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8 Important Tips To Prevent Identity Theft

Man in ski maskIdentity theft has become just about as common as sunshine. It’s almost impossible to pick up a newspaper or watch a news broadcast without learning about another theft. The most recent was the insurance company Anthem where hackers gained access to the company’s computer system and got the personal information of their current and former members such as their names, birthdays, street addresses, email addresses, medical IDs/social security numbers, and employment information, including even income data.

If you are or were a member of Anthem this is a reason to be very concerning. There’s no telling what those hackers will do with the information they were able to obtain but you know it won’t be anything good. If it turns out that the attackers decide to use your identity this could mess up your financial life for many years to come. For that matter the same thing would be true if you weren’t a member of Anthem but had your identity stolen.

You can prevent your identity from being stolen or at least minimize the chances it will happen by following these tips.

#1: Request a 90-day credit alert

You can contact each of the three credit reporting bureaus – Experian, Equifax and TransUnion — and ask them for a 90-day credit alert. While each of these agencies is supposed to notify the other two, it’s probably better for you to contact all three yourself just to be on the safe side.

#2: Get your free credit reports

The law requires the credit bureaus to provide you with your credit reports free once a year. You could get each individually or all three together on the website www.annualcreditreport.com. Most experts feel it’s better to get your reports one at a time at four-month intervals. That way you’re basically monitoring your credit year round and at no cost.

When you get one of your credit reports be sure to review it very carefully. Doctors can make mistakes and so can credit bureaus. If you do find an error you will need to dispute it. The three credit bureaus have pages on their sites for this purpose. However, the experts say it’s much better to write a letter to the credit bureau disputing the item. When it receives your letter it is required to contact the company that provided the information and ask it to verify it. If the company cannot verify the information or fails to respond within 30 days the credit bureau must remove it from your credit file.

If you’d like to know how to write a letter disputing something on one of your credit reports, here’s a helpful video courtesy of National Debt Relief …

#3: Watch your credit card statements like a hawk

We know that when a credit card statement arrives in the mail the simplest thing is to just pay it and move on. However, you really need to review it very carefully looking for discrepancies or charges you don’t remember having made. What identity thieves often will do is add a bogus charge of less than a dollar to see what happens. If you find a charge such as that or a big charge you don’t remember having made, immediately contact the credit card company. Most credit cards limit your financial liability to $50 and some cases won’t require you to pay anything. But it’s critical that you report any suspicious activity immediately so that the credit card company can protect you from further damage.

#4: Keep copies of everything

If your identity has been stolen or you have any disputes with a credit bureau be sure to keep copies of all correspondence and all reports. It’s a good idea to use certified mail so that you will get delivery receipts and can prove that you actually sent the letter or letters. When you make a phone call, keep notes as to what was said and what you and the credit bureau or credit card issuer agreed to.

#5: Sign up for credit monitoring … if it’s free

The experts say that it’s probably not worth the money to pay for credit monitoring, especially since you can basically do it yourself (see #2). However, when a company has been hacked it may offer its customers free credit monitoring. If so, sign up for it, as it can’t hurt. The monitoring service can tell you if a new account has been opened in your name but can’t prevent this from happening and many of them fail to check for things such as fraudulent applications for government benefits, bogus cell phone accounts or claims for medical benefits. Some do have a trained staff that will work with you and your credit card companies and some offer a limited amount of insurance.

#6: After a data breach

If you belong to Anthem or some other company where there has been a data breach these scammers might try to use your data to trick you into giving them more of your personal information. They will then use this information to open a new credit card or steal money from one of your accounts. If you get an email asking for information and with links don’t click on them. And if you receive a letter saying that you should call a certain phone number, don’t do this. It’s a ploy.

#7: Consider asking for a full freeze

You can always ask the credit bureaus to put a freeze or fraud alert on your credit files. A freeze will keep anyone from checking your credit in order to open a new account, which is how identity thieves often operate. This will give you very good protection against ID theft but you need to weigh this against the bother of having to notify the credit bureaus to lift the freeze, which can be very time-consuming. Alternately, you could ask the bureaus to put a fraud alert on your accounts. Lenders could then access your credit reports only if they first verify your identity.

#8: Don’t respond

If you receive a call asking for any kind of personal information, just hang up. If you receive emails requesting that kind of information delete them. Reputable companies do not request personal information from you either via phone or email. If you receive any of these requests you can just about bet it’s coming from a scammer.

A sad fact

It’s a sad fact that we all live in an era where much of our information such as our names, addresses, phone numbers, places of employment and Social Security numbers are all out there somewhere in electronic form, which means this information can be stolen by identity thieves. This puts the burden on you to monitor your credit and keep an eye on your credit card statements. However, it’s a burden you need to accept – as it’s much better to be safe than sorry.

Charge Cards And Credit Cards

woman thinkingYou might think that credit cards are the only way to make purchases using plastic. but you’d be wrong. When it comes to those little pieces of plastic, there are credit cards and charge cards. Both offer certain features but if your goal is to increase your credit score without adding on more debt, a charge card might be your best option.

The similarities

There are a number of similarities between charge cards and credit cards. They both represent a line of unsecured credit provived to you by the company that issued the card. Both mean that you’re essentially being given a short-term loan whenever you use the card and it’s expected that by the end of the month you will repay this loan.

Both charge cards and credit cards are fairly comparable when it comes to offering rewards. You could be getting cash back, points or miles every time you spend a dollar. Which one of these you’d get earn will depend on the card you choose.

Both credit cards and charge cards have very similar fees. This could be an annual fee, a late fee or a fee for a foreign transaction – again depending on the card you choose.

The differences

While charge cards and credit cards can be very similar, they are also very different in some respects. As an example of this, credit cards typically have a limit on how much you can spend. The amount will depend on which type of card you choose and your personal finances. It’s possible that your credit line could be increased over time but other than that it will remain the same as long as you have the card.

In contrast, there is no predetermined credit limit on charge card. The company that issued the card might set some limits on as to how you use it but this is this not set at the time of approval. If you charge a lot this could be a good thing as it means extra flexibility.

Here comes the most important difference. With a credit card you can pay just the minimm and roll the rest of your balance over to the next month. With a charge card you are required to your full balance every month or be charged a fee. The good news is that this means you’ll never have have a balance on which you’ll be charged interest. A credit card provides more flexibility because you’re only required to pay the minimum to avoid problems with the credit card issuer. This means if you have a month where your a little short on money you could pay the minimum payment required and then pay off your remaining balance the next month – of course with interest.

