In Too Deep

Have you ever watched a child playing in a pool whose abilities didn’t quite match their confidence level. My darling Noah, when he was first learning to swim, he would always want to be in the pool without his floaties. He felt so confident swimming with them on that he was sure he could do it without them. Even now, he thinks he can do anything and so he will confidently march into a situation that I know he will quickly get in over his head in. I love his courage and his spirit and yet, as a Mom it is also a little scary. You have to walk the line between letting him learn and keeping him safe. However, I think one of the most valuable lessons that my husband and I have taught our kids is to ask for help. Noah loves to try to do things by himself, but he is quick to ask for help if he gets into any kind of trouble.

Like Noah in a pool, many people march into the pool of financial independence with no idea what they are doing. They are out of their parents home and on their own, ready to take on the world. Then they start getting the bills for school loans, and along comes credit card debt, and some unwise financial decisions, and a health crisis, or a job set-back. Now, they find themselves in a deep hole of debt, wondering what to do. Does this sound familiar at all?

It is at this point that many people turn to credit counseling, debt consolidation, or even bankruptcy to try to find a way out of the mess. I have been doing quite a bit of research on credit counseling and debt consolidation, and while they may provide an answer if you are in horrible trouble, they will not keep you from digging the same hole as soon as you are out. Many times it is the same muscles that you strengthen while climbing out of the hole through budgeting and saving and planning, that will keep you from ever going down that hole again.

Now there are benefits to debt consolidation and to credit counseling. Debt consolidation is where you take out a loan to pay off all of your debt so that you only have one payment at a fixed interest rate, rather than many payments at variable rates. It usually has to be secured by a home and is the most popular reason for a home equity line of credit. If you are not a home owner, most banks will not lend you money to pay off debt or if they do they will do it at a very high interest rate because they want to guarantee getting their money back. There are all kinds of advertisements out there that make it seem easy to get out of debt, just consolidate. Yet any “easy” answer to debt should be a huge red flag to you. Either you have to learn how to get out of debt, or you will end up paying a lender a lot of money to do it for you. Of course you will still have to pay all of that money back, it will just be more, and take you longer, but you might have a smaller payment right now. So, if you are a home owner and you have a lot of equity in your home, this might be an option. However, although it will relieve the immediate stress of multiple creditors calling, it will also wipe out your equity in your home. If you have not learned how to manage your finances and how to budget, you will not get a second chance to consolidate your debt and if you default on the loan, it could cost you your home.

Credit counseling is another avenue that you could look at if your debt is severe. My understanding of credit counseling is that they will work with you to come up with a realistic payment plan with your debt. Yet again, there are a LOT of scams out there when it comes to credit counseling, so be very wary if you choose to enter this process. Now if you are in over your head and drowning in your finances, I would absolutely recommend carefully researching a credit counseling service and going to see them. Sometimes desperate times call for desperate measures and if you just can’t see a way through, it is time to call for help. There is so much more to the process and there is a great article here that will give you more explanations and ideas when it comes to credit counseling. Credit counseling is a little like getting gastric bypass surgery for your finances. It seems like the easy fix, but it is still going to require a strict diet and lifestyle change. It will not be instant, but they will help you work out a plan for your debt. If you allow the credit counseling agency to negotiate with your creditors, they will also put a note on your credit history indicating that you are in credit counseling. However, if you are in severe debt, chances are that note on your credit score indicating that you are in credit counseling is going to look a lot better than missed payments and ever increasing debt. The truth is, if you are in severe debt you probably don’t need the opportunity to make more debt through additional loans and credit cards anyway. Once your debt is paid off, the notes indicating that you are in credit counseling will be removed. But once you start the process, you are absolutely committed to the process until you are debt free.

So if you are drowning, yell for help, but the point is don’t just be thankful for the rescue. Instead, take this opportunity to learn to swim, so that next time, you won’t have to call for help. You can either see this debt as an opportunity to strengthen your financial skills by budgeting, by making a plan, and by exercising your faith, or you can look for the easier way out. I am definitely not against it being easier for you, however there is always a cost and sometimes the cost is worse than the initial problem. Furthermore, it can also be difficult to learn the lessons that you need to learn if you are always looking for a way out. The only way to learn to swim is to stay in the pool. You may still need floaties and a lot of help until you can swim successfully by yourself by staying on top of your finances. But the struggle to come out of the deep end could just strengthen your muscles and teach you the necessary skills so that you never find yourself in the place of drowning again.