Surviving Financial SHTF and Becoming Debt Free, by K.D. – Part 1

We recently experienced our own financial SHTF situation. Well, that’s true, if you could call six years “recent”. Before I get into our situation, I think a little history would be appropriate.

The wife and I had started prepping together in 2002. We actually were taking baby steps prior to that but when the economy trashed we went all in. I thought that was it. There was no way we, as a nation, could just print money and keep the ship afloat. Early in 2009, I realized we may actually have a bit more time. If every civilized country in the world was printing money, has anything really changed? It’s obviously a tad bit more complicated than that, but that is the essence. After all, we are the world’s banker and if we print and hand it out to everyone, has the amount of money really changed? By the way “everyone” does not include you. Everyone means banks. Basically, we printed money for them. So, by my reckoning, if a country had 20 million to start and we gave them an additional 20 million and increased everyone else by the same relative percentage, it’s a wash. That sounds good, but inflation will eventually come into play. Of course, that’s just my opinion, and I’m a guy with no big government experience nor any economic knowledge beyond my small world. Have any of you bought a steak lately?

So we thought we were doing good. We didn’t have a bug out location yet, but we did obtain a goodly amount of bullets, Band-Aids, and food. We actually have a backup power source, based on Dave’s post here on SurvivalBlog. We can, and do, generate enough power to back up essential things, like our freezer, some lights, and a small portable AC unit. We live in the desert, so cooling is paramount for us. Our water is squared away for seven months, which is a summer here. Applying Murphy’s law, I can assume that something will happen a month prior to the summer, but at the least I bought a bit of time. Ultimately, time is the name of the game for preppers, don’t you think?

We both have good jobs, and although it was real dicey for awhile, by the grace of our Lord, we still have them. However, by poorly using the free will we were given, we made some very poor choices. One of those choices brought to light the other poor choices we had made.

My wife is the accountant in our family. She does an outstanding job of it. She had a 820 credit score and almost no debt when we wed in 2005. She was able to fix the baggage issues I had accumulated with money over the years, but we became complacent with our finances.

In 2008 we experienced our financial SHTF situation that was caused by us. It wasn’t weather, the economy, or some outside source. We owned it. My wife admitted to a gambling addiction…and so it started. However, it was the debt we had accumulated as a whole that made it a SHTF situation.

For OPSEC purposes, I’m not going to use numbers on what we dealt with; I am going to use percentages. I actually think this is more useful, since everyone has different resources and income. Hopefully, by using percentages, some can relate to and utilize what I describe.

My wife’s gambling was devastating, not just financially but emotionally as well. It was a long road for us on both accounts, but for this I will focus only on the financial aspect of it. Again, that was simply the eye-opening issue that brought to light the troubling financial spot where we found ourselves.

My wife had accumulated a debt amount equal to 50% of our yearly earnings in a few short months. She had used her credit cards primarily, as well as our savings. I immediately looked over our finances and discovered a myriad of problems. We had two car loans, a student loan, two mortgages, her gambling credit card debt, a fair amount of other credit card debt, and a small loan against my 401K. Our savings was enough to buy a used Pinto. I also had a child support obligation to fulfill. The timing of all of this couldn’t have been worse. The housing market had crashed and we were upside down, though the previous year we owned 35% of our home. Now we were 35% underwater. We basically were renters in our own home.

At this point I realized this was a SHTF situation. We could lose our home, our remaining savings, and most everything we had. We would definitely lose some but to what extent was yet to be defined. It was up to us to defend ourselves.

We had made one good decision, financially. In October of 2008 we pulled all of our retirement (401K) investments out of the market. We knew something wasn’t right; this would come into play a few years later, thankfully.

I immediately created an excel spreadsheet of our bills. Across the top were months and down the side were bills. I extended this out for ten years. Each bill was broken out by principal and interest and based on the minimum payment. Each month had a column devoted to actual payments made for that month. This spreadsheet showed clearly that the gambling debt would devour us financially within a year, if not less. Another thing this spreadsheet showed was the magnitude of what we were paying banks. The amount of interest we were paying was equal to an hour per day of our combined pay. We basically were working for the banks for the first hour of every day at work, and this did not include the gambling debt! These were the same banks that had been bailed out with billions for their gambling addiction, by the way. It was so ironic that I wanted to scream. At that point we realized we were at war with banks. If they were too big to fail, we would become too small to fail. We decided our goal was to become debt free.

We had to address a few things at the same time, during the first salvos of this war. First and foremost was the gambling debt. Thankfully, she had maintained her cards in good standing and she had come forward prior to the bills becoming past due. She took on the task of contacting her debtors and starting negotiations towards repayment. We did not have the resources to pay what she owed, pure and simple. She would have to negotiate the amount and/or payment amount. For my part, I had to distance myself, legally, from her financial obligations, or we would fail. If my income was drawn into this mess, we were looking to lose everything. If we could isolate my income, we would have ammunition for the battles to come. To distance myself was possible because I was only an authorized user on her credit cards. What this means is that I had no financial obligation to pay her debt, because the banks had added me to her accounts without a credit check. Quite simply, they were betting that I would spend on their card in her name. They wanted her in debt to them. We struggled morally on this for quite awhile, because if she had gambled the money shouldn’t we both be responsible as man and wife? In the end, we looked to the law of the land, which stated that I did not have an obligation, based on the contracts signed. While she obviously had signed all the contracts, I had signed not a one. It was not my debt, which was quite true.

We then obtained a copy of our credit reports. When this started, she had eight credit cards but rarely used them. They were like a collection for her, and before the gambling she never had more than $500 combined credit card debt. I had two cards at that time with balances on both, and I needed to maintain good credit just in case we would have to use it during this fight. That was to be apart of our reserve in this war. It turned out that half of her cards were listed on my reports, and I contested everyone online. Within a few months, most had been removed. However, it took me over a year to get one of her debts removed from my report. Not once did this particular company say I was responsible, and they agreed it would be removed. Time after time I had the same “groundhog day” conversation with them. Finally, I was able to talk to an employee that figured out the problem. Each time I had it corrected, an incorrect code had been entered. A simple code had kept my score 100 points below what it actually was! We needed a war plan. We sat down and decided how we could win and what winning was. In our case, winning was becoming debt free. We decided that how we could win was pretty basic– pay off existing debt and don’t borrow or pay fees. In the end our financial strategic battle plan was a quite simple three-step plan.

  1. Establish a defensible perimeter, resources, and logistic base. Our goal was six months of bill-paying funds and the ability to maintain it as well as six months of food and water, which we already had. We needed to minimize our expenses to establish the financial ammunition we would need in this war.
  2. Deny the enemy offensive capabilities. We canceled most credit streams, contacted debt holders in advance of issues, and used them against each other. The first thing the wife did was cancel the credit cards she had used. This actually helped later on, since she canceled them rather than the creditor canceling them.
  3. Attack strategically. Eliminate debt, based on interest rate. Take out larger interest rate targets as quickly as possible, while denying the smaller targets’ effectiveness. Our mortgages were at the lowest rate, so they would be last.