Drowning in Consumer Debt?
Are you struggling due to credit card debt or car loans? You are not alone. Debt is one of the most common barriers to achieving wealth.
Once you are in a financial hole, climbing out can take a heroic effort. You don’t need a plan to get into debt. But you will need a plan if you would like to get out of debt.
I have been deep in debt. Having a negative net worth and owing interest payments feels horrible. How did I get into that situation? Probably the same way you did. I spent more than I earned, for way too long. Next thing I knew I was borrowing from one credit card in order to pay another one.
That was an embarrassing and scary time of life for me. Fortunately, I came out of it and survived. You can too.
How & Why to Get Out of Consumer Debt
Getting out of debt is largely a matter of decision. I often ask patients who stopped smoking how they did it. More often than not they say “cold turkey.” Something happened that scared them. A heart attack. Or a child who asked them to stop so they could watch them grow up.
Something gave them a WHY. They could then find the HOW.
It is the same with losing weight or getting out of debt. Once you decide to actually do it then you only need a few simple techniques.
So what is your WHY? Maybe you just want peace of mind and an opportunity to grow your net worth. That’s what I wanted. That’s what I achieved. So can you.
I highly recommend Dave Ramsey as a great resource for getting out of debt. He has helped thousands of people do just that for decades.
His radio show, YouTube channel, and podcasts are free. His books are a bargain considering how much financial value they add.
I don’t agree with him on everything but his debt demolition advice is the best there is. If you are not sure where to start, try reading his book, The Total Money Makeover.
If you need more one-on-one help, consider a credit counseling service. They will help put you on a budget for paying off your debts. They may be able to get you a lower interest rate.
It feels great to be debt-free! Trust me on that one! If I’m wrong and you really miss making all those interest payments you could always go out and get more debt!
My Consumer Debt Story
I avoided credit cards in college. It was easy to do back then since they weren’t that common. When working after college I used a credit card. The balance was paid in full each month. I knew the value of a dollar and the dangers of easy money.
In medical school, I lived off student loans. I spent most of my time studying and didn’t spend much, so credit card debt wasn’t a problem then either.
It wasn’t until residency that the problem started for me. I made about $30K per year. I spent a little more than that. That’s the problem in a nutshell! I had an inexpensive car and apartment but I was single and enjoyed the dating life.
I also was very short on time. This was before any work-hour rules. 36-42-hour shifts were the norm. Mostly I was dating, working, studying, and sleeping. Chronic sleep-deprivation contributed to me falling asleep at my financial wheel.
I soon lost control of my spending. Credit cards were an easy way to make up the difference – or so I thought. I KNEW better.
I didn’t DO better. Knowing and doing are different.
Consumer Debt Leads to Stress
My American Express charge card was overdue. As were my Discover and MasterCard credit cards. I couldn’t make all the payments. I didn’t have a budget and my spending was excessive. It was painful to think about how to get out of the hole.
My father had gone bankrupt and I didn’t want to follow in his shoes. I saw the shame he felt for years after that. But, I didn’t know any other way out of the mess I created for myself.
That’s when I discovered Consumer Credit Counseling Services (CCCS). They promised to help me dig out of the hole. And do it in an ethical and responsible way. I would keep my obligations and avoid shirking my financial responsibilities.
And they promised to teach me how to manage credit better going forward. Furthermore, the CCCS route wouldn’t trash my credit the way bankruptcy would
I went for it.
How did it go? Was that a good choice? Well, I’m not sure
Advantages of Using CCCS
- I received an hour of free credit counseling. I needed some knowledge and help. A nonjudgmental, informed professional provided it.
- They laid out a Debt Management Plan (DMP). It was a complete and detailed plan to pay off all that I owed within my given income.
- I paid one check to CCCS each month. I didn’t have to juggle many companies, addresses, and payment cycles. This reduced my stress level. No longer would I need to decide each month which I would try to pay or how much.
- I did not have to file bankruptcy.
- The creditors finally laid off and stopped harassing me for payments I couldn’t afford.
- I paid my debts in full. It felt good. My promises to the credit card companies were kept.
- I learned to be very cautious with debt. My fears kept me from further financial messes. And I did it on a small scale since my income and debt were small. Too many of my colleagues learned these lessons later in life with more commas and zeros.
Disadvantages of Using CCCS
- The process trashed my credit. All my credit reports showed “charge offs” that looked like I defaulted on all my debt. I couldn’t get a mortgage or even a credit card for at least 7 years. I had a six-figure job and a stable home but couldn’t rebuild my credit. It was humiliating. My wife had to apply for any debt we needed. Should I have filed for bankruptcy?
- After I finally was able to apply for a mortgage or credit card I was still turned down for several more years. It was because I had “no credit score.” One potential mortgage lender told me he had never seen that despite 20 years in the business. Since I had no recent use of debt, my credit went from bad to “none.” I still had trouble getting a mortgage. When I did get my first credit card again, it came with an annual fee and high-interest rates.
- I had to pay all that I owed including fees and outrageous interest rate fees. The credit cards kept giving me more credit when I was getting into trouble. They charged more interest rather than helping me in any way. Why did I feel obligated to pay every penny to these opportunistic lenders?
Conclusion on Consumer Debt
If I ever get into a credit card mess again I would negotiate a reduced settlement with the cards. I would play them off each other and offer pennies on the dollar. The book, “Debt” convinced me that credit is less of a moral issue. If I couldn’t negotiate I would consider bankruptcy. CCCS is there more to help the credit card companies (who help fund them) than they are to the debtors.
But, CCCS helped me set up a budget and pay off all my debts. Despite trashing my credit, it made me avoid debt. I now fear excess leverage. My debt avoidance helped enrich me over the next two decades.
How did you get out of consumer debt, if you have? How would you handle it if it happened to you now? What do you think of CCCS? Do you see paying back your debts as a moral issue?