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10 Things You Can Give Up To Increase Your Debt Payment Fund

frustrated looking woman looking at a laptopDespite the rising confidence of consumers towards our economy, it remains to be a fact that we need to continue working hard to finance our debt payment fund. The recent data from the Federal Bank of New York revealed a continuing rise in consumer debt. The number itself is already alarming. If you take into consideration the long term effects of debt, you will realize just how important it is for us to lower our current debt level.

An article published early this March on USAToday.com revealed how student loans are expected to have a long term impact on our economy. The article mentioned how more 40 million Americans owe $1.2 trillion worth of student loans. It has now surpassed all types of consumer credit – save for housing loans.

It is a devastating picture for young adults to be so buried in debt even before they have been given a chance to prove themselves in the corporate world. While this may drive when to work hard to finance their debt payment fund, it puts them in a compromising position when it comes to investments. At an age when they should have been driving their own vehicles, they could not afford it. Home ownership is also something that is delayed because of this debt. Instead of buying their own home, they are forced to live with their parents just so they can save up and pay down their student loan debts.

If you scrutinize the statistics about debt, you will realize that we need to look for extreme measures to increase debt payment fund. But in some cases you will realize that the changes does not have to be too drastic. You can spot a little sacrifice here and there and it can add up as a huge amount in your monthly credit payments.

10 things you can cut off to have more money for debt payments

Whether you are in the midst or still trying to survive a looming financial crisis, you should know that no small feat is too little for you to try. Do not think that the small savings you get from simple changes will not matter. When it comes to your money, even a penny will matter.

Given that thought, here are 10 things that you may want to consider cutting off to help you grow your debt payment fund.

  1. Less dining out. Compared to the frequency that we spend eating in our homes or in restaurants and the amount that we spend on each, you need to realize that the latter costs us so much more. If you are used to grabbing that take out every night – you need to change that habit. Just do your grocery every weekend and cook your meals at home.

  2. Brown bag your lunch. Another simple change that can accumulate to be a huge addition to your debt payment fund is when you brown bag your lunch to work. If you do not like cooking in the morning, you can prepare your lunch at night. Just heat your food in the microwave when you get to the office. That will really cut back on your daily expenses by $5-$10. If you compute that at 25 days a month, it will add up to $125 to $250. In a year, that can add $1,500 to $3,000 towards your credit contributions.

  3. Cancel gym memberships. Inquire with your local community center if they have their own gym equipment. You can utilize that to save on gym membership fees. This can save you around $100 a month and you do not have to sacrifice your exercise routine. You can also access training videos via Youtube. Jogging and making use of your trusty bike can also help you with your cardio exercises.

  4. Bundle your Internet. You do not really have to cut your Internet subscription but you may want to bundle it together with your phone or cable subscriptions. The savings will not be as great as your other options but it can add up.

  5. Cut the cable. Some people think that they cannot live without a cable subscription when it fact, they can. If you find yourself wanting to catch the latest sports event, why not organize a get together a friend’s house (who has cable) and watch as a group? Not only will it cost you less, it will also give you a chance to bond with your peers.

  6. Eat healthy. If you are wondering how you will cut down on food costs, prioritizing the healthy food choices will do the trick. Believe it or not, the unhealthy food are sometimes the ones that cost you unnecessary money. Why not cut back on potato chips, soda, chocolate and other junk food? Concentrate on rice, beans, vegetables and oatmeal. These will fill you up without having to eat a lot. Not only as your saving, you are taking in healthier food choices.

  7. Avoid new clothes. Unless it is really necessary, do not buy new clothes. Who cares if you wear the same thing over and over again? With all the tips you can see online or in magazines, you can accessorize the same outfit and make it appear like you are not repeating your wardrobe.

  8. Buy used everything. From furniture to clothing and electronic, you may want to consider buying only used things from now on. At least, until you have paid off your debts. If you really have to buy clothes, just buy used and whatever you save should be placed in your debt payment fund.

  9. Use coupons. For some people, coupons have become their way of living. We even have reality shows dedicated to this purchasing tool. The dollar or two that you save for every purchase can really boost your credit payments.

  10. Lower car expenses. You do not have to go to the extreme by getting rid of your vehicle but you may want to stick with just one. Not only will you benefit from the sale of the second car (if you have one), you will also cut back on costs when it comes to insurance, gas, car repairs, etc. You can check how much your car will really cost you if you go to Edmunds.com. They have a true cost to own calculator that can really help you out.

