debtors can navigate both in and outside of the system.
"From a young age, we are conditioned to feel that being in debt is shameful and worthy of punishment," the manual's anonymous authors explain.
Debtors shouldn’t feel that way, the DROM argues, because the situation is largely unfair and out of their control. "The reason you have tens of thousands of dollars in medical bills is that we don't provide medical care to everyone," the authors write. "The reason you have tens of thousands of dollars of student loans is because the government, banks, and university administrators [are] … driving college costs through the roof."
All that debt adds up. About 75 percent of Americans are in debt right now and owe a total of more than $11.5 trillion, according to Forbes magazine. That's about three times the amount of spending the Obama Administration requested in its 2015 federal budget.
And it’s not necessarily spent on expensive handbags, sports cars, and vacations. A 2012 study published by the left-leaning thinktank Demos found that 40 percent of American households in debt use their credit cards to pay for living costs like rent, food, and utility bills. Additionally, about half of household debt comes from medical bills.
While the authors clearly worked hard to make the manual’s language accessible, that doesn't mean it's a quick read. If you lack time or patience to sit down and wrap your head around how FICO credit scores are generated, here are five tips from the DROM that you can start using today.
1. Avoid payday loan services and other "fringe" finance.
Stay away from paycheck loans, pawnshops, prepaid cards, nonbank check cashing, and rent-to-own agreements. These alternative financial services—known in the industry as AFSs—may appeal to those who don't want or can't have a checking account, but these institutions often prey on their customers through hidden fees and high interest rates.
Even the IRS has a program that can cut down your tax debt, based on your income.
The scale of the problem is huge: According to a survey conducted by the U.S. Census Bureau in 2009, about 9 million American adults have no bank account, and 66 percent of these unbanked Americans say they use alternative financial services.
And just how bad are those services? According to Gary Rivlin, author of Broke USA: From Pawnshops to Poverty, Inc., the average family with an annual income of $30,000 or less pays $2,500 in fees and interests to the AFS industry every year.
If you need money in a pinch, consider more community-based short-term loans. Ask a friend or a family member, or check to see if your employer can extend an advance. Credit unions often offer short-term loans at better rates than companies in the AFS sector. Another option is selling your unwanted stuff (either online or at thrift stores) to make some quick cash.
2. Make them an offer.
If you're part of the 75 percent of working Americans who say they live “paycheck-to-paycheck” (defined as not having enough in savings to cover six months of expenses), then it’s not an option to pay past-due credit card, medical, or student debt with savings. But there may be an appealing alternative to the racking up endless interest and fees: Tell whomever you owe that you can't afford to pay in full—and then make them an offer.
"Remember," the DROM says, "even if we offer them ten cents on the dollar, that's more than they would be getting if they sold [the debt] to a collection agency."
This process of renegotiating debt is called debt settlement, and can begin with something as simple as a frank phone call with your credit card company. Be aware that there are many scams out there in this sector, according to the DROM, so it’s a good idea to avoid companies or lawyers who claim to be able to achieve a debt settlement for you. Instead, consider applying for a debt settlement yourself.
The same process can be transferred to medical debt, and even the IRS has a program that can cut down your tax debt based on your income. It’ll cost you $150 to apply, but if you owe a lot the risk might be worth it. Additional information on how to pursue your own debt settlement can be found here.
3. Know your rights and be prepared to defend them.
The Fair Debt Collections Practices Act, passed in 1977, includes a long list of rules that collection agents must follow. Examples of illegal behaviors include using a fake company name, lying when trying to collect debt, or saying that you will be arrested if you don't pay your debt. The act also lets you put an end to insistent phone calls from “unknown numbers” by making a formal request that collectors contact you only during certain hours. Calling outside of the requested time is a violation of the FDCPA.
If your credit score is a problem, offer to bring in a personal portfolio instead.
Review all the rules listed in the act so you'll be able to recognize any mishandling of your account. Keep copies of all correspondence between you and any credit collection agencies. If collectors break these rules and you decide to report it, you must take action within one year of the violation. You can report violations to multiple places, including: your state’s Attorney General's office, the Federal Trade Commission, and the Consumer Financial Protection Bureau. The collection agency can be fined if it’s found to have violated regulations, but it won’t change how much you owe.
If you want to try to get your debt reduced or erased, you'll have to sue the collection agency. But Rozie Hughes, a financial advisor who helped develop the Financial Integrity Instructors Guide, said that complaints to the FDCPA are unlikely to reduce debts. "The road to such an end would actually be … lengthy and laborious through the civil court system."
If you feel you have a strong case against a collector, and the time and resources for a lawsuit, reducing your debt in a courtroom is a possibility. On the other hand, simply reporting violations is an action every debtor can take to put an end to intimidation and hold collectors accountable for misconduct.
4. Consider alternatives to a credit check.
Credit checks are one way that debt can affect more than just your bank account. Landlords regularly use poor credit score ratings to deny rental applications, and employers are increasingly using credit checks to screen potential employees as well.
If your credit score is a problem, offer to bring in a personal portfolio instead. Include references from current landlords and employers, as well as bank statements and paycheck stubs. Putting in the effort to create a portfolio can show you are a responsible and trustworthy person and may prove to be more important than a number on a credit report.
5. Shift your values.
Some of the things the DROM suggests you do to survive with little to no money are pretty radical. These include wearing only free clothes, getting food from shelters, and squatting in abandoned buildings.
But if those options are too hard-core for you, don't worry. There are some other options too. The DROM suggests you look into bartering networks and gift economies in your area. These alternatives are great because they allow you to trade your extra items, time, or skills for things you need without the exchange of cash. Large-scale examples of this include websites like Swap Right, Trash Bank, and the “free” section of your local Craigslist.
And when you need services rather than objects, consider joining your local time bank—a service that allows you to trade your own time for a carpenter’s, plumber’s, or whoever’s time you need.
It's important to acknowledge the cultural change that’s involved in moving away from the cash economy and toward swapping, bartering, and other alternatives.
"Finding ways to live outside of [our current debt cycle] is an absolute necessity for many, but can also be rewarding and give you a glimpse of what life might be like in a world without debt," the authors of the DROM explain. "It will require cultivating personal values and taking actions that often stand in stark contrast to the ones our consumers culture promotes so aggressively."
Liz Pleasant wrote this article for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas with practical actions. Liz is a graduate of the University of Washington's program in Anthropology, and an online editorial intern at YES! Follow her on Twitter @lizpleasant.
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