Compound Debt

By now you should have a comprehensive understanding of ‘The Miracle of Compound Interest’.

Unfortunately for you, most of the world’s largest financial institutions have also; most have built their vast wealth upon the principle.

They build empires on the backs of us 'little people'.

I am now about to launch a scathing attack on big financial businesses but before I do, I would like to add that not all are tarred with the same brush.

The vast majority take, get extremely rich (nothing wrong with that), and give very little back (lots wrong with that!) – some don’t. Many of the bad ones harness the incredible miracle of compound interest to lock most of the population into ‘Compound Debt’.

I have recently revised this section and it did make fairly uncomfortable reading before. Since the original draft things have got worse. I’m going to highlight a simple situation we all encounter – ‘The Overdraft’

I have touched on this briefly in other modules but I want to illustrate just how tight a stranglehold the banks have on the average person. Combine this with the all the other institutions and their traps and you’ll see what a battle it is to escape the debt trap.

I’m going to focus on a Bank, one of the biggest and a worldwide organisation, although it could be any bank in any part of the world - they are all pretty much of a muchness, always have been and always will be. And until there is a fundamental change in their business models I can't foresee having to rewrite this section any time soon.

I want to expose this particular bank's horrendous overdraft charges, although in reality it really doesn’t matter what the figures are or how they’re presented. Banks will have a projection for income and profit; they will manipulate the charges to meet it. I have noticed that they’ll increasingly draw attention to a great new service whilst introducing other ‘stealth’ charges elsewhere – sounds like a government doesn’t it?

This particular bank, and they’re not alone, have introduced what can only be described as a fining system: You will instantly be charged £20 ($30) each time you stray over your agreed overdraft limit, even if it’s by £1 ($1.50). It is quite possible to get caught several times a month £60 ($90).

Let’s look at an average overdraft of £1,000 ($1,500).

Now if you stay at around that £1,000 ($1,500) level the bank charges an average 18% interest on the debt ... yes 18% APR! – (robbing corporate slimeballs, you’re already in trouble).

APR means Annual Percentage Rate. It is the rate of interest you pay on a borrowed sum over a year - your country will have the same thing but may be called something different.

The annual percentage rate is an interest rate that is different from the note rate. It is commonly used to compare loan programs from different lenders. The Federal Truth in Lending law (usa) requires loan companies to disclose the APR when they advertise a rate. Typically the APR is found next to the rate.

Example:
30-year fixed 8% 1 point 8.107% APR
The APR does NOT affect your monthly payments. Your monthly payments are a function of the interest rate and the length of the loan.

The APR is a very confusing number! Even mortgage bankers and brokers admit it is confusing. The APR is designed to measure the 'true cost of a loan.' It creates a level playing field for lenders. It prevents lenders from advertising a low rate and hiding fees.

If life were easy, all you would have to do is compare APRs from the lenders/brokers you are working with, then pick the easiest one and you would have the right loan. Right? Wrong!

Unfortunately, different lenders calculate APRs differently! So a loan with a lower APR is not necessarily a better rate. The best way to compare loans in my opinion is to ask lenders to provide you with a good-faith estimate of their costs on the same type of program (e.g. 30-year fixed) at the same interest rate. If it's a mortgage then delete all fees that are independent of the loan such as homeowners insurance, title fees, escrow fees, attorney fees, etc. Now add up all the loan fees. The lender that has lower loan fees has a cheaper loan than the lender with higher loan fees.

Confused!!!

That's the idea!!!

Now, not all banks charge as much as 18%, other charge more but they all have a required income and achieve it through a myriad of methods - it all conspires to one outcome in the end!

Some banks print a monthly interest fee figure on a statement which in our example equates to 1.5%

Your average Joe thinks: "Oh! That’s not too bad, 1.5% for borrowing a grand, I’ll have a bit more of that if I can." I did until I discovered the truth!

What people don’t realise is that it’s 1.5% per month. You’ll pay a sickening £180 ($225) over a year for a measly £1,000 ($1,500).

That’s just the beginning!!!

The average person will always have trouble servicing an overdraft of £1,000.

Just when they seem to be getting ahead, making a dent in the loan, something crops up. It always does, always will and it always knocks them back to the limit.

Most months they actually go over the limit ... Bingo!

A computer automatically, and eagerly prints off and posts out a derogatory letter:

Dear wicked, depraved, degenerate customer of ours,

We are at our wits end with you!

