Divorce Your Debt: Five Alternatives

Debt, particularly the kind that comes from credit cards, can leave consumers on a sort of hamster wheel, paying, paying and paying and never getting anywhere. While most people use their cards meaning to pay their debts, bad decisions, a struggling economy or unexpected expenses can derail the best of intentions. Unfortunately, when it comes to debt, it isn’t the thought that counts.

Eventually, most people on that hamster wheel realize the futility and will do just about anything to get off. It is important to understand the alternatives.

DIY debt reduction is a plan in which consumers strive to reduce or eliminate their debt on their own. In its simplest form, a DIY plan must employ two criteria to work. Consumers must stop using credit and they have to pay more than the minimum amount due each month. A DIY plan requires a lot of discipline and belt-tightening but it will work, though it may take years longer than most people think.

Add on a few details to the plan and it can work more quickly. By paying at the beginning of billing cycles, one saves a bit of interest and is never in danger of late fees. Over paying by at least 20% will significantly affect the principal debt. The more money paid early in the process, the sooner it will be over but the most dramatic results may not be visible for quite a while.

Transferring Balances or shifting debt from one credit card to another may provide temporary relief and help jumpstart a DIY plan. Combined with very aggressive payments, that little interest rate break may last long enough to help people get back on track. Unless there is a real DIY plan, however, transferring balances just postpones the inevitable. The introductory interest rates are temporary; sometimes barely lasting six months. One must consider the subsequent interest rate if the debt cannot be paid entirely during the period of the introductory offer.

There are also lots of snares and traps associated with balance transfers. The ways the interest is calculated, the method the creditor uses to classify balances and how payments are applied could end up costing the consumer much more than imagined. Additionally, penalties in the forms of fees or interest rate hikes if the consumer is even a day late with a payment can make the balance transfer a really bad decision.

Debt Consolidation is often the first alternative people think of but is unavailable to most consumers. Consolidation is supplied by a bank and is usually associated with a line of credit or a loan based on home equity. If a consumer does not have assets and equity, there is no loan.

Paying off high-interest rate credit cards with a lower interest rate mortgage makes sense on several levels. The lower interest rate, easier payments and the ability to deduct the interest from taxable income are enticing. However, default on the loan can result in the loss of a consumer’s home instead of mere credit report damage on unpaid, unsecured debt. Lengthening the payback time on the debt may reduce payments but additional months or years of interest really add up. And there is always the potential of running up those now empty card balances again.

Debt Management is when an agency, usually a non-profit company, contacts a consumer’s creditors and requests interest rate and minimum payment reductions which are significant enough to help the consumer effectively pay the debt in a reasonable time frame. These agencies have standing agreements with most creditors and if the consumer is in arrears, the proposals for payment plans are often accepted. The debt management agency will also consolidate payments so that the consumer makes one large payment each month to the agency which is then distributed to the creditors. Fees often apply and a consumer is required to stop using credit entirely. Debt management also maintains the damage to credit reports that first prompted the need for help. Even with generous creditor concessions, it can take years to pay off the debt.

Debt Settlement must be accomplished by experienced negotiators who approach a consumer’s creditors and negotiate a reduced balance. Debt settlement requires considerable knowledge of consumer rights and a clear understanding of the credit card industry. The consumer will pay less on the debt but often has to pay all at once. (Sometimes payment plans can be established but usually this involves additional loans which are secured with assets.) The consumer will also pay a steep fee to the settlement company. Credit report damage remains to the legal limit and all forgiven debt becomes taxable income; so Uncle Sam gets his cut next April.

Bankruptcy comes in a number of forms. Most often consumers are guided to either Chapter 13 or Chapter 7 bankruptcy. Chapter 13 is a court ordered version of debt management and many who file for Chapter 13 eventually re-file for Chapter 7. Chapter 7 is when the court orders that included debt be discharged entirely. The consumer is given a fresh start with a credit report that is severely damaged for ten years.

Filing for Chapter 7 does not automatically guarantee that debts will be discharged. Consumers would be well advised to seek the advice and guidance of a reputable and experienced attorney who specializes in bankruptcy.

Getting advice is often difficult because it seems that everyone who knows enough to give it also has something to sell. With the exception of the DIY plan, attempting to do any of them on one’s own can make matters much worse.

When creditors are alerted to a possibly defaulting debt, they will, of course, act and speak in their own interest. They may revoke credit making the entire balance due immediately. They may reduce credit limits far below the outstanding balance, charging over-the-limit fees until the balance is significantly reduced. They may raise interest rates and increase minimum payments. They may even sell accounts off to collection agencies which will assuredly be much more aggressive than the original creditors and which are more likely to actually take the legal action they threaten.

A common mistake consumers make in choosing one method over the other is they base their decision on emotions more than understanding the practical solution that best fits their situation. They wish to be ethical without understanding the ethics of the credit world. They worry about their credit reports without knowing how credit reports work. They fear not having their credit cards because they do not know how to live without them or within their means.

Education is key to our decision but second best is advice from a certified, and reputable, financial counselor—not a financial adviser who focuses on investments. The National Foundation for Credit Counseling (NFCC) provides a website feature to help locate reputable certified counselors. These counselors all work for debt management agencies under the governance and standards of the NFCC and are a consumer’s best bet for reliable advice.

