Archive for the ‘Debt’ Category

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Revisiting Credit Card Debt

Friday, May 1st, 2009

A lot of what we talk about here has to do with debt and in particular, credit card debt. This is because it is a huge issue that deserves to have as much time spent on it as possible, without sounding like a completely broken record.

Today I want to focus specifically on how to avoid getting into credit card debt, and if you are in credit card debt how to start getting yourself out of it. I have written a lot about this in the past, so you will see references to previous articles here on our site.

We will first start with getting out of debt and then hone in on how to stay out of credit card debt.

The Snowball Effect

I have read numerous articles, books, and heard people speak on where to start paying down on your debt. There are many “theories” out there but when you really get down to it, they are just one persons idea up against another person’s. Here is what I have filtered out to be the best way to eliminate your debt:

On a piece of paper or in an Excel spreadsheet, list all of your debts (consumer and credit) starting with the lowest BALANCE (lowest to highest). Then, next to those amounts write who it is owed to and their minimum payments. That is your game plan on paper. You are going to, in the word’s of Dave Ramsey, get “gazelle intent” on eliminating the lowest balance while making minimum payments on all the rest. Once you knock out the smallest balance you roll the cash you were throwing at that right into the next balance. Defeat that one, roll that cash right on to the next. This is why they call it the “snow ball effect”.

Why pay the lowest first? Because you will get it done quick which will accomplish two things: 1) boost your ego. You now KNOW that you can do this. If you tried to tackle the highest first you would most likely fail and not finish it. This ensures that you will stick with it and move on to the next one, because you did the lowest one!! 2) it frees up cash quicker which can be thrown into the next debt. If you tried to tackle the big one first you would not free up cash for a VERY long time, which would keep your debt around longer. You want to free up as much cash as possible (and as quick as possible) and a very good way to do this is to get rid of the ankle biters, the little balances that are a nuisances.

[source]

What to do to stay out of credit card debt

This article states that some 7.3 million consumers use credit cards to take cash advances. It also states that these interest rates can be as high as 29.97% for cash withdraws. This, my friends, is not a good way to stay out of debt and is not a good way to use a credit card. Period. I personally do not use a credit card for anything. I am a cash man and I intend to stay this way. You should too. Especially when you get out of debt. Cut up the credit cards and start to depend on cold, hard, cash. There is no better way to spend (and save!).

From the same article quoted above:

Once you have eliminated your credit card debt start SAVING your money. If you don’t have one already, get an emergency fund with no less than $1,000 in it. From there move onto getting 3-6 months of what it takes to meet your budget each month into savings. The idea here is to GET RID of debt and BUILD UP SOME CUSHION. Because here is the problem, an emergency is going to happen (I will personally guarantee this) and in order to stay out of debt, you need to have the CASH to meet the financial needs of that emergency.

Without the cash saved guess where you go…right back into debt.

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Plastic Surgery

Friday, April 10th, 2009

This horse has been beaten to death, I know, but I must continue talking about debt. It is such a huge problem in our culture today and I am afraid that it is only going to get worse as the years go by.

Even after the global economy going into a recession, and even after millions of families having to foreclose on their homes, the vast majority of people will still be dependent on credit cards and other loans in order to meet the expenses that are associated with living life.

That’s right, living life. Paying the bills, putting food on the table, gas in the car, and even taking vacations. I know that you already know what my advice is but I have to give it to you anyway: do not rely on debt. Do not use debt. Do not get into debt. And if you are in debt get OUT as quickly as possible; especially if the debt is credit card debt.

If you have credit card debt, if you carry a balance on ANY of your credit cards, the best way to deal with that debt is to CUT THE CARD! Do not leave the card intact and available for use, because all that does is keep you deeper in debt and farther from getting out of debt. Cut up any and all cards that carry a balance and focus solely on paying them off! I outline the steps you can take, after cutting up your card, here.

“The borrower is servant to the lender” – Proverbs 22:7

Not only is debt a hole that some folks never get out off, but it is a hole that some folks don’t want to get out of. They get comfortable in their debt and believe that it is a part of life, a natural occurance that is inevitable. This is a lie and they are doing nothing but hurting themselves.

