Hack the Banks – Chapter 8: The Definition of Insanity

Photo Credit: Alison Cassidy

The greatest danger to a person who has been down to the very bottom financially is that once things are starting to improve the same patterns of behavior that get them in trouble once will take them back there again. I thought it might be worth spending a few minutes thinking about that as this book wraps up.

It’s not always possible to avoid debt. One emergency surgery can devastate an uninsured person. Being laid off from work can happen to just about anybody in this economy. Nothing is absolutely guaranteed.

There is one thing we can all control, however, and that’s how we deal with our individual wants. There are really only two helpful ways to deal with things we want and don’t have: one is to work harder, the other is to want less. Whichever you choose, stay well clear of believing that easily available credit is anything but a trap.

I learned a lot of things while getting off the debt treadmill:

I learned that paying $800 a year in overdraft charges is insanity and I got a new bank account that wouldn’t allow overdrafts.

I learned that actually reading the books I had before I allow myself to get new ones makes me read more.

I learned that, if possible, it’s better to negotiate directly with a hospital than put charges on high interest credit cards.

I learned that my kids love games I invent on the playground with them just as much as they love new toys.

I learned who my true friends were (because they were still my friends even though they had to pay for lunch whenever we went out).

I learned that there is a way out, a way up, and a way ahead.

That’s my story.

If you’ve found a way to opt out of the endless cycle of interest and debt feel free to drop me a line and let me know your story too. I would love to hear it.

Hack the Banks – Chapter 7: Reconstruction

It may take months or even years but eventually the last dollar does get settled, the taxes are paid, and peace reigns across the land…almost.

The last step in this process for me was starting to convert cash currency back into the currency of credit score.

It’s worth noting that you may be able to skip this step entirely. Credit reports get scrubbed every sevenish years and if there are no real reasons you need to improve your credit score more rapidly than that, you can feel free to just ignore it and be on your merry.

However, if you do have the dream of owning a home or getting a government security clearance then it’s time to take the final step to improve your credit score: get back into debt. Pardon me while I hyperventilate into a paper bag for a moment.

As much as it seems counter-intuitive to put more debt on your newly-cleaned record, making payments on a loan is the fastest way to demonstrate that you’re now a reliable and trustworthy member of the financial community.

Bear in mind that as you get back on your feet again it’s not against the rules to ask for help if you need it. I’ve had plenty of help along the way with both financial and moral support. To quote that angel in that one movie: “No man is a failure who has friends.”

In my case I took a large gift from some of those friends and used it as a down-payment on a car loan. Putting down cash on a physical asset made me attractive to a bank because they know that:

1. They can keep my down payment

2. They can repossess the car.

Those two facts mean that the risk to the bank is extremely low even though my credit score was abysmal. Now it is true that if your credit score is bad you will pay more in interest but that’s the cash cost of converting your money back into a credit score. No currency exchange is free, after all.

If the loan term is long enough, however, it may be possible refinance it once the buyer’s credit score starts to rise. In my own case, after I was approved for the car loan my FICO score went up 44 points and then continued to climb every month or so after that.

If you don’t particularly need a car there are other types of secured loans available that can achieve the same basic effect. I was extremely careful to only accept a deal that made sense for my budget. Repeating the same mistakes of getting in over my head was not an option.

Once you’re on that footing, it’s also time to brush off all those financial advice books for non bank-hackers and start looking at things like savings accounts (yes, they still have those) and retirement investing. Freedom is only as good as the things you do with it.

Hack the Banks – Chapter 6: The Marketplace of You

At some point my debts were sold to a series of collection agencies with names like “Customer Financial Welfare Trust and Services Inc.” Even if they were called “Teddybears and Rainbows LLC” it wouldn’t change the fact that these companies exist to extract as much money from people who demonstrably don’t have a lot of money. I don’t envy them the job.

