Wednesday, November 14, 2012

Rolling Jubilee: Real Answers for Real Problems

A friend linked me to Rolling Jubilee, a social movement that essentially crowd-funds debt relief for people who need it.  Not only does it have a rather cheerful-sounding moniker, this extension of the Occupy movement is actually taking steps to help real people, which automatically makes it pretty awesome in my book.

So, first off:  What exactly is it doing, and how does it work? 

When you have unsecured debt (like a credit card) that goes unpaid, the original lending agency will try to collect that money from you.  Meanwhile, they'll be reporting you to the credit bureaus.  After a few failed attempts to collect the debt, they'll sell your account to an outside debt collection agency (aka, "Collections"), who will badger the hell out of you until you pay them some money.  

Now, here's a few important things to know about collection agencies: 
  • They bought your debt for a few cents on the dollar along with multiple other debts.  They can then buy and sell those same debts to other collection agencies. 
  • The reason why the debts are bought and sold for a low price is because they assume that they won't get much, if any, of the money back.  
  • The longer the collection agency tries to get the money from you, the more it will continue to affect your credit.  This ends when the owner of your debt reports the account either paid or forgiven.  
  • Because collection agencies make their sole profits by convincing you to pay them money, they can get really nasty.  Really, really nasty.  They'll call you at odd hours.  They'll threaten you.  They'll demoralize you.  They'll be, in short, really really nasty. 
  • If the debt is high enough, they'll take you to court.  For amounts under $1,500 or so, they usually won't bother -- but for large sums, you can bet you'll be served with papers some day.  
So, how does this Rolling Jubilee thing work?  

Pretty simple:  The group buys up debts -- in bulk, just like a collection agency would -- and then makes them go away.  The debts stop being reported to the credit bureaus, you stop getting harassing phone calls, you stop needing to pay for things.  Of course, your credit is still going to be damaged from the time it did spend in default, but at least you won't be continuing to pay off defaulted bad debt for a bazillion years.  

Why this is Really, Really Cool

In an ideal world, of course, people would pay off their own debts -- or never go into debt in the first place -- and these bail-outs would be unnecessary.  In the real world, though, sometimes life sucks, and sometimes it's not your fault.  Let me give you a real-life example from my own finances:  
I used to have a part-time job with insurance, which was a blessing considering how rarely that happens. I made about $600 a month and was living with a couple of roommates. I got very, very sick -- a sinus infection with a 105 fever that caused hallucinations, among other things -- and went to the urgent care. I gave them my insurance card and paid the co-pay on the back of the card. The doctor them prescribed me some drugs which I couldn't afford (no prescription coverage), so I took the only prescription I could afford (antibiotics) and crawled home. So imagine my surprise when, several weeks later, I get a letter from the insurance company informing me that the urgent care visit wasn't actually covered and I owed them $300. Remember, at the time, that was half a month's wages for me. That was my entire share of rent. And, no, they wouldn't take payments. (The worst part of this? If I'd been uninsured, the visit would've cost me just $25 thanks to the policies of the urgent care facility.)
 So what do I do at that point?  Do I borrow money from someone to cover for it?  What if nobody can pay for it?  Do I take out more debt to pay for it?  Do I skip out on rent?  Stop paying my utilities?

The truth of the matter is that for many people, living paycheck to paycheck is a reality, and emergencies -- even emergencies that cost as little as $300 -- can be completely devastating.  When people think of debt, they often think of some irresponsible kid running out and buying a bunch of pricey electronics on a credit card, but the truth is a lot more nuanced than that.

Here's the other reason helping people out of debt is a good idea.  People who are struggling to pay off debts can't buy other things.  That means they can't, say, use that money to buy from a local small business.  They can't invest use it to buy a better car to commute to work.  They can't use it to buy materials or capital for a new business.  In other words, they can't use their money to help stimulate the economy.  They're still paying off purchases (or education, or unexpected medical expenses, or whatever) from years ago -- and that hurts every single other person in the economy who doesn't get to benefit from the money they could otherwise be spending.

Where Are They Getting the Money for This?

They accept donations from private consumers who want to hand over their cash for the cause.  They don't make a profit on this, they don't take a cut from the top, and they're all volunteers.  They're just crowd-funding debt relief for anonymous people.  This means that if you dislike the idea or are against it...well, you don't have to give them any money.  Yay!  Think of it sort of like every time a project you think is really dumb goes up on Kickstarter: Other people might fund it, but you can happily ignore its very existence and get on with your life.  

As an added bonus of this Rolling Jubilee, you may even find your defaulted debts paid off for you even if you're not involved -- because the debts are bought in bulk off the open market.  Happy holidays.  

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