Join the New American Revolution! (...and Get Out of Debt)

I'm not up to commentary lately. Like Hamlet before me I've grown tired of reading just "words, words, words...." And judging by the weblog social-circle I travel in, a lot of other people are feeling the same way right now. Not that there is nothing happening in the world (because obviously there is plenty going on) or any valid observations and comments that could be made...it's just that none of it is really news anymore. The world continues to unravel at the seams. Rioting is being used to justify increased authoritarianism, terrorism threats are being used to justify increased authoritarianism, bird-flu is being used to justify increased authoritarianism.... Same ol' same ol'.

Actually, though, I could offer that I believe America is fast growing tired of the same ol' same ol', and is actually edging a little closer to Revolution than it was when we entered 2005. It seems to me that a lot of the tumultuous events of this past year have revealed the sham spectacle that's being offered in the place of responsible leadership. But "revolution", if it occurs, will not be a guns and ammo affair -- which can accomplish nothing beneficial whatsoever. Rather, it will be a revolt within our individual lives against "buying-in" to this suicidal corporate-consumer system any longer. It will be a voluntary movement toward deconsumption. And I'm beginning to sense that this New American Revolution is inevitable, provided it's not crushed by circumstances before it can take hold. Nevertheless, it is still a ways off as yet. The groundwork is still being laid. It will only occur when people decide that it is actually cool to deconsume their lives....to "tune in, turn on, and drop out" -- but for real this time and not just for kicks. And ultimately that means, as Strauss and Howe pointed out in The Fourth Turning, it will probably only happen when Gen-X'ers decidedly begin to take the stage in American affairs (which, for example, is partly what we're seeing in the rise of the internet as a dominant media forum).

There are two sides to this New American Revolution. One is to stop supporting corporations, to stop giving them the bullets to shoot you with, and to start buying instead only what is produced and made locally and sold by independent businesspeople. It ain't easy to do, but as the revolution takes root and grows it will gradually become easier. And it's infinitely preferable to actually taking up a musket and abandoning your family and home.

The other side to this insurgency is to stop buying-in to your own enslavement by borrowing money. When you have debt, you are working for another's benefit. If that "other" is a bank or finance company then you've effectively shackled yourself to a self-destructing system. Hopefully most of the readers of this site are debt-free or fairly close. And hopefully most of the readers of this site see that "debt free" is so very much way cooler than a new iPod and an Audi A6.

But since that's probably not entirely so, I thought I'd offer the best system I've found for getting yourself debt free. And I'm living testimonial that it works. I can't claim I invented it, I don't even know who did, but they deserve mucho kudos because they've done something to actually benefit peoples lives. Of course, no financial "system" can't replace discipline, willpower and determination...but it can be a valuable support to keep us on track during the times when it feels like those things have abandoned us.

∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞

Step 1: Make a list of all your debts (mortgage included) as well as the minimum monthly payment amounts you must make on each one.

Step 2: Sort this list by size, starting with the smallest loan balance at the top. Ignore interest rates, we don't care about them because we're going to concentrate on paying everything off as quickly as possible.

Step 3: Total all the minimum monthly payment amounts. This is the amount of money you absolutely have to pay each month (hopefully this is not all you pay each month...).

Step 4: Decide on a definite amount of money you could pay each month over and above this minimum payments total. We'll call this your "overage". Be realistic in coming up with this figure, but be firm. Double-check that you're comfortable (but firm!) with this total, because you're going to have to live without it for perhaps a number of years until all debt is paid-off. It helps to continually remind yourself that when you're finally debt free you'll not only be lean and mean in your spending habits, you'll also suddenly be flush with exactly this amount of new-found "disposible" income.

Step 5: Now we'll put the plan in place. Every month you'll make the minimum payments on all your loans except the one at the top of your list. For this "target" loan you'll pay its minimum payment + the "overage" payment that you decided on.

Step 6: Continue step 5 until the loan at the top of the list is completely paid-off (since this is the smallest loan it should help give you a fairly quick boost of confidence that you're really accomplishing something important). Once paid, make sure that the loan-account is officially closed by the lender (this is important!), and cut-up any credit / department store cards you had for it.

Step 7: The second loan on your list now moves to the top. Continue to pay the minimums on all loans except this new target loan. BUT: for this top one you will now pay the same amount you were paying on the loan before it (the one you just paid-off) plus the minimum payment you've been paying all along for this new target-loan.

Step 8: You'll continue to pay this new slightly-larger amount until this second loan is paid-off. At that point you'll simply add the minimum payment amount from the third loan on the list to what you're currently paying, creating and even larger light-saber with which to beat away the Empire every month.