Yet again you have mismanaged your affairs so inadequately as to allow your borrowing from the bank to exceed your agreed overdraft limit by $1.50/£1.00 and have strayed into unauthorized overdraft territory. You’re going to have to be charged at the very least $30/£20 admin fee this time and hopefully we can charge you a couple more times this month.

Yours greedily
The Bank

ADMIN FEE!!!

What’s all that about then?

How much does it cost for a bloody computer to print off a letter?

Although the anonymous sender of the letter will appear to be upset that someone has strayed into ‘bad customer’ territory the managers are positively jumping for joy:

"Yahoooooooooooooo! Let’s party, another sucker bites the dust."

Has this happened to you or someone you know?

Of course it has!

To make matters worse you are charged 18% interest on that fee as well because it has been added to your overdraft. It goes on ... you’re generally charged a much higher rate of interest on the money borrowed over your limit.

This is a particularly difficult month and you have had to cope with the added burden of the fines and their interest … PLUS … you have also not noticed the person you wrote a cheque for last month didn’t present it.

A couple of weeks passed before it was deposited, by which time the unauthorized overdraft fee has been added to your account, taken you back to the limit and, whoops, there are insufficient funds to cover the debit ... here we go again!

That’ll be £20/$30 unauthorized overdraft fine plus another £20/$30 for writing a rubber cheque!!!

Each time a fee is added or you stay in the overdraft, you are being charged 18% or more, on everything. It’s like trying to swim the Baring Straits in lead boots!!!

The remarkable power of compound interest is holding you back as surely as gravity grips you to this Earth.

As you stray ever deeper into debt, the charges levied by the institutions for servicing them compound - the more you owe, the more you have to find for borrowing it.

And this is just a mild example!

The Debt Trap

There are 'Compound Debt Traps' set and camouflaged at every turn.

I drafted a letter the the Manager of Extortion at the bank once when was always in trouble with the very situation I have described … I’m forever writing letters but this did work and I did get some charges refunded.

Next step is to persuade the banks to play fairly ... flipping heck - that flying pig just took the heads off my sunflowers!

Dear Bank Manager (Names withheld to protect the guilty!),

I’m getting really fed up with this charging system. It appears as though it’s in place to pounce on you at any moment. The second you step over the mark the system takes $30/£20, thank you very much.

Take a look at my account and it'll confirm that on the morning of the 1st there were sufficient funds to keep me in the agreed overdraft.

I go online the next morning and see the account is overdrawn so immediately transfer money to bring me back in line BUT YOU'VE FINED ME!!!

It appears that if you go over your limit during the night, rectify it the next day the bank still take a fine! Not only is this fee an extortionate levy but is totally unfair.

It can take at least a day for everything to go through an account and unless you monitor it several times a day you’re going to get stung! You should have at least a 2-3 days to give you chance to get money paid in.

Maybe it’s time to shop around for a new account eh?

Food for thought...

If the bank keeps this fining system in place it is quite possible that I’ll get caught/fined several times a month $100/£60

Over the year you could take from me $1,080/£720 in fees PLUS interest = @ $1,300/£850 PLUS interest on the $1,500/£1,000 overdrawn balance on my account of @ $300/£180

Let me ram all that home for you - THAT’S OVER $1,500/£1,000 CHARGES ON A MEASLY $1,500/£1,000 OVERDRAFT, 100%APR!!!

Is that really fair?
Regards
Mr Well 'n' Trulyfleeced

Read those last paragraphs again.

See what I mean?

That’s just a very lose example and the figures aren’t actually that accurate - the amount you’d pay is probably more! You’ll find the biggest banks across the world have similar charges, they just come under different guises.

It gets still worse!

Most people have credit cards also.

Ha! Got you again. 26% (average) on the card and 18% on the overdraft.

You get a consolidation loan at a lower interest rate to clear off the card and the overdraft.

Bad move - why?

Because as soon as you see the overdraft and card cleared you relax a little, and before long you owe a grand to the bank, another to the credit company plus two more to the company that consolidated your first two debts.

You are paying extortionate amounts of interest on the debts and, because you are paying interest on interest on interest, the debt just keeps on growing. You are toiling away just to pay the charges!

All this wouldn’t be so bad if they paid a reasonable interest rate on credit balances – you try getting more than a couple of percent on $75K/£50K deposited with the high street banks! (At the time of writing. Regardless, interest paid is always significantly less than debit interest).

