Get out of Debt
Talbert Williams
Do you ever feel like you know just enough about debt to be dangerous? Let's see if we can fill in some of the gaps with the latest info from debt experts.
Debt problems, debt consolidation programs and debt management are so pervasive in society today, I thought I might share a unique perspective you may not be aware of.
This point of view is from a business standpoint.
*Do you want to know why you receive endless streams of credit card offers?
*Are you curious why creditors hardly ever show up for consumer bankruptcy hearings to dispute your filing?
*Have you wondered why debt consolidators are all over the TV, radio, print and internet?
Quite simple: it's a business.
Need proof? Of course you do.
Have you ever looked at a credit card company's quarterly filing (10-Q) or yearly filing (10-K)? You may be surprised at what nuggets of information you find.
For the purpose of illustration, I've chosen two leading New York Stock Exchange (NYSE) traded companies. Both shall remain nameless, yet the facts can be gathered and confirmed quickly with a little research by you.
> Credit card company 1: For the quarter ended March 2005, default rate was 3.5%
So far, we've uncovered some interesting facts about debt. You may decide that the following information is even more interesting.
> Credit card company 2: For the quarter ended March 2005, default rate was 3.0%
What does this mean? It means about 3 - 3.5 out of every 100 people they issued credit cards to couldn't pay them back and were written off.
Why is this important?
It's a NUMBERS GAME. This is built into their business model and taken into account when they issue these mass "pre-approval" letters and sign up new customers. They know a percentage of you will never be able to pay them back. It's a risk they are willing to take.
What's more is both companies still made huge profits (and one even announced a quarterly dividend!).
> Credit card company 1 still managed a $500 million net income for this quarter.
> Credit card company 2 still managed a $515 million net income for this quarter (before one-time charges).
How do debt consolidators fit into the equation? Before you consider bankruptcy or defaulting on your balance, their job is persuade you to pay back these credit card companies an amount you can better afford. In return, these debt consolidators receive a flat fee or % of your outstanding balance.
By performing this service, the credit card companies make more money than they would had you simply defaulted - and debt consolidation becomes a booming industry. With average family debt between $8,000 - $10,000 (and growing) you now can see the business side of this. The bottom line is money.
Before you get severely depressed or consider doing something rash you might regret later, remember that this is a business. Customer default rates are built into each credit card company's business model. They know a certain percent of you won't ever be able to pay them back.
Yet, they are still raking in the money and printing pre-approved credit card offers at an incredibly rapid rate.
The bottom line here is to understand the corporate perspective. If you cannot pay back your creditors or are in a hole so deep you cannot get out of, shed the stigma and obligation of "I must pay them back or else the apocalypse will come to me." To them, you are just a number, a figure, a percentage.
Take this knowledge and choose the best option for YOU to get out of debt. Repeat this phrase: it's not personal, "it's business."
Hopefully the sections above have contributed to your understanding of debt. Share your new understanding about debt with others. They'll thank you for it.
Talbert Williams 2001-2006 All Rights Reserved
About the author:
Debt problems, debt consolidation programs and debt management
are so pervasive in society today, I thought I might share a
unique perspective you may not be aware of.