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10 Things It’s Important To Know Before Choosing Debt Settlement

woman looking at documentsIf you’re seriously in debt and by that we mean you owe $10,000, $15,000 or more, you’re probably lying awake at night wondering how in the world you’re ever going to get out from under that burden. Fortunately, you have several alternatives such as a debt consolidation loan, consumer credit counseling, debt settlement or filing for bankruptcy. While you might be familiar with debt consolidation loans or even consumer credit counseling, you might not exactly understand what debt settlement is and whether or not it would offer you a good way out of that debt burden. If this is the case, here are things you need to know about debt settlement.

1. What exactly is debt settlement?

Debt settlement is sometimes called debt negotiation or debt arbitration. It’s where your lenders accept less money than you actually owe but agree to treat the debt as paid in full.

2. How a debt settlement program works

The way a debt settlement program works is that when you sign up, you make monthly payments to the debt settlement company, which is deposited into a trust account. You are then not required to make any more payments to your creditors. Only you can manage your trust account and you do this through a secure login. When you have deposited enough money into your account, the debt settlement company will begin negotiations with your creditors.

In these negotiations, the debt settlement company will work with your creditors or collection agencies to settle your debts for sums that are acceptable to both you and your creditors. Once the settlement company has settled on an amount with your creditors, you then pay off the settlement either in installments or as a lump sum. Debt settlement usually means a substantial reduction in the amount of your outstanding debt. However, how much of a reduction that you get will depend mostly on how good the debt settlement company is.

Here’s a short video that explains a bit more about debt settlement and how much of a reduction you could expect based on the type of your debt.

3. When it makes sense to choose debt settlement

  • There are certain circumstances where debt settlement makes sense. They are:
  • You can’t pay your bills
  • You have unsecured debts
  • You could repay if your debts are reduced
  • You’re thinking of declaring bankruptcy
  • You’re five to six months behind in your payments

4. Debt settlement is legal

There is nothing at all that’s illegal about debt settlement. In fact, it is one of the most popular options for paying off debts. Unfortunately, there are swindlers that have made money off people struggling with debt. Fortunately many of them have been shut down because of their failure to comply with state and federal laws.

5. Why lenders accept debt settlement offers

If a lender accepts a debt settlement offer it is forgiving a part of your debt. This means it’s losing money on the deal. So why would a lender agree to work out a debt settlement? It’s because they are smart people. They understand that when your finances are in very bad condition, you could decide to file for bankruptcy. In this case, your creditors would recover very little if any money from you. This makes debt settlement a better deal for them because they will get back at least a significant part of what you owe.

6. The biggest pros and cons of debt settlement

The biggest pro of debt settlement is that you will have your debts reduced and you will no longer have to put up with debt collectors. In addition, debt settlement can help you avoid the hazards of bankruptcy, which can be severe. As an example of this, if you were to file for a chapter 7 bankruptcy, your credit score would probably drop by 180 to 200 points, you will have a tough time getting any new credit for two to three years and the bankruptcy will stay in your credit report for 10 years.

The biggest con to debt settlement is that your credit score may drop although it won’t be as severe as if you had filed for bankruptcy. The reason for this is that any time you don’t pay back the full amount of the debt, your lenders will report the account as “paid as agreed” or “paid as settled” to the credit reporting bureaus. And this will stay in your credit report for seven years. However, if you’re already having a serious problem with debt, this might not be that big a negative.

7. How long  debt settlement usually takes

How long it would take you or a debt settlement company to settle your debts will depend on how many debts you have, the type of debts and the amount of money you would have to pay for your settlements. In general, debt settlement programs require two to three years. However, the more you owe, the longer it will take. For example, if you owe $10,000 or more, it might take you two to four years to complete your program.

8. How to know you would be eligible for debt settlement

Debt settlement isn’t for everyone and although it can be beneficial, not everyone will qualify. However, it is likely that your lenders will agree to settle your debts if you have defaulted on a loan, are continuously missing payments and have some source of income. You would also likely be able to have your debt settled if you have a very large amount of debt and are facing a financial hardship.

9. Why choosing a debt settlement company could be better than doing it yourself

You might be able to do debt settlement yourself, depending on what kind of person you are. You need to be patient, a good negotiator and able to understand complicated legal documents. Plus, you must have the cash available to pay for any settlements you are able to negotiate because that’s one of your chief bargaining tools – that if the lender will settle with you for less than you owe, you will send immediate payment. If you don’t have the requisite cash on hand to pay for your settlements or if you don’t feel that you would be good at negotiating with lenders, your best option would be to turn your debts over to a professional debt settlement company.

10. How to select  good debt settlement company

There are numerous debt settlement companies available via the Internet but as noted previously, some of them are swindlers. Here are some tips that could help you select a good and ethical one.

  • Does the company require you to pay an upfront fee? It is actually illegal for debt settlement companies to charge upfront fees but some will try. Avoid them at all costs.
  • How much does the debt settlement company charge? Ethical debt settlement companies will tell you upfront how much they charge for their services. If fact the good ones won’t charge you anything until they have settled your debts to your satisfaction and presented you with a payment plan that you approve.
  • Read reviews. There are reviews available of all the top debt settlement companies. Check them out to make sure that most of the reviews are positive. Some of them will be negative as that’s just the nature of the business – it’s impossible to make everyone happy when it comes to money and debt.
  • Check with the Better Business Bureau. The top debt settlement companies will be members of the Better Business Bureau and will have a rating of at least an A.
  • Make sure it’s licensed in your state. Not all debt settlement companies are licensed in every state. Be sure to check to make sure the company you’re thinking of using is licensed in your state.
  • Be certain to understand your contract. Your contract with a debt settlement company should be clear and easy to understand. If the one you’re offered is complex, complicated and difficult to understand you should either take it to a friend or an attorney for help or find another company.

Need To Cut Your Spending Dramatically ? Here Are Nine Can’t-Miss Strategies

Scissors cutting $100 billUnless you’re part of that lucky 1%, you probably get in trouble with your spending periodically. Or maybe it’s because you’ve lost your job, are underemployed or there’s just some other reason why money is very tight. Whatever the reason, if you find that you have to drastically reduce your spending, here are nine strategies that could help. If you implement all or most of these and your income stays constant, you shouldn’t have to think much about your finances going forward.

