Thursday, December 30, 2010

A New Year, And An Old You Gone Bye

Well, it's almost that time. Almost time for that annual re-thinking of our priorities and coming up with a resolution to change something for the better in our lives. New Year's resolutions have become a staple of our holiday traditions here in America, where annually almost everyone at least considers making some significant change in their lives.
For us, here at the Debt Relief Blog, our personal journey to self awareness and re-prioritization (everybody else is making up words, so why can't we!) must necessarily revolve around our financial outlook for the coming year. What do we need to change to get ourselves into better financial health? What resolution can we make to get us started toward a debt free future? These are the questions those of us in debt must consider.
So what do we do?
For me, my personal financial plan is to eliminate a substantial amount of my remaining debt in the coming year. I have some debt at really low interest which doesn't bother me (4% and 8%), and I think I should be able to get rid of the rest of my debt by year's end. I plan to pay off the remainder of my high interest credit cards by summer and then pay off the 8% card before it switches back to a higher rate in August. That will leave me with just the 4% card, which I actually will not pay off as long as I can get away with it (the 4% was a special offer, but is permanent as long as I pay on time!).
This plan will require some discipline on my part, no buying expensive toys, no extravagant vacations and so forth, but is completely workable given my financial history. In fact I haven't taken a vacation (one with travel involved anyway) in several years and my wish list of possible purchases keeps getting longer, the longer I stay away from these personal indulgences (I love photography and would love a digital SLR, I also want a classical guitar, if anyone is interested).
Hopefully, by 2012 I will be in a financial position to consider allowing myself some of these perks that I have missed out on for a few years now. And then, if things go as planned, year after year I will be able to enjoy at least a few of these luxuries (not luxuries to some, but if you're in debt...) until I reach retirement.
So what does this mean for you, the reader in debt yourself? Well, to start, I would advise some similar frugality on your part until your finances are a little healthier. Were you (or I) to go out and spend money unnecessarily, just as we were putting a dent in our debts, we would soon find ourselves back in the same financial whole we had almost escaped from.
But what if you can't afford to come up with the cash flow to actually pay down your debts, no matter how frugally you live. Well, then it's time to get some help. Get an attorney that specializes in debt reduction, and have them negotiate a reduced settlement on your debt accounts. They can do this quite effectively, and even after paying the attorney (who usually takes some portion of the eliminated debt) you will be in far better financial shape. The attorney will have negotiated a settlement of a reduced debt with small payments which you can afford over the next year or two.
This puts you in the same situation as myself, with a frugal outlook for a year or two, at which time your debt will be totally eradicated. It's true, this really works. And by the time you have paid off the settlement your credit rating will be considerably healthier than it is today. Even with the settlements, your rating will be better because you will be debt free and have a (recent) history of paying on time. Recent history is the most important factor.
So, with a little discipline, no matter your current financial situation, you can have a whole new financial re-birth in only a couple of years. There's no excuse not to resolve to move aggressively on your debt this New Year. So 2012 and 2013 can be the start of a whole new you.

Tuesday, December 28, 2010

Snowball This!

