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Consumer Debt Indicates Confidence

happy woman with groceriesConsumer debt is a common experience for most Americans. It is evident in almost every aspect in their lives. It is a companion in almost all major decisions in a consumer’s life. Financing college dreams would most usually equate to taking out federal and private student loans. This would pay for the tuition and other fees to graduate with a degree.

For consumers buying a car, taking out a car loan is just around the corner. It helps them finance the car instead of buying the car in cash. It allows them as well to not tie up their funds in just one property. Buying a home would similarly have the same concept as getting a car. Mortgage loan is one of the most used consumer loan instrument.

From college education to buying a car and owning a house, consumer debt plays a vital role in those major life points. But even in our everyday lives, consumer debt is evident in our use of credit cards. From buying groceries, paying for the monthly bills to dining out with the family, credit card use has been playing a big role in a consumer’s life.

With all these consumer debt, people have been finding themselves deep in debt and putting together a financial routine to tame big debt. But experts are looking at debt in a different light. Oddly enough, some financial experts deem debt as a good indicator of consumer confidence.

Confidence in growing consumer debt

NYtimes.com recently shared an article on how consumer debt is indicating growth in consumer confidence. From the study, consumer debt for the first quarter of 2014 stands at $8.69 trillion. Covering the same quarter last year, this is a 2% increase in debt. And looking further down the timeline, this is the only increase in consumer debt since the 2008 recession.

The highest point for consumer debt was way back in the third quarter of 2008. Debt stood at $9.99 trillion. After this point, mortgage began a steady decline because of homes being given up due to default. Add to this the fact that few new home mortgages are being taken out for fear of the market and economy in general.

The increase in debt is being studied in comparison with a decline in delinquent payments as well. The study revealed that the delinquent payments for credit cards during the first quarter of 2014 was at 8.5%. This is the lowest percent of delinquent payments since 20013. This is a great indicator of consumer confidence in personal finance.

The study shows as well that there is an increasing number of young consumers aged 22 years old to about 25 years of age that are taking out auto loans. This holds true for those that has student loans and those that do not carry any student debt. There are a few reasons for an increase in auto loan takers such as:

  • Stable fuel prices. A steady performance of fuel prices has been generally a great contributor in the increase of auto loans. Thedetroitbureau.com even reported that because of stable prices of fuel, there are shifts in consumer preference in car brands.
  • Interest rates. The rates for car loan are relatively low and this encourages consumers more to buy that car that they need.
  • Credit availability. This is an example of an economic supply and demand ratio. As more people are looking for lenders for an auto loan, more banks are offering the loan instrument. Extending the service to cover the consumer market that are on the lookout for auto loans.

Talking more about consumer debt,  mortgage had quite a decrease in the 27 years old to 30 years of age market. The survey even pointed out that a lot of it has to do with people struggling with student loans.

Student loans are affecting mortgage loans

Carrying big debt can lead to terrible things to  your family. Debt is is both prohibitive and limiting in nature. This does not limit itself to just mortgage loans, credit card and auto loans. In fact, one of the bigger industries at the moment is student loans. The industry has seen phenomenal increase over the past few years.

Westernherald.com shows that in the past 10 years, there has been a 300 percent increase in student debt. The industry is now at $1.2 trillion and growing. In 20013, the student debt stood only at $253 billion and steadily climbed up. In fact, if grouped with other consumer debt such as mortgage loans, credit cards debt and auto loans – student debt kept at increasing in a steady pace.

This year, there are about .85 college students graduating with a bachelor’s degree. Simple straight computation would indicate that each one of them would have an average of about $26,500 a college graduate. Even with lower delinquent payments for student loans, there are still about 30% in default for federal loans. This indicates that there are quite a large number of borrowers struggling with payment.

This is in fact one of the things that experts are looking at as a cause of a decline in new mortgages for possible borrowers with student loans. Simple logic dictates that having a big student debt puts stress on a borrower to pay. The chances are they send in  late payments or worse, delinquent payments. This would reflect negatively on their credit score. And a subprime borrower would either be slapped with a high interest rate because of the risk or be denied outright. These two scenarios would lead the borrower to put off a mortgage loan until the student loan is paid or their credit score improves.

This is a dilemma knowing how a college education benefits the income. There is evidence to support that college graduates are able to land better paying jobs than high school graduate. Unemployment for college graduates are at 6 percent as compared to 13 percent for high school graduates or those who do not have a college degree.

The student loan debacle can boil down to one point, managing any consumer debt has to be done with financial literacy at the helm. From the time the loan is to be taken out until the repayment period all the way to paying it off. Having the basic wisdom if the loan is really something that is needed to the budgeting of monthly income to pay off the debt requires financial literacy.

It is one thing to qualify for a loan but it is another to make the payments to maintain a good credit score. Having a good paying job will not worth much if you delay on your payments and use the funds for unecessary expenses. Having a goal to aim for can greatly help in steering you over to the right direction. Having a  budget as well to guide you in your daily expenses will bring you closer to that goal.

The increase in consumer confidence because of an increase in debt and decrease in delinquent payments is a good sign that people are able to maintain debt and make the payments on time. They are more aware of the financial responsibilities and the effects of mismanaging the payments. It can also show the confidence people have in the economy because taking out loans are long term responsibilities.

 

Study Shows an Increase in Household Debt

House with cash on the roofHousehold debt is a combination of all loans and debt a family would have. This includes mortgage loans, credit card debt, student loans, and even credit card debt. There is nothing wrong in having most of these on your list, even all of them. The idea is to properly manage the payments to allow you to still live your life the way you want to and not just live to work to make payments.

Online.wsj.com recently shared an article illustrating that there in an increase in household debt. This is a steady increase starting from July  2013 to January to March 2014. According to the Federal Reserve Bank of New York, the current numbers on  household debt is at $11.65T from $11.521. This figure shows a $129 billion increase between January and March 2014.

Mortgage in household debt

Housing is still on top of the list of household debt. Even with tough mortgage problems, housing loans still makes up the bulk of total debt in the US household. The mortgage industry now stands at $8.2T showing strength with a $116B increase. The jump from $8.08T shows as well a decrease in consumers getting into foreclosure. This is a big factor in a decline in the mortgage industry.