1. Cut discretionary spending

The first and maybe most important strategy is to review your budget. There are undoubtedly places where you could cut back. For example, could you reduce the number of cable channels you get? Could you eat out less? Do you need to buy as many snacks from those vending machines at work? This may sound simple but these kinds of expenses can add up to a lot. The website LivingSocial did a survey of 4000 Americans and discovered that the average family goes to restaurants or fast food places 4.8 times a week. Another survey of 1005 adults discovered that American consumers were having lunch at restaurants at an average of almost twice a week and spent about $10 every time. Whichever might be true for you, if you put a halt to eating out this could save you nearly $100 a month or maybe even more.

2. Negotiate

You say you don’t want to eliminate your cell phone or cable services? Then you should at least be able to talk your way to a better price, particularly if you can convince that provider that you are thinking of dropping your service. The secret here is to tell your provider’s customer service representative that you’re thinking of going to a competitor. He or she will probably send you on to a customer retention specialist and this person is almost certain to offer you some concessions.  Here’s a short video with some good tips for negotiating with credit card companies to get your interest rates reduced.


3. Plan ahead

One of the reasons that many of us overspend is because we fail to think about what will be happening during the next week. We might have no idea as to what to cook for dinner so grab fast food at the last minute. Or maybe we forgot about a wedding or birthday party and have to rush out at the last minute to get a gift and we spend a lot more than we had thought we would. Planning meals in advance and using coupons will definitely reduce your grocery costs.

4. Reduce your fuel costs

Gassing up our vehicles can take a big chunk out of just about anybody’s budget. As an example of this, my wife filled up her car yesterday and it cost nearly $50. If you go to a site such as or you will find the least expensive gas in your area. Also, if you stop to think about it you could combine errands, use public transportation, drive less or use a bicycle. The California Energy Commission once calculated that if you are a commuter you could save about 30% on your gas expenses if you carpool in place of driving to work. Given the fact that the average household spent $2912 on gas in 2012, a 30% savings would translate into $70 a month or more.

5. Downgrade your insurance

It could pay to contact your insurance sales representative for a review of your coverage, as you might be eligible for a downgrade. As an example of this if your car is getting old and especially if it’s paid for you might be wasting money by paying for both collision and comprehensive insurance. The collision insurance covers your car in the event you’re in an accident. On the other hand, liability insurance is if you damage another car and comprehensive insurance is to get your car repaired if it’s damaged in some way besides an accident. What’s typical is that you buy comprehensive and collision insurance as a package. But it’s not a necessity. If your car is older and hasn’t kept anything close to its original value, you might want to redo your policy. You should also go online to a site such as and do some comparison shopping. Automobile insurance is just as competitive as the car business and it’s likely that you will be able to get the same or even better coverage for less by switching to a different insurer.

6. Lose one of your vices

You’ve probably read that cliché about not getting that drive-through coffee every day. But your vice might be something different. For example, according to Survey Analytics the typical consumer pays more than $1200 a year buying beer. Also, the American Lung Association says that the average price of a pack of cigarettes is now $5.51. If you smoke a pack a day, you would save $167 in a single month if you gave up smoking. And you’d save a little more than $2000 over the course of a year. Do you gamble? You should be able to cut back on that. Or you might have a fairly innocent habit like soft drinks where you could drink fewer cans and save money.

7. Pay down your debtdebt pit with ladder

You might not be saving money due to your debt. We’ve seen reports that the average household carries $7123 just in credit card debts. If this is you and if you were to pay off that debt without incurring more debt a few months later, you’ll ultimately save money. Here’s an example of this. If you owe $500 in debt at 10% interest on a credit card, you’ll run up $50 in interest — assuming you don’t pay off your balance — and then the next month you will owe $550. Do nothing and next month and you’ll owe $605. What this boils down to is that if you eliminate debt – especially the kind that accumulates interest quickly – you will have a lot more money left over to save.

8. Get organized

If your finances are kind of chaotic you could get them better organized. We’re not talking budgeting here. It’s just things as simple as determining when your bills need to be paid. If you stay on top of your finances, you should start saving money pretty quickly. For example, you pay a late fee anytime you have a late credit card payment.

This might be just because you accidentally threw away the credit card statement and couldn’t remember your due date.

When you have a late fee, you get a negative mark on your credit report, your credit score will likely go down and lenders will see you as a greater risk. In fact, some credit score experts say that just one late payment could drop your score by as many as 40 points.

9. Review those auto-pay subscriptions

Also make sure you review your subscriptions – particularly those that are on automatic pay. Do you have a gym membership that’s on auto pay but you haven’t seen the gym in four months? You need to eliminate that subscription. Do you pick up fast food habitually because you feel that you’re too tired to cook? Or do you buy snacks out of vending machines at your workplace, which are costing you twice as much as if you bought them with you from home? All these could easily be more than $100 a month or more than $1000 a year. And that’s serious money.

5 Conventional Ideas About Money Management You Might Want To Forget

stressed old manThere are a number of ideas about money management that you may have been taught over the years – either by your parents, a teacher or books you read. Of course, some of these are still true. For example, Ben Franklin’s old adage about, “a penny saved is a penny earned” is still true although it might be updated to something along the lines of, “$10 saved is $10 earned” as pennies just don’t seem to be as important today as they were in Ben’s days. But there are some long-time beliefs about good money management that are no longer valid because the financial landscape here in the US has changed so much.

As an example of this, the average interest-bearing checking account today offers 104% more interest income than the typical savings account. So “a penny saved is a penny earned” might better be stated, as “a penny put in a checking account is a penny earned.” In addition, there are other long-held beliefs about money that are no longer true and here are four of them.

1. Depreciation makes it better to buy a used vehicle than a new one

It has long been said that it’s better to buy a used car or truck than a new one because of depreciation. The old adage is that once you drive that vehicle off the dealer’s lot, it drops thousands of dollars in value. However, there is data shwoing that the average new car loan charges approximately 15% less interest than the average loan for a used car. Plus, this same data shows that if you plan to keep that car or truck for just three years, you’d be better of leasing. To put this another way, it’s best to begin your car shopping process with an open mind and to do a lot of comparison-shopping so that you will know exactly how to proceed.

