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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 …

Are Your Addicted To Borrowing?

Upset man with hands on headHave we become a nation of debt junkies? That’s a harsh word but if you look at the average American’s debt load, you have to wonder if the answer to this question isn’t yes, we’ve become addicted to borrowing.

Proof that this may be true

Here are a couple of facts that support this answer. First in the 67 years since the end of World War II, the outstanding amount of consumer credit has decreased in just two of those years. Second, if you adjust the numbers for inflation, outstanding US consumer credit has increased by more than 3000% in that same period.

The signs that you may be debt addicted.
There are five signs that you might be a debt junkie. The first is do your regularly make just the minimum payment on your credit cards?. In fact your entire business model is built around people like you who make only the minimum monthly payments. These payments are in fact design to keep you borrowing for as long as possible so that you end up paying the maximum amount of interest. In other words, if you think you’re doing a good job of managing your credit card debts because you regularly make the minimum monthly payments, you’re kidding yourself.

Do you regularly roll over your loans

Using a loan as a temporary financial measure can be okay. But if getting loans becomes a permanent part of your lifestyle, the odds are that you’ll never be able to save any money.

Are you taking the maximum term on your loans

When you take out a loan, you’re generally given a choice of how long you will take to repay it. If you take the longest possible term, it will make your monthly payments lower but it also means you’ll pay a lot more interest over the life of the loan.

Borrowing beyond the practical life of an item

If you borrow money to buy a home or a car, this generally makes sense. In fact, some financial experts call this “good” debt in comparison with bad debt. The reason for this is that you’re borrowing money to buy assets that will have a very long lifespan. So, it makes sense to take many years to pay them off. But if you find that you’re borrowing money for things that have a very short lifespan, such as a big-screen TV or a 10-day vacation, you may be creating a lifestyle you can’t sustain.

Do you think you’re really good at juggling your credit card balances?

The credit card networks are currently offering 0% interest balance transfer cards. While this can be a good strategy for paying down your debt, you must be careful that you don’t use a transfer to sustain debt. You also have to watch out for balance transfer fees and, if at all possible, pay off your balance before your interest-free introductory period expires.

Historically low interest rates

One factor that has compounded the problem and cause people to become even more addicted to debt is today’s historically low interest rates. While borrowing money now might make some sense it’s important to make sure you’re not creating a lifestyle that you will no longer be able to afford when interest rates increase to their normal levels, which is bound to eventually happen.

Break the cycle

You’ve probably run into the old, “you may be a redneck if…” Well, you may be a debt addict if … you found yourself answering yes to three or more of these questions. When this is the case, it’s important that you get to work, break the cycle and start paying off your debts before they spin completely out of control.

“Should I Pay Off A Six Year Old Debt Or Just Ignore It?”

woman with help signI saw this question asked in a forum on personal finances. It was about a $400 debt from six years prior. The woman who asked the question reported that the statue of limitations in her state for collecting debts had elapsed. Since her creditor could do nothing to collect the debt she was wondering if she should just let it go until the seven years had elapsed and it dropped off her credit report.

It may be more than seven years

The mistake this woman was making was to think that this debt would definitely fall off her credit report after seven years. The rule is that debt doesn’t fall off seven years after it was acquired. It falls off seven years from the last collection notice or the last time you communicated with the collection agency. If at any time this woman had agreed to a payment plan or made any sort of payment, it would be seven years from then, plus 180 days.

Just pay it

Regardless of when the $400 debt will fall off or not fall off her credit report, the woman should pay the debt. It’s the honorable and ethical thing to do. If she pays it off, she’ll probably feel less guilty. Plus, an old debt like this could come back to bite her on the seat of her pants some day. This is because it might fall off her credit report but that doesn’t mean her creditor will ever forget it.

What happens when you default on a loan?

In this woman’s case, the debt was for cell phone service. While you might not think of this as a loan, it really was. Her cellular service provider had in effect loaned her money to use its service for 30 days (or longer). Credit cards and cell phone services are both technically loans. So, too, are medical bills and personal lines of credit. And how you treat these will have a serious impact – either negative or positive – on your credit score.

Do you understand the importance of your credit score?

If you’re not familiar with a credit score, it is a three-digit number that can vary from 300 to 850. The higher your score, the easier it will be for you to get credit. Conversely, the lower the score the harder it will be for you to get a new credit card, mortgage, an auto loan or any other form of credit. This is because whenever you apply for credit, your lender will first look at your credit score. In fact, in many cases it won’t look at anything but your credit score.

What’s good, what’s bad?

A credit score of 720 and above will generally get you the credit you’ve applied for and the best interest rates. But a score in the low 600s and below will make it difficult for you to get any credit and if you do, it will come with a very high interest rate. This is because potential lenders will see you at a poor credit risk and will charge you more to offset that risk.

Where your credit score comes from

A company whose name used to be Fair Isaac Corporation but is now known simply as FICO developed the idea of credit scoring. It’s based on a formula or algorithm that translates your credit report into a three-digit number. The three credit reporting bureaus, Experian, Equifax and TransUnion have created their own credit score called VantageScore, which is growing in popularity. But most credit providers still rely on the FICO score. So this is the score you should know. You can get it at the website www.myfico.com if you are willing to sign up for a free 10-day trial subscription to its Score Watch program. Otherwise, you could buy it for $19.95.