At the beginning of this section I wrote that it 'made me sick how these institutions take and give nothing in return.'

At the time of writing and with those fining levies I’ve just described being charged for those who borrowed money and strayed into overdraft - the interest paid by the very same banks on a 'credit balance' for the same account was ... wait for it ... 0.4%

That’s naught point fucking four poxy percent APR!!!

They pay you $6/£4 per year for every grand you deposit with them ... those same people would potentially charge you $1,500/£1,000 to borrow that grand.

You would be absolutely amazed if you added up the money you pay out over your lifetime just to service that average overdraft.

See how out of your control the average life is, yours, mine and 99.9% of the population?

Notice how I include myself in there also because although I don't use credit cards regularly and have reserves of cash, I do have accounts to run households and businesses. I do make the occasional purchases through credit cards for convenience ... and I still get stung regularly!

Can you see how much of a hold The Machine has over us. It turns my stomach. Remember, there are tens of thousands of people all over the country, all being fed on by corporate parasites: "You are a cog and if we have our way you will always be a cog."

They’re not going to have it their way are they?

Compound debt!

Companies spend billions in order to trap you … BUT … that unequivocally does not mean people can turn round and blame them if they do succumb!

We all have choices and people choose to get into debt - no one forces them!

I've lost track of the amount of programmes I've seen where some sniveling, weak-willed, numb-nut drowns in their own self pity because the companies"gave them too much credit!!!"

"They shouldn't be allowed to keep lending when people can't afford the repayments."

Dickheads shouldn't borrow the fucking money if they can't afford it!!!

There are lobby groups trying to force the credit/banking industry to act responsibly!!! Why should it?

If they can lend money and make obscene interest on it,then good luck to them. The lobby groups ought to educate people that it's just plain stupid to borrow what they can't afford, it's just plain dumb to pay masses of interest ... And it's just ridiculous to blame others for their own failings.

In saying that, large companies thoroughly understand the miracle of compound interest and comprehensively embrace its power.

They are the fly fishermen with an irresistible lure. You are the trout; the magnificent trophy to be stuffed, mounted and hung up to gloat over ... if you allow yourself to be!

Debt is particularly hard to escape and ironically, the more you make, the more you want to borrow, but if you keep one thought at the forefront of all thoughts when considering a purchase with loaned money you’ll get ahead:

IT’S NOT YOUR MONEY!!!

That’s bold capital letters, underlined for good measure. How can I make it any clearer?

No more!!!

You can escape the Debt Trap by planning for the future.

It’s not fun because you have to forgo some of life’s pleasures in the short term in order to have much greater ones in the future.

I know The Omniscience Principle if full of contradictions - for instance, I am a great believer in living life to the full, living for the moment and here I'm suggesting you hold back ... but you need to steer yourself towards finding a balance.

Without planning for your future you’ll have no ‘now’ moments later in life ... I told you it wasn’t easy!

For what seems like an eternity I drove the crappiest bangers you could imagine because that’s all I could afford. Truly … and yes I was embarrassed, and yes it didn’t make me feel good, and yes they kept breaking down, and yes, I hated every one of them ... but they were my old bangers, bought and paid for.

I could have taken on a loan and bought a nice car, I could have wilted under the pressure heaped on me by friends: "You can’t drive that wreck - look what I’m driving!"

"Yea, and how much interest are you paying on the loan?"

Unless you get a great deal, the average car loan is around 8% - 15%, sometimes higher!

What an expensive car! Loads of juicy interest coupled with ugly depreciation. And don’t forget, this is often another lump sum borrowed on top of those already mentioned!

Not for me thanks!

I too was in a Debt Trap, but fortunately, I never managed to let loans get out of control.

Slowly, very slowly I began to get ahead. Slowly, I paid off those crippling debts.
Slowly, I got to a point where I could drive the cars I wanted because, and only because, I wasn’t being sucked dry by the leaches.

At the time of writing in the particular house I'm in (because I have a few), I look out of the window and there is a Mercedes, Porsche 911 RS Lightweight and a Toyota Land Cruiser LC4 sat on the drive, and I owe not a penny for them ... my friends are still busy servicing those car loans taken out on average, everyday motors!

Yes, I think about depreciation but if you want the good things in life you just have to accept this as a fact ... but I still look for the very best deal on a purchase ... that extends to importing my cars if I have to.

From now on, The Miracle of Compound Interest is going to work FOR YOU.