2. It’s better to borrow from a bank

This also is no longer true. While banks used to be a prime source for vehicle loans – whether for a new or used car or truck – credit unions today are a better source. While these institutions used to limit their membership to certain people such as employees of a particular company or members of a certain union, many of them are now open to the public. They generally offer vehicle loan rates that are 40% lower than national banks. And those small local banks usually charge 30% higher rates than the national banks.

3. FHA loans are the best choiceStreet of residential houses

While loans from the Federal Housing Administration (FHA) used to be the best choice for many homebuyers, this is not necessarily the case today. If you have a really good credit score and a high down payment, you’ll save more with private mortgage insurance versus an FHA loan.

4. Small businesses should have business credit cards and business checking accounts.

Just a few years ago, it made the most sense for a small business owner to get business credit cards and a business checking account. However, unlike consumer credit cards business credit cards are not protected by the CARD Act (the Credit Card Accountability Responsibility and Disclosure Act of 2009). This means that the companies that issue business credit cards can raise their rates on existing balances just about whatever they want. In addition, business checking accounts are no longer really very competitive. They may have more features but they also charge 20% higher fees than standard checking accounts and offer 84% lower interest rates on the average then consumer accounts.

5. You don’t need to teach your teens about personal finances

Teenagers didn’t used to have a lot of spendable income. Most existed on allowances or small allowances supplemented by whatever they could earn in part-time jobs. Today, however, teenagers are big-time consumers. In fact they spent nearly $91 billion just in 2011 alone. Unfortunately, very few of them are not saving for college or for any other long-term goal, nor do they understand basic financial terms. For example, in one survey more than 75% of 16- to 18-year olds said they were financially savvy but only 20% knew what a 401(k) plan was and a mere 32% understood credit card interest and fees and how they work.

Since only four states require require high school students to take a course on personal finance, this burden falls on their parents. As you might guess, this comes with its own issues, as the whole subject of personal finances tends to make kids’ eyes glaze over. Plus, many parents are uncomfortable sharing information about the family’s finances or don’t know how to effectively communicate about money in ways that their children will understand. If you’re the parent of a typical teenager you probably hear a lot of, “why can’t I have that (fill in the blank).” It can be tough to respond to this question in a way that not only stops the child’s nagging but also makes for a lesson about your money values. In fact this is much harder than just saying, “no.”

Share the reason

The best way to handle this is to try to let your teenager know your reasoning for why you won’t allow that purchase. This can go a long way towards determining their values about money even if you simply say that the item is too expensive or that all of you in the family don’t buy anything just when you want it. Your teenager might not like either of these answers but he or she will eventually begin to appreciate that you at least explain why you are making the choice that you did.

Have an allowance

Also, if you don’t give your teenager an allowance you should. This can be a very good tool for teaching money values to your kids. If you introduce the allowance as a sort of paycheck and make them responsible for purchasing things on their own as well as saving for long-term goals, this can help establish good money management fundamentals. And while you might not want to use that bedtime story to discuss Roth IRAs, you could turn some of life’s little moments into teaching opportunities. For example, the next time your teenage daughter asks for a new pair of shorts you might turn this into a short discussion of budgeting and of deferring today’s wants in order to achieve a longer-term goal such as a new pair of Uggs. This is another reason why giving a teenager an allowance makes good sense because it forces him or her to make decisions.

We know of some parents who deposit money into their child’s savings accounts every month, which the child can then access via a debit card. Most teenagers learn very quickly that when the balance in that savings account falls to zero, they’re through for the month. These parents tell us that this eliminates much of the arguments over money because when the child runs out of money he or she knows it’s because of the way they managed it. Most learn how to do a better job of managing their money after just a few months and these are lessons that can help them throughout their lives.

Don’t bail them out

Finally, if your teenager runs out of money, don’t bail him or her out. This is tough but is one of the most important lessons you can teach your children. If your teen becomes overextended on credit – despite your best efforts, you need to take a firm stand. Let him or her experience the consequences of having made bad financial decisions. It’s much better to help your child take responsibility for the $500 debt now then a $5,000 debt later in life.

5 Simple Ways To Trim Your Budget

We stumbled onto this Infographic from the other day and felt it did a great job of “visualizing” simple things you could do this year to trim your budget.


Cutting down on your daily expenses

Rework your monthly payments

Dine out smarter

Cut down on daily indulgences

Pay in cash

5 Benefits To Turning Down Your Thermostat That Will Surprise You

woman looking at documentsWe’re sure you already know the major benefit of turning down your thermostat, which is that you will save energy and this means saving money. But did you know that if you turn down the thermostat so that you’re dropping the temperature just one to five degrees it will help you lose weight and get a better night’s sleep?

Get a programmable thermostat

The easiest way to turn down the temperature is with a programmable thermostat. You could set it to lower your temperature at night or when you’re at work. We have seen tests that show you will see a difference in your utility bill if you lower your home’s temperature for just four hours a day. Beyond this, here are five ways you could improve your life by lowering your home’s temperature that would probably never occur to you.

Prolong the life of your plants

Plants will actually live longer if you drop the temperature in your home to below 75°. We won’t get into the technicalities of this but suffice it to say that when the house is cooler your plants basically need less water. If you’re heading out of town this is especially important as it reduces the chances that you will come home to lifeless plants. Of course, this is assuming that you don’t have tropical plants.

Lose weight

Want to lose weight without hitting your neighborhood health club? We have a little-known weight loss secret. It’s that you can shed a few pounds just by dropping your thermostat below 70°. While you don’t want your house to be so cold that you’re uncomfortable and shivering, it can be cool enough that a light sweater would feel just perfect. Here’s how this works. Your energy expenditure increases as the temperature drops so you burn more calories or roughly 100 more a day. This increased energy can translate into an extra 3500 calories burned in just a few weeks. This means you would lose one pound.

Give your refrigerator and freezer a longer life

You know that your freezer and refrigerator work really hard to keep your food fresh and safe. But you could cut them some slack. When your house is below 65°, those big appliances don’t have to work as hard to keep your food cool. This can easily translate into fewer maintenance problems and a longer lifespan. The fact is that the lower the temperature, the easier it will be on your refrigerator and freezer. Also, try to drop the temperature down dramatically when you’re heading out of town for a few days. But don’t go below 55°F or you’ll be risking frozen pipes.