Step 9: Hopefully you've gotten the point. Continue until you're debt free.

∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞∞

Hopefully it's needless to say that from the day you begin to implement this plan you will not use any credit cards or borrow any funds again. Yes, occasionally you do have to use a card for certain purposes in which paying with cash or check isn't possible (i.e. renting a car) but these should be moments where you pause to think about what you're undertaking....is this a commitment that will quickly be accounted for on the next monthly bill, or a convenience that will throw-off your future financial independence plans? And always remember that a bank "check card" often gives you the best of both worlds: the convenience of electronic payment and the integrity of paying with cash-in-the-bank.

One nice aspect of this system is that it feels good. Sure, we'd all prefer to live beyond our means than living below it, but I quickly felt a sense of accomplishment in applying larger and larger payments toward the smallest credit accounts. And if you own a home then believe me, it's a great feeling when you finally start sending those big payments against your principle (the same goes for large student loans). Oh, but as an FYI, apparently there are some mortgage companies that actually have the gall to charge fees for excess payments against principle. If so you'll want to pay the stated amount and "pool" your monthly overage in a savings account instead...then submit this in just one extra-large check every six months or yearly.

Another fun feature to this system is that you can figure-out right frm the moment you make your list exactly when you will become debt free. Granted you may have a hitch or two along the road, but having a recognizable "Independence Day" can be a support for some people.

Also keep in mind that should you get a windfall payment (like a tax refund) you can delight in applying it against the present target-loan, thereby shortening your Independence Day goal even further!

Of course, if your particular target-date seems so far off that it's disheartening to even think about it....well, my suggestion is to commit to the plan, send that first payment in anyway, and go out and rent The Shawshank Redemption once again. And try to remember that at least you have a plan. Long experience has shown us that without a plan, the great majority of people tend to live perpetually debt. And on that note, we also need to disavow ourselves of all the freakish "ideals" we've been indoctrinated with regarding debt, that it's a "necessary economic stimulus", that it's a means of "investment" to better our lives, etc. Banks enjoy a profound privilege in our modern system: they are essentially given the money that they loan to you at interest. Banks don't have to work for those funds, and they don't risk anything that is dear to them. I won't go into the details of this highly strange state of affairs we've been hypnotized into ignoring, but suffice it to say that it is probably the most sophisticated means of slavery the world has ever known. And even back beyond Biblical times debt was viewed as usury, plain and simple, no matter how competitive the interest rate might be. And it's worth mentioning the word "usury" comes from the latin usus....which means "used". Think about it.

And finally, when all is said and done, should you keep one or two charge-cards "for an emergency"? In truth, I did. I hardly ever use it, and only for small purchases that I pay-off right away. For larger purchases I scrimp and save until I have the cash. Unfortunately my wife is much more free with the plastic than I am...not that we don't still pay it off asap, but only that she feels a greater freedom to "buy now, pay later" than my principles would prefer. But such is love. It's a small, and manageable, price to pay...all things considered.

Comments

[Peter]

Bill collectors will have a tough time after collapse. I can just see it now. Bill collector shows up at stockade gates and demands to speak to Mr. John Smith about his o/s Visa balance. Moments later a dozen rifles, shotguns, and handguns are pointed at him.

Bill collector beats a hasty retreat.

What are your feelings about local currencies? I think they are a god idea.

Also, can you explain what Solari does? Its website is not very clear.

[Different Clue]

Once you have no credit card debt (and I
have none), there is another reason to use
credit cards as little as possible. It goes
like this: every time you use a credit card,
the place you used it has to send some money
back to the credit card company. Usually
about 2 or 3% of the price you paid. This
is called a merchant fee, and is the kickback
which the merchant has to pay just to be
connected to the credit card network. So
every time you pay with cash-not-credit, the
merchant gets to keep that 2-3%, and the
credit card company is denied that 2-3%.
Since I live in a safe city, I carry cash
and pay in cash for whatever is feasible to
do so. It means nothing to Big Card Credit
if I am the only person taking this approach.
But if 50 million other people paid in
cash-not-credit for most daily/weekly purchases, Big Card Credit would be weakened
by strangulation of its Merchant Fee Kickback
receipts. Quite apart from the issue of
paying down the entire balance in full when
you do have to use a credit card.
I believe if you go more than 2 or so
months without using the card at all, you
get charged an "inactivity fee". So I use
the card one time per month, just to keep it
excercised.

