If you have even glanced at our blog, you know we spend a lot of time discussing the landscape of debt settlement POST the new laws. And for those of you just tuning in, those laws limited debt solutions to only companies that charge fees per PERFORMANCE. Nothing upfront.

Now most of the companies who relied on ridiculous upfront fees are thankfully out of business. But there remain a few loop-holes…..or as I like to call them “L” holes.

These L holes are companies that don’t try to improve themselves to meet the new law’s requirements. Instead they just find increasingly more sophisticated ways to scam people and not get caught.

The purpose of this is clear: Don’t provide debt solutions, and scam people for every dollar they have.

One of the big loopholes these companies utilize is a front-loaded scam called “face to face.” This allows them to still charge people upfront so long as they meet them face-to-face. Terrible.

There is no reason for a company to meet you face to face and ask for upfront fees. If they want to meet face to face, it should be for the right reasons: To just MEET you. Why is that such a foreign concept?

Don’t fall for the idea that meeting face to face is more convenient. It might be…it might not be. Just keep a critical mind around the notion of paying fees upfront, and protect yourself.

Don’t be afraid to call them on it. What kind of debt solutions are these? We are broke and you are just charging us more? Keep the vultures at bay, trust me, if they are not transparent- they are not looking to help.

And if you do decide to do business with an “L” hole make sure they do it over the phone and with no upfront fees.

The myth of “risk free.”

Some companies saw the regulations as a government risk blanket, an open endorsement to tell customers they have nothing to worry about. NEWS FLASH; There is no such thing as risk free!

Risk is a vital part of financial life. All things have risk and have reward. To tell someone to sign up and float away in a pink cloud of financial safety is just disenguine.

Simply speaking, the law fragmented the industry and created several types of people.

1) The ones that just shut their doors because they didn’t want to get caught.
2) The ones that decided to hide under a lawyers office, and pretend like they’re not doing debt settlement, when in fact they are.
3) The ones that just ignore the law and get caught.
4) And the ones that really weren’t effected by the law because they were doing things right in the first place.

Obviously you would not be reading this post if the world was full of people in the last category. So let me tip you off about some things you might hear from categories 1-3. The most common myth is this idea that you don’t need to research the company. Often, sales people will just throw some quick jargon your way and assure you that their word is final. Truly, you must research what the company is about, it’s history, and its BBB rating before you ever go into business with them.

Also, make sure they have a solid advisor who can help you decide if the program is even right for you. Not everyone needs to be in a program. If you can make your payments, you probably should NOT be in this program. Also, if you are near bankruptcy, it should also be avoided.

Good advice is out there. You just have to look hard for it and be critical at every step.

They are insidious…they are mean….they are debt collectors. This business attracts only some of the most persistent and intrusive individuals in this country. The kind of people you don’t want to deal with. Now they exploit the social marketing phenomenon for their own interest. Facebook is fair game when it comes to debt collectors stalking you and trying to reclaim their debts.

In Spain, it is a common phenomenon to have debt collectors follow people around in weird outfits, constantly harassing them in ways that are very embarrassing. Since communities are tight-knit there, it turns into a public scandal and often makes people pay up.

Here we mostly live in commuter communities, where it would not make sense to wait around for someone while they walked from the house to their car. however, stalking on Facebook parallels the Spanish model in the sense that it can often significantly shame a person who is in debt.

The first lawsuit ever has popped up that targets a debt collector for harassing her, her friends, and even family on Facebook. literally everyone this woman ever knew got a message from this guy, and the messages were not too pretty. Thanks to these tools, debt collectors do not have to track you down. They simply follow you online and start sending messages to anyone they want. Not the type of thing you want on your wall. People started messaging her, saying she should pay up. The debt collector even started a group called “Betty, pay your bills already,” which got a bunch of likes and some comments (from an ex-boyfriend of hers.

Of course Betty is not her real name, but one thing we can state about her is that her reputation was integral for her business. Once all her colleagues and business associates learned about this problem, she had a harder time networking and closing deals. It really impacted her ability to make money given that she was in a direct sales position.

There are a few things you can do in this position: One is ensure your privacy settings don’t let someone like this get through the door.

The other of course is to stay out of debt.