Get a better night’s sleep

If you lower your home’s temperature by about 5° – or below 65° – you’ll get a better night’s sleep. The reason this works is because when you go to sleep your “set point” or the temperature your brain needs to reach before going to sleep is lowered. If your room is too warm, you’ll have a tougher time reaching this point and falling asleep.

Just one little degree

If you’re serious about lowering your energy bill, think about this: A one-degree drop in temperature can reduce your energy bill by 1% to 3%. You could save even more money by dropping your thermostat by 5° to 10° while you’re asleep. You’ll not only get a better night’s sleep you’ll also lower your energy bill by anywhere from 10% to 15%.

Nest thermostatThe thermostat that learns you

You could make things even easier by investing in a Nest thermostat. This is a new, smart thermostat that actually learns how you live and adjusts the temperature in your home accordingly. It’s so smart it will ask you a few basic questions and will then optimize itself to your system and begin learning from your temperature changes. So instead of having to learn how to program a thermostat, it will program itself. Nest learns the temperatures that you like and then builds a personalized schedule for you. All you have to do is teach it your preferred temperatures for several days and within a week it’ll start setting them on its own. Nest also has an “Auto-Away” mode that will turn off your system when your home reaches the minimum temperature you choose when you set it up. And of course, the lower the temperature the more you’ll save on energy. If you have pets or plants, be sure to keep their needs in mind before you set the thermostat too low.

Turn it down at night

You can keep warm at night by sleeping under a thick blanket and with the temperature down to save money. Do this for a couple of nights and Nest will learn this and begin doing it for you. Just remember that if you turn the temperature all the way up your home won’t heat up any quicker. You could turn your thermostat all the way up to 85° but this won’t make the air come out of your finance any hotter. It just causes your heater to run longer. Instead you could use Nest’s “Time to Temperature” to determine exactly how low or high to set your temperature. You may not know whether you want the temperature to be 72° or 74° but it will be easy for you to see the difference between running your furnace for 15 minutes vs. an hour.

Watch for the leaf

The Nest “Leaf” shows up when you turn it to an energy-saving temperature. And the more often you see the Leaf, the more you’ll save. Nest will track your energy usage in its Energy History memory so you can see exactly how much you’ve saved.

What else you could do to save energy

We don’t know about where you live but we’re seeing extraordinarily cold weather. If this is also true for you, now would be a good time to not only invest in either a programmable or Nest thermostat but to also take stock of the other things you could do to stay comfortable and yet cut your energy bill. One of the cheapest and most effective things you could do is weather strip your windows and doors. These are where cold air most often finds its way into your home. You should be able to buy all the weather stripping and vinyl foam tape you would need for less than $20. If you have really old windows you might consider covering them with clear plastic storm windows. We have seen two packs of 36″ x 72″ plastic storm windows for less than $4.50. And 3M has a window insulator kit for five windows that usually costs about $18. These plastic windows are said to be easy to apply. Once you tape them in place, you simply use a standard hairdryer to shrink them tight and they should be wrinkle free and clear. 3M also says that one of these windows will increase the R-value of a single-pane window by 90%.

Unplug ‘em

Another way you can reduce your energy costs is by making sure you unplug appliances that you don’t use very often such as a second refrigerator in your basement or garage. This may sound silly but you should unplug your chargers when you’re not using them to charge one of your devices. You could also use a power strip to turn off your televisions and stereos when you’re not using them. This may surprise you but when you think these products are “off,” their energy consumption when on “standby” can be the equivalent of a 75- or 100-watt light bulb running continuously. You should also set your computers to hibernate and sleep. If you enable the “sleep mode” it will use less power when it’s inactive.

More ways to cut your electricity bill

Watch this short video to learn more things you could do to cut your electricity usage.

Let your computer to sleep and hibernate

And, finally, you could configure your computer to “hibernate” automatically after you have not used it for 30 minutes or so. This will turn the computer off but in a way that doesn’t mean you’ll have to reload everything when you switch it back on. When you allow your computer to hibernate, you will save energy and it‘s more time-efficient than shutting it down and restarting it from scratch. Of course, you should be sure shut it down when you’re through for the day.

8 Critical Lessons To Learn About Personal Finances

couple talking to a counselorWe humans make mistakes. That’s just part of being human. Take decision-making. I’ve certainly made some bad decisions and I bet you have, too. The problem with making decisions is that the only way we could always make the right ones is if we could see the future, which certainly isn’t one of my strengths. So, we make a decision and then learn whether or not it was a mistake. In some cases, it will turn out to be a small mistake like choosing the wrong dress or sweater. But in other instances it can be a big mistake such as marrying the wrong person. However, we can save ourselves some grief by learning from the mistakes made by other people and here are eight lessons that could help.

1. Learn to sometimes say “no” to your children

Kids can grow up and turn out to be good people even if they don’t get absolutely everything they see on TV or in stores. We know it’s always fun to watch your kids’ eyes light up when you give them that special something they’ve been wishing for but you don’t have to do it all the time. Many parents give their children an allowance, which helps them learn to manage their finances and to prioritize, which can mean learning to save to buy something big rather than giving in to every impulse.

2. Don’t borrow money to finance home improvements

As tempting as it might be to go into debt for home improvements like upgrading your appliances or redecorating, avoid the impulse. Home improvements are rarely an “emergency” and you can plan for them. It’s just much better to save up until you have enough money to update that kitchen or finish off the basement and not go into debt to do it now. If it isn’t broke, don’t try to fix it until you have enough money to pay for that improvement up front.

3. Learn to have fun on the cheap

It’s really not necessary to rush out and see that new film the week it opens, and all your personal and family activities don’t have to be expensive. You could wait until that new film hits Redbox or one of those discount movie theaters. It’s possible that you could check out a movie at your local library, buy a pizza and have a fun “night at the movies” right at home. You could probably find some fun, free things to do just by going through the entertainment listings in your local paper. We did this recently and found a bunch of free family-oriented activities ranging from a free day at the zoo to a fun pet run.

4. Don’t buy a home until you have an emergency fund

If you’re a young couple or family, don’t make the mistake many people have and that’s to buy a home before you’ve considered all the expenses you’ll encounter, and have a realistic plan as to how you’ll pay for them without running up a lot of unsecured debt. If you’ve never owned a home it’s hard to imagine everything that can go wrong and need to be repaired or replaced. You really need to have a good-sized emergency fund in addition to your down payment before you become a happy homeowner. We moved into our first house and turned on the water the next morning only to discover we couldn’t get by without adding a $250 water softener, which immediately put us in debt and kept us hurting for money for nearly three months. Also, don’t forget that many household expenses can get higher over time while your salaries might not.

