How to Get Out of Debt With the Get Out of Debt Guy » northern-ireland

The Personal Finance Brain Trust Tackles – Trying to Make Ends Meet But Still In Trouble

Steve Rhode — Mon, 20 Oct 2008 18:32:46 +0000

This weeks personal finance brain trust question was one that I received online.

My wife and I are both working, paying rent and land payment (have been trying to sell it), 3 kids and other debts and bills we are struggling from pay to pay and never get ahead. We have also borrowed money from family to help, but are still in trouble.

What can we do to ease the pressure.

Help!

WC – A 27-year-old writer living in Chicago and writing about personal finance through The Writer’s Coin.

This is the type of question that really gets to me. This is a case where money-saving tips and tricks come up short. This isn’t about cutting corners and saving money, these are situations that require life changes.

Gradual but drastic changes in how people live their lives. As Eminem so eloquently put it in the movie 8 Mile: “Do you ever wonder at what point you got to stop living up here and start living down here?”

It’s easy to cut corners and maximize a budget when you’re cutting things like movies and dinners out on the town. This question hits at the core of problems people have around the country: much more serious problems that require bigger changes.

It’s going to be hard, but my advice for this person would be to drastically change the way he/she handles their money. It may not be fun, but you have to stop living beyond your means, and if you’re “struggling” you shouldn’t be living at the level you are right now. Follow Eminem’s advice.

Patrick Bryan – Living in Northern Ireland, Patrick helps people in a very different environment and economy but yet, mush is universal and much is the same. Visit Patrick’s Northern Ireland blog on debt.

It is difficult to fully answer your question without more information and the first thing I would encourage you to first carry out an income and expenditure analysis.

Keep track of all your spending for at least a week but preferably 30 days.

Hopefully this will show you where your money is going and perhaps suggest ways to economise. It is amazing how much we can all spend on little things like newspapers, magazines, coffee etc. All of these are small expenses but can quickly add up to a lot of money each month.

Of course if your shortfall is high each month then more drastic action might be called for. It seems to me that you might have to give up on your dream of being a homeowner for a while. If you are struggling with rent and a land payment then by the time you develop the land you will probably end up with a property which between mortgage payment, taxes and maintenance will cost you more each month than renting. I have seen too many people over the past few years struggle to be a homeowner in order to build equity, only to end up repossessed because they can’t afford the running costs.

Now could be a good time to offload that land cheaply, put your finances in order and perhaps even put away some rainy day money in a zero risk readily accessible deposit account.

Patrick – Patrick writes two excellent blogs, Cash Money Life and the Military Finance Network.

The first thing you want to do is create a master list of all your income and all your regular expenses. With this list you will then determine if you have enough monthly income to cover everything. As you list your recurring expenses, look for ways to reduce them such as dropping cable or satellite TV, stopping monthly subscriptions, etc. You can also look to further reduce expenditures by buying generic products, reducing your utility usage, etc.

After you have cut expenses, look at the paper again. If the expenses side of the paper is larger than the income side of the paper, you are still in a losing situation. The only solution is to either cut more expenses or bring in more income. You may be able to cut recurring expenses by requesting rate reductions from creditors, reducing luxuries, and selling items that have recurring payments (such as the land or a car). To bring in more income you can try working overtime, taking on part time work, starting a side business, or holding a garage sale to sell unneeded items and make extra cash.

The only way to get ahead of the curve is to bring in more income than your current monthly expenses, there is no other way.

Steve Rhode – A personal finance blogger and founder of the Myvesta Foundation, a global scoial enterprise that helps people find solutions for money troubles. You can ask Steve your debt related question through GetOutOfDebt.org and he’ll help you for free.

When everything has been cut to the bone and there is no other expense to cut, that’s when you should start looking at benefits you may be entitled to. Government benefits like food stamps (now called SNAP), food allowances for women, infants and children (WIC) and health benefits like Medicaid should be there in your time of need. You can see this previous answer for more information on these benefits and others.

