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You’re not alone: Help with Bankruptcy & Debt

Finance

Debt managementFrequently regarded as an indication of personal failure, bankruptcy is still today widely considered a highly sensitive topic. Many will even feel uneasy speaking about their debt problems with close relatives and friends. If you, too, are facing serious debt issues and are in need of help, rest assured you are not the only one afraid of sliding into bankruptcy. In fact, thousands of households in the UK are threateningly close to insolvency and most are experiencing the exact same feelings of shame and despair. This perfectly understandable reaction has, meanwhile, unfortunately overshadowed the fact that there are hands-on practical steps especially designed to help you resolve your debt situation.

There is a good reason why addressing the issue of bankruptcy has an urgent ring to it. Recent statistics indicate a steady rise of individual company insolvencies in the UK, particularly since the 1990s. According to the British Insolvency Service, the rate of bankruptcy on an individual level has risen from a total of 24,441 in 1997 to staggering 106,645 in 2007 in England and Wales. Alarmingly, the peak doesn’t seem to have been reached yet. As  respected online-service ‘This is Money’ reports, ‘record numbers of people were declared insolvent in England and Wales’ in 2010, further noting that ‘an all-time high of 135,089 people were declared insolvent in 2010—0.7% up on the total for 2009.’ As you can gather from these numbers, you are certainly not alone with your debt problems: Around 140,000 adults are facing bankruptcy as a direct consequence of mishandling their debt issues, which translates to 385 new cases per day. It has already been pointed out that ‘the number of victims will be enough to fill both the London 2012 Olympic stadium and the Emirates Stadium.’

So, if you’re facing bankruptcy, there’s no need to feel ashamed. By taking an active stance and addressing your debt issues, you may even be able to avert insolvency altogether. With years of experience and several distinctions to our credit, the Debt Advisory Line have established themselves as leading experts in the field of debt management. We’ve already helped thousands of individuals and households who thought bankruptcy was their only option. Settling debt issues is our forte – and you shouldn’t settle with anything less.

This post brought to you by Debt Advisory Line.

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Debt Options

Finance

Debtor's Prison Historic Marker
Image by jimmywayne via Flickr

When you’re buried in debt, bankruptcy can seem like the only option.   When you get make ends meet, no matter how hard you pull on them.  When bill collectors interrupt every dinner.  When you have to choose between food and rent.   When there is always more month than money.  Do you have another choice?

Yes, you do.

Before you rush to file bankruptcy, take the time to understand your options.

Debt Settlement

Debt settlement is when you quit paying your bills and start sending the money to settlement company.  The settlement company does…nothing.  Really.   They take your money and drop it into investments or interest-bearing accounts.  You don’t get the interest, they do.  Eventually, when your creditors are howling, the settlement company offers to make a settlement on the account.   If the creditor accepts pennies on the dollar to kill your debt, the settlement company pays them.  If not, they get to howl louder and make you more miserable.

While this process is playing itself out over years, your credit is taking a beating.  You are doing nothing to dig yourself out of the hole you’ve dug.  Finally, when your creditors are so desperate that they accept the settlement offer, you get a huge additional hit to your credit.   “SETTLED IN FULL” is not a good status to have on your credit report.

Debt settlement companies do nothing you can’t do for yourself, and doing it for yourself at least lets you keep the interest your money is earning.

Debt Consolidation

Consolidating your debt comes in two varieties, a debt consolidation loan and a debt management plan.

A debt management plan is when you send one large payment to a debt consolidation company, and they pay your creditors for you each month.    The company will usually attempt to contact your creditors and negotiate your interest rate and payments to try to get you into a situation that precludes bankruptcy and will keep your creditors happy.   In the simplest terms, this is a debt payment consolidation.

A debt consolidation loan is generally done by taking out a line of credit against your home or other collateral and using that money to pay off all of your bills.   Then you make the payments to the bank, to pay off your line of credit.   The problem is that, if you can’t make the individual payments, can you make the payment to the line of credit?  If you can’t, you risk losing your house.

