he word on the GM bonuses is that they should average about $9,000. Here’s a way to turn that $9,000 into $23,684 of value, and then to save yourself $4,736 per year for life: Instead of spending that $9,000 or even paying down your debt, if you have $23,684 in debt, we can use that $9,000 to settle the total $23,684 of debt.
Our average settlement on debt resolution on credit cards is 30 – 38%. I used 38% to be conservative– which means if we pursued settling $23,684 of your credit card debt, on average it will cost you between $7,100 and $9,000 to resolve the debt. Rather than spend the money, I’m saying you should consider using it to settle the credit card debt.
The best part of such a strategy is that you are probably paying 20% on the credit cards– which amounts to $4,726 of interest per year ($394 per month). If you settle the debt, you are then saving the $394 forever. I say forever, because unless you get rid of the credit card debt most people fall into the credit card trap that they don’t have the excess cash to avoid using the cards, so the debt never goes down. Whatever you pay down, you bring up with the need for new purchases because all of your money is going to the credit card payments!
The numbers are really higher because you are probably in a 22% tax bracket, which means you need to earn $505 each month to pay your taxes and net $394. Of course, we would first analyze your entire financial picture to make sure this is the smartest way to preserve your future income. But if you are sitting on $20,000 or more of credit card debt… you need to do something.
This week is closing with some solid job growth data and a level of optimism about the economy. Of course, it’s not shared by everyone. George Will is quoted today in NewsMax, as stating, “Economic weakness — new business formations are at a 35-year low — is both a cause and a consequence of alarming cultural changes.”
I agree with him on the point that business formations remain low. We have not returned to the days where clients are coming though our doors with the enthusiastic determination to start their own business. It has picked up, but it is no where close to the pre-recession days.
Though George Will sites the cause as cultural, I believe the reason is that (as I have pointed out before) most small business start-ups are financed with home equity loans or second mortgages on real estate to secure the bank on start-up capital. While real estate values have improved and the number of homes underwater has been reduced from the 11 million peak to the 6 million range (approximate), the return of real equity that can be pledged for start-up capital on a new business is still not there. Until that happens, in my view we will continue to see a lack of new business formation. (In case you are the exception– be sure to call us for assistance in forming the business– we’ve been doing it for 33 years!).
What I do believe is a certainty is that nothing stays constant. Whether the economy goes up in the short term or not, we will again go down. To avoid the disasters we encountered in the last recession, the lesson learned is to live with cash in the bank– and not off your available credit. So before you remodel the kitchen with the the auto company bonus or your cash on hand, think twice about using that money to knock out the devil of personal finance: the evil, unending and forever depressing credit card debt!
Be sure to listen in on Saturdays from 8:30 to 10 AM on WDFN 1130 AM – on iHeart by CLICKING HERE– and watch the show on TV 20 on Sundays at 11 AM. Law and Reality is not just information – it’s entertainment!
Have a great week,