Cast off those lead boots and swim, the tide is turning and you can bath in its flow!

This is going to be so difficult, I know, I’ve been through it.

If you can’t afford it, you’re not going to have it ... SIMPLE!

Uncomplicated and straightforward as that and if you can’t break free from the shackles of compound debt now ... you’ll never be free.

I will be devoting a whole module to the credit game and revealing the secrets of the rich, but for now you need to take action.

If you are being suffocated by compound debt and wish to escape, your task this month is written here - simple as 1,2,3

The words will appear in black and white. I can do no more than that. Some of you will follow the blueprint ... some of you will know better!

1. Cut up any credit cards you have. That includes store cards and anything that will have an interest levied. If you are the sort of person who generally pay off their cards on time and only occasionally pay interest ... Cut them up!

It’s not your money; it’s too easy to borrow and you will get sucked in one day - guaranteed - such is the power of compound debt.

2. I know it’s hard to survive in the 21st Century without plastic so phone the bank, tell your manager you’ve cut up your credit cards because you no longer wish to use their money and pay extortionate interest for the privilege, and ask them to issue you with a ‘DEBIT CARD’.

This is a card which has all the versatility of a credit card but only allows you to spend what’s in your account. It debits your money and you pay no interest fees for that.

If you run out of cash then you have to find a way to top it up but the beauty of a debit card is you’re in control. You then need to work on reducing the debts but at least you’ve halted the decline.

Your country may call debit cards by another name but explain the principle to the account manager and you’ll get what you want.

If not then rely on a cash card, a cheque book and guarantee card ... BUT FLING THOSE CREDIT CARDS IN THE DEEPEST, DARKEST HELL HOLE YOU CAN FIND.

That goes for store cards and all those type of credit traps also!

3. Get a printout of all the standing orders, direct debits (automatic money transfers) on your account.

Cancel anything that is not absolutely vital to your everyday existence unless you can afford it without borrowing.

Even if it means making new offers to reduce payments to creditors, cancel everything ... This step is vitally important, I don't give a flying fuck as to how much you earn ... I do this exercise several times a year and always discover debits that should be cancelled or erroneous payments that shouldn't have been taken. And it's all relative, the more you earn, the larger the payments!

We’re soon going to be playing the credit game and dealing with the large institutions on your terms.

Your aim is to get out of the quagmire of red overdraft and bask in the freedom of black credit.

4. Get your last 12 month’s bank statements. Study the outgoings and identify any onerous and unaccounted payments that went out, or payments for items you couldn’t afford.

Take steps to recoup that money and ensure it doesn’t happen again. Also, make sure the things you shouldn’t really have bought don’t get purchased again ... until it’s your money you’re spending.

I religiously check my statements every month; it’s the first thing I do when I receive them. You can guarantee there’s always something that crops up which shouldn’t be there. I highlight them with a highlighter pen - honestly - If you look back through the binders there’s loads of lime green stripes. Where you see them there’s always a story and 9 times out of 10 it’s where I have had to get some money back!

I probably claw back enough money over a six month period to clear a £1,000 overdraft!!!

You must check always ... even if you aren’t in a debt situation.

It never ceases to amaze me the number of people who get their monthly statements and bin them - they throwing money in that bin alongside.

I'll let you into something I keep close to my chest here - I have hundreds of payments hit my account for subscriptions that I'm sure the person just hasn't bothered canceling. I know they don't use the services because I've checked some accounts and can see the log in activity ... but they keep paying?

I've got some going back several years!

Occasionally, I get someone write and moan that we've taken money 'without authorization' and "how should we be allowed to do that!!!"

Bollocks!!!

You requested that we provide the service, you requested that we take regular payments - if you don't want it then simply cancel like everyone else - BUT DON'T BLAME ME WHEN YOU JUST HAVEN'T BOTHERED TO KEEP ON TOP OF YOUR FINANCES. WE'VE SIMPLY HONOURED OUR AGREEMENT IN GOOD FAITH!

bath. It has lots of cash taps and even more money holes through which it flows. You’re trying to turn the money taps on to full whilst leeches are busy pulling out the plugs. At this stage our aim is to Superglue as many plugs in place as possible ... Compound Debt is the waste money hole that you're plugging today.

What’s the point of building multiple streams of income if it’s all running down the drain faster than you can top it up?

Do you want to be Totally Personally and Financially Free?

Do you really?

Come on then

The Power of No!