Debt Problems

5 Debt Lessons From Darth Vader

Ben Edwards — Thu, 28 Mar 2013 10:36:30 +0000

One of the most evil heroes in science fiction history is Anakin Skywalker, aka Darth Vader. He went from being a great man and good friend to betraying everyone he loved and becoming a sinister Sith Lord. Ultimately, the story of Anakin Skywalker is one of redemption. We can learn a few lessons about debt from his tumultuous tale. Anakin's life was full of ups and downs just like your journey to pay off debt. Although things seemed bleak and beyond repair, good forces kept up the fight and triumphed in the end. Here are five lessons about debt we can take away from the Jedi who finally brought balance to the Force. (See also: 21 Personal Finance Lessons From Harry Potter)

1. Debt Often Entices You Bit by Bit

Anakin didn't turn to the dark side all at once. No, he was enticed a little bit at a time. Debt is the same way. You consider buying something small with your credit card, telling yourself that you can pay it off soon. Then you buy something else. Soon you are making increasingly large purchases. You tell yourself that you will pay it off in two or three months, but you don't. One day, you wake up and realize that you are so deep in debt that you're not sure you can get out. This is just like when you realize that you're so deep into the dark side that your only option is to kill off nearly all of the remaining Jedi.

2. Debt Becomes Your Master

When Anakin became Darth Vader, it seemed as though he had all the power. In reality, though, he was merely the apprentice. His master was the Emperor. While you're racking up the debt, it might seem as though you are in charge. You feel great about all the stuff you have. However, debt can become the real master. Your financial resources are claimed by the principal and interest payments. Over time, you find that you have less at your disposal — just as Darth Vader's will was subservient to the Emperor's.

Don't let debt rule your life. It is oppressive, but you're not a broken person just because you got into debt. To borrow a quote from the "Get Out of Debt Guy," Steve Rhodes, "you ain't your f*$#$*# debt".

3. Blaming Others Won't Help Your Problem With Debt

I'm going to go into the prequels a little bit for this one (sacrilege, I know, but it makes a good point). Anakin blamed others for his problems, especially Obi-Wan. Rather than owning his issues and facing his demons, he retreated into the comforting idea that his difficulties were someone else's doing. With debt, you need to take ownership of the problem and recognize some of the behaviors that put you in this situation. Until you face your own debt demons, you won't be able to overcome them.

4. Beware What Seems Too Good to Be True

When Anakin is filled with self-doubt and worried that his wife will die, Chancellor Palpatine takes advantage of this weakness and makes promises that are too good to be true. Palpatine claims that he can teach Anakin how to save his wife's life and keep her alive. All Anakin has to do is follow Palpatine and listen to what he says.

Unfortunately, when you're in debt, the bad guys come after you in full force, making lots of promises they can't keep. Don't get taken advantage of by people trying to sell you shortcuts out of debt. If you fall for them, the shortcuts will end up putting you even more in the hole than you were to begin with.

That being said, don't rule out alternatives to getting out of debt until you've done your research and understand the pros and cons of each approach. Our society has a stigma about bankruptcy and some of us avoid it at all costs — which could end up hurting you and your family in the long run. Your best option is to learn about what you owe and what your payoff options are — then choose what makes the most sense.

5. It's Possible to Conquer Debt

Ultimately, the best debt lesson to learn from Anakin Skywalker is that debt can be overcome. In the end, Anakin managed to throw off the persona of Darth Vader, defeat the Emperor, and die his own man. While you don't have to die to reach debt freedom, you can overcome it and reclaim your financial resources. In the end, Darth Vader turned himself into a hero. You can pay off your obligations, free yourself, and become a debt hero. Are you ready?

To read about 21 real life Debt Heroes who got into and out of large amounts of debt check out my new book Debt Heroes. Put together with Jeff Rose as part of the Debt Movement this book walks you through your own personal journey to pay off debt, giving you success stories for example and motivation!

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This article is from Ben Edwards of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How You Know When It's Time For Bankruptcy

Stacy Johnson — Mon, 25 Jan 2010 15:00:02 +0000

While producing news stories and researching books (here's my latest: Life or Debt 2010), I've explored virtually every way to deal with debt. This story is about the nuclear bomb of debt destruction: bankruptcy.