You can opt to choose only a few from these or you can come up with your own set of saving strategies. Do not worry about the amount at first. No matter how small, remember that it will all add up in the end.

Pay off debt fast to avoid the negative side effects

The Bank for International Settlements published a study on BIS.org that discussed the effect of debt in general. The study revealed that when you borrow in moderation, debt can improve your personal wealth and aid in the growth of your finances. But if it is already too high, it can be destructive already. The study mentioned that for household debt, 85% of the GDP is the limit. Anything more than that can drive the consumer down.

In truth, debt can dictate how you live your life. If it eats up a huge portion of your income, you cannot do anything but comply. Even if you want to move to a new job, you need to make sure that the income is enough to pay for your debt payment fund.

But beyond all of this is the alarming effect of debt in your emotional well being. Here are some of the negative effects that you can expect from being in debt.

  • Debt stress. This is a serious problem that borrowers are facing. It can affect not just your everyday disposition, it can also affect your health.

  • Relationships. Money is a powerful influence in a marriage, or any relationship for that matter. If you are not careful, you could end up putting a serious strain in the relationship if you do not deal with your debt trouble.

  • Delay financial investments. Another effect of debt is it can delay your personal wealth. It can keep you from investing in a car, a business or a home. That will seriously set you back.

These are more are some of the reasons why you have to work hard to grow your debt payment fund. Deal with your credit situation before things get out of hand.

How To Pay Off Debt If You Are Not Paid Enough For A Job You Love

telemarketerHow’s this for a difficult scenario. You spent months after graduation stressed out about getting a job despite a tough job market. When you finally found a job opening, you are ecstatic to learn that it is a job that you know you will love to do for decades. But here’s the catch – it will not pay you enough for the type of lifestyle that you want to lead. How will you decide between your dream job and having the finances to support your dream lifestyle?

Most people will actually choose the latter. They will sacrifice their sense of personal fulfillment and happiness with work just so they can earn more money. And guess what the main reason is: to pay off debt. They will lean towards the practicality of being able to pay for their debts instead of pursuing the career that they know they love to do.

But there is some logic to pursuing the job that you love despite not giving you enough money to pay off debt. It may seem impractical but we have some sound reasoning that could help you decide. The work that you will do will take up at least 40 hours of your time every week. Imagine feeling miserable for 40 hours each week. If you think that the lifestyle you can afford will make you happy, think again. In most cases, people who come home from a bad day at work will bring that negativity with them. It will be felt by the people they live with.

But if you pursue a job that you love to do, your sense of personal fulfillment and happiness will be greater compared to the other scenario. And even if you start out with a low paying job that you are passionate about, you will most likely be more productive because of the happiness level that you have towards it.

Do not be too quick to shut out the jobs that you love to do just because it will not pay you well. There are two options for you to make ends meet so you can afford to pay off debt accounts that you owe. You can either earn more or spend less during a debt crisis.

Lower your expenses if you want to increase debt payments

The first option is for you to cut back on your expenses. If you are a new graduate, this may be easier for you. People who are older and have families will usually have a harder time changing their lifestyle to fit their low income. The longer you have grown accustomed to an affluent life, the more difficult it will be for you to make the change. But if you concentrate on the priceless benefit of doing a job that you love, it should be a sacrifice worth making.

The reason why it is difficult to make this transition is because Americans are spenders. That is according to an article published on CNBC.com. The article even cited a statement by former President George W. Bush back in 2006. Apparently, he said that the best help that Americans can give their country is if they went shopping.

In this country, everything around us encourages us to spend. But that is a lifestyle that we can no longer follow. You need to pay off debt by lowering your expenses. That will free up more money from your limited income.

To start, you need to simply concentrate on your priority expenses. According to the latest consumer expenditure data published on the Bureau of Labor Statistics website (BLS.gov), the average expense per consumer in 2012 is $51,442. It is noted to have increased by 3.5% from the previous year, 2011. Here are the top expenses that people usually spend on.