Your credit score and a charge card

Using a charge card will have a different effect on your credit score then when you use a credit card. The reason for this is that 30% of your score is based on your debt-to-credit ratio. This is the total amount you’ve charged on your cards as compared with your overall credit limit. For example, if you have an overall limit of $5000 and have charged $1000, your debt-to-credit ratio would be 20%. Your credit score could take a hit if this ratio creeps above 30% and especially above 40%.
If you don’t know a lot about credit scores, watch this brief video courtey of National Debt Relief.

Not nearly as much of an impact

As you have read charge cards don’t have a conventional credit limit. As a result FICO, the company whose credit scores are most widely used by lenders, looks at them differently. In fact, in terms of the debt-to-credit ratio, charge cards are totally excluded from your credit utilization. This means the amount you put on a charge card won’t have nearly as severe impact on your FIC) score as the same amount put on a credit card. If you were the type of person that runs up a high balance every month, this would be very convenient. You wouldn’t have to worry constantly that a high balance would damage your credit.

You would build a good credit history

Your FICO score will be affected in other ways by a charge card. A full 35% of your credit score is based on your payment history and length of credit. If you were to get a charge card as soon as you can and then make your payments on time every month, this will help you build a solid credit history and a higher credit score. Of course, if you pay off all your credit cards every month this will have the same beneficial effect. But you would still have to watch your debt-to-credit ratio.

Using those credit cards sensibly

If the idea of having to pay off your balance every month doesn’t appeal to you then a credit card would be a better choice. However, if you want to keep from getting in trouble with a credit card you need to use it sensibly. This means making your payments on time.
Every time you’re late making a payment or miss a payment you will not only accrue late fees and additional finance charges but these will show up on your credit report and can significantly reduce your credit score.

Don’t pay just the minimum

Using a credit card sensibly means paying more than the minimum. When you pay just the minimum each month your balance will grow even if you don’t put any new charges on the card and you will end up much more interest. For instance, if you have a credit card with a balance of $5000 at 19% and a $130 minimum payment it would take you until 2020 to pay off the debt and would cost you a total of $7771 including interest. But if you were to pay $200 a month you would have the debt paid off in two years and nine months at a total of $6415.

Read your agreement carefully

To use a credit card sensibly also means carefully reading your agreement and any other materials the credit card issuer sends you. The agreement you sign will spell out things such as your interest rate, when your payments are due and what will happen if you’re late or miss a payment. Your credit card issuers will also send you “changes in terms” notices around 45 days before they actually make changes to your fees, interest rate or other important things about the card. If you read your agreement and those notices very carefully it help you determine whether or not you want to change your spending habits.

Review your monthly statements.

Mistakes can happen and your identity could be stolen. It is important to carefully review your monthly statement as soon as they arrive. Call your credit card company right away if you spot an error. One of the best things about credit cards is that if your identity is stolen they generally cap your liability of $50. And in some cases they won’t even require you to pay that.

Don’t exceed your credit limit

Remember how we said that credit cards have credit limits. If you did read your agreement carefully you will know what your credit limit is and it’s wise to stay below it. If your balance grows to 70% to 75% of your credit limit, this will be a daner sign on your credit report and could damage your score. If you believe there is some reason why you would need to exceed your credit limit, opt in for overdraft protection. If you don’t do this and a charge would take you over your limit, it could be turned down. Plus, you may be hit with one fee per billing cycle.

Store Credit Cards – Great Money Savers Or A Really Bad Idea?

Attractive woman holding small goldern scalesTis the season to be jolly and the season to be pressured by clerks to sign up for store credit cards. There you are at check out ready to pay for your purchase and the bright-eyed clerk asks, “Wouldn’t you like to sign up for our store credit card and earn this wonderful discount? After all, you’re buying the stuff anyway why not save some money?” We’ve seen discounts as deep as 25%, which could be a substantial savings if you’re buying $200 worth of kids’ toys. Or even better if you’re buying a $500 tablet.

Before you sign on the dotted line

As tempting as that discount might be here’s something to consider. One recent survey found that nearly half – 49% – of those that had signed up for a store credit card ended up wishing they hadn’t. Given this statistic it’s clear that you should think the matter through very carefully before you sign on the dotted line. And you should never feel unduly pressured to get that store credit card. If you see that one of your favorite stores is offering a great discount when you sign up for its card then think this through carefully while you’re outside the store and not when you’re at checkout. Don’t get us wrong. Signing up for a store credit card can actually be a very good decision. Or it can be a terrible one. What’s the difference? It will depend on how you pay your bills and your current financial situation.

Understand what you’re signing up for

If you sign up too hastily without understanding the card’s terms and conditions you could end up doing yourself a world of hurt. Store credit cards have seriously high interest rates or almost as high as the interest rates paid by subprime borrowers. Another survey done recently found that America’s largest retailers had an average APR of 23%. And this is about eight percentage points higher than the national average for all credit cards. What this means is that if you fail to pay off that purchase in a couple of months you’ll have basically given back the discount your earned by signing up for the card in the first place. As an example of this let’s suppose you put $1000 on that brand-new store card. If you pay just the minimum balance it would end up costing you $840 in interest and take you more than six years to pay off the balance. In fact, the retailer can actually make more money off the interest than in selling you the merchandise. Know this and you will understand why they are so eager to give you that discount when you sign up for their store card.

More stuff to consider

Do you pay off your credit card balances in full every month? If so and you’re not about to buy a car or take out a mortgage soon and you could save a lot of money by signing up for that store card, then maybe you should do it. In addition, getting a store card and using it to establish credit can be a good thing because our retailers are often more lenient about whom they let have their store cards than if you were to try for a Visa, MasterCard or Discover card. In fact, if you have a low credit score you have a much better chance of landing a store credit than one of those “universal” cards. If you keep your balance low and pay off your bill at the end of every month you’ll be well on your way to a better credit history.

Don’t get a bunch

No matter how much money you could save by signing up for a bunch of credit cards just in time for your Christmas shopping it’s like the old, “Just say no.” Why is this? Because it could seriously damage your credit score. And keep in mind that if you want to get a store card that’s co-branded with American Express, Visa, Discover or MasterCard, you’ll still need to have very good credit.

What if you don’t have good credit?