When I produced the news story you’re about to see, I was just looking for a lawyer to interview regarding the basic facts. What I got in addition was a heartbreaking, personal story from just one of the 1.4 million Americans who filed bankruptcy last year.

Watch this 90-second news story, then meet me on the other side and we’ll go into more detail about what bankruptcy is how it compares with other ways of dealing with a debt dilemma.

So bankruptcy is the ultimate debt destroyer, because rather than paying it back, you're often wiping it out, or at least partially so. But it’s not the only way out.

You could obviously try to repay your debts yourself. You can try to repay them in full on better terms by going to a credit counselor. You can try to satisfy specific debts by paying less than you owe. Or you can try to take out a new loan to pay off your old ones in a process known as debt consolidation.

When is bankruptcy the right choice? Ultimately, you file bankruptcy because there’s no other way out. For example, in Ron's case, his monthly payments were higher than his monthly retirement income. He couldn't repay the debt, even with help from a credit counselor, debt consolidation or settlement.

But before you even contemplate bankruptcy, understand it. For individuals (as opposed to corporations) there are two types:

Chapter 7, which wipes out all your debts
Chapter 13, where you’ll be required to pay some of your debts back over time

Which you’ll be eligible to file depends on how deeply in debt you are relative to your ability to pay, as well as other factors, including the median income where you live. But even a Chapter 7 won’t rid you of all your debts. You can’t ditch student loans (except in rare cases), IRS liens (unless you successfully file a tax bankruptcy), child support, or alimony. You can’t use Chapter 7 to discharge debts you incurred through fraud. And bankruptcy isn't a way to get rid of mortgage debt.

It will probably come as no surprise that bankruptcy will also cost you big time when it comes to your credit score. According to Fair Isaac (creator of the most popular credit scoring model), you’ll lose from 130 to 240 points out of a possible 850. That’s enough to turn even a perfect score into a subprime one. (Here's a story I did about three ways to improve your credit score.)

Is there credit after bankruptcy? Yes, if you can afford it. There are people who will sell you a car on credit or give you a credit card, but expect to pay exceedingly high rates of interest, since you’ll be a high-risk borrower.

And bankruptcy will remain in your credit history for 10 years. Most other infractions only last seven. But a bankruptcy won’t leave you living in the streets. Depending on the state where you file, you might still end up with some home equity, a car, clothing and furnishings.

The cost of bankruptcy filing varies, but expect to pay at least $1,500. (Here are three tips to lower lawyer bills.)

Does all this sound like I’m discouraging you from filing bankruptcy? Not if you're like Ron.

Bankruptcy involves hiring a lawyer and going to court, which makes it by far the most serious way to deal with debt. It also means getting rid of most of your assets and really screwing up your credit history. That's why it's a measure of last resort. But most people don't mess up by filing. They mess up by not doing it soon enough.

Because my news story was so short, you didn’t get to hear much from Ron, the guy who filed bankruptcy. You didn't get to see the tears in his eyes when he described how he had sacrificed everything he had to take care of his grandchildren. Or the relief on his face as he talked about putting his pride aside and getting help.

For months before he walked into that lawyer’s office, he’d been verbally abused by creditors and frozen like a deer in the headlights by shame. He admitted feeling suicidal.

When you're in major trouble, whether it's legal, health, or financial, hesitation is natural. But recognize that when you hesitate, you waste stress, time, and money. Before he got help, Ron wasted all three trying to stay ahead of bills he had no hope of ultimately paying. Especially since rather than helping him, his lenders chose instead to bury him with impossibly high rates and penalty fees.

So if you ever consider this path, or know someone who does, remember that. Assess your situation honestly, forget your embarrassment, and talk to a lawyer or credit counselor sooner rather than later. They can give you advice on your options and, if bankruptcy is the right one, they can help with a strategy to maximize what you keep and minimize what you lose.

If you're a proud, responsible person like Ron, you'll probably feel that bankruptcy is the end of your life. But it might just turn out to be a new beginning.

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This article is from Stacy Johnson of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: