My financial advice - IT'S FREE!

[dbphotos]

On another (non-photo related) forum someone asked advice on declaring bankruptcy for about $10,000 in credit card debt. I know this topic has come up here in the past and with the economic times as they are I thought I would share my thoughts. Of course its worth exactly what you are paying for it, but I thought I'd share anyway.

Having been in the financial business for a good number of years on both the investment and banking sides I can tell you that BK is not generally the answer for personal debt. I have counseled many clients on lots of financial strategies and BK was never the answer. I know that many attorneys will say it is, but they have a financial interest in saying so and like stated above they will require at least a couple of thousand dollars to do the work for you. If you have a couple of thousand dollars you can start negotiating with your lenders. First, I'm not an attorney and my advice is probably worth what you are paying for it - 0.

BK will stay with you for the rest of your life. I don't know how old you are now and what line of work you are in or will be in 20 years from now but it can follow you well past the 10 years it shows up on your credit. First, it will stay on your credit for at least 10 years after it is discharged and discharging of BK can take from a few months to a few years. Second, if you ever want a government job or any job that requires a background clearance it will follow you for the rest of your life and could limit anything you may want to do in the future (even if you don't think you want to do it now).

A better approach is to look at all your non-collateralized debt (credit cards, etc.), figure the total and determine how much cash you could realistically pay towards them. Once you have the dollar figure calculate a percentage. (available cash / total debt = %). Take that percentage and tell each of your credit card companies that you are unable to pay what you owe but would like to pay as much as you can. Tell them that you can pay 25% (or whatever the % is) to pay the account in full. Another approach is asking them to waive interest and allow you to pay the account over several years with 0% interest. You will likely have to talk to a supervisor to get anywhere. If you don’t get the answer you want, keep asking for their supervisor until you do. If they flat out refuse tell them you will negotiate with your other creditors and there likely won’t be any money left to pay them if they don’t work with you.

VERY IMPORTANT: If you are contacted by a collection company, tell them not to contact you any further and tell them that you are going to deal directly with the credit card company only.

Your approach should also depend on the amount you owe creditors. If you owe $10,000 or less I would never recommend doing anything other than negotiating directly with creditors.

In my experience, the only time it makes sense to consider personal BK is if you have large medical bills, extremely high debts and no assets to pay even a percentage or a failed business.

It won’t be easy to negotiate and get this problem solved directly with the creditors, but it will work if you stay with it and it won’t follow you for the rest of your life. Once you get all accounts negotiated and paid you need a plan to keep your nose clean for 24 months and then you can start rebuilding your credit. After 24 months of good credit you will likely be back on track. Don’t get yourself back into the debt cycle again by spending on credit once you get the current accounts taken care of.

One last thought. No matter how you got there, remember that the debt was accumulated by you so don’t think there is an easy way out. Digging out of debt will be a much harder road than getting into debt. You need to take a hard look at your expenses; cable or satellite t.v., cell phone plans, the type of car your drive, ROLEX watches, etc. What can you sell and more importantly what monthly, on-going, expenses can you eliminate. Be honest with yourself and you’ll find you are able to save quite a bit each month. The feeling of accomplishment when all is taken care of will be great and you will feel much better physically and psychologically.

And of course don't forget to pick up Dave Ramsey's book at the library to find out how to stay out of debt and develop a plan for the future.

[Lucky13]

I've always been instructed to never finance anything that will/may depreciate.

[Jeff_Green]

You're right. Can I have my money back?

[Cajungaltx]

Amen to the Dave Ramsey info.

We had been working through our baby steps when Brad was 'terminated' from AT&T... we made it 12 weeks without additional stress because of savings, and reduction in household expenses. It took the 'stress' from the job issue down quite a bit because we didn't have the 'how the heck are we gonna eat' stress included.

[Crashoran]

Just only spend the money you have and you'll avoid debt in the first place