Beating Broke

What is a Debt Management Plan

April 27, 2012 By Shane Ede 4 Comments

As you no doubt know, this is a blog about personal finance with a leaning towards getting yourself out of debt, staying out of debt, and learning how to handle the money you make once you’re out of debt. There are lots and lots of ways to get out of debt. My personal favorite is pretty close to the Dave Ramsey “Total Money Makeover” method. Not everyone is willing or able to go “gazelle intense” and bust their debt down to nothing the TTM way though. For some, they’ve gotten so far down into that debt black hole that they just don’t know where to start. Those people will, more often than not, end up at a bankruptcy hearing long before they’ll be exclaiming “I’m debt free!” on the radio.

But, if you’re one of those people, there’s one last stop on the debt freefall before you declare bankruptcy. Call it a last ditch effort if you will. That stop is a Debt Management Plan. Too often, the DMP is associated with shysters posing as financial advisors who promise to get you out of debt, while loading you up with fees on the backend. The problem with a DMP that charges fees is that you are actually adding on extra debt as you try and pay off your debt. But, there are some reputable places that do offer a free debt management plan. There are some that will help you to pay off your debt without going into further debt and without declaring bankruptcy.

What exactly is a debt management plan? The administrator of a DMP acts as your agent. They contact all of your debtors, like credit cards, auto loan lenders, etc… and negotiate a payoff schedule with a payment that you can afford. Usually, that payoff schedule will include some pretty significant drops in the interest rate as well. You make one large payment to the DMP agency, and they distribute the payments out to your debtors. At the end of the DMP, you’ve paid off all of those accounts. Any good DMP will require that you don’t add any new debt while on the plan. It also will include at least a minimal amount of counseling to help you avoid getting back into debt when you’ve finished with the debt management plan.

A debt management plan isn’t perfect. It’s not the ideal way to get rid of debt, but for some, who are having issues getting their debt under control, or, issues making all their payments, they can be a valid way to go about doing so without the pain of bankruptcy. Your credit will still take a hit, however. Not nearly the hit that a bankruptcy would deliver, but the accounts will get reported as being negotiated.

In the end, if your choice is between a debt management plan and bankruptcy, I’d take the DMP any day.

Do You Let Television Affect Your Reality?

April 25, 2012 By MelissaB 11 Comments

Do you watch a reality show such as Storage Wars or Sell This House?

Perhaps you have watched Storage Wars and have seen some of the participants walk away with as much as a $5,000 to $10,000 profit. (Of course some participants also have weeks where they lose a few thousand dollars on storage units, but we, as humans, like to be optimistic and focus on the units that make thousands of dollars.) Maybe you watch a few episodes and think, “I can do that!”

Or, maybe you like to tune in to HGTV on the weekend and watch people renovate their yards and homes in their spare time or watch experts come in and make a home more aesthetically pleasing so it will sell faster as they do on shows like Sell This House. You may begin to think about projects around your home that have bothered you—the old wooden kitchen cabinets that you wish you could brighten or modernize, the old worn out couch you would love to replace but can’t afford to.

The Benefits of These Types of Shows

These types of reality shows may help you make frugal improvements to your home. Take that worn out couch—maybe you watch Sell This House and learn how easy it is to cover your couch with a slip cover and make it look much better. Maybe you learn that you don’t have to spend $50 per window treatment; instead, you can go to Goodwill or a thrift store and buy flat sheets to hang on the window. By watching the show, you are learning simple, frugal tips to improve your home.

The Problems with These Shows

The problem comes when you watch these shows and they cause you to become dissatisfied with your current situation. Maybe you never thought about creating a patio of pavers behind your house, but because you saw it on one of the shows and liked the results, you want to do the same. You spend $500 to have someone lay the pavers for you and create your paver patio. Supplies were another $200. You have now spent $700 for something you didn’t even think of, let alone want, before watching the show.

Another problem is when you watch enough of these shows to think that you know what you are doing and will be able to replicate the success of the people on the show. An acquaintance I know was dissatisfied with his job and quit. His back-up plan? Buy storage units and sell the contents. The problem is that he does not have the expertise or the eye for valuables that the people on Storage Wars have. He pursued this line of work for several months and lost quite a bit of money. Now he is back to work in his old field.

These types of reality shows can be useful sometimes, but often, they increase your level of “want” or make you think you can do something you are really not qualified to do. Remember, these shows are for entertainment purposes, and the chance that you will be able to replicate the success of the participants is slim.

Have you watched a reality show that made you think you could do something you couldn’t? Did you lose money?

Return of the Rewards Cards

April 20, 2012 By Shane Ede 6 Comments

It wasn’t that long ago, as the economy was crashing down around us, that people started noticing a drop in the number of credit cards that were offering the 0% transfer rates, and a drop in the number/quality of the rewards associated with rewards cards. Higher default rates and changing regulations seem to have been the culprits, making it harder for credit card companies to offer the great rates and rewards while still maintaining their (already bloated) margins.

But, as the economy levels off (if not starts a recovery), there have been an increase in cards offering the great transfer rates, and now, there’s been an increase in rewards cards too.

Just the other day, Chase announced the British Airways card, with a pretty good rewards system. Then, today, I got an email announcing the Hyatt card. It too, has some pretty good rewards.

The thing I don’t really like about cards like these is that you get locked into an airline or hotel chain. Also, they both charge an annual fee. I think in a pinch, you might be able to call Chase and be able to get that fee waived once or twice, or at least get your value out of it in flights and stays. Aside from that, the rewards are pretty good. The British Airways card has a potential for 100,000 Avios (BA’s points) which should be able to get you a couple of trips overseas or quite a few domestic trips on their partner airlines. The Hyatt, with it’s 2 night free stay bonus, is pretty good as well. And in both cases, the points accumulate at a good rate.

As always, responsible credit card use is a must. You’ll pay way more than what the rewards are if you don’t pay the balance off, and lose money on the whole deal. It’s just not worth it. If you do pay your balance off, however, it’s something to look at.

I might even have to think about that Hyatt card, as the Financial Bloggers Conference this year is at the Denver Hyatt, and while the even rate is pretty good, it’s not as good as two nights free!

Editors Note: As with any financial offer, credit card or otherwise, YOU are responsible for reading the full terms and disclosures in order to understand what it is that you’re applying for. Don’t read them, don’t come crying to me.