As I review the various daily financial news items and personal finance blogs, I find myself ever more frequently running into a particular bit of financial advice that really drives me nuts. This is the concept of "snowballing" your debt. I think Dave Ramsey coined this back in 2009 and the term has been "snowballing" itself ever since. The idea behind this concept, as I understand it (and different financial gurus have different nuances to their particular plan), is that people will be more motivated to eliminate their debt if they can achieve small victories in their struggle toward financial independence. The plan calls for the debtor to pay off smaller debts first, working toward the larger debts last, regardless of which individual debt has the higher interest rate. This way you are always motivated to go after the next debt because you just had a success and now you have more funds (that you are not paying toward the now eliminated smaller debts) to apply to the next account.
Now I agree that success does breed motivation. But this "snowballing" idea is built in a sanitized dreamworld of people (apparently) having extra cash to apply to this project. Ramsey even says in his August 2009 article, "First accumulate $1,000 as an emergency fund." Heck, when I was in serious debt I couldn't have put together $100 for an emergency fund. Let's face it, if you are in serious debt trouble, you're not going to have an extra grand just lying around.
So, you might ask, what is your plan then Mr. Debt Guy?
Well, first let me say that I do agree that motivation is a big component in getting rid of your debt. Secondly, I do agree about paying off a credit (card) account for a small victory, but here is where I totally disagree with the "snowballing" concept (at least as originally proposed, because in my mind my plan "snowballs" too).
It is ridiculous to blindly pay off smaller debt accounts regardless of interest rate. Are you to pay off 5% accounts where you owe $2,000 each in lieu of a 30% account where you owe $10,000? Heck no!
That is, heck no, with one exception. I want you to pay off one small to medium sized credit card account first, preferably one where you are still in good standing. Now this will give you the "motivational victory" that the "snowballing" concept relies on, but it will also do another (and for me, more important) thing. It's going to give you an open credit account where your creditor may just want to extend you some additional credit. Believe me, if you have paid this account on time in the past, the creditor is going to want to make an offer to you to get you paying interest again. This will most likely come in the form of a reduced rate transfer offer. Now I am saying this from experience. As of this very moment I currently have two accounts that are at relatively low interest (4% and 8%), both of these were set up using this very same strategy. I paid off a card and in came the low rate offer; the 4% is permanent, and the 8% will roll up this summer (but I will pay it off by then). So this is what I want you to do.
Pay off that one card that you are in good standing with, and if there is another small balance where you can do the same thing, then great, do that one too. But then STOP! The rest of your funds need to go to paying off your high interest debts! If you pay only your low interest debts, how are you ever going to accumulate any capital paying those huge minimums on the high rate cards? So pay the high ones first!
Shortly, you should then receive a low interest balance transfer offer (or two). You then transfer your high rate balance (which hopefully you have reduced a little) to the low rate offer account.
Now, you have eliminated, or drastically reduced, that high rate account. Suddenly you have a lot more money to apply to the principle of your accounts, rather than just to that high interest you were paying.
Believe me, this works. It requires a little discipline, but it can work, for anybody.
What if you are too far in debt to attempt even this? Well then, the "snowball" plan would be even less of an alternative, and you would probably need to look at debt settlement (please try to avoid bankruptcy, see my earlier posts). If you attempt my plan but still need to go through debt settlement, you'll hopefully have a credit account or two that you paid off, and then may be able to keep through your settlement. This will help you get re-started on building your credit back up.
Please, try my plan.
Don't let those high interest rate cards continue to suck the financial life out of you. And if you have to go to settlement, it's not the end of the world. Get an attorney to help you, and you can be back on your feet in just a couple of years.

Wednesday, December 22, 2010

Debt Settlement

You should retain a debt settlement attorney if you are going to go this route to get rid of your unsecured debts. However, if you are hardy enough to attempt this on your own here is a tidbit of information regarding final settlements for various individual states.
When a creditor accepts a payment for less than the full amount you owe to settle an account, you may not be out of legal difficulty. In some states the creditor can still come after you for the remainder of the debt, even though you thought you had "settled" the account. Here's the different state laws:

In these states you can write "Paid in full" on the check and the creditor will have no legal standing to sue you for the remainder:
Arkansas, Colorado, Connecticut, Georgia, Kansas, Louisiana, Maine, Michigan, Nebraska, New Jersey, North Carolina, Oregon, Pennsylvania, Texas, Utah, Vermont, Virginia, Washington and Wyoming.

Now in a few other states the creditor is guaranteed retention of the right to sue if he writes "under protest or without prejudice" on the payment check. These states are:
Alabama, Delaware, Massachusetts, Minnesota, Missouri, New Hampshire, New York, Ohio, Rhode Island, South Carolina, South Dakota, West Virginia and Wisconsin.

The remaining states make no guarantee as to the right of the creditor to sue or not. These are:
Alaska, Arizona, California, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Maryland, Mississippi, Montana, Nevada, New Mexico, North Dakota, Oklahoma and Tennessee.

It's laws like this and other more intricate details that make this process better suited for an attorney. Also, they will be much less expensive than you think.

If you are looking for debt settlement, attorney, programs, companies, help, counseling, management, relief, or consumer unsecured credit card debt ideas, then check some of the links below.