Joseph Onesta is speaker, trainer and work culture consultant. As former Director of Education for Consumer Credit Counseling Service of Los Angeles, he has helped tens of thousands of consumers along the path to financial wellness through education seminars, workshops and publications. To learn more about his services, visit his website at www.integrityhpi.com.

Stop the Insanity--Eat, Breath & Move

Susan Powter was right!

Spend just an hour watching television and count how many commercials advertise, exercise equipment, diet pills, face creams, hair-loss remedies, new medications for diseases we never knew existed and herbal supplements to enhance male potency. For all our obsessions, we Americans are an amazingly obese, disease-ridden society that worries itself into an early grave.

Joseph Onesta is a speaker, trainer and consultant. His company, Integrity HPI, works with organizations to help build and maintain and "employer of choice" work environment. For more information about Joseph Onesta or his company, visit his website at http:www.integrityhpi.com


In the 90’s buzz-cut, Susan Powter, shouted her message of “Stop the Insanity. What you have to do is eat, breath and move.” It comes down to that. (She's still around... http://www.susanpowteronline.com )

If we are going to pursue a balanced life, we have to make room for taking care of our bodies. After all, we can’t have a balanced life if we have no life to balance. And, we all know how simple physical discomfort, things like hangnails and paper cuts, can distract us from absolutely everything else. In balancing our lives, we have to consider our bodies.

Drastic lifestyle changes are almost always doomed to failure. We’ve proven it again and again. We buy gym memberships we never use. We buy proportioned food plans that we eat in less than half the time they are supposed to last. Our basements are filled with unused exercise equipment and our cupboard shelves are lined bottles of herbal supplements we don’t take.

There are, however, some simple things we can do to grow healthier by the day. Based on average American lifestyle and diet, not all of these recommendations will apply to every individual. Choose the ones that best apply to your life.

EAT

We eat for lots of reasons but biologically, there are only two. We need fuel and we need nutrition. In looking to improve our diet, the devil is in the details. The more complicated we make it, the less likely we are to follow through but some simple principles can go a long way.

The average American diet is heavily laden with salt, fat, processed sugars, chemicals and empty calories. Nutrition labels have to exist because our processed food products are designed to taste good, stay on the shelves for a long time and be cheap to manufacture. Apart from supplying empty calories, processed foods often provide little else. In fact what nutrition there may be has often been added to the product after processing has removed the natural nutrients.

So, read labels! You should know what you are eating. They often betray outrageous levels of fat, salt and processed sugars which are major contributors to some of the most common yet deadly conditions in American culture—obesity, high-blood pressure, high cholesterol, heart disease and diabetes. The chemicals are probably tied to cancer in more ways than one, we just either can’t prove it or powerful lobbies keep the information out of our hands. Look how long it took the tobacco industry to admit that smoking is addictive and causes lung cancer.



The contents of food products are listed in order of quantity. The first few words may be frightening enough but keep reading. If you start getting into words you do not recognize or cannot pronounce, you are likely among chemical additives for consistency, color or preservation. The word “artificial” is a definite chemical indicator. It does not take much mental power to understand that eating an apple picked from a tree is better for you than drinking apple flavored beverage most of which is chemical additives and processed sugars.

Don’t be fooled by the words “natural flavors” either. If there were natural foods in there, they would be listed in the contents. The so-called natural flavors can just as likely include the odd bug that falls into the vat during processing.

Eating more fresh fruit and vegetables would be a dramatic improvement for many of us and if we go with certified organic produce, we avoid consuming chemicals which have been applied as fertilizers and pesticides. Salad is nice but be careful about the dressing. Eating more whole grains will increase our fiber and add natural nutrition. Think twice before picking up the butter knife or salt shaker.

Consider cooking and eating at home more. If you have ever been to a restaurant supply store, you know that it is filled with processed food as are most restaurant kitchens. The only difference is the size of the packaging.

BREATHE

Unless you live in Bangkok or Los Angeles, chances are the air outside is better than the air inside. Get out into the countryside and breathe some good fresh air. In your daily routine, consider some deep breathing exercises to expand your lungs.

When I was in the hospital recovering from spinal surgery, every once in a while, a beeping machine would bring a nurse who would instruct me to breathe deeply. Apparently one of the cords attached to my body alerted her to the fact that my tissues were not getting enough oxygen. A few deep breaths rectified the problem. I find that amazing!

Most of us do not think about breathing. After all, we do it constantly and unintentionally. Who would think that such a simple thing as conscious deep breathing could make such a difference in our health? This also sheds a new light on smoking, does it not? Cancer may be slow in coming but what about all that oxygen depleted breathing you are doing? If you smoke, stop. If you hang around with smokers, don’t.

MOVE

Have you heard? Your local gym is having a membership sale. Buying a membership won’t do you any good unless actually go several times a week and do more than sit in the Jacuzzi. If going to the gym fits your life, go. But you don’t need a membership to get some exercise. Just get up and move. Walk to the corner and back. Take the stairs at the office. Wash your own car. Take a walk in the woods. When you go to the pool, get in and swim rather than just bobbing around a looking at the people in their bathing suits wishing you were thinner. Small changes can make a big difference, even parking in the space farthest from the entrance to the donnut shop! Just move more.

Though we are lured by the promise of miracle supplements, magic weight pills, youth in a jar of cream and perfect health and vigor in a capsule, they are all snake oil compared to the simple straightforward advice of someone like Susan Powter. We need to eat, breathe and move.