It’s important to know a few key facts about collections entities since the interactions with them are a key part of getting out of defaulted debt:

1. Collectors are buying your debt for a fraction of what you owe.

2. There are a bunch of rules that stop them from doing truly obnoxious things like calling your workplace or making threats. If they do these things they’re in mucho hot water and you won’t owe them anymore.

3. They will settle if you have cash.

Here’s a story to illustrate how this works. There was a particular banking entity that will I not name (Their name rhymes with “face spank”) to whom I owed a sum of money. I called this bank and a very dismissive woman on the phone told me that they couldn’t possibly settle for less than 50% of the debt’s value. I hung up.

Once that same debt was bought by a collections entity, however, it was settled for 10%. Thanks to the vagaries of the US tax code, I did have to pay taxes on the other 90% of the debt as income but even with that extra cost it came nowhere near to approaching the 50% figure that the bank quoted me.

When it comes to negotiating it’s easy to think of the debt collector as a salesman and you as a consumer trying to negotiate the lowest price. That’s actually the wrong way to think about the transaction because you are the marketplace and the debt collector is the buyer.

I always try to visualize this by imagining that I’m a seller in an old world bazaar and on my table is a pile of cash. In front of me are all the debt collectors who would really love a chunk of that money on my table. Now each of them would all love me to believe that they are the ones with the leverage because they’re holding my debts but the truth is that what really holds the power is the cash on the table.

“I’ll take 40%!” One collector offers.

So I counter with “I’ve got an offer for 20% from another agency, I think I’ll do business with them instead…”

“Ok, how about 30%?” The collector says.

Just like any negotiation the first offer isn’t ever going to be a good one. That first letter or phone call that offers to let you settle for “only 70%!” is nothing more than a chance for a good laugh. Keep your cool. Wait it out. They want your money and sooner or later they’ll cut a deal.

After all, as we’ve seen previously, once they lowered my credit score there’s really not much they could do other than be annoying unless they actually choose to sue me — which none of my collectors did, because my individual debts were mostly under a few thousand dollars and (as we already covered) I had no assets.

If told to stop calling the collectors can’t even do that anymore. This makes a quick cash settlement a very good option for the agencies to take.

I have yet to pay more than 30% of face value for any debt. Many have been paid for considerably less.

I’m going to take a second here and talk about another piece of “expert” advice that was of no use to me. Most of the articles I’ve read say that it’s vitally important to stay in close touch with your creditors. I’ve found the exact opposite to be true: the more you seem to avoiding the debt collectors the less likely it seems to them that you’ll pay the debt and the better the offers become.

Collectors are using information about you including your age, income, location, race, sex, and total debt amount to calculate how likely they think it is that you’ll pay up. Every contact you make is being logged and used as part of their calculations of what kind of deal they’ll cut you.

In any negotiation I want the other side to be nervous that they’ll end up with nothing. Every communication anyone makes with a debt collector is logged as part of their record. If I call in and start asking about payment options then that collector will see that I’m interested in paying and the eventual offers won’t be nearly as good.

Knowing that you can settle for cents on the dollar is incredibly empowering. $3000 is a lot of money to try to save. But $300? What about $600? That I can probably put together in a couple months of saving — as long as I’m not spending my extra income on feeling better.

With every win the momentum grows. With every new settlement you can feel your confidence returning and that power is what will enable you to continue to get better and better deals in the marketplace of you.

Hack the Banks – Chapter 5: While-U-Wait

Baking credit: Me

In my case, it took about a year for my credit cards to enter collections and I made as much use of that time as possible taking every available job I could find and working as many hours as I could stay awake.

Above all else, my greatest temptation was to spend the extra money that I was now saving by not paying my credit cards. That impulse had to be squashed. The only way to save is to believe that there actually is a future ahead that will make today’s sacrifices matters.

A lot of more fortunate people like to point to the spending habits of the poor as the reason why they are doomed to remain in poverty. They’ll snidely remark that “if those people can afford tattoos, cigarettes and cell phones then there’s no reason why they deserve food stamps.”

