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DEAD HORSES SMELL BAD, BUT DEBT SMELLS EVEN WORSE

The Amish may not know who Lady Gaga, Simon Cowell, or Britney Spears are, but they are up on pop-culture figures from a bygone era, such as circus maven P. T. Barnum.

What do the Amish have to do with the circus? Not much, but they do quote the man with shocking regularity on the subject of debt:

Bishop Jake: “Buy now, pay later doesn’t really work,” he said. “Making interest payments is like paying for a dead horse.”

Ella: “Renting a farm for all those years was a dead horse for us.”

Daniel: “It’s foolish to buy something you can’t afford, and you end up paying more for whatever you buy; it’s like paying for a dead horse.”

What is this dead horse the Amish are all fired up about? The reference is taken from Phineaus Taylor Barnum’s 1886 autobiography, The Art of Money Getting, in a chapter called “Avoid Debt”:

Young men starting in life should avoid running into debt. There is scarcely anything that drags a person down like debt. It is a slavish position to get in, yet we find many a young man, hardly out of his “teens,” running in debt. He meets a chum and says, “Look at this: I have got trusted for a new suit of clothes.” He seems to look upon the clothes as so much given to him; well, it frequently is so, but, if he succeeds in paying and then gets trusted again, he is adopting a habit which will keep him in poverty through life. Debt robs a man of his self-respect, and makes him almost despise himself. Grunting and groaning and working for what he has eaten up or worn out, and now when he is called upon to pay up, he has nothing to show for his money; this is properly termed “working for a dead horse.”

Funny, P. T. Barnum was the same guy who supposedly said, “There’s a sucker born every minute.”

As opposed to the millions of Englishers—and billions of dollars—suckered into high interest debt, the Amish see frivolous credit as a plague to be avoided at all costs.

Sweet Sadie was aghast when I asked her about her views on credit cards and such: “Oh, you spend money so much more freely,” she said, wide-eyed. “Your loan gets bigger and bigger, and you don’t realize until it’s too late how big it gets.”

How is it the Amish got the memo about debt being dumb, and we Fancy, advanced Englishers are mucked up to our eyeballs in it?

Naturally, thirty-year-old Sadie, who runs an organic farm with her husband and is the mother of six, has never even touched a Visa card, yet she is acutely aware of the dangers of buying things on credit. How is it the Amish got the memo about debt being dumb, and we Fancy, advanced Englishers are mucked up to our eyeballs in it? Again, it’s a sound money habit rooted in an age-old culture.

“Typically, people don’t use credit cards for personal items. Historically, they use cash and checks. Why would you buy things if you don’t have the money? It doesn’t make sense to the Amish,” said Dr. Kraybill. “Credit cards are plastic, and a symbol of modernity—it’s abstract. You don’t see the cash in your hand, and to them it feels like money grows on trees. That makes the Amish very uncomfortable.”

It should make us uncomfortable too, but obviously, not so much.

Our current mud pit of an economy was caused, after all, by excessive borrowing and debt.

According to the Federal Reserve, total consumer credit was at $43 trillion midway through 2010. Meanwhile, a 2008 survey found that one in five credit card users have big problems paying their monthly credit card bills (what was P. T. Barnum saying about a “slavish position” to be in?). More bad news: bankruptcy filings topped 100,000 back in 2008, a 40 percent increase from 2007 (AnnaMaria Andriotis, “Ways to Reduce Debt,” WalletPop.com).

I’ve definitely been duped into debt a time or two or three, sad to say. And I’ve been through the wringer with interest rates, accidentally making late payments, and also—I’m really wincing now—joining “rewards” programs.

One time I paid down a card completely and triumphantly tossed the bill when it came, except, as a parting gift, the lovely credit card company charged me a “rewards card annual fee” of $30 or some such nonsense. If you read chapter 4, you know what happened next: I was slapped with a $39 late fee for not paying for the rewards program fee!

Insulting though it may be, I obviously hadn’t had enough abuse from these chuckleheads. In the not-too-distant past, I got snookered into getting a clothing store card, baited by the promise of 10 percent off that day (WOW!); major steals—for preferred customers only, you know—in upcoming “private sales”; and yes, I’ll just spit it out: a free tote bag.

So, basically, I sold my soul to the Gap for a free tote bag.

The first sale was phenomenal, although I bought a bunch of stuff I didn’t really need. Hey! The deals were so great, all those little impulse buys were practically free, right? Besides, I paid the whole balance in full that month, like a good little Do-Bee.

The grateful corporation sent me a couple of $10 gift cards, which gave me warm fuzzies—what could be better than a free gift card, I ask you?

Whoever said there’s no such thing as a free lunch? It was probably that quippy circus man, and he’d be spot-on. There’s no such thing as a free gift card, unless you can find a way to buy something under ten dollars, with tax included. I sailed into the Mother Ship to spend my “gift cards,” fully intending to use them as a $20 discount on my purchases, and never for one second planning to charge more on the card.

You know what comes next, don’t you? If you don’t, here’s a cautionary tale for you: Upon ringing up my $50 purchase (I had already whipped out my debit card to pay the extra $30), the cashier told me I had to put the whole thing on the store credit card, or I couldn’t use the gift cards.

Sighing, I complied, telling myself I would definitely pay off the $30 at the end of the month. But then, something came up that month, things were tight, and guess what? I paid the minimum balance, and unfortunately, “something came up” for the next few months, along with those gift cards.

