debt

Let’s start this edition of the Carnival of Debt Reduction with some historical perspective on debt in America. Here are some interesting facts on consumer debt in the 19th century (source).

Before organized consumer credit, there were five major lending sources: pawnbrokers, illegal small-loan lenders, retailers, friends and family, and mortgage lenders.

Indebtedness was common prior to the 1800s. Unfortunately, it was hidden from view in the grocer’s book and the pawnshop ledger, in the butcher’s tab and the memory of friends.

Early levels of national consumer debt were measured in 1858, when it was estimated the nation’s total household debt load was 1.5 billion dollars. By 1890 the level of consumer debt had risen to 11 trillion dollars.

The 1890 census discovered the average household had about $880 of debt and only $475 in annual income. Compare that to 1998 when family debt was $33,000 and annual income was $32,800.

Between 1896 and 1916, short-term household indebtedness increased at rates as high as 15 percent a year, averaging an annual rate of 9.3 percent.

Unfortunately, the article doesn’t say whether the figures are inflation adjusted or not…but that’s not the point. The point is that there was a significant amount of consumer debt way back in history. Now, view this information in light of the fact that bank issued credit cards (as they are used in the current sense) were only invented somewhere around 1950s (read this article for more details).

Let’s think over that for a while before we start blaming credit cards (and/or other credit sources) for our debt. Of course, we should actively complain against unfair lending practices, but I have an increasing feeling that we are shoving our consumerist tendencies under the carpet and trying to shift the blame entirely on the system. I wish we had some historical data on human accountability towards this end.

On a related note, here is a New York Times article that provides some more food for thought: The American Way of Debt.

Without further ado, let us now move on to the submissions for the Carnival of Debt Reduction.

Personal Debt Stories

• I’ve Come a Long Way, Baby! by Tricia @ Blogging Away Debt.

A couple years ago I would have “Bought now, thought later” and I would already have the camera in my hands. Not this time. It’s still there waiting until I’m ready.

• 10 Things That Bring Success in Personal Finance: #2 Pay Off Your Credit Card Debt @ PT Money.

I signed up for my first two credit cards in college (you know, to get the free t-shirt). By the time I left college I had a decent amount of debt and two worn out t-shirts.

General Debt Reduction Advice

• Snowball Debt Reduction: Which Method Is Best For You? by Jeffrey Strain @ Personal Finance Advice.

While the classic snowball debt reduction method is the more rational method from a financial perspective since it means paying the least amount in interest charges, many people don’t view money in a rational manner. They instead view many from an emotional perspective.

• Debt Elimination - Snowball Method by Abdulrasool Sumar @ Debt Consolidation.

…it is easy to feel discouraged by the Highest APR to Lowest APR method because it can take literally years to pay off a particular debt. Your behaviour is more important than the math…

Some Debt Food for Thought

• Promoting debt by Dana @ Principled Discovery.

Unfortunately, the problem is embedded deep within our national conscience. It is about Americans fixated on the present and the newest fad. It is about personal irresponsibility.

• Debt is Slavery, Part 4: Retirement is not about age by MBHunter presents @ Mighty Bargain Hunter.

Debt will kill your retirement. The magic of compounding is there, but it’s evil magic — the compounding is working against you rather than for you. It scrambles your nest egg.

• An Age Old Idea Still Rings True… Just Hard to Accomplish by Katie @ Aridni.

I don’t know of any way around debts when you’re young—school loans, mortgages, car loans and credit cards maybe. Some experts think that investing any money while carrying debt is plain stupid. They’re right if your money is sitting in the bank, accomplishing nothing.

• Disappointed in the Women in Red @ Living Almost Large.

Typically I would be happy for the women in red as people trying to get their fiscal lives in order. But right now after reading this article, I wonder how much progress they’ve really made or will make.

• Payday Loans: No, no, no! Big Cajun Man @ Canadian Financial Stuff.

Don’t feel like this is your only way to deal with this, because these Loan Sharks are not the answer to your financial survival, if anything they are the end of your survival…

Credit Cards and Debt

• Credit Card Fees (Further Motivation For Getting Out Of Debt!) by NCN @ No Credit Needed.