More than foreclosure, the increase in the industry also shows that new loans are on a slide. It has lowered to $332 billion for three quarters straight. Part of this is how the market is being priced. Most are on still a bit more than what the mass buyers can afford. With prices still at a high level, taking our new mortgage loans are still not very affordable for would-be new homeowners.

Credit cards usage in  household debt

Credit card is next on the list but consumer habits are changing leading to a decrease in the use of plastic credit. Since 2002, it is now at $659 this quarter. This amount went down by as much as $24 billion from the previous quarter. Year on year, same quarter last year was just a few point up from this quarter. This shows that credit card use in decline.

Gallup.com also confirmed this with a study that shows the decrease in the reliance of a credit card in the US economy. The study revealed that 48% pay the full amount when their bills come in. This is one perfect example of financial literacy. Making the credit card work in your favor. This is an 11% increase compared to data last 2004. Back them, only 37% paid their credit card in full.

This data also goes to show that the number of people leaving balances in their credit card has gone down. It is now only at 33% compared to 45% in 2004. Less and less people are putting off payment for the full amount. This is most likely because of the awareness on how interest payments and other finance charges are blowing up their payments more than it should be

The data also shows that more and more people are dumping excess credit cards and learning how to live off on a few plastic credits. The survey revealed that credit card ownership is at an all time low in 2014. From 2002, 17% of the respondents did not own a credit card. In 2014, that number went up to 29%. There was a 12% increase over the last 12 years showing steady and consistent decline in credit card ownership.

Digging deeper, it showed as well that consumers who carry 5 to 6 different credit cards went down from 12% to 9% in the same years. This again shows a steady 0.25% decrease every year from 2002 to present. Those that carried 7 and more credit cards also decreased from 11% to 7% showing a consistent decline of about .33% every year.

All these shows that from 2002, the average credit card ownership of US consumers went down from 3.3 to 2.6 in 2014. If the data was to exclude those that did not own a single credit card, the data would still go down from 4 to 3.7 in 2002.

Credit card ownership at a glance is:

  • No credit card highest in 2014 at 29%
  • Having 1 to 2 credit cards lowest again at 33% in 2014
  • Having 3 to 4 credit cards lowest in 2014 at 18%
  • Having 5 to 6 credit cards lowest in 2014 at 9%
  • Having 7 or more credit cards lowest in 2014 at 7%

Student loans and car loans

Student loans has taken up quite a big chunk of the debt industry when it broke into $1T total recently. This could even go up as Wnd.com  broke the story that government-funded student loans are about to increase according to an analysis of the the Congressional Budget Office.

A lot of college students and working professionals deal with student loans everyday of their lives. It is that one loan that you carry from college all the way as you walk to your first job interview and even up to the time you already have kids of your own. This is why a lot of debt collectors are earning a lot from student loans.

The balance for car loans grew as well to $875 billion with a $12 billion increase from the past. Getting a car of your own is just as much an American dream as getting a house is. Having a car of your own now is a necessity more than anything. And it is not cheap to get a car. Most first time car buyers forget that the cost does not stop in the purchase price. Gas cost should be a major consideration as well as maintenance cost. All these and more should be considered before getting a car loan.

Effects on the US Economy of credit card use

Financial literacy has a lot to do with reduced dependency of consumers with credit cards. Knowing how many card you have to carry and being able to pay for the purchases you charge is a sign of a being financially responsible. The lower number of credit card users who leaves balances in their statement goes to show as well that more and more consumers are beginning to understand how interest payments are making them pay more.

The financial crisis in 2008 was mainly due to the fact that people over borrowed and had little funds to pay it back. It started a vicious cycle of more borrowing because of living expenses and the need to pay off loans and getting and borrowing again to cover the same recurring expenses. It is only now that the economy is getting back up on its feet with the consumers leading the way.

The US economy is consumer driven. About 70% of the economy is dependent on the purchasing movements of the consumers. The more the people purchase, the better the economy is. Any sign of slowdown in the purchases of US consumers has a direct effect on the performance of the US economy.

The trend that has to be closely monitored is the combination of the slowdown in credit card ownership and a slow wage growth. The availability of using credit and the lack of funds to actually pay for credit purchases could have an adverse effect on consumer spending.

Financial literacy does not restrict purchase and limit household debt. It guides the consumer in making the right choices and makes them realize the importance of saving up for emergencies and retirement as well. It also shows the importance of dealing with debt payments and how it affects their everyday lives. Dealing with loans and debts and budgeting them are crucial in being able to financial freedom.

Financial Literacy With Football

Man having financial problems

There is a good percentage of athletes that would benefit greatly from financial literacy classes. Investorplace.com listed some athletes that mismanaged their funds. Among which are six-time NBA champion  superstar Scottie Pippen who lost millions in bad investments. Allen Iverson also lost millions and at one point owed a jeweller more than $800 thousand. NFL superstars like Warren Sapp, Michael Vick and Terell Owens all lost money in misguided financial undertakings.

These athletes could make more in a year what ordinary people can make in a lifetime. That is why people compare athletes with lottery winners because of the financial gain in the sport. Of course, this is not to belittle their talents and skills and the hard work put in to sharpen those tools. But if they are not too keen in managing their finances, all their effort will go to waste. They could lose everything even before they retire.

Financial literacy with a twist

Coming off from Superbowl, quarterback Brock Osweiler of the Denver Broncos is the face of a new technique that aims to teach young people about making sound financial decisions as reported by Dailyinterlake.com. It is a fact that football is a national sport loved by many Americans including the kids. That is why when looking for ways to make financial literacy campaigns fly off with kids, incorporating it with football was the way to go.

Designed to be a video game and part of the classroom curriculum, “Financial Football” was developed. It is part of a statewide campaign to reach out to teens with the objective of teaching and improving financial management skills. The way the game works was that for every money management question thrown away, a correct answer would enable players to to choose from a variety of running and passing offensive plays.

