Cooperatively fighting debt

Friend and colleague Somer Sherwood recently shared an interesting article that I’ve been mulling over ever since — it is, on its face, a straightforward tale of economic and financial planning. But it’s also more than that. It’s about family, and the collective bonds of people (related or otherwise) willing to work together to support each other. And it’s about the horrific state of the economy and the systems in place to keep people in debt and eternal financial struggle. And it’s about unexpected ways to fight back against that system.

Four sisters in Texas woke up one day and realised that between them, they had nearly $200,000 in debt, and no real way to pay it off — because this is how society is structured. Car loans, student loans, credit card debt, it’s all calculated to keep the working class in a mire of debt that becomes impossible to escape from, thereby trapping them. Upward mobility is incredibly difficult when you can’t afford to take time off and invest even more money in professional development, for example, and it’s difficult to establish a family, buy a home, or engage in other activities considered to be part of the ‘American dream.’ The sisters, however, came up with an innovative and cooperative way to fight back.

It involved some distinct sacrifices, and a lot of trust, and a deep level of ability to cooperatively organise, in essence going against everything that is America, apple pie, and waving flags. They turned their backs on tradition to create a collective, mirroring practices seen more commonly in regions of the world where the common good is celebrated, instead of stubborn, painful independence. And it provides an instructive lesson not just for those struggling with debt, but for people who generally want to fight tradition in order to forge their own lives.

They decided to pool their resources, focusing on debt repayment over the course of three years so they could go on to pursue their own goals free of impeding financial problems. Notably, the women were Latina, already facing social disadvantages when it comes to salaries — together, their annual income amounted to approximately $100,000 annually, and even by pooling their income to fight their debt, it was still no mean feat to meet their goals.

They moved in together. They carefully rolled their debt in a ‘snowball method,’ taking on high interest debt first and low interest debt last. They eliminated all unnecessary spending although they did allow themselves some periodic spending money, and they detailed every single collective expense. They sought out coupons and deals relentlessly, negotiated, looked for every conceivable best deal they could find. They also took on additional jobs and went up against their supervisors for higher salaries, increasing their wages by 50 percent a month. Critically, they also pooled their income in a single joint checking account, an incredible act of faith — you’re surrendering your income to the common good, acting in the belief that the others in your collective won’t take the money and run or ditch once they’ve paid off their own debt. That kind of honour system isn’t second nature to everyone, and trusting people over the course of three years requires considerable respect for them.

And it worked. In fact, they killed their debt within a year and a half. But they didn’t stop there — they looked at their effective method and brought it to bear on other members of the family. They helped out family members who needed time off from work for health problems, or new vehicles. They took their family members on a vacation — paid for in cash. They were willing to give up a lot not just for themselves and each other, but for people they loved, in a really excellent example of family cooperation and the notion that people should be able to give according to their means without engaging in a quid pro quo relationship. From month to month, some sisters undoubtedly benefited more than others, and may have paid more or less in the long term — certainly the arrangement benefited the youngest, who had less time for interest to accrue on their accounts and thus ended up with less overall debt. But they were able to overlook that and focus on the importance of managing their resources as a collective even if it was sometimes difficult to get along in a three bedroom apartment with almost no free time and no spending money.

They made something kind of amazing happen, and they did so through means that many people in the United States would find very difficult. It’s an admirable feat that they should be congratulated for on its own face, but one that also represents a new possible future for the United States — this doesn’t have to be an unusual or remarkable story. Any group of friends or relatives from any community could get together to do the same thing. There’s no reason not to. Tools like Mint, in fact, make it incredibly easy to manage budgets over time and could easily be utilised to power an initiative like this.

The thing holding people back is the bootstrapping, defiantly independent mentality that holds sway in the United States. To do this, people have to acknowledge the depths of the system they are trapped in and need to be able to shake off the traditional modes of thinking in the US. Being in debt doesn’t represent a failure, and banding together to get out of it is simply an intelligent response to the problem.

Image: Laundering Dollar Bills, Images Money, Flickr