Those kinds of remarks show that person does not understand that the root problem of people who buy a big-screen TV when they have no money at all in savings isn’t that they are greedy or stupid, it’s that they have no hope for their future. A few hundred dollars in tattoos or televisions makes me happy right now and since now is all I’m guaranteed then there’s no sense saving. In this economy the price of a television isn’t enough money to make real changes in my life but it can make me forget about everything else for a few minutes.

In all of this process of preparing to eliminate my debts, hopelessness was my greatest enemy. There were moments when I was at my last budgeted dollar and my kids were sick, my cupboards were empty, and my car started making a funny noise. At those moments spending a little of that third paycheck money on “fun” seemed like a great idea to make myself feel better. I constantly had to order myself to stop sniveling and be strong.

Repeat after me: “There is a better day ahead and you will find it. There is a better day ahead and you will find it.”

One of the best ways I found to help this cash-strapped malaise was to find pastimes that actually added value to my life. I perfected my banana bread recipe. I learned how to change spark plugs. I got a library card. My focus became enjoying the value in things I already had around me instead of only being happy with something new.
I worked as hard as I could. I saved as much as I could in a separate bank account that I made a personal rule not to touch.

In a later post I’ll put up some details of the resources I used along the way to help me avoid fees, save money, and generally feel better about life.

Once a person stops paying the clock starts ticking and they’ll need to have as much cash as possible for what comes next.

Hack the Banks – Chapter 4: Tune In, Drop Out

I stopped paying all my credit cards and not a thing happened. Or at least nothing happened right away.

This is partially because this financial move coincided with a physical move on my part with a new address, new phone number, and new surgically-altered face. Ok, the last detail I stole from a Bond movie but the first part is the truth — I did move right about the time I stopped paying.

There were a few increasingly frantic “you missed a payment or six!” notices on increasingly brighter colored pieces of paper but other than that the world kept turning more or less like always. Eventually the notices stopped coming and my accounts started being closed one by one.

With each new account that closed I could almost hear the wheels on the debt train screeching to a stop. The last interest was added. The last fees were included. The total number was tallied up and then written off in some accounting software somewhere in the world. At last there was just one number to deal with and it wasn’t going to get any bigger.

This is a big deal. According to creditcards.com the average interest rate on a consumer credit card is 15%. When I missed a few payments due to sudden expenses the rate on some of my cards ballooned up to almost 30%. At minimum payments it would have taken years to pay off those cards and in the process I would have ended up paying well over double the original value of the money I borrowed.

I encourage you to run your own credit cards through a time and interest calculator. It’s sobering to say the least.

How many hours would I have to spend at the office to make 10 years of interest payments to high-powered bankers? My palms are sweating just thinking about it.

Humans are notoriously bad at thinking about purchases in terms of interest over time. When I opened those accounts at 20 years old the only numbers I saw were the limit and the monthly payment. Like a lot of other people in their 20’s I was stupid and I believed that I was going to make a lot more money after college than I did in reality. The notion that I’d end up giving years of my life to a modern serfdom, working multiple jobs just to pay the interest never entered my mind.

Naturally, once I stopped paying my credit score dropped like the proverbial rock. That’s ok. The process of converting my currency of credit score into the currency of cash had begun.

Hack the Banks – Chapter 3: Let’s Do the Number

I recommend starting with nothing but that’s not to say that having no assets comes with no risk. If a person doesn’t have a home or a yacht to repossess then the banks and lenders will try to take their dignity instead.

Barring some kind of illegal activity, there are more-or-less two tools that banks have to deal with those who default on unsecured consumer debt like credit cards. They can take them to court and they can hurt their credit score.

Credit scores are ubiquitous these days. Your car insurance company may check it out to decide your rates. Employers may look at it to see if you’re trustworthy. Rental agencies may want to know it to figure out your security deposit. You’ll even hear jingles about it on the radio from people promising to help improve it.

If you read nothing else in this book, burn the next few sentences into your brain.

