STEP 5: MAKE YOUR DEBT REPAYMENTS AUTOMATIC
Set up an auto pay for each debt you’re working to pay off, taking the guesswork out of it and making a firm commitment to the process. Initially you’ll pay the minimum required on all the debt. On your most expensive debt, you’ll auto pay the amount you came up with to have the debt gone by the date you established when you set your goal.
STEP 6: CHART YOUR PROGRESS
Create a chart that shows how much you owe and your progress to Debt-Free Forever. You can use boxes. You can use a thermometer graphic. Whatever works for you. Each time your auto pay goes through, colour in one of your boxes or move your marker up the thermometer so you can see the progress you’re making. This visual representation of your success will pay huge dividends in terms of keeping you motivated.
STEP 7: VOW TO BE DEBT-FREE FOREVER
Once you’re out of debt, promise yourself you’ll never do that again! Reward yourself for your hard work. Take whatever you’ve been using for debt repayment and, just once, splurge on something you really, really want.
STEP 8: REALLOCATE THE MONEY
Your final step, having become debt-free and done your little self-indulgent splurge, is to reallocate the money you’ve been using for debt repayment. Use one-third to boost your emergency and/or long-term savings. Use one-third to work toward a goal: taking a trip, buying a car, redoing the kitchen. This is going to be your Planned Spending money from here on in. As for the rest, incorporate it back into your budget so you have some wiggle room.
CONCLUSION
TAKE CONTROL … REALLY!
Everyone has regrets, right? There’s all that debt you’ve run up on your credit cards. There’s the effort you did not put in to finish the paper, get the project completed on time, get a promotion. And there’s the laundry, the dusting, the thank-you notes you haven’t got around to just yet. So you beat yourself up. You say you should have. You feel rotten. ‘Course, you probably don’t do things any differently the next time, giving you plenty more fodder for Mother Regret to stand over you and berate you: you fool, you simpleton, you dummy!
Here’s a Gail Bulletin: You’re wasting your energy if you’re spending time visiting with Mother Regret! Get over yourself and get on with your life.
But, Gail, all those stupid things I’ve done … shouldn’t I feel like a dope?
Sure you should. If you’ve done dopey things, then you’re justified in calling yourself a dope. But wasting good energy wallowing in regret is counterproductive. After all, the things you are regretting are things past. You can’t do a thing about them. So beating yourself up over your mistakes over and over and over brings you no closer to where you want to be. (Feeling like a dope, on the other hand, will hopefully keep you from making the same mistake again.)
TURN REGRET INTO ACTION
Made some mistakes? Who hasn’t? And why do you think yours are worse than anyone else’s? As Warren Buffet says, “All saints have a past; all sinners have a future.”
The first thing you have to do is stop beating yourself up. Lamenting the mistakes we’ve made doesn’t help us to see ourselves as successful, which is a part of becoming successful. So instead of focusing on all the debt you’ve created, set your eyes on the payments you are making to whittle that debt away.
While you can’t do anything about the mistakes you’ve made, you can learn from them. If you couldn’t resist making purchases because your credit card was sitting cozily in your wallet, then accept that you have no self-control and leave the credit card at home.
Making a list of your regrets, with notes on strategies not to repeat those mistakes, can be a great way to shut Mother Regret up! Grab a pad and pencil and jot down the things for which you’re kicking yourself in the pants. Now take all the new things you’re going to do differently and transfer them to your Strategies for Success List. Burn the Regrets List. Use the Strategies for Success List to help you set some goals for the future.
Many people regret the things in their lives that they never did. My mother always said, “It isn’t the things we do in life that bring the most regret, it’s the things we never did. So do it all.” I took her advice and regret very little. There are things that hurt, things that I wish had come out differently, but I don’t regret them. They were lessons from which I learned and grew.
If you have things you wish you had done, it’s time to make the Mother of All To-Do Lists so you don’t end up with Mother Regret whispering your failings, your chicken-heartedness, your procrastination in your ear. Write them down and then get busy doing them. It isn’t too late; not until you’re dead!
