“Tii-ii-ii-ime….. is on my side. Yes it is.” I’ll never forget that line of the song performed by The Rolling Stones. To be honest, it was the use of the song in the movie “Fallen” that really got it stuck in my head. I won’t ruin the movie for you, but let’s just say that the singing of that song was a sign of definite trouble.
A good movie, but one that falls into the fiction category. There are a number of reasons for that; but in the world of personal finances and credit, time is on your side. Time does not need to be a sign of trouble, but rather of opportunity and of good things to come.
Many, many people in the United States find themselves simply overwhelmed by debt. A recent study by the Urban Institute found that roughly one third of Americans have debt that has actually gone to collections. Now that is trouble. Aside from the financial mess, carrying overwhelming debt can also lead to carrying overwhelming emotional and relational baggage. Unfortunately, overwhelming debt has also been the cause of some to make the ultimate choice and end their lives. Often, people become so overwhelmed that they simply see no way out. Period.
Our light in the darkness? “Tii-ii-ii-ime….is on my side. Yes it is.” When debt looms, most often a little time can make a huge difference in reducing and even eliminating that debt. Be intentional, and time is definitely on your side.
For those of you feeling overwhelmed by debt, I want to lay out a few of your options and what may be surprising timelines associated with those options. Put time on your side and invest just a little to learn about your options for debt management.
- The Individual Plan – You often have the ability to control and eliminate your debt. You just need to make a plan and stick to it. Examine and reduce your spending and apply the savings to your debt. Commit to eliminating your debt. Being solely dependant on your budget and will power, this option has a wide open time line. Cut all of your extra spending and apply it all to your debt, and you can eliminate it fairly quickly. Without any accountability help, it is also easy to slip here and there. Suddenly, the whole plan is right back where you started. But done successfully, this option also potentially has the least impact on your credit report as making payments on time and reducing debt over time only helps you.
- Negotiate for Yourself – Often times, creditors are willing to negotiate for a payoff of large debt. You can contact them directly and work out an agreement. They may require higher monthly payments or automatic withdrawals, but they may also agree to forgive a portion of your debt as long as you stick to your end of the agreement and make payments. This option now adds in some external accountability to help you keep on track. Do be aware however, that because the creditor is getting less back than they originally gave you, it will be on your credit report and will negatively affect your score. The decision is now based on which will have less impact on your score – a negotiated settlement, or high debt, high payments, and missed payments. Again, the timeline may be fairly wide open, but a little more controlled as the creditors now have a say in things.
- Debt Management Plan – You are not alone. Here at the Center for Financial Resources, we regularly work with clients to set up Debt Management Plans. The counselor negotiates on your behalf with your creditors to reduce your amount due and/or your interest rate. You then make one monthly payment to the agency and they disperse payment to your creditors. There is a usually small monthly fee with not-for-profit organizations (that can be much higher with for-profit debt companies), but the overall payment is usually still much less than prior to the negotiation with creditors. As with negotiating for yourself, Debt Management Plans may still affect your credit score, but the benefit is in the time. Our Debt Management Plans have a life-span of 3-5 years. The goal is to have you DEBT FREE at the end of the Debt Management Plan.
- Chapter 13 Bankruptcy – Hold on! Hold on. Before you dismiss it as an option, the stigma associated with bankruptcy is falling away. The government established the process as a method for people to get a restart on their lives. Yes, there are those who abuse it. But many more people use it as a way to get their debt under control and financially restart their lives. Chapter 13 (or Reorganization) bankruptcy is much like a Debt Management Plan, except that it is managed by the courts. There is more cost and it will likely have a stronger negative affect on your credit score. One added benefit, however, is that the courts have more power to discharge any debt you can not afford to pay. Time again is on your side as Chapter 13 payment plans are usually on a 3-5 year schedule with the remaining debt discharged, or written off, at that point.
- Chapter 7 Bankruptcy – More towards what people associate with bankruptcy, Chapter 7 (or Straight) bankruptcy is a more difficult process for most people to go through. With only a few exceptions, all of your assets are sold off by the court with the proceeds used to pay your debts. Any debt that is left is discharged, or written off. Chapter 7 has perhaps the longest effect on your credit as it stays on your credit report for 10 years. But the debt is also eliminated the fastest, with Chapter 7 filings sometimes taking a mere 6 months to complete through discharge of debts.
- Ignore It All – While we will vehemently discourage ignoring your debt, it is and always will be an option for you. Simply write a letter to the debt collectors and they will have to stop calling you. Put the unopened collection letters in a drawer and avoid the process servers trying to deliver subpoenas when you get sued for the debt. It can be done and there are those who do it. But know that, as much as you may be able to avoid it, the debt will never go away. Thinking time-wise, this is a bit of an apples/oranges situation. As you are making no effort to get rid of the debt, we can’t even really discuss a timeline for it. You will simply be under your debt for the rest of your time on this earth.
Know that, while all but one of these options give you a light at the end of the tunnel, there are some debts that cannot be eliminated through these processes. Child support, school loans, restitution, and some tax debts are not avoidable, even through Chapter 7 bankruptcy. While these will take more time, dealing with the rest of your debt now will make child support, school loans, and other non-dischargeable debt easier to handle.
It may still seem like a lot, but it is a place to start. There is hope. Debt can be overcome. If you would like help getting started, a first appointment with the counselors at the Center for Financial Resources can help you put a plan together. They can look at your income and budget as well as the amount and type of debt you carry. With those considerations, they can lay out your options.
It will be work, but everyone can overcome debt with a little time. Before long, you will be walking along debt-free singing, “Tii-ii-ii-ime….. is on my side. Yes it is.”
written by Breck Miller
images courtesy freedigitalphotos.net