Now, I may not be able to persuade you to give up credit cards forever, perhaps I can motivate you to get out of credit card debt as quickly as you can so that you can avoid the following FEES!

• Steps to Reduce Credit Card Spending by Mr Credit Card @ Ask Mr Credit Card’s Blog.

I recently got to know two friends who used to have problems with their credit card debt and this was what they suggest you do if you have problems with your spending habits

Not Really About Debt, But Related

• Why Even Dave Ramsey Needs to Consider His Credit Score by FMF @ Free Money Finance.

• 5 Steps to Fixing Your Credit Score by Yourself by Amy Pedersen @ Your Credit Score Secrets.

• The Psychology of the Spending Plan by Moorea @ Queercents.

• Dave Ramsey Resources and Links by Samuel Peery @ Getting Finances Done.

• Making Money Work In Your Early Twenties by Matthew Paulson @ Getting Green.

• The 10 Lies you Should Tell your Wife/Girlfriend About Your Finances by Pushpa Sathish @ Forex Reader.

• 10 Alternatives to Credit Cards (for Those Who Can’t Get One) by The Frugalist @ Frugalist.

• Using A Reverse Mortgage To Pay for Long-term Care and Avoid A Nursing Home Darius @ Related to Mortgage.

Click here to submit your article to the next edition of the carnival.

Since yesterday, I have been reading a number of articles on the recent subprime lending fiasco. Personally, I feel there are a lot of fundamental issues at play in the whole mess. The more I read about it, the more I am convinced that it’s not *subprime lending* that is at fault. It’s more about our ignorance, attitudes, and our constant tendency to keep finding loopholes in a given “system”. Here is my take on the issue (couldn’t resist writing about this). Towards the end, there is a list of all the articles (by fellow bloggers and from others sources) that I referred.

Subprime lending isn’t supposed to be bad

There are some people who blame subprime lenders for “lowering their lending standards”. But, isn’t that the whole point of subprime lending? The concept is to make housing *affordable* to people with not-so-great credit. It’s for people who wouldn’t have qualified for a mortgage with the regular lending criteria. According to the US Department of Housing and Urban Development, subprime lending can be summarized in two sentences as:

Typically, subprime loans are for persons with blemished or limited credit histories. The loans carry a higher rate of interest than prime loans to compensate for increased credit risk.

There is an increased risk associated with subprime lending (remember credit is equivalent to financial responsibility in the money world), but it’s not really a bad business model (ideally)…the loans are designed in such a way as to take into account the higher probability of delinquency. So ideally, it was a system that was supposed to work.

So what went wrong?

Flat out reason: the human tendency to abuse an established system. Don’t we love to hunt for loopholes in order to get more than what we need or deserve? In this case, ignorance (or stupidity) and greed on part of the consumers, and dishonesty and greed on part of the lending system are the medium through which the subprime lending system is being abused. I will highlight some of the issues by the way of examples below.

What are people with annual income of $54,000 doing in a house that costs $543,000?

I first stumbled on this piece of news at SVB’s post on the subprime lending issue @ The Digerati Life:

Two years ago, Luis Mapula was living in a converted garage with his wife and two daughters and earning $54,000 a year as a fence company construction worker. Then, almost like magic, he became the owner of a $543,000 home with no down payment.

This is an example of greed and stupidity on part of the consumer (in my opinion). Agreed that the their real estate agent told them some lies, fudged their numbers, and made it look rosy. But, how hard is it to realize that the house is just beyond their means? If you have just $1 and someone claims that you can buy an iPod with that kind of money, wouldn’t there be some amount of doubt in your mind about the authenticity of that claim? Wouldn’t you ask a few people about their opinion on such a claim before you give your money away? In this case, there are two reasons why you would give your money to the $1 iPod guy: 1. Your greed wants an iPod in just $1, and 2. Ignorance (or plain stupidity) convinces you that it’s really possible to get an iPod in $1. Then, when the guy sends you a bill for $499 *shipping charges*, who will you blame? Complaining against the $1 iPod guy does not absolve you of your lack of personal accountability….you should have done your homework well before falling for the shady deal.