If you don’t have good credit than, as noted above, a store credit card could be a good choice but only if you use it sensibly and pay off either the entire or most of the balance at the end of every month. Beyond this, you should get to work improving your credit worthiness. Unfortunately, there’s very little that can be done about this short-term. A full 35% of your credit score is based on your credit history and there is nothing you can do about this. It is what it was. But 30% of your credit score is your credit usage and this is an area where you could do some good. Credit usage is quite simply how much credit you’ve used versus how much you have available. This is usually expressed as your debt-to-credit ratio. Let’s say you have $10,000 in total credit available and have used $5000 of it. Your debt-to-credit ratio would be 50%, which could have a negative impact on your score. If you could pay down some of that debt or get your credit limits increased so your ratio drops down to less than 30% this could cause a nice uptick in your credit score.

The other three components

The three other components of your credit score are length of credit history, new credit and types of credit used. Once again there’s not much you can do about your length of credit history but you could influence the types of credit used by getting a new auto loan, a personal loan or even a home mortgage. What new credit really means is the number of times you’ve applied for new credit. This gets back to the point made earlier about not applying for too many credit cards during this holiday season.

woman with laptop and credit cardBeyond this you will just need to make sure that you pay off each credit card at the end of the month if it all possible. One trick that’s helped many people is setting up alarms on their computers or smart phones to remind them when their payments are due. Other people have had success by taking all of their bills when they come in at the first of the month and then sorting them into two categories – those that need to be paid at the first of the month and those that need to be paid in the middle of the month. They then organize them in such a way that they pay about the same amount at the first of the month and at the 15th. If you have bills with due dates that don’t fit this scheme then contact your creditors’ customer service departments and you should be able to negotiate a change in due dates. Be sure to mark the bill paying days on your computer or smart phone – the first and the 15th. When the time rolls around reserve an hour or so to review your bills and get them paid. Finally, whenever possible, sign up for online bill pay as this will not only save you a stamp it could end up saving your credit score.

Finally, here are some more good tips for bill paying courtesy of National Debt Relief …

Everything You Need To Know To Deal With Nasty Debt Collectors

stressed old manWhat’s worse then being seriously in debt?

It’s being seriously in debt and having to deal with debt collectors.

The problem is that these people usually work on a commission basis and have a quota. If they want to get paid and keep their jobs they must collect money from you –by hook or by crook, which is an old English phrase that means by any means necessary. And trust us. Debt collectors will use any means necessary up to and including threatening to go to your employer or your relatives, to take you to court, to have you arrested or to sue you.

“I’m mad as hell”

If you’re one of the millions of Americans being harassed by debt collectors you may have reached the point where you’re like the character Howard Beale in the movie Network and are saying to yourself, “I’m mad as hell and I’m not going to take this anymore.”

Well, you’re right. You don’t have to take being pressured by debt collectors anymore. You have rights and when you know what they are you can either stop any more phone calls or at least negotiate favorable settlements of your debts.

The first thing to do

First of all, a debt collector has to be able to prove the debt is actually yours. We live in a nation of more than 330 million people, many of whom have the save names and have done business with the same companies. Last I looked there were at least 30 other people just on Facebook with the same name as mine and isn’t John Smith, Bob Jones or Tom Brown.

So the next (or first) time a debt collector calls, make him prove the debt he’s trying to collect is yours. You can ask him for the name and address of the original creditor and the exact amount you owe. If the collector is unable to provide this information, he has five days to send you a written notice with the information you’ve requested. You could also dispute the debt by writing a letter to the collection agency asking that it verify the debt. This could mean requesting a copy of the statement showing your balance, a copy of the original credit agreement or any other information you deem pertinent. Once the collection agency receives your letter it has 30 days to respond during which time it is not allowed to contact you.

If the debt is really yours

If the debt collector is able to prove the debt is yours, you have a couple of choices. First, you could try to settle it for less than you owe. One thing the debt collection agency doesn’t want you to know is what it paid for the debt. In most cases the original creditor (think bank or credit card issuer) bundled up a bunch of debts it had written off and sold them to the collection agency for pennies on the dollar. If your original debt was for $500, the collection agency mighjt have paid five dollars or even less for it. This means there is room to negotiate. You could offer to settle the debt for, say, $50. The collector can then either accept your offer or make a counter offer. In either event the odds are that you’ll be able to settle the debt for much less than its face amount.

Make the collector stop calling youDebt collector hollering into mic

A second alternative is to make the collector stop calling you and then just wait to see what happens. Yes, you read that right. You can make the collector stop calling you. In fact, all you need to do is write and send his agency a cease and desist letter. You can find samples of this letter by clicking on this link. Be sure to send the letter certified and return receipt requested so that you can prove the collection agency actually received it.

If the collection agency does indicate that it received your letter (which it may not do) it can contact you just one more time to either acknowledge it won’t be contacting you again or to inform you what legal action it will take next such as suing you.

If you’re lucky

Once the collection agency has stopped contacting you, start holding your breath to see what it does next. If you’re lucky it will simply go away and you won’t hear from it again. If it’s a big debt you may not be so fortunate. The agency might sue you or sell your debt to yet another collection agency, which would then start harassing you.

Get an attorney

A third alternative is to hire an attorney to represent you. Of coarse, you wouldn’t want to do this unless it was a very large debt as you will have to pay the attorney somewhere between $100 and $500 an hour for his or her services. But once the debt collector knows you are being represented by an attorney, he will generally stop calling you and will contact your attorney instead. This means the debt collector must know your attorney’s name and contact information. If you do have an attorney and receive a call from a debt collector make sure you tell him that that you are being represented by an attorney and that he should start contacting him or her and not you.

Understand your rights

Assuming a worst-case scenario – that the collection agency continues to harass you over the debt – it’s important to know what it can’t do. This is covered in a law passed by Congress several years ago called the Fair Debt Collection Practices Act (FDCPA). It sets out what a debt collector can and can’t do. The most important things it can’t do are …

  • Call you prior to 8:00 AM or beyond 9:00 PM unless you give the collector permission to do so
  • Contact your employer unless your debt is past-due child support
  • Call you where you work if he knows your employer doesn’t want you to be contacted there
  • Send you a postcard or envelope that clearly indicates it had been sent by a debt collector
  • Call your neighbors, friends or relatives about the debt in order to embarrass you into paying it
  • Use an envelope or post card that makes it appear that it came from a court or government agency
  • Call you frequently during a relatively short amount of time as this constitutes harassment and harassment is illegal under the FDCPA.
  • Force you to accept collect calls from the agency
  • Swear or insult you when you’re talking or threaten to ruin your reputation or have you jailed
  • Try to collect more than your debt unless the contract it has with the creditor allows this

What to do if the debt collector violates the FDCPA

If the debt collector does any of the things listed above, you could file a complaint with the Consumer Finances Protection Bureau either online or by calling (855) 411-CFPB (2372). You can report any problems you’re having with a debt collector to your state’s attorney general. You might also be able to sue the debt collector in your state’s or federal court. If you are successful you could win up to $1000, which is not a huge amount but you would also win a lot of self-satisfaction in having beaten the collection agency.

