A wild guess here, but I’m assuming you’re reading this article because you have some type of problem with debt. Am I psychic? I wish! So, naturally, you’re going to want some advice on how to get freedom with debt relief. Believe it or not, that’s the easy part — because keeping yourself out of debt is actually the only hard part.
While you could certainly try to budget yourself into submission until you’re eating cereal for breakfast, lunch, and dinner, it makes a lot more sense to seek professional help. (I’m speaking from experience here.) I just thought of it as an investment: I hired an experienced, specialty firm to comb over my details and do what they do best. After all, did I really think I had the worst situation out there? Obviously not. These companies wouldn’t be in business if they didn’t have success.
While it’s not about cutting back on everything you can think of, you do have to realize why it’s so important to make new habits for yourself. Discipline is paramount here, and organization is a close second. Paying off your debt and gaining freedom with debt relief just won’t insure that you don’t get caught up right back in the debt trap. Studies have shown that the majority of people who do reach that heralded “debt free” zone eventually end up right back where they started, thanks usually to credit card debt.
Go to a reliable debt relief specialist and get your bills paid off. After that, make lists, make budgets, and use your credit card in moderation. Open a savings account with intentions of actually growing it instead of just emptying it to pay for presents for yourself every weekend.
In a recent letter addressing 176 collection agencies in Ontario the Registrar of Collection Agencies appears to be making a change in the way collection agencies in Ontario can do business.
In the past collection agencies in Ontario and their lawyers have been successful at collecting money from debtors with “draft” statement of claims. This tactic was effective because it is inexpensive and scary to most people that don’t know any better.
A statement of claim is a court document you must complete and register with the court to start a legal proceeding against someone.
Usually the drafted claim is accompanied by a letter typed on a lawyer’s letterhead and signed by the lawyer. The covering letter will often suggest that the debtor has 10 days to pay their debt by certified funds otherwise a Sheriff may serve the claim upon them. The consequences of a judgement are usually spelled out and it often includes wages being garnished, bank accounts seized and your other property being seized or sold.
“Draft” statement of claims are frightening to people in debt because they look like an official court document suggesting the debtor is about to be sued; but in reality they aren’t worth the paper they are written on because they aren’t registered with the court and in draft form only. It’s basically an empty threat.
At Total Debt Freedom we negotiate a reduction in our client’s debt by 40-70% so we often deal with collection agencies and their attorneys when settling a debt. Draft statement of claims have been a huge concern for many of our clients and we have seen every possible version used. In our experience, only a very small portion of statement of claims sent to debtors are ever actually registered with a court, the majority are in draft form only.
Brian Pitkin, the registrar of the Collection Agencies Act in Ontario states “the practice trades on the expectation that debtors will be unknowledgeable about court processes, and interpret the “draft” statement of claim as a greater commitment to pursuing the matter in court then actually exists; it relies on the debtors not recognizing that the document enclosed with the demand letter is little more than a boiler plate with little investment in time and thought”.
Pitkin finds this collection tactic objectionable and stated that “the practice of enclosing a draft statement of claim is both deceitful and misleading”
This issue is clearly on his radar screen and he warns that further complaints on the matter could result in an order to the collection agency to stop under subsection 2 of section 21 of the Collection Agencies Act by the Registrar himself.
Will the practice of draft statement of claims stop? Maybe; collection agencies are crafty and may find a way to continue using a modified version of these effective collection tactics.
Dealing with collection agencies can be quite stressful if you are unfamiliar with their collection tactics. If you are using a debt help company be sure they are competent enough to differentiate misleading and deceptive collection tactics from the real threats.
With summer coming up, some of us are braving the high fuel prices and driving to family gatherings or favorite vacation spots. What route would you take? Any experienced road traveler will tell you that there are two ways to go: the quick way and the enjoyable way. The quick way usually involves marathon sessions behind the wheel, aggressively passing as many RVs as you can, and using the freeways to get to the destination in the quickest time possible. I’ve done it, and found that I need an extra day just to recover from the stress of the journey.
