Day 31: Address any Other Money Woes, Credit Issues, or Special Financial Circumstances

Day 31: Address Money Woes and Credit Issues No Responses »
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Throughout Zero Debt, I’ve attempted to cover a host of common situations that consumers with credit or money management issues face. But there are a host of other economic dilemmas, and you may still need to address some of these special situations to achieve financial freedom. Read on to find out if any of these scenarios apply to you. Or, if the information you learn in the following pages could help someone you know, be sure to share it with him or her.

Bankruptcy: Your Last-Ditch Option

The number of debt-laden consumers seeking bankruptcy protection from their creditors has reached unprecedented levels. In 2005, a record 2.1 million households declared bankruptcy. And in 2006, another 617,000 went broke. By 2007, bankruptcy filings surged to just over 850,000, and will likely rise in 2008 and beyond.

If you’re one of the many consumers filing for bankruptcy – or considering it – please think long and hard before you take this extremely drastic step.  My experience in talking to consumers has been that most attorneys specializing in this area are quick to advise people to file for bankruptcy.  On the other side, many credit counselors may tell you to never, ever file for bankruptcy. Obviously, there’s no one-size-fits-all solution here.  But I believe that even if you’re drowning in debt, bankruptcy should be a last resort – contemplated only after you’ve truly exhausted all other possibilities.  You should also know a few basic facts before you entertain the prospect of a bankruptcy.  For starters, filing for bankruptcy isn’t free – or even cheap.  Expect to pay $500 to $1,000 or more in court filing fees and attorneys costs, depending on where you live and the complexity of your situation.  Bankruptcy also doesn’t get rid of all types of debt. For instance, spousal and child support obligations are not dischargeable in bankruptcy; and in most cases, neither are student loans and tax debts.

In Everyone’s Money Book on Credit, author and personal finance expert Jordan Goodman notes that declaring bankruptcy is no panacea, because a bankruptcy filing remains on your credit for seven to 10 years and hampers your ability to secure future credit.

“Potential employers and landlords may also learn that you declared bankruptcy,” Goodman says. “Therefore, bankruptcy is not exactly the fresh start that many lawyers advertise.”

Another consideration: bankruptcy may really haunt you much longer than the decade that it is listed on your credit report. How so? Some job or credit applications ask you: Have you ever filed for bankruptcy? Even if your bankruptcy was 15 years ago, you’re legally required to say “Yes.” If you lie, you’ve just committed a crime.

The Consumer Education Center of the American Bankruptcy Institute, a non-partisan agency, says you may want to consider bankruptcy in the following situations:

  • Your wages have been garnished or your bank account has been attached
  • Most of your debts are unsecured, like credit card bills, hospital or doctor’s bills, etc.
  • Your total debt, not including your a car or house loan, is more than you could pay, even over five or more years
  • Collection agencies are calling you at home and/or at work
  • Your payments are more than 30 days behind on more than one bill
  • There are lawsuits pending against you
  • You have high medical bills not covered by insurance
  • You owe income taxes that you are unable to currently pay
  • You have few assets
  • You have little or no savings
  • You have had property repossessed (such as a vehicle)

I think these are good guidelines. But don’t feel compelled to rush over to bankruptcy court just because you fit one of these criteria. Certainly, though, if you find yourself saying “Yes, that’s my situation” to several of these areas, then it’s time to at least weigh your options.

Next – Day 31: Address on Other Money Woes, Credit Issues, or Special Financial Circumstances (Part 2)

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Day 2: Make A Resolution to “Stop Digging” (Part 3)

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Wage War on Your Debt

You’ve heard of “Cease Fire” agreements when nations are at war, right? Well, right now consider yourself at war with your debt. It’s a battle you’ll win if you start off with a “take no prisoners” attitude. And that means beginning with the mindset that NO MATTER WHAT you will not spend beyond your means, you will not spend for the wrong reasons, and you will no longer pile on additional credit card debt. Instead of a “Cease Fire” agreement, you’re now going to create a “Cease Spending” pact with yourself.

  • Write out your very own “Declaration to Achieve Zero Debt.” Use the following model as your guide.

I , insert your name here, realize that I am in a financial hole. Therefore, I hereby vow to stop digging myself further into debt. I acknowledge that I can never be free from money worries if I continue to spend excessively, for the wrong reasons, or on unnecessary things. From this day forward (insert month date and year) I will be more conscious of my spending habits, being careful to keep my behavior in line with my desire to reduce my debt and achieve financial freedom.

Get this statement free at www.themoneycoach.net. Print it and insert your name and date. Then put it in a visible place, as a reminder of your commitment to financially empower yourself.

Diagnosis: You’re Suffering from the Debt Disease

Some of you who are over-spending have a real problem. In fact, you have a sickness, of sorts. Now before you think that I’m offering you a clinical diagnosis, let me say that I’m talking about a personal belief I have about people with massive credit card debt due to over-spending. I feel strongly that excessive debt is the worst possible financial cancer you can have. In fact, I believe that debt for many people is a byproduct of a terrible disease – an insidious malady known as consumerism – and as a symptom of a disease, debt should be treated as such.