[baloghblog]

doing the same thing on our end with the debt. Discipline is definitely what you need, as well as a partner who is on the same page as you. Our credit card debt is 2 months behind schedule to be paid off, but will be paid off in 2 months! Then we move to my wife's car, and then the student loans. It does feel good to be paying down that debt, and very liberating.

best quote from your post:
...commit to the plan, send that first payment in anyway, and go out and rent The Shawshank Redemption once again. And try to remember that at least you have a plan.

[nuliengvgv]

..."Instead I've been filling my head with practical information"

i just wrote about this phenomenon yesterday- the shift from if we'll peak discussions to when we'll peak discussions and now a new shift. this time to discussions about what to do as a response both personally and as individual communities. i think you'll find the following three sources useful for personal preparation if you aren't already aware of them.

http://www.beyondpeak.com/

http://www.lifeaftertheoilcrash.net/PostOilBulletin/IssueNumberTwo.html
(i'm sure steve is familiar with this)

http://pathtofreedom.com

[sickandtiredofthefascistsincharge]

We've joined the revolution!

For us it made sense to pay extra on our biggest loan first. By putting all our extra payments towards our largest (and highest interest) debt, our house, both our cars, and kid's college tuition will all be paid off about the same time. Looking forward to being debt free before the end of 2008. :)

I have found this calculator to be a useful tool for calculating pay-off dates when making extra payments. It says mortgage calculator but it works for any simple interest loan.

http://www.bankrate.com/brm/mortgage-calculator.asp

[Avi Solomon]

The revolution has already happened and it's called Voluntary Simplicity. See:
http://www.simpleliving.net/

[Nathan]

Steve, it sounds like you listen to Suze Orman (I am a fan of hers). I started this process 6 years ago. It went like this:

Starting 6 years ago, my wife and I cut up every credit card we had an stuffed the pieces into a little baby food jar as a reminder. We still have the jar. Then we paid off all of the balances and closed the accounts over the following year and a half.

A little over three years ago we started to look for raw land. We had never heard of about Peak Oil but it just felt right. We found six acres of land that was far from any other houses but still close to jobs. We cashed out of our house in the suburbs which had gained $100,000 in value since we had purchased it 6 years earlier and used the proceeds to purchase the land. Then we built a very small home out of pocket. Now that we have become "Peak Oil Aware", we feel fortunate to have made these choices. Our house is not dependant on any outside utilities.

The only remaining debt that I have is a car payment. I have also saved up some cash so if I wanted to pay of the car, it would be more or less a trip to the bank. However, I have been reserving this money for purchases of things that could be significantly more expensive if the economy goes south.

I highly suggest people follow Steve's advice on getting out of debt. It is really hard to tell what the future holds so I would not count on your debts being erased. We could see labor prisons for those who cannot pay...

[Aaron]

We went debt free today!!!!!!!!

I kid you not. 5 years ago as we were preparing to get married I had this hellish vision of myself in 20 years time still paying off a mortgage, being a grumpy Dad and worst of all STILL being in the ranks of the living-dead who work in an office everyday.

I'd just read that "Rich Dad Poor Dad" book. It's full of holes from any perspective other than pure capatalist but it does make the point well that if you stay on a wage you're going to be making profits for other people and stuck in the rat-trap for life.

So given that I was in the building industry we went and developed some property and here we are today debt free.

The interesting thing is that as soon as you disconnect yourself from the system your mind seems to become open to new ideas. This has happened to the point that there is no way that I could do the same type of mainstream eco-unfriendly development again.

The next thing we do will be an eco-village with permaculture design, earth houses and most importantly a sense of community.

Nice timing for this posting Steven

[Wanda]

Count me in the revolution! I actually got introduced to a "debt reduction" plan by Quicken. Technology is good for something. Its become over the last few years total debt elimination for me. I'm almost there.

[Peter]

Getting out of debt is one good first step. I've done this and am now interested in going a step further. By this I mean extricating myself from the game as much as possible. We dwell in an economy where the game is rigged against the little guy. The more I read up on the Federal Reserve, the more I agree with those who claim that it's nothing more than a mechanism for separating us from our money. Moreover, Bush and his rapacious cronies seem hellbent on plundering both the treasury and the taxpayer.

Hopefully, we can have a discussion on how to go further. To get the ball rolling, I'd like to hear if anyone here has had any experience with so-called "local currencies". I keeps hearing about the LETS system and am curious about it and other similar systems. I read somewhere that after collapse communities will creae their own local currencies which will be pegged to the primary local energy source.

So, any comments, experiences, or questions?