Being an alumnus of Flathead High School, Brock Osweiler visited his roots where more almost 60 business and finance students waited to see him and play financial football. Reaching out to teens is a great time to talk about financial literacy as they are prepared to tackle financial responsibilities when they grow up. This would include funding college, buying cars, renting or purchasing homes and even starting a family.

3 Key things

Before starting the game, Brock Osweiler talked about the 3 things he learned as he was in his journey to practical financial literacy.

Budget. He pointed out that athletes do earn a lot. So much that some could think of the money as a neverending well of dollars. But no matter how much you make in a month – $400, $4,000, $400,000 or even $4M, having a budget is of utmost importance. It will show and guide you on how to properly manage the income that comes in. Without a budget, it will be as if you are walking in the dark and might he headed to bankruptcy like some athletes.

Affordability. One rule of thumb in making purchases is the fact that if you cannot buy the item using cash, do not purchase it. There are of course exceptions to the rule but sticking to this mantra will help you avoid unnecessary purchases. If there is a item that you want to buy and you do not have enough funds to buy it, save up for it rather than charging it to credit.

Educate yourself in terms of finances. Take classes, talk to you parents, save with your friends. Improving your financial literacy will benefit your finances in the long run. Brock Osweiler took several marketing, personal finance and even sports entertainment marketing classes just to be on top of his money. This is hard work but just like in practice, the harder you work on it, the better you become at it.

Here is a video on financial football:

Managing finances properly

With all these athletes losing money and even filing for bankruptcy a few years out of retirement, is there a way to prevent this? Financial literacy is a great tool in addressing this concern. Again, it goes back to the fact that athletes get so much money from salaries to endorsement deals that they sometimes make the most absurd purchases.

Investopedia.com recently released an article that aims to be somehwat of a refresher list for those lookiing to straighten up their finances. A brush up of financial literacy would always be a good step in proper money management.

Some of the things we need to be on the lookout are the following:

Starting point

This is similar to performing an audit of your current situation. It is great to have a budget and a goal that you would aspire for but the amount of work that you need to put in is dependent not only on the goal but also where you are starting from. Take for example a goal of buying house of your own. Knowing how much the property is will serve as your goal. If the house is valued at $30,000 then you would need that amount to but it.

But how much will you need to save up? $30,000? This is why knowing your starting point is a good idea to let yourself know how hard you still need to work. If you have not started yet then you really need to put up the whole amount. But if you have $10,000 in the bank and some assets and investments you can cash in that would all total $15,000 – that is already $25,000 right there. You would only need $5,000 more to get that house. From here, you are able to know how much more you need to set aside every month for the house,.

Needs and wants

It is essential also to distinguish needs versus wants. Putting a clear fine line between the two would help you prioritize purchases which is a backbone of financial literacy. Needs are the things you cannot live without. This would cover food, water, shelter, clothes, medicines and other items meant for your survival.

Wants could be different or in the same category. It could be water –  you need water but you want that $10 water brand when you have water at home that would do the same job of quenching your thirst. You have food but want to dine out in expensive restaurants to partake of the meals prepared by world-renowned chefs. Same with shelter and clothes, we need them both but want is staying in a community we cannot afford because of the stature it brings and wanting to buy signature clothes because they say so much about what you can afford.

It is important to satisfy the needs first and balance them with the wants in our life. In fact, our wants could even be a push to the right direction. If you have a car but you need a big SUV because the family is getting bigger and there is that brand you want because it offers the top of the line safety features – then work hard for it. If you cannot afford it yet, save up for it so you can buy it for your family.

Spending monitor

One of the things that is essential to maintaining a fool-proof budget is knowing where everything is going especially in the expense side. List them down to know where you can take out or reduce expense items.

Get rid of debt

Debt is very prohibitive in nature. It limits our capacity to save for emergency and even start and end early with our retirement plans.  Get rid of debt as early as possible to put income into good use.

Money management plays an integral part of our financial plans. Financial literacy starts with proper management of income and expenses coupled by making informed decisions along the way.

Debt Relief In The Form Of Donation

Graduation cap with money

In today’s time, debt relief is goal because of all the debt around us. From the time we get in college, to our first employment, to our first house and even when we have kids. Debt varies in amount as well as various multinational companies are millions in debt to that 6th-grader in Houston-area middle school whose breakfast was trashed because he was short of 30 cents in credit as reported by Washingtontimes.com.

Even colleges are also in debt. But one learning institution recently made headlines as they went down a route not usually wandered on by those in debt. As reported by Mlive.com, Calvin College, a private school in Grand Rapids, Michigan, put together a fundraising project to raise the money to address their debt problem.

The school was looking at a long-term debt of $116 million. At the moment, the school needs to raise $25 million to pay down debt and start on the right track. The school has been around for quite some time now being built in 1876 but the way it handled its finances in the past years got the school deeper in debt. Debt relief could be a far dream with the amount of payments they had to make. Then they started fundraising.

The school was able to raise the target amount in 8 months time. It was a herculean task and made possible by a strong alumni network and the hope of quality education being turned-out by the school in its students.

Though unconventional, this is not the first time fundraising was done to pay off debt. Washingtontimes.com carried a story early this year about an eight year old student from Michigan who started the “Pay It Forward: No Kid Goes Hungry” campaign. This was when his friend was denied hot lunch because he did not have enough credits for lunch.

Why debt relief is a goal for the school

There were missteps along the way that got the school deep in debt. As they are in the rebuilding stage, it would benefit a lot of institutions and even individuals if we look back and see what went wrong. Analyzing and looking at the insights and lessons from the circumstances that lead them to debt would yield a lot of learnings.

Proper use of money

We have different goals in life and a lot of them requires financial counterpart. That house we dream about would need to be bought first or taken into a mortgage. That car we always wanted to drive would require finances as well so we can purchase and  drive it around town. That college degree we want to graduate with needs tuition fee so we can carry it in our job hunt.

To make these happen, we save up for it or we allocate funds to pay for it. That power tool we need to start making DIY repairs at home, we can put away a few dollars a week so we can purchase it at the end of the month. But if we use that saved up money to buy something else, we forego the original intention for the money and would have to save up for it again.