Similar concerns about consumer attitudes are expressed by JLP @ AllFinancialmatters; by Paul @ Extreme Perspective ; and by Gaming the Credit System.

Cases of cheating

Here is an excerpt from a quoted piece of a Wall Street Journal article on JLP’s post:

In 2001, Ms. Smith, living on $540 a month in government benefits, was encouraged by a contractor to apply for a loan to finance home repairs. After two loan applications were rejected, a broker submitted a third showing that she had monthly income of $1,499 and was employed at a senior-citizens home though she had actually retired 10 years before, she said. The $36,000 mortgage that First Union National Bank (now part of Wachovia Corp.) approved for her required a monthly payment of $360.33 for 15 years followed by a “balloon” payment — when she would be over 80 — of $30,981.48

and an excerpt from SanLuisObispo.com:

Though Mapula signed the loan application that was submitted to Long Beach Mortgage, his lawsuit says he learned later that it falsely claimed he was making almost $100,000 a year from two jobs and receiving an additional $16,800 a year in rental income. The application also said he had $19,700 in the bank, owned a $22,000 Acura and had $28,000 in furniture and personal property. Mapula said none of that was correct.

These are examples of greed and dishonesty, supposedly on part of brokers (or middlemen) and/or subprime lenders. Consumers’ greed and desperation only encourage such behavior. In some cases, fraudulent information may have been filed without the full knowledge of the borrower….but I think there may be a lot of cases in which the borrowers connived with the middlemen to file false information in order to qualify for something that is beyond their financial means. And, they are taking advantage (disadvantage) of the loopholes in the system that allow the flow of fraudulent information.

Laws and regulations can patch the loopholes in the system…but I am not sure what will remedy our greed and stupidity. Forgive me for being naive, but wouldn’t “living within your means” potentially solve most of the subprime lending problems?

There is certainly much more to subprime lending than what I have mentioned above…however I am just trying to point out some fundamental reasons behind the issue in a simplified manner. For detailed analysis and more examples, read through the following list of references.

Resources and more reading

• Allfinancialmatters: QotD: Subprime Mortgage Mess - Who’s to Blame?

• Gaming The Credit System: Re: JLP’s Subprime Lender Mess Question

• The Digerati Life: How To Kill Your Credit Instantly With Mortgage Fraud And Subprime Borrowing

• Extreme Perspective: Scammers and Personal Responsibility

• US Department of Housing and Urban Development: Subprime Lending

• Wikipedia: Subprime Lending

• Mortgage Professor: What is a Subprime Mortgage Lender?

• Silicon Valley Real Estate Blog: When Not to Buy a House

Don’t get misled by the title, I am not trying to demean Dave Ramsey or his ideas in any way with this post (perhaps, there will be a different post for that :)). The humble objective is to put forth some features of my debt reduction story and hope that someone in debt might stumble on this, pick up the beneficial parts, and be inspired to think out of the box with regards to his/her debt management approach.

I have mentioned earlier about my three year fight against debt. It was a rather short account of a span of three years and after that post, I never talked about it again. Now, after quite some time, I have decided to spill some more beans about it.

By the way, I didn’t even know who Dave Ramsey was when I went on my own debt reduction program. In fact, I was totally unaware of any of the financial gurus that you generally see floating around many personal finance blogs. Heck, I wasn’t even fully conversant with the concept of “blogging” at the time. So these things, that I am going to list down in the following, are from the point of view of a person (me) who was absolutely oblivious of all the fancy debt reduction ideas.

In this post, I will list some of the features of my debt reduction efforts. I am not claiming that all features were absolutely beneficial towards my efforts. However, I will still list them here because it’s some combination of these features that got me out of debt.

Also, to put things into perspective, without disclosing the real numbers, let me mention that I was facing a 5 figure debt of the order of my annual graduate student stipend.

