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The History of Debt in America - 1950-1999

This era started out as perhaps the greatest economic period of all times. But it was not without challenges including a recession in 1957, one in 1960, another in 1969, the inflationary period of the 1970s, a recession in 1982, the stock market crash of 1987, and another recession in 1990. But one of the biggest influences on modern debt had its start in 1950, the credit card.

The Credit Card
It was 1950 when Frank McNamara of New York's Hamilton Credit Corporation came up the idea of giving affluent businessmen a convenient way to charge business-related expenses. The original Diners Club card was pasteboard with the customer's name on one side and a list of the twenty seven restaurants that accepted it on the other. The first plastic cards came out in 1955 creating a whole new way of monetary exchange.

American Express, the traveler's check company, began issuing cards in 1958 followed by The Bank of America and their BankAmericard. Because The Bank of America had California as its base of operation, the BankAmericard quickly became the most widely know card. Other smaller banks joined the BankAmericard system and the system continued to grow. In 1977 the card underwent a name change and became Visa. By the 1990's Visa was the largest credit card in use with nearly 400 million cards in circulation and more than 12 million businesses that accepted it.

In 1967, City Bank of New York issued the Everything card, the card that eventually became MasterCard. It was during the 1960's that the credit card took hold of the American consumer’s pocketbook. The credit card freed people from the restraints of having to have money to buy something by allowing them to use money that they had not yet earned. By freeing their immediate constraints the credit card took a firm hold of the card user's future. And the future showed up in the form of a bill the next month and every month after. And by the mid 1990's the consumer debt in America surpassed $1 trillion dollars, much of it through the use of credit cards.

Inflation in the 1970s
In the 1970s, weak economic growth, mounting unemployment rates and rising prices combined to create something new: stagflation. The gas crunch made matters worse. It helped eroded the value of the dollar. A dollar in 1970 would be worth only 47 cents just 10 years later. Because incomes rarely keep up with inflation, many people became poorer just standing still.

The Recession of 1982
The nation endured a deep recession in 1982. Business bankruptcies rose 50 percent over the previous year and. farmers were hit hard by a decline in agricultural exports, falling crop prices, and rising interest rates. There was however a silver lining. By 1983, inflation had eased and the economy began a sustained period of growth. The annual inflation rate remained under 5 percent throughout most of the 1980s and into the 1990s.

The Bankruptcy Reform Act of 1978
The Bankruptcy Reform Act of 1978 replaced the much-amended 1898 Bankruptcy Act. It maintained a menu of options. Chapter 7 provided for liquidation for businesses and individuals. Chapter 11 allowed for debt reorganization with incumbent management rather than court appointed trustees left in control of bankrupt companies. Chapter 13 provided for readjustment of debts for individuals with regular income.

The Bankruptcy Amendment Act of 1984 limited the right of companies to terminate labor contracts. It also rolled back some of the pro-debtor provisions of the Code. Because bankruptcy filings continued their rapid ascent after the 1984, recent studies have tended to look toward changes in other factors, such as consumer finance, to explain the explosion in bankruptcy cases.

Chapter 12, added in 1986, allowed farmers to readjust debts with a special provision by allowing a "knockdown" of farm mortgage principal.

The Savings and Loan Crisis
The Savings and Loan crisis of the 1980s was a wave of savings and loan failures in the USA, caused by rising interest rates, fluctuation in real estate values, deregulation, lack of regulatory oversight, mismanagement, failed speculation, and, in some cases, fraud. The Federal Home Loan Bank Board reported in 1988 that fraud and insider abuse were the worst aggravating factors in the wave of S&L failures. Over 1,000 savings and loan institutions failed. The ultimate cost of the crisis is estimated to have totaled around $150 billion, about $125 billion of which was directly borne by the U.S. government. This substantially contributed to the large budget deficits of the early 1990's. The slowdown in the finance industry as well as the real estate market may have been a contributing cause of the 1990-1991 economic recession.

