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Want To Save Money With An All-inclusive Vacation? You Need To Know These 10 Facts

What To Do During Your Pre-Retirement YearsHave you ever vacationed at one of those all-inclusive resorts? We have and it can be pretty cool. We’ve liked the fact that you don’t have to budget for meals and some excursions though we’ve always had a pay for our drinks. This brings us to 10 things that an all-inclusive-resort won’t tell you.

1. It’s probably not really all-inclusive

If you have dreams of flying down to Mexico or to a Caribbean island leaving your wallet behind at home, you need to dream again. The idea of an all-inclusive resort was originated more than 60 years ago by Club Med. Its concept was to charge you just one price for food and accommodations. That idea worked so well with vacationers that there are now hundreds of such resorts around the world. For that matter, some luxury hotels and cruise lines have also embraced this business model. But it’s important to understand that the term “all-inclusive” doesn’t really mean everything. You might think of it as “all-inclusive” but with an asterisk. This is because at some resorts the only things that are all-inclusive will be some basic activities and food. Of course, the more upscale the perk, the more likely it is that you will have to pay for it. As an example of this even Club Med now charges extra for things like motorized water sports and spa treatments. Of course, paying for those extras can still be a pretty good deal if it actually includes a lot.

2. An All-inclusive trip may not be cheaper than a regular vacation

The advertisements for all-inclusive vacations typically emphasize that it’s cheaper than arranging your own hotel, meals and excursions separately. But do the math and you may find that an all-inclusive vacation isn’t necessarily the cheapest way to go. Here’s an example of what we mean. There’s a luxury resort in the Dominican Republic that has a four-night “Prone to Play” all-inclusive package that includes drinks, meals, horseback riding, access to non-motorized sports and other activities – starting at $723 a night, based on double occupancy. In comparison, this resort’s standard, non-inclusive package starts at $187 a night for double occupancy. You would have to really pile on the extras to drive up your bill to that all-inclusive price.

3. Unless you like iced tea, you’ll pay more for your drinks

If you’re eyeing an all-inclusive cruise, you may find lower prices but they may come with more limited choices, especially when it comes to food and beverages. As an example of this, one cruise line charges $49 a person a day for its beverage package – that is if you want, beer, wine and mixed drinks. If you don’t buy this package, you will be limited to iced tea, water, regular coffee, lemonade and juice. And if you choose the beverage package, you might have to purchase it for every day of your cruise.

4. Construction could be part of the “all-inclusive”

If you don’t call in advance and ask what’s going on in a resort you could arrive to find out that it’s undergoing construction or renovations. Before you book that vacation you should go to a travel website such as Oyster, Trip Advisor, Zoover or Holiday-Check where you would find information about renovation and construction projects and other potential drawbacks to a dream vacation.

Senior man enjoying tropical vacation5. You may be drenched with extra fees as well as sunshine

Even cruise ships and resorts that are truly all-inclusive often have some extra charges you need to be aware of. As an example of this, some of the cruise lines charge extra for Internet access. There may also be a “resort fee” or “convenience fee.” These are common in the hotel industry and can be as much as $30 a night. The hospitality companies justify these fees by saying that they pay for things like access to the gym, the pool and the Internet.

6. You will tip us whether you are aware of it or not

If you’ve ever taken a cruise, you will know that most cruise lines automatically charge gratuities for their dining and stateroom staff, which is usually about $11.50 per guest per day. However, at some of the all-inclusive resorts such as Club Med, the staff will actually refuse tips as they are already part of their pay. Other resorts will say that while tipping isn’t required they do see it from time to time.

7. Good luck getting a refund even if there’s a hurricane

In some cases, the term “all-inclusive” could include a hurricane. This is especially true in the Caribbean where the hurricane season runs from May until October. If you run into a serious storm, getting a refund can be difficult. There are some Caribbean resorts where your reservation will include a hurricane “guarantee” that means a refund. But this may apply only when there are hurricane-force winds as defined by the US National Weather Service and if it directly hits your resort and interrupts your activities. And even if your resort suffers a direct hit while you’re there, the refund won’t include the cost of your flights.

8. Your travel agent will love you

All-inclusive vacations can be good for travel agents as well as for the resorts. The commissions from these vacation spots can range from 8% to 16%. Plus tour and package reservations (that’s the category that includes all-inclusive resorts), accounted for 31% of US travel agent revenue last year or $10.2 billion. Critics of all-inclusive resorts say that these higher commissions incentivize travel agents to book their trips even if they aren’t the best deal for their customers. What the travel agents say in response is that those commissions don’t come out of the travelers’ pockets because they are paid by the resorts.

9. A low price might equal a low-end experience

If you check travel deal websites, especially for trips within two months of when you plan on traveling, you may find some very deep discounts on all-exclusive cruises and resorts. However, seasoned travel agents will tell you that these deals are often inexpensive for a reason. In fact, the lowest prices tend to appear during hurricane season, for rooms that don’t have really good views or at inconvenient times for families to travel. Before you start searching the internet for deals on an all-inclusive vacation, be sure to check out all the resorts’ website prices as a baseline. And you should definitely contact the resort or the cruise line to confirm what will really be included in a special rate. You could also call the booking company and ask for an explanation of its customer-satisfaction policy.

10. Local color may not be included

An all-inclusive resort may not be the best option if you’re the kind of person who likes to explore other communities and cultures. The reason for this is because all-inclusive resorts tend to offer so much shopping, dining and activities onsite that you may be cut off from the culture of the surrounding country. For that matter, the all-inclusive strategy doesn’t benefit the local economy period. So, if your dream vacation includes sightseeing nearby towns, mingling with the locals, exploring hidden beaches and coves and shopping in quaint, little stores, then an all-inclusive vacation may not be your best bet.

As you can see, all-inclusive resorts and cruises may not be all-inclusive at all. And they may not be your cheapest option. Talk with your travel agent or go online and do your research before you book an all-inclusive vacation. You might actually be able to do better by booking your hotel and excursions and paying for your food yourself. Plus, it might give you a better opportunity to see and experience the local culture.

11 Things Every Parent (And Student) Needs To Know About Student Loans

National Debt Relief now offers Student Loans ConsolidationThere you are the proud parent of a son or daughter who’s been accepted to college and is all excited at the prospect of beginning a new phase in his or her life. Or maybe you’re the son or daughter yourself and you just can’t wait for August to roll around. But have you all calculated what it’s going to cost for four years of college and exactly how you’re going to pay for it.

