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Tuesday, March 23, 2010


Real Estate... and Other Things of Value with Yossi Feigenson

I recently struck up a conversation with a credit repair agent. At a time like this when many folks have seen their credit scores get hammered, and their overall credit take a real beating, it was a rather enlightening conversation.

I won’t get all philosophical about why we spend too much, or why a seemingly responsible adult would allow his credit rating to pummel down to a bowling score. The reality is that there are certain factors that enter into play. They all combine to create this situation where a person finds himself deep in debt, unable to meet the monthly obligations, and faced with debilitating late fees. He simply stops making payments and the credit problem goes into its next phase.
The Vicious “who’s calling the house?” Cycle.

Without getting too involved in the discussion, I will say, however, that this seems to follow a sequence and progression that gets perpetrated and becomes a vicious cycle.

The gauge I use to identify when things are about to spin out of control is what I call the: “Who’s calling the house game?”

Here’s how the game is played. For years, not a day would go by that there would not be at least 2 or 3 “pre-approved” credit card applications in the mail and as many calls. Then we buy, we spend, (more than we should), and a recession hits, income slows down, and credit builds up. All those pre-approvals come in handy, but before you know it, the monthly payments are more like a noose than a bill.

Then, without choice you stop making payments. And then the banks and their collection agency goons start calling. And you know how that goes.

And, finally -- American entrepreneurial innovation at its best -- debt settlement and consolidation companies emerge as a new industry. They are calling to offer you to get out of your debt. For the record, they are not to be trusted.

You see where I’m going with this? This cycle has demonstrated itself in Washington, Wall Street, and Main Street. Easy money creates an illusion of wealth, begets overreaching and overspending, and ultimately causes collapse.

The real estate industry, of which I am an active member, has clearly experienced this cycle. Easy money allowed people to buy homes that were way, way beyond their means. But, even worse than that, the “rising” market instilled in us (via our homes) that the “perceived equity” in our home is a bank, ATM, cash register to take money from. This perception, thus sucking all intrinsic equitable value out of it, and effectively eliminating growth. What we end up with is mortgage payments that are much larger than they should be, no equity, and the same difficulties discussed earlier, which then lead to foreclosures and other unpleasantness.

The Great Credit Freeze

The part of our conversation that will get us to the punch line of this article was his insightful advice he offers to people about credit. People say, "I will cut up all my credit cards." That is not the right approach. Here’s what you should do: Place all your credit cards in a bucket of water, put the bucket in the freezer. Every time you want to make a purchase, go ahead and take out the bucket. And here’s the kicker. In the five hours it will take to thaw, you will already decide not to buy what it was absolutely “needed” to have.

There are many insights we can glean from this:
  1. That we are impulsive, and if we gave things careful thought, we would be in better shape.
  2. That we really do buy too many things that we don’t need.
  3. Given a bit of time, our impulses wane, thus proving that they were merely impulses and not actual well thought out decisions.

Now, that’s a credit freeze we can and should all learn to live with.

For more information, please visit Yossi's TNNW Bio.


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