Are You Being Stalked By Zombie Debts?

worried coupleAs a nation we must either love or at least be fascinated by the idea of zombies. As evidence of this two of the most popular programs on television are The Walking Dead and Z Nation. There have also been Shaun Of The Dead, Zombieland, 28 Days Later and Army of Darkness. These are fun films and programs because they allow us to experience horror vicariously without having to risk our own lives. However, there is a form of zombie that can be an actual horror. They are called zombie debts because they aren’t completely dead even if you’ve had a bankruptcy.

How can this be?

Surely this can’t be true. Once you’ve gone through a bankruptcy and had your unsecured debts such as credit card debts and personal loans discharged you should be free of them, right? Well, maybe not. Tens of thousands of us who went through bankruptcy are still being haunted by zombie debts or debts that weren’t killed by bankruptcies – and sometimes as long as a decade after the bankruptcy. This is because some of the country’s largest banks are ignoring bankruptcy court discharges or at least that’s what federal and state officials suspect. Although debts that have been discharged in bankruptcy are supposed to be void, some banks are apparently keeping them alive and eventually forcing people to make payments on debts that they do not legally owe.

Shaking the foundations of bankruptcy

You may not be aware of this but our right to declare bankruptcy is guaranteed in the U.S. Constitution. Our Founding Founders felt that everyone should be able to get a fresh start by having their debts discharged and wrote this into the Constitution. However, there are some banks that are shaking the foundations of bankruptcy by refusing to correct their credit reports to reflect the fact that a debt or debts were discharged through bankruptcy. Where the pressure comes in is that if you know that you can get a clean credit report without paying the debt, you are likely to do so.

Mutually beneficial

The problem is that there can be a mutually beneficial arrangement between banks and debt buyers. When banks receive payment from borrowers they send these along to the debt buyers. This makes these buyers more willing to buy portfolios of soured debts – including those that will wind up voided in bankruptcy.

A heavy toll

A bankruptcy takes a heavy toll on a person. The court will examine every bank account, possession and bill with a fine-tooth comb before they issue the discharge injunction, which is what eliminates certain debts and grants a fresh start. However, all this brain damage is worthless when lenders ignore the fact that your debts have been discharged.

Why this happens

When a borrower has a debt discharged in bankruptcy, the creditor is required to update its credit reports to show that the debt is no longer owed, which theoretically removes any notion of “past due” or “charged off.” However, some banks routinely don’t do this. What the bankruptcy judges suspect is that these are not clerical errors because the banks are refusing to fix the mistakes unless the borrowers pay the “zombie” or discharged debts. And many do end up paying. This is because they have so much at risk as a tainted credit report, which shows they still owe a debt, can cost them a house, a new loan or a job. Other people make payments on these debts they no longer legally owe simply because they don’t understand the practice is illegal. Or they can’t afford to hire a lawyer to litigate the matter.

A shady practice

Debts that have been written off are called stale debts, which can even include those that have been voided through bankruptcy. The motivation for this is that when a bank sells off debts to a debt buyer, it usually can keep any payments it received 18 months or later after the sale. In other words if it’s two or three years after your bankruptcy and the bank refuses to remove the debt unless you pay up it can then keep any payments you make. However, before that it must send any payments it receives to the debt buyer. This is why some banks sell off debts to debt buyers – at deeply discounted prices – that are long overdue and that eventually end up being voided in bankruptcy after the sale.

Debt Scavengers

The companies that buy these debts are generally called debt scavengers as they scavenge for debts. Scavengers often pay less than a cent for every dollar of debt, which means they can make money if they collect only a small fraction of the debt.

Lying salesman or businessmanIn addition to trying to collect debts that have been discharged through a bankruptcy, they also may try to collect debts where the statute of limitations has run or a debt that isn’t really yours. This could be the debt of a person with a name similar to yours, the result of a mistake made by a creditor or even due to identity theft.

What you should do

If you find that you are being haunted by a “zombie debt, the first thing to do is never acknowledge that it’s your debt, which means not saying anything that would even infer that you understand it’s your debt. Second, be sure to watch out for the tricks played by scavenger collection agencies. For example for example, the collector might try a bait and switch credit card where they tack the old debt on to a new card that has offers great benefits.

Third, ask for everything in writing as proof that the debt is really yours. This could be the credit card agreement you originally signed plus your account history. If the collector cannot prove the debt is yours, it doesn’t have the right to take any action against you

Failing this you will need to write a letter to the collection agency where you explain that you are not responsible for the debt, that you don’t knowledge it and you demand that the collection agency stop harassing you or you will take legal action. And make sure you send it Certified and Return Receipt Requested.

Three choices

However, if your credit report is being held hostage because the bank refuses to remove the debt until you pay up you really only have three choices. You can pay off the debt, hire an attorney to litigate the matter or simply ignore the problem and move on. What this really boils down to is that if you can’t afford to hire a lawyer and if you need to have the debt removed from your credit report, you will have to pay off the debt – like it or not.

Think before you file

If you’re facing an insurmountable pile of debts the idea of filing for bankruptcy can be very appealing. Just think. In just a few months you could have all or most of your unsecured debts discharged and be completely debt free. Woo-hoo! But it’s important to think before you act. Not even a bankruptcy can get rid of all debts. For example, it can do nothing about secured debt such as a home loan or auto loan. Unsecured debts like alimony, child support, spousal support and student loan debts also can’t be discharged through chapter 7 bankruptcies. So before you file, sit down and make a list of all your debts and divide them into two columns – those that can be discharged and those that can’t. Add up the two columns and this should give you a good idea as too much help you would get by filing for bankruptcy. And don’t forget that some of those debts could turn into “zombies” and come back to haunt you years from now.

What Debt Will Cost You Over Your Lifetime Will Stagger You

couple going over billsReady for some bad news? Here goes. If you had a child this year, figure on spending $245,340 to raise it. To put this another way, you could either buy a house or have a child. Of course, a house is never going to say I love you or crawl up on your lap for a nice snuggle.

