Good Wednesday morning to you. As we hit the midway point of this week on money I will talk today about debt. Before I start, I want you to know that some of the things I will share today I learned while working in the Debt Settlement field. I will share systems that I have used, as well as used to help others get rid of debt. While there are so many people and gurus out there talking about getting out of debt, it is not my greatest field of expertise. However I do coach many people who feel they have moved past the stage of comfort in debt. And I’m sure we all know of public figures who have come back from a point of huge debt or even bankruptcy to once again become great at what they did, and make several other ways to brand themselves. If Donald Trump can come back from $92 million in debt, you can too.
So you have debt; maybe you feel you must start over. Each of us has gotten ourselves in situations where we feel hopeless. Well this is just one of those places. You need to develop a plan to get out of it. When I worked in the field of debt settlement (helping people get out of unsecured debt) we learned how to explain the many options to getting out of debt to people. When you are on a fixed income and have a load of debt there are few ways anyone in the money industry will tell you are available to you as options. I will go through all of them and then give you a few of my own to help.
Bankruptcy. Yes we have a system in America where you can actually protect yourself in our court system under bankruptcy laws to get rid of your debt, by giving all your assets and debt over to the courts. What you own is then sold and the money is given to those that you owe. There is more to it than that, but what does it do for you? Well you will be able to get things like other credit cards, because you cannot file for bankruptcy for another seven years. If you own a home, it can be protected from your creditors so you don’t lose it. Those companies issuing debt know that you now must pay them back. Bankruptcy will put a damper on your credit, restricting you from buying things like a house, maybe a car. Most lending companies will not offer you money unless it’s at a high interest rate. I have heard some large companies will not hire those who have gone through it; there are certain finance and security jobs that may not be accessible to you either as a result of going through bankruptcy.
Debt Settlement / Credit Counseling. These are programs that have evolved to help you work at getting out of debt before going into bankruptcy. Some companies have you make a single monthly payment to them, and they make the payments to your creditors based on negotiations they have done on your behalf. Some of them ask you to pay them a fee and then save money to make a lump sum settlement to your creditors while you are not making payments to them. Both of these programs come with phone calls from those debt collectors. I have heard all kinds of stories about them.
Borrow from other sources. Some people do this to pay the debt off then make the lower payments on that debt. Although that system can definitely work, I have known people to borrow against the equity in their home to pay off debts, then get new credit cards and run the balance back up. Now they have debt on their home plus the credit card debt. Twice the debt; twice the payment.
Make regular minimum payments. Well if you look at the pay scale with the interest rates, you will see that it could take up to 20 or 30 years just to pay off a debt of $10,000. Some people take it and get so stressed and try to make just $5 over the minimum payment on each card.
Here is some advice I want to give you on paying off debt. If you are worried about keeping up your payments and don’t want to default on your debt, here is an option. Let’s say you have five debts and you are making the minimum payments plus $5 extra to each account. Here are two ways you could reduce it faster. One, if you still have credit available you could apply for those card offers that give you 12 months, or six months or whatever time frame of 0% interest for a period of balance transfer. You transfer as much debt to the new card as possible and make take all the extra money over the minimum payment you are making and work hard at paying off that one card. Keep a search of others that offer you these 0% deals so when this one runs out transfer the debt to the new card and get rid of the highest interest card. But, as with taking out a home equity loan, this only works if you don’t charge up other debt. You must discipline yourself to pay it down.
Now if you don’t have available credit you could get creative with your payments. Instead of making $5 extra payment to each card, take all that extra money and pay on your lowest balance card so you that balance to pay off first. Paying cards off one at a time, now the key is once you pay off a card, take 25% of what you were making on payments on the paid off card and put that into a savings account you do not touch. Using the other 75% of what you were paying on that card and apply it to the next lowest balance. Doing it this way taking away the lowest balance first will get the smaller ones paid off and give you confidence in your goal to get out of debt with each card you pay off.
I kind of went through those options really fast, because this is one of those topics that could take up a lot of space to write about and I wanted to cover as much as I could. So Tomorrow I’m going to do a continuation of this post by telling you how you make extra money and start saving then using interest and dividends to make additional payments each year on your debt. So see you tomorrow.
I’m Tim Gillette, the Rocker Life Coach. It’s time for you to live the life you always wanted, to love what you do and those you share life with. Let us help you become a RockStar in your world