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Be sure to stop by and check out the Personal Finance Carnival at The Simple Dollar, were LivingReal’s Debt Reduction Is For Everyone post is featured.

Get Rich Slowly has written a great review of a new documentary about the credit industry, Maxed Out.

It’s a sort of Super Size Me, but with credit cards instead of hamburgers. Here’s the trailer:

What I liked
Maxed Out peeks into all corners of the credit industry. It shows us borrowers and lenders, payday lenders and pawnbrokers, commentators and collection agents.

We meet Chris and Bob, for example, the owners of People First, a Minneapolis debt collection agency. They claim their company takes a kinder, gentler approach, but then gleefully compare their tactics to those used by pirates. We also meet Lynn Stavert, a California woman whose husband recently died, leaving her unable to make the $4,000/month mortgage payment. (She used credit card cash advances for a while before giving up.) The various stories illustrate how our lifestyles have become thickly entangled with easy credit.

The film notes that lenders make money from poor credit risks. Banks don’t give you credit because they think you can repay it — they give you credit because they think you can’t.

Read the rest at Get Rich Slowly.

Picking up from a previous entry - let’s provide an explanation of the commonly marketed methods for a person to get out of debt.

One method offered by companies that earn their income through the sale of mortgages is “consolidation”. The premise here is to roll all your unsecured debt (such as student loans and credit cards/things that have no collateral covering them) into your home mortgage. It has also been suggested to roll secured debt, such as a car loan into this consolidation.

This assumes your home has equity to borrow from. The theory here is that these funds, the money you previously paid to the credit card companies you will now pay to the mortgage companies, which is okay because then you can write it off on your taxes. The problem with this method is that while it may drop your monthly payments a little, and save you a small amount in annual taxes, you are no closer to being out of debt.

In addition, your student loans, credit cards and car loans are now part of a payment schedule that may actually have you paying them off longer than before, or longer than the car lasts. You have also given up the equity in your home, which is not a bad thing if it is part of an overall strategy to reduce the time in which you are in debt, but not a good thing if it is used as a quick fix to have more money to spend each month.

Another method highly marketed is ’settlement’ or ‘negotiation’. In this case you enlist the services of a company that contacts your creditors for you and negotiates lower interest, a smaller monthly payment, freezing fees or any other method to help you to not have to pay. This method has fault on many levels.

“There is no doubt that debt settlement with any company does hurt your credit – it is the downside to the process of reducing your total debt using this strategy.“   an email response from a debt settlement company

Of immediate concern is how this affects a person’s credit score. Any company that agrees to a negotiated payment will enter this information into a person’s credit history. This information is now there for all other potential creditors to see. Landlords, retail stores, auto loan companies etc now know that you failed to pay back your debts as agreed. This can haunt you for many years to come.

In addition - negotiation may not work. Companies may not agree to new terms, they may agree to terms that are less than desirable, and this will still become part of your permanent credit history. The settlement company is also not in business to lose money and your fees to them must still be paid. I have heard horror stories of unscrupulous companies who were supposed to pay a client’s bills for them and just kept the money or held it for a time before paying it to collect the interest for themselves.

Lastly - where is the morality of not paying your debts? While there are instances of ridiculously high interest rates, and yes - today’s world seems to suck us into buying more than we need or can afford - how can we as adults accept an agreement to purchase something under certain terms and then squirrel our way out of paying for it? I came across a company which claims to have found a loop hole in banking laws and is using that as a way to ‘help’ their clients end all payments to bank provided credit cards.

When I asked what lesson he was teaching his children by sitting on a couch watching a television, both of which were purchased on a credit card which he now feels he does not have to pay back - he had very little to say.

In summary - consolidation, settlement and negotiation, while maybe the last resort for some, fail to effectively eliminate debt for ethically minded families.

There is an avalanche of offerings recently from companies that claim to be able to consolidate, negotiate, reduce, settle and eliminate a persons debt load.

This is exciting for anyone who owns a home. Unfortunately many people will overlook these offerings since they fail to recognize themselves as a candidate for this service. The fact is that if you still are paying a mortgage you have debt and could benefit greatly by paying your loan off quicker. Wouldn’t it be better for the interest you are giving to the mortgage company to go into your retirement savings?

