Damon Day & Associates » Consumer Credit Counseling

Debt Snowball – When does it make sense?

Damon Day — Mon, 02 Nov 2009 19:10:42 +0000

The Debt Snowball method to paying down debts has been around for a long time but it has become popularized and almost synonymous with Financial Planner and radio personality Dave Ramsey. Although from a financial standpoint, Dave takes a little different approach in how he recommends the debts be ordered, he praises this approach as a simple and straightforward way for people to dig out of debt. If you are unfamiliar with the Debt Snowball approach and how it works, please click the link to read my post about the Debt Snowball method and how to apply it.

Now that you have an understanding of what the Debt Snowball Method is, when does it make the most sense?
A Debt Snowball Method makes a lot of sense if you:

1. Have sufficient cash flow to cover more than your minimum payments on your credit cards every month.
2. Have good credit and want to keep it that way.
3. Are tired of simply making minimum payments that don’t seem to pay off much principle.
4. Want to do everything you can to pay back the entire debt with interest.
5. You have the self discipline required to put of purchases and allocate as much money to your debts as possible.

The Debt Snowball method is typically the first method that should be considered when you have reached a point where you realize what you are currently doing is not going to get you out of debt. It is a very simple and straightforward approach, that puts the money you do have available to its best use. The make or break criteria for determining if this approach will work for you or not is your cash flow. The more money over and above the minimum payments you can contribute every month, the faster you will be out of debt.

If you do not have a significant amount of money left over after making your minimum payments, you will either need to look at another option, or rework your budget in an attempt to squeeze some excess cash out. If that is not possible, then the next approach you will want to look into is Consumer Credit Counseling.

Have you ever tried the Debt Snowball method for paying down your debts? Please share your thoughts HERE

Get Out of Debt – What Strategy Makes the Most Sense?

Damon Day — Sat, 24 Oct 2009 21:56:17 +0000

Help!!!! I am on information overload. Can you look at my financial circumstances and tell me exactly what debt reduction strategy will make the most sense for me?

Sound familiar? You are not alone. Thousands of people ask this question every day and set out on the Internet looking for the answer. Unfortunately instead of honest and unbiased advice they typically encounter salesmen that focus more on convincing consumers to buy into their various programs than they do on educating the consumer about the best options available.

In order to help consumers from falling victim to a good sales pitch that is pushing the wrong solution, I wanted to create a general guideline to help consumers better understand what strategy will make the most sense for them given their unique circumstances. Over the next few weeks I will be writing a series of 6 posts, identifying the common debt reduction strategies and outlining general circumstances in which they could make sense.

The strategies that I will focus on are as follows:

1. A Debt Snowball approach
2. A Debt Consolidation Loan
3. Consumer Credit Counseling
4. Debt Settlement
5. Bankruptcy (ch 7. and ch.13)
6. Doing Nothing

As I write the posts I will be hyper linking the above strategies to their respective posts. The goal of this “When Does it Make Sense” series of posts will be to help you form a sort of a cheat sheet, to narrow down the strategies that you should focus your research on. Remember though, that this will only be a general guide and you should first ask a qualified financial professional to review your specific situation before making any final decisions.

There are many factors that need to be considered to help narrow your best option down to a specific strategy. They include, but are not limited to the following:

1. Your Current Cash Flow
2. Your Projected Cash Flow
3. Your Credit
4. Your Age
5. Your savings or lack there of
6. Your revenue source (ie. do you have a business or are you employed)
7. The amount of debt that you have incurred
8. The type of debt that you have
9. Your attitudes about money and credit
10. Your specific goals that you are trying to accomplish
11. Your retirement time line and the likelihood of meeting your financial retirement goals

Out of all of the factors listed above, Cash flow is one of the most important when it comes to a specific strategy. Cash flow is not something that is subjective like your goals or your attitude about money and credit. Cash flow is what it is. Certain strategies will simply not work without adequate cash flow. So before you even begin to research any of the above strategies, you must formulate a realistic budget based on your current and projected income and expenses. Moving forward with a debt reduction strategy without a REALISTIC (meaning, not your best guess) understanding of your income and expenses, is akin to throwing darts in the dark. Sure you could get lucky, but you are more likely to miss the board all together. Once we understand your cash flow we can then easily narrow down the list of the strategies that are available and most likely to work for you.

Remember, this series will consist of general guidelines and should not be used as the sole source of information to determine your best strategy. Please check back over the next few weeks as I write the posts for each specific strategy.

Have you used any of the strategies listed above to get out of debt? Please share your thoughts and experiences HERE

Debt Settlement Radio Ads Make my Head Hurt

Damon Day — Tue, 23 Jun 2009 06:43:19 +0000

Earlier today I was pulling into my driveway after a fun family weekend at Disneyland with our two boys and on the radio pops another advertisement for a debt settlement company. Of course doing what I do, I always turn up the volume when I hear these types of spots. This one seemed to rub me the wrong way more than they usually do. The spot was essentially implying that this specific settlement company had a special program because of all of the banks getting bailed out by the government they are required to settle consumer debts. Now they were careful not to say specific things that crossed the line and would get them in trouble for false and misleading advertising but they basically pushed it just about as far as they could. Many people that listen to that spot will call the number thinking that this is maybe some sort of government sponsored program or that banks are now required by the federal government to settle consumer debts and this company knows the secret to get them to do it.

There doesn’t seem to be any limits to how low these marketing firms will go to push people that are struggling financially into bad programs just to make a buck. Of course a quick search online found that this company had an F rating with the BBB and numerous other sites where consumers had complained about this program. The complaints all tend to be about the same. Usually that consumers were mislead, that the program wasn’t explained properly, the fees where much higher than they were told, the creditors continued to hound the consumer with phone calls, and the list goes on.

Of course the Ad prompts consumers to call for their “free – no obligation – consultation”, which is nothing more than a sales pitch. After all, they pay a lot of money for those radio spots, so if they are giving you a free consultation, they have to make that money back somehow.

The bottom line is there is no federal program forcing banks to settle debts. Banks were settling debts with consumers long before the federal bailouts and they will continue to do it when it makes sense. It is true that some banks have softened a little and are offering better deals to consumers than they were 12 months ago, but that is only because it makes financial sense for the bank, not because of some federal mandate. This settlement company that was on the radio is simply puting a new bow on the same box of junk.

Consumers need to do a heavy amount of research before deciding on a specific strategy for getting out of debt. Especially if you are looking at debt settlement. If you are going swimming with sharks, you better know what you are doing. Don’t ever call a debt settlement company thinking that you will get a financial consultation. You call a debt settlement company only to learn the specifics about their program. Do not rely on them to asses your financial situation and educate you on whether you should settle your debts. Not surprisingly if you ask them whether or not you should, the answer will usually be Yes.

Would you ask a car dealer if you should buy a new car or just have your old one fixed?