How to Take Extreme Measures Against Debt

Debt is a cancer-cut it off.

Declare War on Debt
Declare War on Debt

Taking extreme measures against debt is one of the keys to financial success. Without debt, you can save and invest for sinking funds, college savings, retirement, or just that once in a lifetime vacation that you could not afford otherwise.

The first measure is to declare that debt is not a tool. Debt is not going to bring you riches beyond your wildest dreams. The person who says you have to spend money to make money has money to spend. The every day individual with a car payment, ten to twenty five thousand dollars in debt, and a mortgage cannot afford to use debt as a tool.

Next, pay what you can plus a little more. Get debt out from under you. If you can comfortably pay $300 a month on your debt but have an extra $150 a month that you blow on frivolous things, put it toward your debt. The faster you get away from debt the better off you are. It only takes one extra loan to wipe you out financially for the next ten years. Really consider what you can afford and don’t think that just because you pay on time that you are at the top of the game.

Since the new credit card bill came into effect just this month, credit card companies are already starting to penalize the ritual payees. The companies have been restricted to penalties and fees of late payers and over chargers. If you are a ritual payee, who pays every month on time, more than minimum payments, who never goes over the limit, you are no longer going to reap the benefits. Companies are going to have to make up these payment losses. Annual fees, loss of rewards, and high interest rates are already on the rise. The faster you declare war on the credit card companies, the better off you will be. Pay everything you can, sell stuff on eBay or amazon, have garage sales, and maybe get a part time job. Every cent you have to spare needs to go to paying these companies off.

If you are on the verge of financial despair, even more extreme measures may be needed. There are prioritized payments you will have to make. Dave Ramsey calls it the “four walls”. This means mortgage, utilities such as power and water, food, clothes. These need to be paid first. You should never let your mortgage go to pay for your car or your credit cards. You cannot live in a plastic card. Prioritize these items and send IN WRITING to your credit companies the following: a letter stating your plan,( i.e., I will pay you this much every month an only this much, I will talk to you on Tuesdays at 5:30 every week and will take no other phone calls from your company, etc.), Send them a “Pro-Rata” sheet, This is a written plan showing your debts, the payoff the percentage of your money they are getting, disposable income and how much you can afford to pay them afterwards. You can find a sheet like this at www.daveramsey.com. Stick to this plan. Do not be harassed everyday by these companies. If they call when not stated in your letter, hang up. Show these companies you are in control, they may moan and groan, but you are doing what you can.

 Side Note: Should you consider bankruptcy?  It is never something to be recommended just to pay off your debts. It is not the answer and the rules have changed. There are still debts to be paid with bankruptcy. Consult a financial planner before you consider this. Let them help you find your way back.

The last measure is to declare that you will never fall back into debt again. Declare to yourself that you will no longer be a victim of your own stupidity. Begin sinking funds, allocating cash in hand to emergency funds and repairs. Never again declare Christmas as an emergency to be put on credit cards again. Save during the year for Christmas or buy gifts throughout the year and put them back. Never again say to yourself it is OK to use the card if you pay the balance off next month. Never again even put the card in your wallet. Cut them up, freeze them, put them in a safety deposit box, whatever you must do to not use them. Buy cheaper cars that you can pay cash for or sell your car and take the bus. Scream out loud that you will do the most extreme and outrageous things to never again be close to foreclosure vs. starvation.

So, how do you get out of debt? Pay, pay, pay. Do what must be done! Declare war on the creditors; declare war on debt. Stop using credit as a tool.  It is a growth, a virus – a cancer; cut it off.

Read more about eliminating debt at http://www.daveramsey.com

The New Credit Card Rule

the best advice is to avoid the credit card all-together

Several months ago, just before Obama went in to the white house, there was a  bill proposed, making new rules on credit card companies, to better help Americans pay off their debt.   I was once a victim of my own stupidity and the credit cards profited off of it. Once I came to my financial senses, they continued to profit off of my past stupidity and so when this bill came my way in an email, I felt I had to try to make my tiny voice reach out for once and mine and many others voices succeeded all these months later; unfortunately, it was not the answer I so desperately hoped for.

Wisebread.com listed the changes as follows:

  • Credit card companies will be required to mail a bill 21 days before it is due.
  •  Universal default will no longer be allowed.  This means that borrowers who are late or default on one card would not have their rates raised by another lender as long as the second lender is being paid on time.
  •  Rates may not be raised on borrowers until they are 60 days past due.  As long as the borrower becomes current and pays on time for 6 months after they were delinquent the rates have to be lowered to its original amount.
  •  Extra fees for paying over the phone or on-line will be disallowed.
  •  Issuers have to notify customers of rate changes 45 days before the change.
  •  Late fees cannot be assessed if the issuer delayed crediting the payment.
  •  Rates cannot be increased in the first year and promotional rates have to last at least six months.
  •  Penalty fees for going over the credit limit is disallowed unless the cardholder agrees to it.  If the cardholder does not agree to transactions over the limit then the transaction would be rejected.
  • Issuers must disclose the time and total interest costs it would take for consumers to pay off a balance if only minimum payments are made.
  •  Consumers under the age of 21 must have a co-signer who is willing to take on the responsibility of the debt.  Most likely a parent has to co-sign.
  •  There are good points and bad points to this bill. I will say that the good outweighs the bad.  Perhaps most people dislike the fact that consumers under 21 must have a co-signer. Many would think a restricted credit limit is good enough for first time card owners; or a restriction on how many credit cards a person under that age can own. But at that age, you will not have enough credit to get a larger credit limit and that is no different than before. Considering that credit card companies practically camp out on college campuses and give away free tshirts for a filled out application, there must be some way of helping teach young america to be fiscally responsible and perhaps having a co-signer is one method; however, I do foresee a issue when that co-signer wants to be released of this obligation. 

    Another issue I forsee is that credit card companies will begin to attempt to make up their money by re-applying annual fees or hidden charges but I believe this will be their downfall. One of the many incentives for having a credit card is no annual fee and rewards. Perhaps credit card holders should be more restricted on their credit limits instead, making the credit card companies less greedy and more fiscally sound. 

    Our society has become handicapped when it comes to making sound financial decisions and credit cards are one of the reasons. I also believe that this is teaching a very poor lesson to the consumer, that lesson being they do not have to be responsible. By that, I mean they don’t have to pay their bill on time and they aren’t responsible enough to make their own decisions.  

    Anyone who reads this blog knows by now I do not like credit cards and prefer to use cash. But this was not always the case and I still have debt I am paying off. Unfortunately, none of these changes and restrictions will affect my debt because I pay on time, I do not pay over the phone, my credit score is high enough I don’t have to worry about universal default, and I am over the age of 21. One part of the proposal that they took out before it was passed is the ceiling limit on annual percentage rates these companies can charge which could have truly helped the consumer. At this time, I am paying on a card that they just raised the  APR to thirty percent although my FICO score is in the very high 700s, with no late payments or penalties, and no new credit. Now tell me that is deserved. If they would have left this APR limit in the bill, consumers would not be subjected to such blatent appropriation. Lita Epstein writes in Credit Card Industry to Sock it to Good Payers that those who pay loyally and on time may soon feel the affects of this new bill. Perhaps that is why my APR has already gone up.

    All of these new restrictions in this bill have their own pros and cons but perhaps the best advice is to avoid the credit card all-together and avoid whether this will affect you one way or another.  Just know that, even by being a good payer, you may suffer the consequenses.