Saturday, January 16, 2010

Going into Debt to Prepare

I have heard that the best advice would be to borrow as much as possible before tshtf and use it to prepare. After tshtf, repayment of credit cards will not be a priority, and if you borrow it at a fixed interest rate, then the hyperinflation means that you are paying it back with seriously inflated dollars, so who cares... I do have an ethical issue with running up debt knowing that I may well just default on it.... That being said, current laws in the US do not allow creditors (other than the bank who holds your mortgage) to throw you out on the street and seize your house. The most they can do is put a lien against your house so that if/when you do sell it, they will get some of the money..... So Fernando, what happened in Argentina to credit card defaulters?

Mike

Hi Mike, I feel I should ask, where did you get that piece of advice?

I'm no survivalist guru, but my humble experience is that you sure as hell shouldn't get into debt to prepare.

It is true that if, for example, in 2001 you had a loan in dollars and afterwards you only had to pay in a 1 to 1.4 ratio when it really was 1 to 3.5, sure that was pretty good, but playing that game is VERY risky. You're practically betting on an economic collapse, and doing so with some accurate date estimations. You might as well go to the casino and play reds. At least that's 50/50 chance.

Now, going into debt on your credit card and planning to not pay back. That may work for a total bum, but not for a serious person.

First, its not just interest, its also the extra charges and expenses that quickly add up.
Here in Argentina, a debt can quickly double in a matter of months, just on lawyer expenses or whomever "bought" your debt.

Still planning on not paying? As you wait it only gets worse, the debts turns into a snowball that keeps growing.

Then one day you need a loan for your business or get married and want to buy a house, sell the one you have for whatever reason, moving to something smaller or bigger, then the problems start for real. You can't sell your house without losing a ton of money ( the debt+interest+expenses)Your financial history is a nightmare that no one will get close to.

Eventually, you'll have to pay or live like Tom Hanks in "Stranded", at least in financial terms.

Still sure about going into debt counting on an economic collapse?

FerFAL

14 comments:

Don Williams said...

1) Would anyone like to guess the number one source of jobs in a depression?

What makes Mike think that his house will be left standing? Does he want to go up against these guys??

From http://finance.yahoo.com/news/Buffalos-debt-collectors-apf-2226423347.html?x=0

"BUFFALO, N.Y. (AP) -- When Tobias "Bags of Money" Boyland went looking for a new career after serving 13 years in prison for armed robbery and drug dealing, he quickly found something that suited his sensibilities: He opened a collection agency.

It was, in some ways, a natural move for a young man in Buffalo. Desperate for jobs, this chronically depressed Rust Belt city has become home to one of the biggest concentrations of debt collection businesses in the U.S.

"Collections is the Bethlehem Steel of Buffalo," said Boyland, 44, recalling the industrial giant that once employed 20,000 people in the region. "You can make a decent living in a town where there isn't a lot of opportunity.

...Yet, law enforcement and consumer groups point to a dark side: Buffalo, they say, has also become a center for some of the worst elements in the business. Debt collectors, some of them convicted felons, have illegally posed as lawyers or unlawfully browbeat people -- threatening to have them arrested or stripped of custody of their children -- to scare them into making payments."

2) Note that these debt collectors are greatly RESTRAINED at the moment because the police are keeping an eye on them.

The leg breaking begins when there is no longer enough money to pay the police -- and the policemen either have to join the rackets or else have to start taking bribes just to feed their families.

3) Justice will prevail? Yeah, as when the debt collector backs you up against the wall and " Ain't No cops are around. It's "Just Us".

Anonymous said...

Debt collectors like that are taking very serious risks IMO...they have to be on the books, and could easily be drowned in a wave of suits by people they've muscled.

Going into debt to finance "survival" is an oxymoron. Surviving nowadays means working within civil society. Unless you're planning on hopping on your boat and making for the sunset, you can't burn bridges with your credit...in a world without fixed standards of right and wrong or a community to monitor and punish wrongdoing informally, outward symbols like your credit rating are worth even more than the amount you can get straight up in loans. (And even if your are gtfo, enjoy tying up in a foreign port without a valid U.S. passport and with frozen assets!).

Anonymous said...

Interesting discussion: http://globaleconomicanalysis.blogspot.com/2010/01/walking-away-goes-mainstream-yes-its-ok.html

Obviously there's a calculation involved if you're talking about walking away from your house when you're drowning...but the idea of jumping on knowing you're going to walk away as a way of trying to scrape up money to buy supplies seems foolhardy. Bankruptcy won't leave you with much in the way of assets unless you're set up very carefully in advance...and if you're willing to work that hard, why not just save?

Took a chance said...

In early 2005 I took one of those fixed rate, 3.9% offers from a credit card, took out $26,000 and bought 3700 ounces of silver. The downside has been that I've been scared to death of being late on a payment these past 5 years, knowing that they'll jack the rate up. The good news is that silver is now about $65,000.

The plan was based on the inflation play at a low fixed rate of interest - and on paper, it's worked out really well. But practically, it has been a weight on my shoulders as I check the credit card web site every month waiting for the statement to hit, then making the payment immediately, then checking 4-5 days after to make sure it posted (I make payments of $10 over the minimum payment).

I was never planning to default, just wanted to pay the debt with inflated dollars.

Anonymous said...