The verse above, Proverbs 22:7, is a verse that I absolutely love. It is a painfully true statement. I talk here about how I was indebted to my father in-law and how I wanted nothing but to get out of that debt! It had nothing to do with the fact that he was my father in-law or that he was using the debt against me. Debt chains you down, it does not give you the freedom to do as you please. In the article linked above, I mention that while indebted to my father in-law it would have been foolish of me to make any large purchases, and if I would have, I would have given my father in-law, my lender, every right to be upset with me. And while some will argue that it would not be his place, I would have made it his place because I was indebted to him, I was his servant.

When you are not indebted to someone, or some company, you have a freedom that comes only when you are free from the burden of debt. You can spend as you wish, save as you wish, and do anything you would like without having to answer to anyone. Essentially.

Please, do yourself a favor, stop spending yourself further into debt. Get serious about getting out of debt. You will not regret the decision to make sacrifices now so that you won’t have to in the future. In the word’s of Dave Ramsey: “Live like no one else [today], so later you can live like no one else.”

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A Glimmer of Hope

Thursday, April 2nd, 2009

While banks, insurance companies, and automakers, are all failing, a company in the UK that provides debt advice and support is growing. Debt Free Direct bought consumer debt advice group Clear Start UK. While banks are failing, a debt management company is growing. I love that.

This is encouraging to me!! This provides me with a glimmer of hope that we are not all lost, that not everyone out there is giving up and settling with the MYTH that debt is a part of life.

We all know that debt has become a fact of every day life. Some people believe that debt is inevitable and there is no other way to do things. But on the flip side of this coin, there are some of us who know that there is another way and a better way to handle money  and life. For me, CASH is the name of the game. Paying with cash and having a lot of money piled up in my money market account incase of emergencies is what helps me sleep at night. It could be different for you, but as long as you know that debt is not a way to do anything, you are good.

For some, this realization may not come as easy. For most debt has not only been a part of their lives, but their parents lives as well. Some families are absolutely torn apart by debt. It is at this point, at the point where DEBT starts to control their life, that people start to think. They think about everything they have but don’t own and they think of all of the arguments they have had with their spouses or significant others over money. The thought process may take some time, but eventually they will get to the point where they know what they need to do. They need to change and they need to learn how to manage the debt they have, get rid of it, and start over.

This is where a company like Debt Free Direct comes in, and thankfully they are going to be sticking around. They offer free advice to their clients and provide them with debt solutions to help them get out of debt. With people slowly coming to the realization that living with debt does not have to be them, I see companies like this doing nothing but growing. And this makes me happy!

If you have been buried with debt and can not imagine where to start, do some research and find a debt solution company that can truly help you. Be careful, some will be nothing but a scam, but not every debt solution company is. Do your research, call a lot of people, and make an informed decision.

Asking for help is not a bad thing.

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Realize That There Are Consequences for your Actions

Tuesday, February 10th, 2009

Image by respres via Flickr

There are some things in life that do not make any sense to me. There are also things that sadden me. And there are even more things that get me “heated up”.

All of the things that I could list for the items above would amount to a few pages, or a really long article. But I am not going to do this. Instead, I am going to tell you the one thing that I am thinking about that touches on all three of these categories (makes no sense, saddens, heated up):

FORECLOSURES

Why would you go into a mortgage that you could not afford? Why would you think that you are going to get that loan at 0% for so many months, and not run into any problems when they start charging you interest? Why, please tell me, because this just does not make any sense to me.

If homes are being foreclosed on, that means one of two things: 1) the buyers were duped into a shady deal, or 2) the buyers did not educate themselves with their own PERSONAL fiances. Or 3) a combination of both. Whatever the reason, it saddens me to think that there are people out there scrambling for some place to live because they fell for a deal that was too good to be true.

And it gets me heated up to think that so many people skipped out on their mortgage payments for so long. What were they thinking?

This quote sums it up best (simple but so true):

“[there are] consequences that come with not keeping up with mortgage payments.” (Source)

Take out “mortgage” and it applies to any and everyone. If you do not keep up with bills, with making payments on those bills, you will suffer consequences. The same article that the quote above is taken from also states that this is a “harsh reality”, and that is true as well!