So, here are some features that I could pin down after some retrospection:

• Comparison lead to realization: Debt in itself was not enough to convince me the seriousness of my situation. What really woke me up was some casual talk with a few fellow students about the balances they carry on their credit cards. Some of them were earning as much as me but had zero balances on their cards. Once, I knew that, it was like “what the heck! how come I have a 5 figure balance while some of them have none?”. I probably realized, that at this rate, I might just become the poorest graduate student on my campus, in spite of a healthy stipend and that didn’t make me feel good. The will to reduce the debt came almost naturally from then on.
• Simple tools for a simple fight: At the time, I wasn’t aware of portals like Yodlee, or softwares like Quicken or Money. Initially, I started putting some numbers together using just a piece of paper and a pencil. When the papers started disappearing on me, I turned to Excel sheets and started recording my statement balances and payments each month. Things were kept really simple.
• No micromanagement: Most personal finance bloggers won’t like this (even I don’t like it much when I think about it now), but that’s how I was doing it. I didn’t keep track of every expense that I was making. I did budget my monthly expenses, but I didn’t keep an account of where every penny was going. Perhaps, it saved me a lot of unnecessary stress. My only goal was to put an arbitrary large amount towards debt every month and make the balances lower than those in the previous month. Period.
• Didn’t stop using credit cards: Yeah, I said it! It’s just that, I was not using the ones with balances on them. I used the ones that had zero balances and paid them off every month. Logic was simple; once I have budgeted my monthly expenses, it didn’t matter whether I paid cash or used credit cards. Cards were convenient and I was using them for the convenience. Another thing is that my debt was not because I was spending with credit cards…my debt was because I was spending like a fool.
• Took time-outs to think about debt: Often I would sit in front of my Excel sheet and work out different payments plans and put my progress into perspective. Sometimes, the resources were there, but I was too tied up (or stressed out) to think about them. A word of caution here: thinking too much about debt might be detrimental instead of being more beneficial; you have to remember there is life beyond debt.
• Sharing helped (I mean thoughts…not debt): This was sort of unexpected. Debt reduction was rapid after I got married. I guess it helps to have someone else’s perspective on your problem once in a while. Gives rise to fresh ideas and renews courage. I guess that’s why it helps reading other people’s blogs and discussing things with them.
• Being consistent: I don’t remember doing anything out of the ordinary in my fight against debt. I didn’t starve myself to save pennies…I was just being sensible in my spending and consistent in my payments. By consistency, I don’t mean being “rigid”..sometimes, you have bend your spending rules (for the benefit of the universe) and you got to do it when you got to do it (in my opinion).

That’s all that comes to my mind right now. All in all, I had a fairly stress free journey to being debt free with the way I did things.
Hopefully, the point is clear by now. You don’t need to prescribe to a third person’s plan for your debt reduction…give it a shot and you may be able to do it effectively under your own terms. It’s really not as complicated as some people make it out to be.

Also, please understand that this is just a suggestion (and not universally applicable); everybody’s debt is different, and depending on the situation, professional advice may sometimes be a better choice.

Welcome to the Diamond Jubilee edition of the Carnival of Debt Reduction. Thanks John @ Mighty Bargain Hunter for letting me host this edition of the carnival. Before I start with the entries, let us briefly touch base with the history of the carnival.

The first edition of the Carnival of Debt Reduction was hosted at Mighty Bargain Hunter on September 19th, 2005. There were 11 interesting entries in this edition. Do check them out. The noble sentiments behind creation of this carnival are succinctly described in the “About” section on the carnival homepage. I am quoting the words here for all of you to read.

Successful debt reduction stories and good debt reduction advice needs more exposure, and people need to see that debt is not forever. Many inspiring debt reduction stories make their way into blogs, and it is encouraging to everyone involved — bloggers, carnival hosts, and readers — to have their successes and insights highlighted on a regular basis. The Carnival of Debt Reduction is a weekly blog carnival that highlights posts on getting out of debt. Personal debt reduction progress reports and posts about reducing debt are what this carnival is all about!