The reality of your credit score is that it is currency. In much the same way that you can convert US Dollars into Canadian Loonies (my favorite money name ever) you can also change your credit score into cash and then later turn cash back into a higher credit score.

Let’s take a quick time-out here to dispel a few notions about the credit score itself.

This number does not reflect your value as a human being. Unfortunately, ours is a consumer-driven society where the national religion is buying new toys and we make human sacrifices to the retail gods every Black Friday in the form of trampled shoppers. In this fiscal religion the worth of any individual person is calculated by how much potential they have to consume.

Consider this: in almost every other culture there are myths about people who are extremely poor and yet extremely wise. In modern America, though, we have almost no such stories. Make of that what you will.

The good news is that like any other religion, it’s possible to apostatize from the First Church of Consumerism — an approach that I highly recommend. Don’t spend the rest of your life valuing other human beings by their ability to buy things and don’t let others reduce your worth to a single number either. We’ve all got a lot to offer, including a lot of things that have no calculated APR%.

Once I decided to make peace with that Great Heresy then the next step lay ahead…

Hack the Banks – Chapter 2: Start With Nothing

Before I start talking about the strategy itself there’s another important detail about my personal starting point on this journey: in financial terms I had (almost) nothing.That’s the perfect starting point because when you start with nothing, there’s nothing left to lose.

I lived in a rented apartment. I had no savings account. I owned nothing of real value but two aging cars that had both been given to me by friends and family. On the upside, I wasn’t fighting a mortgage and I had no student debt.

This complete lack of assets may seem like a bad thing for somebody in their 30’s but in the bank hacking game it’s actually exactly where I needed to be. If I had owned part of a house or had other assets worth real money then the banks would have had something to take from me. Since debtor’s prison is no longer a reality (Unless you owe money to the IRS. Pro Tip: Don’t owe money to the IRS) the one thing that banks can do to you is take your stuff. Since I had very little stuff their options to take it or put liens on it weren’t plentiful. Nobody puts a lien on an 8-year-old microwave.

Let me get on my soapbox here for a moment: my generation needs to completely ignore the older folks who tell them that rent money is money wasted. What a renter is buying with that extra cash is career options and flexibility. If you rent you can go where the jobs are. If you are a renter then housing market crashes have a lot less impact on your financial well-being. As a bonus, you don’t have to worry about termites, major appliance malfunctions or zoning laws because those are likely your landlord’s problem. Most importantly of all , for our purposes,  the banks can’t come take away your rental.

Having very little of your own stuff can admittedly be a pain. In the twelve years that I’ve been a renter I’ve yet to deal with a landlord that wasn’t a bit weird on some level. Some property managers have been outright crooks and others have been just a bit kooky. Some chicanery from property managers has even lingered on my credit report — that’s the price you pay for future freedom.

If you’re a homeowner or if you own fancy cars or other real assets then these next few chapters may not be much of a help. But for those of you who own nothing like I did then you’re exactly where you need to be.

The next time that one great-uncle gives you a condescending talk about how you’re throwing your money away on renting and you need to be buying a house, remember that he’s completely underwater on his own mortgage and going to have to replace his roof and central air in the next few years. Then feel free to smile quietly to yourself.

Hack The Banks – Chapter 1: The Hole


Every journey has a starting point. My starting point for getting out of debt was the bottom of a very deep and very dark hole that my life circumstances had been digging for a decade.

There were basically two options open to me when I found myself in a hole of my own making.

1. I could can pretend I’m not in a hole and continue digging.

2. I could open my eyes, tell myself the truth about the hole I’m in, and make a plan to get out.

Like a lot of other people, I took option 1 for many, many years and it cost me dearly. Life is too short to spend hours every month working to pay the minimums on credit card balances that never really seem to get any smaller.

Then the crash of 2008 happened I had to take a pay cut as my government contractor employer lost business. The cost of my health insurance started climbing with no end in sight. Suddenly I missed one credit card payment and then another. I scrambled to make them up but with fees stacked on top of a skyrocketing interest rate it was a losing game.

