Going Into Debt Gives Away Your Power
Debt fuels the financial industry. Without the profit that lenders of all types earn by collecting interest and other fees, the economy wouldn’t be able to hum along. When the economy struggles, the industry does what it can to maximize what it earns from its borrowers, and some companies seem to be more comfortable than others with relaxing ethical standards.
Credit card issuers are within their rights to sue borrowers who fall significantly behind in paying their debt. Any borrower could find himself or herself in this position, even those who are normally able to dutifully pay off balances on a monthly basis. Even those financially stable from a paycheck-to-paycheck perspective are one lost job or one major medical bill away from financial disaster.
When you borrow money, even for the short term, you put your financial life in someone else’s hands. If a company, relying on its support, whether invented, faulty or true, sues you to recover what the company believes you owe in missed payments, you are in a difficult position.
According to the New York Times, 95 percent of borrowers choose to ignore these lawsuits. That’s the worst option, as it results in a default judgment against the borrower. Even without proof, a court order at that point declares without any doubt the borrower owes the issuer, even if there was no documentation. This likely outcome is a good incentive for lenders to file as many lawsuits as they want, using whatever support they can create or find.
Borrowers who take the time and money to fight back often find that issuers don’t have accurate or consistent records identifying the debt. Judges can determine that the support is not good enough to warrant debt collection, but only if the borrower shows up in court. You transfer power over your life to a company when you go into debt, but if you don’t use whatever power you have left when brought into court, you’re ceding your right to prevent companies from taking advantage of you.
Of course, borrowers should pay what they agreed to pay when they took on debt. Issuers can use the legal system to enforce their rights to collect that debt, and borrowers can use the same legal system. Declaring bankruptcy is one way to eliminate the requirement to pay off debt if a borrower’s financial situation makes that appropriate.
The ethical malleability doesn’t extend only to lenders. Borrowers use the bankruptcy system when not necessary to get out of repaying money they rightfully owe, though the system should prevent abuse most of the time. Consumers, when compared to credit card issuers, have limited resources to use the legal system, which still precludes a level playing field in the courts, even when both sides are prone to attempt to take advantage.
The best way to avoid this unbalanced power is to avoid debt as much as possible. Avoiding debt is a good idea otherwise, as it’s a costly way of buying the lifestyle a consumer wants. It’s difficult to avoid all debt, as the expectation of borrowing is built into the prices of housing and education.
Credit card debt, however, is completely avoidable when you buy only what you can afford and build savings for emergencies. Without your name in the borrowers’ systems, the chances of getting caught in a legal trap, whether justified or not, is almost completely eliminated. But if you do get sued, just appearing in court and forcing the issuer to produce accurate documentation increases your chances of being able to eliminate the debt, whether or not you owe it.
I absolutely agree. The Bible says that The borrower is slave to the lender. This is one reason we got out of debt and will remain out of debt.
Those lawsuits show up sometimes even when you were not in debt to begin with.
I have to say – paying off a debt sure makes one feel powerful. It is just the years of dread that proceed it that seem to be the problem.
I am not sure that credit card debt is absolutely avoidable. Some people in this economic climate have used up their emergency funds and need to feed the family…..or pay for the health insurance. Some have turned to charging an essential as a last resort. I don’t assume that people use the cards for just treats and luxuries……..more and more people use them to obtain necessities when hard times hit. I’ve used mine in the past for car repairs when I didn’t have the cash but needed the car to continue to get to work.
Oh man, is this ever the truth. Lenders have so many ways and means of trying to put you in an even more disadvantageous position. Fine print requirements, changing terms – those armies of bureaucrats and lawyers have to earn their money somehow, and that how is usually at your expense if you’re the borrower.
But this power thing works both defensively and offensively. On one hand, like you said, you avoid many problems by staying out of debt, thereby reducing the power of others over you.
But staying out of debt, and it’s twin sister, saving/investing, actually gives you power. Now you are able to dictate terms whenever you need or want to buy something. This is especially true in times of recession, when finding bargains is like shooting fish in a barrel. That’s when the power of “cash is king” really comes into its own! 🙂
that’s absolutely true. I am paying off my credit card which is my only source of debt right now & I plan to pay off my credit card in the next 6-9 months. It’ll be a huge sigh of relief once this debt is paid off & I can save more money for other things.