  • Housing: $16,887 (32%)

  • Transportation: $8,998 (17%)

  • Food: $6,599 (13%) (at home $3,921; away from home $2,678)

  • Personal insurance/pension: $5,591 (11%)

  • Healthcare: $3,556 (7%)

  • Entertainment: $2,605 (5%)

  • Cash Contributions: $1,913 (4%)

  • Apparel and services: $1,736 (3%)

  • Other expenses: $3,557 (7%)

If you notice, the food expense is high and that is alright. But we are wasting a lot of money on eating out. You can cut back on expenses if you only opt to cook and eat more at home. Not only that, transportation costs can find more room for savings. You can carpool with colleagues or opt to bike to work – if the distance can make it possible. There are so many ways that you can cut back on your expenses at home. And if you cannot afford, it simply opt not to spend on it. Prioritize what is important like the funds you will use to pay off debt.

Increase income to grow your credit contributions

The second option to make your low income job work for you is to set up side jobs that will earn you more income. In fact, this is common for Americans.

An article published on BostonGlobe.com revealed that Americans hold multiple jobs to help supplement their primary source of income. The article said that 4.9% of working adults hold more than one career. Half of them have one full time job and a part time job. They are called the moonlighters.

A lot of people have opted to increase their income through a second career but we encourage you to set up a passive income source to avoid burning yourself out. The article mentioned that people seek to get payment for the amount of time that they spend working on their hobbies and interest. They will spend some time doing handyman repairs, some will tutor or work on computers in their spare time. Any skill or interest that you have can be capitalized on so you can earn money on side to pay off debt without feeling too burnt out.

Here are some of your options to earn more money.

  • Freelancing. This is when you use your skill to earn money and get paid on an output basis or based on the time that you spend working on a job.

  • Passive income. There are so many options to earn a passive income. You can use a spare room in your home and rent it out. You can let other people rent out your extra vehicle. You can also convert your garage into a storage space for other people to rent out. These are options that will help you earn without necessarily having to work for it all the time. Writing a book and earning off it’s sales is also an option.

  • Earn from a hobby. If you love to garden, offer to plant and take care of the garden of your neighbors. Not only will you be going something that you are good at, you can help your neighbors cut costs on food. You can also offer to cook for colleagues and brown bag their lunch. That will help you earn extra through the lunch payment they will give you. Babysitting is also one way to earn more.

  • Teach a skill. If you are good at playing instruments, you can opt to take on student and teach them what you know. Cooking and baking classes will also work. If you love sports, this is also something that you can coach every summer.

Of course, you can always opt to simply ask for an increase from your boss. Given that it is something that you love to do, you will find the motivation to be as productive as you can be and improve your skill. That can be a leverage in negotiating for an increase.

Debt relief options for low income households

While you work on your options to increase the money that you can allocate to pay off debt, you need to choose a debt relief program to further improve your chances of achieving a debt free life. You have three options to help you out.

  • Income based repayment for student loans. This option will help you set a monthly payment on your student loans depending on the amount that you earn every month.

  • Loan forgiveness for those working in public service. This is mostly for student loans too. You may be qualified for a loan forgiveness if you work in the military or another career in public service.

  • Debt consolidation. For all the other debts that you owe, you can opt to use debt consolidation. This type of debt solution will help you restructure your payment plan so you can make lower monthly contributions towards your debts without being penalized for it. Here is a video that discusses your different options to consolidate debt.

Sacrificing a high paying job to do something that you love is rewarding. Do not worry about how you will pay off debt because you have so many options to help make it a less of a burden.

How To Set Up Your Future Right Be Financially Stable

If you want to secure your future, you need to prepare for it as soon as possible. The uncertainty that you face should prompt you to take care of yourself and the means for you to have a good future. If you are married and with kids, it is all the more reason for you to ensure that you are financially capable of facing any emergency situation.

That is not really complicated to grasp but when you are burdened with debt, that is another story. Having to deal with debt put a couple of obstacles in your way. Given that idea, you know that your debt and a good future does not match.

What is financial stability

What you need right now is financial stability. But what exactly is it?

Financial stability is oftentimes confused with financial independence. In truth, they are quite similar except that stability requires more from you. When you are financially independent, you have the monetary means to buy what you need, when you need it. Being in this financial condition means you do not have to borrow money or ask it from someone else. The same is true for financial stability. However, as mentioned, the latter requires more. To be truly stable means even the unexpected expenses are taken cared of. You have prepared yourself so that you will not be ruined by any financial difficulty that is caused by external forces.

Usually, we get ourselves in debt because of our wrong decisions. However, there are also external factors to consider. These include:

  • an economy collapse

  • rising costs of living

  • a health condition

  • job loss

These are only a few of the things that could happen. This list could be longer if we make a survey of what the Americans experienced during the recession.

