Details for SC 10 Chasing a Dream

This content was previously published in the
Democrat-Herald and Gazette-Times on
10/18/2017 & 01/07/2018

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SMART CHANGE | HOW TO GET RID OF DEBT THE RIGHT WAY

Debt-free lifestyle isn’t all roses
It’s a worthy goal,
but don’t get trapped
or go overboard
LIZ WESTON

NerdWallet

S

tories about how ordinary
people pay off debt quickly
can be amazing, inspiring —
and somewhat deceptive.
These tales often mention the
sacrifices debtors made but may
gloss over the cost to their quality of life or the misguided choices
they made. Becoming debt-free
can be a worthy goal, but understanding the pitfalls can keep you
from repeating others’ mistakes.

There’s more to life

Zina Kumok wishes she hadn’t
been in such a frenzy to pay off
$28,000 of student loans.
She did so in three years on an
average annual salary of around
$30,000.
“I was so focused on getting
rid of debt that I didn’t spring
for things that could have really
helped me, like going to a therapist or even attending networking conferences,” says Kumok,
a Denver resident who blogs at
DebtFreeAfterThree.com.
Financial planners consider
most student loans to be the kind
of “good debt” that needn’t be
paid off in a hurry.
Federal student loans offer relatively low, fixed interest rates,
deductible interest and numerous repayment options, including several years of deferral or
forbearance plus the possibility
of forgiveness.
While Kumok is happy her loans
are paid off, she advises others not
to go overboard in their debt repayment zeal.
At one point, she debated with
herself for 20 minutes about
whether to spend $1 on a Redbox video rental. That was taking
frugality to the point of obsession,
she says.
“I think I could have improved
my life a lot if I had let go a bit,”
Kumok says. “Spending an extra
$50 a month wouldn’t have killed
me.”

ASSOCIATED PRESS

Client specialist Felipe A. Perdomo, left, closes a deal with customer John Tsialas on April 26 at a GMC Buick dealership in Miami. Want to pay your car
loan off early, or live a debt-free life? It’s a noble goal, but watch out for the potential pitfalls.

Make a plan for lowering your debts
Before making extra payments on any debt, you should have a game
plan that makes sense.
First, determine whether repaying your debt is
realistic. If you’re struggling to pay the minimums or it
would take you five years or more to pay off most of your
unsecured debt — primarily credit cards, medical bills and personal
loans — consider debt relief instead. A nonprofit credit counselor can
advise you about debt management plans, but you also should talk
with an experienced bankruptcy attorney.
Next, prioritize toxic debt. It doesn’t make sense to pay off
low-rate, potentially deductible student loans or mortgage
debt ahead of nondeductible, variable-rate credit cards.
Don’t forget to save. You may be tempted to throw every
dollar at your debt, but that can be an expensive mistake. You
can’t get back the company matches, tax breaks or
compounding you miss by not contributing to retirement plans. You’d
also be smart to keep at least a small emergency fund to avoid adding
to your debt; $500 is enough to start.

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You have options

she’d understood more about old
Aja McClanahan of Chicago, debts and statutes of limitations.
who with her husband, Kelvin,
“There were some bills we could
paid off $120,000 in debt, wishes have negotiated down and others

Earn

1.4

we actually didn’t have to pay because of how old they were,” McClanahan says.
For example, she settled one
defaulted private student loan
for $3,600 — the original principal — after interest and fees had
ballooned the bill to $12,000. She
found out later the debt was well
past the state statute of limitations, which limits how long creditors can sue after someone stops
paying a debt. While creditors can
continue trying to collect out-ofstatute debts, the McClanahans
wouldn’t have faced the potential lawsuits, wage garnishment or
bank account liens that can come
from ignoring in-statute debt.
Debt settlement can have other
pitfalls. Bankruptcy attorney Ed
Boltz of Durham, North Carolina,
has had clients who paid $5,000 to
$10,000 to debt settlement companies without getting the relief
they were promised. Some creditors refused to compromise, and
some debt settlement companies

were fraudulent outfits that vanished without a trace.
“People think they’re doing the
right thing, but their credit scores
are trashed, they’re out all that
money,” says Boltz, a past president of the National Association
of Consumer Bankruptcy Attorneys.

Not at all costs

Another mistake people frequently make is using their retirement funds or home equity
in a vain attempt to pay off overwhelming debt.
Retirement fund raids typically
trigger income taxes and penalties, while home equity loans
put the borrower’s home at risk
of foreclosure. The worst part,
Boltz says, is that people are using up assets that would have been
protected in a bankruptcy filing.
Ultimately, your financial
health is worth more than setting
any speed record for paying off
debt.

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