That is what happened with Calvin college. They had funds to start construction on some buildings on the campus. Good move considering they had the money and a 390 acres space to build around in. But the problem was they took the money and put them in investment instruments. The intention was to use the the income from the investment to pay off for the construction expense.

There are several investment options to choose from. Some people and companies use them as a debt relief option but using them and maximizing the tools needs careful planning and thorough understanding of the risks.This is where Calvin college’s problem started.

Below par investment income

The school had the best intention in mind. Invest the capital and earn off from the income to pay off for construction expenses. If done right, they would finish the building project and still have the capital intact. They can even use it for other building projects. The forecast might have been favorable that the school voted on it.

What the school did was to take out a loan so the monthly payments can be in small amounts enough for the investment income to cover. This is one form of passive income where the you make your money work hard for you. The problem was the investments did not yield the expected results and payments are not made.

Unbudgeted payment

Knowing how much money comes in is essential to plan who much money comes out and vice versa. This budget plan allows you to keep track of finances and avoid having to think about debt relief options. The school did not budget the payments for the year and when the time came that payments had to be made and the investments did not yield expectations, they had to cut budgets from different areas.

Rebuilding the finances

After Calvin college raised the money, there are the steps they took to ensure they are on the right track in terms of their finances. Calling it budget prioritization plan, the school laid out a plan to get them out of debt and ensure they are out of debt. Consumers can learn a lot from these and how to handle finances the right way.

Internal audit

The school took a good close look of their internal processes and procedures to ensure there are not any loopholes in their planning phase. This is essential before they can reach out again for benefactors to believe in the system .

Consumers can do this as well in their own quest of financial freedom using any debt relief programs. Study their own spending and income and see where they can improve. There is always a big room for improving any process whether as big as a learning institution or as small as those of a family of five.

Budget cuts

As soon as the internal audit was complete, the school now has a clear picture of where budget cuts can be executed. Whether to strike out non-performing courses or control utilities, the school can save up and add that up to debt payments.

Same thing with consumers, taking on a frugal living can do wonders for the budget. It can free up some funds that you can redirect to either savings or retirement or emergency funds. See where you can lower down or eliminate expenses altogether. This will do wonders for your financial standing down the line.

Revenue increase

The school will also concentrate on increasing revenues from enrollment and cashing in on non-performing real estate. This means prioritizing those performing sources of income and letting go of those that can be sold. Increasing their revenue will help the company pay for their debt and provide cushion in case the same incident strikes their finances.

We can learn from this move by looking for ways to increase income. It could be from taking on a second job, putting up a side business or doing yard sales. The additional income can be used to pay off debt and save up for the future.

Debt refinancing

There are several options depending on the financial situation. There is no single formula that can apply to all. Each situation has to be carefully studied to discern the most suitable course of action. The school is now refinancing their debt as a way to address their debt problem.

This is one of the many possibilities to achieve debt relief. Consumers can take refinancing or consolidate their debt to make it easy to make one payment every time.

There are a lessons consumers can learn from even the biggest institutions including colleges. They have their own share of financial difficulties and their own take on how to solve them. We can look into their process and learn from their mistakes and apply those debt relief options that works.

Why It’s Crucial To Pay Attention To Your Financial Situation

Have you ever stopped to think what an out-of-control financial issue could do to your life? You need to do this because a serious financial problem could totally disrupt your life, leaving you in a mess that could take years to fix.

shocked man looking at documentsDebt kills

Are you carrying too much debt?

Debt call kill your financial life because what it means is that you’re borrowing from tomorrow to pay for today. Then when tomorrow rolls around it’s likely you’ll have to borrow again and again until you’ll feel as if you’ve fallen into debt hell.

How can you tell if you’re carrying too much debt? There’s a simple formula called the debt-to-income ratio. To determine yours just add up all your fixed monthly obligations – your loan payments, credit card payments, rent or mortgage and so on. Next, add up all your income. If you earn bonuses or commissions in addition to a salary, be sure to include them. If it’s a yearly bonus or if you always get a nice, fat Christmas check from Aunt Jane, divide this by 12 and add 1/12th of that to your monthly income.

Now, divide your monthly fixed obligations by your monthly income to get your debt-to-income ratio. As an example of this, suppose your monthly income is $5,000 and you have $2,000 in fixed monthly expenses. In this case, your debt-to-income ratio would be 40%, which most experts say is too high. In fact, your ratio should be 30% or less and the more less the better.

Of course, you may not have to compute your debt-to-income ratio to learn if you’re carrying too much debt. If you always run out of money before your next paycheck, if you have creditors or debt collectors calling and dunning you for payments or if your credit card bill has gotten so high it could reach the stratosphere, you already know you’re carrying too much debt.

Do you understand compound interest?

One of the reasons you’re having a problem with debt might be that you don’t understand compound interest and how it’s hurting you.

According to the online encyclopedia Wikipedia “Compound interest arises when interest is added to the principal of a loan, so that, from that moment on, the interest that has been added also earns interest. This addition of interest to the principal is called compounding.”

Here’s a real world example of how this works against you.

Let’s say you have $1,000 in credit card debt at an interest rate of 19% and your minimum monthly payment is $30. In this case it would take you four years to pay off the loan and it would cost you $432 just in interest charges. The reason for this is because that $30 minimum monthly payment would not even pay off all of your interest charge for the month and practically none of your balance. So every month you made that minimum payment, you would be paying interest on interest – hence the four years required to pay off the loan.

Have an emergency fund

If you don’t have an emergency fund you’re just asking for trouble. We guarantee that you will have a financial emergency sometime in the next couple of years. It might be your car’s transmission going bad, getting laid off at work or having a serious illness. If you don’t have an emergency fund, guess what you’ll have to do? You’ll have to borrow to pay for it – which will mean more debt piled on top of the debt you already have. The financial experts we respect say you that should have the equivalent of six months of living expenses salted away to carry you through any emergency. If you feel you’ll just never be able to save that much, try for the equivalent of three months of living expenses as this would help you through most emergency situations.

