Well another year is behind us – but more importantly (and thankfully) another year is ahead of us. Assuming the Mayan’s are wrong and we don’t otherwise self destruct on a global scale, it is time to appraise where we are from a financial standpoint. The Great Recession has changed the landscape of personal finance. You now need to look long term and multi-generational when it comes to finance. There are many issues. If you’re financially sound and up in your years – what will happen if you die and leave your estate to your grown children if they are in financial distress? What about you – if you have real estate underwater and you die, will the mortgage companies be able to satisfy their claim from the other assets in your estate – or have you protected them?
Now let’s look at your parents. Are they financially strapped, living on social security and struggling with debt obligations? I find that many elderly people are exhausting their IRAs and last dollar of savings to pay credit card bills. They keep paying, month after month, and then when their savings has been depleted to $2,500 – they realize it is a problem. That’s a big mistake. If you’re elderly and your monthly living expenses and debt obligations exceed your income – you need to take action to get rid of the debt. You need to make sure you have money for food, clothing and prescriptions.
How about your situation – are you underwater in your home? Are you saddled with more than $30,000 in credit card debt – and making minimum payments on debt that is carrying 19.9% to 29.9% interest? You should stop and say to yourself, how much better off will I be if I get rid of the credit card debt and my house that is underwater? In my view, this is not a question of whether you can afford to make the payments. Of course, if you’ve sustained a hit to your income and cannot service the debt then you must take action to get rid of the debt. I’m focused, however, on a broader issue. Assuming you can afford to make the payments – the question is, “should you?” My answer is – no. If a plan can be devised to rid yourself of the debt – a house underwater or excess credit card debt – then that is exactly what you should do. The recent American Airline bankruptcy is a prime example. AA filed with $4 Billion in the bank, because, as a business, they recognized that they could improve their long term financial position by filing and getting rid of certain obligations. Look long term – if you can get rid of the debt and have your money go “in the bank” as savings and not “to the bank” as payments, in 20 years, you will have 100’s of thousands in savings, rather than a mere pittance. For 2012 – start thinking about your future and take action in your interest. Treat yourself like a business and make capitalism work for you.
Ken Gross is an attorney with Thav Gross and host of The Financial Crisis Talk Center, a radio program that airs weekly at 10:00 AM on Saturday mornings on Talk Radio 1270 WXYT AM.