Commitment

One size does not fit all.  Everyone suffers from unique symptoms that require an individualized remedy.  Regardless of the plan of action to eliminate debt, it takes a high level of commitment.

If you have ever worked with a fitness/athletic trainer you know this to be true.  Any trainer worth their salt will tell you that in order to see results, long-term commitment is needed.  Results simply don’t happen overnight.  The same applies to any plan chosen to eliminate one’s debt.  Too often those struggling with debt assume that there is a magic bullet that will somehow fix all of their problems.

Whether one decides on a debt settlement program, consumer credit counseling, a home equity line of credit (HELOC), bankruptcy, or simply to pay off the debt on their own, one must be fully ready to COMMIT.  Success, in any area of life, requires a high level of perseverance and commitment.  This is especially true as it pertains to one’s finances.

If you are struggling with debt take a few moments to think about how long it took you to accrue the debt.  It is important to realize that any plan to eliminate the debt, no matter how carefully thought out, is most likely going to take several years to execute.  Once you have made that decision to live cash only and live a life free of debt take a deep breath.  This is going to be an endurance run and not a sprint.  Focus in on the finish line with the unwavering eye of an Olympian and don’t quit until the last penny of your debt has been taken care of.

Many have traveled this path before and rest assured that you are not alone in your quest.  For words of encouragement and ideas please read other blog postings on this site or give us a call to discuss your options.

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What Are My Options

 

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Stubborn Creditors

Our debt settlement programs average 36 months from start to finish but we have some clients who are enrolled for a longer time.  Longer than average programs may happen for a variety of reasons.  It can occur when a client skips or reduces his regularly scheduled monthly deposits for the program (often during times of job loss, unexpected expenses, accidents, etc), when difficult litigation situations arise, or when changes occur in a credit card company’s policy.

In one particular client’s situation, he actually had 13 of his scheduled monthly deposits skipped or returned to Provanta as NSFs (non sufficient funds), which was likely the main cause of his program extending to 5 years.  In addition to his long program, Provanta was unable to settle his final account.  The reason for this has less do with the NSFs, however, and more to do with the creditor’s stubbornness.

When the client enrolled, he provided information to Provanta showing that he owed $4,600 to this creditor.   Whenever the creditor responded to our attempts to negotiate, they would make an extremely high settlement demand such as $5,900 or $6,700.  Since the creditor continued to be unreasonable, Provanta focused our efforts to settle accounts with the other creditors who were willing to work out a resolution to the account.

The other accounts settled for a gross total of 46 cents on the dollar while this creditor continued to decline our settlement offers.  We eventually referred the client to an attorney in order to investigate whether his account may have reached the statute of limitations, which would mean the creditor could be unable to pursue legal action as an option to collect the debt.

Despite this, the client asked us to continue negotiations.  He still wanted to resolve the account and pay the creditor as much as he could.  After explaining that the client may have reached the statute of limitations, the creditor still refused to settle the account for a reasonable amount, “reasonable” being an amount that contemplates the statute of limitations possibility.  Keep in mind that this creditor had not received payment on the account for 5 years and would unlikely be able to collect from this client in the future.  In the end, our client decided to officially withdraw and we ensured that the bank holding the funds he reserved to settle the last account returned those funds to him.  This money could have been used to pay the creditor, but since they insisted on taking $0 over a period of five years of offers, our client will likely use these funds elsewhere.

(Ref. 1524)

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Debt & Medical Issues

For many years it has been readily apparent to those working in the debt relief industry that many of our clients have a medical hardship.  This was recently confirmed by an article published by CNN:

http://www.cnn.com/2008/LIVING/personal/06/09/stressing.over.debt.ap/index.html

While we know that a medical hardship can contribute to rising amounts of debt what we often don’t realize is that the stress of dealing with debt can actually lead to an increase in medical issues. 

The CNN article summarizes findings from a recent poll conducted by the Associated Press-AOL Health.  This survey of just over 1,000 adults with debt found that:

• 27 percent had ulcers or digestive tract problems, compared with 8 percent of those with low levels of debt stress.
• 44 percent had migraines or other headaches, compared with 15 percent
• 29 percent suffered severe anxiety, compared with 4 percent
• 23 percent had severe depression, compared with 4 percent
• 6 percent reported heart attacks, double the rate for those with low debt stress
• More than half, 51 percent, had muscle tension, including pain the lower back.  That compared with 31 percent of those with low levels of debt stress.

Major medical issues often prove to be the catalyst in deteriorating personal financial circumstances.  However, based on the findings in this article it also appears that resulting high debt levels can exacerbate pre-existing medical issues or create new problems for those struggling with debt.

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Help, I Have Debt! Which Path Should I Take?

I am often asked by potential clients if they think a debt settlement program is a good fit based on their current financial situation. While there is a plethora of possible answers to this question, I typically resort to the shorter, more concise answer: “it depends on cash flow.” I know that most will find this answer unsatisfactory, but our experience suggests that one’s cash flow ought to fundamentally predicate the type of program decided upon. Of course, I should mention that individual circumstances vary and there may be important ancillary factors to take into consideration.

If one actually has some discretionary income at the end of the month, after all expenses (including credit card minimums) are paid, then there’s quite a bit more flexibility in choosing a path. With any amount of discretionary income, one may simply accelerate their payment schedules to each of their creditors. I typically recommend paying off a couple small accounts first — to build momentum — followed by focusing efforts to pay off higher interest accounts first. A handy payment calculator can be found at www.bankrate.com/brm/calc/creditcardpay.asp.

If you find that even with an accelerated payment schedule, it’s going to take you far too much time than what you would like to eliminate your debt, then another path should be considered. A good rule of thumb: if you think it will take more than three years to pay off your credit card debt on your own then you should consider a debt relief plan/program provided by a reputable company with a track record of success. It is important to research all of your options; from consolidating your debt via a home equity line of credit, to a consumer credit counseling service, to a debt settlement program…even bankruptcy, as your last and final resort. The focus should be on how quickly you can eliminate the debt. Determine the feasibility of a program, according to your unique circumstances and values, and not upon the lofty and often self-serving predictions of a debt or budget counselor sales representative tells you. While maintaining a good credit history is important, for example, you are doing yourself a disservice by carrying large balances on unsecured accounts over an extended period of time (in  terms of credit score, as well as the high interest you pay). In fact, a high debt to credit ratio may have a significant negative impact on your credit score. See www.myfico.com/CreditEducation for more information.

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