Is A Frugal Budget Really HelpfulMake a budget

Here comes that dreaded B word – budget. If you don’t have one you need to get busy and start creating one. There are two ways to do this – the easy and the hard way. The hard way is to keep all your receipts for 30 days. Then get out your checking account statement. Make a list of all your spending for that month and divide into two columns – “fixed expenses” and “variable” expenses. The fixed ones are those we discussed in an earlier paragraph – your rent or mortgage payment, auto loan payment, credit card payments and so on. Your variable expenses are everything else, including food, entertainment, transportation, clothing, eating out, your utility bill, etc.

Now, add up the two numbers. Can you now see why you’ re having a problem with debt? It’s probably because your expenses outweigh your total income – and maybe by a substantial amount.

Use an app

The easier way to create a budget is to get an app like Mint.com. It has two great features. First, it’s free. And second, it’s easy to use.
To create an account in Mint all you do is type in the numbers of your checking and savings accounts, credit cards, loans and investments (if appropriate). Mint will then gather up all your information and present it to you in one simple, easy-to-understand picture. Mint will know about your past spending because it will have the information from your credit cards and checking account(s). Mint will even organize your spending into categories. You create a budget by setting spending limits in each category. Any time you exceed your spending limit in a category, Mint will send you an alert via email.

Why easier is better

The problem with the “harder” way to budget is that it can be tough to track your spending accurately so you may end up overspending. By the time you sit down to write out what you spent that day you could think you had spent $80 on groceries when you really spent $95. Ditto how much you spent for lunch or hanging out with friends after work. You might even forget to write down your spending for several days, which could tear your budget to shreds.

In comparison if you use an app such as Mint.com or Page Once you will have an accurate record of your spending and will know exactly where you need to make cuts.

Get out an axe

If you truly want to get your debt under control you’ll need to take an axe to your spending. Your goal should be to reduce your spending to the point where it’s at least 20% less than your income. Most people find that food, clothing and entertainment are the easiest categories to cut back on. You will need to continue tracking your spending – manually or with Mint, Mvelopes or You Need A Budget (YNAB) so you will know how you’re doing vs. your goals.

Use a Snowball

One good way to get your debts under control and paid off is by using the “snowball” strategy. This is where you focus on paying off the debt that has the lowest balance first while continuing to make the minimum payments on your other debts. Once you have that debt paid off, you will have more money available to begin paying off the debt with the second lowest balance and so on. This strategy was developed by the personal finances expert Dave Ramsey and has helped thousands of people become debt free. Here’s a short video where Dave explains more about debt and snowballing.

An alternate

As an alternate to this you could begin by paying off the debt that has the highest interest rate first. There are other experts who believe this is a better alternative because it’s the debt that’s costing you the most.

Tips For Tackling Debt As A Couple

couple looking at a laptopWhether you’re married or in a committed relationship, the time always comes when you must discuss the ‘D’ word or the debts that one of you has brought to the relationship. These are never fun discussions and easy ones for you to put off – especially if you’re the one who came to the marriage carrying a lot of debt. In fact, money and debt are two of the most common things that stress relationships. There are statistics showing that couples that have regular fights about their finances are 30% more likely to end up divorced. However, if you’re honest with one another and plan ahead you can alleviate the stress of having to share a budget. And here are some tips that can start the conversation, help you create a plan and work towards becoming a debt-free couple.

1. Be upfront right from the beginning

Sitting down to talk about money can be very stressful but it’s crucial that you have a realistic expectation of each other’s finances. Talk about all those things you’d rather not discuss– your outstanding loans, your income and whether you’re in a position to make progress towards paying off your debt. Of course, talk is the easy part. You’ll then have to make a budget. If you’re planning on sharing a balance sheet you’ll have to factor in things such as your debt payments, where you want to go on vacation and how often you’ll go out to dinner. In other words, get everything in order today before you begin planning for the future.

2. Understand the law in your state

In general, the two of you won’t be responsible for debts incurred before your marriage but there are instances where you may be liable for your partner’s debts. The simplest explanation of this is that if your name is on the form, you are liable for the debt. As an example of this, you’re fully on the hook, whether or not you’re married, if you cosigned any loans with your partner. If you did cosign a loan, you might try to split the payments down the middle. However, if you find your partner can repay only 25%, you’ll have to be responsible for the other 75%.

You should also understand that there is a difference between communal property states and equitable division states. If you live in a communal property state, you will jointly be liable for all debts that were incurred after you married. On the other hand, if you live in an equitable division state and get a divorce, either you and your spouse will have to decide how to handle your joint debts or a judge will do it for you.

3. Have both joint and separate bank accounts

No couple wants to think about this but it never hurts to prepare for the fact that you may eventually need to separate your finances. This makes it a good idea to have both separate bank accounts as well as joint ones – just in case.

4. Make sure your plans include your debts

When the two of you are planning for your future together, don’t forget to include paying off any debts. If you have a heavy debt load, this can actually affect your ability to get a mortgage as well as where you can afford to live and even how you’ll pay for your children’s college.

5. Reduce the amount you pay on your debts.

This may sound very simplistic but it’s important that you do what you can to reduce the amount you actually pay on your debts. You might be able to do this via a balance transfer on your credit card debt, by looking into a student loan consolidation (if appropriate) or refinancing your mortgage. However, be careful because some of these options can end up costing you more than they save. As an example of this, a lower mortgage rate may come with fees and higher property taxes. And debt consolidation can be a good option for some people but it’s not a one-size-fits-all kind of solution.

6. Remember that you’re in it together

Never forget that you are in this together. Don’t let money issues come between you and your partner. You are still together regardless of how much debt you have and how you plan to pay it off. Be supportive and kind even if your partner’s finances are in worse shape. In the event that you’re the one that’s bringing debt to the relationship or marriage, remember that you still have much you can contribute. With some focus and good planning, the two of you should be able to weather any debt storm.

Seven more helpful financial tips for couples

1. Have common financial goals

You should have shared goals when it comes to building a life together. This needs to include everything from buying a home to having children and from their college education to how you will handle each other’s healthcare and retirement. Sitting down to discuss finances may not be very romantic but it’s important to have the same goals. Also, understand that a financial plan is just a beginning point. Life happens, things change and you will need to make adjustments. But a good financial plan will help you remember what your big goals are and how you intend to reach them.