[Peter]

Here's a quick intro to the local currency concept: http://www.ncf.carleton.ca/ip/government/fedelect/nat/abolit/abolsolution

[eric blair]

Big Card Credit would be weakened

After getting jerked about by one card company, I sent 'em an overpayment of $10. Every month, I go into wal-mart and charge a $0.50 candy bar.

Wal-mart loses.
The card comapny has to send me an invoice.

[lmcmillin]

Eric

That is really funny. I love it!

[Peter]

Anyone have any thoughts then on going beyond just the elimination of debt? (see above post)

[Aaron]

Peter

You're right LETS are a good thing to introduce, I also think it's going to be important to teach people how to feed themselves again with systems like Permaculture - it's the ultimate way to drop out of the system.

Farmers markets where local farmers sell their produce to local people rather than trucking it across the country is another useful idea - in fact we'll probably have to go back to markets for buying and selling food anyway so it's be good to start setting up the systems now.

Solari.com has some very interesting ideas on getting people to invest in their local communities. For example; rather than people putting their retirement savongs into some big corporation they put it into a local organisation which then uses that money to lend to younger people starting businesses. I don't know much about the details but I love the idea of cutting out the corporate middleman. The older generation will get better rates for their savings and the younger people will get lower lending rates because they won't be feeding the beast. Plus when the system crashes the retirement savings won't go with it. I presume if it is based on something other than the dollar it will be immune to hyperinflation too.

We need to develop heirloom seebanks and anything else that involves growing food without oil based fertilisers.

Thats all I can think of right now. What's interesting is that all of the means of detaching a community from the system also happen to be really good for building community. I'm sure that's no coincidence

[Peter]

Thanks. I have had a life long fascination with CED (Community Economic Development) and its offshoots such as alt currencies.

I am now brushing up on my knowledge. Last week I ordered "The Future of Money: Creating New Wealth, Work and a Wiser World"
Bernard Lietaer from amazon.uk

[Steven Lagavulin]

Peter,

IMO, I don't think "local currencies" are something to put your energy into right now. Maybe after we've re-instituted actual working local economies, but it's putting the cart before the horse to try to establish them beforehand. As long as they don't involve debt/loans/usury in any way, they'll invent themselves....

How to go beyond just the elimination of debt? I strongly believe the second step is to stop buying from corporations. That's a huge task as it is. Maybe you've already explored this a fair amount, but I find it extremely difficult. It's tough to get lunch on the fly, and it's impossible to buy a new DVD player. I try to practice this ideal as much as I can, but it's still so difficult to do.

A third step is to not work for a corporation. For those that don't already, that's obviously not a big deal, but for those that do it's almost impossible to get out of the "safety net" mindframe that says we'll die without our benefits packages and 401(k)'s.... Only true independent businesspeople really understand the "institutionalized" mindframe of people who've worked for a corporation too long.

One last thought....a group called Adbusters has a more pro-active approach toward spreading the revolution. I support what they're doing, but in truth I find a lot of their ideas to be a bit immature.

Just some thoughts....

[Peter]

Steven,

Do you see anything ominous in this decision by the Federal Reserve?

Discontinuance of M3
On March 23, 2006, the Board of Governors of the Federal Reserve System will cease publication of the M3 monetary aggregate. The Board will also cease publishing the following components: large-denomination time deposits, repurchase agreements (RPs), and Eurodollars. The Board will continue to publish institutional money market mutual funds as a memorandum item in this release.

Measures of large-denomination time deposits will continue to be published by the Board in the Flow of Funds Accounts (Z.1 release) on a quarterly basis and in the H.8 release on a weekly basis (for commercial banks).

http://www.federalreserve.gov/releases/h6/discm3.htm

Isn't M3 a leading indicator of how much new money (instant debt) is printed each day?

Does this mean that the Fed Reserve expects inflation ahead. Bad inflation which it wants to cover up by no longer publishing this indicator.

[Steven Lagavulin]

Here's the shorthand definition of the Money Supply measures:

"...measures of the money supply: M1 includes currency and checking accounts; M2 includes M1 plus savings deposits, CDs, and money market funds; M3 includes M2 plus large-denomination savings deposits and institutional money-market mutual funds."

So what the (not really)Fed no longer feels they want to report are cash balances held by large investors and institutions (importantly, M3 also includes deposits held by non-banking institutions).

So it's a crucial measure of money supply. It's sort of like if the NYSE stopped reporting "block trading". You'd have no idea that institutions comprise anywhere from 60% - 80% of the market action on any day in recent months (that the "market" therefore is almost entirely institutional traders). I won't speculate what the Fed's real plans are, but on a basic level they seem to want to hide institutional money-supply levels -- which increase when large financial firms and banks sell securities (bonds, stocks, etc.) and sit in cash, or receive large-denomination deposits from somewhere....