Repayment

This option is my personal favorite.    It involves taking responsibility for your decisions, cutting out the unnecessary expenses in your life, and paying your bills.  There are a few popular plans for accomplishing this, including Dave Ramsey‘s debt snowball.   The most important thing to remember are 1) debt it bad so stop using it; and 2) pay off as much as you can afford to each month.  It isn’t as sexy as making all of your debt disappear, but it’s still a good option.

Bankruptcy

Let’s see.  You borrow money on the promise to pay it all back.   After you borrow too much, you renege on your agreement.  You admit your word means nothing and you get all of your debt cancelled, forcing your creditors to raise the interest rates for all of the responsible debtors out there, as a way to balance the risk of those who will never pay.  In exchange you doom yourself to lousy credit for the next 10 years.  In extreme circumstances, bankruptcy may be the only option, but, I’m not a fan.

As you can see, there are almost always better options than bankruptcy.   Please, before you take that leap, look into the other choices.

This is a sponsored post written to provide some insight into the world of bankruptcy and debt consolidation.

 

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Extra Money? What Do I Do With Extra Money?

Finance

A couple of months ago, I started a new job. The new job has bonus potential every month, and

English: RepRap v.2 'Mendel' open-source FDM 3...
English: RepRap v.2 ‘Mendel’ open-source FDM 3D printer (Photo credit: Wikipedia)

getting that bonus is largely under my control. Effectively, if I’m not a total slacker, I’ll get
about $500 every month, but it’s not guaranteed.

We’re also getting a small 4 figure tax refund this year. I wasn’t expecting that at the beginning
of last year, but one of my side hustles has taken a turn down a path I didn’t plan for, which
lowered my tax liability considerably.

Both of these things are money that we can’t plan for, so it’s not in the budget. It is extra
money.

What the heck do you do(responsibly) with extra money? It’s easy to take the money and run to the
spend it someplace fun.

Easy.

And tempting.

Very tempting.

But that wouldn’t be responsible at all.

The Dave Ramsey plan says we should put it on our debt, but our debt is down to just a mortgage,
and that’s down to $9000.

Retirement?

I actually over-contributed to my retirement last year, and had to file a form to get the
overpayment back instead of paying a penalty on that money. My wife’s account isn’t getting maxed,
yet, but she’s also way ahead of me in retirement savings.

So what to do with it?

I added a calculator that let’s me punch in a number and it breaks it out by our optional goals.

It has 6 categories:

  • Extra mortgage payment: 25%. My goal is to pay off the mortgage completely this year.
  • Retirement contribution: 25%. I do want to max Linda’s retirement contributions this year.
  • Emergency fund: 15%. We have an emergency fund, but I want to grow it to 6 months of our expenses.
  • Family: 15%. This if for whatever family thing we’re planning to do. It could be pushed into a down payment for another rental property, or a vacation, or a camper. We’ll decide this each time we get the extra money.
  • Jason’s Fun Money: 10%. This is for me to blow on something fun, like a 3D printer.
  • Linda’s Fun Money: 10%. This if for my wife to blow on something fun, like a present for me.

So, if we get $2500 randomly dropped in our mailbox, we’ll put $625 on the mortgage and a
retirement fund, $375 to the emergency fund and the family fund, and $250 to Linda and I for fun
stuff.

That lets us see progress on a few of our goals, while still rewarding how hard we’ve worked and
how much we’ve done without while becoming financially stable. 65% of it is pure grown-up &
responsible spending. 35% is generally fun, but can be repurposed if necessary.

What do you do with surprise money? Do you blow it or do something responsible with it?

New Year Goals

Misc

I’m not a fan of New Year’s Resolutions.  They are generally drunken promises made  on December 31st that are broken by the middle of January, if they are remembered at all.  I don’t make resolutions.

My goal for 2010 is to complete one major self-improvement project each month.  That’s an entire year of 30-day projects.   As each month goes on, I will be updating this blog with the status of each project.  Some of the projects will be physical, some will be mental, some will be improvements on my relationships.  My goal is to do something meaningful, useful and challenging each month.