Not paying bills, and not paying your mortgage, will eventually catch up with you. Please, do yourself a favor and don’t let what has happened to thousands upon thousands of families around the globe happen to you and yours. If you are behind on any of your payments, RUN to your lender(s), explain to them whatever your situation is, and tell them that you are going to get back on track! Then do so!! Swallowing your pride is better than them taking your home away.

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A Positive Attitude is Worth More Than the Amount

Monday, November 24th, 2008
Superman

Image via Wikipedia

Say, for example, that you have this huge amount of debt. Well, scratch that. Say you have debt. Period. You would like to get rid of it but you are not making a lot of money. Maybe you are a college student that has a full class schedule and a part time job on campus barely paying minimum wage. This debt seems insurmountable. Your part time job will never get you from underneath it and when you graduate you will only have more debt on top of it, so getting rid of this first debt would be good while you are in college now.

“But I can’t pay it off with the small amount of money I am making”, you say.

“Yes, you can”, he says.

“Really?”

“Yes,” he responds.

“How?”

“By having a positive attitude.”

“But how will that get rid of my debt?”

“Because that positive attitude will make the minuscule payments you make on that debt seem like big chunks for you. Your positive attitude is worth much more than the payments you make, because IT is what encourages you to make the payments, as small as they are.”

“Ohhhhh,” you respond. “So if I tell myself that a payment is better than no payment I will slowly but surely chip away at the debt and eventually have it paid off?”

“That’s right,” he says as he turns and walks in the other direction, his super hero cape flapping in the wind.

“Where are you going?” you shout.

“To help someone else,” he yells over his shoulder as he jumps and begins his climb into the sky.

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Redefine The American Dream pt. 5 – Homes

Tuesday, November 4th, 2008

Read Parts 1, 2, 3, and 4 to get the whole story!
One of the biggest ways that Americans today try and achieve the American Dream is by the size of their home. The bigger, the better, and every one assumes that the owner has it set. They have finally made it, they are there and they are not moving, they have achieved the American Dream.

This is pretty much the same concept as we discussed last week with the status symbol of a car. A house shows people around you that you are either wealthy or not. You either have a high paying job or a low paying job. It speaks to others, and is one of the main reasons that we have seen so many people, of recent history, have to foreclose on their homes. They were trying to impress family, friends, neighbors, and themselves, so they got into a mortgage that they simply could not afford to get a house that gave people the impression that they could.

We do not own a home, but we know that getting into home ownership is not something to take lightly.  The basic principal that a lot of people forget about is what can you afford? The home of the person who is living the American Dream is not a large mansion, it is a home that they can afford. With out that in place there is no American Dream. Whether that home is 1,000 square feet, 5,000 square feet, or not a home but an apartment where they pay rent, THEN THAT IS WHAT IT IS!!

The big issue with this, and the American Dream over all, is that folks are too concerned with what others think of them. This thought alone impacts decisions made when buying a car, spending/saving money, home ownership, clothing, college, etc, etc…

You want to achieve the American Dream? One of the ways you can do it is to make sure you live in a home that you can afford and can, sooner rather than later, own free and clear.

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Video Tutorial – Debt Calculator

Friday, October 24th, 2008

Today’s video shows you how to use our debt calculator, which is available for download at our Downloads page. This screencast was recorded using Jing, which is a free program that allows you to do screencasts and screenshots on the fly. Easy to use and free! Plus, it holds me to a five minute recording time for my videos, which is lucky for you ;-) If I talk too fast, let me know. I am refining this as I go and need your input to do a better job!

After watching this tutorial you may want to check out this article for more information on how to pay off your debt!

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Debt 101: Session 4 – You can't deny it!

Thursday, September 4th, 2008
Last week we focused on how saving money is a conscience decision. The flip side of that is also true; spending money is a conscience decision. We are bombarded on a daily basis with decisions to buy things. It’s the American way to have great stuff and a lot of it. You walk into a mall and there are elaborate displays in the windows to get you to step inside and buy some things. You drive down the road and there’s a big, juicy cheeseburger staring back at you just calling your name. You’re not even safe on her own personal computer. There are constantly pop-ups advertising all the latest and greatest in the gadget world that you just “have to have”. With all of these advertisements surrounding us all day long we are left with a choice. Do we give in to them and purchase that tv, or do we resist the urge to have more stuff?