The bottomline is this, financial independence means you have the income to buy what you need to survive. When you are financially stable, you have the income and apart from that, you have the savings to finance any unexpected situations that require it.

How to be financially prepared for your future

Obviously, the better option between the two is financial stability. While financial independence may have been acceptable before, we all realized that after the recession, it is really not enough. If you really want to be financially prepared for your future, you know that you need to stabilize it.

Fortunately for you, being financially stable involves two simple concepts: paying off your debts and saving.

Paying off your debts

As mentioned earlier, a good future does not have room for your debt so this is one of the things that you must get rid of. It may seem like a daunting task but if you take it one step at a time, you should be able to accomplish your goal.

You have a lot of debt relief options to pay off your debt. Here are the most common.

  • Snowball method. This requires you to rank your debts according to priority. You pay the minimum for all the debts while putting all your extra money into the priority debt. That allows you to pay that off faster. When that first debt is done, you get the freed amount and you transfer it to the next priority debt while maintaining the minimum on the rest.

  • Debt consolidation. This type of debt relief option can come in two methods: debt consolidation loan and debt management. They will both provide you with a low single monthly payment scheme that is stretched over a longer payment period. The lower contribution is possible because of the longer term and a possible lowering of interest rate.

  • Debt settlement. This debt relief program focuses on debt reduction. You will convince the creditor that you are in a financial crisis so they will allow you to pay only a portion of your debt and have the rest forgiven.

  • Bankruptcy. This is usually advised as a last resort because of the credit score implications. It can go two ways. One is Chapter 7 wherein your assets will be liquidated and used to pay your creditors. Anything not paid will be discharged. The other is Chapter 13 wherein you will be subjected to a repayment plan by the bankruptcy court.

save money signGrowing your savings.

There are many benefits to having more than enough savings and financial stability encompasses all of them. When you have your savings, you can be assured of the following:

  • Medical funding in case someone gets sick.

  • Ability to pay for any home or car related repairs.

  • Protection for your debt payments and other basic necessity costs since emergency situations will not have to disrupt your usual budget.

  • Back up plan for your day to day expenses in case you lose your job.

  • Investment funds – in case you want to grow your money.

These are only a few of what you will get when you have enough savings. If none of these happen, you can always put your savings into your retirement fund. A lot of the pre-retirees are in a difficult financial situation because they did not give much thought to being financially stable. Come retirement, they had to delay it so they can continue working and thus have enough to pay what they owe. Be kind to your future self and see how much you need to retire comfortably. Although you will receive benefits like your social security, that may not be enough.

It pays to do your research and know what you can do to deter any financial crisis. Check out the Benefits.gov website to see the different grants and financial assistance that you can use. Anything that you cannot get here, must be prepared for through your savings. Grow your savings up to an amount that you are comfortable with. It pays to be prepared and nobody ever regretted planning for the future.

How Saving Can Literally Save Your Life

How Saving Can Literally Save Your LifeSaving can literally save your life – no pun intended there. If you list the benefits of saving, you will come up with a really lengthy list. Just as budgeting is important in your financial life, so is building up your emergency fund.

What you have to realize is that the uncertainty of the future prompts us to be prepared. There is always the possibility of a change and the danger there is that there is a 50% chance that it can turn for the worse. If you have a family and people are depending on you, that should make it more of an urgency that you establish financial stability – and that entails an adequate amount of savings.

Why saving should be partnered with debt relief

Even when you are in debt, you need to allocate your limited funds into your savings too. Regardless of the debt relief program that you will use, you need to find a way to grow your emergency fund at the same time.

It had been a subject of debate as to whether you should prioritize your debt payments over saving. Both of them are very important in improving the financial condition of anyone. If you compute the mathematical effects, you will realize that paying for your debts should be the priority. The money you will waste on the interest of your debts is much greater when compared to the interest you will get from your savings account. But if you think about it, saving will help you get out of debt too. Here are the arguments to that.

Your savings will keep you from sacrificing your debt payment fund.

In the event that an emergency requires immediate funding, your restricted budget will require you to sacrifice one or more of the usual expenses that you make. Most of the time, it will be your debt payments – especially when you budget is already down to the bare necessities. That will end up incurring you late penalties and fees that can grow your balance significantly.

Your savings will keep you from borrowing money.

In case you do not want to miss any of the payments that you are making, one option that people usually make is to borrow money to finance that emergency need. Like the first, this will increase your debt amount and that can put you worse than when you started.