As you move forward, stay focused on today. Looking too far into the future can be intimidating. Looking over your shoulder at where you’ve been is just navel gazing. Be in the present. What are you going to do today, and keep doing every today, to make the life you want?
This may mean swapping some bad habits you’ve had for some better ones. If you’ve habitually used the bank machine as a wallet, racking up wicked bank charges every month, then today you will start planning how you spend your money. This month you will go to the bank machine only once a week, or twice a month, whatever works for you. And you’ll only carry as much money as you plan to spend, so you can’t use it all up on a whim. Addicted to eating out? Today you’ll make lunch. Addicted to shopping? Start using a shopping list and only buying what’s on the list.
GAIL’S TIPS
The Japanese have an interesting approach to forming new habits. Kaizen focuses on continuous but small change, which helps to maintain momentum. So instead of saying you’re cooking all your meals at home from here on in, you pick one night a week when you’re going to cook and you stick to it, until the Wednesday Night Home-Cooked Meal is a habit. Then you add another day. And another. And another, until you’ve reached your final goal.
Today’s the day to wipe clean the slate and begin the rest of your life. Will you allow Mother Regret to make you miserable? Or will you take control of the rest of your life and do only those things that keep you in the zone—the place you want to be?
TAKE RESPONSIBILITY, TAKE CONTROL
At the crux of most financial problems is an unwillingness to accept personal responsibility for the actions we’ve taken. Your life is your own creation. If you feel like a victim, you have made it so. So if you’re in debt from all the shopping you did a while ago and can’t afford to even buy a new pair of shoes for your kid, you first have to accept that YOU did this.
I keep saying that I believe you can have anything you want in life if you’re willing to do what it takes to create it. If your life is full of crap, you first must accept that you had a part in creating it. Skip the blaming. Pass on the justification. Refusing to accept responsibility robs you of your power.
Once you’ve accepted that you had some small part in the creation of your reality, you can get busy taking action. Sure, you’re going to be scared. You cannot allow the fear to stop you. Fear is a remnant of old conditioning that is a barrier to you being all you can be. Treat the fear as a signal that tells you to be well prepared and take action.
Success comes from action. Don’t shy away from doing the hard work. Embrace it. Be committed to it. Do it! Through it all, you must learn to trust yourself. Through your experiences, you have developed skills, strengths, and intuition. Use them. Seek the counsel of experts when needed, but rely on yourself to make the final call. Become self-reliant. The ability to trust yourself is one of the greatest gifts you’ll ever give yourself.
Change is never easy. Sometimes it’s lonely. Often it hurts. And there’s nothing wrong with grabbing a cup of tea and a friend and having a good cry. But don’t stay there. Pick up, brush off, and get moving. You can experience joy by choosing to focus on joy.
You can have anything you want. I believe that. The question is this: how badly do you want it?
NEGOTIATE A DEBT SETTLEMENT
If you’re drowning in unpaid bills,
if you’ve got loans in collections, or if you’re watching your credit history go to the dogs and wondering how you’re ever going to climb out of the hole you’ve dug, you may be tempted to take advantage of a debt-settlement company’s offer to “save thousands and get collectors off your back.” According to the Stats Man, household debt-to-income ratio reached a record high of 148% in the third quarter of 2010. We finally succeeded in outpacing our American cousins. No wonder there are so many debt-settlement companies popping up all over the place. More people are way over their heads in debt and dreaming of a quick and easy way out.
So what exactly is debt settlement? It’s negotiating with creditors to “settle” what you owe for less than you actually owe. You come up with the cash to pay off an agreed-upon amount, and your creditor waives fees and interest, and even reduces what you owe to make the whole thing work. Depending on how motivated your creditor is to settle with you, you could save anywhere from 20% to 75% of what you owe. So if your total unsecured consumer debt adds up to $35,000, you could save anywhere from $7,000 to $26,275. Have I got your attention?