The amount of people that are in debt today is astounding. It’s a shame that people have forgotten the power of the word “no”. Things that people used to consider a luxury item are in today terms a “need”. For example, the number of cars per household. It used to be the norm for a family to have one car. Now the average is a car per person. Even for me just writing that out seems odd. Only one car? What if there were three drivers in a household? It is weird for us to think about life being like that but if you really do think about whether or not you actually need that second car, you’ll probably discover that you don’t. My husband and I actually went without a second car for a few months. Now it wasn’t any long period of time, but during that time we realized just how much of a luxury item the second car was. We managed just fine with only one car.

Now, just how in debt are we? Federal Reserve Board estimates that revolving consumer debt in the United States totals $975.2 billion (statistic taken from www.indexcreditcard.com). That is an extreme amount of money. And to think that is all caused by our inability to say “no” to unnecessary spending and always competing to stay on top. After doing a little research online I also discovered that, “Americans are among the world’s most cash-strapped people”. Also, “nearly a quarter (22%) of Americans have no money left one they’ve paid for their essential living expenses and spent their discretionary dollars. The average American household with at least one credit card has nearly $9,200 in credit card debt”(www.cnnmoney.com). Not only are we as a nation getting ourselves into more and more debt but but we are continually getting so strapped for cash that the only way out is to file bankruptcy. In fact, the “total bankruptcy filings jumped 31% in the second quarter [of 2008] compared to the year ago” (www.cardweb.com).

All of the aforementioned statistics were a real eye-opener for me. I knew there was a large number of people in debt but it seems to be getting out of control and is growing by the year. It really doesn’t matter how much debt you’re in; debt is debt. If you think that because you only owe $2,000 that you don’t count, you are incorrect. My husband and I only have a small amount of debt but it doesn’t mean that we can just ignore it and pretend that it will go away. Although you may think that it’s too insignificant to think about, whoever you owe will not forget. You can’t deny the fact that you are in debt if you are. It will only escalate into a bigger problem if you do. There is no way for that debt to just disappear. Not only will it not go away with “forgetting” it, it will grow with interest that accumulates.

If you are in debt, no matter how large or small, I challenge you to get a game plan together for how you are going to slowly hack away at it. I also encourage you to reconsider filing for bankruptcy if you are at that point. It completely ruins your credit and it will be extremely difficult to get any sort of loan in the future. It’s time to take responsibility for your actions and start repaying anyone that you owe. It may be helpful to look at all the types of debt that you have and start to repay the ones with the highest interests rates. Once you get your game plan and have set your goals, tell us about it in the comments below. We’d love to hear about it and encourage you throughout the process. Good luck!

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Debt 101: Session 3 – Treat the problem not the symptoms

Wednesday, September 3rd, 2008

This is a point that I learned from a book that I just recently read entitled, “The Complete Financial Guide For Young Couples” by Larry Burkett. (There will be a book review on this book in the very near future.) It said just what the title of this article is, “treat the problem not the symptoms”. I never heard this phrase before and thought that it was simple yet profound. Let me give an example of what this means. Say you keep getting in arguments with a certain person. It doesn’t matter what you do, the both of you just can’t seem to get along. Say it’s your roommate. One person keeps complaining that you leave all your stuff lying around and don’t clean up after yourself. While you always are upset that they come and go whenever they please and aren’t quiet about it. You think the problems are just that; laziness and rudeness. So you keep hashing out the same arguments and same conversations but nothing ever gets accomplished. You stay messy and they keep doing whatever they want. But those perceived “problems” are really just the symptoms. The actual core issue is lack of communication and respect between the two of you. Neither person is effectively communicating their feelings and both have a lack of respect for the other person. Therefore the other person just keeps on doing what they want. By only dealing with the symptoms you aren’t going to get anywhere and the same problems will just keep occurring. It’s only when you deal with the problem that you can begin to take the necessary steps to fix it.

