My Debt Relief Plan

Financial Planning - How Much Debt Is Too Much For Baby Boomers

Debt is not bad, but you can have too much. The media talks a lot about debt these days. Most of the talk is negative because Americans, as a whole spend more money than they make. This negative savings total is a dangerous trend.

It would be nice to be debt free and have all the things you want in life but that is not possible for most of us. Debt can be good because it allows you to leverage your money and own things you would not be able to otherwise (homes for instance). Following are some simple tips that let you know if you have too much debt and how to be smart about going into debt.

First, take a look at your debt to income ratio. This ratio is the percent of your gross income (before taxes) you pay for loans and finance charges. If your debt to income ratio is less than 40% you are in good shape. This means less than $40 of every $100 you earn is committed to loans and finance charges. If you are between 40-50% you are considered in the high category. Over 50% and you should find a way to reduce your debt.

To go a step further many institutions specifically look at your primary residence debt to income ratio as a separate indicator. If your house payment is between 28-33% you are in good shape especially if your overall debt to income is below 40%.

Look at your personal situation, compare it to the ratios above and determine if you need to take action. Too much debt makes it hard to save money for retirement or lifes major expenses heres why.

Assume your debt to income ratio is 50% and you pay 20% of your income in taxes. This means 70% of the money you earn is committed to loans, finance fees or taxes. Visualize that all the money you earn between January 1 and the middle of September (70% of the year) is committed. You only have 3.5 months of income to pay for groceries, repairs, discretionary items or build your savings. The less debt you have the sooner you are free to concentrate on other important financial matters.

Another important point to consider is try to limit your borrowing for things that usually appreciate in value. Real Estate comes to mind, but after that the list is real short. If you get a five year loan to buy a car, look at the situation you will be in when the loan is paid off. The car is typically worth a fraction of what you paid for it. In addition you have paid a large premium to the original purchase price because of interest. Leasing may be a good alternative if you can not afford to pay cash.

For those of you that have too much month left at the end of your money check your debt to income ratios and most likely that is where your problem lies. With a little bit of planning and discipline you will put yourself in better financial position as retirement nears Good Luck.

Add comment September 29th, 2007

The Truth About Debt Settlement Companies

There are few industries that are as permeated by myths, misinformation and controversy as is the debt settlement industry. It is my goal to provide truthful, factual, unbiased information in order to dispel the confusion and misinformation.

Unlike debt consolidation companies (that forward your monthly payments to your creditors), debt settlement companies place your monthly payments to them into a trust account, then forward the money to your creditors when there is sufficient funds in the account to pay a creditor in full.

Debt settlement companies advertise that they can negotiate with creditors to reduce debts by 40% to 60%. Is this really possible? Not if you believe what you read on the Internet, which offers many pages of compelling arguments against the efficacy of debt settlement companies.

Do you believe everything you read on the Internet? Lets think this through. If you were a creditor, would you be willing to allow your debtors to pay only one-half of what they owe you? Obviously not.

But what if your debtors were noncollectable, in other words, they refused to pay you and they were in a position where you could not collect from them by levying their bank accounts, placing liens on their properties or garnishing their wages. Now, would you be willing to take a reduced amount? Your choices are - 50% or nothing. Which are you going to choose?

The truth is - of the thousands of debt settlement companies, there are a few that can negotiate or settle debts by 40% to 60% as advertised. But they charge fees upwards of 15% of your debt.

Your goal as a debtor should be to become bullet-proof and you will be in the drivers seat to negotiate with your creditors without paying a debt settlement company to do it for you.

A few words of advice. Stay away from back dated documents, hiding assets off-shore or in trusts, transferring properties to other people, or any other strategies that are not lawful.

NOTE: This author is not suggesting that you protect assets from government authorities or put yourself in a position to restrict the payment of child support.

Add comment September 29th, 2007