I generally begin any consultation I do with people who reach out to my company in search of help with debt with this question: “What has you reaching out to a perfect stranger? What is going on with you financially”? Then, I shut up and listen. I am sometimes the first person the caller has ever spoken to about the situation they are in.

The responses I hear vary, as does the time someone will take to outline the details of their hardship. By listening closely, I am able to hear the stress and fear they have about their debt. I often hear the struggles they have gone through to try and keep current with credit card bills, or the difficulty they have had in communicating with creditors and collectors.

The other day, I heard one of the simplest and shortest answers to my initial question that I have had to date.

“My Debt Is Crippling Me.”

While this response does not provide details I generally look to key off of in order to identify the debt pieces or solutions to putting the person’s financial puzzle back together, it said a great deal in a very powerful way.

Struggles with debt DO feel crippling. In the very sense that someone with a physical disability is forced to deal with every day of their lives. The stress and fear with debt problems are debilitating and can often manifest into actual maladies. The worry and frustration about money, and the lack of money, carries over from one day to the next. What am I going to do at the end of the month when these other bills are due? When will I ever be out of credit card debt? How did I get trapped in a home now worth far less than I owe? What if I get laid off with no savings? How would I get by with maxed out credit cards and no income?

One of the overwhelming benefits to people we talk with is that we can reduce, or even remove the stress and fear they have about their debt problem in one phone call.

This gentleman did not feel crippled when we finished talking about his problem because I plainly laid out the facts of his finances (after several additional questions to be sure), and was able to point out to him the mathematical rational solution to his debt. His solution did not involve needing to engage my company for a product or service, as he was past the point of debt settlement or a creditor sponsored hardship plan being a viable option.

He learned that, unlike someone who has a physical disability for the rest of their life, his crippling debt could actually be cured and with little fuss or expense. He was not at all excited to know that his only real option was to file for chapter 7 bankruptcy, but he saw the wisdom in doing so and hung up the phone with no fear and less stress.

I asked him before we hung up from the call “How crippling is your debt now?”.
He replied “Not at all.”

There is always and answer to recover from debt. The answers do often involve tough choices and some action steps that are not exactly a thrill to take, but can be arrived at through the process of elimination. Generally, I can walk through the following things and eliminate 3 or 4 out of the 5:

• Creditor monthly payment concessions
• Debt Management Plans through a credit counseling group
• Bankruptcy
• Debt Settlement
• Doing nothing (sometimes the right thing for brief period – couple months)

Knowledge removes the fear of the unknown, and unemotional, boring, old arithmetic is the compass to find your way to healthier finances.

My advice to anyone feeling crippled with debt boils down to the “Four Gets”:

• Get real about your finances;
• Get informed about your options;
• Get a plan in place; and
• Get started

If you would like to start getting informed the same way the man who inspired this article did, send me an email to schedule a consult: michael@consumerrecoverynetwork.com. I will consult with you personally.

I can also recommend scheduling time to speak with any member of the American Association of Credit Counselors (AACC) who are a diverse group of debt relief service providers committed to excellence working with people in debt.

Mish has a post up today: Food Stamp Usage Up Nationally

It shows my state of Idaho having the largest year over year increase in residents receiving food stamps, or what is now referred to as SNAP. SNAP stands for: Supplemental Nutrition Assistance Program.

Reading the post was timely for me, as you will understand in a moment. After reading some of the comments to the above linked post by Mish, I was motivated to post a comment of my own.

I am writing this post and sharing the contents of my comment with readers of DebtBytes because many may not know the policy we at Consumer Recovery Network adopted to help feed those who often go hungry inside the communities of many of our customers across the nation.

Here is the comment I left:

“I have been reading Mish for years and assume this post is intended as a real time representation of deflation.

Reading the comments (and the fact that I am really hungry right now), prompted me to add to the discussion.

Today my family is participating in “Feel the Hunger“.
I made my daughters each a 1/2 cup of rice before school. It’s all they get to eat for the whole day. My youngest ate 2 tbls prior to leaving and took the rest with her. My oldest held off from eating any, but took the full 1/2 cup with her.
All I can think of right now is bacon…

There are many locals in my small North Idaho town participating.

This is a good learning tool for my daughters.

There are local answers to hunger, but they depend upon the participation of those better situated.

The work I do at my company focuses on assisting mostly middle class families in financial turmoil. For those suitable to use the approach we advocate, we provide a good alternative to bankruptcy (mostly alternative to chapter 13). Our fee since opening our doors for any direct hands on service is wholly contingent upon our success. In over 20 states we do not collect the fee, but still provide the service. In lieu of collecting the fee we encourage our customers donate the calculated fee to low income legal aid in their area, or to their local food bank in the form of nonperishable food items.

