The truth about debt relief is that the majority of people who have debt have no viable option to get out of debt. Very few people are able to satisfy their debts through a debt management or debt settlement program.
The majority of people who take out a debt consolidation loan using equity in their home end up in debt again in the next few years. And everybody I’ve ever known who has filed bankruptcy wish they’d had another option.
The most comprehensive debt relief option is one that doesn’t just get rid of an individual’s debts but becomes a financial plan for life.
A key feature of a such a program will include a plan that shows all debts – including student loans, consumer debt, credit card debt and car payments – paid off in as little as one to three years. It will also show the interest on these debts is reduced not by thousands but by tens of thousands of dollars. Another feature will show a 30-year mortgage paid down in another 3-5 years and save tens of thousands or even possibly hundreds of thousands of dollars in interest. This savings of interest is accomplished without refinancing, without doing balance transfers and without even talking to your banker.
Accomplishing such a feat can obviously be done by increasing the monthly payments. But a good program will show how this can be done by reducing payment by hundreds of dollars and with current income – i.e. without getting a second job. While the debt is being paid down, the credit score will also be improved.
Another feature of a solid debt relief program will include not just a debt pay down plan but should also include a vehicle for funding a nest egg for retirement.
While this may sound too good to be true, the truth is, without a plan and the discipline to stick to it for the long term, it is too good to be true. The sad truth is, based on statistics, most people will never accomplish this. Specifically, statistics published by the Department of Health and Human Services show that 96% of people that are reaching retirement are either dead or dead broke. And the only way to improve that number is for people to put themselves on a professionally managed, long term, financial plan for their life. .
Conventional wisdom tells us that we need to have professional asset managers in our life. Yes, that is important. But for most folks, their liabilities are much more important than their assets because their assets are almost non-existent. This being the case, you would think there would be many more liability management companies out there but there aren’t. (I actually know of only one!)
Liabilities are a much larger figure than assets, proportionally. And they have a very long-term reach if you don’t manage them properly. You’ll end up like the previously mentioned statistic. The only liability management company I know of tailor-makes a plan to manage your liabilities for the long term.
Most companies that do have a debt or liability management programs are specialized in certain areas. For example there are debt settlement companies, debt negotiation companies, consumer credit counseling companies, and bankruptcy attorneys. Very few of these companies will be able to offer all of these options to their clients. They typically only offer one of these options - and they’re going to try to get you to do that because that’s what they do. So, in effect, a very small percentage of the individual clients of each of the majority of companies falls in the category of debt problems that the companies’ offering is meant to solve. And none of the offerings of the typical debt relief company is designed to fund a nest egg.
The immediate goal should be to be completely out of debt in ten years or less. In extreme cases, it may be more realistic to plan for 10 or 12 years. But for most, they can do it in less than 10 years by getting on a systematic plan.
Once you’re completely debt free, you’re hard earned money is no longer going to interest payments. You own your house. You own your cars. You don’t have the pizza that you’ve put on the credit card that you paid twice or three times for, anymore. For most people, that represents about $2500 a month that can now be systematically turned over to licensed financial planners to create wealth very quickly. Unlike most people that invest consistently in 401K’s in this country, even those that are doing it properly and consistently for the long term, are usually only putting 2, 3, 4 or 5 hundred dollars a month into it. It takes a long, long time - decades - to build up a nest egg. But if you could get out of debt and then have that $2500 a month to set aside for your retirement, you’re going to grow wealth very quickly.
Net worth is a simple mathematical calculation. It equals your assets minus your liabilities. Most people think of increasing net worth as increasing assets. A more efficient way to increase net worth, though, is to decrease liabilities. Most people think they need to build big stock portfolio first. That’s hard to do it when you have a bunch of liabilities. It’s practically impossible. And, so, that’s why conventional wisdom is wrong.
For most people, staying on track will be a challenge. A coach can be helpful, here. A good coach will get to know someone’s complete financial picture, develop a structured financial plan that meets their goals and is personally tailored to them, and most of all help them stick to it!