And as always, if you need help, feel free to contact us.

This is a perennial question in life as it is in debt. I suppose if you have some rich Uncle about to kick the bucket, and devote his entire estate to you…You can be as in debt as you want to.

How much is “too much?”

This is a perennial question in life as it is in debt. I suppose if you have some rich Uncle about to kick the bucket, and devote his entire estate to you…You can be as in debt as you want to.

But for most of us, we need to learn good habits of debt management from day one. That way we can know for a fact what is “too much” for us.

Philosophies of debt:

All of our financial predicaments are defined by the way we view life and money. Some people are savers, others are spenders. Some feel overly entitled, others are stuck in a poverty mentality. Here are some typical approaches towards debt.

DEBT IS DEATH: The debt is death concept is often adopted by immigrant and first-generation populations within the US, where being in debt is considered anathema. These people tend to be intense savers, and don’t even bother using credit cards.

This debt fundamentalism, as we can call it, has pros and cons. The pros are that you are never in debt. But a major con, is that it is impossible to make your money work for you in this way. First of all without ever going into debt, you cannot have a decent credit score. Simply because the bank will considered your file to be too thin. Without credit, you can’t get a house, a good car, or many of the other luxuries that are important to us as a culture.

DEBT’S OKAY BUT PAST DUE BALANCES ARE NOT: This is actually pretty smart, the people that pay off their credit cards each month, especially those that take out rewards card Like Chas Sapphire or Amex (Costco) usually cash in over time. Some of these cards have seven percent returns. How great is that? This is usually considered the most responsible way to pay for things with credit, and of course the best part is there is no interest involved.

DON’T BOTHER ME, I’M SHOPPING: Then there is the third category of people. These individuals seem to not care about interest rates, and really don’t care about any financial future besides the next few weeks- living paycheck to paycheck, and racking up debt. Obviously this is not a sustainable way to plan for your financial future. Your cards are maxed, your accounts are tapped- and they blame everyone but themselves. Of course there is help for this category, but it can be the most challenging way to manage your financials.

Whatever your category is, know who you are– and do your best!

3. Any Balance Over 30% of Available Credit is Excessive (i.e. Just Use Credit a Little)

When you carry a balance on your credit card that is in excess of 30% of your credit limit (i.e. line of credit), then you run the risk of negatively affecting your credit score. The bureaus see that as a sign that you are relying too much on your debt. With this in mind, some credit card users don’t mind the occasional balance. But they know about the 30% rule, so they keep the balances low.To this person, any credit card debt above 30% of the credit limit is excessive.

4. Any Balance at or Exceeding the Line of Credit is Excessive (i.e. Use the Heck Out of Credit)

Some people simply don’t know, or don’t care about the high interest that comes along with credit card debt. They constantly keep their credit cards maxed out, but don’t breach their limits. They may even pay on time and never incur a fee. But they pay big amounts in interest payments. They see this as the cost of the convenience of credit. To this person, any credit card debt above the total credit limit is excessive.

For the record, I think #1 and #2 above are the only way to go. And if you aren’t there, you need to be working yourself in that direction. However, I realize there are times in your financial life where you find yourself settling for the #3 and #4 approaches. I’ve been there myself.

Getting Rid of Your Excessive Credit Card Debt

If you’ve come to this post and you are trying to eliminate your credit card debt, then here’s a 6 step plan for you:

Do whatever it takes to stop using the credit cards
Write down your current credit card debts
Prioritize them based on balance or interest rate
Start using every extra dollar in your budget and pay the first card off
Repeat that last step until all your cards are paid off
Enjoy being in control of your credit card debt

Have you ever had excessive credit card debt? How do you define excessive?

Photo by Andres Rueda

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#1 DON’T do monthly minimums anymore. Minimum payments are, by nature, designed to keep you in debt for the rest of your life. Instead, you should focus on hitting the debts that have the highest interest rates. You need to pay more than minimums to get out of these killer interest rates.

#2 Consolidation: This piggy backs off the notion of transferring to lower interest rate cards. But it also means consolidating into one lower monthly payment. You will get hit by transfer fees but this might be the best solution to keep in mind. You can also take out new loans potentially, that just have better rates. Then use these to pay off loans that have worse rates.