Tuesday, December 21, 2010

Eliminate Credit Card Debt

I've probably mentioned many times already how I've found myself in credit card debt several times in my life. This is not a good thing (except at very low interest; see a previous article). Credit card debt is considered an "unsecured debt" and used to be discharged when you successfully filed for bankruptcy. But starting in 2005 the law changed and unsecured debt is no longer simply erased when you file for bankruptcy. But you can still eliminate credit card debt if you are willing to develop a simple plan of action, and then stick to it. You can undertake this journey to financial freedom by yourself or in conjunction with a partner (I suggest a law firm, see previous posts). Law firms can negotiate your unsecured debt with creditors and can often drastically reduce the amount you owe to them. These creditors will, however, still want some sort of settlement amount in order to agree to this debt reduction. Your attorney can negotiate this on your behalf and then should get your approval before settling on a given account. When the settlement is done you will have to pay a small amount monthly for a short period in order to fulfill your half of the settlement agreement. But your attorney will negotiate monthly payment based on what you tell them you can afford. Of course the attorney will want a fee for his services, but the total outlay for getting rid of your debt and paying the attorney should be somewhere around 50% of what your initial debt had been. That's a considerable savings. Here's an example:
Let's say you owe $10,000 on credit cards. The attorney should be able to negotiate this down to below 50%; he then adds his fee and you owe $5,000. This is then divided up in to payments based on your individualized plan. In this case we'll say for two years. You would then owe around $208 per month, totaling $5,000 when completed.
Now this is a substantial savings, but it really is even greater than it seems. If you had left the debt standing for that two year period at a typical interest rate (let's say 20% for this example) then your debt would have skyrocketed to $14,400! In this light your savings is even greater, by setting out on a real plan of action you have saved yourself $9,400. That's a potential $14,400 debt settled for $5,000, attorney fees and all!
Of course, this is just an example, and real world results may very slightly, but this really is a typical result which the average debtor can expect. Just be sure to deal with someone reputable, and then stick to the payment plan. If you do this you will see yourself rebuilding your credit almost right away.

Wednesday, December 15, 2010

Small Business Loans As Gifts

As I promised a couple of posts ago, I'm going to complete my story about unique holiday gifts.
A couple of seasons ago I decided to give something a bit out of the ordinary to some of my family members, something a little less materialistic. I had heard about this organization called Kiva Microfunds ( and thought that their service, if I understood it correctly, sounded like an excellent way to give a holiday gift and still do something a little bit charitable. As it turns out, I was right, but apparently I didn't realize just what a wonderful idea I had stumbled on to at the time.
Let me give you a few background details about Kiva.
Kiva Microfunds is a non-profit, charitable organization that was founded in 2005 by Matt Flannery and Jessica Jackley. Kiva's sole service is to provide small business loans to entrepreneurs in third world countries. The way it works is, an individual purchases a micro-loan unit for $25, and then either loans this unit directly, or gives the loan unit as a gift to someone else. Either way, the loan unit is eventually paired with other similar loan units and then given to a needy small business person. This person is expected to pay the loan back in full within a predetermined time frame (usually around one year). After the loan is repaid, the lender (in this case, your friend or relative who first received your gift) is then free to lend the loan unit to another needy recipient or, conversely, they can turn in the unit for the original value and take the $25 in cash for him or her self.
Sounds like an excellent idea, doesn't it? Farmers can buy seeds, shop keepers merchandise and so on and so on, and then repay the loan when the crops or merchandise are sold. The only drawback, and I feel that this is a small concern, is that in order to have a presence in all these third world countries, Kiva has had to enlist the help of local lenders. The problem arises, that though Kiva is non-profit and lends the money interest free, the local lenders charge an interest fee to cover their time, expenses and to make a small profit. Small price to pay for such a worthwhile service I feel.
Now let me tell you how this has panned out for me.
I think I gave three of these gifts a couple of seasons ago. One was to a nephew stationed overseas. Frankly, I'm not really sure what became of that gift. I would be surprised if that loan wasn't cashed out for the $25 as soon as it became available, but he's a giving young man, so who knows. Another of the gifts went to one of my sisters. She has told me that she has loaned the money two or three times now and intends to keep on doing so. The last of the three gifts went to one of my nieces. I just spoke with her about it and her gift is currently on loan to its third recipient. The first loan for this unit went to a pottery shop (my niece is a potter(?)) and then to some other entreprenuer and finally to a farmer purchasing livestock, who has it now. If I didn't mention it before, let me add that you get to pick from a detailed list of small businesses that are requesting loans. Kiva tells you what the loan is intended for and gives you a short personal bio about the requester. After that, it's up to you.
So my niece picked some people who she felt most deserved her loan and, to date, her loans have all been paid back in full and on time (as have my sister's loans). Both of these gift recipients have stated how much they have enjoyed giving these loans to deserving people who are struggling to make a better life for themselves and their communities. Both have also stated that they intend to continue lending their gifts as long as they can, until the loans are finally left unpaid.
I feel like I made a really good choice when I decided to take a chance on giving these Kiva gifts. My relatives have enjoyed getting to give the gift away themselves and the gifts continue to give again, each time that they are paid off and re-loaned. My family members feel good about it, I feel good about it, and somewhere in the world a struggling small business might just feel good about it too.
I suggest you give Kiva a try yourself.
Happy Holidays!