5. Learn to say “no” to friends and family members

If you have family members or friends who need financial help, it’s okay to say “no” to them if you would have to go into debt to help them and especially if it’s debt you can’t afford to repay. It’s tough to say “no,” particularly if it’s a family member asking but if you help him or her who will be there to help you repay the debt?

6. Pay careful attention to your personal financescouple worrying about finances

Good financial practices and habits don’t just happen naturally. You have to learn them. The best way to do this is by approaching them like your job with determination and focus. You can’t use the excuse that you were never taught about personal finances or that your parents set bad examples. There is a multitude of websites and books on money management you could read to teach yourself about personal finances. It’s just not that tough.

7. Teach your children about personal finances

No matter how you’ve handled money in the past, you owe it to your children to take the steps necessary to teach them about personal finances, especially about delayed gratification and the importance of saving money. If your schools are like ours you can’t count on them to teach your children about personal finances, as this just isn’t on their curriculums. So you’ll have to make sure you do the job. You wouldn’t let your children grow up without knowing how to ride a bike and you shouldn’t let them grow up without knowing the basics of personal finance.

8. Learn what to do if you get into serious debt

Naturally, the best thing is to not get into serious debt. But if you do it’s important to learn how to deal with it. The most popular alternatives are a debt consolidation loan, snowballing your debts, debt settlement, and consumer counseling. While a debt consolidation loan is fairly self-explanatory, you may not know about the strategy called a debt snowball. This is where you order your debts from the one with the smallest balance down to the one with the largest. Step two is to put all of your efforts into paying off the debt with the smallest balance, while continuing to make the minimum payments on your other debts. When you get that first debt paid off – which should be fairly quick – you then use the new money you now have available to begin paying off your second smallest debt etc. This strategy was developed by the financial guru, Dave Ramsey and here’s Dave explaining more about it himself.

Has Your Credit Card Information Been Stolen?

Masked thief with bag labeled dollarsAre you one of the 40 million Americans who used your credit or debit card recently at Target? If so, it’s likely that your card information has been stolen. Target has reported that anyone who made purchases by swiping their cards at Target terminals between Nov. 27 and Dec. 15 may have had their accounts exposed to fraud. The stolen information includes customer names, credit and debit card numbers, expiration dates and even the three-digit security number on the backs of cards. The cards that were hacked or had their information stolen included Visa, MasterCard and Target store cards.

What to do if you believe your information was stolen

If you did use your debit or credit card at Target between the dates listed above, you should check your next statements carefully looking for suspicious charges. If you find any, you will need to report them to your credit card company and call Target at 866-852-8680. And if you think your identity was stolen, report this to law enforcement or the Federal Trade Commission.

How did this happen?

Target isn’t admitting how this happened. Companies such as Target spend millions of dollars every year on credit card security. One analyst believes that given the magnitude of the theft that it might have been an inside job and that today’s security standards are not working. Another expert said that something definitely went wrong with Target’s security systems as the fact that 40 million cards were stolen shows a severe security failure that should not have ever happened.

The good news

What happens if you find fraudulent charges on your statement? The good news is that you probably won’t be on the hook for them. First, the credit card companies often are able to flag the charges before they go through and shut down your card. In the event your credit card issuer doesn’t do this, it will usually strip off the charges you claim are fraudulent. This means that the worst thing you may have to deal with is getting a new card.

If you used a debit card

Debit cards offer a lot of the same benefits as credit cards without the worry that you’ll overspend as they are tied to your checking or savings account and you can’t spend more than you have in the account. However, they usually don’t offer the same degree of fraud protection. So, if you used a debit card and your number was stolen, you may have a harder time getting your money back. The reason for this is because debit and credit cards are not treated the same under consumer protection laws. Federal law mandates a $50 limit on your personal liability for fraudulent charges on a credit card. On the other hand, if your debit card is hacked you could be out $500 or more depending on how fast you report the theft. If a thief uses your debit card, your account could be drained and it could take as long as two weeks for your bank to investigate the theft and reimburse you.

Breaking news!

As we were about to post this article, we learned that Chase has put some temporary restrictions on its cards that were affected by the Target security breach. These restrictions will stay until Chase can replace the cards. The restrictions are that cardholders will be limited to a maximum of $100 on cash withdrawals and $300 in purchases per day. However, Chase has also said that less than 10 percent of its customers are affected.

What else you can do

If you did use your credit card at a Target store this holiday shopping season, there are things you could to protect yourself besides checking your statement and notifying Target. If your bank hasn’t replaced your card, you should replace it immediately. This will definitely put an end to any fraudulent charges. When you get your new card be sure to update the information for any accounts where you have it on file for automatic payments or monthly fees. You could also consider signing up for a fraud monitoring service like Lifelock that will monitor the activities on your card and alert you if your account has gotten into the wrong hands. Most credit card companies have similar services that are free but the threat detection services claim they go further, including protecting your credit card information if you lose your wallet or are hacked when shopping online.

Be sneaky

There are a couple of sneaky things you can do to protect yourself from credit card theft. First, when you write you name on the back of a new credit card, use a Sharpie so that a thief couldn’t change your signature. And second, leave that little “Please Activate” strip on your cards. That way, if a thief gets one of your cards and sees that sticker, he may not bother with it because he’ll think it’s never been activated.

The Minimum Payment Credit Card Debt TrapAlways be vigilant

While banks and credit card companies have their own fraud controls, you need to be ever vigilant as the data breech that occurred at Target won’t be the last. Fraud is a real-time crime so waiting until the end of the month to check your credit and debit card activity doesn’t cut it anymore. You need to check your debit and credit card account activity every few days. If you spot any suspicious activity, be sure to immediately notify your bank or credit card issuer.

Watch out for “hotspots”

Be careful about using a debit card online or at retailers that are more venerable to fraud. ATM machines and gas stations are considered to be are credit and debit card “hot spots” for “skimmers” or machines that capture your card information. When you use an ATM, watch out for any parts that look unusual. The slot where you insert your card should be even with the rest of the machine or have only a very tiny edge. If the slot looks or feels different or if it has an extra bit of plastic sticking out, this could be a skimmer and you should not use the machine. If you don’t notice something looks fishy until after you’ve used your card, be sure to notify your bank immediately so that it can be on the lookout for any fraudulent charges. When you’re using an ATM you also should cover your hand whenever you’re typing in your PIN to prevent a thief from “shoulder surfing” to see and copy it.