Maybe you’re feeling like you are too proud to hunt down those benefits. But you’ve paid into those programs through your tax dollars all this time. If you are in need, don’t let pride stand in your way of feeding the kids.

You should really take a good look at bankruptcy and see what debts you can get rid of in bankruptcy. Since the land won’t sell you can either reduce the price way, way down to move it, let the land go back to the finance company and include any residual debt owed on the land in your bankruptcy, or let your bankruptcy lawyer try to negotiate down what you owe on it so you can include it in the bankruptcy but keep it.

I’m really concerned about the borrowing from family to help make it. You’ve noticed that’s not working so in reality all you are doing is just going further into debt but to a different person. It is not solving the problem.

Getting out of debt is hard, difficult and sometimes damn near impossible, but it is not rocket science. If you can get your basic expenses to fit within your income, with a buffer to save a little in a savings account and get by, that’s what a basic budget should look like. If you are trying to pay down debt on a new spending plan or budget then you’ve got to trim down your expenses so far to include your basic expenses, debt repayment, and savings.

The pressure is intense and debilitating but it is not going to ease until you start to put a plan in place to resolve this situation. The pressure you are feeling is the force that builds up between the wall of reality and the wall of demands as they move closer and closer to each other. Once you alter your financial existence or eliminate your debt through bankruptcy, then the relief valve will open and the pressure will decrease.

You will find that your best solution will probably lie in a combination of these actions. That might be, cutting back, bankruptcy, benefits and then focusing on building a new financial life and putting money into a savings account.

J. Money – You’ll enjoy the blog Budgets Are Sexy for a look inside the life of one blogger and how money impacts it.

Oooh, tough one :( First off, i’m sorry to hear that you’re in this situation, that’s def. not fun – especially when it involves a family. I do, however, give you mad credit for reaching out and looking for solutions! Now, do i have a solution? Yes, actually i have a few, but without any specific details it’s pretty broad. And I’m afraid none of it’s all that new or exciting:

1) Track all your $ – Find out where every single dollar is going! (not where you *think* it’s going, but where it *is* going)
2) Make more cuts – Go down this list of expenditures and decide which are necessities, and which are “likes”. Cut out the “likes” for now, and focus on the needs. You can always go back once this passes.
3) Create a budget – After you’ve made some cuts, or before even, come up with a REALISTIC budget. This is important for a number of ways, but mainly to help you track your progress each month.
4) Have c/c debt? – Try consolidating and/or asking for a lower interest rate. It won’t pay it off, but it sure would lower the amounts you owe each month!
5) Bring in more money – A bit obvious here, but it’s imperative at the rate you’re going. If you haven’t already, try asking for a raise at work – you may get shot down, but it’s worth a try. If that doesn’t work, consider looking around for the next step up, or in the meantime even looking for a 2nd job that one of you can take. It’s not ideal, but it may be necessary.

Again, it’s sorta hard coming up with specifics w/out more details, BUT i can promise you that if you give all 5 of these a shot, you’ll have a much better chance coming out of all this much sooner :)

Personal Finance Brain Trust – What Rights Should Debtors Have?

Steve Rhode — Tue, 14 Oct 2008 17:59:03 +0000

From How to Get Out of Debt

This weeks brain trust question was:

Question:

Bank of America is proudly telling people about their new loan modification program and how much it will help people. But this program did not materialize until Bank of America was sued by some states over predatory lending.

The real world situation is that the majority of lenders are unresponsive or just not helpful to help people deal with money troubles. Consumers would be surprised that it is actually hard to get banks to accept fair and sustainable payments to help people avoid bankruptcy.

The question for this week is what rights do you think consumers should have in a perfect world in order to be able to deal with lenders, when the debtor is having problems paying their bills, so they can avoid foreclosure, repossession and/or bankruptcy?

WC – A 27-year-old writer living in Chicago and writing about personal finance through The Writer’s Coin.