What a chump I was! I believe the company has my photo taped up in their board room (or rather, framed in gold, with all the extra money they extorted from me), with a sign underneath it that reads, “Our Patron,” or maybe “Easy Target.”

Well, she’s not so easy anymore, Bubba, because I now know the truth: as my role models Moses and Sadie have taught me, you can tart up that dead horse with all kinds of appealing enticements—discounts! private sales! free tote bags! gift cards!—and at the end of the day (or many, many days), a dead horse still stinks, bad.

After hopping in and out of debt like a crazy bunny for years, I finally got a grip and am now close to being debt free.

How about you? Do you have a dead horse lying around, stinking up the joint? Here’s how the pros say to give that inequitable equine the heave-ho—for good:

• Stop digging that hole. Not exactly an obscure technique, but unfortunately, most people flop at this step, and never get any further with their debt management plan. Snip every card with some scissors, except for your oldest card, which can be kept for emergencies (a shoe sale at Macy’s isn’t an emergency!). For me, what worked amazingly well was just to remove any credit cards from my purse. That simple move kept me on the straight and narrow, and ceased impulsive new charges completely.

• Pay debts off smallest to largest. This is what Dave Ramsey calls the snowball method of paying off the horse. Make minimum payments on all but the smallest amount, and throw everything you can at that one. As Frugal Dad of frugaldad.com points out in his article on getting out of credit card debt, “The psychological advantage of scoring one or two quick wins bringing balances down to zero is worth the difference in interest charges.”

• Make mini payments (Ramsey calls them “Snowflakes”) anytime you get your hands on a few extra bucks. Divert takings from garage sales, Craigslist, and any other source of money from your checking account—where it will get frittered; we both know that—directly to your credit card. Thirty-four bucks from the sale of that old window airconditioning unit may not seem like much, but it will accumulate, like snowflakes do. For some reason, I didn’t even know you could do this—I thought credit cards wanted their money once a month and that’s the end of the story. But no, it turns out you can do this, and it really adds up.

• Split minimum payments in half and pay that amount twice a month. I must admit, I didn’t know you could do this either, but what a great idea! Frugaldad again, from that same article: “Interest is calculated based on the average daily balance of your account for the entire month. By making a payment every couple weeks you are reducing that average balance and therefore reducing the finance charges assessed, as opposed to waiting until the end of the month to make a single payment. As an added benefit, splitting your payment into two separate payments helps smooth out the monthly budget as you will not have to come up with an entire payment once during the month, rather half that amount twice during the month (aim for around the time you receive your paycheck).”

• Make up what you don’t have. If the Amish don’t have credit cards, how do they pay their bills when there’s too much month at the end of the money? As Bishop Eli King said, “You gotta make up what you don’t have; don’t borrow it.” It goes completely against the grain for the Amish to go into hock to pay their expenses. Instead, they will find extra jobs or things to sell to come up with the extra cash.

“When I was a farmer, I couldn’t quite pay all my bills, so I made pallets to make up the difference,” said Andy. Ella gathers flowers from her garden in bouquets and sells them at the farmers’ market for a little quick cash.

Friends of mine were scraping for the last few hundred bucks they needed to pay moving expenses and closing costs as they moved from a rented home to their own place. “Nothing is nailed down,” Rudy told me, smiling sheepishly. “We sold everything we could think of at a garage sale and then on Craigslist.” Moving seems to bring the “Hey, I can sell my stuff because I never use it” epiphany more than anything else. In the process of relocating from Michigan to Ohio, Dave and Jessica made two thousand bucks selling things like Dave’s old guitar and other odds and ends.

Seriously, this idea could have major debt-denting potential. In this day of eBay and Craigslist, we can sell our stuff easier than ever before. Take a look at things in your house and garage with new eyes and see what you might sell for extra money. It sure beats taking on a paper route, although there’s no shame in that either. Whatever it takes to stop throwing good money after bad credit card companies!

• Transfer your cards to a credit union. Suze Orman, on her blog moneymindedmoms.com, had this great little tip: “If your FICO credit score is high enough that you can land a good balance transfer deal with a credit union credit card, go for it. Because credit unions are nonprofit, they tend to have lower interest rates and fees on their financial products, including credit cards” (“Watch Out for Sneaky Credit Card Tricks,” May 27, 2010). We did this and our interest rate plummeted from 16 percent to 3 percent—fabulous! Plus, generally speaking, credit unions are more honest and upright, and they’re not going to play those silly reindeer games that credit card companies play.

Remember, the Amish view debt as a very real plague, a money pestilence, a pox upon ye! They run from debt, screaming, or maybe just trotting quickly, muttering under their breath instead. On the flip side, their aversion to credit cards, said Erik Wesner, “is a big plus working in their favor.”

It goes completely against the grain for the Amish to go into hock to pay their expenses. Instead, they will find extra jobs or things to sell to come up with the extra cash.

Though P. T. Barnum came up with the dead horse analogy 125 years ago, it’s no wonder the Amish latched onto it and continue to quote it often.

Here is some more old-fashioned wisdom that lines up perfectly with their no-nonsense take on life and money (P. T. had so many pithy things to say about debt, it was hard to boil them down to just two, but here are a couple of doozies to leave with you):

1. “There is no class of people in the world, who have such good memories as creditors.”

2. “The creditor goes to bed at night and wakes up in the morning better off than when he retired to bed, because his interest has increased during the night, but you grow poorer while you are sleeping, for the interest is accumulating against you.”

Ouch! Take heed, my friend, and we’ll see you under the big top.