Your savings will keep you focused on your debt despite any emergency.

The great thing about your savings is the fact that it provides you with a sense of security that will keep you focused on solving your debt problems. You don’t have to worry about missing out on payments or applying for a new loan. You don’t have to swallow your pride to ask for help from the people around you. The savings that you have built will help you deal with both your usual payments and the emergency situation without any difficulty.

While paying off debt and saving both have strong arguments in terms of who needs to be prioritized, you need to find the resources that will help you do both. In the end, it is not a matter of which is more important. It is how you will find the means to finance both.

How to grow your income to boost saving

The obvious solution to take care of both saving and debt is to grow your income. There are many ways to do this. Here are a couple of suggestions that you can implement.

Spend more time at work.

If the business operations of your employer can accommodate it, you can request to work double shifts or take on more projects in exchange for overtime pay. This will make it easier for you to increase your take home pay because you don’t have to learn a new skill or new processes. You simply have to put in more hours doing what you normally do at work.

Invest in a passive income business.

This is probably the preferred way to increase one’s cash flow. It simply means setting up a business that you do not have to work on constantly for it to earn. Samples of this is a rental income that you only have to invest in once and keep earning from until it wears off. It can also be an online store that you only have to visit a couple of times to make sure that you have enough inventory and the shipping is working well. There are suppliers who will take care of the logistics for you and all you have to do is to manage your orders. The online store remains open and earning even as you sleep.

Earn from your hobby.

If you have a skill that can create products that you know will sell, you can start putting in more hours doing what you love to do. In essence, it will not feel like work at all because you love what you are doing and you are good at it. You can improve your skill and earn a decent income from enjoying your hobby over the weekends. If you are into carpentry, you can offer to make garden furniture for family, friends and neighbors. If you can cook, you can offer to cater to small gatherings.

To help you monitor your savings, you can use one of the many tools available online. We came across an article in US News that lists the free money saving mobile applications that you can download. You can even use the saving calculator from CCN Money to help you boost your retirement savings.

How to Pay Off $15,000 Credit Card Debt in a Year

Unless you’re a professional athlete, cardiac surgeon or industrial magnate, you know that $15,000 is nothing to sneeze at. It takes the average American at least three months to earn $15,000. If you owe this much money to your credit card lenders or other unsecured creditors, you’re probably sick of feeling trapped in a cycle of debt. Fortunately, you can plan your escape without radically altering your lifestyle.get out of debt

If $15,000 feels like a lot of money to you, the idea of paying off such a debt burden in a single year might seem downright impossible. After all, you’re probably barely making ends meet as it is. Siphoning hundreds or thousands of dollars from your household budget into a debt repayment plan each month might seem crazy.

Before you begin your year-long quest to pay off $15,000 in credit card debt, take a moment to assess your situation. In order to make your plan feasible, you’ll need to do several things at once. As with any prudent investment, these things will require a sizable commitment of time, energy and discipline.

For starters, you’ll need to trim the fat out of your household budget. You can accomplish this in any number of ways. The path of least resistance may involve reducing the amount that you spend at the grocery store and controlling your utility costs.

To do the former, conduct your next weekly shopping trip as usual. When you get home, take a look at your receipt and determine exactly how much you’ve spent on brand-name items that have perfectly adequate generic analogs. For instance, you may have spent an extra dollar per box of brand-name pasta. If you bought four boxes for the week, you would have unnecessarily deprived yourself of $4.

On subsequent shopping trips, take care to purchase generic pastas, breads, sauces and other staples. Chances are good that you’ll notice the savings right away.

When it comes to reducing your utility costs, common sense rules the day. Be sure to unplug unnecessary appliances that aren’t being used and turn off the lights in empty rooms. To save water, take shorter, cooler showers and run larger laundry loads. Depending upon the size of your family, you could save several hundred dollars per year by streamlining your home’s utility outlays.

You may also need to find a steady stream of extra income. Even if you have a decent full-time job, it may not be enough to pay the bills. Consider taking on a part-time job in the weekends or evenings. Even an unglamorous position at a local department store or call center might net you an extra $150 or $200 per week. Over time, this inflow could provide a sizable boost to your bottom line.

In addition to your new-found second-job income, you may need to find some novel ways to earn extra spending money. If you live near a college or university, sign up for a few research studies each month. These procedures typically aren’t embarrassing or invasive and may require just an hour or two of your time. In return, you could receive $30, $50 or even $100 per study.