I may sound a little harsh saying this, but I really feel like people that get into products they didn’t a) understand fully or b) can’t afford, should have to suffer the consequences of their actions. Ignorance isn’t an excuse and people should’ve read up on what they were getting into before they signed on the dotted line.

On the other hand, when this many people are in a bind, it’s beneficial for both the banks and the consumers to find a middle ground. What that would be I really have no idea. As to avoiding foreclosure and bankruptcy, they should’ve thought about that before they got themselves into this mess. Americans are quick to judge and spew hate towards big corporations for their excess and greed, but everyday citizens are doing the same thing, so we too should suffer the consequences.

I believe that more should be done to prevent irresponsible lending by financial institutions before the outcomes of that lending (i.e. bad debt) are tackled. The solution I see to solving the problem of foreclosure/repossession would be to take defaulting borrowers’ property into public ownership through a national home rescue scheme, which would buy the asset off the bank and then rent the property back to the borrower whilst giving them an equity stake, which would provide some security of tenure.

Here in the UK there is already a highly effective way of dealing with unsecured debt – the Individual Voluntary Arrangement (IVA) which enables debtors to enter into a structured debt repayment plan which enforces an interest freeze on their creditors, and the debtor only pay back the proportion of their borrowings they can afford to over a 5 year period. This legislation was seen as a way of providing debtors with important rights however IVA proposals over the past couple of years have been hamstrung by the requirement to get the agreement of 75% of creditors by value, and as many as 20% of IVA proposals are currently turned down for this reason. The banks simply veto arrangements if the required dividend is not met, often without considering what an individual debtor can actually afford to repay or the potentially reduced dividend they will receive in the event of the debtor’s bankruptcy.

Proposed IVA modifications dating back as far as 2005 would allow debtors who owe below £25,000-£30,000 to enter into a simple IVA (SIVA) with no requirement for a creditor vote but the government has not as yet enacted the legislation, despite there being a huge debt problem in the UK and a real need to free up the current system. Perhaps now with the part-nationalisation of some of our biggest lending institutions the government will take a more active part in addressing the problems of debt and will work towards solutions which are equitable on all parties, and do not leave the matter largely up to market forces.

Antisay – This blog is mainly about finance and self-improvement; I am in a constant race to become a better me and this blog is all about that sort of lifestyle. Visit this site.

What a loaded question! … It’s unfair to say that the lender should take all the burden when he debtor is the one who can’t pay their bills. Since we don’t live in a black and white world, however, I think some different circumstances need to be considered in order to qualify the “rights” of the debtor.

This question boils down to asking: who should ultimately “win” when a loan situation becomes a struggle – the banks or the consumers? There is no one solution because of the aforementioned circumstances. I think that looking at the debtors’ situations before they took on the debt with this one particular lender is key. Let’s examine two examples…

I feel that if the debtor was not previously in hot water and now is unable to pay some (or all) of their bills, than the fault should lie somewhere closer to the debtor and they shouldn’t be granted too much leeway that could ultimately hurt the lender for something that wasn’t the lender’s fault. This is more of a classic lending situation: the bank loans out, the person over extends themselves, payments aren’t made.

In this situation, the rights of the consumer, in my opinion, should be (at the least) fair and reasonable interest rates on the loan and low, previously-disclosed late-fees when payments don’t come in. Even in the situation where the bank is in the right, they should not abuse their customers by charging outrageous finance charges or dropping hidden late fees out of nowhere. The consumer in this case has every right to fair and legal lending practices. I also feel it would be in the bank’s interest to extend some sort of extended payment plan to the debtor to keep them happy being a debtor, but I don’t feel the bank is under much obligation to do so.

Now, if the debtor was deeply in debt to begin with and the bank “went after” the debtor, the story is changed completely. If the person was clearly targeted as prey in predatory lending practices, than far more leeway should be granted toward the consumer. In this sort of case I feel that lengthy repayment plans, deferred (non-accrued) interest, and possibly lenient settlements are all in order. I think if the debtor is suffering undue abuse from the lender than all actions on the part of the lender should be in the interest of the debtor, not the themselves.