1. Get Your FAFSA in early

The first thing you need to know is that it’s critical to get your Free Application for Federal Student Aid or FAFSA in as early as possible. If you are counting on student aid you should have already submitted it to the federal government as well as to the school or schools you child chose. The reason for this is because most colleges offer financial aid on a first-come, first-served basis. Schools have a limited amount of funds and once they’ve distributed them, that’s it. No matter how worthy your child might be, if you get your FAFSA in late, he or she could miss out on getting any aid at all – outside of a federal or private loan.

2. Understand the different types of federal loan available

There are three types of federal loans available. The first is a Federal Direct Loan. The second is a Federal Perkins Loan. And the third is a PLUS loan. A Federal Direct loan comes directly from the federal government (the Department of Education.) A Perkins Loan comes from the college or university of your child’s choice and is needs based but subsidized by the federal government. And finally, a PLUS loan also comes from the federal government but it could be your loan and not your child’s.

3. Learn how much you or your child could borrow

If your child is dependent on you and is a first-year undergraduate student he or she can borrow up to a maximum of $5500. The limit for a second year undergraduate student is $6500 and for third year students and beyond, the maximum is $7500. There are other maximum limits for independent students and graduate students and you can learn them by clicking here.

4. Be happy if you get a Financial Aid Shopping Sheet

If you’re lucky, your child’s school will provide you with a Financial Aid Shopping Sheet. This is a relatively new form that will give you a good idea of the school’s net price. It’s the cost of attendance – room, board, tuition, books etc. minus grants, scholarships, work-study and loans. You might think of this document as the school’s discounted sticker price. Unfortunately, about two thirds of all colleges don’t make your net price very easy to understand. In fact, you may have to contact the school’s department of student aid to learn exactly what his or her college will cost.

5. Be aware that you will need to submit a new FAFSA every year.

Like it or not, you will be required to fill out and submit a new FAFSA every year. The government and your child’s school will then once again determine the amount of aid he or she will receive.

6. Watch out for the term “renewable”

If your child does receive financial aid from his or her school, be sure to watch out for the term “renewal.” What this means is that the aid is subject to being renewed every year. Many people have gotten excited when they learned their child had received $5000 in student aid only to later discover that it was for just one year and that it’s renewal will be contingent on the child’s grades.

7. Know the difference between subsidized and unsubsidized loans

There are two types of Federal Direct Loans — subsidized and unsubsidized. Loans that are subsidized are those where the federal government pays the interest charges so long as you or your child is in school. These loans are needs based meaning that you must prove you have a financial need. Unsubsidized loans are ones where you pay interest while in school but there are no eligibility requirements. If you get a subsidized loan, the school will determine how much you can borrow, Also, subsidized Direct Loans are available only to undergraduates that are in school at least half time.

8. Understand you can’t transfer a Direct PLUS Loans

To be eligible for a a PLUS loan you must be a graduate or professional degree student and enrolled at least half-time at an eligible school in a program that would lead you to receiving a degree or certificate. Or you could be the parent (biological, adoptive, or in some cases, stepparent) of a dependent undergraduate student that’s enrolled at least half time at a participating school. Note: if you take out a Direct PLUS Loan in your name, you cannot transfer it to your child at some future date. If the loan is in your own name, it’s yours and you will be required to repay it.

9. Know that a federal student loan is like forever

It used to be said that there were two things in life that were constants – death and taxes. Today, you could add a third to this, which would be student loans. They are unlike any other form of loan in that they cannot be discharged by a bankruptcy (except in very special circumstances). Once your child takes out a student loan, he or she will be required to pay it off in full. Period. There are some very limited ways to get a federal student loan deferred, canceled or forgiven but generally speaking once the funds from a federal loan have been disbursed, you or your child will be on the hook for repayment. And the federal government is not at all forgiving. If your child’s loan goes into default, he or she could end up having their wages garnished or could fall into the clutches of one of those awful debt collectors.

10. Be relieved to know there are tax benefits

The one good news about student loans is that they do come with some tax benefits. For instance, there are two income tax credits that can help offset the cost of your child’s education. The American Opportunity Credit would allow you to claim up to $2500 per student per year for the first four years of school as your child works towards a degree or similar credential. Second there is the Lifetime Learning Credit that allows you to claim up to $2000 per student per year for any college or career school.

If you took out student loans for yourself, your spouse or your dependent, you can take a tax deduction for the interest that you paid on it. This applies to all loans (not just federal student loans) that are used to pay for higher education expenses. The maximum deduction is capped at $2500 a year.

11. Realize that there are to save for your child’s education

While it may be too late for this there are two ways to save for your child’s education that have positive tax benefits. The first of these is the Coverdell Education Savings Account that allows you to save as much as $2000 a year for your child’s educational expenses. Second, most states offer Qualified Tuition Programs (also known as 529 plans. This would allow you to either prepay or save up to pay for your child’s education-related expenses. Then when your child is in school and you begin withdrawing money from your account to pay for his or her expenses, it won’t be taxed.

Here, courtesy of National Debt Relief is a video with more information about 529 plans and how you could use one to help pay for your children’s education.

Three Questions To Test Your Personal Finance IQ

writing on a checkDo you believe you have a high personal finance IQ? Well, if so you can consider yourself to be both smart and well informed. The COUNTRY Financial Security Index found that most Americans just don’t know much when it comes to personal finance. When people were asked about financial facts, this survey found that they would need to devote more time learning about finances if they want to get a decent grade on their report cards.

Here are three of the questions that were asked in this survey. See if you can answer all three correctly. If so, we’ll give you an A on the test.

1. What’s the percentage of your income you should spend on housing?

If you answered 30%, go to the head of the class. Most experts say that you should stick to about this amount so that you don’t become overextended and end up as what’s referred to as “house rich and cash poor.”

Unfortunately, just one in three or 31% of the people that took this test answered the question correctly. That means 69% of us are unaware as to how much we should spend on housing and the impact it has on our financial future. If you didn’t know the answer to this question, don’t despair. You can talk to a real estate agent to get the information you need to buy what will probably be your biggest investment – your housing – to make sure you’re not buying too much. The downside of devoting too much of your income to buying a house is that you may not then have enough money left for retirement and personal savings.