Alternatively, consider tackling some freelance or consulting work in your area of expertise. As long as this work doesn’t conflict with your current job, this could turn into a permanent side gig.

Finally, you’ll need to come up with a sensible method of paying down your existing credit card debts. This strategy could take many different forms. Many borrowers choose to follow Dave Ramsey’s “debt snowball” strategy and pay down their smallest bills before tackling their larger obligations. Others prefer to pay off their high-interest debts as soon as possible. If it’s employed correctly, this strategy could help you avoid paying hundreds or even thousands of dollars in interest charges.

With a little bit of faith and a lot of hard work, you can pay off $15,000 in credit card debt in a single year. Using the strategies outlined above as well as your own well-placed ideas, you could turn the next 365 days into one of the most consequential years of your life.

What’s A “Charged Off” Debt?

past due bills need debt consolidationDo you check your credit report regularly? If you don’t, you certainly should. I’ll talk about that in more detail later. In the meantime if you do check your credit report and you find a debt listed as “charged off,” you might be wondering what this means. To understand this, you have to be familiar with some of the jargon that’s used in your credit report.

What does “charged off” mean?

This can happen if you had an outstanding debt for a long time that you finally paid off. What it refers to is a delinquent account that has been taken off the creditor’s books. Your debt was originally an asset to your creditor. It then charged it off as a loss when you got so far behind in your payments that your lender doubted you would ever pay. Of course, you did pay and that’s great. But that doesn’t change the fact that your lender had charged it off. So if your credit report reflects a debt that was “charged off,” it’s accurate and will show for seven years from the date it first became continuously delinquent.

Will help your future

If you have a debt that was “charged off” then paying it off will not help your past. You’ll just have to wait until seven years have elapsed and it drops off your report. In the meantime there are things you could do to help your future credit. What this amounts to is adding positive information to your credit report to help paper over that one blemish. In addition, because you eventually did pay off the debt, this tells anyone viewing your credit report that you did make good on your debt. This will show that you are capable of keeping commitments even when it’s tough to do so.

When you will see improvement

About two years after that account was charged off, you should start to see some improvement. If you pay your credit accounts on time, this will have positive information to your credit report each month. This will help improve your credit even quicker. You should also keep your credit card balances to less than 50% of your total credit limit. This is another way to help boost your credit score.

How to get your credit report

If you haven’t seen your credit report recently, you should definitely get it from one of the three credit reporting bureaus. They are Experian, Equifax and TransUnion. The federal government mandates that they must provide you with one free copy of your credit report annually. You can get your free credit report by either writing or calling one or all three of these bureaus. Or you can get all three at the same time at www.annualcreditreport.com. However, you may want to get your reports one at a time at three-month intervals, which is a way to monitor your credit year around without having to pay a service for it.

Your credit score

You should also know your credit score. Whenever you apply for credit of any kind, the first thing the lender will do is look at your credit score. If you have a poor score of 580 or less, you are application may be denied. Conversely, if you have a good credit score of 750 points or better, you should be able to get just about any credit you would apply for.

Where to get your credit score

Credit scoring was invented by a company now called FICO. You can get your FICO score at the website www.myfico.com. It’s available free if you sign up for a free trial of the company’s Score Watch program. Otherwise it will cost you $19.95. You can get your credit score from any of the three credit reporting bureaus though you’ll probably have to jump through some hoops to get it free. But it won’t be your FICO score. It will be what the three credit bureaus created and call your VantageScore. However, it should be similar enough to your FICO score for you to know whether you have a good or bad one.

“Should I Save My Tax Refund or Pay Off My Credit Card Debt?”

thinking woman with credit card and laptopThis question was recently posed on a forum I read. It was from a person who owed $4,000 in credit card debt and was going to get a tax refund for about that amount. She wanted to know which would make the most sense – to save the money or to pay off her debt.

A simple answer

The answer to this question is pretty simple. She should pay off the debt. It’s probably costing her 18% or 20% APR (average percentage rate), which is a lot more than she could earn by tucking the money away in a savings account or even a certificate of deposit.

Pay off debt first

Most financial gurus say that you should always pay off your debts before saving or investing money. One of the reasons is what I wrote above – which is your debt is costing you much more than you can earn if you save the money. The second reason has to do with your credit score. There are five factors that determine your credit score. One of them is called “credit utilization.” This is a ratio determined by the amount of total credit you have available versus the credit you used. If this young woman had total credit available of $5,000 and had used $4,000 worth of it, her credit utilization ratio would be 80%, which is much too high. She could improve her credit score just by paying off that $4,000 credit card debt.