That can’t be right Gail. Why would a creditor let anyone get away with only paying 25 cents on the dollar?
It’s a little-known fact that for people who are falling further and further behind on their bills, creditors would rather settle the debt for a lump sum of cash than run the risk that somebody will go bankrupt and they’ll lose even more.
GAIL’S TIPS
Debt settlement is what you do if you decide to be in charge and take control of dealing with your debt. Can’t work up the stomach for the hard work and heavy negotiating required? Consider credit counselling. That’ll stop the interest clock, but you’ll have to pay off the full balance and it’ll ruin your credit history. Can’t come up with the money to pay off what you owe? Visit a bankruptcy trustee to talk about a consumer proposal or personal bankruptcy.
There’s nothing shady or underhanded about debt settlement. It’s a perfectly legitimate way for borrowers who are overextended—but want to avoid bankruptcy—to deal with their debt. But you have to be tenacious. You have to have the will to succeed. And you have to fight like hell to get what you want.
Creditors aren’t all that happy that people know this option exists. And they can make it very, very hard to execute the strategy. That’s one reason why debt-settlement companies have made such inroads.
Some folks think that they don’t have it in ‘em to take on the fight. I think for what’s at stake, you should be prepared to go nose-to-nose with your creditors. Yes, it will be hard. Yes, your stomach will be in knots and your hands will shake. But do it! It’s your money and you should be prepared to fight hard to keep as much of it as you can. Remember, having someone else negotiate your debt settlement comes with a significant cost. So while it might look like the easy way out, you could pay through the teeth. Don’t assume the “free consultation” means you won’t have to pony up with some serious money once you’re into the debt-settlement process. You must weigh what the debt-settlement company will save you against what you’ll pay for its services.
Debt settlement isn’t right for you if:
• You owe money but have been keeping up with the payments, and have a bright, shiny credit history (and the accompanying high credit score). Choosing debt settlement will mean your credit history is going to get very badly bruised. Settling even one debt may lower your credit score, sending a message to lenders to up the rates on all your other debt because you’re a bigger risk.
• You have secured consumer credit. You can’t use it to try to reduce what you owe on an asset that could be reclaimed
• and sold, like a car. (However, if the car has already been repossessed, you could try to settle any amount you’re still on the hook for.)
• You may need to work with the company in the future. They’ll have your picture on their wall of “most-hated customers ever.”
• You are current on most of your payments. Creditors won’t discuss settlement if they think there’s any likelihood that they’ll get the full amount back, along with all the fees and interest they’ve been charging. So if you only have a couple of bills that are behind, but you’re keeping up with many others, debt settlement probably won’t work for you.
• You’re insolvent. If you don’t have enough money to pay any of your bills, no way to raise money, and no way to make more money, debt settlement isn’t for you. You need to go see a trustee in bankruptcy to talk about your other options.
If you’re not prepared to declare personal bankruptcy or work with a trustee through a credit proposal, you’ll have to bite the bullet and do the work to dig yourself out of debt. Just follow the plan I’ve laid out for you, and you’ll get there.
Debt settlement may be right for you if:
• You’ve been sent to collections or you’ve fallen three months behind on most of your bills. Your credit history is already in the dumper, so you don’t have to worry about making it worse. Know that you’ll need to be about six months behind to make the negotiation work, but this is a good time to start planning.
• You have the money to pay some but not all of your bills, and you have more than $10,000 in unsecured consumer debt (don’t count your mortgage, car, or student loans in this $10K).
• You have a couple of bills that have gone to collections. Your credit rating is already crap, so you might as well bundle all of your debt into a settlement.
• You’ve come into some money recently, or you can find a way to raise some money to settle with creditors.
• You want to be done with your debt so you can start fresh and get back to the business of building a good credit history. Keep in mind, correcting your credit history won’t happen overnight. You must be patient and diligent.