Young couple in financial trouble

2. Share the costs

Whether it’s buying a home or shopping for food you should be able to earn efficiencies by combining the costs. If you combine your savings, you will probably qualify for lower fees on bank transactions and retirement accounts. Personal loan fees and checking account fees can also be combined and should provide significant savings.

3. Take advantage of tax benefits

If you go from filing single to filing married, you may pay a bit more in income tax but you should enjoy some overall tax savings. For example, in the case of the estate tax, the two of you should be able to transfer up to $5 million to each other tax-free. It’s really important to have the ability to transfer assets to each other.

4. Respect your partner’s money skills.

The two of you probably don’t have the same financial expertise and it’s not always the man who has more. The important thing is to let the spouse who has the best money skills lead. For example, one of you might focus on bill paying while the other focuses on investing. Of course, the both of you need to be involved in all major decisions or one of you could end up feeling bitter.

5. Share your goals and diversify assets

If you have money you can invest, the more you can invest together, the more creative you can be in your asset mix. For example, if you combine assets you could diversify more to protect against risk. In fact, to get the most out of your investments, you should pool both spouses’ holdings together into one account. When you have a bigger pool of money, you will have more freedom to add a few growth stocks with upside that you might not be able to put in a smaller account.

6. Support one another through the bitter and the sweet

There are a number of things you can do to take the pressure off one another. In terms of income, women have gotten closer to equality with men. One Wells Fargo survey revealed that 25% of women earned more than their male spouses. If one of you loses your job or becomes underemployed, it’s important that the other be supportive. After all, in a few years the shoe may be on the other foot.

7. Do regular financial checkups

Couples rarely just want to go off and each do their own thing financially. Most couples are more interested in finding a financial path and then staying on it. But this requires ongoing communication between the spouses, creating a sound financial plan and updating it when things change. Although this may sound basic, it’s important that the two of you sit down regularly and perform financial checkups.

Are You Suffering from Debt Overload Syndrome?

woman kneeling over billsThe symptoms of DOS (Debt Overload Syndrome) are easy to diagnose. You might be suffering from night sweats, headaches, an upset stomach, insomnia, muscle tension or high blood pressure. These physical problems are caused when the stress related to being in debt causes your body to release high levels of the chemicals associated with your “fight or flight” response. Fortunately, there are ways to fight Debt Overload Syndrome and here are some of the most popular.

  • Get a debt consolidation loan
  • Take on a second job
  • Borrow from your retirement fund
  • Negotiate with your creditors
  • Snowball your debts
  • Do a credit card balance transfer

A debt consolidation loan

Of all these options, one of the fastest ways to get relief from DOS is to get a loan and pay off your existing debts. The two types available are secured and unsecured loans.

Secured loans

A secured loan is one where you “pledge” or provide an asset as collateral. For most families, that asset will be their homes in the form of a refi, a home equity loan, a second mortgage or a homeowner equity line of credit.

How these are the same and how they’re different

These four types of loans are the same in that they all require you use to your home as collateral and you must have enough equity to qualify for the loan. Here’s how they’re different. A refi is called refinancing your mortgage but really means getting a new mortgage. As an example of how this works, if you had a home worth $200,000 but your mortgage was down to $150,000 you could get a new mortgage at $200,000 and take most of the difference (your equity) in cash and pay off your other debts.

With a homeowner equity line of credit, you borrow against your equity and are given either a plastic card (much like a credit card) or a checkbook that you use to access the money you’ve borrowed whenever you wish. If you choose a home equity loan, you’re also borrowing against the equity in your home but get all the money at once. This is why many homeowners who want to pay off their debts choose it instead of a home equity line of credit. Finally, there is a second mortgage, which is just what the name implies – a second mortgage on your home on top of your existing mortgage.

Why an unsecured loan could be better

There are two major reasons why many people choose to get an unsecured loan. First, they may not own a home or have enough equity to borrow what they would need to pay off their other debts. The second is because with an unsecured loan, they would not be risking their homes as they would with any loan where they had to use their homes as collateral.

Where to get an unsecured loan

If you believe an unsecured loan would be your best option for treating DOS a good place to start would be your bank. If you have a good relationship with your bank and a decent credit score, it might be willing to loan you the money. Unfortunately, you may have to do some “selling” as many banks aren’t very interested in making unsecured personal loans due to today’s low interest rates, plus the paperwork required. If you belong to or could join a credit union, this might be a better option. Credit Unions are owned by their members instead of shareholders so they often have more flexibility in making loans than banks.

Here’s a short video with suggestions for other ways to get an unsecured loan.

Go onlineGeschäftsmann mit Smartphone

The Internet has changed our lives in many different ways. Many of us now work at home thanks to the Internet, do our shopping online, access our bank accounts, communicate with friends, and buy and sell stocks. One very recent change is that we can now get unsecured personal loans from online lenders without ever stepping into either a bank or credit union. There is also a new class of loan providers called peer-to-peer lenders. This is where you borrow money from another person or group of people with no third party financial institution involved. You could go on the Internet, fill out a couple of online forms and find out in literally just a few minutes whether or not you would qualify for a loan. And if you did qualify, you would probably get the money within a day or two. Three of the most popular of these peer-to-peer lenders are Prosper (www.prosper.com), P2P Credit (http://www.p2p-credit.com/) and the Lending Club (www.lendingclub.com).

How much could you borrow?

All three of these peer-to-peer lenders will loan up to $35,000 or much less than you could probably get with some type of secured loan. The interest you would be charged will be anywhere from 6.73% on up – depending on your credit history. To put this another way, your interest rate will depend on the degree of risk you represent. If potential lenders see you as being low risk, you would probably qualify for the lowest or one of the lowest interest rates.

Here are some tips that could help you get a peer-to-peer loan and at a good interest rate.