Something else that won’t crawl up on your lap for a nice snuggle is debt. And for many Americans, the cost of their debt will be even more than the cost of raising a child. In fact, debt can cost them as much as $279,000 over the course of their lifetimes.

How can we owe so much?

Like it or not we live in a society that runs on credit. You get a mortgage, run up some credit card bills, sign up for a car loan and before you know it you’re in serious debt. Former Senator Everett Dickson once famously said that, “a billion here, a billion there and pretty soon you’re talking about real money.” You might not be dealing in billions of dollars but to paraphrase the quote, “a thousand here, a thousand there and pretty soon you’re talking about real debt.” The sad fact is that by the end of your life you may have paid banks, credit card companies and other lenders the equivalent of 10 years worth of your paychecks – based on the Social Security Administration’s median net compensation of $28,031 annually. Of course with “median,” remember that 50% make more than this and 50% make less.

It’s easier than you might think

It’s just much easier than you might imagine to run up this kind of debt. Here’s how this can happen …

Your mortgage

For the sake of this example, let’s suppose you have a 30-year fixed rate mortgage at 4.5%. Let’s also assume you never refinance it, which would mean new closing costs and starting all over again. But if you pay off this loan over the course of those 30 years, your interest alone would total just over $226,620.31.

Your automobiles

If you’re typical, you’ll own nine cars over the course of your lifetime – at least according to R. L. Polk & Co. If you don’t think this is true, take me as an example. I try to keep my cars as long as I can, and was absolutely stunned when I added up the number of cars I’ve owned and found I’m already at seven. And my wife has owned almost as many.

Again, for the sake of the example, let’s say each car had an average loan balance of $22,750 at an interest rate of 6.075%, which is the average rate for both new and used cars. Let’s further assume that your loan had a term of 64 months. This would put the interest cost per vehicle at $4372.43. Add this up and you would be looking at total interest over the course of your lifetime of $39,351.87.

Those handy but costly credit cards

Credit cards can be a real help when you use them sensibly. They’re a convenient way to keep from having to carry around a wad of money or to buy a large item when you don’t have the cash in hand to pay for it. I grant that not everyone carries credit cards but if you do, let’s say that you have an average balance of $2171.70 and an average interest rate of 15%. If so, that’s $13,030.20 in interest over a 40-year period.

As you can see this all adds up very quickly and does not even include student loan debts, which is another form of debt that’s carried by 40 million Americans.

If you live in an expensive city such as New York City or San Francisco and have a mortgage the interest on your mortgage alone will probably stagger you. On the other hand, if you live in a lower-cost area such as Omaha or Dallas and you’ve paid off your homes and cars and try to avoid credit card debt, your results may not be as shocking. However, for almost all of us, the cost of our debt will be much more than we realize.

The interest factor

Of course, there’s another important factor besides the amount of your loan that you need to keep in mind when calculating your own lifetime cost of debt. It’s interest rates as they can have a huge impact on the amount you will pay. If you have low interest rate loans, they will cost you less over the course of your lifetime. To get lower interest rates, you’ll need to do some comparison shopping and maintain a high credit score. For example, if you go back to the example given above and have excellent credit you will pay $209,590 in interest while a person with bad credit would pay $369,054. That means a difference of nearly $160,000. That might not be enough to raise a child into adulthood but it should definitely be enough to send one through college.

The credit score factor

If you don’t think your credit score also plays a big part in what your debt will cost you over your lifetime, here’s an example of what it can mean.

lifetime cost of debt calculator

With “good” credit (a FCO score between 680-699), your lifetime cost of debt would be:

Lifetime cost with good credit

But it you had just a fair credit score (between 620 and 679), here’s what your lifetime cost of debt would be:

Lifetime cost of debt with fair credit

So as you can see, as little as a 30-point difference in your credit score could cost you more than $20,000 over the course of your lifetime. And it gets worse if you were to have poor credit as a like amount of debt would cost you nearly $50,000 more than if you had good credit:

Do you know your credit score?

Given the fact that your credit score plays such an important part in how much your debt will cost you over the course of your lifetime, it’s important that you know what it is. There is only one place to get your true FICO score, which is on the website www.myfico.com. You can also get a version of your FICO score from either of the three credit reporting bureaus (Experian, Equifax and TransUnion) or from CreditKarma.com or CreditSesame.com. If you have a Discover Card you’re probably getting your credit score every month as part of your statement. The important thing is to get your credit score. If you learn you have a poor or fair score you have your work cut out for you. While there’s not much you can do about your credit history (how you handled credit in the past) you could at least work on your credit utilization, which is the amount of credit you’ve used vs. your total credit limit. As an example of this if you have a total credit limit of $10,000 and have used $5000 of it, your credit utilization would be 50%, and this would negatively affect your credit score. You could improve your credit utilization by either paying down your debts or getting an increase in your credit limit. While neither of these would be easy to do, it could be worth the effort as it should lead to a better credit score and this would help lower your lifetime cost of debt.

5 Questions To Ask Before You Use Savings To Pay Off Debt

debt and save targetDid you know that your savings can keep your finances from flying apart? In fact, you can use savings to pay off debt. These are only a few of the reasons why this is such an important part of your financial life. In fact, some experts are saying that you cannot be a financial success unless you have some form of savings to your name.

While we are all aware of the importance of savings, sadly, this is a difficult goal for a lot of Americans to reach. According to an article published on Mint.com, the ideal saving rate is 10% to 20% of consumer’s income. However, a report from the Federal Reserve Bank of St. Louis reveal that the current savings rate in the country is actually 4.2% only. That is not even half of what the saving rate should be. The article also mentioned why it is so difficult for consumers to save. It is because they have too much debt.

But if you think about it, that is not the only issue that we have about savings. While it makes sense to get rid of debt first, a lot of people are actually struggling to decide if it is a good idea to use savings to pay off debt. After all, this is already money that you have. Some experts will frown at the idea but if you do the math, you will be losing more if you keep your savings intact and your debt accumulating. Looking at the interest rate alone, debt has a higher rate compared to your savings account. It makes more sense to pay off debt first because you will be saving more in terms of the interest amount that you are paying.

However, that decision is harder to make than you think. Some people need the security of a savings – that is why they opt to keep it intact. But if you find yourself right in the middle of saving or paying off debt, there are a couple of questions that you can ask yourself to help you decide.

Ask yourself these questions before you pay your debts with savings

If you are torn between using your stashed cash to get rid of your debts, there are 5 simple questions that you can ask yourself.

