Get Out of Debt - A Teacher Takes Responsibility

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Get Out of Debt - A Teacher Takes Responsibility
I teach second grade. I wouldn't trade this job in for the world. As a kid when I read the book a Wrinkle In Time I couldn't believe by reading I could travel through time and be transplanted somewhere else, that's why I wanted to be a teacher. To bring new worlds to my student's eyes. To make them see beyond themselves and their own families and communities.

I didn't realize I needed this same lesson until I wound up in debt without any plan for getting financially sound.

When I went to college to become a teacher I never thought my students loans and the credit card I used for books and school supplies would get the best of me. I figured I would get a teaching job and pay off the loans. Boy was a naive! Trying to pay off $60,000 in student loans and $45,000 in credit card bills on a teacher's salary that's not much above the poverty line got the best of me. Pretty soon my health suffered from all the stress. I wound up with a bad ulcer, insomnia and way too many cases of the flu. Things looked pretty bleak.

I didn't know how to reduce my debt. Advertisements touting a solution to my financial woes sounded confusing and in many cases misleading. Fear set in: could things get worse instead of better? I wondered should I just declare bankruptcy? Or should I do what so many others do and just walk away from my financial obligations and stop being the good gal? None of these options sounded good.

This second grade teacher could not under good conscience be perceived as a dead beat by some creditor. I couldn't face my students and teach them about taking responsibility in there own lives if I couldn't do the same. These are the beginning steps I took to charting a course of action for getting out of debt.

List all the creditors and loans
Establish a monthly budget
Figure out how much I could pay
Review my options
I also asked these questions:
How much money is the bank? Can use it to pay down the debt? If I take out a loan and pay down the debt, will it give me more debt instead of reducing it?

Is my age a factor in reducing the debt? Yes, being in my late twenties I have many working years ahead of me.

Could the debt be paid off in a reasonable time frame? Not on my teacher's salary.

Under the current income how long will it take to reduce the debt? I estimated a good ten years.

Answering these questions proved to be painful but very necessary. The answers helped point me in the right direction as I reviewed debt consolidation, debt settlement, and various loan programs.

My Journey To Getting Out of Debt

I found the terms debt consolidation and debt settlement confusing, but realized it was imperative that I understand the difference between these two terms.

1. What is the difference between debt consolidation and debt settlement?

A debt consolidation loan is essentially borrowing money to pay off debt, in the process a new debt is incurred. The rationale is that by consolidating all debt into one loan, it's less stressful than paying a lot of creditors. The way it works is you borrow enough money from one lender to pay off all of yours creditors. On a monthly basis under this kind of arrangement you make one payment to the lender.

Solving current debt with another debt is a warning sign to creditors, that a person is spending beyond their means. Debt consolidation is not the route I chose to take. My research shows it's not a good course of action unless it:

Eliminate existing debt
Decrease monthly credit card payments
Lowers interest rate on debt
Results in one monthly payment
What I found alarming about debt consolidation is that some companies advertise "lower your payment by 50%."

These ads are misleading. Debt consolidation companies are in business to make money off of someone else's financial woes. They talk about utilizing hardship programs which the major creditors have for "reduced payments" and "lower interest". Unfortunately, these so called hardship programs which supposedly offer payment reduction no longer exist.

1. I found out the way to reduce payment is to contract with an accountant or an attorney who can negotiate with the creditors for a reduced payment also known as debt settlement.

The debt consolidation industry has earned a bad reputation by misleading people into believing they will get a low interest loan and that they will reduce payment. The service these firms do provide are loans to help pay off a debt, which I'll go into later in this article.

2. What happens in a debt settlement program?

A. An accountant or an attorney puts together a program to reduce payment and settle debt. (The debt settlement program my accountant arranged for me required that I pay the student loan and the credit card debt at $.30 cents on the dollar. )

B. When the debt is settled a full and final release is issued from the lending institution and the credit card company. After receiving these release letters I sent a copy to the credit unions: Equifax, Tran union, and TRW, so the debt would appear as settled. I learned that credit managers view debt settlement in a positive light, it shows good integrity.

3. What other ways are there to get out of debt?

Short of winning the lottery or inheriting money the main option for getting out of debt is to obtain a loan. To prepare for the loan process it's a good idea to find out if you have a good or bad credit rating. If you have good credit consider a debt consolidation loan. Don't be discouraged if you have poor credit there are lenders willing to work with you, but the interest rate will be higher.

Here is a very helpful site offering information increasing your financial literacy

Richdad.com

Don't go online and fill out ten loan applications. You'll wind up with ten alerts on your credit report. It is better to fill out only 2-3 loan applications.

4. What are some resources for bringing greater peace of mind to finances?

Now that I've settled my debt I feel so much more in control of my finances. I sleep better at night and my ulcer's not bugging me as much. I still worry about my financial future with a limited income as a teacher I think that's only natural. What I've started to do are find ways to bring financial security into my life. Here are some things I'm doing to give me greater peace of mind.