If you’re late on bills, if you’ve been sent to collections, or if your credit history has already gone down the crapper, you’re a great candidate for debt settlement. The first decision you’ll have to make is whether to go to a debt-settlement company to ask for help or do it yourself.
OPTION 1: DEBT-SETTLEMENT COMPANIES
To help you decide if working with a debt-settlement company is right for you, you need to understand how debt-settlement companies work.
When you enrol in a debt-settlement plan, you’ll be advised not to make any payments to the unsecured creditors with whom you plan to settle. Instead, you will be saving money to build up your “debt-settlement fund.” This accomplishes two things. First, you’ll accumulate the money you need to settle your debts if your proposal is accepted. Second, your creditors should become more willing to accept your lump-sum payment, or your payment plan, as your debt becomes “older,” since that usually indicates a greater likelihood of default.
Once you are at least six months in arrears, your debt-settlement company will get in touch with each of your creditors and try to get them to agree to accept pennies on the dollar for the debt you owe. They’ll try to arrange one of two debt-settlement plans:
•1. The lump-sum repayment plan. Your debt-settlement company negotiates a plan with each of your creditors to repay a percentage of your debt in a lump sum, which you have to come up with.
2. The monthly payment plan. Your debt-settlement company negotiates for a reduction in interest rate, fees, and principal owed, and you make payments monthly to the debt-settlement company, which in turn remits those payments on your behalf. This is my less-favourite option for debt settlement. If you are going to do it this way, you’d be better off going to credit counselling and getting their help. Their agreement is binding on your creditors (the debt-settlement company’s isn’t), and they won’t charge you an arm and a leg.
If you decide to work with a debt-settlement company, make sure you understand what ALL the fees will be. Get it in writing, with a statement that explicitly says these are all the fees. Trying to figure out the industry’s fee structure is like walking through a maze, so don’t assume what’s true for
one company will be true for another. Some companies charge a percentage of the total debt—typically anywhere from 15% to 20%—once they’ve secured you a settlement. Some charge an initial sign-up fee and monthly service charges. Some charge a flat monthly fee throughout the entire process. Know what the fees will be before you sign on.
GAIL’S TIPS
Dome debt-settlement companies take the money you pay every month and deposit it into an escrow account until the balance is high enough to begin negotiating with creditors. But some companies wait until they have collected their entire fee before sending creditors a dime. That can really tick your creditors off. Not such a good idea since there’s nothing stopping a creditor from starting legal action against you. Make sure you pick a company that will make consistent payments and keep your creditors on-board so you don’t end up half way through the process only to find your creditor opts out and you’re back on the hook for the whole thing.
The biggest thing you need to know is that the repayment plan negotiated by a for-profit debt-settlement company isn’t binding on your creditors. Creditors can participate voluntarily, but if they change their mind, they can start legal action against you. At this point, there is not a damn thing your debt-settlement company can do for you. If you’ve paid fees upfront, you can kiss that money goodbye. Your debt-settlement company is supposed to return the money you’ve been accumulating in their hands, but many take their fees out of that money, so you may not get back as much as you thought you would. And since you haven’t made any payments on your debt in the past several months, you now have a really big problem. Your credit score is in the tank, your history has multiple blemishes, and the collection calls will come with a vengeance. You’ve got to get busy sorting out the mess. Not all debt-settlement companies are created equal, and you’d best do your homework before committing to working with one so you aren’t left holding the bag. If you choose to work with a debt-settlement company, make sure you know the facts. There’s no standard accreditation or licence for debt-settlement companies. Do your homework, check references, and make sure you’re working with a reputable firm. If you want a repayment plan that is legally binding on your creditors, go see your local not-for-profit credit counselling branch or visit a trustee in bankruptcy to talk about making a Consumer Proposal. With either of these, interest will stop accruing, collections agencies won’t call, and creditors will have to stick to the plan they accepted unless you mess up.
Debt-Free Forever Page 22