And now we are ready to proceed with the carnival entries. Enjoy.

Entries with a personal touch on debt and related issues

Shift Your Thinking to Reduce Debt by Paul @ ExtremePerspective: A real life story from Paul about how a paradigm shift in their spending helped them out of debt. Some food for thought for those who are stuck on the latte factor.

How I Plan To Stay Out Of Debt by NCN @ No Credit Needed: This article is more about debt avoidance. It is directed towards people who get out of debt, but sooner or later go right back in because they don’t have a clear plan on how to steer away from debt. Always remember, prevention is better than cure; stop that debt before it gets you again.

Eliminating Mortgage Debt - New Thinking by Super Saver @ My Wealth Builder: Super Saver explains how paying off mortgage debt faster might help him to retire early. This sort of applies to all other kinds of debts (well at least applies to the ones with high interest rates); the faster you get out of debt, the more you will be able to concentrate on working towards a better retirement.

Breaking Down Your Debt by King of Debt @ We’re In Debt: Read about King of Debt’s experience on how a graphical visualization of their debt distribution is helping them reduce their debt.

I Don’t Love Capital One - How to Get a Lower APR, or Possibly Not by Andrea Dickson @ Wisebread: If Capital One has shrugged off your threat of “Reduce my interest rates …or else..”, you may not be alone with that kind of experience. Read what Andrea has to say about her experience with trying to negotiate her interest rates with Capital One.

Tax Refunds and Other Lump Sums by Rich @ Queercents: What would you do with your tax refund and other financial windfalls? Rich suggests using them to make payments towards your debt.

Commentary on other debt issues

Dave Ramsey is Good at Psychology by Nickel @ fivecentnickel.com: This article includes an collection of interesting comments (on a previous article) about how different people view Dave Ramsey’s debt reduction approach. According to Nickel, that’s more psychology than math. Here is one of the interesting comments mentioned in the article:

Yes, you save money by paying off the highest interest rate debt first, but you’re missing the psychological reward of not having to cut a check for those trivial debts, month after month.

Soaring Bankruptcy: Top 10 Reasons Why America is leading the World in Bankruptcy Filing by Rich @ Bankruptcy Reader. Rich elaborates on various reasons behind the rising bankruptcies in US. Look out for some interesting numbers in this post. For example:

According to the Federal Reserve, the typical family filing for bankruptcy owes more than one and a half times their annual income. A family that makes $24,000 a year will have $36,000 dollars in debt.

Debt management advice

A Step-by-Step Guide to Reducing Debt on an Irregular Income by ISPF @ Grad Money Matters: A 10-step approach to tackle debt on an irregular income. According to ISPF, the trick is in setting your priorities, in such a way that debt comes near the top, and then distributing your resources wisely among your priorities.

Get Out of Debt Now! by David @ Worldwide Success: The article explores ways to deal with debt and offers some common sense suggestions on how to reduce your debt load. Here is one such suggestion:

Whether you went into debt by your own fault or not, you must rid yourself of any guilty feelings and re-channel this negative energy into positive actions that will get you out of this situation.

Debt management by Andy @ Money Walks: Three simple and common sense steps towards debt reduction.

Getting Out Of Debt (Part 2) by Erek Ostrowski @ Verve Coaching. The article gives some practical tips on how to go about increasing your income in order to get out of debt.

5 Important Ways to Protect Yourself Against Job Loss by Steve Faber @ DebtBlog: Steve lists 5 rules that can help you to keep out of a debt black hole in the event of a job loss.

That’s all for this edition folks. Thanks to all the participants for contributing towards this milestone edition of the carnival. Click here to submit your articles to the next Carnival of Debt Reduction to be hosted at Money Smart Life.

A quick remark for those who might wonder about the term *Diamond Jubilee*. According to Wiki: “A Diamond Jubilee is a celebration held to mark a 60th anniversary in British and Commonwealth usage or a 75th anniversary in American usage.“

I will be hosting the 75th edition of the Carnival of Debt Reduction on this blog on Monday, Feb 19th. Don’t miss the chance for submitting to this Diamond Jubilee edition.