The bad news in all of these offerings is that a person must be astute in understanding the difference between the processes of ‘consolidation’ versus ‘negotiation’ versus ‘elimination’. It is another case of Buyer Beware and the necessity to be wise and educated about the choices you make.

I will discuss the differences over the next few days.

Be wise and have fun!

The earliest lesson I remember getting concerning money was when I was in my early twenties. (It would of course be wrong to say that my parents taught me nothing prior to this – in fact much was learned and taught growing up about spending, saving, investing and earning, but we’ll leave that for another time)

My then girlfriend and I (now wife of 27 years) were traveling by thumb and backpack around Europe and caught a ride somewhere in Italy with a very exuberant woman. She insisted on taking us to a café for coffee. She felt a connection. She was sure we knew each other. We met in a prior life. We were Native American Indians. It was a long time ago. I was into it. I liked the connection. I liked being an American Indian.

After enjoying the coffee together we left the café and said our good-byes. Her parting action was to stuff a wad of money into my hand. I tried to give it back saying how we really didn’t need it and had just earned money working in Switzerland over the winter. She pushed my hand back and said – “take it – it is only an energy of the world”

That was an important lesson. It parallels the laws of giving and receiving, tithing, sowing and reaping. I have often shared the story adding the example of how electricity flows through a building and a person only needs to plug into it to become part of the flow. (Of course plugging into it can lead to death, an appliance it recommended). A better example is the water pipes in a home. In this form of energy a person can control the flow. Opening the faucet wider creates a larger flow.

And so it is with money. Some people have learned to tap into this Energy of the World in a bigger way. Some professions or industries have a larger faucet; some are limited in how much the faucet can be opened.

The software industry is an example. While many examples exist of failed attempts in this area, those that have succeeded in creating a product consumers like can open a wide flow of energy. Once written, software code can be duplicated and delivered rather inexpensively. I apologize to those who would choose to differ; I use this as an example only, along with five years working in this industry.

Compare this to the flow of money/energy that goes to a person who has chosen the profession of child care. While the energy flow of money is a comparative trickle, it is important to know that the flow of grateful emotions, smiles and giggles is far greater than in other professions.

But flow is the important word here.

Who hasn’t stood in a warm shower when someone flushes the toilet?

What happened is that the flow of cold water was diverted and all that was left was the hot water flow. Fortunately this situation quickly corrects itself and the flow of water is balanced. Not so in life. If we stop the flow of money out of our hands we eventually stop or slow the flow of money into our hands. The retailer who does not buy new products to sell can not continue to make profits. The business that fails to spend money on advertising slows the ability to earn income.

A great example of this is in the natural world. In Israel there are two great bodies of water, the Sea of Galilee and the Dead Sea. The Sea of Galilee, or Kinneret in Hebrew, is where Jesus took a memorable walk. On the northeastern side of the lake is the Golan Heights. This is where many of Israel’s first kibbutizim began. The Kinneret is full of life. Fish and fowl are in abundance – size, quantity and variety. In contrast, the Dead Sea, many kilometers to the south is, well, dead. There is little to no life in the salty water and only desert species in the surrounding mountains.

The difference between these two is their flow. Both bodies of water have an inflow from the Jordan River, (and the Kinneret also has underground springs). Then the Sea of Galilee flows strongly out through its southern end, continuing the Jordon River into the southern deserts where it pours into the Dead Sea. Then nothing. The Dead Sea stops the flow, it does not continue on. The salt and minerals collect and life ends.

In summary – whether your profession taps into the flow of money and wealth in a big way or a small way, it is often up to you to decide how wide you want to open the tap. Check the other energy flows in your life. Are they stuffed up? Is it because you are not giving as much as taking? Become a conduit of all the energy and resources and talents you have been given, and much will be added unto you, press it down, shake it up and enjoy!

“Give and it will be given to you. They will pour into your lap a good measure– pressed down, shaken together and running over. For by your standard of measure it will be measured to you in return.”