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Friday, January 01, 2010

Debt Reduction

It used to just be sleazy advertising by bankruptcy lawyers telling you how to "stop creditors cold in their tracks." And that was pretty easy to disregard. They were usually too cheap to pay for advertising on television, radio or any other mainstream media venues. So such messages were relegated to the back pages of the most innocuous publications. There they appeared along side of the ads for making money at home, making money stuffing envelopes --- or losing weight by eating anything you want.

Today, however, things are different. We are besieged throughout the day, in all of the most respectable of media venues, by advertisements and other "public service" announcements. They're all taking the same basic message and presenting a variety of twists. One I heard the other day called it a "bail out" --- as if it were some official program of the federal government. Others claim they have access to a "secret" that creditors don't want you to know about. Still others claim to be your friend and have unique negotiating skills to make your debt go away.

What is this basic message that they are all packaging with such cleverness? It's a message of personal irresponsibility. It's a message of moral failure. And it's a menace to our society. These debt reduction firms appear to be worse than the bankruptcy lawyers in that they don't purport to do something that our government has legislated (i.e., bankruptcy). Rather they lead you to believe that you have power over your creditors, that you are owed something, that you are a victim, etc. Simply put, a whole lot of innuendo is added to the notion of screwing your creditors.

I've read that something like 33% of Americans have filed personal bankruptcy at some point in their lives. If this statistic is true, it means that at a third of everyone in our country has shirked their responsibility and walked on their debts. Now we can talk all we want about predatory lending, usurious interest rates, hidden credit card fees and other con games played by the lenders. But we are sitting here with ethics that look no better than those of the crooked lenders we want to blame.

The recent "mortgage crisis" in America has been the flash point for this. Our federal government has come out with subsidies and other programs to incent lenders to modify loans, including partial forgiveness of debt, reduction of interest rates, and other measures to "prevent foreclosure." Most would say that the government's efforts haven't worked and that the foreclosure activity is mostly unchanged. I think I know why.

I have worked in the mortgage industry most of my life. I have a great deal of experience and knowledge. I also do a lot of reading, research and observation. For the most part, there is little correlation between the rate of mortgage defaults and unemployment. Rather the closest correlation exists between mortgage defaults and home values. In other words, if someone's house is not worth what they owe on it, they are much more likely to default on their mortgage than if they were unemployed. Did you catch that?

So what's really going on here with mortgages? Well, it's really the same problem that's going on with all personal credit in the U.S. right now. We have the most serious case of moral failure that this nation has ever seen. And for some strange reason, the nation is in denial about that. We continue to expect our government to plug the hold that it creates.

The thing is, there is no such thing as debt reduction ... without payment. Debts are only retired when someone pays them. Maybe you don't want to pay your debts, but it wasn't play money that you borrowed. Someone will have to pay for it. It may be other customers, it may be shareholders, it may be taxpayers. But make no mistake, someone somewhere is paying for whatever debt reduction plan you've just heard advertised on TV or radio.

The Bible has much to say about money and love. Christ followers are to be responsible with their spending, good stewards of their assets and pay what they owe. Moreover, we are to love others as we would like to be loved. As such, there is no room for us to pass our debts on to someone else. Put another way, aside from paying one's bills, there is no debt reduction plan that will be Biblical or viewed by God with any favor at all. Did you know that?

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