With Tax Day so close, we’ve all had a chance to take stock of our income and debt and whether we’re financially fit in a slowing economy. This year more than most there is cause for concern. Inflation is almost certainly worse than the official numbers suggest (and the official numbers are pretty bad). The supply chain remains disrupted and car prices are sky high. We are in a rent and housing crisis and gas prices continue to fluctuate. The drums of war are beating louder and louder as the Russian invasion of Ukraine enters its second month. If we’re at a breaking point, you have to ask yourself how resilient your finances are. For share holders, a sudden downturn can mean more than a bad year. Unpaid bills can destroy an existence.
“Security clearance background checks examine debt for a variety of reasons,” he says Ashley Morgana debt and bankruptcy attorney in the north Virginia. She explains that judges want to know if you’re living beyond your means. “If someone has debt that they use to supplement their income for extravagant purchases, that creates a higher risk situation.” When the debt is high enough, a keeper of secrets is at greater risk of being compromised. Addiction and debt often go hand in hand.
“Financial considerations” are by far the number one reason the Department of Defense denies or revokes a permit.
In order to eliminate debt, you must take control of your overall financial affairs. The first step to any personal financial recovery is to create a spreadsheet of each and every debt you have, the balance, the interest rate, the due date, and the payments due. While you’re at it, you can also add the customer support hotline for each card. Credit card rewards programs are very enticing and applying is easier than ever. That means you might have more credit cards than you think – many of which have annual fees.
It would be foolish to trust email reminders alone for your payment dues. Finally, junk mail filters can sometimes be overzealous. Once you’ve created your spreadsheet, add each due date to your calendar and set it to repeat monthly. One rule to follow: your calendar is sacred space. The only things you should ever add are things that are sure to happen. The meeting on Thursday at 3:00 p.m. Your child’s volleyball game on Saturday at 12 noon. And your bills. Nothing in this world is more secure than when a credit card company discovers that you are a day late on a payment.
There is no excuse for inadvertently incurring late fees. Do you really want to give a bank more Money? You’re already charging 17% interest on the coffee you bought at Starbucks last year. If you’re heavily in debt, you need to have more money in the bank than the minimum payment by the day a bill comes due. Also, the amount you owe each month should be less than the month before. That means taking a good look at your credit card statements, finding out exactly where your money is going, and reducing those expenses wherever possible. The total money makeoverby Dave Ramsey, is a great book designed to help you do just that.
PAY OFF DEBT
Kristina Guardado, financial coach and founder of Elite Empowerment Coaching, explains that when it comes to debt elimination, a one-size-fits-all approach doesn’t necessarily work. “Some people are motivated and will sacrifice a lot to get out of debt as quickly as possible. Others may need motivation and love to achieve quick wins. There is a debt cancellation strategy for everyone.”
She offers four methods of debt settlement.
In the snowball method, a debt with the lowest balance is paid off first, while minimum payments are made for everything else. “Once the first lowest balance is paid, roll that payment over to your next lower balance,” she says. “That can be good for someone who needs motivation. You achieve quick wins and build motivation to keep going!”
The avalanche method means you pay off your debt first at the highest interest rate while making minimal payments on everything else. Pay off the balance with the highest interest rate and roll that payment over to your balance with the next highest interest rate. She says this method is good for those with high-yield credit cards or a payday loan. The goal is to save money that would otherwise be spent on interest.
The top monthly payment method is to pay off your top monthly debt payment first while making minimum payments on everything else. Pay the bill with the highest monthly debt and convert that payment into your next highest monthly debt. “This can work well for someone with tight cash flow as they work to get rid of their top payment. This eventually frees up the money to use for other purposes.”
The “Debty Downer” method means paying off your debts that make you angry every time you see them. You pay off this first while making minimum payments for everything else. Next, re-evaluate these strategies and find the next best one for the payout. “This can work well for someone who has debt from a divorce, medical surgery, or other debt that causes ill feelings. If they pay that off first, they can put it behind them and get on with their lives,” she says.
GET LOW INTEREST RATES ON DEBT
Sometimes, high interest rates and the sheer volume of debt can be overwhelming. As we learned last month, gas prices sometimes appear to double overnight. Sometimes, for $100 spent on groceries, you only buy $85 worth of groceries. Todd Christensen, an AFCPE-accredited financial advisor and author of Everyday money for everyday people, says if the debt starts to overwhelm you, contact your lender or credit card company and try to negotiate a better interest rate. This allows more of your monthly payment to be used towards the balance owed. You can also contact a nonprofit credit counseling center.
“Every credit card statement contains such a recommendation for consumers who are struggling with their debt,” he says. “Credit agencies work with your current creditors to bring their interest rates down and get you debt-free in five years or less. As they work out new arrangements with your creditors, you don’t experience the negative effects of other, more stringent options.”
Beware of for-profit debt settlement companies. “They suggest that they can relieve you of 50% of your debt obligation. Unfortunately, the process also leads to an even worse credit rating, which puts security checks even more at risk,” he says. They can also charge exorbitant fees, making your problems worse.
Debt restructuring loans and balance transfer offers can also be dangerous because they are not debt reduction strategies. Rather, they are debt mixers. “Too many consumers take out such loans and lines of credit to pay off their credit cards, only to find that they have not addressed the reasons for their debt at all. Many continue to overspend and find that within a year or two they have pushed their original credit cards back to the limit, effectively doubling their debt — and their financial woes,” explains Christensen.
Whatever you do, do it something. “Doing nothing is not an option,” says Christensen. “Creditors haven’t forgotten a debt you owe them. Many wait up to a month or two before the statute of limitations expires to get a court order against you so they can try to forfeit your wages.” If you end up in court, you need an experienced lawyer.
BANKRUPTCY IS AN OPTION
Bankruptcy should be your last resort — but it’s an option, especially if you’re in debt that you can’t get through. “It’s better than missing payments and being delinquent,” says Ashley Morgan, adding that clients sought out her law firm specifically about concerns raised during initial security clearance investigations. “Often we file for bankruptcy—both Chapter 7 and Chapter 13—to help individuals deal with their debt and either obtain or maintain their security clearances. Bankruptcy is often seen as better than having outstanding debts you can’t pay.”
A Chapter 7 bankruptcy typically lasts three to four months. “It gets rid of a lot of debt and gives someone a quick fresh start,” she explains. Alternatively, a court may offer Chapter 13 bankruptcy, which is usually a three to five year payment plan. “It allows a person’s debts to be consolidated into one payment and treated in a reasonable manner. After the payment schedule is created, investigators often just confirm that payments are made on time.”
Debt can be scary when money is tight, and money is getting tighter than ever. Take stock of your debt, review your spending, lower your interest rates if possible, and agree on a repayment plan. Getting your financial affairs in order is perhaps the most important thing you can do right now to keep your security clearance and weather the economic troubles to come.