If she would rather save the money

While that $4,000 dollars wouldn’t earn much interest, she might feel better and more financially secure to have the money tucked away in a savings. If this were the case, she could look at some alternative ways to earn money and pay off the credit card debt in a year or less. The obvious and simplest way for her to do this is take on a second job. Assuming she had a standard 40-hour a week job, she could find part-time jobs evenings or weekends to supplement her salary. Or she might be able to take on extra shifts at her present job. Working a second job may not be much fun. But if she were to use all the money she earned to pay off her credit card debt, she could get rid of it in a relatively short amount of time.

The best paid second jobs

The second jobs that pay the best are professional-type jobs. People who can do accounting, legal research, tutor students, teach dance or Pilates can earn really good money and get out of debt fairly quickly. However, if you don’t have those kinds of skills, don’t despair. You could probably find a job in the hospitality of food industry that wouldn’t pay nearly as much but remember that you could use everything you earn to pay off your debts.

Go on a budget

If this woman was unable to take on a second job, she should definitely develop and stay on a budget. This is by far and away the best way to manage personal finances and to pay off debt. It will likely take longer to pay off at $4,000 than if she were to get a second job. But creating and sticking to a budget has long-term benefits beyond just paying off debt. It’s really the only way to realize your short-and long-term goals in life.

“Do I Need To Pay Taxes On Money Borrowed from a 401(k)?”

Prepare money to pay tax for the income tax returnsIf you have a 401(k) with your employer, did you know that you can borrow money from it? Well, you can. There are several reasons why this might make sense. First, you can borrow up to $50,000 or half of what you have in your 401(k) account, whichever is less. Second, you do have to pay interest on the money but you’re paying interest to yourself. Plus, the interest you would have to pay will be much less than a credit card. In fact, it will probably be the prime rate plus 1%.

Five years to pay back the money

Another advantage of borrowing from your 401(k) is that you will have five years to pay back the money. Of course, this assumes that you stay with your same employer for the entire five years. If you were to leave that employer, you would then have to pay back the money within 60 to 90 days. Any money you were unable to pay back within that two to three months would be treated as an early withdrawal and taxed as ordinary income plus a 10% tax penalty.

No taxes

You won’t need to pay taxes on any money you borrow from your 401(k), assuming you pay the money back within the five-year time frame. As noted above, you will have to pay interest on the money but you don’t even have to report your loan to the IRS.

The downside

There is a downside to borrowing money from your 401(k) as your interest payments are subject to double taxation. You pay the interest with after-tax dollars and are then taxed again when you withdraw the money in retirement.

Do you have a whole life insurance policy?

If you have a whole life insurance policy and have had it for a number of years, it probably has a cash value. In this case, you might be better off borrowing from it. For one thing, you can take as much time as you like to pay back the money. In fact you don’t have to pay it back at all. However, if you were to die before you repay your loan, the money would be subtracted from your policy’s face value. This means your heirs would get less money. For example, if your policy had a face value of $100,000 but you had borrowed $20,000, your heirs or estate would get only $80,000.

Consider credit counseling

A third option is to go to a consumer credit counseling agency. This is the choice of many families because it’s a way to consolidate debts without having to borrow more money. The best credit counseling agencies are nonprofits and either charge nothing for their services or very low fees. While borrowing from your 401(k) can seem very attractive, it does have its negatives. Given this, it might be best to go to a credit-counseling agency for help before you tap into your retirement fund.

How To Earn More Money To Pay Off Debt

Hotel receptionist part time jobStruggling to make ends meet isn’t a good feeling especially if you have debts. There are different methods you can use to earn extra cash, which you could use to pay off your debts. If you have high interest debts, you should pay off those debts first to make sure your interest payments don’t accumulate.

Planning

Before you take a second job, you should first determine the total amount of money you owe. That way, you will be in a position to come up with a clear plan for the type of job you’ll need in order to raise enough money to pay off your debt.

Change your income tax withholding

If you change your income tax withholding, you’ll have more money in every paycheck. This might not seem attractive to you if you are used to receiving a big refund every year. But using this extra money to pay off your debt is worth it because you will eventually be debt free. Don’t have withheld more than the deductions you’re actually allowed or you could end up owing money to the IRS.