Here’s a video where a mortgage professional explains how she would calculate how much a person could afford to spend on housing including factors such as the down payment.

2. Will you have enough money to retire and live your same lifestyle if you save 10% of your income annually?

The answer to this question is probably not. A comprehensive retirement plan is like a three-legged stool. It’s based on three things – contributions from your employer (in the form of a pension or 401(k)), personal savings, and Social Security. If you are the beneficiary of a really generous employer program and live a modest lifestyle, then saving 10% of your income might be enough. But this is generally not the case for most of us.

How did Americans do on this question? Forty-four percent either agreed that saving 10% a year would lead to a comfortable retirement or were not sure whether it would or not. Men (30%) answered yes more than women (18%).

Also, 43% of those surveyed said that saving for their kid’s college education was more critical than their own retirement savings. And only 30% of Americans were able to tell the differences between a traditional and Roth IRA. Thirty-two percent answered incorrectly and another 30% just weren’t sure.

Why is saving for retirement more important than for your child’s education? The simple fact is that you can borrow for college but not for your retirement. As a general rule, saving for retirement should come first. However, Americans often put a priority on education expenses.

3. Is it better to have less money taken out your paycheck for taxes throughout the year or to get a large tax refund?

The majority (59%) of those surveyed got this question right. It‘s better financially to have less money withheld for taxes. You might think it’s great to get a large refund check in April or May but this is a very costly way to save. This is due to the interest you lose throughout the year plus the things you could have done with the extra money you would get on each paycheck. The good news is that 59% of Americans got the question right; the bad news is that 41% got it wrong. And this is still an important number. In addition, even fewer Gen Y people (46%) said it was better to have fewer taxes withheld. Twenty-six percent were either ensure as to how much they should have in emergency savings or guessed a number that was much less than what’s recommended, which is four to six months of living expenses.

What you don’t know is costing you money

You can be a genius, a rocket scientist or a nuclear physicist but if you don’t know about personal finance, it’s very likely costing you a significant amount of money. If you want to have a secure future, it’s important to improve your financial literacy. You will find it much easier to achieve both your short and long-term financial goals if you know how to prioritize your savings and your spending.

Speaking of saving

If you don’t think that saving money is vitally important to a good financial future, you could take a lesson from Jay Leno who just retired from hosting the Tonight Show. Jay was interviewed recently by Jerry Seinfeld and asked about his secret to making sure that he always had enough money in the bank. It was simple. Jay said just don’t spend it. When he hosted the Tonight Show, Jay earned more than $30 million.

And he saved every penny of it.

So how’s Jay living?

Jay does standup comedy nonstop, week in and week out – even while he was hosting the Tonight Show. Combining that money with his endorsements meant that Jay made about a cool $15-$20 million a year. This is the money he used to live, eat and amass his incredible collection of motorcycles, cars trucks and airplanes. And he’s been doing this since he was a kid. In fact he always had two jobs. He would live off the income from one and bank his salary from the other. This not only ensured that he had money put away just in case but it also instilled in him the lifelong habit of saving that he follows to this very day. For that matter, Jay will likely keep his Tonight Show money stashed away as he is still touring full-time as a comedian.

It’s not just for multimillionaires

Jay’s savings habits are not just for multimillionaires. You could do the same thing. We know it’s tough to find one job let alone two. But it’s doable. You can then do as Jay has done and that’s use the money from one of your jobs to pay your bills, buy groceries and just plain live your life, while you stick the income from the other job in the bank and forget that it’s even there. You might be shocked at how quickly this can add up.
Here’s an example. If you got a second, part-time job for 20 hours a week at $10 an hour, that’s about $150 after taxes that you could stash away every week. This means that after taxes you would have about $7800 saved in a year. Having $7800 in a savings account would be an incredible safety net given the fact that almost anything can happen at any time. But even more importantly, you’d be doubling that $7800 every year at that job or a comparable one.

If you can’t work a second job

We understand that not everyone can take on a second job. Your current job may be so time-consuming or stressful that there’s just not enough of you left over to work another 20 hours a week. But even at that there’s ways to make money and stick it away into savings. One of the best is freelancing on the Internet. There are a huge number of websites that will pay money for various services such as editing, blogging, creative writing or acting as a virtual assistant. Regardless of what you’re an expert in, you should be able to find a site that will pay for your help. And you could do this all at home since its online – in a coffee shop – or any place you can access the Internet.

Rent out a room

If you have an extra room in your house that you’re not using or an insulated basement you could rent it out and bring in several hundred dollars a month. Of course, you’ll want to make sure that the person to whom you are renting is reliable and will pay the rent every month.

But whether it’s through a second job, freelancing on the Internet or renting out a room, if you save 100% of that income it will be easy and more productive than you might imagine. Of course, you may not be able to amass a stable of expensive automobiles like Leno but you should be able to live comfortably, knowing that there is food on the table your expenses are paid and that extra work will keep you and your family secure for many years to come.

Four and A Half Simple Steps Towards Getting A Financial Education

Smiling couple with laptop

There are studies showing that millionaires spend an average of 8.4 hours a month planning and managing their finances. Would you like to be a millionaire? Are you spending eight or more hours a month managing your finances? The mistake many people make is just not devoting enough time to their personal finances. What you should do is set up a recurring date on your calendar for your Money Date. That means allocating about one hour or so a week, which certainly isn’t very much when you consider how important your finances are. When you have your Money Date you should update your family budget, review any expenses you have that are upcoming and pay your bills though you should, of course, automate as many of them as you can. Finally, be sure to review your checking and savings accounts for accuracy and discuss any other financial matters that are pressing.

You could actually make your Money Date fun. You might dance, light candles, listen to music or do whatever it is that would make personal finances fun for you. The reason for this is that the more fun it is, the more likely it is that you will continue to have Money Dates and consistency is what’s critical.

2. Spend 20 minutes a week reading about personal finance

Most experts say that it would be a mistake for you to try to learn all about personal finance at once. Instead, you should break up your learning into palatable chunks. As an example this, allow 20 minutes a week (in addition to your Money Date) to read about personal finance. Just choose just one topic a week and read about it until you understand it thoroughly and then move on to something else. For example, if you would like to learn more about managing credit card debt, you might get the book “The Total Money Makeover” by Dave Ramsey. Among other things, this book will teach you what Dave calls the “snowball” technique for paying off debt. This is where you organize your debts from the one with the lowest balance down to the one with the highest. You then do everything possible to pay off that credit card with the lowest balance while continuing to make the minimum payments on your other debts. Once you have that first debt paid off, you will have extra money to pay off the debt with the second lowest balance. In addition, Dave’s book will also teach you how to save money and create a budget. If you work your way through this book in small chunks, you’ll master at least one thing about personal finance a week.

