The Debt Consolidation Loan

Debt is like quicksand, once you fall in things start sinking pretty quick. The more you struggle, the more you thrash around, the quicker you fall. People start grasping for anything they can to pull themselves out, sometimes even bringing family members down with them. Inevitably they hear about the solution that will “clear up all their problems” – A debt consolidation loan.

“Oh yeah” they say, “If I can just make one monthly payment, I can get back on solid ground in no time.”

Here’s the deal guys, it’s just like your mom used to tell you: If it sounds too good to be true, it is. There are a few problems with the typical debt consolidation loan and one MAJOR problem with all of these types of loans.

1. The “Debt Consolidation” companies that typically offer these types of loan programs as their only source of business are usually scum bags. These type of companies prey on desperate people, they hide hidden fees in their loan program and do next to nothing to help solve the problem. I new a guy who owned a local debt consolidation firm, let me put it to you this way, he owned more sports cars and mansions than some celebrities. Do you think he was making a few bucks off of people who were turning to him for help? Absolutely!

2. When you are in debt you are often making decisions under extreme pressure. Many of the sales people at these debt consolidation firms are so pushy that they put additional pressure on you to make a hasty decision. More often than not these decisions produce outcomes that are detrimental to your future as a savings pilgrim.

3. Debt does a funny thing to logic. All you can seem to understand when you are in debt is that the noose is slowly tightening and you are just trying to survive. Add in a few debt collectors calling your house at all hours and normal logic goes out the door. Many times people have options out side of a debt consolidation loan that they can’t seem to see clearly. Selling some assets, picking up more hours at work, a second job or looking for help from family are all options that often people don’t see.

The major problem with a debt consolidation loan:

The major problem here is not the debt, it is the psychology of spending that pushed the consumer into this problem in the first place. By moving the debt to a consolidation loan all you have done is freed up the credit cards to potentially re-spend on! Many, many times people will double up their debt load in a matter of months by moving their old debt to a consolidation loan and then they go rack up new debt again on the available credit card. Talk about Quicksand!

If you want to get out of debt, there is only really one solution - a lifestyle change.

It is not the easy answer that most people are looking for. There is nothing easy about it, in fact it is down right hard. There are steps you can take to tackle credit card debt and be successful, that’s another post.

A CFO For Your Family

A Chief Financial Officer is the quarterback for the finances of a corporation, they oversee all aspects of the cash flow and reporting for the company. A great CFO pulls together a team of experts that each bring valuable assets to the group and then directs them to perform like the Boston Symphony. All the while this executive casts vision for the future and tweaks the financial approach for maximum performance.

I talk about it all the time, make savings automatic. If you make your savings automatic, you will be successful on your pilgrimage to financial freedom. So you do it, you are systematically investing and building wealth in the process. But as your wealth grows, things become more and more complex. It actually happens quicker than you might think. All of a sudden you are dealing with a CPA, a lawyer, an insurance agent and various other advisors and things are very complicated.

For most people thinking about juggling the advisors and monitoring investments simply takes time away from being able to enjoy life and have a few hobbies. After all, being able to enjoy life is the reason you started your savings pilgrimage in the first place. Right? A family CFO is the link that pulls all these complicated pieces together to make the symphony perform.

Carl Richards of BehaviorGap.com writes about a family CFO:

Note that a Family CFO doesn’t face the same conflict of interest as most financial planners or brokers. This person isn’t focused on making a short-term sell, which may be driven in part by commissions on products and services you don’t really need. The best Family CFOs are paid a predetermined rate and receive compensation from only one source—you. There are no strings attached, no lurking fees. You control your financial relationship.

For your family CFO to truly be able to put together the best team, cast vision for your financial future and tweak your plan, you must have a relationship. It might be a little awkward at first but in the long run a solid relationship with your CFO will give you the ability to relax and let them take the reigns.

We started Guide Rock Capital Management because of a desire to continue to serve families with more than just banking products. We found that people came to us looking for recommendations and direction for their financial future. Often times we sent people to other advisors to help them with the needs we could not serve. How could we know what kind of service and the quality of the advise that our friends were getting? We focus our new business on providing the best service we know how and by building relationships. We put the same philosophy that we use in the credit union to work at Guide Rock, “relationships matter”. You do not have to be a credit union member to start a relationship with Guide Rock. In fact, if you would like to learn more about Guide Rock and our family CFO approach to financial planning please contact me. We would love to have the opportunity to sit down with you and start a relationship.Contact us at: 402-938-6800

Chasing Return = Certain Failure

There are few things more frustrating than when your fund or stock pick is under performing or lagging the average industry return. This frustration often leads to the largest set back a pilgrim could have on their savings journey - chasing returns.A return chaser buys one hot fund and then once it turns cold jumps to the next hot fund – the catch is, that by the time they identify a hot category and make the decision to switch the new fund may have already begun to turn cold. All the while the old fund may now be poised to take off.

There are no clear signs when to switch or where to switch and when information becomes evident to aid you in your decision it is probably already too late. Meir Statman said it beautifully in a recent Wall Street Journal piece, here is an excerpt from the article:

Goldman Sachs is faster than you.

There is an old story about two hikers who encounter a tiger. One says: There is no point in running because the tiger is faster than either of us. The other says: It is not about whether the tiger is faster than either of us. It is about whether I'm faster than you. And with that he runs away. The speed of the Goldman Sachses of the world has been boosted most recently by computerized high-frequency trading. Can you really outrun them?

It is normal for us, the individual investors, to frame the market race as a race against the market. We hope to win by buying and selling investments at the right time. That doesn't seem so hard. But we are much too slow in our race with the Goldman Sachses.

So what does this mean in practical terms? The most obvious lesson is that individual investors should never enter a race against faster runners by trading frequently on every little bit of news (or rumors).

Instead, simply buy and hold a diversified portfolio. Banal? Yes. Obvious? Yes. Typically followed? Sadly, no. Too often cognitive errors and emotions get in our way

From: The Mistakes We Make – and Why We Make Them by Meir Statman

If you really want to delay your summit of the mountain we call financial freedom, all you have to do is start chasing return. I recommend a well diversified portfolio of varied funds so that no matter what the market is doing, at least a portion of your money is doing well.

It isn’t very sexy and it doesn’t have the excitement of a hot tip, but there is no better way to improve your odds for financial freedom.

Listen, everyone says they are a long-term investor until things start to get tough – then they want out. Do not let your emotions or fears drive you to make bad decisions. If you are questioning the diversification of your current portfolio please give me a call. I would be happy to review your current allocation structure and tweak it to the right mix for you.