#3. Make more money. Easier said than done right? In reality, most Americans are underemployed, meaning they could be making more money under different circumstances. This might mean relocating to a higher paying job, working harder, or investing in continuing education and training. Also there are side jobs, second jobs,and investment opportunities. All of these can be great ways to increase your income.

It is important however not to spend your new earnings but focus on paying off your debt. Many people who get a boost of financial resources assume they should be living better, so they start getting further and further into debt. This is a common pattern and should be avoided at all costs.

#4 There’s a time to save and a time to spend. Your goals should include provisions for both of those times. Keep track of your target projections of savings and spendings, and do not go over this projection. The limits will keep you on track longer after you pull out of debt.

#5 More is less. If you savings on low rates in a checking acct. use them towards debt first.

#6 Stick to debt payment. Whatever you decide, stick to it. If you enter in a debt payment program, stick to that. The main thing is to be patient and reap rewards in the long term.

This article is not about canned advice on how to get out of debt. It is not about listing the hundred “common sense” techniques that you thought of on your own. What we would like to do within this post is explain a few debt solution strategies you may not have thought of yet. Let us know what you think.

#1: Online budgeting tools. You know they’re out there but you have been putting it off. Sites like www.mint.com allow complete analytic data about your budget, at absolutely no cost. Another strong tool is YNAB, you need a budget. This tool automatically generates a strategy in addition to offering analytics data.

#2 Cash is now your best friend. Credit cards are probably what got you into this mess. And they won’t help you get out. Pretend like you’re in the mob and start carrying wads of cash wherever you go. The reason is simple: Money means something. Plastic doesn’t. You will be less likely to part with your hard-earned cash if it is sitting in your pocket. And if safety is an issue, simply carry smaller denominations.

#3 Frugality through different eyes. Being frugal does not just mean cutting back. It means truly evaluating wants and needs in life. Go through all your monthly expenses and ask what would happen if you cut that out. Would the consequences be SO terrible? Could you tolerate living in a smaller space? Driving an older car?

#4: Don’t try but do. Develop a plan in advance. Take time to make it as effective and realistic as possible. Then never diverge from that plan. The plan is your saving grace. If there is every a chance to deviate from it, do not take it.

#5: Use balance transfer credit cards if you HAVE TO use credit cards: If you must use a card, consider going balance transfer. Switching the balance from a high interest rate card to a lower one will help you save money. Balance transfers do cost money but if you do it fast enough, with enough cards, you may be able to save yourself money.

#6: Savings. Once you start paying your debt off, use a similar technique to ensure savings. Once your money begins sitting in a savings account it will work for you, rather than end up in the hands of credit card companies.

What the average Joe does not get, is that the bank makes money precisely because there is a risk. Otherwise they would have no way of being able to offer such a unique service. So that when the consumer cannot repay, they start to associate their position with feelings of inadequacy. They got dealt a bad hand, and they feel like they are a bad person because of it.
These feelings only serve to cloud your judgement. They are not the reality of the situation. If you are feeling them, you should think about reconceptualizing the way you view debt.

The creditor wants you to pay not for MORAL reasons, but for a cold, profit driven calculus. They want to make a profit, not make you feel bad.
But many debtors know you feel bad, so they manipulate you into paying longer than you have to. Don’t be deceived. Pay for the right reasons. Or default for the right reasons. But don’t let your emotions get the best of you.

Here is a little fact about credit: The creditor knows you won’t repay. How? Because to them you are just a statistic. If you don’t repay, they have accounted for it. If you do, they accounted for that too. They have done this for generations and they are exceedingly good at it.

Now this does not mean you should not pay your bills. If you can honestly pay, by all means, keep paying them. But if there is a time in your life where there is just no way and no how, don’t feel bad.

Remember, the bank or loan officer, wanted you to go into debt. it made sense for them.

Now even paper is money is on the way out. It’s all electronic. When you get paid the money is in your account…in a computer…really just a bunch of ones and zeroes next to each other. When you pay your debts, you are just transferring one bit of information. That’s all. No one stops off with the actual money next week, nothing changes. No one gains or loses anything except a couple of notations on their online banking portal.