3. Find a mentor

As you begin to learn about topics such as saving, spending, credit, debt, retirement strategies, investing and so forth, choose people you admire and think of as smart money managers to be your mentors. While there is a lot of financial talk out there, most of what your family members and friends tell you about money is probably wrong. Instead, talk to your mentors and other entrepreneurs that you know that are successful in handling their finances. Be sure to ask them about both their successes and failures.

You can actually learn from the mistakes of others. In turn, this can help you avoid a lot of financial mishaps. Do keep in mind that discussing money can be a sensitive thing for many people. This means you should start small and then try to work your way up into more in-depth conversations. And always thank people for their advice.

4. Test out strategies

Most successful business people learned that the best way to determine if a business idea will work or not is to test it out. When it comes to your personal finances, you should follow the same philosophy. The fact is that some financial strategies work better for some people than others. Think about budgeting as an example. There are dozens if not hundreds of different ways to budget your monthly your expenses and income but you really won’t know what works best for you until you give it a try. You might attempt some different budgeting systems and then discover, as have many people, that the best solution would be a spreadsheet you custom design yourself – based on your needs, your income and your life style.

5. The one-half step

I titled this article “4 1/2 Steps Towards Getting A Financial Education” because there is actually a fifth step but I realize it’s not for everyone. It’s to hire a Certified Financial Planner. A Certified Financial Planner could not only mentor you but he or she would also help you stay on track on your financial journey. Regardless of where you stand financially, it takes dedication and commitment and continued financial education to succeed. If you can afford a Certified Financial Planner and if you believe that he or she could help you better understand personal finance and remain on track in terms of your commitment and dedication, then this could make sense for you. However, if you’re just starting out on your financial journey and you don’t have much money, then you might be better off following the first four simple steps towards a financial education and holding off on hiring a Certified Financial Planner for a few years.

A new free tool called Manilla

A free tool that could help you on your financial journey is Manilla. It would make it easier for you to manage your  bills and other accounts on your mobile, tablet and desktop called Manilla. It’s from the Hearst Company and is free. It’s a secure digital mailbox service where you store all your financial documents. Manilla even includes a Bill Share tool that could help you during next year’s tax season, as it will eliminate the need to gather and organize all of your documents before the April 15 deadline.

Kiplinger’s recently named Manilla to its Personal Finance’s 2013 Best of Everything List. Also, CNBC had it on its list of the 10 best financial apps for 2014. The way it works is that you add all your financial documents to Manilla. It then gives you one secure access point to all your household accounts and services. You can use it to manage and share your household bills, travel programs, entertainment, financial and brokerage, magazine subscriptions and healthcare accounts so that you will always know your balances and due dates. In short Manilla can simplify and organize your financial life. Manilla’s features are even available on the go as there are iOS and android mobile apps available for it that have been rated four stars by its users. This means that you only need one password to get an organized view of all your account information, emails and text reminders to pay bills, check out expiring subscriptions and manage daily deals. Plus, it offers an unlimited amount of storage along with easy document retrieval.

Here courtesy of National Debt Relief is a brief video that explains more about Manilla’s features and benefits …

 

Shocking News – Your Credit Card Purchases Could Be Repossessed!

grandma looking shockedYou recently purchased a washer and dryer for $1100 and now the store wants it back? It could actually happen. Many credit cards – even some of the store cards — permit the creditor to repossess items you purchased if you don’t complete your payment. This is based on an analysis done by CreditCards.com.

What it found

What this analysis revealed is that credit cards are generally called unsecured debts. This means that there is no piece of property used as collateral to secure them. The fact that credit cards are unsecured debt is often used to explain why their interest rates are more than other types of debt like auto loans and mortgages. In comparison, these are called secured debt because they are backed up by collateral such as your house or automobile.

A security interest

However, many cards including some of those medical credit cards can actually threaten to repossess your stuff. This is according to credit card agreements that have been filed with the regulators. In fact, there is in excess of 200 card agreements that give a “security interest” to the bank on items you purchase. This does not include secured cards you would use for rebuilding your credit. But store cards from Big Lots, Costco and Guitar Center that are backed by Capitol One contain this clause. So do some of the credit cards such as the high interest Wells Fargo Financial card.

Easily overlooked

These repossession rights are one of the clauses in credit card agreements that are typically overlooked. The problem is that most people who apply for credit cards do this based on their interest rates or their rewards and skip right past their other terms. When threatened with repossession people tend to say, “Wow! I had no idea I had agreed to that.” But they do agree to this whenever they sign a credit card receipt.

How this works

If you think that if you file for bankruptcy your household goods will be protected, this may not be the case. If you purchased an item with a credit card that has a purchase money security interest, this generally allows the lender to repossess the item until you’ve paid your entire balance. However, in most credit card contracts this security interest phrase is not explained. This can leave the threat of having the item repossessed very unclear. With several store cards backed by Capital One the security interest language provides the bank with a claim on even extended service contracts and insurance as well as merchandise. This term also assigns you part of the responsibility for taking purchases back. What this security clause states is that, “If we take back any good we may charge you our costs and require you to make the goods available at a convenient place of our choice as allowed by law.” For that matter, Capital One even says that the store has the right to contact you via personal visits – at home or at work.

Rarely enforced

Fortunately, threats to seize an item you purchased with a credit card are rarely followed up on. It is difficult to resell a person’s used possessions and repo men must have a court order before the sheriff can enter your house. The reality is that nobody wants used stuff back. But the possibility of having an item repossessed is treasured as a powerful collection tactic. Collectors often use this as a way to obtain a settlement check. This is because households that are debt strapped might rather pay up than risk losing their refrigerators, laptops, HDTVs or washer-dryer combinations.

What to do if threatened with repossession

How serious the threat of repossession could be will depend largely on the amount of money involved. In other words, the threat might be a lot more in the case of a $1100 washer-dryer combo vs. a $300 laptop. One bankruptcy attorney has recommended that if you are threatened with repossession you say you will pay the value of the item as used, which will be much less than the amount being demanded. And while the possibility of having that item repossessed is very low, a debt collector could threaten civil action or possibly even criminal charges.

