Value of advice: when it comes to your debt load becoming too big to handle
To coin a phrase, the road to helping your children is paved with good intentions.
And sometimes those intentions can come back to bite you in the bottom line—especially when unsecured credit comes into play.
Educators Agent-Regional Director Chris Knoch has seen this scenario more often than he would like.
“As parents, it’s easy to want to give our child the moon,” says Chris. “But if you’re not careful, you can find yourself in a precarious position of going well beyond your financial means in order to make them happy.”
Take Janet for instance—an Educators client with a daughter whose dream was to complete a post-secondary degree in Europe.
“A big dream with big costs,” continues Chris. “As a single parent, the financial burden of making that dream a reality fell entirely on Janet. With basically no cash flow to draw from, she ended up using unsecured credit to help make that dream happen. However, this decision was the straw that broke the proverbial camel’s back, so to speak.”
That’s because Janet was already carrying a considerable debt load.
“Most of that debt carried high balances, with some even exceeding the credit limit,” reveals Chris. “On top of that, Janet had missed a few payments—causing her credit score to drop to 625 and she was on a downward spiral. Those below a score of 650 are typically less likely to qualify for better loan terms, so when it came time for her mortgage renewal, Janet didn’t qualify to continue that loan with traditional lenders (sometimes referred to as ‘A’ lenders). This meant having to seek out alternative lending solutions.”
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Feeling quite hopeless, Janet turned to Educators Financial Group.
“When she reached out to me, I knew we needed to come up with a strategy to get Janet out of her predicament as quickly as possible,” recalls Chris. “In this case, that strategy involved consolidating all debt (existing mortgage, credit cards, multiple lines of credit) into one replacement mortgage to alleviate the stress on her credit, not to mention the impact that stress was having on her overall well-being.”
In addition to consolidating Janet’s debt, Chris came up with a tangible timeline for getting her finances back on track.
Chris goes on to explain, “When entering into alternative lending solutions, the goal should be to always have an exit strategy—one that will move you back to traditional lending sources as soon as it’s viable. The plan we developed for Janet was to aim for a two-year recovery that could be split into two single-year terms if needed. However, she was able to raise her credit score from 625 to 821 in just 12 months—no mean feat I can tell you. On the maturation date (of the first-year term), we transferred Janet back into the traditional lending arena. This was done on the one-year renewal date to avoid any penalties. Now, Janet’s finances are back in order and I’m happy to say that she is paying down her mortgage at an accelerated pace, while avoiding taking on any unhealthy debt. Going forward, she can build on that momentum toward a more stable financial future.”
If Chris could offer one piece of advice to education members when it comes to their debt, what would that be?
“Don’t wait to ask for help,” states Chris without hesitation. “Perhaps it’s human nature to want to be able to solve our own problems—especially when you work in the field that you do (education). After all, you’re accustomed to students coming to you for all the answers. However, if the burden becomes too taxing, there’s nothing wrong with reaching out for a helping hand. And remember that it’s never too late to turn the tide. Just look at Janet’s case, for example. While she may have inadvertently backed herself into a corner, by seeking out professional advice, Janet was able to regain control of her debt and her life—all in record time.”
As for managing your own debt load more responsibly, Chris offers the following tips.
“For starters, carry no more than two credit cards with realistic limits—and avoid carrying a balance on those cards of more than one-third the allowable limit,” says Chris. “This tends to keep credit card spending in check and hopefully allows for the ability to pay the balance off in full every month. It’s when you’re consistently spending more than you earn that it becomes quite easy to fall into the debt trap. Especially when there are lenders out there, only too eager to provide credit. And at today’s very high-interest rates, your debt situation can then spin out of control—fast.”
If things do start to go south and you’re feeling overrun by debt, try these solutions on for size.
“Being taken over by debt is like trying to stay afloat in a leaky boat,” states Chris. “The more debt you take on, the faster you’ll end up underwater. To prevent this from happening, lighten the weight by readjusting your household budget. This means tightening, delaying, or eliminating non-essential spending—at least for the time being. To find further savings in your monthly budget, consider seeking out your refinance options for consolidating all unhealthy debt. A refinancing strategy is definitely worth contemplating when dealing with major cash flow issues—and as long as your credit is in good standing, you should qualify within traditional lending sources. Then, any savings you find (from combining multiple debt payments into one single payment), could be used to pay down your mortgage more quickly and/or invest to build a financial nest egg for the future.”
But even if your credit is not the greatest, alternative lending options could at least get you started in the right direction.
“When it comes to digging yourself out of the dire financial straits, it’s the person utilizing the most sensible option that wins and it all begins by increasing your financial literacy,” says Chris in closing. “So, no matter where you are on the pay grid or what your credit limits are, looking into all of the options and solutions available to you is the key. If you don’t know what they are or where to start, be sure to reach out for professional, educator-specific advice—because at Educators Financial Group, we’re always here to help.”
Let’s start working on a plan to get your debt under control, right now.
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