Debt Rx

What is Debt Consolidation?

The big question…… what exactly is debt consolidation? I frequently have potential clients tell me they are just looking for a consolidation. So let’s explore exactly what consolidation is and what options are in the market to consolidate debt.

Consolidation simply means getting one payment across several accounts. That’s it. If you went from having multiple payments to one, congratulations you’ve consolidated your debt. As of 2019 there are only four different services in the market to consolidate debt:

Loans/Balance Transfers
Debt Management
Debt Settlement
Chapter 13 Bankruptcy

All four of these options will provide you with one payment across multiple accounts and ideally reduce either your interest rates or payments. It’s important to note that each one of these is a different tool for a different job. We’ll be exploring each option individually to ascertain which option is best fitted for each situation and what people can expect credit wise with each.

How much credit card debt is too much?

The first step in getting out of debt is identifying the problem. Problems with debt tend to range in severity. From a professional level we tend to see anyone carrying more than the average balance as problematic. According to The Balance, as of 2018, that amount is $7,527. If that makes you excited that you are way under that number that’s a good thing! If that makes you nervous that you exceed that amount….. well good. It should be a call to action. As a country talking openly about debt is something we rarely do and most people assume they carry an average debt load when in fact they have a serious problem.

Obviously income plays a huge role in this. Someone making $30,000/year will have a more difficult time paying off $7500 than someone making $100,000/year. Retirees getting by on a fixed income may have difficulties keeping up with even an average debt load. So it is important to identify what percentage of income can be “safely” carried and paid off in a reasonable time period without getting buried in high interest payments.

So long as all other bills are average (you didn’t purchase too much house or buy a car out of your income range) a person can carry 10% of their gross income in unsecured debt without too much trouble. So for instance: If you make $30,000/ year you shouldn’t carry any more than $3,000 in credit cards or unsecured loans. If you make $100,000 no more than $10,000. Why? It’s easy to make double or triple the minimum payments and pay the debt off in just 2-3 years as opposed to having decades of payments or needing a professional to help. It’s also easy to still be able to save for emergencies if you’re carrying 10% or less as a debt load. Chances are good if you’re carrying that little in debt your credit cards aren’t negatively impacting your credit score yet. It’s better all around.

This of course is not to be confused with utilization as we’ll address that in a new post soon.

Feeling lost on where to start your journey to paying off debt?

Most people are. There’s a ton of information out there to sift through and it’s hard to decipher what’s correct and what isn’t.

Plus there’s a ton of bad financial advice online. It makes it difficult to know what really makes sense for your situation.

I’ve worked in the debt industry for several years. Not just in finance and helping people invest and grow wealth; in the debt industry. I’ve helped several thousand people pay of tens of millions of dollars in debt. My goal is to share that knowledge with you to help you figure out what are the most viable ways to end being dependent on credit cards and loans to get through life.

What will we cover?

A brief history of the debt industry. It’s important to know how modern debt instruments developed and how they work to grasp the best way to overcome them.
An in depth look at credit: It’s an important part of debt and critical to normal functioning in modern society. We need to understand how credit works and how the different ways to get out of debt will affect credit.
The different options and strategies for getting your debts paid off and getting your credit score where you want it to be depending on your current situation.

Everybody’s situation is different and it’s important that the options we look at fit what’s going on. We want to be looking at the right tool for the job; taking a screwdriver to a nail won’t get us far.

This Blog is currently under construction….. please check back frequently.