Credit card fees raise costs

If you carry several credit cards with balances you need to be aware that there are some changes being made in fees that can increase your cards’ costs. For example, on its general-purpose card Citi did away with a deal on late fees it was giving those of its customers with low balances. Prior to this, first-time offenders had a $15 late fee if their balances were below $100. However, this now costs everybody $25 – regardless of his or her balances. In addition, there can now be fees if your credit limit is increased whether you asked for it or not. However, these fees usually are linked to subprime cards such as one from First Premier Bank with its 36% interest rate as well as a pre-account opening fee and an annual fee.

Complex fee structures

While the CARD Act has made it easier to understand credit card agreements in general, there can still be complicated fee structures that make it tough for consumers to understand what their cards are actually costing them. In many cases, people just aren’t equipped to decide what their cards are really costing them. The card agreements themselves are now a bit easier to understand. Since the year 2008, the average credit card agreement has shrunk by about 2100 words, which is 24% skinnier and readability has also improved. Despite all this, many consumers are still shocked when they get down into the fine print of a credit card agreement. The problem is that the credit card companies will always try to bury things. This definitely puts the burden on you as you must read all the fine print in a credit card agreement before you sign on the dotted line to be sure you understand what that card will really cost you.

One good exampleHand holding batch of credit cards credit card debt

One good example of why it makes sense to read the fine print is those 0% interest balance transfer cards. On the face of it they can seem like a very good option. For example, if you’re carrying $10,000 in debt on credit cards with an average interest rate of 19%, you could transfer their balances to a new one where you would pay zero interest for anywhere from 12 to 18 months. This means all of your monthly payments would go towards reducing your balance. If you were to heavy up on those payments you might even be able to become debt-free before your introductory period expired. However, if you read the fine print you’ll find that some of these cards have a balance transfer fee of $300 or even $500. Before you sign up for one of them be sure to do the math, as a transfer fee could easily reduce the amount of money you would save by making the transfer.

Just one missed payment

It’s also important to understand what happens to your credit score if you miss just one payment on a credit card. Most experts believe that this would lower your credit score by as many as 50 points. If you had a credit score of 600 this would drop you from having an “average or okay” credit score to having a “poor” score, which would make it more difficult for you to get new credit. Plus, it would likely increase your interest charges and even the cost of your auto insurance.

Credit scores rule

Whether we like it or not, our credit scores rule our financial lives. In fact, our credit scores are so important that the Discover Card has begun putting our FICO scores on its monthly statements. So if you have a Discover card, you should already know your credit score – for good or for bad. If not, you can buy it on the site http://myfico.com for $19.95 or get it free by signing up for a free trial of its Score Watch program. Or you could go to a site such as CreditKarma.com or CreditSesame.com where you can get a version of your credit score free – though it won’t be your true FICO score.

7 Credit Card Traps You Should Be Careful With

credit card trapHave you ever been in credit card hell? This is a financial state when you realize that your credit cards are not really doing you any good. It is when you are put in a situation wherein you have been sucked into one of the credit card traps that is keeping you buried under loads of financial obligations.

What makes this debt easy to fall into is the fact that you can use it over and over again. It is not like the traditional loan that you apply for once and when you have used up the funds, you have to apply again to get more money. A credit card allows you to use it again and again – that makes it a dangerous habit to get used to. If you are not careful, you could end up burying yourself under a mountain of debt.

In fact, TIME.com reported that the current debt of Americans have reached really high amounts already – scary high rates to be exact. That is how the article described it. They cited data from the Federal Reserve Bank of New York that the current debt is not as $11.52 trillion. It is an amount higher than it had ever been since 2011. Not only that, the article said that it is still rising quite rapidly. The debt increased by $241 billion during Q4 of 2013. That is the highest growth with 2007 – which was the start of the most recent recession.

Does that mean we have to brace ourselves for another financial crisis? That all depends on how we act now.

7 credit card qualities that double as a financial trap

One of the things that you can do is to avoid the tricky debt pitfalls that can ruin your financial situation. In particular, you may want to be a smart credit card user. That begins by learning the credit card traps that will put you in danger of too much debt. Here are the 7 qualities of a card that you need to be careful with. If you do not know enough about them, they can end up putting you in debt.

  1. Minimum payment requirement. The first is about paying only the minimum of your debts. If you compute it, you will realize that it will take you a lifetime (sometimes literally!) to finish paying off your credit card balance in full. That is because the minimum payment requirement is only around 4% of your balance. The rest are finance charges. If you want to significantly reduce your debts, you have to learn how to pay more than the minimum.

  2. Late payments. Another one of the credit card traps that you need to be cautious of are late payments. This is not just the $25 to $35 charge that you will be paying on top of your balance and finance charge. It can also include the APR (Annual Percentage Rate) penalty that you will be imposed with until after you have made 6 payments on time.

  3. Payment processing schedule. In line with number 2, you need to be aware of the specific schedule of your payment cut off. It is usually in the afternoon of your due date. If you sent in your payment even a minute late, that can trigger the late payment fee. You can call the credit card company to waive this penalty fee so that you will not be charged – at least, if you have been late for only a minute or a day. But if you know that you are going to be late, you may want to call your creditor immediately to ask for an extension.

  4. Introductory fixed interest rate. The law allows credit card companies to change your APR anytime they wish. They only have to give you advice ahead of time. Sometimes, credit card companies will offer a fixed interest rate on new accounts but do not be blinded by that. In most cases, that will change after the first year is up. Make sure you are aware of that before signing up for the card. Ask when the new rate will take effect and how high it will be.

  5. Balance transfer. Credit card traps also include the debt relief option known as balance transfers. It is true that a balance transfer can help you get debt relief but you have to understand the rules first. This is a new card that is offered with a 0% interest rate. This is only for a specific period – usually between 6 to 18 months. After that, your rate will change to the usual high interest rate of credit cards. Unless you can pay the credit card debt completely within the promo period or at least a significant part of it, this debt solution will not help you a lot.

  6. Cash advance. Be careful of cash advances in credit cards. While this can help you during emergencies, it will be imposed with very high rates. If you cannot pay it back immediately, it can accumulate quite easily. Try to search for other options to finance your need. Credit card cash advances should be one of your very last options – along the same level as payday loans.

