Tuesday, November 1, 2011

Advice on Creidt Card Debt


Hi FerFal,
I’m new to the prepping scene and have found the info on your site to be invaluable. I fear that we here in the US are in for a rude awakening sometime in the not so distant future. My question is about credit card debt. Most of the financial “sock puppets” in the media keep advising people to pay down debt as a way to avoid a personal financial crash landing when our country’s economy implodes. But my thought is why not run up as much debt as you can to get what you need now while the dollar is still worth something? When hyperinflation hits, you’ll be further ahead on the supplies, AND you’ll be paying back your debt with worthless money. When the SHTF, I doubt there will be any bill collectors knocking on your door anyway, as everyone would probably be more concerned with their own families and personal situations to bother. I’m not advising people to commit financial fraud, but it’s not only encouraged to into debt, it’s our only way of life in the modern world so why not just use the system to beat the system. Besides, in America, there’s no such thing as debtor’s prison. The worst that could happen is that your credit rating is destroyed, but I’d rather have a full supply of what I need than some “magic number” attached to my name. Anyway, thanks for all you do, It is very much appreciated. Kit
Thanks Kit,
Your question is kind of tricky. The common sense approach would be that being in debt isn’t something you want, and it is correct to assume that during unstable financial times you don’t want the extra concern of having yet another expense. I also recommend as one of the first steps towards financial collapse preparation to reduce expenses as much as possible, sticking only to the basics. This works well on many levels: You have more disposable income each month, more room space for adjustment in case of inflation peaks or unexpected expenses, you can try saving some money and the peace of mind that comes with knowing you managed to cut down your fixed expenses some helps on so many other levels.
Yet at the same time what you are saying is also correct to some degree. I don’t agree with just destroying your credit history. In my opinion committing that sort of financial suicide is like playing all your assets to a number in the roulette. You are betting at a certain type of end of the world situation that is extremely unlikely to occur, even if the economy does collapse. We’re already in a crisis, this might go on for five or ten years more without anything ever really collapsing.
What we did see here was people buying import items or getting dollars right before the devaluation or the freezing of the accounts. If I know gold and silver are going to go “up” in price, maybe buying some with my credit card isnt a bad idea. In some of these cases timing is everything and it is like winning in the casino to some extent for people that aren’t in the know of the internal managements of a country’s economy.
A good example would be what happened just yesterday with the dollar in Argentina, what I explained in the previous post in this blog.  Say, if you bought 10.000 USD with your credit card worth 4.26 pesos each, today you have those same dollars but worth 4.8 or 5 pesos each, maybe more. Same principle applies for devaluation and inflation.
What I would suggest considering would be a more moderate approach. I wouldn’t go that much into debt because it’s a risky bet, but if your finances are in good shape you may play your odds a bit, especially on some departments. Food for example. You’re going to be eating it anyway. Say you buy two years worth of food with credit and pay it throughout the following 12 months. Indeed, you’ll be saving 20% or 30%, maybe more on your food expenses. You’ll have to eat anyway, thus spend the money for it, and you already know food prices will keep going up. If you have the storage space for it that ‘s a no brainer unless  your financial situation is delicate to begin with.
What you suggest is true to some extent but I suggest moderation.
Take care,

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FerFAL

7 comments:

Anonymous said...

I would be extremely careful bumping up debt of any kind let alone credit card debt. Credit cards have one of the highest interest rates so your debt would baloon out of proportions with lightning speeds. Some credit cards also have late fees and so on...
Also be certain that your contract doesn't gives your credit card company the right to adjust your interest rates to inflation.
Since no one knows when EXACTLY (if at all) US Dollar will go into hyperinflatory death spiral you could end up broke and saddled with huge debt BEFORE such an event, you tried to prepare for, happens.
And even with hyperinflation the world will not end! This is one of the main lessons from FerFAL's blog. There will be much more corruption, violence,crime and general lawlessness, but you will still have to go to work and so will debt collectors. Those guys are not nice now - how do you think they will be then?

Anonymous said...