Other tips for preventing credit card fraud

There are some other simple ways you can protect yourself from credit card fraud as reported in this video … which also explains why thieves love gift cards.

Be careful with your mail

Another important thing you can do to prevent identity theft is to be careful with your mail. For example, most experts say you should never leave outgoing mail in your mailbox or mail slot. A thief could grab your mail. If it included a payment of some kind he would instantly have your credit card and checking account information. You should take your outgoing mail to the post office instead – especially your credit card payments. For that matter, you should probably go paperless, get your financial information electronically and make your payments online. That way, no thief would ever be able to access your important financial information. If you do get your information on paper, be sure to shred it so that no thief can go dumpster diving and retrieve it.

Lock it all up

Identity thieves don’t need all your information to steal your identity. They need only a bit to get the rest. Be sure to put your passports, Social Security cards, birth certificates and other important documents in a safe deposit box at your bank. If you can’t do this at least put them in a safe you hide in your home. You should also put any credit cards you’ve stopped using into that safe or safe deposit box.

Identity theft is the fastest growing crime in America. In fact, last year about 12.4 million Americans fell victim to this crime. There’s no way you can protect yourself 100% from it but if you follow the advice you’ve just read in this article, you can minimize the odds that you’ll be victimized.

How To Read Your Credit Reports

You do know you have a credit report, right? Right? Well, technically that isn’t right. It’s because you actually have three credit reports, one from each of the three credit bureaus–Experian, Equifax and TransUnion. You can download your report from each of these bureaus or get them altogether at They’re free once a year as this is what the federal government has mandated. If you need your reports more frequently than this, you will then need to pay for them.

Why it’s important to review all your credit reports

You really do need to review all three of the credit reports. There are two reasons for this. First, all three display your information in different formats. And secondly, they can contain radically different information. You could get one of your credit reports, review it and think that they would all be the same. But that’s not the case.

Here’s a sample of what a TransUnion credit report looks like.

Sample TransUnion Credit Report

In comparison, here’s a sample Equifax credit report.

Sample Equifax redit report

Here’s a sample credit report with a key that could help you better understand your credit reports.

Sample credit report and key

Why they are different

The information in your credit reports is different because the system is voluntary. Creditors supply credit information to whichever agency they choose – if at all. So your report from TransUnion could contain negative information you would not find on your report from Equifax. Or vice versa.

The setup

As you have seen from the samples shown above credit reports can look very different but are generally divided into four components: identifying information, credit history, public records and inquiries. Your identifying information is just that – information that identifies who you are. When you review a report the first thing you need to do is examine it carefully to make sure that it’s accurate. It is not uncommon to find your name spelled several different ways or multiple Social Security numbers. Why is this? It’s because someone provided the information that way. Don’t be concerned if you find several variations. It will stay in your report even if it’s wrong because changing it might mess up a link.

You might also find under Identifying Information your current and former addresses, your birth date, driver’s license numbers, telephone numbers, your spouse’s name and the name of your employer.

Credit history

Each of your accounts will include your creditor’s name and an account number. Also, you might find several accounts from the same creditor. This is due to the fact that most creditors have more than one type of account. Or they may transfer your account to a new location if you move and give it a new number. Your credit history will also have the following

  • The type of credit – such as a car loan, installment loan or mortgage
  • If that specific account is just in your name or includes someone else’s
  • The loan’s total amount, its high credit limit or if it’s a credit card, its highest balance
  • The amount still owed
  • Whether it’s a minimum monthly payment or a fixed monthly payment
  • The account’s status expressed as open, closed, inactive, paid off, etc.
  • How satisfactorily you’ve paid on the account

Your credit history

This section will display your recent payment history and whether or not you’ve paid each month as you had agreed. Credit reports from TransUnion and Experian also have the amount of each payment. There may be other comments under an each account such as whether it was closed by a consumer, was charged off or listed as a default. The term “charged off” means that your creditor has given up. In other words, it made an effort to collect the debt and couldn’t so charged it off. “Charge-off” is basically an accounting term. What will actually happen is that your creditor will probably bundle up your debt along with dozens of others and sell the whole bunch to a collection agency.

Public records

If you have information in this section, it’s not a good thing. If there is a public record in this section it’s because you had something negative. However, this will list only data related to your finances such as judgments, tax liens and bankruptcies, all of which can ruin your credit. The only good news is that lawsuits, arrests and other such information won’t be included.


This is simply a list of every creditor that has requested your credit report. Whenever someone gets your report, it posts an inquiry. For example, if you were to call a credit bureau and ask for a copy of your report it will be there as an inquiry. There are actually two types of inquiries – hard and soft. Those that were initiated by you when you filled out a credit application are called hard inquiries. In comparison, when they from companies that want to prescreen you for a credit offer or from potential employers or creditors who are monitoring your account they are called soft inquiries. These inquiries appear only on reports that are given to the consumer.

You might find errors

It’s quite possible you will find one or more mistakes on your credit reports. A 2013 government study found that 20% of consumers had errors on their credit reports. And 5% had errors so serious that it was costing them more money on their loans and insurance. What can you do if you find a mistake such as an erroneous amount or an account that isn’t really yours? You will need to dispute it with the credit bureau. Your credit report will include a web address for that credit bureau’s online dispute form. However, most experts counsel you to dispute the mistake in writing. If you want to have the error deleted from your report, you will need to provide supporting documentation. It should be attached to your dispute letter and then sent to the appropriate credit bureau as registered and return receipt requested so that you can prove you sent the letter and that the bureau received it.

What happens when you dispute an item

If you do find a mistake and dispute it, the credit bureau will contact the institution that supplied the information, which then has 30 to 45 days to respond. The item you disputed will continue to stay on your credit report until the issue is resolved. If you don’t feel that your dispute was well handled, you can file a complaint online with the Consumer Financial Protection Bureau.