  7. Reward programs. The last of the credit card traps that you may want to be careful with are the reward programs. If you are only getting the card because of the rewards, you need to come up with a better reason than that. Also, you may want to maximize these rewards to benefit from the card.

These credit card traps can put you in debt if you ignore them. Make sure you pay attention to them so they will not become pitfalls.

How Americans use their credit cards

Although these traps will endanger you to fall into credit card debt, the main blame will still be on your own spending habits. It is just in our culture to be spenders. In fact, the US economy relies heavily on consumer spending to thrive. That being said, you can expect that the government, businesses and everything around you will be encouraging you to keep on spending your money.

Based on an infographic from The Credit Examiner, the credit card usage statistics reveal that in 2012, Americans spent their credit cards on the following:

  • 81% on travel expenses

  • 77% on expensive purchases

  • 46% on personal items

  • 44% dining out

  • 38% on groceries

  • 37% on entertainment

  • 20% on household bills

  • 15% on small expenses

Source: http://www.thecreditexaminer.com/2012-us-credit-card-usage-statistics-infographic/

Most of the expenses here are actually unnecessary, if you think about it. In another infographic, The Credit Examiner showed some interesting statistics and facts about overspending in the country. Apparently, in 2012, the picture of consumer spending are as follows:

  • 52% of consumers are spending beyond their means.

  • 21% of them have monthly expenses that cannot be covered by their income.

  • 13.5% of consumers are forced to alter their budgets to accommodate the overspending of the previous month

Source: http://www.thecreditexaminer.com/overspending-in-america-statistics-and-facts/

According to the last infographic, some of the reasons why consumers are overspending is because they do not have monthly saving goals. Another reason is they can easily access credit and cash. It is also noted that a lot of us misuse our credit cards.

It is apparent that managing multiple credit cards without ending in debt is a huge challenge for all of us. But you do not have to get rid of these cards if you do not have to. You just have to learn how to use it wisely.

Here is a video from National Debt Relief for more tips on how to solve credit card debt problems.

5 Career Tips You Might Want to Avoid

Job applicant having a successful interviewIf you’re job hunting you’ve probably read several if not dozens of different tips for winning that perfect job. These career tips can range all the way from how to dress for an interview to how to sell yourself to a prospective employer. While our economy is definitely rebounding there is still strong competition for all decent jobs and, in most cases the whole hiring process will be difficult and challenging. We’ve heard of people who were put through two or more lengthy telephone interviews before they actually saw a recruiter. One friend of ours was told he would have to write and submit an essay before he would be granted just a telephone interview. And if you’re looking for a technical job, you’ll probably have to take some kind of test via the phone before you see a recruiter.

Some career tips can help

Some of the career tips you’ll read or hear can be very helpful. For example, there are good tips available for how to create a winning resume, how to grab a recruiter’s attention and about using networking to find job openings. We’ve also read good tips about the importance of knowing your potential employer, which interview style to use, about dressing conservatively and getting to your interviews on time.

When you have a job

If you already have a job there are also numerous tips and advice you’ve probably gotten from friends or co-workers about your career. Some of these, too, can be helpful. However, there are some you should avoid and here are five of them.

1. Asking for a promotion

You may have been told that you won’t get a raise or promotion unless you ask for it. But many experts say that this is a bad idea. You shouldn’t ask for a raise or promotion even at your annual review. What you should do instead is let your actions speak for you to show you’re a better leader. You need to learn your company’s business inside and out and then create results your boss can’t ignore. You should also find ways to have the most supportive, entrepreneurial and positive spirit in your company. Then, when the company needs a new leader, you will be asked to take on the role. If you think this wouldn’t work in your company, you might need to get a new job with a new company where this kind of spirit and attitude would be rewarded.

2. You need a one-page resume

You may have read or been told that you should keep your resume short – like to no more than one page. Again, this is a tip it’s best to avoid. Whether you’re looking for a job or promotion your resume reflects why you’d be best qualified for it. If you’ve had extensive experience, don’t sacrifice it by just highlighting your skills, expertise and talents in order to cram everything into a single sheet of paper. It’s important that you design your resume specifically to the job you’re applying for and all your job descriptions should reflect your talents and how they would fit the proposed job.

3. A great resume will get you hired

Understand that your resume is a marketing tool not unlike a product brochure except you’re the product. It’s critical that you focus it on getting an interview. Many experts say you don’t have to include every job you’ve had or even put them in chronological order. What you need to get an interview is your resume along with a telephone. That’s your goal. What will get you that great job is not a long, complicated looking resume. It will be a great attitude and your interview. You need to understand that there are various steps in the hiring process and that your resume needs to be a tool that will work well throughout that process. You may need to fine tune it as you move from the recruiter or HR representative through to the team or group leader or division head with whom you will actually be working.

4. Send a thank you note after your interview

You might have been told that it’s a good idea to send a thank you note after an interview. However, many experts say this would be a waste of time. You do need to send a follow-up note but it should be strategic – reinforcing the fact that you are a great candidate for the job. The way you would do this is by answering the unstated question of “why should we hire you.” Remember, again that you’re the product and that you need to market or promote yourself at every step along the way. Think about the job and your interview before you sit down to write that note. You might want to even jot down four or five bullet points as to why you’re an excellent candidate and then write a brief paragraph about each. For example, if one of you bullet points is that you have all the skills the job requires you might write a brief paragraph about those skills and how they would benefit the company.

5. Go with your passion

One of the most frequently heard career tips is that you should “follow your passion.” This could be true if you know your true passion but, unfortunately, most of us either have multiple passions or don’t discover our passion until later in life. In addition, you might have a passion that doesn’t translate well into a practical source of income. As an example of this, your true passion might be photography but you know it would be very tough to become a successful photographer and you could spend many years as that proverbial “starving artist” before seeing any success. What you might do instead of following that particular passion is get a job where you would earn enough during the week that you could spend you weekends sharpening your photographic skills or pursuing whatever is your true passion. In other words, instead of following your passion, try for a job that would allow you to both indulge that passion and live a good life.

Career tips that should help

Conversely, there are numerous career tips that you shouldn’t ignore and that could definitely be helpful. For example, before an interview, you should refresh your memory of your past employers as you will likely be quizzed about companies you previously worked for. And you should be prepared to describe your most important past achievements particularly as to how they relate to the job you’re interviewing for. Be sure to focus on your transferable skills or those skills you learned in your last job that could benefit the prospective employer. If you’re not sure about transferable skills, here’s a short video that explains them.