A. Utilize a credit monitoring service. This kind of service guards against identity theft by keeping close tabs on your credit card. At this website they have a good comparison chart. http://www.fightidentitytheft.com/credit- monitoring.html For example, Equifax offers identify theft insurance up to $20,000 and provides email security alerts. This is a good value.

B. Knowledge is power. I'm reading the book Rich Dad Poor Dad by Robert T. Kiyosaki. As Kiyosaki says, "Take responsibility for your finances or take orders all your life. You're either a master of money or a slave to it." These words I've taken to heart.

This book is inspiring me to learn more about investing. At first just thinking about investments on a teacher's salary sounded foolish. Now I realize not thinking about investments is the foolish thinking.

Like I tell my students, the only limits to the mind are the limits we put there. If you believe in something strong enough you'll make it happen.

Copyright © Rene Tse has been writing about personal finance for more than 5 years. Rene has been helping people understand how to get the best financing rates when applying for a loan to start a small home based business. Choosing the right free credit report service tips included.

I grant permission to publish this article, electronically or in print, as long as the bylines are included, with a live link, and the article is not changed in any way.

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Credit Card Debt Problem

How many people when they got their first credit card jumped up and down for joy? Come on now, I see you all raising your hands!

The following story may sound all to familiar to some:

You have a good decent paying job, finally. Now it is time to trade in that old clunker of a car that barely gets you to work and back. You go to the car dealership and find the car of your dreams! You talk to the salesman and he works the numbers. He can give you $1000.00 for your old clunker car. He will use the $1000.00 cash back as your down payment. He checks your credit (You have no credit history that you know of.), he comes back and tries to get you to pay more of a down payment. You tell him you can just go down the street to another dealer. He says no, he will go talk to someone. Well you are now driving away with your new car! You can hardly believe it. You can afford the $300.00 per month no sweat!

I know I know I am getting to the point soon!

A few months go by and everything is going great. The job is going good, and you love your new car.

Then you come home from work one day and check the mail. There is an envelope from a credit card company. You open it up and they are inviting you to apply for their credit card. You think "no way can I get this". But you fill it out anyway and send it in. 6 weeks you check the mail and here it is! You have a shiny new credit card with a $500.00 limit! You can hardly contain yourself! You think WOW! They sent me this credit card, and now my will be even life will be better! It is just like having free money! Who's the big shot now?

(Finally you have something on your credit report, and the credit card companies see it.)

You think of the things you need. Clothes and that weekend trip to the beach. You buy your clothes and take your trip. Within the first month you are at your $500.00 limit. But it is ok, you can make the payment.

A few months go by and you check the mail. There is an R.S.V.P for a credit card. And you are pre-approved! Life is good! You eagerly mail it back. 2 weeks later it arrives. Your limit is $1000.00! 2 months later you get another R.S.V.P for a credit card. Can you believe this? you say to yourself.

You once again fill out the form and send it in. This time you have a $2000.00 limit. The R.S.V.P's kept coming, and you kept biting. You now have between 5 and 8 credit cards with varying limits.

(There is a lot on your credit report now, so the credit card companies jump on it!)

3 years have gone by and you have been able to keep up with the credit card payments, even tho all the cards have been maxed out for 2 years. You had to use the cash on the cards sometimes to make payments on the other cards. Those darn interest rates are so high! You think as your payments barely make a dent in the balances!

Then the news: You have been LAID OFF your job! Panic sets in. How am I going to pay my bills, let alone those credit card bills? Your unemployment will cover the basics and your car payment until you can find another job. And you need the car to look for work.

8 months have gone by. You have barely made this far. You found a job that pays about half of your last one. But you have not made any credit card payments in months. Your phone is ringing off the hook. You are grateful to have an answering machine. You are so stressed out now. When the phone rings you feel ill. You are considering Bankruptcy. Yes the Bankruptcy word. !!BANKRUPTCY!! Ugh! But you haven't been able to save the money to do the Bankruptcy. You worry that people will find out how much debt you have, it is embarrassing!

It has now been 3 years since you lost that good job you had. But you have finally found one that is close to what you where making before. And I didn't have to sign a paper so they could check my credit to get hired (the majority of companies do this now, bad credit no hire!). You do not need to do the Bankruptcy now. But it has been so long since you paid on your credit cards. The statute of limitations has not run out on them yet. But you do not want to reset the clock. You have heard of do it yourself debt settlement and decide to check it out. Debt settlement is used for unsecured debt. My credit cards are all unsecured debt. 1 credit card debt can be settled at a time. You do the negotiating yourself and save $1000's in fee's. This looks like the best and most cost effective route I can take. I can finally get some sleep! Debt settlement as a terrific alternative to bankruptcy!

What are the points of the story?

- Credit Cards are NOT free money!

- DO NOT send back those R.S.V.P pre-approved credit card applications! Shred them!

- Check to see who is checking your credit report.

- Debt settlement and negotiation is here to stay! And it works!

- This was the true story of a family member!

Lynette Edgecomb is an expert on search engine optimization. She recommends debt settlement and negotiation as an alternative to bankruptcy.


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Get Out of Debt - A Teacher Takes Responsibility
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