How this translates into your credit score

A third reason why it’s important to review your credit reports is because they are the basis of your credit score. In other words, negative items on your credit reports translate into a bad credit score. How your credit reports turn into a three-digit number is a process that was invented by the company FICO. No one but FICO knows the algorithm that produces your score but it is known that it’s made up of five sections as follows:

  • Your payment history – 35% of your score
  • The total amount you owe – 30%
  • Your credit history or how long you’ve had credit – 15%
  • Inquiries and new accounts – 10%
  • The types of credit you’ve used – 10%

Four of these sections are pretty self-explanatory. The one that’s a bit misleading is the section The Total Amount You Owe as it’s not really your total debt. It’s your debt-to-credit ratio. For example, let’s suppose you have total credit available of $12,000 (the total of all your credit limits) but have used up $6,000 of it. This would yield a debt-to-credit ratio of 50%, which most experts say is too high. This is one area where you could quickly increase your credit score simply by paying down the amount you owe until your debt-to-credit ratio gets to 30% or lower. Alternately, you might be able to talk some of your lenders into increasing your credit limits. This would have the same affect on your debt-to-credit ratio as if you had paid down some of your debts. However, if you’re having a problem with debt or a low credit score, you may find that your creditors very reluctant to increase your credit limits.

How to get your credit score

If you haven’t seen your credit score recently – or ever – you can get your true FICO score on the website You could also get your credit score from the three credit reporting agencies though this won’t be your true FICO score. However, it should be close enough for you to have a pretty good idea as to how you would look to potential lenders.

Revealed – One Simple Trick For Protecting Your Credit Score When Holiday Shopping

Santa Carrying Shopping BagsTis the season to be jolly, right? Well, yes, the holidays are the time to be jolly but not with your credit cards. We know how easy it can be to get caught up in the holiday sprit and end up spending a lot more than you’d ever planned. We also know how sobering it can be in January when those credit card statements start rolling in and it’s like, “Good grief, I don’t remember spending that much! Eeek!”

Your credit score

Before you do get caught up in holiday shopping fever, you need to think about your credit score. You know, that little, three-digit number that governs your credit life? What, you don’t know your credit score? Then you need to get it and you have several options. First, you could go to and get you FICO score, which is the gold standard of credit scores. You can get it free by signing up for a free trial of the company’s Score Watch program or if you don’t want to bother with this, you could just pay $19.95. Second, you can get your score free from any of the three credit-reporting bureaus – Experian, Equifax and TransUnion or from an independent source like or We like these last two sites because they offer a good deal of helpful information in addition to a credit score. While, none of these sites can provide your FICO score, the ones they do offer should be near enough to it for you to know how lenders would see you.

Protecting your score

If you have a good credit score of 700 or above, you don’t want your holiday shopping to torpedo it. So, the first thing you need to do is grab a credit card statement and look for two dates – the payment due date and the statement closing date. The payment due date is, of course, the date when your minimum payment is due. That’s not important right now. The important one is your statement closing date. This is the day when your credit card issuer combines all of your charges in your billing cycle. The sum of these charges minus any payments and credits is then your balance due for that month.

What this means is that if your statement closing date is January 30th, all the charges that you made in the previous 30 days going back to December 30th is your statement balance. And this is what’s reported to the three credit bureaus. It also explains why your credit card accounts never have a zero balance on your credit reports – even if you pay them in full each month. If you want to have a zero balance, you have to pay off your card’s balance and then stop using it for one full billing period.

How to use this information

This leads to a strategy you could use to accomplish the same thing. If you pay off your balance owed before the statement’s closing date you will have no balance on your statement. Here’s why. Your statement balance is a combination of your charges, fees and interest minus your payments and credits. If you can make all of them equal $0, your statement balance will be $0. And that $0 balance is what will be reported to the credit bureaus. When your balance of $0 is reported to them your credit card usage and shopping activities will never make it to your credit reports. What it amounts to is that credit scores can’t consider a balance that’s not on your card. And this is how you protect your credit score while still using your credit cards.

It pays to be careful

The only problem with this strategy is that it’s not foolproof. First, if you pay your card in full before the statement date you will sacrifice your grace period. On the other hand, if you need the grace period in order to pay your bills, credit cards might not be for you. Plus, there’s another little problem with the statement closing date strategy. And that’s if you figure your math wrong, you could still be left with a balance that would trigger a statement. You would then have a small balance in your credit reports and would have to make a payment by the actual due date.

Woman depressed over billsWhat to do if you end up with credit card debt

If you do overspend on your holiday shopping and end up facing a stack of credit card debts in January, there are some things you can do to pay them off. And it’s important you do so. If you have high balances and high finance charges you may find your financial options have become limited and you wallet is being sucked dry. Here are some pay-down strategies that could help you get those debts under control.
First, get organized. Put together all the information on your credit cards. Write down your balances, interest rates, due dates and the minimum payment required by each card.

Do you have numerous balances on lots of different cards? Do you have one huge balance on one credit card and several small ones on your other cards? Have you combined all of your credit card debts onto a single card but are not having any luck reducing the balance?

Step two is to add up all the minimum payments you’re required to make on your credit cards. This will show you how much you must pay every month just to keep current on your credit card bills. Could you pay more than the minimum on one or several of your cards? If you can, you need to do this. Debt can stack up for lots of different reasons.

However, paying your balances down is pretty direct. Just pick one of the three pay-down strategies we are about to reveal and stick with it until you have paid off your balances in full.

The card with the highest APR

One credit card debt pay-down strategy is to first pay off the credit card first that has the highest APR. While you’re doing this, be sure you continue to make the minimum payments required on the rest of your cards. When you’ve paid off the card with the highest interest rate, you will need to start working on the card with the second highest interest rate and so forth.

The best way to do this is by doubling or even tripling the minimum payment on the card that has the highest interest rate. Figure out how big a payment you can afford to make and then do it and stick to it. For example, if you begin by paying $200 on a credit card, continue paying at least $200 every month until you have paid off the card. You also need to make sure you stick with that increased payment amount even as your minimum payments and balance go lower and lower. The aim here is to get your balance to zero. If you ease up on your payments as your balance decreases, this will only slow down your progress.

The card with the lowest balance

A second pay-down strategy is to first pay off the card that has the lowest balance. Of course, you will need to still make the minimum payments on your other cards. Once you’ve paid off the card with the lowest balance, you would then start working on the one with the next lowest balance and so on. This can help you build up some momentum because it’s faster and easier to pay off a $500 balance then at $2000 balance. And it can feel terrific when you’ve paid off a credit card bill in full no matter what its balance was to begin with.