Second, you should be ready to talk about why the job appeals to you and what sets you apart from other candidates. We know of one ex-marketing manager that was able to land a job as a senior technical writer by stressing in his interview the other skills he would bring to the job – in addition to just the tech writing.

Another good tip is to write down a list of the questions you’re likely to be asked in the interview and your best answers. Your prospective employer will be asking questions to determine whether or not you have the qualifications necessary for the job and you need to be ready to address them. You should also be ready to answer any “embarrassing” questions such as why there’s that chronological gap in your resume (what were you doing those two missing years?) or why you don’t want to reveal the name of that one particular manager.

Finally, keep in mind that an interview is a two-way street. You should have questions ready to help you learn if the company would really be a good fit for you and whether it offers opportunites for the growth and development that’s important to you. Always keep in mind that just because you would be perfect for that job doesn’t necessarily mean the job – or the company – would be perfect for you.

10 Items You Should Never Pay For

grandma looking shockedIt can be hard to save money if you’re not earning a lot to begin with. You know it’s important to stash at least 10% of your earnings into your savings account every month and that you need to have the equivalent of at least three months of living expenses saved up. But there are some months when it’s hard to save anything. You discover your car needs new tires, there’s that unexpected visit to the dentist or maybe you just fell off the budget wagon and splurged on a new tablet computer.

Fortunately, when it comes to finances there are things that you don’t really need to buy that you can either get free or at a very reduced cost. Here are 10 things you should never pay for – at at least never pay full price.

Late fees

There are times when you’ll be hit with late fees that are just inevitable. But it’s really frustrating to have to pay unnecessary late fees. You can avoid this by setting up as many of your bills as possible for automatic payment. In most cases there is no charge for this service and it can ensure that you never again make a late payment on a utility bill, a loan or credit card. However, do be careful. Once you set up automatic payments you will have to make sure that there is enough money in your account to cover them. You don’t want an unexpected withdrawal to overdraw your account so that one or more of your automatic payments isn’t made due to insufficient funds.

Magazines

You just shouldn’t buy magazines one at a time. A single issue off the magazine rack can cost anywhere from $3 to $7. If you really need a particular magazine, it’s much cheaper to get a one-year subscription. Just go to Amazon.com and find the magazine of your choice. You’ll probably find you can save as much as 80% off the cover price by signing up for a year. If you need just one particular issue of your favorite magazine, there’s always the library, which means it would be free. And free is tough to beat.

Trash pickup (big items)

Want to get rid of that old, moth-eaten sofa? Or maybe you have an exercise bike that just doesn’t work anymore. There are services that offer big item pickup where it can probably be removed free if it meets certain restrictions. You should also contact your trash pickup service. These services often have a limited number of “extra” pickups that are part of your trash service. You’re paying for your trash pickup at least technically so make sure that you take advantage of any perks that come along with the service. As an alternative to this, you could sell that item on Craigslist. It’s a great way to get rid of items that you don’t want anymore and turn a profit at the same time. If you do run an ad make sure it includes the fact that the sale is for pickup only.

Bottled water

You could save a few dollars a month simply by carrying around a water bottle. If the water is safe and potable you could fill up your bottle at drinking fountains, which would save the cost of buying a disposable water bottle. For that matter, most convenience stores won’t kick up a fuss if you politely ask to fill up with filtered water from their soda machines. If you feel you absolutely must buy filtered water, most comes cheaper in volume purchases. So either buy the biggest bottle you can and then fill up your reusable bottle to take with you or buy it by the case and really save big.

Audiobooks

The problem with audiobooks is that they are a single use type of purchase. You buy it, listen to it and you’re finished with it – assuming you don’t want to spend a lot of time listening to it again. What’s more likely is that you listen to it once and then archive it. Your local library probably has an online site where you could get the audiobooks that interest you and in the audio format you need and they will be completely free of charge.

Holiday decor at full price

Stores load up on decorations and themed goods for every holiday – whether it’s St. Valentine’s Day, Easter or Christmas. It’s very tempting to buy some of these decorations but you’ll be paying full price for them. Once the holiday is over, prices will be slashed and there will be sales galore. For example, that Halloween scarecrow that cost $50 might now be on sale for five dollars. If you need holiday decorations, wait until the holiday has passed and then take advantage of those amazing discounts. If you have enough room, it’s totally worth storing them for the next year when you were able to purchase them at a 75% discount or even better.

Children’s clothingHow To Teach Your Child Proper Financial Management

If you have children, we don’t have to tell you how quickly they grow out of their clothes.
This is why it doesn’t make any sense to buy them new. Even kid’s clothes that have been worn for a few months should be perfectly fine for your child. There are consignment stores that stock kids’ clothes exclusively. In some cases they will even seem like a new clothing store because that’s how pristine toddlers’ outfits often look.

Appliances and tools you will use only once or twice

Why in the world would you pay good money for a band saw that you will be using only once or twice? Once you’ve used it, it will just sit there gathering dust and taking up space. The same is true of that high-speed blender you need for your birthday party. This is not to say that some tools and appliances can be worth the money, as you probably wouldn’t want to run out and borrow a toaster every morning you wanted a hot bagel. But you should be able to borrow some of these items from a neighbor or check them out from a lending library. Do this and you will be sharing a resource and cutting down on clutter that just takes up space in a closet or cabinet. And you’ll be avoiding the cost of buying an item that has only limited use.

Subscriptions you don’t need

There are sneaky subscriptions that automatically renew every year unless you take some action. If a service is no longer useful to you, make it a priority to get it canceled. This can be another expense that you just don’t need. Take a few minutes to evaluate all of your yearly or monthly subscriptions that automatically renew but that you no longer need and cancel them!

Disposable lunch bags

You should be able to keep and use the same lunch bag for months or even years. In the event that you want to use a plastic or paper bag, there should be extra ones just lying around the house. As an example of this, you could reuse one of those plastic bags that a loaf of bread came in as well as those bags that come with bulk purchases of grains, beans, nuts and so forth.

If you stop to think about it you may find other items you’re paying for that you should be able to get free or at very low-cost. For example, it makes little sense to pay for hardcover books these days. If you have a tablet or eBook reader, you could download the books that interest you in electronic form at a fraction of what they cost in hardcover. We’ve seen some of today’s hottest titles that would cost $15 in hardcover selling for $7.99 (or less) in electronic format. And some older titles can be had for $3.99, $.99 or even free.