The Stock Market Crash of 1987
On Monday, October 19, 1987, the Dow Jones Industrial Average fell 508.32 and closed at a record-breaking low of 1,738.40 points. This date, now known as Black Monday, is documented as the worst stock market crash in history. The 22.9% loss in 1987 almost doubles the percentage lost in the Crash of 1929, which was 12.82%. More than one factor affected the Stock Market Crash of 1987. Economists agree that there are many reasons for the 508 point loss, but not one can name a single event that was the sole cause.

The panic that followed the Crash of 1987 led to a sharp recession that hit hardest those countries most closely linked to the United States, including Canada, Australia, and the United Kingdom. The economies of Europe and Japan were hurt, but not as badly. The US economy continued to grow as a whole, although certain sectors of the market such as energy and real estate slumped. While government activity may have played a part in the recovery most economists give the majority of the credit to increased consumer spending.

Bankruptcy Reform Act of 1994
The Bankruptcy Reform Act of 1994 included provisions to expedite bankruptcy proceedings, to standardize fees, and to encourage individual debtors to use Chapter 13 to reschedule their debts rather than use Chapter 7 to liquidate. It also included provisions to aid creditors in recovering claims against bankrupt estates.

The Act’s nudge towards Chapter 13 didn’t work but the bill did create the National Bankruptcy Commission. It was created to investigate further changes in bankruptcy law. It did work. In November 1997, the National Bankruptcy Review Commission completed an extensive and detailed report on bankruptcy reform. The report included the provisions for the most pro-creditor reforms in the one hundred years of uninterrupted bankruptcy laws.

Who was is Debt?
Actress Dorothy Dandridge filed for bankruptcy in 1963.

Larry King, talk-show host, filed for bankruptcy in 1978.

John Connally, former Texas governor, filed for bankruptcy in 1987

Dino De Laurentis, film producer, filed for bankruptcy in 1988.

Actress Kim Basinger filed for bankruptcy in 1993.

Actor Burt Reynolds filed for Chapter 11 bankruptcy in 1996.

Musician (M.C.) Hammer filed for bankruptcy in 1996.

Actress and Casino Owner Debbie Reynolds filed for bankruptcy in 1997.

Actor Gary Coleman filed bankruptcy in 1999.

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Debt Calculator

See how long it will take for your debt to get paid off with one of these four options. We have listed a standard debt amount as a default on the debt calculator. You will need to enter your current personal or business debt amount below to see what your debt payoff amounts will reflect.

What's Best For You: Minimum Payments?

Debt Consolidation?

Credit Counseling? Debt Settlement?
Total Unsecured Debt $30,000.00 $30,000.00 $30,000.00 $30,000.00
Months To
Get Out Of Debt
430 60 60 36
Interest Rate 18.9 % 12 % 10-12% Ave None
Total Interest Paid $49,978.53 $10,040.01 $21,300.00 None
$900.00 $667.33 $855.00 $458.33
Total Cost
To Be Debt Free
$79,978.53 $40,040.01 $51,300.00 $16,500.00
Monthly Payments   Months To Get Out Of Debt   Total Cost To Be Debt Free
Minimum Payments Debt Consolidation Credit Counseling Debt Settlement
Enter Your Debt Information Here:
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Unsecured Debt:
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PLEASE NOTE: This calculator gives you an estimate of how much it will cost you to get out of debt, how long it will take and how much your monthly payment may be with the different options to pay off your debt. Keep in mind "Minimum Payments" assumes you NEVER make any further purchases on your credit cards and the credit card companies NEVER raise the interest rate on your cards in the future from the rate calculated above. The "Debt Consolidation Loan" example is usually only possible when taking out an "equity line of credit" or "second mortgage", which involves securing your unsecured debt with your home. This is a very risky option for most people because the home could be foreclosed if you cannot make the payments.