Where will you get the savings from?

There are a lot of savings that you can use to finance your debt payments. According to WashingtonPost.com, debt has a high effect on our retirement savings. In fact, a study done by the Employee Benefit Research Institute revealed that 74.8% of their respondents cashed out their retirement savings after leaving their jobs to pay off debt. Whether you are leaving your job or not, it is never a good idea to use your retirement savings for anything other than your retirement expenses.

Do you have sufficient emergency savings?

Unless you have your emergency fund intact, you should never use savings to pay off debt. This is one of the requirements that you need to have. In case you do not have this yet, you need to save up for sufficient emergency savings. Anything in excess can be used for your debts. This emergency fund can actually help you sustain your debt payments. In case something happens, your reserve fund will allow you to continue paying off what you owe while taking care of that additional unexpected expense.

How much is your debt and the respective interest rate?

In case of multiple debts, list all of them down and take note of each interest rate. In case the interest rate is more than 7%, then you will end up saving more money if you pay off your debts first with your savings. But if you mostly have mortgage or student loans that have less than 7% of your debts, then to use savings to pay off debt is not really that beneficial. The best scenario to finance debt payments through your savings is when you have mostly credit card debt – a debt that can reach up to 36% of interest rate.

Are you expecting any extra money in the near future?

Another question to ask yourself is this: will there be any extra money in your near future? This should be something guaranteed like a commission that is already being processed, a confirmed holiday bonus or your tax refund. If you have this extra money, you can go ahead and use your savings and just replace it with the money that is coming your way.

Is it in line with your financial goals?

The last question that you should ask yourself is whether this move is in line with your financial goals. Smart money management requires you to set goals and that also means your decisions should be aligned with your goals. If you are saving up for a downpayment of a new home, then it might not be a good idea to use your stashed money to lower your debt. But if you need to lower your debt level to have better chances at a low interest home loan, then go ahead and use savings to pay off debt.

Other options to pay back your debts without touching your savings

In case the answer to the 5 questions point you towards not using your savings to pay off your debts, then that is okay. There are other means for you to eliminate debt without touching your savings.

PIOnline.com published a survey that revealed how more than half of Americans set saving goals. But when it comes to retirement, less than half are able to save through their employer’s saving plans. The current survey revealed that the number of Americans saving is basically slipping – that is why you may want to opt not to use savings to pay off debt. Use other options that will allow you to get out of debt while still adding to your savings.

Here are some of your options:

  • Debt Consolidation Loan. This debt relief program involves you borrowing a bigger loan that can help you pay off all or most of your existing debts. What will happen is you will consolidate your old debts under one low interest loan. That should make things easier to pay off.
  • Debt Management. This is also a form of consolidation – but this time, you get the help of a credit counselor. For a maximum fee of $50 a month, you can enjoy their service that includes a careful analysis of your debts and the creation of a Debt Management Plan or DMP. This plan contains your proposed lower monthly payment plan that stretches it over a longer period. That means you get a lower monthly payment requirement.
  • Debt Settlement. In case you are in need of debt reduction, this is a debt solution that can work for you. The whole idea is to convince your creditor or lender that you are in a financial crisis. Then, you will offer them a lump sum money that can pay for a percentage of your debt. You will ask them to accept this lump sum and have the rest of the debt forgiven (at least anything that this big payment cannot cover).

These are only a few of the debt relief programs that you can use to achieve debt freedom. If you do not want to use savings to pay off debt, then make sure you know your other options.

5 Reasons Why Your Debt Payment Plan Is Failing

calendar with pay credit noteA debt payment plan is one of the many financial plans that you can use in money management. But more importantly, it is one of the plans that you can use to improve your financial situation.

Too much debt is devastating financial condition to be in. It has enough influence in your finances and it is even powerful enough to control your future. It can dictate the type of salary that you need to have, what expenses you can make and even your future goals. If you do not solve this problem immediately, you might find yourself unable to grab opportunities that could have increased your net worth exponentially.

MarketWatch.com published an article that mentioned how American consumers are relying on credit cards quite heavily once more. In fact, in the second quarter of this year, consumers added $28.2 billion worth of credit card debt to the current unpaid balance. This is said to be the biggest amount in the past 6 years. Not only that, it is 200% more than the debt added in 2009 (the same quarter).

If our debts keep on growing, it is probably time for us to take a look at the debt payment plan that we are using to slowly but surely eliminate our credit obligations. If you do not have one yet, then it is about time that you think about creating one. When you have plan, your pursuit to pay off debts will be more effective than when you are just blindly making payments to every bill that you have.

What is making your payment plan for debts ineffective?

You can assume that our increasing debt may have been caused by our growing confidence when it comes to our financial security. According to the October 2014 survey done and published on Bankrate.com, 24% feel that their net worth is higher compared to 15% who felt that it was much lower. This confidence may have been causing consumers to rely on credit once more.

While total credit elimination is tough to accomplish at this point, you may want to consider checking your debt payment plan to make sure that your credit will be lowered to manageable amounts. If you leave your debts to chance, it might soon overtake your ability to pay it off.

Of course, you also need to check if your payment plan is working at all. If you find that you had been making payments every month but your debt does not seem to be getting any lower, you may want to check these 5 reasons why your plan may be failing.

Your plan is not realistic.

One of the primary reasons why most plans fail is because they are not realistic. The only way that you can assure yourself that your debt payment plan is realistic is when you consult your current finances. You need to be honest with yourself about how much money you can really afford to contribute towards your debts on a monthly basis. If not, you may find yourself with a plan that is doomed to fail from the very start.

You chose the wrong debt relief program.

In most cases, when your plan is not realistic, it leads to you choosing the wrong debt relief program. For instance, you could have chosen a debt management plan when all your money can really afford is a debt reduction. You need to look at your budget plan to choose the right debt solution. Otherwise, you might find yourself struggling to keep up with a plan that is too expensive for your income.

You do not have an emergency fund.

Another reason why you could be in trouble with your debt payment plan is because you do not have an emergency fund. Some people might not get the connection but let us explain. You may have just enough money to satisfy the debt payments but if something happens to compromise your budget, like a blown car transmission or a sudden illness – you might be in trouble. You should remove any possibility of you getting into more debt.

You are not committed to your plan.

If your debt payment plan is not working, it might be also because of your inability to commit to it. If you find yourself making late payments are failing to consider the penalty charges, you are already compromising the effectiveness of your plan. A plan, no matter how fool-proof it is will only be effective if you can follow it. Unless you can commit to it, then your plans of getting out of debt will not be realized.