Help! I Need Money Fast. Should I Get A Payday Loan?”

girl thinkingHer name was Julie. She was 24 years old and a recent college graduate. She had found a job but like many young people these days, it wasn’t in her field of study. She was earning very little but proud of the fact that she was out on her own and not depending on her parents for support.

Then it happened

Julie was doing fine until the day her car broke down. It cost $120 just to tow it to a garage for repairs and another $250 to fix its transmission. She didn’t have $370 saved so was wondering about those fast cash payday loans. She asked. “Is getting a payday loan a good idea or not?”

How they work

The way a payday loan works is very simple. Let’s say Julie decided to get one. She would write the payday loan company a check for whatever amount she needed to borrow, plus the loan company’s fee. The check would be dated to coincide with her next payday. She would get the $370 in cash to get her car fixed. When her next payday rolled around, the payday loan company would cash her check and get its money back along with its fee.

Borrow only what you know you can pay back

The number one rule of payday cash loans is to never borrow more than you know you can pay back. Whatever amount you borrow will be subtracted from your checking account the next time you’re paid. You will need to have enough in your account to pay back the loan and to live and pay your bills for the following one or two weeks.

What happens if there’s not enough money in your account?

Suppose your next payday hits and there’s not enough money in your checking account to cover the check you wrote the loan company. If this is the case, the loan company will simply extend the loan and then charge you another fee.

The cost of a payday loan

The amount of money the payday loan company charges may not seem like a lot until you think about it in terms of its APR or annual percentage rate. Payday loan companies typically charge $15 to $20 every two weeks for each $100 they advance you. This actually translates into an APR of 390% to 780%.

The dangers of a payday loan

The biggest danger of a payday loan is what happens if you can’t pay it back and it keeps rolling over and over. This could cost you literally thousands of dollars a year in fees. And if you give the payday loan company the ability to access your checking account to get its money, you could be opening yourself up for a load of trouble.

If you don’t pay back the loan

It’s important to keep in mind that no matter what they call it, a payday loan is still a loan. If you don’t pay it back the loan company could do what any bank or credit card company might do, which is to turn your debt over to a collection agency. The loan company or the collection agency could even end up filing suit against you.

Consider alternatives

If you need money in a hurry, there are other alternatives to getting a payday loan. For example, if you’re an hourly worker you could ask your employer for more hours. You might also ask for a cash advance on your next paycheck, which would mean paying no “fees” or interest. You might also have something sitting around the house you could sell on Craigslist to get you through that emergency.

Debt Collection And The Intelligent Way To Handle Debt Collectors

man shouting at phoneDid you know there are only three ways that creditors can collect your debt? They can retain a collection agency, get a collection attorney or charge-off and sell your account.

A collection agency

In most cases, collection agencies get a commission on the debts they successfully collect. In fact, most will get 25% to 50% of whatever they can recover.

The collection attorney

When it comes to collecting debts, a collection attorney is the same as a third party collection agency and guided by many of the same rules and regulations as specified by the Fair Debt Collection Practices Act (FDCPA). Of course, an attorney can pursue legal action against you but does have to abide by the same FDCPA rules.

A debt purchaser

When it comes to older or seasoned debts, the standard procedure is for the lender to sell them off to a debt purchaser. Many creditors will package up thousands of accounts and millions of dollars worth of debt and then sell them to the highest bidder. When one of these companies purchases your debt, they become the new owner and must adhere to the same collection laws as a third party.

Don’t make this mistake

If a debt collector contacts you, don’t make the mistake of talking to him without knowing your rights. There are unscrupulous collectors who will lie or try to intimidate you. They are seriously motivated because their compensation is usually based on a percentage of the debts they can collect. They will do and say just about anything to manipulate you into paying your debt. For example, don’t believe any debt collector who says that your only option is to pay your balance in full. This is hardly ever the truth and you almost always have options.

Stop harassing calls quickly

While debt collectors have the right to try to collect from you, they never have the right to harass you. If you know the FDCPA, you can stop any harassment and even phone calls from collection agencies entirely.

Turn the tables

First, you could turn the tables on any debt collector by obtaining as much information from him or her as possible. You can ask questions such as “who did you say you were and what is your company”. You can ask what state the collector is located in and how you supposedly incurred the debt. You can use language such as “according to the FDCPA…” which alerts them to the fact that you are aware of your rights. Or you could say “I do not recall this debt” so the collector is forced to validate it.

Send a cease and desist letter

If this doesn’t stop the phone calls, you need to send a cease and desist letter to the debt collection agency. This letter should include the demand that the agency stop calling you at home, on your cell phone, at work or at any other location. You should send the letter as registered and return receipt requested so that you will have proof that the collection agency actually received it.

Opt for debt settlement

If you’re up to your neck in debts, a better alternative for dealing with them is to opt for debt settlement. Call our toll-free number and let us explain how debt settlement works and how you could benefit from it. Thousands of American families have let us settle their debts and save them thousands of dollars in the process. Plus, we charge nothing up front so you have nothing to lose by giving us the opportunity to help you.