Click here to submit your articles to the carnival. It goes without saying that your entries need to be related to debt, either directly or indirectly.

To read more about the carnival, click here.

Earlier, I have listed some posts from my previous domain at Blogger. Here, I am highlighting some of the popular posts since I started writing on this new domain in mid-November. Listed below are 8 posts on a variety of topics; hopefully you will enjoy them. I would encourage readers to read through the comments. At times, comments really bring out the essence of the points under discussion.

Students, Laptops, Digital Cameras, Huge Cars, and Debt

Why Dave Ramsey’s “Drive Free” Theory May Be Flawed OR Why ‘Get Rich Slowly’ May Never Get To “Drive Free”

How To Flush $299 Down The Toilet

Gasoline Prices: Why $2.189 and not $2.19; Why The Third Decimal Place?

Efficient Credit Card Management: Change Your Bill Due Date

Fidelity myPlan Retirement Calculator: Numbers Can Be Tricky

Don’t Like Your Gift Cards? Trade Them Or Sell Them For Cash

And Let There Be More Light For Less Money: Save Money On Light Bulbs

Btw, sometimes I become sullen and don’t really live up to my tag line “personal finance doesn’t need to be boring!”, but I try

If you tell someone that you are in debt, the first advice most people will offer you is “stop spending”. Occasionally, you will also hear about how David Bach’s “latte factor” is hurting your ability to get rid of your debt (technically the latte factor is about increasing wealth over the long term, but you can also look at it as if it’s about reducing debt over the long term). When I say *stop spending* advice, I am talking about advice of this kind:

If you are facing a debt that’s taking you down in a hole, you need to stop buying those clothes, shoes, junk burgers, coffee, electronic doodads, useless magazine subscriptions, cigarettes, movie subscriptions, and everything else that is not necessary to keep you alive and divert every penny towards your debt. Basically, live like a caveman if that helps.

Those are my own words from sometime in the past :).

While there is nothing wrong with such an advice, things are always easier said than done. The problem lies in the fact that this advice ignores the “happiness factor” completely. Here, I define the happiness factor as the measure of happiness that is associated with some of the things mentioned above (coffee, burgers, clothes, etc.,).

I have been thinking about that lately, and ran some quick numbers on a hypothetical person in debt. The point of this exercise was to compare a *stop spending* approach (or the latte factor approach) with a smarter spending approach towards reducing debt. Hopefully, the series of charts will do all the talking. I will add some comments to highlight a few points of interest.

In the first chart below, there are some (to keep it simple, I have included just a few) of the typical monthly expenses for Mr. DD (Drowned in Debt). Mr. DD is like the rest of us, and enjoys watching a few movies and eating out once in a while. Most of his monthly income goes towards the rent and the car payment.

Based on this, the chart below shows Mr. DD’s calculated annual expenses. Also, his debt is shown alongside so that we have a better perspective of his financial situation.

Now, let’s give Mr. DD a *stop spending* advice. According to this, Mr. DD stops his “latte”…or in essence, stops all his sundry spending on stuff like movies, clothes, etc. This is shown in the chart below. Do you see what has happened? The latte factor is no longer there (he saves $1320), but he has ignored the two most expensive things that he is spending his money on. He applies the $1320 to this debt, and reduces it to $8680. But, he is not very happy here because he has deprived himself of the *happiness factor* while doing this.

Now another smart fellow gives him a smart advice. He tells Mr. DD to look for a slightly cheaper apartment, and a slightly cheaper car. Now, instead of cutting his Latte Factor, Mr. DD decides to follow this advice and spends his money smartly. His annual expenses with this approach are shown in the following chart. Notice that he has reduced is annual car expenses by $660 and rent expenses by $660. Again, he applies the savings ($1320) to his debt and reduces it to $8680. But, this time he is happy because he has been able to keep up with the small enjoyments in his life while doing this.