You have not stopped taking more debts.

The last reason for your plan to fail is when you are still taking on more debts. This is one of the reasons why you need an emergency fund – to keep yourself from the need to take on more debt if the unexpected happens. But even if you have an emergency fund, if you continue to use your credit cards, you will find it hard to be completely be out of debt. You need to stop taking on more debts if you really want to complete your debt payment plan.

Steps to create a fail-safe credit repayment plan

In case you haven’t been working with a plan to get out of debt, there are a couple of things that you need to remember. First things first, know the importance of having a plan. That is because a plan will give your quest to eliminate debt some direction. It will give you a target and will allow you to gauge how far you have come. Creating a plan will force you to think forward into getting rid of your debts.

But for you to maximize the benefits of your debt payment plan, you may want to consider the following steps in creating it.

  • Consult your finances. Do not just create a plan. Make sure you consult your budget so that you will know just how much you need to pay off your debts. It will also tell you if you need to reduce or debts or at least lower your monthly payments. Once you know how much you can comfortably afford to contribute towards your debts, then you can determine how you can pay it all off.
  • Know your debts. The next step is to understand what type of debts you have. One article published on USNews.com tells a story of how some consumers paid off their debts. The article mentioned that if consumers had student loans and credit card debts, they should consider paying more towards the latter because it has a high interest rate. This is why you need to know what your debts are so you can prioritize appropriately.
  • Identify the cause of debts. The next thing you have to identify is what caused you to fall into debt. You need to see if it is your lifestyle or your complete disregard for what you can or cannot afford. Once you know that, you can easily identify the habits that you need to change.
  • Change your bad financial habits. The next, obviously, is you changing your habits. You need to make sure you will not fall into the same debt pit again. Unless you enjoy debt payment plans, you may want to make sure that you will not commit the same mistakes that got you in this financial position in the first place.
  • Create the plan. Once you have all these details, you can create your debt payment plan. If you consider all of these, you should be able to create a plan that is realistic and effective.
  • Monitor your finances. After creating your plan, that is not the end of your task. You need to monitor your finances so you can make sure that you are following your plan. You should try to monitor not just your plan, but also your spending, debt balance and your savings.

Amazingly Simple Solution To Money Problems – Shred Your Credit Cards

cutting a credit cardCredit card debt has become an increasingly big problem for many Americans. We owe an average of $13,177.75 per household just in credit card debts. But that’s only an average. The fact is that many individuals owe $15,000, $20,000 or even more on their credit cards. Here’s an example of what this amount of debt could mean. If you owe $20,000 at an average of 16% interest, and paid $400 a month on your credit cards it would take you 83 months to pay them off and would cost you $13,177.75 just in interest alone. And that’s assuming you charge exactly nothing on those cards for the whole 83 months (nearly seven years).

We’ve become a nation of credit card junkies

The fact is we’ve become a nation of credit card junkies. As of July of this year, there were 1,895,834,000 credit cards in use here in the U.S. That’s nearly two billion credit cards. And wee have an average of 3.75 credit cards per person. Given these numbers it’s no wonder why many Americans are struggling with their credit card debts.

It’s borrowing from your future

The really destructive thing about using credit cards is that it means borrowing from your future to pay for things today. There’s an old saying that if you want to dance, you’ll have to pay the piper. In the case of credit cards what this means is if you want to buy things today you can’t really afford by using credit cards, you’re basically borrowing money you’ll have to repay some time in the future. And when that some time rolls around, you’ll have less money available to pay for the things you’ll want then.

The nasty power of compounding interest

If you don’t pay off your credit card balances every month, you’ll soon run into the power of compounding interest. If you’re not familiar with this it’s when the interest you owe on a credit card debt is added to your balance so you end up paying interest on the interest. Here’s an example of how this works. Let’s say you have a credit card with an interest rate of 20% monthly on your unpaid balance. If you factor this into an unpaid balance of $1000 at the beginning of the year this will turn into $1200 in debt by year’s end. Multiply this by 20 (an unpaid balance of $20,000) and you will see how much you could be hurt financially by compounding interest.

Shred them but don’t close your accounts

According to a recent study done by the National Foundation for Credit Counseling about 20% or one in five people live without credit cards. This means it obviously can be done. So if you want to get your finances back under control, you need to shred all your credit cards. But don’t close the accounts. You may eventually want new credit in the form of an auto loan or mortgage. When you apply for new credit the first thing your lender will do is check your credit score, which is made up of five components. One of the most important of these is your debt-to-credit ratio as it accounts for 30% of your score. This ratio is calculated by dividing the amount of debt you have by the total amount of credit you have available. For example, if you have $10,000 in available credit and only $2000 in debts, your debt-to-credit ratio would be 20%, which would be excellent. But if you were to close your credit cards your available credit might drop down to something like $2000 and your debt-to-credit ratio would be 100% and that would have a dramatically negative effect on your credit score.

How to live without credit cards

Despite what you might think, it should be fairly easy to live without those credit cards. While you have to basically pay cash for all of your purchases, this could be in the form of a check or debit card. You could also purchase prepaid credit cards or secured credit cards and use them to pay for your purchases.

The differences

Before you trot off to get either a prepaid or secured credit card, you need to know their differences. A prepaid card is just that – you deposit money in advance and then use the card to pay for your purchases until your balance reaches zero. At that point, you can then either add more money to the card or simply throw it away and get another one. A secured card is different in that you make a cash collateral deposit usually $300 or $500 – that gives you a line of credit, which usually will be a percentage of your deposit or possibly the full amount. You then make monthly payments on your balance just as you would with a standard credit card. Also like a standard credit card if you fail to make your payments on time you will be charged a late fee and there will probably also be a fee for any over-the-limit transactions. However, unlike a regular credit card if you exceed your balance or default on your payments you could lose your deposit and your account would likely be closed.

How could you pay cash for all your purchases?

If you’ve been living on a steady diet of credit card usage the idea of shredding your cards and paying cash for everything can be scary. But it shouldn’t be. The secret is to start tracking your spending so that you can develop a budget. There are a number of apps available that make tracking spending just about brain dead simple. One of our favorites is Mint.com. It’s free and not only tracks your spending but will automatically divide it into categories such as rent or mortgage payment, groceries, utilities, medical bills, clothing, entertainment and so forth. You could use this information to create a budget and Mint.com we’ll even help you stay on it. In fact, if you overspend in any of your categories, Mint will send you an alert via email.