I honestly can’t see this issue clear-cut, and you’ll find me hard to pin down on this question… I feel that in the end, how the debtor got into the loan itself has a very clear indication of how the loan will end up. It goes back to my answer last week – those who should have never been “let” (baited) into debt in the first place can’t be faulted for having been extended the loan – that is the lender’s fault. But if the person did it all to themselves, than I say they have to undo it themselves – but in a fair environment, with reasonable finance charges and late fees – with everything out in the open.

Patrick – Patrick writes two excellent blogs, Cash Money Life and the Military Finance Network.

I think it is in the best interest of lenders and borrowers to work together in good faith to try and come up with a solution that works for both parties. The state of the economy is such that lenders can’t afford to foreclose on too many houses. In some cases it would be in the best interest of the banks to work to restructure the loans to extend the length of the loan, possibly at a lower fixed interest rate. Yes, that would mean writing off profits and it would affect stock prices, but that would also prevent many foreclosures, which are more expensive. This kind of thing should be done on a case by case basis, and only after the customer has worked with an approved financial or credit counselor.

On the customer’s end, they need to cut back on expenses wherever possible to meet their obligations – be it a mortgage, car loan, credit card bills, student loans, or anything else. It would not be right for banks to give customers concessions, only to have the customers continue getting deeper into debt.

There are obviously a lot of issues on both sides of the fence that need to be addressed.

Gerri Detweiler – She has been helping consumers find solutions to their credit problems for more than twenty years. Her newest book is Stop Debt Collectors: How to Protect Your Rights and Resolve Your Debts. She serves as Credit Advisor for Credit.com.

If we want to stop the downward spiral of home values in many parts of the country, the solution that we must enact as quickly as possible is bankruptcy reform: allowing judges to modify home loans for consumers in bankruptcy who have the ability to stay in their homes under different terms. Consumer advocacy groups have been calling for this change for a couple of years now, and every day it makes more and more sense.

Bankruptcy reform is not a bailout. It does not even require taxpayer money. It does require a lender to accept a lower interest rate, and perhaps a reduced amount of principal. Even then, lenders come out ahead by receiving more than they would if they allowed the home to go into foreclosure – and likely be stripped of appliances, fixtures, furnaces and more before the sale.

Those who think bankruptcy reform would be an easy out for consumers who got in over their heads should think again. Bankruptcy has become more difficult for consumers to file and complete, thanks to changes in the law several years ago. Many consumers who would take advantage of this reform would be forced to pay back debts in a five-year court-supervised Chapter 13 bankruptcy plan — hardly a walk in the park.

But they would keep their homes out of foreclosure. Their neighbors would not have to see their home values drop by 10 – 15% or more because of a foreclosed home in the neighborhood. And taxpayers would not have to pay for a risky loan purchased by our government just so the bank could free up more money to lend to someone else.

We’ve been bailing out Wall Street. Now let’s really help Main Street, and enact bankruptcy reform. We can’t afford to wait any longer.

It is enormously frustrating for me to talk to good people all over the U.S. and UK who want to repay their debt, the best they can, but creditors refuse to accept their repayment offers. These are people that wind up going bankrupt but who never wanted to.

There is no law or process that allows the consumer to have protection under the law when making a good faith and best effort to repay what then can in a reasonable and sustainable fashion.

The IVA (Individual Voluntary Arrangement) process in the UK is the most fair way for debtors to come to a binding agreement with their creditors to repay their debt over a fixed period of time, have the remaining balance eliminated and stop interest.

In the United States, Myvesta, tried this approach for five years and U.S. creditors fought that approach every step of the way, yet the U.S. based credit card companies like Bank of America and Capital One, participate in the IVA solution in the UK.

The only way to slow down the number of U.S. bankruptcy filings is to give consumers access to a bankruptcy alternative that would be based on their actual available funds each month and that would operate much like a Chapter 13, payment plan, but not be bankruptcy.

