Debt consolidation, equity loans, credit counseling, debt management plans, and even Chapter 13 bankruptcy, no matter which of these debt programs you are talking about.
They all suffer from a fatal flaw, the number one problem that causes most people to fail to eliminate their debt through these techniques. Can you guess the question?
It is probably not what you are thinking. It is not the rates, interest rates, or the quality of the companies behind these debt solutions.
No, the number one problem in most debt programs is that they require FIXED monthly payments, without exception. This primary failure is the main reason why few people can go through a Chapter 13 bankruptcy or credit counseling program.
You earn the same amount of money every month. If you are like most people, the answer is probably NO. It is easy to understand why. Salespeople, for example, often experience ups and downs based on the commission they receive from one month to the next.
Seasonal workers go through periods of high and low, depending on the time of year (I think retail workers were getting a lot of overtime on holidays).
Overtime comes and goes depending on the company’s workloads. Part-time jobs can offer hours that vary widely from week to week. And so on.
Now, what about your expenses? Do you spend precisely the same amount of money every month? Of course, your mortgage or rent and your car payments are a set amount each month.
But your utility bill doesn’t go up and down depending on the weather, what about your phone bill? How much will you spend on auto repairs in the next six months? Medical bills, dental bills? You can predict variable expenses with any precision,
If you have a lot of space in your budget, with money remaining at the end of the month, fluctuating income and expenses are unlikely to be a significant problem for you. However, if you are struggling to survive, living off one salary to another, an unexpected expense can destroy your monthly budget.
People go into debt relief programs with the best of intentions. Take credit counseling, for example. You enter into a plan to get help with managing your credit card debt. The $ 500 monthly payment looks good. You’ve been humming well for a few months, and then!
The water heater explodes – it’s time to shell out $ 800 for a new one. Unless you like cold baths, you will need to skip the agency’s $ 500 payment this month and part of next month’s salary.
Where that leaves you with the credit counseling program, Back on the streets, this is it. You CANNOT miss payments for this type of plan and expect only one failure.
Or see Chapter 13 bankruptcy, where the court requires you to pay a set monthly amount to your creditors for three years. Even before the drastic new law came into effect, two out of three people went bankrupt in chapter 13.
It will get much worse under the new law, because the court will set your monthly budget for you, based on what the IRS says it should be for your state and municipality.
This is simply unrealistic, and when people realize how bad the new law is, they will move in the other direction of chapter 13. (Forget chapter 7, where you clear debt. The new law will make it very difficult to qualify for the old one. Chapter 7, a new beginning.)
Again, the big problem with most debt relief programs is the lack of flexibility. You can’t call your credit agent, credit counseling agency or bailiff and say, “Hey, my son broke his leg and I had to pay the hospital $ 500 to cover my insurance deductible, so I will need to skip my account. ” payment of the debt this month.”
If you could, these plans may have a chance to work. But these inflexible programs do not reflect the unpredictable nature of the average household budget.
There is a debt program that offers this flexibility, yes. It is called debt settlement or debt negotiation.
It is certainly not for everyone. Debt settlement is an alternative to bankruptcy. It is not for people who can pay their bills in full without difficulty.
But it can be a real blessing for those seeking relief from an overwhelming debt burden.
The reason that debt settlement is so flexible is that you control the money. You accumulate wealth in a separate savings account until you have enough to make a reasonable offer to one or more of your creditors.
Like any debt program, debt settlement has its disadvantages and risks, but no other program provides that level of flexibility. As payment mensal is going to a trading fund that you set up and control, a bad month means you have less money to pay.
If you can make it up later, that’s great. If not, this is life. When you have enough to settle ONE account (usually between 35% and 50% of the balance due), make an offer.
If your creditor accepts the agreement, you will begin to accumulate funds to settle the next debt and so on. It is the only program out there that recognizes a fundamental reality: your budget must set the pace for your debt elimination program, not the other way around!
Again, debt settlement is not a magic bullet.
It will not cure all debt problems. But if you need to skip a month or adjust it up or down a bit to reflect what’s going on in the real world, that doesn’t mean the end of the program.
It is a shame that the financial “experts” who have established bankruptcy rules, consolidation loan terms, credit counseling plans, and debt management programs have not yet realized this.
If they recognized this fundamental problem, the success rate in their programs would increase dramatically, and they could stop misleading the public about what works and what doesn’t in the world of debt relief.