Debt makes you a slave to your job,or your bills. Preparing can be done cheap. I have a USD $100.00 plan that will provide a family of 4 food for a month. Check out the GTA forums.
Pay down your debt as much and as quickly as possible. But start your food,water,shelter and security right now, even if its just a 50 pound bag of rice and a 50 pond bag of beans.
That is a Latte a week or a lunch at a fast food joint per week. Pay extra on your debt, anything even if it's just $5.00.
I paid everything off except my House, I got a mini-van to replace a PT cruiser. I have it on a 2 year loan and payments of $75.00
and I'm paying that off 1 year early.
Trust me, I became 100% disabled and if it hadn't been for my parents, I would have lost everything.
GET RID OF YOUR DEBT!!
Prepping is a way of life, you can't just buy and then forget. Bake your own bread, grow a garden, can, freeze, shop sales. You need to prepare Mentally, Physically and Spiritually.

If your are injured or killed let's say in a "natural disaster" Would you want your family to not only lose everything you prepped but your home, car/s, everything because you can't make a credit payment.

Once you are debt free you will have money and assets that you can use for your future.

Don Williams said...

1) Re Anon's comment "Debt collectors like that are taking very serious risks IMO...they have to be on the books, "

How can they be sued if they are court-appointed constables or deputy sheriffs. See
http://www.boston.com/news/special/spotlight_debt/part3/page1.html

2) If abuses occur today , what will they be like in the corrupt environment of an economic collapse that Ferfal describes?

3) How much will it cost a debt collector to bribe a cop to throw some debtor into prison for a few months?

Don Williams said...

PS Plus Anon assumes a law-abiding environment. But try stiffing the Mafia even today in the US and see what it gets you.

In a collapse, my guess is that a lot more people start acting like the Mafia. After all, why have respect for the law when the government has showed that it is run by the biggest crooks of all. And that it no longer has the resources or will to enforce the law unless some rich man is being bothered.

GotRocks said...

Perhaps another variant might be the following: Rather than pay down fixed-rate loans and put a bunch of money into retirement plans, use that money to stock up on necessities and otherwise prepare for "when it happens". As I see it, everything in the USA is half-price (or less) right now - compared to what it will be when the dollar crashes.

I've been taking this approach for the past year and have over 4 years worth of everything that I can think of (that's non-perishable) - well over 100 different items. I also have ways to collect and purify water (I live in hurricane territory, so some of my plans have dual purposes).

At this point, I'm about spent out, so I may just buy some land.

Anonymous said...

"hopping on your boat and heading into the sunset"... and there are tons of pirates on the open seas, and plenty of laws against bringing firearms to sovereign waters, so there's yet another reason to figure a way to work within the civil system.

There is no easy answer, and unloading debt onto your fellow man is a poor choice.

theotherryan said...

I think the 'borrow to prepare' idea is sound if you are sure/ willing to bet either a hyper inflationary disaster or the highly improbably TEOTWAWKI is going to happen.

On the right day in Argentina in 2001 maxing out your credit cards on extra food, fractional gold coins and a couple Glocks with ammo/ mags would have been a sound move. Then again if you can really time that sort of stuff you have already made millions (or more) in the market like Warren Buffet or Jim Rogers so you would already have the resources to be well prepared and would just be making some more money.

The rest of us can't really time this stuff well enough to take the maximum advantage anyway.

Anonymous said...

Don - valid points, but from a theoretical standpoint, sovereign immunity doesn't extend to agents that break laws (such as debt collection protection statutes)...so they can be sued, and it's a real pain in the ass for the sheriff's police to chew up time on that kind of thing, so I expect it wouldn't be widespread. From a practical standpoint, even corrupt politicians need votes, and you can't buy them if the poor are being strong-armed by your goons. They'll throw in with whomever will promise debt forgiveness, etc. That's how socialist tyrannies work...bribes, buying populist votes, and so on.

Regarding the Mafia--my great-grandfather threw a couple goombas out the front of his store when they came looking for protection money, and all they did was move on to easier pickings. (Eventually, he was dropped from his lease, but that was because he was the wrong ethnicity relative to the industry, not because he refused to pay the mob.) Point being, the mob can only work where there is no monopoly of force. Even if shtf and lawlessness abounds, politicians must still buy votes.

BulgarWheat said...

Putting yourself in debt is putting yourself into slavery.

Not worth it. I had to carry a mortgage for a while, but that is now behind me.

I thank GOD every day for my blessings and I'm sure that has a tremendous impact on why I am where I am. Good guy to have on your side.

Anonymous said...

Aside from all the valid reasons why this is a bad idea, think about this:
You're saying that you can predict within months precisely "when" the S will HTF. You can predict the timing so well that you know just when is the right time to run up your credit card on prep items.

However, our country has been stretching the ability of it's productive citizens for many decades, and it hasn't broken yet. I'm fairly sure there have been thousands of days when most prepper-mentality people would have said "this is the day"... and would have been wrong.

I truly do believe that the end is inevitable and it does seem that we must surely be near it... but even if I were criminally inclined, I don't have the certitude that I know the future with that kind of accuracy.

Inalienable Rights said...

I disagree. If you are "judgment proof" and none of your assets can be attached it does make sense IMHO to borrow and never plan to pay it back. Play the same game they are playing.


That is unless they will take back what they loaned you... i.e. a bunch of numbers in an account entry.