Ep 99Money Expert Reveals How to Eliminate Debt
Don't drain your retirement to avoid bankruptcy; you may be throwing away protected money
David Siegel
Money Expert Reveals How to Eliminate Debt
with David Siegel
Without budgeting, we'll just be right back where we are a year from now.
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Quotes
“We've become a generation of people who need instant gratification.”
“When you figure a 30% interest rate, in three years, you've probably doubled your debt.”
“Are you going to hurt your retirement for a one-day party?”
“Banks are happy to give you money when you don't want it.”
“Every swipe of a card today can turn into years of payment tomorrow.”
“Money is a tool, not a trophy.”
Takeaways
- 1 US credit card debt went from $478 billion in 1999 to over $1.2 trillion. Easy credit and instant gratification drive it.
- 2 Minimum payments hide the cost: $36,000 at 25% grows by about $740 a month, nearly $9,000 a year in interest.
- 3 Siegel sees personal clients with $7,000 to $300,000-400,000 in unsecured debt. Weddings are a common cause, and some have even pushed families toward bankruptcy.
- 4 Option 1, the 'soft landing': lower your interest rate. A debt management program can get cards to 0-4% if you close all but one card and pay off over five years, for a small fee.
- 5 Other ways to lower rates: 0% balance transfer cards (about a 3% fee, and the rate comes back), gemachs (need a co-signer, smaller amounts), family loans and a HELOC at about 7-8%.
- 6 A HELOC turns unsecured debt into debt secured by your house, which bankruptcy can't wipe out. Use it as a last resort, especially if you're still running a monthly deficit.
- 7 Option 2, the 'danger zone': settlement. You usually must stop paying for months, your credit is hurt, forgiven debt may be taxable, and firms charge 15-20% of the savings. One man saved $800 on a settlement and couldn't get a mortgage for two years.
- 8 Option 3, the 'nuclear option': Chapter 7 bankruptcy wipes most unsecured debt in about six months (not taxes or most student loans). In New York you can keep about $179,000 of home equity per person, plus retirement accounts.
- 9 The means test can make bankruptcy harder for frum families, because the IRS expense standards don't count high tuition.
- 10 Bankruptcy stays on a credit report for 10 years and settlement for 7. Both make a mortgage hard for about two years. Rebuild with a secured card and responsible use.
- 11 Siegel once wrote a law school paper comparing shemitta to the bankruptcy rule that you can file only once every seven years.
- 12 Pressure for a big wedding often comes from what the daughter wants more than from the spouse. His question: are you going to hurt your retirement for a one-day party?
- 13 He told a client with $1 million in investments who couldn't pay her bills to take out $50,000: plan for the future, but you also have to live.