In an effort to sell debt settlement, a blogger for the industry recently wrote on the “How Life Works” website an article entitled The 5 Dumbest Things You Can Do if You Have too Much Debt. In this case, the article should be exposed for what it is, an advertisement blog to sell debt settlement for the hosting company. Although one can poke holes in all five assertions made, the debt settlement blogger is busted for declaring bankruptcy dumbest.
Whereas I might partially agree with the assertions made by the blogger on debt in general, his or her comments on bankruptcy in particular were out of character and misinformed. In the article, here is the actual list of the five strategies the blogger says you may want to avoid, and I have made comments where I agree and disagree with each:
Paying on the minimum on your debt, as this will result in the amount you owe actually growing, and your problems will only become worse.
Comment: What the blogger is most likely talking about here is making minimum payments on revolving credit card accounts. The statement about such payments is true, unless you are paying on an account with no interest.
Relying on friends and family, as this can damage a relationship with the most important people in your life.
Comment: Where it is true financial relationships can strain family ties and relationships, financially relying on family and friends can be one of the greatest relationship builders known. We all start out very financially dependent on our parents, but few of us rely on our friends. It may not be wise to borrow money from family or friends when you are independent, especially if you are overextended, but if it is obvious your financial situation is not for an extended time, and you have the means to pay the money back, it may not be the dumbest thing either.
Unscrupulous credit counselors that demand cash upfront or high fees for help they promise, but don’t deliver.
Comment: Not all credit counselors are unscrupulous. The idea of learning how to manage a budget is not only a good idea, but it is required through certified counselors by federal bankruptcy laws before you can file bankruptcy. You can never know whether or not any vendor will deliver what they say they will without researching their credibility, and even then, you may learn differently the hard way.
Using new, high-interest loans to pay off lower interest rate loans. While it may be easier to just have one payment, it will actually increase the amount you have to pay back.
Comment: Consolidating your loans will not necessarily increase the amount you have to pay back. It can, but if you get one overall lower interest rate than the average current rates paid, you can pay back less for the total principal borrowed. Under certain circumstances, consolidating loans is a time honored and viable way to deal with debt.
Declaring bankruptcy–this can have permanent and severe consequences on your financial future. Avoid it if you can, especially when debt settlement may work for you.
Comment: This is probably the most ludicrous statement the blogger makes. You cannot avoid bankruptcy if it comes. It is what it is. Bankruptcy does not have permanent consequences. As a matter of fact, filing for bankruptcy protection is the only sure way of freshly starting over financially. Yes, you may have to rebuild your credit, but if you have not been able to pay your bills, your credit already needs rebuilding.
Settling debt only temporarily solves financial problems. You can say the same for filing bankruptcy. Learning to manage and live on a budget while maintaining a livable income are the only things you can do to really solve debt issues. Filing for bankruptcy protection is the only option that gives you the fresh new financial start you need to learn financial management.
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