Once I decided to get the truth about the hole I was in, my first step was to get my credit report (you can read more about the free service I used here) and make a realistic assessment of my debt-to-income ratio. It wasn’t pretty.

For starters, there were over $5000 in debts that I didn’t actually owe. A broken lease had led to a landlord claiming that I owed six months in rent when in reality I only owed just under $300. That was an easy win through filing a dispute that was resolved in a few weeks. The rest…were not so easy.

After doing what the banks are hoping you won’t do (some simple math), I realized that unless I won the lottery or found a big bag of money in a parking lot, there was simply no way to pay back the full value of what I owed short of making myself the indentured servant of the banks for the next 20 years.

The usual “financial guru” advice of clipping coupons, brewing my own coffee, or brown bagging my lunch to work wasn’t going to be enough. Neither was working an extra job or three. Something far more drastic was going to be called for.

I took a long, hard look at the hole I was standing in. Then I made a choice.

Hack the Banks – Introduction

Everything in this series of posts is true but that doesn’t mean it’s necessarily helpful.

I’ll say at the outset that I’m not a financial guru, spiritual adviser or sage of any kind. What follows is just the story of some choices that I made and what happened as a result.

Your results can (and probably will) vary.

It was only thirty short years ago that people still worked for themselves. That generation of people went to jobs every day, made money, and then spent that money on things they owned themselves. Financing was reserved for really big stuff like homes, cars, and businesses. Even when I was in elementary school, credit cards were a rare commodity and nobody defined their value as a human being by a single number.

The one-two punch of consumer debt and the modern FICO score came along to change all that, transforming a broad swathe of society into a class of serfs by addicting the masses to the drug of easy credit and then threatening them with shame and disgrace if they failed to maintain usurious payments at ever-climbing interest rates.

This change has spawned a brand new set of anxieties:

Who’s going to respect a guy with a 500 credit score?

Am I going to lose out on that dream job if the employer sees my financial history?

Will I never own a house if I start missing credit card payments?

These used to be my real life worries. After using easy credit to pay for a toxic combination of medical bills and salary cuts, I spent the next decade running on this high-interest treadmill, working myself to exhaustion with nothing to show for it but a steadily growing mountain of debt.

By the end, just paying the minimums took every penny I could find. I was forced to take money from family members and gracious gifts from near-strangers. I even stole money from my kids’ birthday cards to pay for gas and milk all while working 2 and 3 jobs at a time.

During this personal recession I read dozens of books and articles on getting out of debt written by some of the leading experts you’ll hear on the radio or see on bookstore shelves. Their advice was completely useless to me for two reasons:

1. I could not make cash fast enough. Not even when my kids were uninsured and I’d been wearing the same thrift store shoes for two years.

2. All of their advice plays by the rules the banks and corporations have crafted to keep consumers in perpetual debt.

That second point was a great source of motivation in what follows in this story. When the banks themselves made bad choices (and some might say committed outright fraud), the government was there with $700 billion in taxpayer-funded bailout money to make sure that the bank CEOs were in no danger of losing their yearly bonuses. It does make me wonder where the bailout for me and the other deeply indebted citizens might be.

After all, the average household in the United States is in about $15,000 of credit card debt — an amount that guarantees that every week there are thousands and thousands of hours being worked by people across the nation just to pay outrageous interest rates to those same bailed-out bankers. If that’s not the definition of serfdom then I don’t know what is.

Knowing all this, I decided to go a different route. I took my shame and fear of being a deadbeat and I put it in the garbage next to my credit card statements and collections notices. I’m not a financial professional and I can’t make official recommendations about how you should treat your debt. What this book contains are the strategies that are working for me — and ones that may not necessarily work for you.

If you go the route that I took it’s going to take some courage and a thick skin. You’ll be harassed and looked down on. You may have to change your phone number. You may have friends and family question your morals and your sanity. But at the end you may just have something that hasn’t been seen in almost thirty years. You might at last be free.