Hello! I work for XXXXX and I took one of your classes last winter at our Convention. All of your info was helpful, but I need more HELP! My debt is minimal but I have around a 550 credit score. I have two leins that add up to arond $4,000 and two deliquent student loans that add up to maybe $3,000. I also have a couple credit cards that I got 4-6 years ago that add up to $600 that have never been paid off. I have heard that sometimes it is not good to pay off debt that old so I do not know what to do. I am ready to buy a house but obviously my financial situation is not. I did go to annualcreditreport.com and retrieved my full credit report, but i still do not know what to do. I just need someone to point me in the right direction. I have bad credit and nothing to show for it. I am 24 years old and I would like to start my 401K and maybe invest in some stock. I also would like to go back to school next year with some cheddar in the bank. Can you help me, please!?! – MG

MG

Thanks for your email. Here is what you need to do (in order).

Raise money. Sell stuff on craigslist, have a garage sale, work overtime, get a part-time job. Seriously. You need extra money to pay these things off before things get out of hand. I fear that this problem could get worse if you don’t address it now. Pay off debt in the following order. Pay minimums on everything, but focus on the following debts first.

1. Pay off credit card debt
2. Lowest tax lien
3. Highest tax lien
4. Lowest student loan
5. Highest student loan

I’m glad you emailed me. But you need to take further action. Focus on raising money, and then pay this stuff off. You shouldn’t think about moving into a house until you pay this stuff off and have a 10%  down payment. If you buy a house before then, then you will run into major financial issues in about 5-7 years. Let me know if you have anymore questions.

Pete the Planner

The very nature of sports and entertainment is simple: they distract us from our lives for a few brief moments so that we may reset our outlooks on life. However in tough financial times, many leagues pass on their financial problems to you the fan. It cost $5 to watch the cars practice, and only $20 on raceday. Although that is chump change, Belskus points to recent economic impact study that suggests that the Indianapolis Motor Speedway is responsible for $750 million per year in our local economy. Tell me who loses. No one. Great fan experience, great economic impact, and the largest drivers’ purse in racing.

So how does the IMS do it? “We are a private company and we don’t disclose our financials” says Belskus. In other words, we don’t pass on our financial problems to the fans. We figure them out, make adjustments, and then enhance the fan experience. I can’t imagine the NBA, NFL, or MLB doing that. “But just like most Americans we too have had to make some tough financial decisions, but the good news is that the changes are working.” Belskus speaks of the qualifying format and schedule changes for the entire month of May.

So there it is, the greatest spectacle in racing hasn’t passed on their challenges to the fans. They have made positive financial changes that have actually enhanced the fan experience. I think many of you have already found that making tough financial decisions isn’t a negative experience. It’s all about gathering information, measuring the impact of possible changes, and then making critical decisions. Too many times we view tough financial decisions as a negative event. But critical thinking and innovation can make for a better life. If the largest race in the world can do it, you sure as heck can too.

Definition of Debt Settlement

Debt settlement is the process of having your debt reduced by the entity that holds your debt. In other words, you agree to pay off your balance immediately…but reduced balance. For example

You owe $25,000 on your Chase Bank Visa

They agree to eat $7,000 if you pay off $18,000 in one big chunk.

In this example, you and Chase have settled on this $18,000 payment. Most banks and credit companies are being pretty aggressive with settlements these days. That means that if you have the cash, then you can settle your debts for much less than you owe. Of course the problem is that most people with significant debt don’t have significant cash. That is where things get dicey with the entrance of a debt settlement company.

Here comes the debt settlement company

A debt settlement company will get involved to help you negotiate and accumulate the cash to pay off the debt. However, they charge approximately 14% to do this. Oh, and they take the fee before they start negotiating and paying off your card. Let’s look at the numbers:

You owe $25,000 on your Chase Bank Visa

Debt Settlement Company agrees to help you for 14% of your balance. Therefore you make payments to the company for several months until you pay them $3,500. In the meantime, they have you save money into a pool of money that will be used to pay off your debt. This takes several months. By several months, I mean several several several months. All the while you aren’t paying the credit card company because you only have enough money to pay the debt settlement company and to add to the pool of money that you can use to pay off your balance all at once.

Your credit card companies will continue to harass you. Most people get so scared and frustrated that they start paying their credit card companies, and stop paying the debt settlement company. This means that they completely wasted money that they pay to the debt settlement company. Here is what that looks like:

$3500 to the debt settlement company

Still owe Chase $25,000.

Booooooo

Working with a debt settlement company is a very bad idea. I would suggest that you never do it.

1. Forgetting to file your Homestead Mortgage Exemption. If you have a mortgage, and you haven’t filed this exemption with the county, then you are likely paying THOUSANDS of dollars more in taxes than you need to.

2. Buying company stock inside your 401k. This is a bad idea. You don’t need your retirement and your current income hinging on the same thing: the performance of your employer. If you insist on ignoring me on this one, then make sure you don’t have any more than 10% of your 401k in the company stock. But how about you just don’t ignore me. Trust me, I’m a doctor. No I’m not. But, seriously, just trust me.

3. Ignoring collection calls. If you have a debt that goes into collection, don’t ignore it. People will tell you that you can ignore the calls to gain leverage, but those people are wrong. Collections aren’t like the common cold. They just don’t go away. You need to call them back.

4. Letting a home builder or car dealer tell you how much you can afford. This is possibly one of the most heinous errors that you can make. Yet, most people have done this. Know what you can afford before you walk in the door. If you make this mistake, I don’t blame the seller, I blame you. Prevent yourself from getting blamed by me.

5. Loaning money to family or friends. I have always been a hard-ass about this. I have seen this scenario occur numerous times over the years, and it rarely works out well. And don’t get tempted to be part of my rarely. There is a reason that a lending institution won’t give them money to borrow. You should take a hint from that, and decline their request.

Avoid these things like the plague.

Every single person uses something different when it comes to motivation. Some people are able to rationalize that saving money will lead to a brighter future…and then act on it. Believe it or not, this is a small group of people. Others need to get so scared of future misery that they force themselves to act on their financial priorities. So what do you do if none of your techniques are working? Allow me to introduce you to guilt.

Prepare to be blasted. Don’t worry. This is how guilt works.

Remember the last time you lost $100 at the casino? Yeah, that was a bad idea. You haven’t even started to save for the college educations of your three children.

Remember that new purse you just bought? Yeah, that was a bad idea. Your parents just gave you $1500 to get out of credit card debt, and you bought a stinking purse. You should have given them the money.

Remember how you buy new golf clubs every 2 years, but you get mad when your wife wants to buy the kids nice school clothes? Yeah, that makes you selfish.

Remember how you pay $80/month for someone to clean your house, but you refuse to pay $35/month to buy the right amount of life insurance? Not cool, Holmes.

Remember how you have a $600 car payment, but you refuse to buy your kid braces for his crooked crooked crooked teeth? At least you will be driving his crooked grill around in a nice car.

See, guilt sucks. It does. But it sucks because it’s true. If you can possibly relate (or know someone that can relate) to any of these situations, then please take action. Use guilt to accomplish your goals. It works.