Is A Frugal Budget Really HelpfulWhen you know what you’re spending, you’ll know where you can make cuts

Once you’ve had some experience with your budget, you should be able to find areas where you can cut your spending. Most people divide their budgets into two major categories – fixed expenses and discretionary expenses. You may not be able to do much about your fixed expenses such as your rent or mortgage payment, auto loan and utilities. But you should be able to find areas in your discretionary spending where you could make cuts. Take groceries as an example. If you focus your attention on cutting your food costs by careful shopping and the use of coupons, you might be able to cut those costs in half or better. This will free up money you could use to pay down and ultimately pay off those credit card debts.

The snowball strategy

If your goal is to get those credit card debts paid off, one of the best ways to do this is what’s called the snowball strategy. This means ordering your debts from the one with the lowest balance down to the one with the highest. You then focus your attention on paying off that debt with the lowest balance while continuing to make at least the minimum payments on your other debts. When you get that first debt paid off, you will have extra money to pay off the debt with the second lowest balance and so on. If you’re wondering why this is called the snowball strategy it’s because the idea behind it is that as you pay off each of your debts, you will gain momentum to continue paying them off just as a snowball rolling downhill gathers momentum.

Note: If you’d like to know more about how to snowball your debt, here’s a short video with more information …

4 Ways You Can Eliminate Holiday Debt From Your Future

piggy bankThink it is too early to think about holiday debt? It is not! September is here and before you know it, you just breezed over October and November. Once the 9th month comes in, you need to realize that you should be thinking about how you will spend your money during the holiday season.

If you want to prevent debt during the holidays, the most important thing that you can do is to start preparing for it early. A little bit of planning will never lead you astray. What you have to realize is that the big expense that you make during the Thanksgiving to Christmas season should never take you by surprise. But guess what? A lot of people oftentimes find themselves unprepared for this.

According to the data shown in an article from DailyFinance.com, 55% of Americans who were surveyed in September of 2013 were not saving for the holidays. It is not really a common practice to do so. Why? Because we all know that we can rely on your credit cards to pay for the expenses that you will make. While this is convenient, it is not always the safest way to make purchases.

The same article revealed some disturbing data that indicated how some parents are willing to take on holiday debt just to buy their children some gifts for the season. 57% of parents are willing to make this sacrifice. But as gallant as it can be, it is also a sacrifice that is unnecessary. Those who earn less than $35,000 are willing to be in debt for up to $700. In fact, 31% of American consumers do not have a spending limit on their holiday buying.

We need to stop the habit to starting our New Year with debt. If you really want to eliminate holiday debt from your future, you have to realize that early planning is the key. If you have yet to act on your holiday expenses, then do not waste any more time. You need to start getting your act together.

4 step plan to avoid incurring debt during the holidays

Fortunately for you, there are ways to control holiday spending. Do not rely on your willpower alone. Make sure you prepare yourself so that you will stay out of any unnecessary holiday debt.

Here are 4 ways that you can avoid this type of credit.

  1. Set a holiday budget. First of all, calculate how much you will spend during the holidays. Most of this will go to gifts that you will give to family and friends. List down all the people you will give to and set a budget for each. If you can identify the gift so you can be specific about the amount, that would even be better. But apart from the gifts, you should also consider other expenses like the household decorations, meals and any travelling that you will make. If you will go on a vacation with the family, make sure that amount is included in your holiday budget. Try to find out all the hidden holiday costs that you will encounter. That way, you will not be surprised by any unexpected costs.
  2. Figure out where you will get the money. Do you have a bonus coming up? If you will depend on this Christmas bonus, make sure that it is sure. If not, you may end up with a long list but no money to pay for them. The safest way is really to save up for it. If your expenses will be too big that you cannot save for it in time, then decide how you will boost your income to make sure you can finance it. Make your credit cards an emergency back up plan. If you can save up for it in cash, that is what you should do.
  3. Decide on your payment method. Once you know where you will get the money, you can now decide on how you will choose to pay for your holiday spending. Will you pay for it using cold hard cash? That will help you stick to your budget because once the cash runs out, you can no longer spend. Or will you use your debit card? That can also work because it will protect your cash from theft. You can also decide to use your credit card for the rewards. But make sure that you will not touch the cash that you saved up so you can pay off the debt as soon as the bill arrives. In case you prefer the convenience of a debit or credit card, make sure that you know how to protect yourself from identity theft. According to Bloomberg.com, Home Depot joined Target and Neiman Marcus Group in the list of data breach victims. Be smart and vigilant whenever you intend to use your card in any purchase.
  4. Find out how you can cut back on costs. If possible, keep on reviewing your list to see if there are somethings that you can cut back on. For instance, check if there are people that you do not have to give gifts to. Also, check out sale events and take advantage of the savings that you will get from them.

By following these steps, you should be able to eliminate or at least, minimize the holiday debt that you will incur this coming season. That way, you do not have to worry about the money that you will spend. And you can enjoy the holiday knowing that you do not have any lingering debts to pay off after the season is over.

What usually causes too much holiday borrowing

When you are making your financial plans for the holiday, try to concentrate on these two expenses.

  • Gifts. We have mentioned that this is the main expense that you will make this season. If you can think of making homemade gifts, that should allow you to cut back immensely on your budget. According to data from PewForum.org, 6 out of ten Americans planned on giving homemade gifts during the 2013 holiday season. More women opted for this gift giving solution to keep their spending low. Since you are starting early this year to prepare for the holidays, you have more time to make your gifts from home. If you can paint or have a talent for arts and crafts, then that is something that you may want to utilize. If you plan on baking goodies for your friends and give them as gifts, that is also something that you may want to prepare ahead for. Buy the ingredients in bulk if they can be stored without expiring immediately.
  • Travels. Whether you intend to celebrate the holidays in a different country or with your folks in another state, you may want to prepare for this too. You can save on vacation expenses if you book your travel ahead of time. The early bird promos are usually offered months before the actual travel. You can also arrange to stay with family and friends to save on accommodations. Looking at your options early on will allow you to choose properly and not grab whatever is available out of desperation.

Your holiday spending does not have to be met with a dreadful feeling. If you prepare for it well, you do not have to worry about holiday debt.

In case you decide to use your credit card, make sure that decision will not end up in debt. If you think you cannot save up enough money to pay it off immediately, you still need to make a payment plan so you can settle that debt as soon as you can. Here are some tips from a CNN Money video about how you can deal with your holiday debt.

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