  • Tell the truth
  • Describe your situation as much as possible
  • Be sure to check your grammar and punctuation
  • Have realistic expectations
  • Think like a lender – the more you can convince the potential lender that you’re a good risk the better
  • Don’t act desperate
  • Respect the contract

Watch out for scam artists

While the Internet has brought us many good things it has also brought us some very bad things in the form of scam artists. If the idea of getting an unsecured peer-to-peer personal loan interests you, make sure you check out the company very carefully before signing up for a loan. The best way to do this is probably to go online and look for reviews. For example, if you type into Google the term “reviews of the lending club,” you would get at least eight pages of results – or pages related to reviews of this peer-to-peer lender. You might also check with the Better Business Bureau to see if it has accredited the company

How To Get Negative Items Removed From Your Credit Report

Credit ReportThere are seven negative items that will have a very damaging effect on your credit score. They are:

  • Debt collections
  • Late payments
  • Foreclosures
  • A bankruptcy
  • A tax lien
  • Lawsuits or judgments
  • Charge-offs

Reviewing your credit report

The only way you can know if you have any of these negative items in your credit reports is to get and review them. The federal government has mandated that the three credit reporting bureaus – Experian, Equifax and TransUnion – must provide you with your credit report free once a year. You can get your reports by contacting each of these bureaus individually or you could get them simultaneously at the site www.annualcreditreport.com. Whichever you choose it’s important that you get your credit reports and that you review them carefully, looking for the negative items listed above.

What you can and can’t get removed

Of the seven items listed here, there are only four you can do something about –IRS tax liens, debt collections, late payments and charge-offs. Despite what some people might want you to believe, there is nothing much you can do about foreclosures, a bankruptcy, a judgment or lawsuit except wait seven years for them to fall out of your credit report

Debt collections

Debt collections is a shorthand way of saying that you had an account that went to a debt collector. Lenders often bundle up debts they no longer believe they can collect and sell them to debt collectors – usually for pennies on the dollar. You’ll know you’ve had a debt collection when you receive a phone call from a debt collector. We’ll assume for the sake of this example that the debt is legitimate and that you must pay it. Since the debt collection agency probably paid very little for that debt, there is room for negotiation. As part of the negotiation you should insist that when you do pay, the collection agency removes the item from your credit reports. Be sure to get this in writing as well as the amount you have agreed to pay.

IRS tax liens

There is a simple way to get an IRS tax lien removed from your credit report. Just pay it off. When you do, the government will remove this from your credit report within 30 days.

Charge-offs

This is basically an accounting thing. If after six months a lender believes that it won’t be able to collect the debt from you, it will bookkeep it as a charge-off. However, this does not cancel your debt. If you pay the debt in full, your lender will probably report it to the three credit bureaus as “paid charge off.” This is certainly better than having the debt listed as a charge-off but not as good as having it removed from your credit report. There are three ways to get a charge off removed and this brief video that explains them.

Late payments

There are three ways to get a late payment removed from your credit report. And it’s a very good idea to do this. Some financial experts believe that a late payment can drop your credit report by as much as 180 points. The first way to do this is to ask for a “goodwill adjustment.” If you have a good credit history with the lender, it may grant you one of these adjustments. What you would need to do is write a letter to the creditor explaining why you were late and asking that it “forgive” your late payment.

Second, you could ask that the item be removed and that in return you will sign up for automatic payments. This can be good for both you and your lender. You will have the late payment removed from your credit report and your lender will know it will be receiving all your payments on time in the future.

Finally, you could dispute the late payment. There are instances where the creditor may have a difficult time verifying the details of your debt. If you find inaccuracies such as the amount owed, the date of the debt, etc., you could dispute the item as inaccurate. If your lender is unable to completely verify the debt, the credit bureau will remove it from your credit report. You can file a dispute with the appropriate credit bureau via letter but will need to have some supporting documentation to prove your case.

The five components of your credit scoreMan climbing credi score numbers

If you are not familiar with how your credit score is computed, it has five components.

  • Payment history
  • Amount of credit used
  • Types of credit
  • Credit history
  • Credit requests

Two of these components – your payment history and the amount of credit you have used account for 65% of your credit score. You can see from this how important it is that you use your credit wisely. The best ways to keep your credit score up above the magic 700 point level are to make all of your payments on time, pay your balances in full every month and keep the amount of credit you’ve used low versus the amount you have available. This is called your debt-to-credit ratio and unlike your credit score, lower is better. As an example of this, if you have total credit limit of $10,000 and have charged only $2000, you have a debt-to-credit ratio of 20%, which would be considered very good. Conversely, if you had used up $6000 of that $10,000, your debt-to-credit ratio would be 60% and this would be bad.

There’s A Debt Relief Solution For Everyone

debt reliefDo you know specifically why you’re having a big problem with debt? There can be a number of different reasons but fortunately, there is a debt relief solution for all of them. Here are six of the biggest reasons why people develop serious problems with debt.

  • Too many different debts
  • Not enough savings
  • Out-of-control spending
  • Financial illiteracy
  • Not earning enough money
  • Too much debt to ever get it paid off

Too many different debts

A major reason why people end up struggling with debt is because they have so many different debts that they simply can’t keep track of them. They lose track of due dates, interest charges and minimum payments until the point where they find themselves drowning in debt. There are several different debt relief solutions for this type of person. One of the most common is to get a debt consolidation loan and pay off all those other debts. This won’t do anything to reduce debts but it makes them more manageable because with this solution, you would have only one payment a month to keep track of and make.

Not enough savings

A second major cause for becoming trapped in debt is when people don’t have enough savings to tide them over in the event of a financial emergency. Sudden emergencies such as an illness, a family setback or an auto accident happen to almost all of us. If this happens to you and you don’t have enough savings to tide you over, the only option is to create debt. Financial experts say you should have the equivalent of six months’ income in a savings account to handle these emergencies. If you can’t save this much, you should have at least the equivalent of three months of earnings in the bank ready to help out.

Out-of-control spending

When you are spending more than you earn you’re creating new debt almost every day. The best way to get out-of-control spending back under control is with a budget. Creating a budget begins with tracking your spending for at least 30 days so you can see where ail your money’s going. This used to be complicated and time-consuming. However, thanks to smart phone apps, this has become much easier. The best of these apps such as Mint and Expensify will not only keep track of your spending but will automatically divide it into categories so you will know exactly where you need to make cuts.