We are not a nonprofit. We like profit as much as the next guy, but we keep our fees low and our results and retention high. Our reputation is exemplary in an industry known to scam and leave people in a lurch.

We do the work we do, the way we do, for a myriad of reasons.

We do not advertise, as the cost would be borne by our customers who are not in the best position to fund higher fees. We mostly rely on word of mouth and organic exposure.

My point: Be part of the solution when and wherever you can.

Man… I could go for burger right now…”

The people we help here in Idaho and in Mish’s state of Illinois are included in that list of over 20 states where we encourage donations to those in need.

I will cover why we designate low income legal aid offices as donation recipients in a later post.

Companies like Consumer Recovery Network exemplify, in our chosen unique way, good corporate citizenship. If you have the ability, next time you stop for groceries, consider picking up a few extra food items and drop them off at your local food bank.

Oh, and if you happen to be in Sandpoint Idaho, I could go for a bacon cheeseburger right now….

Double Oh, check out Mish’s blog. He gives a rip about the state of economic affairs in this country.

• It would allow consumers with debt to be able to more aggressively pay down that debt with the tax savings, which could put them in a position to spend responsibly sooner than they would otherwise be able.
• Doing so would also prompt additional consumer spending

Banks who have proven to be the best lobbyist’s known to mankind should get behind a move like this. If there were more willingness and ability to borrow, banks will step up. They could charge rates with less public or political back lash. Banks would also likely see an immediate reduction in the sky high default rates they are experiencing now.

Think about it.

This type of policy move could spur spending and thereby job creation. This is what the country’s economy needs to climb out of this recession, not more ZIRP, ineffective onetime tax credits, or short lived sugar rushes from stimulus spending. These things have only proven to cause distortions in market conditions when what we need is stability and a return to some semblance of predictability.

Take this a step further and provide tax deductions for all interest payments on all debts. Interest payment on debt is essentially phantom money that does not really exist in the money supply, unless you count the audible sucking sound it makes. Interest payments are an additional tax on the labor of those who borrow. This type of tax deduction would provide a strong benefit to a struggling middle class.

Other than some pulled forward demand market distortions this may create in the first year it is implemented, what distortions would a policy like this create? The act of using credit to buy a thing is already pulling forward demand as it is.

Would a move like this “screw savers”?

One might argue this is so, but likely only in perception. Savers save, that’s what they do. They are smart enough to look for ways for their money to earn interest, not pay it. Taken in totality, a policy move like this may actually provide more investment opportunity for savers.

The federal tax base would take a hit, sure, but the government has proven it is going to deficit spend no matter what anyway. With the inevitable stimulus plans 2.0 through 9.0, additional backstopping of the states, unemployment extensions etc… being baked into the cake right now, wouldn’t this tax deduction be a better way to let the free market help to sooner find the equilibrium our economy so desperately needs right now?

We have mortgage interest tax deductions as a means to promote home ownership. Given the dire need of consumers and businesses to start participating in an economic turnaround that has solely been fed-by-the-fed to date (the sugar rush is fast wearing off), why not treat all interest on debt the same?

Wouldn’t it be nice if the price of a thing was actually the price of that thing, instead of the price tag plus interest? Sure, that’s exactly what happens when you pay cash, but cash transactions are only part of spending. An economy reliant on credit and fractional reserve money policies is what he have, and have had, for some time now. Unless our country is ready to give up that ghost (it’s not), being able to deduct all interest payments on debt might be a nice little push for a national economy on training wheels in need of finding the balance to ride on its own.

Should a tax deduction on interest payments be temporary? Perhaps only for the next 10 years, while the US is busy emulating Japan’s economy of the PAST 10 years?

What am I missing here?

Currently the cost of money for the banks is next to nothing, but they loan it out charging consumers as much as 30%. That is quite a spread!

The argument I hear for high interest rates is often one of risk. The banks use available data from resources like your credit report which may (or may not) suggest that your behavior reflects a higher risk of default. This risk data is then used, by applying some twisted logic, as justification for increasing your interest rates. Let’s see… some arbitrary or even actual data shows an account holder is at higher risk for not being able to make one of their payments and so the bank’s solution is to increase your rates making your payment higher than those at a lower risk. Gee, that’ll assure timely payment! How’s that working for ya Mr. Banker?

Judging from the increase in bankruptcies, delinquencies and charge offs… Not so much!