A Closer Look At The Current Financial Security Index

man fanning money near his earThere are many measurements used to determine our economic conditions and one of them is the Financial Security Index. The most popular index, or probably they were the one to start measuring it, is from Bankrate.

It is a lot similar to the Consumer Confidence Index that is done by The Conference Board. Although they are opinionated, a lot of experts look at them to figure out the personal feelings that consumer have about their own financial standing. In effect, the experts can also determine their sentiments about the economy in general.

Consumers can also benefit from this knowledge because it will help them make plans to secure their own financial standing. Even if you think that your individual wealth concerns seem trivial in light of the general economic condition, it still adds up to affect everyone else. Think about it. If everyone in your neighborhood is individually confident about their own personal finances, that means the overall economic situation in your neighborhood is great. If all the neighborhood in the county feels the same way, then things are looking great for the whole county.

In 2011, Gallup.com conducted a survey that revealed that the top finacial concern of Americans is lack of money or low wages. According to the report, 17% of the respondents worry about the money coming in every month. Next to that is health care costs and too much debt.

Let us see if the financial security index from Bankrate this February says the same thing.

6 important components of Bankrate’s financial security survey

This particular index is done by Bankrate every month to measure the average feeling of security that Americans have towards their personal finances – at least compared to a year ago. This survey is done by Princeton Survey Research Associates International in behalf of Bankrate.

When the index is 100, it means the index is unchanged. If it is below 100 it shows a declining feeling of financial security. It is is higher than 100, it means an increase. Based on the findings from this survey, the overall financial security index is at 99.3. It is lower than December 2013 and January 2014 but is about the same level as November of last year.

Bankrate.com based the computation for this index on 6 different questions.

Which is greater: credit card debt or savings?

The first question involved the relationship between the debt and savings of the consumer – specifically credit card debt. 51% of respondents mentioned that their emergency fund is bigger than their credit card debt. 28% admitted that their debt is bigger – most of them have a full time job. 17% said they do not have both credit card debt and savings.

How is the current job security compared to a year ago?

The second question involved the job security of respondents. 61% mentioned that they feel the same a year ago – their job security neither improved nor declined. 23% felt that is was more secure while 16% said it was less. This is probably due to the fact that jobs are currently being created and unemployment is lower. The survey revealed that more men feel secure about their jobs compared to women. It is also important to note that low income earner have a higher sense of financial security.

How is the saving level compared to a year ago?

The survey also asked about the state of the consumer’s savings. 47% reported to having the same as 12 months ago. 15% are more comfortable with their savings while 36% are less comfortable. More men also admitted to feeling more confident about personal finances – at least when it comes to their savings. Those who are about to retire are noted to be more apprehensive about their savings. The same is true for low income workers.

How is the debt level compared to a year ago?

The next question focused on debt. 50% revealed that their debt is the same as before. It was also a tie between those who felt more comfortable with their debts and those who felt less comfortable. Both of them are at 24%. It was noted by the survey that the people who earned more felt a higher level of confidence about their debts.

How is the net worth compared to a year ago?

50% of the respondents revealed that their net worth is unchanged and 25% said that it is higher. 18% admitted a lower net worth compared to 12 months ago – most of which are from rural communities. The men also reported to having more net worth than before.

How is the overall financial security compared to a year ago?

Based on the survey, 51% felt the same amount of financial security as before. Those who felt less were 24% and those who felt an improvement is also 24%. It was also observed that more college graduates felt more confident about their financial situation than those who did not get a higher education. It should also be noted that retirees also felt more good about their financial standing than those who are still working.

Source: http://www.bankrate.com/finance/consumer-index/financial-security-charts-0214.aspx  

What does this measurement of financial stability mean for consumers?

So what does all of this mean for consumers? What can be learn from the financial security index provided by Bankrate?

Well compared to the January 2014 financial security index of 102.6, the February results are declining. But does that mean consumers are making more mistakes when it comes to their finances? It is not really fair to make that assumption. If ever, what we have to note is that most of the respondents reported no change since last year. The question here is, should we be happy with a stagnant financial progress that is apparently the norm today?

Here are some of our observations and assumptions about the findings of this particular survey.

  • Consumers are wising up and prioritizing their savings instead of taking in more debt. It is also interesting to note that those who are working have more debt – that could mean that they are more confident to take on debt because they have the means to pay it back. On the other hand, retirees are reported to have more savings – naturally because they need to stretch their retirement fund to last.

  • Compared to the January results, more people feel secure about their jobs. This coincides with the higher employment rate that the country is currently enjoying. More than the added job, the stability of the economy make people more confident about their work.

  • Although the majority is saving, there is still a high percentage of people who are not comfortable with their savings. 36% is still high and that means people should put in more effort to save rather than take in more debt.

  • Those who just entered the workforce are understandably less comfortable with the credit that they owe. Retirees are also admitting to feeling more comfortable with their debt level compared to those who are working.

  • The financial improvements are concentrated on the urban and suburban areas. This is probably because the businesses and job opportunities are focused on the urban areas. That means we still need to help the rural areas find financial stability by giving them access to the same opportunities as those in the urban areas.

How to increase your confidence about your financial standing

It can be generally assumed that the financial security index does not show much improvement as the government tells us. That simply means the consumer is not feeling much of the improvements being proclaimed by our government. Does that mean the government is lying?

Maybe or maybe not. Or they could simply be exaggerating to boost the morale of the people. But truth be told, if you look at the details of this index, you will realize that the effort to improve your financial security really lies in your own actions. If you want to increase your financial security, stop looking at what you see around you and just concentrate on what you can do to help yourself. With that, here are some of our suggestions.

  • Get rid of your debts. First of all, you have to do something about your debts. This can unnecessarily eat up a part of your income so try to solve this problem as fast as you can.

  • Build up your emergency fund. If you can get out of debt while still adding to your savings, that is the best way to achieve financial security fast. Prepare for the unexpected so you don’t have to stress yourself out when an emergency strikes.

  • Save for the future. This is another way for you to secure your finances for the future. Just save for the things that you know you will need to spend on.

  • Plan for everything. Security comes from being in control of every situation. To make that happen, you should try to plan for everything. Being spontaneous is fun but not when it involves your money.

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.

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