If you think about it, many aspects of chronic spending, and the debt that results from it, are really no different from alcoholism. Check out the following 10 similarities:

Excessive consumerism and alcoholism both:

1. Generate stress and physical illness (migraines, ulcers, etc. can result from money worries)

2. Tear families apart (70% of all couples that divorce say financial strife was a major problem in their marriage)

3. Produce short-term euphoria or escapism from daily problems

4. Can be generational (Don’t you know people whose behavior just mimics what their mom or dad did?)

5. Make individuals feel shame, guilt and embarrassment

6. Have complex underlying or root causes for the behavior

7. Cause victims to feel out of control with their actions

8. Produce hangovers (for the alcoholic, a drinking binge leads to a physical hangover; for the shopaholic, a spending binge creates a debt hangover that lasts months or years)

9. May require individuals to change their habits, their friends, the places they frequent, etc. to reduce temptations

10. Have similar and predictable phases of deterioration:

  • Denial
    The phase where the person refuses to admit he/she has a problem, as in: “I don’t have too much debt,” “I don’t shop too much” or perhaps: “I can handle my bills.”
  • Worsening of the problem
    When the debts mount, late fees occur, bill collectors call, etc.
  • Hitting ‘rock bottom’
    Characterized by traumatic financial events, such as foreclosure, bankruptcy, personal or business lawsuits, and so forth.
  • Intervention
    Sometimes the intervention is from within the family, as when a husband takes away his wife’s credit cards. Other times, the intervention/help comes from an external source, such as when a person voluntarily goes to a debt management program.

Now that you can see the common areas between excessive consumerism and alcoholism, is it any wonder that debt has such a stranglehold on you?

But don’t despair. You don’t have to remain drunk with debt. You can kick your spending addiction, if that is what has put you in this mess. Each of you can break the cycle of debt. With the right know-how and some positive action, you truly can fix your finances, once and for all.

Again, it won’t be easy. But I’m going to ask you to exercise a little faith – and a lot of follow through. In other words, please don’t just read this book. Throughout the next 30 days, put my recommendations into practice, and you’ll see your financial picture drastically improve.

Next: Day 3 -  Put All Your Debts in Writing

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Day 2: Make A Resolution to “Stop Digging” (Part 1)

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Famed billionaire investor Warren Buffett once said that if you find yourself in a hole, the first thing you must do is to “stop digging.” It may sound basic, but every day, people with massive amounts of consumer debt continue to dig themselves deeper into the red by spending as if there’s no tomorrow. If you know you’ve been over-spending, you must vow to end negative spending habits. This is crucial to fixing your finances. Let me put it another way: if you’re serious about chucking your credit card debt, you have to put an end to frivolous or excessive spending – starting today!

So many of us tend to make empty promises to ourselves and others: promises that we’ll spend less and save more; promises that next year we’ll get our act together; promises that with the next promotion or the next bonus or the next money that comes in we’ll make good use of that cash – anything related to whipping our finances into shape. It especially happens at the beginning of the year. Have you ever made a New Year’s resolution concerning your finances? More to the point, if you have such a resolution going forward, chances are you’ll need all the help you can get to stay on track. The December holiday season is the time of year that many of us tend to overspend – leaving us with big credit card bills, and the equivalent of a shopper’s hangover that lasts well into the following year.

For those of you determined to better manage your money, you don’t have to live a life of deprivation in order to get into the black. The best way to turn your financial resolutions into lasting changes is to take some concrete steps that won’t cramp your style, but will definitely improve your personal finances.

Here are some ways you can do just that:

  • Create a realistic financial plan

A proper financial plan provides you with a snapshot of where you are today – in terms of assets and liabilities, and your current cash flow. It also outlines your short-, medium- and long-term goals, such as saving for a down payment on a house or taking a dream vacation. Finally, a well crafted financial plan should include a number of “must do” items, such as you must start contributing to your IRA or you must pay off your Visa bill.

Don’t make the mistake of thinking “If only I could stay out of the mall, I could get my finances under control.” Staying out of the mall may be necessary for you die-hard shoppers who need to change your surroundings and avoid too much temptation. But getting your finances in order is not necessarily, and certainly not exclusively, about will power. It’s about creating such an awesome plan of action that you don’t want to deviate from it because you can clearly see all the benefits of having a financially sound household. After all, which of the following circumstances is most appealing? Scenario #1, in which you and your spouse are always bickering about money and you have to live paycheck to paycheck, or Scenario #2, in which you’ve lived within your means, and your money squabbles all but disappear? When you need motivation, remember that by sticking to your resolutions, especially your newly-created financial plan, you’ll not only save yourself big bucks, you’ll ultimately have financial freedom, and far less worries and stress about money.

  • Make this money resolution: “Before I buy something, I will think about why I’m spending. I will spend money only for the right reasons.”

Next – Day 2 Make a resolution to “stop digging.” (Part 2)

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