So what’s the real boundary? Why does money and debt control our lives?

Part of the reason is money and debt is used as an instrumental of stigmatization. A long word meaning the attempt to put a label on you…and not a very good one. A financial obligation can be problematic, especially when it is bound with an agreement, such as usually the case in debt scenarios.
But the majority of the substance around debt, and around money, comes from people. Specifically the little guy who feels guilty and afraid from having debt. The rich know money is just a concept, and they are well off. But they capitalize on feelings of ill will that come about as a result of it.

Debt is the process of giving something valuable in exchange for a pledge to repay. Then you pay for the process with interest. That’s how a creditor determines what is the most amount of money they can get out of you over the longest amount of time. Of course, once your financial situation changes, so does that formula. but they don’t tell you that. They have a whole different way of looking at people that are in dire straits.

You see, the reason your interest rate was so high to begin with is because they fully expect a large portion of their debtees to not be able to repay. They have already calculated on your default and hedged their loss over a million other transactions.

There is nothing moral attached to the act of borrowing money. It is neither right nor wrong to borrow or repay. It’s a question of profit and loss.
And money, in of itself, has become nothing more than a series of numbers on a computer screen.

I hope you have enjoyed this existential examination of financing and debt. And I hope you have walked away with the concept that free will and rational decision making should guide your financial decisions. Not outdated notions of morality.

First of all, a violent robber has no idea whether you have credit card or cash in your pocket. So if some bearded sociopath accosts you in an alley, you are better off throwing a bunch of ones at his feet and running then kindly explaining to him you have problems and need debt solutions, and would he mind accompanying you to the nearest B of A?

“I just don’t like carrying cash because it’s not convenient,”

This one is true! But more convenient for what? For debt solutions? Nope! More convenient for SPENDING. Which is the last thing you want to be doing. Credit cards also take longer if you count the transaction time so in some ways, its NOT convenient. And you need the change for meters.

“I can’t keep track of my spending if I don’t use my card”

False! Actually when you have a bunch of little charges adding up on a seemingly endless line of credit, you are less likely to pursue true debt solutions. And more likely to just IGNORE the huge bill you get at the end of the month. it’s like anything else. If you weigh yourself EVERY DAY, you are more likely to lose weight than if you weigh yourself at the end of the month.

“My Credit card company gives me rewards..”

And there’s a reason for that! They are the last people on earth who want you to realize debt solutions. They create these programs in a scientific way to sucker people into lousy spending patterns. Not to mention that if you are in debt, you are most likely not getting much more than two percent in rewards…which is negligible at best.

So what should we take away? Credit cards have their role in society, but when it’s time to pull yourself up by your boot straps and seek real debt solutions, it pays to not get too friendly with the plastic.

The Method: Save up $1,000. This is to be used as an emergency fund. Now don’t touch that fund and start paying off your debts. Attempt to pay off ALL your debt, without settling. This is to keep your credit score high and ensure you abide by your agreements.

The next step is then to order your debts from smallest to largest, and start paying off your smallest debt first. One the smallest one is paid off, you move on to the next one

The Pros: The pros of this approach compared to other debt solutions is that it often has a nice motivating quality. Seeing yourself succeed at paying off a little debt might give you the boost you need to pay off the rest of your debts.

The Cons: This approach is not mathematically sound. For one, it makes more sense to pay off the debt that has the highest interest rate first. Also, it often makes more sense to attempt to settle a debt with your creditor in today’s economic landscape then get stuck paying the entire amount. This is especially true if your debts were incurred before the housing collapse in 2008 and the ensuing recession.

The Debt Avalanche: The Debt avalanche is kind of the reverse of the debt snowball. Rather than paying the lowest debt first, you pay off the highest one first. If this is the one with the highest interest. If not, you do the highest interest debt first.

The Pros: This makes mathematical sense since it keeps your total interest as low as possible.

The Cons: Again, depending on how much debt you have incurred, you may be better off settling your debt than going after it with minimum payments. After all, if you’re reading this article and seeking debt solutions, it’s likely you just can’t pay off your debts quickly…no matter how hard you try.

The most important thing, whichever route you go. Is to take control of your financial freedom and make sure you look for yourself and your family.