Sell those items you’re no longer using

Sell those things that you have but do not need such as old furniture, curtains and clothes. You will find that getting rid of that clutter can be very profitable. You can sell the things on eBay, or Craigslist. You could also go to garage sales, buy items cheaply and then sell them at a profit.

Earn extra cash with consignment shops and garage sales

This option can be a profitable way to sell items that would not be easy to sell on eBay. It won’t be a steady source of income but the money you earn can be used to pay off debt.

Work online

One of the best ways to earn extra money is working online as a freelancer or an affiliate marketer. Once you get the gist of online jobs, you might even be able to quit your daytime job and take up freelancing full time. The extra money earned should be used to clear your debts.

Look jobs in your area that are part time

You could get a job in a store, restaurant or hotel. The money may not be much but it would help you to finally pay off your debt. The best thing about these jobs is that they are part tim and would not interfere with your regular job.

Yard sales

Yard sales are mainly used to raise money for a charity. However, desperate times call for desperate measures. If you have clothes, furniture or anything else that you bought using your credit cards and that you no longer need or can do without, sell it in a yard sale. Invite your friends, relatives and neighbors. By the end of the day, you will have collected a significant amount of money that can be used to pay off your debts.

Cut back on entertainment

Go out less and eat at home frequently. You will be surprised to find out that the money you spend one night eating out is enough to last you a whole week if you cook at home. You can also cut down on your cell phone minutes and save a few dollars. By saving money in various areas, you will find that you will have extra money you can use to pay off your debts.

Work for neighbors and friends

Distribute fliers around your neighborhood offering to do home jobs such as babysitting and house sitting. Do not limit your imagination. There are a lot of ways to earn extra money.

Budget Worksheet To Help Pay Off Debt

One of the key ingredients to any good personal debt reduction plan is being organized. If you are organized, then you can see your debt and address it. A budget worksheet is the most efficient tool you can use to map out your monthly expenditures and monitor your spending and begin to pay off your debts.

When you start to put together a budget worksheet to help pay off your debt, you need to be familiar with the different kinds of information that the worksheet needs to include. In order for the budget to be effective, you need to account for every penny of your expenses and income. This means that you need to develop a spending budget for entertainment each month and then work to stay within that budget plan.

You can create a budget worksheet using a pen and paper if you choose. But the most efficient way to create a useful budget sheet is by using a computer program. You can create your own computer worksheet, or you can buy a budget worksheet program that is already set up for you. Once you have your format, then you can start plugging in numbers.budget worksheet

- Bills

Your bills come to you in the mail every month and will have all of the information you need to get yourself organized. The payment due dates, monthly minimum payments, interest rates and remaining balances are the most important pieces of information on your bills.

You want to make certain that you pay your bills on time every month to preserve your credit score. It is also important that you pay no less than your monthly minimum payments each month as well. This is to preserve your credit score and prevent collection actions from being taken against you.

As you put your budget together, you will work to create extra money each month to pay off your debt. When you have extra money, you apply it to your credit card bills based on the balance due and the interest rate. It is always a good idea to pay off the cards with the highest interest rates first because those tend to build up debt quicker. If you have two cards with the same interest rate, then go after the one with the smaller balance first. This will free up money quicker and give you more to apply towards your larger debt.

- Expenses

Your monthly expenses are things like gas for the car, money spent on going to the movies and money spent on groceries. At this point, you are only concerned with the recurring expenses that you pay every month. Keep a log of what you spend, and then, after two months, take the average of each category and use those as budget items in your worksheet.

You will also need to create a budget item for money to put into a savings account each time you get paid. It does not matter how much you put away as long as you save as much as you can.

There will also be one-time expenses such as birthday presents or flowers for Mother’s Day. You should set aside five to 10 percent of your income each month to handle those expenses.

- Income

You need to account for every source of income that you have and develop a calendar of when you get paid to fit into your budget. It is important to try and get ahead of your bills because you do not always get paid on days when it is convenient for your bills schedule. To help maintain your payment schedule, you should carefully plan paying bills around the days that you get paid.

Once you have your budget worksheet in place, then you can start to address paying off your debt. But we want you to remember that you are not alone in your attempts to get your debt under control. We can show you how to put together your own budget and get your monthly obligations under control.

We can help you identify ways to lower your debt and we can work on a plan to consolidate your debt through a debt negotiation plan. We will talk with your creditors about your debt work to get you a payment you can live with. It will free up more money for you to use on paying off other debts and getting your obligations under control.

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