Debt Consolidation is a simple concept and one that I have no problems with. The only problem I have with Debt Consolidaiton, other than the fact that it’s getting harder to come by, is that it too doesn’t address the underlying problem. Here is what I mean.

Debt Consolidation is nothing more than a company paying off your debts, some or maybe even all of them, and then you begin making a single monthly payment to them each month. It generally requires decent to good credit and depending on your current interest rates, you may or may not end up with a lower average APR. However, the problem is that not all debt consolidation companies make you close out the underlying credit cards or other accounts so even though you have all these credit cards or other loans that are now paid off, you may be tempted to start charging up the cards again, and many people do. You see, the underlying problem in most people’s debt is their inability to control their spending. Its the “I gotta have it now” syndrome and until you address that problem and teach people to spend more appropriately and use budgeting methods, then you are only opening up the door for more problems.

I have worked with many people over the years who used consolidation but then ended up being unable to control their spending and now they were in an even worse situation. This is very common with those that took out home equity lines of credit to pay off their debts. They started out doing the right thing by paying off their debts but then they saw something they had to have and next thing you know they were back to their old spending habits.

Debt Consolidation is a great tool and if you are capable of managing your money or truly committed to ending your debt, it’s a very viable approach to help you get out of debt much quicker. My main recommendation with it is that it be used in combination with some other program that will help you budget or spend accordingly so you don’t end up where you started, or worse.

That is my typical answer to anyone even thinking about bankruptcy. We are able to avoid this path almost 100% of the time but I want to cover it for completeness and for those that already have or are too far in to back out.

Bankruptcy comes in two forms, Chapter 7 and Chapter 11.

Chapter 7 is the version everyone wants but few get. In this version, the bankruptcy court wipes out all your debts and you get to start fresh and clean with virtually no debts. And it stays on your credit report for 10 years.

Chapter 11 is much more popular and what most people get roped into. In this version, the court forces your creditors to accept a payment plan they decide on. And it stays on your credit report for 7 years.

Here are the problems many people don’t consider when filing bankruptcy. It’s not a solution. It’s like getting a bigger bucket to stop your boat from sinking instead of fixing the leak. Most people who need bankruptcy got there because they couldn’t handle their spending. Filing bankruptcy doesn’t fix that problem, it only buys you time until you get more credit and end up in the same situation all over again. I can’t tell you how many clients I work with that wish they could file bankruptcy again because they are in the exact situation they were in before they filed bankruptcy their first time. They never fixed the problem so they simply end up repeating history.

Now I don’t mean to say that it’s all bad. It has helped a lot of people out of really tough situations and saved thousand’s of peoples homes from foreclosure. The only time I ever recommend bankruptcy is either for those that have ran up some extraordinary amount of medical debt that they would likely never pay off and for those about to lose their homes that can’t work out a solution with their mortgage company. For everyone else, there is almost certainly a better method.

There are also other catches that no one seems to tell you.

First, bankruptcy follows you for much longer than the 7 or 10 years it stays on your credit report. Many job applications or credit applications ask if you have ever filed bankruptcy. Ever. And you can certainly lie and say no, thinking they will never find out and they might not, but you have now committed fraud.

Next, in today’s economy it can take years before you are granted a credit card after bankruptcy. Think you don’t need one. Maybe you are correct, as long as you never travel, never stay in hotels, and never want need to rent a car. It’s almost impossible to do any of those things without a credit card and if you do get a credit card, it will almost certainly require you to put up a deposit. So if you think you have problems now, just wait until you try to restart your life after bankruptcy.

But never fear. There are better solutions and you can almost always avoid bankruptcy.

Stay tuned for my next edition.

The 6 methods I am referring to are below in no particular order.

1. Bankruptcy
2. Debt Consolidation
3. Debt Settlement
4. Consumer Credit Counseling
5. The Mortgage Accelerator method
6. Do It Yourself

Personally, I am a fan of the Do It Yourself method. The reason is that it saves you all the fees associated with the other methods and by learning and doing it yourself you are much less likely to be in this situation again. I can’t tell you how many people I have worked with who have filed for Bankruptcy in the past and are on the verge of needing to file for it again. This says to me that Bankruptcy doesn’t address the underlying problem. If you simply wiped out the debts of 100 people, I honestly believe that 95 of those 100 would be in debt up to their eyes again in 5 years. It’s because it doesn’t address or work on the problem that caused you to get in the situation to start with.

The Do It Yourself method is not only more effective than any of the other methods but it helps solve the problem that got you in debt to start with. And you can do practically any of the methods using a do it yourself approach. Rather it be debt settlement or consumer credit counseling, you can learn and be taught to how to do all of those yourself. And if you stick with me long enough, I will show you.

Stay tuned as my next series of updates will cover each of the above 6 methods in detail. I will show you the Pro’s, Con’s and my personal take on each of the methods above.

See you soon.

The Debt Doctor

First of all, financial consulting wasn’t what I set out to do in life. I joined the Navy right out of High School because my family didn’t have the money to send me to college and I heard they had great educational benefits. Turns out, they do. I earned a full ride to the University of South Carolina through their NROTC program after being on active duty for just 3 years. You can’t beat the price. I have since earned a Bachelor’s Degree in Computer Science and then a Master’s Degree in Information Technology. I mention my education only because its what got me here. During my college life and since, I started out my career in Information Technology, first providing technical support over the phone for an Internet Service Provider and then eventually as a software developer for a credit company. And this is where it got interesting. I went to work for a sub-prime, credit company as their lead software developer. It was there that I learned the in’s and out’s of how creditors worked, how collections worked and through the insight of my boss, what almost everyone was doing wrong. At the time I didn’t realize it but years later that information would turn out to be the turn around I needed.

A few years after leaving them, I found myself up to my eyes in debt. My wife and I were newly married and learning the hard way that two people with a lot of debt and bad credit should never get married. She had a laundry list of collection accounts and I was myself struggling with making my minimum payments and dealing with a repossession that had turned into a lien being filed against me. We were together about $214,000 in debt and over our head in every way. It was during this learning process that in less than 5 years, we paid it all off, and learned the hard way what works and doesn’t work. So when you hear others talk about what works and what doesn’t and how all you have to do is this or that, make sure they have a “Been There, Done That” diploma hanging on their wall. Because if there is one thing I can say with complete confidence it is that no college course or degree teaches you what you need to know to become debt free and then live the life that follows.

I have been through it all. I have dealt with the creditors calling all day and most of the night. I have watched my vehicle be repossessed while I was at work and completely helpless to stop it. I have received a notice of foreclosure proceedings on my house and I have tried everything that works and doesn’t work. I have completed a Consumer Credit Counseling program, been through Debt Settlement and repaired my credit report by my little self. I have also learned some little known techniques that can have the majority of the population completely credit card free in 3 years or less with their auto loans and mortgage paid off a mere 4-7 years later.

And through this blog I will discuss each of these techinques, how they work and the pro’s and con’s of each. Then, you can decide for yourself which path is best for you to follow.So here’s to your financial future and learning how to become debt free and then live the good life that follows.

See you in a few days.

Clint Holland