Obviously, the current job market is adding to the payment pressure consumers are under, but even those who are employed are often just one interest rate increase away from the edge of a financial cliff. I speak to them daily.

This Bloomberg article from yesterday: A CLUE, shows that some in a position to affect change, via the proposed legislation, actually get it.  It doesn’t take a crystal ball to see that a cap on interest rates will provide for a future where consumers can actually afford to borrow, spend, and successfully pay back their debt, thereby assisting in an economic recovery. There are lawmakers who possess, or are willing to borrow from their constituents, the backbone needed to support a return to sound lending principles.

Yes, I understand that we are approaching an election cycle and perhaps there is a desire by politicians to look good at home, but this legislation has never been more relevant than it is today.

Let’s hope it gets the traction it needs this time!

One of the primary benefits of filing for Chapter 7 bankruptcy is that your unsecured debt, like credit card debt, gets discharged or wiped out, which gives you the financial fresh start you need if you are strapped with too much debt. However, as Stafford points out, not only will your bankruptcy be part of the public record and noted in your credit report for 10 years, but in today’s job market having that information in your credit file can make it much more difficult to find a well-paying job. That’s because there is a lot more competition for good jobs and so many employers are using other criteria besides an applicant’s resume and references to help them decide who is the “best” person for the position they want to fill. In many instances, one of those criteria is whether an applicant has filed for bankruptcy. The theory is that if an applicant can’t manage her own money, then she probably has bad judgment and would not make a good employee. Of course, as Stafford points out, this attitude does not take into account why an applicant filed for bankruptcy. For example, the applicant may have an ex-spouse who is not paying her the child support she is legally entitled to or the applicant’s health insurer is refusing to pay many of the medical bills associated with his wife’s serious illness.

Therefore, professionals who have been downsized or are concerned that they may lose their jobs should recognize how easy it is to hit the debt wall when they are out of work and should take aggressive steps to address their debt. Although filing for bankruptcy is an option to consider, they should also consider other alternatives, like debt negotiation. Debt negotiation has proven to be an effective option for credit relief and can prevent a bankruptcy from appearing on your credit report.

Debt negotiation involves contacting your creditors, such as the banks that issued you credit cards, to try to reach a compromise with them regarding how much money you’ll have to pay to pay off your accounts. Your goal during your negotiations is to get each of your creditors to agree to take less than the outstanding balance that you owe and for the amounts that that they agree to accept to be amounts you can afford. These negotiations are typically predicated on your having missed several consecutive payments on your accounts and on your ability to establish that a hardship — like a job loss — has made it impossible for you to pay your outstanding balances.

Until recently, large creditors, especially banks that issue credit cards, have had long-standing policies regarding when they will offer a settlement to a consumer and when they will consider a settlement that a consumer offers to them. Now however, given the current state of our economy, the troubles within the banking sector, the financial industry’s new focus on risk aversion, and increases in account charge off percentages, many banks have not only become more willing to settle credit card debts, but they are also willing to settle for less money than they would have agreed to in the past. This is good news for debt stressed consumers.

In her blog, Stafford mentions the plight of one professional who might have been able to avoid bankruptcy if he had pursued debt settlement after he lost his job. She writes: “I heard from a professional who lost his job in a March 2008 downsizing at Sprint and began a so-far fruitless job search. His severance ran out, he and his wife depleted three 401(k) savings accounts and used up other savings. They pinched all the pennies they could and are trying to keep their home through a Fannie Mae Loan Modification program.”

The plight of that individual sounds very similar to stories I hear all too often. After losing a job, or experiencing a cut in pay, consumers are optimistic that things will work out for them and so while they are looking for work, they use up their savings and draw down the money in their 401(k)s so they can pay their living expenses and their debts. However, once their money runs out and they are still jobless, many of these consumers end up in bankruptcy. Although I am not criticizing the optimism of these consumers — they need it to help them get through the tough times ahead — I am suggesting that many of them might have made better use of the money in their savings and retirement accounts by using it to settle with their creditors. That way they could have avoided bankruptcy and possibly made it easier to find new well-paying jobs.

Although there always has been and always will be consumers who will benefit more from a Chapter 7 than from negotiating their debts, the fact is that many debt-stressed consumers who do file were actually excellent candidates for debt settlement.

If you have hit the debt wall and want to learn about all of your debt management options, including debt settlement, visit Consumer Recovery Network. While you’re there, become a member of Consumer Recovery Network (CRN), with no risk to you, and find out if you should pursue debt negotiation.