Thursday, December 9, 2010

Consumer Credit Counseling

Just wanted to drop in my two cents about consumer credit counseling services. There are quite a few out there, but many of these entities are not actually debt counseling companies at all. They pose as non-profit debt counseling, but are in reality debt management companies who are certainly out to make a buck. Stick with a reputable law firm for these type of debt services, or, if you do find yourself in need of free counseling, you can go to the FTC site and get some valuable information there (and it actually is free).

Monday, December 6, 2010

Credit Card Tips and Tricks

I'm going to start this post with a terrible pun. It's already well below freezing here in the center of the country and its not even winter yet. My heating bills are going to be astronomical if this keeps up. Its either that or I'm going to get frozen out, oh well...
Speaking of frozen out, if you haven't been frozen out yet by your credit card company (sorry, that was it(yes, the pun)) I have a suggestion for you.
Back when I had huge credit lines I found that if I paid off a card completely and didn't use it for a short while, that the card company would come after me with a generous interest rate offer. This usually took the form of a balance transfer offer, or the like, and was usually offered at around 4% or so. I would take advantage of these perks once in a while, but at the time my revolving debt was fairly low and my cash flow was quite good.
Now you might say, "well of course the card companies will make offers like that, but only to people with perfect credit." At one time, I would have been much in agreement with you, but since then I have found out differently. Being someone who no longer has a high credit rating (it was VERY low, but its climbing back up now) I have had a few chances to try out whether the card companies will make a similar offer to an average Joe. And guess what? They will.
Not long ago I paid off a very high interest rate card (now I always am up to date on my payments, so these guys love loaning me money at a high rate). Afterward, it didn't take long for the card company to come by and offer me a low interest rate credit card check. In the mean time I had had a small emergency and used the high rate card to pay a necessary bill. So what I did was, I wrote a check (from Company XYZ card) on the credit card account for cash and used the cash to pay off the high interest rate on the same company XYZ. So instead of owing XYZ money at the high interest rate, I now owe them money at the low interest rate (there was a 3% one-time fee for the cash advance, but that is minimal over the long haul).
I can now take my time paying this debt and pay off higher interest rate cards first. I'm sure company XYZ believes I will not have the discipline to pay this off (the lower rate is only good for nine months) before the rate goes up; but that would be underestimating me. I also currently carry some debt at 4% on a major bank credit card. I used the same tactic pretty much getting this set up, too. I just emptied a card and waited for an offer to roll in. And this low interest rate debt has no expiration! As long as I pay on time I'm locked in. I've had this going for over two years now (wow!) and I see it going on a couple more.
Of course, as I said before, I pay all my bills on time and therefore have put myself in a position to be able to exercise these opportunities. If you are behind on your payments then this tactic will not work for you.
But what about being debt free? When will I eliminate credit card debt from my life? After all, that's what this is about, right?
Yes, it is. But right now I'm still in a precarious financial position, though I'm working my way steadily out of it. Carrying debt at a low interest rate is an excellent way of providing needed liquidity, and (as in my current case) is much preferable to carrying debt at a high interest rate. If you are current with your payments (on all your cards) and if you have the liquidity to pay off a card or two, do it, even if it means leaving some higher interest rate card left unpaid. If you play your cards right (oh no, a real pun!) you should find yourself tendered with one of these special offers, and then you can take the special offer cash and pay off the higher rate card (Please, use this money only for this, and for heaven's sake whatever you do, don't spend it!).
Good luck with this, but just remember, you will need to be very disciplined and make all your payments on time in order to reap the benefits of this strategy.

Wednesday, December 1, 2010

Banker's Dirty Deeds

Really didn't have anything to say today, but then...

I was visiting some other finance blogs; including the leader, Walletpop, when I ran into a story that reminded me of a nasty episode from about a year ago. Read over at their blog that bank employees are commissioned sales representatives; imagine that? The author told about some bank practices where they try to steer you toward product you don't want, just to get commissions.

I remember when I moved to the area where I now live. I went to the local bank to open a checking account and was asked if I wanted to apply for a credit card. I told the bank representative "no", that I had a lot of credit card debt and that I would get turned down. Besides, every application for credit is a negative mark on your credit rating, so I certainly wouldn't apply for credit that I didn't even want. The bank representative talked me into opening a savings account however, and called the plan something like the "triple plan".

I guess I should have been wiser, because it ended up that the "triple" plan meant I was establishing not only a checking account, but a savings account and a CREDIT CARD account, too! Unbeknownst to me, I had applied for a credit card even though I had told the guy I didn't want to do precisely that. As expected, I was turned down for the card, and, of course, my credit rating was impacted.

I'd tell you the guy's name and the name of the bank, but I still bank there today just because their location is so convenient. One day I'll close my account with them, but for now at least I'm aware to look out for the banker's dirty tricks.