Here’s my list:

  • January:   Wake up at 5am AND read to my kids every night before bed.
  • February:  Do 100 push-ups at one time by the end of the month.  There is also a secret project this month.  I’ll be keeping notes and posting in March.
  • March:  Do 100 sit-ups at one time by the end of the month.
  • April:  Spring Cleaning.  I will declutter every room in my house this month.
  • May:  Have a sit-down dinner with my family, at the dining room table at least 3 times per week.
  • June:  No computer use, while anyone else in the family is awake, except for household necessities, such as bills.
  • July:  Write fiction every day.
  • August:  Buy nothing new this month.
  • September:  Attempt to learn a new language.  http://ijaar.com/29-free-websites-to-learn-a-new-language/
  • October:   No yelling at the kids.
  • November:  No complaining.  Not at home, not at work.
  • December:  I will have done 14 projects this year.  December is a month off.

I Smell a Scam

Finance

I hate scammers. Whether it’s the garage-sale shoplifter, telemarketing “charities” with 99% overhead, 3-card-monte

shell game
shell game (Photo credit: mixatal (Clive Power))

dealers, or the guy who begs Grandma for cash every week, they all need to be strung up.  Since vigilante justice is generally illegal and occasionally immoral, it’s best to just avoid the problems from the start.  Here are some scams to watch out for.

Pyramid Scams – All of the little parties people throw to earn free items at the expense of their friends are pyramid schemes.  Most of those are legitimate money-sinks.  A few, however, exist solely to get their “consultants” to bring in more consultants.  The sales aren’t the actual way to make money.  If you don’t have anyone “downstream” you won’t make any money.  If the focus isn’t on selling an actual product or service, but is instead on bringing in people under you, you have entered the world of pyramid scams. Generally illegal and always immoral.  Don’t sign up and, if you do, don’t ask me to participate.

Advance Fees and Expensive Prizes – If you win a contest and you are expected to send money to claim your prize, it is a scam.  You don’t have to pay sales tax in advance.  You don’t have to pay transfer fees.  Real prizes are delivered free, accompanied by a 1099, because prizes are income.   No prize requires pre-payment. No loan service requires “finder’s fees”.   If it doesn’t sound right, don’t pay it and certainly don’t give your bank information to anyone you can’t verify.

Work at Home – The most common work-at-home job I’ve found is stuffing envelopes.  You see the signs on telephone poles all over the city.  “Make $10/hour stuffing envelopes from the comfort of your own home!  Just send $50 to….”   When you get the instructions, you are told to hand up signs telling people to send you $50 for instructions on how to make $10/hour stuffing envelopes.  Everybody is feeding off of everybody else.

Charity – Never give money to a charity over the phone.  Always take the time to verify where you are sending your money.  Some freak may call to tug on your heartstrings with a sob story, but you don’t have to give them money.  At least ask them to send it in writing so you can do some checking, first.

Phishing – Simply put, don’t click on any link in any email, unless you know where it is going.  If it is a link to a financial institution, go enter the address into the address bar yourself.   If you find yourself on a site you don’t recognize, don’t give them your personal information and don’t ever reuse your usernames and passwords.   If you do, one bad site could get access to everything you do online.

[ad name=”inlineleft”]Foreign Lottery – To be clear, Spain did not just hold a international lottery and randomly draw your email address. No lottery in the world works that way.  If you didn’t enter the lottery while you were in Spain, you aren’t going to win it.   The scam is that you need to provide your bank information, including a number of release forms so the scammers can transfer money to you.  In reality, you are signing over control of your account and will be wiped out.

Nigerian/419 Emails – Ex-Prince WhateverHisNameIs wants your help to get his fortune out of WhereverHeIsFrom.   The New Widow Ima F. Raud has an inheritence that she won’t live long enough to spend.  They’ve both been given your name as a trustworthy person to handle the transactions in exchange for a mere $10 million.   What friends do you have that would make this seem legitimate? Once again, they will get your bank information and take your money.  At a minimum, they will try to get you to pay a few thousand dollars for “Transfer fees”.  Don’t do it.

