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DON'T BE HAMMERED BY YOUR DEBT

DON'T BE HAMMERED BY YOUR DEBT

Thursday, November 08, 2007

Fix It or Forget It

The biggest mistake a debtor makes is failing to plan a course of action. The majority of debtors I encounter are merely floating through life allowing their circumstances to drive their life choices. They pay the debts owed to my clients because I am actually taking the time and effort to sue them and make their lives miserable while they ignore other debts which are not being as forcefully collected. These same debtors attempt to make low monthly payments thus preserving their debts for inordinate periods of time and ultimately failing to pay off their debt and only managing to accomplish the ruination of their credit. A debtor who is facing significant amounts of debt needs to make a life choice and implement a plan based upon that life choice. That choice is as fundamental as fix it or forget it. In other words, a debtor needs to decide are they going to create and implement a plan which allows them to pay off all of their debt, avoid the creation of new debt, preserve and if necessary repair their credit or is the debtor going to make a conscious decision to not pay any of their debt and allow the passage of time to clear up their debt problem. Both of these courses of action have merit and pros and cons. Both also are extremely difficult. The easier course of action is to simply float down the debt river paying what you can, when you can but in the long run that is both devastating and permanent.

In the first course of action, the debtor should find a program that they can embrace and make their own and totally commit to. I highly recommend the Dave Ramsey Christian based program, but that is simply my opinion. If the debtor makes this life choice they will have to implement a strict budget and pay down the smallest debts first, eliminating debt as they go. The debtor will have to deny themselves the luxury of living like everyone else and will actually have to buckle down and do without. How long it will take to accomplish this program depends on the number of debts and the amount of debt the debtor has incurred. A key to this life choice is a change in life style and pattern of thought. This change is absolutely essential in order to keep the debtor of incurring new debts while you are paying off the old ones. The end result of this life choice will be the end of debt collection harassment and good credit.

The second life choice option available to the debtor is to forget about their debt. This is an extremely dangerous life choice to make. It is not recommended if you have absolutely any assets whatsoever, such as a retirement fund, savings account, luxury automobile or equity in your house. If you are truly flat broke, you can consider ignoring your unsecured debt. By unsecured debt I am specifically referring to credit card debt. Any debt that is secured with collateral such as your car loan which is secured by your car or your house note which is secured by your house must be paid or the institution to which you owe the debt will simply repossess the collateral. A debtor can under the Federal Fair Debt Collection Practices Act inform a collection agency that he or she has no intention of paying the debt and to cease all contact. At that point the debt collection agency must cease all contact, but can proceed with a lawsuit. At some point your creditors will lose interest in pursuing you if you never make any payments and have no assets. Likewise at some point your debts are simply no longer valid based upon the statute of limitations for open accounts in your state. That time period varies from state to state. If a judgment is taken against you that judgment is good for a certain number of years. For example in my state of Tennessee a judgment is good for ten (10) years however, you should understand that at any time during that ten (10) years that judgment can be renewed by court order for an additional ten years. Using this method you are simply banking on the fact that your creditors will lose interest in attempting to get money out of a dry hole. After seven (7) years the derogatory information will age off of your credit report. The downside to this life choice is that you will have to endure credit collection attempts and the fear that whatever asset you do have will be seized or taken to satisfy the debt. At the end of this process, assuming you do not incur additional new debts, you will have decent credit as all of the derogatory information will have aged off.

I cannot recommend to you either of these life choices nor can I advise you on which would be the best for your circumstances. There are other obvious life choices, such as filing either Chapter 7 or Chapter 13 bankruptcy, which I have not discussed. However I can strongly advise you to avoid simply floating down the river of debt making minimum payments when and where you can.