Independent Investor: Debt — Part Two
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This summer's gas and food prices were bad enough but now the winter looms and, with it, the sticker shock of gas and fuel prices that are double those of last year. If you are tempted to use the credit card think again. As I wrote in my last column "Debt — the new Four Letter Word," using plastic is a dead-end street that could land you in bankruptcy or worse.
Last week, I listed several tell tale signs of growing indebtedness. If you or someone you know qualifies then there are several steps you can take immediately to rein in your debt. The first hurdle is to admit that you have a problem.
Most Americans live in debt denial until their backs are against the wall and then it's usually too late. Instead, do yourself a favor. Sit down and make a list of what you owe. Stop stuffing the unpaid bills in a drawer. The old saying "out of sight, out of mind" won't stop the bill collector from calling. List all your debts in order starting with credit cards. Beside each, list the minimum monthly payment and the interest rate on that card. Then do the same thing for everything else you owe.
Next prioritize your debt. Get rid of any small balances right away (if you can) before dealing with the larger ones. Do not rollover balances from card to card. That's simply playing Russian roulette without the gun. Just continue to pay the minimum amounts on the big ones until you reduce the number of cards and then start paying off the card with the highest rate of interest. The best way to do that is by doubling the minimum payment each month without charging anything else on that card. As you pay off each card call up the company and cancel it. If you need to have a card use debit cards instead.
While you are doing that, try to obtain a copy of your credit report and credit score. The Fair and Accurate Credit Transaction Act gives you the right to a free credit report every year from the three major credit bureaus Equifax, Experian and TransUnion. You may not like what you see but at least you are no longer living in denial and you can begin to repair the damage. Who knows, there may actually be errors in the report that you can correct by contacting the merchants.
At this point, you should have a pretty good handle on how much you owe. Now figure out how much you are bringing in. Break it down into monthly and then weekly numbers. Do you make enough to break even or is there a shortfall and if so how much? Can you dig your way out of it by changing your free-spending ways or is it already beyond that? Some people, unfortunately, are addicted to spending. Others are so stressed out by carrying around all this debt that they can't think straight. It's called debt stress syndrome and many Americans have it. If so, it's time to stop living in denial and ask for help.
My advice is to ignore the credit counseling commercials on late-night television. There's simply no way you can tell which ones are legitimate and which are rip-offs. Instead, go on the Internet or look in the telephone book for the national, nonprofit credit counseling services like the Consumer Credit Counseling Services or Myvesta, a nonprofit financial crisis center. These services are manned with professionals who make a living helping you and I get out of debt.
You can pour your heart out to them on a confidential basis. They will help you work out a debt-repayment plan, arrange for lower interest rate payments and intercede with your creditors in your behalf. Make no mistake — digging your way out of debt is a long process. It requires commitment and determination on your part and above all a change in your spending habits.
So if you are one of the millions of Americans today who find themselves trapped in the debt crisis what are you waiting for? Pick up the phone.
Bill Schmick is a licensed investment adviser representative and portfolio strategist with Berkshire-based Dion Money Management, managing over $800 million for middle-class Americans from coast to coast. Direct your inquiries to Bill at 1-877-850-7942, Ext. 146 (toll free) or wschmick@dionmm.com. You can also visit www.afewdollarsmore.com for more of Bill’s insight.
