More on the "Debt Diet"

In my last letter, dear reader, I discussed the value of following Oprah's Debt Diet, as seen earlier this month on her show. So many of us are lousy at basic money management, I decided, purely as a public service, to dig just a bit deeper into the subject this week.

First, let's assume we've made a number of financial blunders. We've used our credit cards for emergencies that are questionable, such as that cute little pair of shorts at Macy's (hey, it's a HOT summer!) or lunch at Jack in the Box (okay, more than once). We've let the payment go an extra month on the gas-guzzling SUV to buy the fuel to feed it (at $3.29/gallon); and we've run up the cell phone bill (hey, the kids love text messaging, whatever that is). We turned the heat up too high this winter (still paying that off), and we've found ourselves drowning in debt!

Help! Help!

Right about this time, we start to notice that lots of kind people want to help us! These are the wonderful "debt consolidation" folks, and they're readily available. Take my word for it here. I've done a lot of homework on the subject and I can give you this word of advice: Steer clear of debt consolidation (debt reduction, debt negotiation, or whatever they're calling themselves) companies . They'll supposedly arrange for reduced or eliminated interest and lower payments with your creditors, resulting in "one easy payment" for you; but the fact is that you will be allowing someone else to control your finances, which takes you out of control. Isn't that what got you in this mess to begin with? Also, did you know that much of the time, large portions of your payments do not go to pay off your bills? Don't think "non-profit" means no fees. You WILL pay servicing fees, so it is essential to do your homework and find out how much. In writing.

Better yet, if you decide to go the debt consolidation route, go with a low-interest home-equity loan that will allow you to pay off all your debts. You'll receive the obvious tax advantages, and just one monthly bill; but remember, your home becomes collateral on the loan, so be careful. (The Debt Diet doesn't recommend this tactic unless absolutely necessary.)

An option of last resort is, of course, bankruptcy. If you absolutely cannot pay your bills, and the bill collectors are breathing down your neck and calling you daily (thank God for caller ID!), bankruptcy may provide you with a measure of relief and a new beginning. Although the bankruptcy will remain with you for eight to ten years, it is possible to re-establish your credit within two years. It will take effort and perseverance to bounce back, true; but bankruptcy is NOT the end of the world. Many Americans have or will have filed bankruptcy once in their lifetimes.

Life goes on.

While we're on the subject of improved money management, here's a new concept that might just offer special financial protection you need. I just read about an insurance company that recently launched a "short term" car insurance program, which is temporary, comprehensive coverage that protects for up to 28 days. Why would anyone need that? Well, have you ever lent your car out to a friend or relative? God forbid they have an accident! Have you ever driven a new or used car off the lot; you know, to get it home? Have you ever rented a car for a vacation with a group that wanted to share in the driving? A temporary insurance policy can protect you in these situations so you don't have to "hope for the best." Great idea, don't you think? By the way, CarInsurance.com makes it easy for car insurance comparison shopping and buying all kinds of auto insurance online, even if you're considering lending your car to your rather irresponsible (deranged?) brother.

Cheers!

And remember, stick to the Diet!

S. K. B.