The enjoyable way, on the other hand, honors the journey as much as the destination and allows the vacation to start the moment you lock the doors and back out of the driveway. Winding secondary roads, rest stops, breaks for ice cream and roadside attractions all become part of the summer memories. What’s more, you arrive refreshed, and perhaps with a few stories to tell.
What does a road trip have to do with paying off debt? In this case as well, your quality of life depends as much on the journey as it does the destination.
Too often getting out of debt becomes the sole focus of a money management strategy. In an attempt to bring the “debt free” destination closer, every potential stop along the way is eliminated. No frills, no indulgences, no fun. The journey towards a debt free life becomes something to get through like a crowded, treeless interstate in a car with a broken air conditioner and all you do is keep throwing out baggage and getting rid of everything you bought to take with you.
The huge problem with that philosophy is that you are still living your life while you are trying to control your debt, whether you like it or not. If you have removed many sources of enjoyment from your day-to-day existence in order to get there sooner, you won’t enjoy the trip to your “debt-free” destination, and you may find yourself (or your fellow passengers) rebelling and over-indulging when the trip is done. Especially since the debt free life isn’t really the destination in the first place. Your ideal lifestyle is where you’re headed. And to stay there, you need to develop life-long money management habits. You can’t experience, let alone enjoy, true financial success if all you see is the baggage you need to get rid of that’s holding you back.
I’ve seen many people look for a quick way to their goal with a debt consolidation loan. For example, a couple – let’s call them the Smiths – has over $15,000 in consumer debt spread out over a number of credit cards, student loans and car payments. The interest they pay ranges from 9% for the student loan to 18% on their Visa and Mastercard, but it averages out to just under 12%. They could pay $703 per month to service that debt, or they could take out a 4-year debt consolidation loan which gives them a monthly payment of $392 at 10% interest. If they consolidate their debts, they free up $311 per month. But because the repayments are spread out over four years, they pay more in interest than they would otherwise, and their total payments over the life of the loan add up to $18,816. More troubling is the way the Smiths “shrug off” the debt without learning any new money habits or recognizing the lifestyle desires and additional income needed to pay for their ‘holiday’. What are the chances that they will continue to spend their way into a hole and need another debt consolidation a few years down the road if they don’t develop a plan to live the way they really want – the way they already are, but haven’t recognized the value they’re receiving by having access to the credit which has paid for their vision so far.
Others use an excellent strategy, the “debt snowball” to eliminate debts quickly by tackling the lowest balance, highest payment debts first and keeping monthly payments toward debt the same, even as loan after loan is paid off. Using the same figures and a debt snowball, the Smiths can dramatically cut their payment period to just over two years reducing their interest payments in the bargain. Even better, they remain in control of their money and learn some powerful new management habits by paying the debt themselves. These new habits also give them tools to begin to build the additional wealth that will pay for their desired destination. But again, 25 months is a long time to be feeling the squeeze of payments totaling over $700 per month. What are the chances that the Smiths will fall off the debt diet bandwagon and succumb to “we deserve better” spending – the equivalent of pulling over for supersized fast food on your trip to holidayland?
They need a complete plan – a road map, a working vehicle and a destination. What if the Smiths incorporated some lifestyle cash flow into their debt snowball, and added an income generation plan to their overall financial system? Instead of rolling over the entire $703 allocated to debt payment, they included money for the breathing room every budget needs and simultaneously began working on adding additional income to their budget. Like any good trip, you have to plan your “roadside attractions” enroute to your ultimate destination. You need a well tuned vehicle and a gas to run it… it’s what will keep them on track for the long-term and, ultimately, get them to their destination. And in this case, the time between beginning the debt snowball program and “debt freedom” is 3.1 years – still less than the 48 months that they would be repaying the debt consolidation loan.
In money, as in life, you can plan for less stress, more life and better results.