We hear them every day and we have written extensively about get out of debt schemes and what an absolute scam most of them are. People sit there and pitch the most unimaginable garbage to people who are struggling with debt. They’re just like the snake oil salesmen of the wild west with all of their ridiculous cure all solutions. “Buy my book and learn how to get out of debt fast” barks the salesman from his multimillion dollar radio perch or the best one is, “we’ll get your credit card company to settle for pennies on the dollar.” They’re selling you snake oil and without a proper diagnosis, you’ll get exactly…nothing. Except for a lighter wallet.
You don’t treat a medical problem without a proper diagnosis. Is it gas pains or colon cancer, a headache or an aneurysm? You wouldn’t let someone start cutting or taking a dangerous therapy if you only needed to take a tylenol or quit eating so many beans.
Much like medical problems, for a proper cure, your finances need a proper diagnosis too. Do you have a temporary problem that will work itself out with a little discipline or are you throwing your hard earned money into a bottomless money pit. The answer is a big step in diagnosing and treating your debt problems.
Rx for Debt
Any good physician needs to know things about you. Your age, your medical history, family history, etc.
An attorney assessing your financial situation will have similar questions. We need to know your age, whether you have dependents, what your assets are, who and how much you owe as well as what your income is. All those are questions we have to have answers to in order to recommend a good plan to get you out of debt.
If you’re about to retire, you don’t have the luxury of time to get out of debt by just cutting a few frills but if you’re young and single with a good job, maybe selling that expensive car for a more frugal model and cutting back on the dinners out will help you get your financial house in order.
The old, “cut out the lattes” line doesn’t exactly work if you’re staring retirement squarely in the face like it would for a 22 year old. Sometimes “buckling down” is:
Too little, too late
Most of the better known and more respectable “debt gurus” have advice that is better suited for how to live AFTER you cure your debt issues or if you have plenty of time and discipline and not much debt. You have to start by comparing your income to your debt load. Otherwise known as a Debt to income ratio. If you’re using all your income just to service the bare minimums of your debt, you need a lot more help that someone who just spent a little too much this month.
You have to assess your situation. If you’re hunting squirrels, you don’t need a howitzer, but if you’re taking on a grizzly bear, you better come with some powerful options.
How risky is the cure
The last question we need answered to give you a proper diagnosis is, how risky is the treatment. In medicine, you don’t want to have brain surgery for a headache. Think about the side effects of the medicine you take. Every medicine has them and you don’t want to take something dangerous unless you have to.
When you are talking about curing debt though, you risk having to live with no safety net, especially if you’re doing it the “radio show” way. We have talked about how nearly half the country can’t cover a $1,000 emergency without having to borrow money from somewhere. $1,000 isn’t much in this economy and don’t fool yourself into thinking that you can put your hands on a grand in a matter of minutes or that you’re not one of those people.
One thousand dollars isn’t much in this economy. Yet a $1,000 expense would imperil a huge swath of our citizens. This list details more than 30 different everyday situations that could require you to spend at least $500. None of those reasons are all that crazy or out there. It could happen to any of us at any time. Not long ago, we wrote about what to do when you’re in serious debt and I’ll link to that here. It goes into greater detail and will help you understand more of your options.