The other obvious advantage in this approach is that he has reduced those expenses that appear in the form of a long-term contract. Meaning, once he chooses a cheaper car or a cheaper apartment…his savings are automatic over the rest of his contract. It’s not like stopping your Starbucks latte…a little bit of stress and you will be back to Starbucks in the next hour.

To bring this to a closure, Mr. DD’s corresponding monthly expenses are compared to the original expenses below. Notice that by spending his money smartly, he just needs to make minor compromises when it comes to the apartment and the car, instead of stopping everything that gives him happiness.

Hopefully that conveys what I originally intended to convey.
With this, I am not encouraging frivolous spending; I am just acknowledging the fact that there are a few things you need to spend on to keep yourself happy. I am also trying to draw some attention towards the fact that sometimes, we tend to ignore the bigger things that are causing financial problems. In my opinion, we fall for the latte factor quickly because it is much more visible than other subtle (sometimes bigger) problems. Cut the latte if you want, but before you do that, make sure you have taken care of other expensive things in your life. Of course, you could be even wiser and tweak your latte expenses a little bit, but even in that case, your first priority should be to check on the bigger problems first.

Other articles on these lines that may interest you:

-Forget About the Latte Factor : by Flexo @ Consumerism Commentary.

-Want to Save? Give up the Big Things! : by JDRoth @ Get Rich Slowly

Updated: Click here for an interesting counter-arguement by a blogger friend.

Subscribe to this blog and keep yourself updated with fresh content. Thanks for your time.

I was reading some debt related articles on the internet and stumbled on some debt problems faced by people far away from here. It’s not just the affluent societies that are plagued by debt (that’s some paradox), every layer of the economic strata are affected by it. However, the reaction to debt, of people from different economic levels and social backgrounds is vastly different. While debt means minor discomfort to some, it means death to others.

Here are some gut-wrenching excerpts from a couple of articles I came across.

The family had leased the acreage and spent about $570 a year on the land, seed, fertilizer and pesticides. Because of interest of more than 30 percent a year, Madhukar owed about $2,270 by the time he died.

“They say, ‘He died. That’s OK, you’re here. You can pay the debt,’” she says. “They come every two or three days. Before he died, they would come daily.”

In the above quote, “They” implies moneylenders.

Villages for sale

“This village is for mortgage,” says the painted scrawl on a building in the village of Shivni Rasulapur.

The data clearly show that victim farmers were more caught in the debt trap of non-institutional sources of credit compared to control cases.
In many cases extreme step of suicide was taken recourse due to heavy pressure and humiliation from the private moneylenders.

Click here for this article and another one on similar lines.

Reminds me of Warren Buffet’s concept of “the ovarian lottery“

Some time back PBS broadcast an excellent TV show, titled “Secret History of The Credit Card” through Frontline. I just found a YouTube version of the entire program and thought about posting them over here. The show (posted below in two parts) runs for almost an hour, so watch it at your own leisure.
Before you start watching the show, here is a small excerpt about it from the PBS Frontline website:

In “Secret History of the Credit Card,” FRONTLINE^® and The New York Times join forces to investigate an industry few Americans fully understand. In this one-hour report, correspondent Lowell Bergman uncovers the techniques used by the industry to earn record profits and get consumers to take on more debt.

“The almost magical convenience of plastic money is critical to our famously compulsive consumer economy,” Bergman says. “With more than 641 million credit cards in circulation and accounting for an estimated $1.5 trillion of consumer spending, the U.S. economy has clearly gone plastic.”

Follow this link for the videos:

http://www.pbs.org/wgbh/pages/frontline/shows/credit/view/

I should acknowledge that, earlier (right after the show was broadcast), a couple of bloggers have linked to Frontline website where the entire show is available divided into 5 parts. However, I don’t think it received “enough” attention at the time. So this post is for those who missed the show on the TV and missed those posts too ; plus it never hurts to give some occasional exposure to important stuff like this.While you are here, make sure you also read a related article on Frontline’s website titled “Eight Things A Credit Card User Should Know“. Bookmark this stuff and remind yourself every once in a while.