[the mad doctor]

It used to be debtors were sent to prison. Then they figured out sending them as "indentured servants" to the new world. This was less than voluntary and essentially rental rather than owner slavery and hence treated like a rent-a-car. Now it is a voluntary addiction, again exploited by the dealers like crack. But with a much bigger pool of addicts. The dealers advertise on TV and hang around schoolyards (college campuses). This is a much bigger money-maker and entirely voluntary. Besides, it is much easier to make money off of debt than actually making something.

So we fill our lives with useless crap to feed our endless consumer hunger. It is never satisfied. If only I had more money... It is never enough. Marriages are strained. The stress of month-to-month living. Our living spaces are full of useless items. Check out that extra room in the house, basement or your garage. We foul the earth with the creation and transporting this crap too.

Credit cars are obvious. Do you really need to make payments on a TV or vacation? Pay cash for a year-old car that is decent rather than some status symbol with years of debt payment. Even real estate is over-rated. Bloated valuations, predatory lending, preposterous expectations,...

Outside of a true emergency, there are only three reasons to borrow money: Your own home, your own business and education. I would think long and hard about those too before acting.

[Peter]

Steven,

Perhaps you have already answered this elsewhere. If so, just point me to the post.

Here's the question: where do you see us being in 10, 20, and 50 years? By this I mean at what level of civilization.

James Kunstler envisions what I call The Little House on the Prairie Scenario with the survivors living an 1850s life-style of self-sufficency.

The gang of anthroplogists/tribalists at Anthropik believes that in 20 years we will find ourselves in the Quest for Fire Scenario where the few remaining survivors have reverted back to life as nomadic Stone Age hunter gatherers.

Personally, I see something else. An anachronistic blend of low power technology (e.g., preserving the Net) coupled with the Little House on the Prairie life-style of self sufficiency through permaculture.

Yes, there will be a die-off and government will become pretty irrelevant over time--especially the feds as they will have nothing to offer.

What are your thoughts?

[Steven Lagavulin]

Peter,

I don't even try to speculate out that far. I don't think we can really know where we'll be...although I do believe life will be something radically different from what we live today. And I strongly suspect that your opinion is a good one: that we will undergo a return to a more self-reliant, simple way of life, but one which integrates a whole variety of "modern" materials, products, techniques, and knowledge. We'll revert to the mean, but we'll do it by going forward....

Also, as a helpful tool for my own thinking, a little more than a year ago I sketched out an outline of what I felt the next few years would hold...in "Timeline for the Unfolding Crisis" which is linked at the right under Notable Articles. Those "predictions" have held up well, but that had a different focus than what you're speaking about.

[Jim]

I suppose it's easy for me to go debt-free, as I only have ONE NAGGING DEBT that I have to pay off. 36 hours and I'll be there, just gotta get paid, and I'm home free.

But that system sounds real good. Keep on rocking in the free world, man.

[Carly]

I really like what you have to say and I hope that you are still spreading information because I think it is important.
Regarding what life will be like in 20 years, I doubt that things will be HUGELY different. There will be some technological breakthroughs that will continue to polarize us as a nation...drug use will continue to rise as new concoctions that are easy and cheap to make dumb down those who wish to pacify themselves in that way...who knows what will happen with cars...probably a mixed bag...as much as things have changed a great deal since the 70's, 80's...it's also a lot the same.
I don't think that we will be living in MadMax/Brazil/Waterworld/L.I.Wilder communities for another hundred years or so.
What interests me the most will be to see what happens to us - the middle class teetering on the edge of poverty just to pay off all of the b.s. fees/taxes/insurance etc..that you need to dole out, just to be "legal". I am trying to pay off debt, but also pay out what I "owe" each year.
I have many dreams about what I would like to be able to do in my life with my family...I'd love to take my baby son abroad and show him Rome, or Egypt...but how on earth is that going to happen, unless I borrow or win the lottery? Save save save is the only answer, but it's tough!! Do we really need a $600 PS3? no, but it's tempting because it's fun...I guess that's my drug of choice.
Sidenote: It would be really interesting to see how people would react if EVERYONE knew that we should not really having be paying taxes to the IRS, we are SO being fleeced...it sucks that by signing a W2, we are signing a deal with the devil.
Please keep posting...here's to a peaceful revolution!

[Wanda]

I posted last year on this topic. Should have posted my update 3 months ago. Independence Day came in June 2, 2006 by paying of my last debt, the mortgage.