Credit counseling or debt management plans are not binding on the creditor, nor do they eliminate any original balance yet unpaid after a period of time.

What U.S. consumers need is some legal right to force creditors to accept reasonable repayments rather than have creditors refuse payments which only drives more consumers to bankruptcy and serves no social purpose other than to remove the stigma of bankruptcy.

Bankruptcy reform is desperately need in the U.S. so we can go back and correct the senseless legislation passed in 2005 that only further damaged consumers while benefiting the banks.

Debt Problems Are The Same In Indiana As They Are In Ireland

Steve Rhode — Wed, 08 Oct 2008 13:42:28 +0000

From How to Get Out of Debt

Patrick Bryan, a debt adviser friend of mine from Northern Ireland, and I were chatting recently about the universal nature of debt problems in the world. It became apparent that while we are all told that we live in an interconnected global economy it seems that the consumers of each country continue to suffer in silence when it comes to debt problems.

I asked Patrick to share a recent case with us so that you can see what life is like many time zones away in Northern Ireland.

The Answer:

It has been a bit of a depressing week in my efforts to give debt advice to people here in the province.

On Monday I spoke with David (name changed) from Belfast who has recently been in court as his second mortgage lender was trying to repossess his house for non-payment. He also had a fairly hefty balance on his credit cards and isn’t paying them either. His house is on the market, he has reduced the price once already and is unwilling to reduce it again, although there has been no viewers since it went up for sale. The property market is extremely stagnant in N.Ireland and a house has to represent a significant ‘bargain’ to attract a buyer.

“I have been made redundant twice” said David “and both times it took me a while to find work again, which meant that we had to borrow to keep up with our living expenses. We have two sons in college and that is expensive, plus we have all the usual things like a mortgage, car payments and all the other bills a regular family have.”

The family took out a second mortgage a couple of years ago to consolidate the debts accrued from David’s first period of redundancy, and ironically it this lender which has been the least accommodating about their financial situation and recently took them to court.

David was clearly at the end of his tether during our conversation this week, “I just can’t see a way through this, I realise we willingly borrowed the money and feel morally bound to pay it back but we just can’t go on robbing Peter to pay Paul. We are getting demands for payment from all sides at present and I just don’t know which way to turn – every time I plug a hole in on part of the dam another bigger leak springs out somewhere else.”

Unfortunately for David I was unable to help him with his debts because his monthly expenditure considerably exceeds his income, and that is before he makes any payments to his unsecured creditors. He is (just about) maintaining an arrangement to repay his mortgage and reduce his arrears balance but as a consequence his credit card borrowings are increasing substantially each month, and he is failing to make his minimum payments on these.

My advice was that he should reduce the price on his house further and get it sold as soon as possible. It is my belief that his unsecured creditors will very soon default his credit cards, cutting off his ability to top up his income each month. Once that happens he will then start to miss his repayment schedule on his mortgage arrears and other priority debts, he will end up back in court and a possession order will be granted, and he and his family will be out on the street.

I felt really bad having to give this advice but unfortunately sometimes the people I speak to are too far down the debt path to save their homes from being sold. In this case it is better for the property to be sold under David’s control rather than being repossessed by the lender and sold at auction.

For David if he can get his house sold now and clear his debts with his equity then he can still afford to rent a home, and a huge millstone will be taken from around his neck. It might not seem like it at present, but hanging on to his house and getting himself into serious debt as a consequence is not working for David and is putting himself and his family under massive stress, more stress than they would experience from selling at a reduced price and moving into rented accommodation.

I wish you well David and my thoughts are with you and your family as you go through this difficult time.

Patrick

The Answer:

If you’d like to learn more about debt problems in Northern Ireland, visit Patrick’s site.

How to Get Out of Debt With the Get Out of Debt Guy » northern-ireland

The Personal Finance Brain Trust Tackles – Trying to Make Ends Meet But Still In Trouble

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Personal Finance Brain Trust – What Rights Should Debtors Have?

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Debt Problems Are The Same In Indiana As They Are In Ireland

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