Another surefire way to get debt relief is to simply pay cash for everything. Go to your nearest ATM every Sunday and take out whatever amount of money you think you will need to get through the coming week. Put it in an envelope and then use this envelope as your ATM. Spoiler alert – when that envelope is empty, you absolutely must stop spending. And if you have multiple credit cards, you might shred all but one and use it only in the case of an emergency.

Financial illiteracy

Maybe the harsh truth is that you’re just sort of illiterate financially. To put this a softer way, maybe you simply don’t know enough about money management to be a good financial manager. There’s no shame to this. Smart money management just isn’t a skill we’re born with. But there are many books available that could help as well as websites like www.daveramsey.com, www.bankrate.com and  www.buxfer.com.

Not earning enough moneybudgeting money to conquer debt

On the other hand, maybe you’re a reasonably good money manager but are simply not earning enough to cover your expenses. Maybe you’re currently underemployed as a result of the Great Recession. Or you might be a recent college graduate and have not been able to find work in your chosen field. In any event, your best debt relief solution is to get a second job or find ways to earn extra money. The economy has gotten better over the past year and it should be relatively easy to find a part-time job. If there is some reason why you couldn’t work a second job, there are many ways to earn extra money. The most popular of these include selling stuff on Craigslist or eBay, selling handcrafted and vintage items on Etsy or doing odd jobs.

Too much debt to ever pay it off

Finally, if you are so awash in debt you simply can’t see that you will ever be able to pay it off under any conditions, there are two ways to achieve relief from it. The first is called debt settlement. This is something you could do yourself or you could contract with a company to do it. Whichever you choose, it means negotiating with your creditors to get your debts reduced so that you would be in a better position to pay them off. Companies such as National Debt Relief have helped thousands of American families become debt free through debt settlement and could likely help you as well. Barring that, your only other option would be bankruptcy. While this would leave an indelible stain on your credit report for as many as 10 years, it is a way to get most of your unsecured debts discharged. The most popular form of bankruptcy for individuals is a chapter 7. It will eliminate unsecured debts such as credit card debts, medical bills, personal lines of credit, personal loans and even business debts. However, not even a chapter 7 bankruptcy can free you from paying alimony or child support, paying off student loans debts, lawsuits and debts obtained through fraud. It will not also discharge secured debts like a mortgage or auto loan.

Have You Taken Up Residency In Debt Hell?

stressed businessmanWe’re not sure what hell really looks like in the biblical sense but we do know one thing. If you’re laboring under a mountain of debt, it can feel as if you’ve fallen into debt hell. Fortunately, there are tools available that could help you get out and here are some of the better ones.

  • CNN Money Debt Reduction Tracker – can help you determine how long it will take you to get out of debt, and how much interest charges will cost you if you continue to make only the minimum monthly payments
  • Suze Orman’s Debt Eliminator – fill in the appropriate blanks and this program says it will help you take control of your credit card debts
  • You Can Deal With It Debt Repayment Calculator – shows you how much time and money you would save if you increase the amount of the monthly payment on your mortgage, credit card debt, loans, etc.
  • The Nest Debt Reduction Calculator – just enter your balance and interest rate to see how long it would take you to clear your debt when you’re paying a certain amount each month

Online tools to help with debt

There are also a number of online tools available that can help you deal with your debts and leave debt hell. One of the best of these is Mint.com. It’s a very popular free program that’s available for use on PCs, Macs, and just about every type of smart phone. Mint will help you track your spending then automatically categorize it so you’ll see where your money’s going. In addition, Mint can automatically import data from your checking and savings accounts, credit cards and even your investments. It will help you develop a budget and any time you exceed spending in any of your categories, it will send you an email alert. These tools together can help you cut costs and then use that money to pay down debt.

Go to boot camp

Learnvest.com is a very powerful online tool that can help you get out of debt. It actually offers 10-day “boot camps” that include information on topics such as debt elimination. It will even send you a daily email with instructions on three action items. Plus, you can pay Learnvest from $69-$399 and get a free financial plan and additional advice.

Snowball your debt

The website Whatsthecost.com has a snowballing calculator that will show you when you can become debt free if you use the snowball method of paying off your credit card debts. The way the snowball method works is that you first order your credit card debts from the one that has the lowest balance up to the one with the highest. You then do everything you can to pay off the card with the lowest balance, while still making the minimum payments on your other cards. Once you have paid off the card with the lowest balance, you will have “new money” available to use to begin paying off the card with the second lowest debt and so on. This website will not only show you when you will become debt free following the snowball strategy, it will even recommend which of your creditors you should pay first.

Are you ready for zero?

Www.ReadyForZero.com will help you keep on track by reminding you of upcoming bill payments. It will calculate how much you could save if you accelerate your debt payments and even recommend how you could reduce your debt by taking actions such as refinancing your mortgage.

Win a gift card (or maybe $2 million)

SaveUp.com awards you credits when you view educational videos or reduce your credit card and loan balances. You can then use these credits in daily contests where you might win a prize ranging from a $2 million jackpot to gift cards.

Share with family and friendsSmiling middle-age couple looking at calculator

This one may fall under the category of tough love but the website StickK.com has social networking tools that would allow you to broadcast a goal such as reducing your debts to family members and friends. The site has more than 150,000 users, one-third of whom have chosen to pay a financial penalty to some worthwhile charity if they fall short of their goals.

It all starts with a budget

Regardless of which of these online tools you choose to help you become debt free, everything starts with pinpointing your spending. The basic fact is that you just can’t reduce your spending to pay off your debts until you know where your money’s going and where you could make cuts. This is where budgeting comes in. Whether you choose an online product like Mint.com or use a spreadsheet program, you need to categorize your spending and then create a budget. You also need to compare your spending with your total income. If you find yourself falling further and further into debt each month it’s because you’re spending more than you earn. This means your first goal should be to reduce your spending to the point where it’s less than your monthly income. Following this, you should set a goal such as reducing your overall spending by 20% so you will have money to pay down those debts. This is really not rocket science. You simply need to spend less than you earn so you can use the difference to pay off your debts – and climb out of debt hell.

Finally, here’s a video that explains more about how you could pay off debt using the snowball method and just $200 a month …

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