Overpayment by Wire – I had this one attempted on my last week.  You sell something online.  A potential buyer agrees to purchase the item, sight-unseen.  They’ll send a cashier’s check and, after it clears, one of their agents will pick it up.  Unfortunately, the buyer’s secretary screwed up and added a zero to the check.  Would you mind wiring the overpayment back, minus a small fee for the hassle?  The check is bogus and there is no way to verify it.   You’ll deposit the check and it will be assumed to be real.  The bank will make the funds available well before it comes back as fraud.  You’ll see the available funds and send the money by non-refundable Western Union and some thug in Nigeria gets a new iPhone.

Foreclosure Scams – Some scammers try to prey on the vulnerable because they are, well, vulnerable.   If you are facing foreclosure, be very careful about where you turn for help.   One scam is to get you to sign over your home “temporarily” to clear the title.  That doesn’t work, but you won’t find that out until you are handed an eviction notice and told you still owe the money.

Stranded Friends – You get an email from a friend saying he’s in London/Moscow/Sydney/Wherever, and he’s been mugged.   He’s got nothing and needs $2500 to get home.  Can you help?   Do you really have friends close enough to ask for a $2500 international bailout, but not so close they tell you about the vacation ahead of time? Would they really be too timid to call you collect instead of begging for change to use an internet cafe?

My Financial Plan – How I Improve on Ramsey

Finance

In April, my wife and I decided that debt was done. We have hopefully closed that chapter in our lives. I borrowed, then purchased, The Total Money Makeover by Dave Ramsey. <a href=budget” width=”300″ height=”213″ />We are almost following his baby steps. Our credit has always been spectacular, but we used it a lot. Our financial plan is Dave Ramsey’s The Total Money Makeover, with some adjustments.

Step 1. Budget:

The budget was painful, and for the first couple of months, impossible.  We had no idea what bills were coming due. There were quarterly payments for the garbage bill and annual payments for the auto club.  It was all a surprise.  Surprises are setbacks in a budget.

When something came up, we’d start budgeting for it, but stuff kept coming up. We’re not on top of all of it, yet, but we are so much closer. We’ve got a virtual envelope system for groceries, auto maintenance, baby needs(we have two in diapers) and some discretionary money. We set aside money for everything that isn’t a monthly expense, and have a line item for everything that is. My wife is eligible for overtime and monthly bonuses. That money does not get budgeted. It’s all extra and goes straight on to debt, or to play catch-up with the bills we had previously missed.  I figure it will take a full year to get all of the non-monthly expenses in the budget and caught up.

Step 2. The initial emergency fund:

Ramsey recommends $1000, adjusted for your situation. I decided $1000 wasn’t enough. That isn’t even a month’s worth of expenses. We settled on $1800, plus $25/month. It’s still not enough, but it’s better. Hopefully, we’ll be able to ignore it long enough that the $25/month accrues to something worthwhile.

Step 3. The Debt Snowball:

This is the controversial bad math. Pay off the lowest balance accounts first, then take those payments and apply them to the higher balance accounts. Emotionally, it’s been wonderful. We paid off the first credit card in a couple of weeks, followed 6 weeks later by my student loan. Since April, we’ve dropped nearly $10,000 and we haven’t made huge cuts to our standard of living.    At least monthly, we re-examine our expenses to see what else can be cut.

Step 4. Three to six months of expenses in savings:

We aren’t on this step yet. In step 2, we are consistently depositing more, making us more secure every month.

Step 5. Invest 15% of household income into Roth IRAs and pre-tax retirement:

I have not stopped my auto-deposited contribution. It’s stupid to pass up an employer match. My wife’s company does not match, so she is currently not contributing.

Step 6. College funding for children:

We have started a $10 College fund.

Step 7. Pay off home early:

I don’t see the point in handling this one separately. Our mortgage is  debt, and when the other debts are paid, we will be less than a year from owning our house, free and clear. This is rolled in with step three. All debt is going away, immediately.

Step 8. Build wealth and give!

We have cut off most of our charitable giving. Every other year, it has been a significant percent of our income, and in a few more years, will be so again. The only exception to this is children knocking on the door for fundraisers. I have no problems with saying no to a parent fundraising for their kid, but when the kids is doing the work, door-to-door, especially in the winter, I buy something. My son’s school, on the other hand, gets fundraisers ignored. When they come home, I send a check to the school, ignoring the program. I bypass the overhead and make a direct donation.