I would be extremely careful bumping up debt of any kind let alone credit card debt. Credit cards have one of the highest interest rates so your debt would baloon out of proportions with lightning speeds. Some credit cards also have late fees and so on...
Also be certain that your contract doesn't gives your credit card company the right to adjust your interest rates to inflation.
Since no one knows when EXACTLY (if at all) US Dollar will go into hyperinflatory death spiral you could end up broke and saddled with huge debt BEFORE such an event, you tried to prepare for, happens.
And even with hyperinflation the world will not end! This is one of the main lessons from FerFAL's blog. There will be much more corruption, violence,crime and general lawlessness, but you will still have to go to work and so will debt collectors. Those guys are not nice now - how do you think they will be then?

Anonymous said...

Let's make a distinction between using your credit card as a convenience to buy stuff now and pay later with money you have on hand now and using it to buy stuff with money you don't have. The former is smart planning; the latter is just plain dumb. There is no real need for credit in getting prepared other than as a convenience. You will be surprised at how quickly your preps will build up if you spend just a little on a consistent basis.

Also. in the US your credit score is used for lots more stuff than just whether or not you can get another credit card or a loan. Two of them which immediately come to mind are applying for a job and renting a house/apartment. Many employers and landlords check your credit history before hiring you or renting to you. If you have no or bad credit, they will move on to the next person in line potentially leaving you without a job or a place to live.

All this would be a moot point if the S hit the F tomorrow, but never underestimate our government's ability to kick the can down the road. In the event the hyperinflationary collapse doesn't happen tomorrow (a very likely outcome), if you've maxed out your credit cards, you'll wind up in the situation Greece is in where you can't even make the minimum payments on the interest. Also consider that the collapse could also be deflationary. In that case, you are in a real world of hurt because you have to pay back your old debts with more valuable currency. Put another way, inflation is the friend of debtors, while deflation is the friend of creditors.

Overall, there are very few benefits to maxing out your credit cards to finish your preps. The idea of survivalism is to be independent, and excessive credit card debt in a semi-normal economy (which ours still is for all its problems) is pretty much a guaranteed ticket to slavery. Live within your means, and you will prosper no matter the circumstances.

David said...

This post reiterates the single-minded confusion about the future.

No one knows what will occur tomorrow, much less next year or next decade. People are constantly talking about the inevitability of hyperinflation, yet there is nothing that is inevitable except one's eventual demise.

Most people today expect a continuation and acceleration of what happened before (inflation.) In my experience, when "most people" expect something, it is among the least likely paths we take. Reality is fond of delivering the unexpected.

Jorge said...

Another argument against using credit cards is the paper trail. You really do not want all your purchases to end up in government accessible databases. Especially if you are prepping.

Anonymous said...

Let me weigh in as an attorney with friends who handle bankruptcies. Everyone's situation is unique!It depends whether you have assets to lose. If you own any real property credit card companies will close your accounts and sue you for non-payment. Additionally, if you are regularly employed they can garnish wages. You can potentially lose assets in bankruptcy as well.

Because what you are talking about doing will wind you in bankruptcy eventually. The good news is that so long as you don't use it directly to pay off non dischargeable debts like student loans then at least you can get rid of the credit card debt via a bankruptcy. This is a huge advantage in comparison to say student loan debt which you will not be able to discharge.

If you have assets you could loose them in bankruptcy. If however, you are essentially judgment proof then its not as big a deal, aside from your personal moral stance, and you file a chapter 7 bankruptcy petition and wipe out the credit card debt. Of course the law can change between now and the hyper-inflation.

If you are judgment proof - ie unemployed or self employed with no real business assets of value, and don't own your own real estate than your proposed strategy might make sense to put you in a better prepped situation then you would be without it.

But don't kid yourself this course will lead you to Bankruptcy which is not the end of the world. Eventually you can get credit again. Indeed if you file for bankruptcy some credit card companies will give you a credit card right away because you can't file again for a period of years.

Anonymous said...

I can't believe the caliber of comments here, kudos to all!

I will simply add a line from Keynes (whom I find awful, but in this case, correct):

The markets can stay irrational longer than you and I can stay solvent.

That is to say: Don't be cute, listen to the people above.