Consolidate your debts on a single card

If you prefer to keep things simple, you might choose this third pay-down strategy. It’s to consolidate all of your credit card debts onto a debt consolidation loan or a single credit card. When you do this, you will be making just one payment a month vs. the multiple ones you’re making now. And you can even make those payments automatic so you would never have be afraid of paying late. Just be sure that when you move your debts to a new card, you choose a payment amount that’s much more than the monthly minimum required.

What to buy?

If you’re having a problem deciding to buy some of the family members and friends on your Christmas shopping list, here’s an infographic that includes the top most popular wish list items as well as interesting information on how much money people plan on spending.


How To Get Financially Fit For The Holidays

man stressed with papers and calculator

If you’re like us and have a lot of people to buy for and only a modest amount of money for gift giving, you need to start working out (on your finances) to get financially fit. And now is not too early to get started. Black Friday is coming up, followed by Cyber Monday. So if you want to avoid a holiday hangover today is definitely a good time to start preparing for the 28 days of holiday shopping madness.

Develop a budget

The first step in keeping your holiday spending under control is to make a budget. You should have four categories – one for gift giving, one for travel (if appropriate), one for food and one for entertainment expenses. Many people end up in trouble because while they create a budget for their gift giving, they tend to forget about food and especially entertainment expenses. Make sure you also include miscellaneous expenses like babysitter fees, gasoline and eating out more frequently.

Make a list

Next, make a list of everyone you plan to gift, including loved ones, children, teachers, friends, your hair stylist, the guy who delivers your morning paper and so on. Then set a realistic spending limit for each person on your list along with some idea of what you will give that person.

Don’t feel pressured

When you’re making that list, don’t feel pressured to give to give a gift to everyone. If your finances are on the tight side, you might give some people a hand-written note expressing your appreciation for their help. A note or another hand made item (think home-baked cookies) can mean a lot more than some cheap knickknack you buy at your club warehouse or dollar store.

Keep on keeping on

Keep working your way through your budget and make sure you set aside some money for unexpected expenses. For example, you might receive a gift from someone who wasn’t on your list and you need to have some extra money to cover this. Did you save your receipts or credit card statements from last year’s holiday shopping? These could help you develop a realistic budget for this year’s gift giving, entertainment and food expenditures.

Think how you will pay for everything

You will definitely need to think about how you will pay for your holiday expenses. It’s always better to pay cash than to use a credit card. When you use cash you will know when you’re holiday spending is over, which is when you don’t have any left. This is a great way to keep from overspending. In comparison, it’s easy to go over budget when using a credit card. The problem is that paying with a credit card doesn’t feel the same as when you pay with cash. It’s just somehow easier to pull out a credit card then to take cash out of your wallet. If you do pay with a credit card and fail to keep careful track of your charges, you could be in for a very nasty surprise when January rolls around and your credit card statement arrives. You could use a credit card to pay for some of your expenses so long as you don’t spend more than you can pay off when that statement shows up. In fact, if you know your account’s closing date, you could get nearly 50 days of credit free just by not charging anything until the day after it closes.

Use a layaway plan

Many stores now offer layaway plans. One of these plans could help you score a big savings when you don’t have the cash in hand to pay for an item. You could take advantage of that great bargain but then spread the payments out over the next month. If you decide to do this, make sure you understand the store’s policies and keep careful track of all your payments.

Plan ahead

Don’t make the mistake of going holiday shopping without a plan. Carefully review store ads and have a list of exactly where you will go and what you will buy. It’s easy to know what to buy these days as virtually every store posts its ads online well in advance of its actual sales. As an example of this, we get notices almost every day of deals in the form of emails from Amazon, Best Buy and Staple’s.

In comparison if you just go to a store and start wandering around looking for gift ideas, you could easily end up making impulse purchases or items that were not in your original budget. If you need to “window shop” do it at home using online catalogs or store ads so that you’ll know exactly what you’re going to buy when you walk into a store.

Make stuff

If you have a really tight budget, consider making some of your gifts. Many people would be happier to get a home made gift than something cheap you bought at a discount store. Depending on your skills and abilities, you might be able to create a personalized necklace or bracelet, paint a portrait of the person or hand-carve a miniature figurine. You say you don’t have the skills to do this? Then maybe you could make a photo book or a personalized T-shirt or make something like cookies or home made candy.

Avoid temptationwoman showing her hand

Holiday sales can be very tempting especially when you walk into a store and see some cool item for 70% off. But resist the temptation. If the item isn’t on your shopping list, just don’t buy it. Make sure you stick with your original budget at all times.

Resist the perks

You’re probably carrying at least one credit card that includes rewards in the form of points or cash back. If so, you’ve probably already received notification of “double” or even “4x points” on certain things. While it can be tempting to whip out that card when dining out, buying stuff on Amazon or purchasing groceries in order to earn those juicy points, don’t let this bust your budget. We have one credit card with cash back but when you do the math, we get one cent for every dollar we charge. This means that to get $100 cash back we would have to spend $1000. Remember that the bill for that spending will come due– in the form of your next month’s credit card statement. And that no deal is a good deal if you can’t afford it or if it’s not in your budget.

About those credit cards

While it’s always better to pay cash we understand that credit cards can be an easy and convenient way to pay for things. If you use them responsibly they create paperwork that can be used to create a budget (as noted above). In fact, in this case they are actually a bit better than cash. However if used irresponsibly, credit cards can turn become a huge nightmare. You could end up having to pay interest charges of 19% or even higher and be in debt for years. If there is a reason why you must use credit cards, try to pay off your balances every month. Failing this, at least make more than the minimum payments required. We saw one example recently where a person had $10,000 in credit card debt at 13.10% / If he were to make only the minimum payments each month it would take him 27 years to pay off the $10,000 and he would end up paying back $21,271.

Think about a balance transfer

If you are carrying high interest credit card debt one of the things you might do before the holiday shopping season is transfer your balances to a 0% interest balance transfer card. There are cards like this available where you would be required to pay no interest for as long as 18 months. This could give you a sort of “ timeout” period where all of your payments would go to reducing your balance. If you were able to heavy up on your payments you might even have your entire balance paid off before your interest-free period expires.