Recently, I was explaining to a friend what I do. I discussed different debt related situations, solutions, examples, etc. As I was talking my friend interrupted me and said the following…
“Zach, just about everyone I know has some kind of debt. I can’t believe they all need debt help or consolidation services. Who actually needs your help and who doesn’t?”
This was a good question and a good point. Just because someone possesses debt doesn’t mean they need my help. The help 4 Pillars provides is for people who are truly struggling with their debt or they can see struggles approaching fast. Our medicine is potent and life changing – in a good way. However, we never want to be too quick to offer a radical solution if a more subtle option is best.
I have found that while there’s no perfect number or scenario exists, there are some simple approaches to determining whether my services are needed.
Cost of Debt vs. Budget
If I told you that a guy I know owed $25,000 on credit cards, what would you think? It’s not an earth shattering number, but it’s nothing to sniff at either. Does this person need help? Well, we need to dig deeper than just the number. For example, how much does this guy make? What are his expenses? Family size? Asset portfolio?
If I told you this guy makes $180,000 annually, and he’s single, then you may not be too quick to send him to my office. I would agree with you too. A person who makes $180,000 will bring home about $9,576 per month. Credit card debt totalling $25,000 will result in a monthly payment somewhere between $400 and $750. Unless this guy is living way beyond his means (making payments on several cars, paying exorbitant rent, running and maintaining his own zoo, etc.), chances are he can manage these monthly payments and likely pay even more in order to extinguish the debt in a handful of months.
Of course, it’s possible this guy is living way beyond his means in which case the solution isn’t Debt Consolidation, but rather debt help in the form of budgeting assistance. He can probably shed some monthly expenses fairly easily and thus pay off his credit cards.
Suppose though that this person only made $45,000 annually. That’s roughly $2,916 monthly. Now things start to get difficult for the person in question. Suppose this person has the following expenses…
Car Loan $400
Car Insurance $200
Car Maintenance $60
Cell Phone $75
Meal and Entertainment $75
Special Occasions $40
As you can see, this guy is getting by UNTIL he has to pay his credit cards. Even if he only pays the minimum, he now has a shortfall of about $264.
This person is now spiraling!
Unless he can find some serious savings, he’s not only never going to pay down his cards, he’s going to go further and further into debt.
Worse, even if he does shed some expenses, he’s likely not going to be able to pay enough monthly towards his cards in order to significantly reduce the debt. As a result, this person will end up paying thousands in interest.
This is a person who needs debt help. Their earnings are insufficient to pay off the debt load they have accumulated.
I and any other 4 Pillars office can work with someone struggling with the above example. We will show this person how to reduce their debt, reduce or eliminate interest, and budget accordingly so they don’t experience challenges in the future.