How NOT to get out of debt

by Nick on January 18, 2012

Before I get into this post let me be clear that I swear I have nothing against Quicken!  I like some of their software (what I’ve tried I generally like).  But I’m not sure I’m a big fan of their personal finance “advice,” like yesterday’s post where I discussed their thoughts about when it’s a good idea to go into debt.  I don’t usually highlight two posts from the same website two days in a row, but this one was so juicy I couldn’t wait! 

Today we’ll talk about Quicken’s “How to Get Out of Debt.”  Don’t worry, I’ll give you all the details you need to judge it by yourself, but feel free to check out their post if you don’t believe me!  The essence of the post is summed up in five suggestions (with my standard two cents):

1. Roll your debts into a lower-rate loan.  Seriously!?!?!?  How the heck does this get you out of debt?  If anything, following their advice will keep you in debt longer!  I seriously had to read this twice because I thought I was missing something.  I wasn’t.  In the interest of full disclosure this is their explanation of how this would help you get out of debt:

Perhaps you can reduce your monthly payments by combining your major debts into a longer-term loan at a lower interest rate. This can be an especially rewarding strategy for credit card debt, which clobbers you with the highest interest around. A home equity loan may make sense. The rate will be lower, and you’ll reduce the number of checks you have to write each month. But before you take this step, learn about home equity loans.

That’s a quote.  I know they say to get a lower interest rate.  But I don’t care about that part.  Remember their post was about “how to get out of debt.”  The first thing on their list is to get a debt into one with “a longer-term.”  In case you’re new to the English language a “longer term” means you’re in debt “longer.”  Term means time.  Longer means longer.  Am I missing something? 
Don’t get me started on their suggestion about home equity…
2. Switch to a lower-rate credit card.  I promise I won’t trash every one of their suggestions, so I’ll just give this one a grade.  On a scale of 1-10 I give this a “meh.”  (That’s somewhere between 2 and 3).  If you can lower your interest rate and keep your debt unsecured I won’t argue with you.  But that’s not going to cure your problem.
3. Check your credit record.  Yes, check your credit report.  I check mine multiple times a year.  I was up to 6 times per year, but I’m back down to 3 (one every four months) via’s some more info on my aggressive credit check strategy.  Checking your credit is important for a number of reasons.  Although Quicken doesn’t explain why it’s good to check your credit when trying to get out of debt I will mention three good reasons.  First, it gives you a hit list of debts to pay off.  Second, it gives you a chance to fix inaccuracies.  Third it will help you figure out if you are a fraud victim.
4. Confess to your creditors.  I generally don’t disagree with this.  If you’re behind (or about to get behind) with creditors sometimes they show grace if you call and talk with them before it gets ugly.  A long time ago I had one of those “no interest and no payments for 12 months” credit cards and called at month 5 saying I was new at my job and wasn’t sure how long it would last, so could they extend the “no interest and no payments” period for 6 more months.  They did!  This went on for two years total and I eventually paid it off and never paid a dime of interest.  It can work.  This was well before I “saw the light” and am happy the debt is long gone – even at zero percent.  (In case you’re wondering, I was pretty nervous about my job security at the time and figured I would just call and ask and the worst they couldsay was no.)
5. Get help.  Quicken suggests contacting the National Foundation for Credit Counseling, which is a nonprofit that operates all over the country.  I don’t really object to NFCC, but some of their locations are better than others.  Also, if it involves settling your debts for less than you owe you’re going to drop a bomb on your credit report.  At the end of the day I’d do this before bankruptcy, but I’d certainly suggest trying everything else first.
Wow!  OK.  I made it through their list without puking on my keyboard (barely).  I cannot believe they suggest getting a longer loan as a way to get out of debt…
How about stop borrowing money?  How about tracking your spending and getting on a freakin’ budget (help with that here)?  How about spending less than you make?  How about an action plan – a budget?  How about a budget?  Did I mention a budget?
I don’t care if your plan is the debt snowball, paying the highest interest rates off first, or some other action plan – see this popular blog post about alternative ways and the math behind them (make sure you click on the related post about psychology too). 
I have my preferences as to which plan works best and why, which I’ll highlight here soon, but until then remember one thing:  If you want to get out of debt the best plan involves actually paying off debt.  Cool?
Seriously shouldn’t there be something about actually paying off your debt?  I can’t get over that…

Until next time, put your credit card down and slowly step away from the mall!

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{ 4 comments… read them below or add one }

Kacie January 19, 2012 at 3:23 pm

I do think lowering your interest rates is still a good idea to help get out of debt faster. It's hard to make traction on a 14% interest rate on a credit card. But if you can lower it to 10%, or bump it over to a really low-interest card for awhile, you'll see faster results.

The key isn't the interest rate, though. It's making the same or greater debt payments each pay period after the interest rate change. Let the lower rate spur you on, instead of slow you down further.
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Nick January 19, 2012 at 3:59 pm

I agree Kacie. If the plan is to pay the same amount (or more) but under a new, lower rate loan then it's a good step. But you're right. That alone doesn't solve the problem. Thanks for stopping by.
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ihavetriedit January 20, 2012 at 3:36 pm

I heard that checking your credit too often lowers your credit score. I'm not sure if this is true?
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Nick January 20, 2012 at 4:25 pm

That's a great question. The short answer is that checking your own credit report (or score) does not count in determining your credit score (they can tell when it's you). Credit checks by potential lenders (credit card or mortgage companies) do.

The way they see it, if you're applying for new loans, you're becoming more risky. But if you're looking at your own report it could be for any reason and that's a responsible thing to do.

Incidentally, even applying for credit is generally a small-impact item (around five points per credit inquiry by lenders for most people who have a number of open accounts and relatively-long credit history). Hope this helps!


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