Posts Tagged ‘credit debt bankruptcy proposal counselling financial Trustee consolidation’
Beware the word CONSOLIDATION!
What comes to mind when you hear the word “Consolidation”? Do you envision all of your debts being ‘paid off’ leaving you with the manageable obligation of one monthly payment? If so, you are thinking about a “Consolidation Loan”. A financial institution loans you money by paying off your debt and you pay them back. With interest, of course.
Nowadays, the word “consolidation” is being used in a much more liberal term. Many debt-relief agencies offer to “consolidate your debt”. The process is quite different. Your creditors are approached and offered a settlement. That settlement could be in full or in part (a percentage of what you owe) and could result in an elimination or reduction of interest.
In the Insolvency Restructuring Profession we call this “consolidation” or “settlement” a Consumer Proposal
So, what is the difference between a “consolidation loan” and a “debt consolidation”?
The most important distinction is the effect on your credit rating or score. A consolidation loan will not affect your score in a negative way and may, in fact, improve it. A debt consolidation, on the other hand, WILL impact your score negatively, the extent depends upon your credit score at the time of the ‘consolidation’.
A friend recently asked me if I could recommend a reputable debt consolidation company that will not impact your credit score. My answer was “Nope, they don’t exist!”. If you find one, let me know!!
Trimming your budget is a lot like trimming your waistline.
Consumers spend millions of dollars every year looking for that magic solution to losing weight. And businesses increase their bottom line while relatively few consumers decrease their bottoms/middles etc.
The same phenomenon happens in money management. We tend to look for quick fixes – consolidation loans, second mortgages, payday loans.
Neither works for the masses. Why? They do nothing to address the underlying problem – taking in more calories than you burn / spending more monthly dollars than you make.
But alas, there is a magic solution to gain control of your finances! – AWARENESS. Pay attention to the details.
1. Track where your money goes and make decisions to change your habits.
2. Seek expert advice/guidance when needed.
3. Commit to a plan of action.
That’s it. That’s the secret. 
It’s been six long months and my hands are cleaner than ever. Who would have thought I would make it this far?
I am referring to life without a dishwasher. Around mid-December, ours broke. My first reaction was sheer terror. I’m pretty sure I almost lost consciousness. Like many families struggling to make ends meet, I didn’t have any savings to buy another. The word credit kept flashing in my mind, but we were just managing what we had. I took a deep breath, pulled up my rubber gloves, and started washing.
It wasn’t so bad. “Not much more work then rinsing the dishes, loading and unloading the dishwasher”, I thought. Day 2! – It occurred to me that growing up we never had a dishwasher, we, gasp, washed and dried them – by hand. I then had a BFO (blinding flash of the obvious!). My gosh, we are raising a generation of kids who never have to wash dishes. Visions of power failures and piles of dirty dishes flashed by. I decided to start operation “Dishpan Kids”. I asked, in a way that made it sound incredibly exciting, “Who wants to learn how to wash dishes?”. It was fun. The family doing dishes together. What a concept.
I will admit, I had some setbacks. Entertaining guests poses some additional challenges (clean-up takes slighly longer than loading the dishwaher) and some surprises (during our last get-together, the guys did the dishes while the girls played cards…hmmmm…). A month or so after we began “Operation Dishpan Kids” I found out that the dishwasher actually was not broken. It’s something under the sink (that’s as intelligent as I get on that subject). It will probably take an hour and 20 bucks to fix. But you know what? I’m ok. I think I can go without. In fact, I kind of like it. I enjoy watching my family share in the responsibility and I have a really great two-level dish rack to dry my dishes on.
Isn’t it wonderful? There is absolutely no reason to wait for something you can’t afford now. And the deal is much better than buying it on regular credit that has to be paid starting next month. Ah! what a wonderful consumer-driven world we live in.
It’s also dangerous. In fact, it’s a trap – a credit trap. The objective is to have you commit future income towards the purchase of something you just can’t (don’t want to) wait for. We are such an impatient society aren’t we? Wait! It gets better – you are further tempted (expected) to spend more than you normally would on the item(s) AND the gamble is that you won’t pay it off completely by the time it comes due.
I have to admit, I’ve been on the no-payment-no-interest (npni) income tax cycle for about three years. What do I mean? It’s simple – buy on a npni deal, payments are deferred for 12, 15 (or even more) months. Your plan is brilliant – when your tax refund comes in you pay it off – in full.
I had a close call a couple of years ago. My income tax refund almost did not come through in time. Whew! Side-stepped that one. Why am I sharing this you ask? Because, I’m human, I make mistakes. The key is to learn from them. I have discovered that there are some key rules to a successful npni endeavor.
…but at what cost?
I’ve been struggling holding off buying my kids a DS. My daughter is 7 and my son is 5. All their friends have one. I have a momentary flask back, “But Mum, I plead, all my friends have jeans”. (I was in Grade 6 and still wearing polyester pants). That was 1978. Oh how far we’ve come. Hmmm. Really. Today’s pleas would be “But Mum, all my friends have a DS, computer, ipod, cell phone, (fill in the blank).”
But alas, there’s something we have today that we didn’t have in 1978. Endless sources of credit. If the bank says no, don’t worry, there’s Finance Companies. If they refuse you, no problem, just about any store can give you some type of credit from a credit card to a no-payment no-interest deal. You can give your kids everything you never had. But at what cost?
Well, first there is the interest cost. The more difficult it is for you to get credit, the more interest you will pay. Then there’s the cost of having to upgrade the DS to the latest model when their friends do so. And let’s not ignore the costs of teaching your kids that they “should” have everything they want. No worries, our credit system will be there by their side as they get older and struggle to maintain their lifestyle on a meager wage and potentially high student loan debt.
Maybe its time to stop keeping up with the Joneses and evaluate our own family values. Me?! I’ve decided the hand-me-down Gameboys can last a bit longer and told my kids they can get a DS when they save up enough money. By then, two more versions will have come out and we should get a pretty sweet deal on Kijij, or, better yet, a hand-me-down from a more progressive friend.
And who knows, they just might learn a valuable financial lesson in the meantime.
Thanks Mum – for teaching me a “valuable lesson”, even though I whined and complained the whole time.