The same goes with finances. If you are having financial difficulty you need to fix the problem not the symptoms. If you are in a relationship with someone and finances are a touchy subject, then sit down and make sure that you are honestly trying to treat the problem, or are you just dealing with the symptoms. What are you really upset about? What started the issue in the first place? Are you upset because your spouse is spending money or because they aren’t telling you what they spend their money on? As I previously stated, you can never fix the problem when you are only dealing with the symptoms.

Now let’s assume you are in a significant amount of debt. You keep paying off your credit card debt with other credit cards which just compounds the issue. The problem here isn’t debt; it’s overspending. Until you can come to grips with the fact that you made the decision to get where you are today by overspending, you’ll never get out of debt completely. Maybe it’ll get better for a while but the debt will keep coming back. Just admitting the fact that the debt amount is overwhelming and you need to do something about it isn’t enough. You need to be convicted of the fact that your spending is out of control. Then you can start getting an action plan together of how you are going to correct the problem. Maybe you will decide that you need to go to a financial counselor for advice. Maybe you’ll commit to staying away from shopping centers and other places where you tended to make unnecessary purchases. Or, maybe you mishandled your money and you decide to hand the finances over to your spouse to take care of. For some people it will take a lot more effort and maybe a combination of a few things to really get them on the road to financial freedom. But, whatever it is that you decide to do, stick with it and deal with any more problems that arise. If you continue to do so, you will see great results and a sense of peace knowing that your finances are taken care of.

Did you have a problem with overspending? Tell us what you did that helped in the comments below.

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Debt 101: Session 2 – Getting Loans from Family

Tuesday, September 2nd, 2008
As I stated yesterday, my wife and I have a total debt amount of $4,394.26. This debt is made up of two separate loans, one from my grandparents, and one from my wife’s father. Yes, our debt is 100% owed to family members. Good or bad, that depends on a lot of variables, but below are some pros and cons you may want to take into consideration before borrowing money from family members.

The Good

Most of the times these loans will be interest free

Interest is charged on money loaned for one reason and one reason only: to make money. If anyone has told you differently, they either didn’t know what they were talking about or they just flat out lied to you. Now, I’m sure there are some families out there who will not see anything wrong with charging interest on money loaned, but I personally feel that this is wrong; but my opinion doesn’t really matter here. What does is that I have never heard any stories personally of family members charging other family members for the money they loaned (interest). If you absolutley have to get a loan for any reason, and do not think that any of the “bad things” mentioned below will creep up as a result, check with family first. Interest free money is as good as you can get when it comes to borrowing.

Spread out over a very long time period

This is something that is fantastic to have if you HAVE to get a loan. The longer it is spreadout means the more time you have to put down a solid plan to eliminate it. It also means that there is room to breathe if you need it. Basically this is good for one reason: you have time to pay it off which most likely means low monthly payments (if required).

Are more likely to understand if you can’t make a payment

A majority of the families out there will be sympathetic to other family members who are having a rough time, with or without money. It’s what family is there for. When it comes to having a loan with a family member, they will be much more understanding than a credit card company if you can’t make a payment on a given month due to financial hardship. I am not at all advocating that you take advantage of this and not pay; you should pay something every month, even as low as $1, simply to maintain your integrity.

The Bad

Could create tension between family members

This is a given, even with the most understanding and sypathetic family in the world. The fact is, money muddies the water. It fogs judgement and is simply the root of all evil. If not handled correctly, borrowing money from family could create some major tension that would not be there otherwise. Point below:

Could make certain conversations awkward

Lets use us for an example here. We owe Lindsay’s dad $1,871.51. Say we are over for dinner one evening and her mom asks us the standard question, “so, what’s new?” “well, we just bought a new TV!” I exclaim excitedly. At this point, before hearing how much it costs, dad looks up from his plate, waiting for me to continue digging my hole. “yeah, and we got a great deal on it,” Lindsay adds. “Really,” her mom glances at dad fearing the worst, “how good?” “Well,” I start to play with my food because I just realized how this might look, “it was a great sale. 50% off of the ticket price.” I leave it at that and hope they don’t pry. A few seconds go by and dad has swallowed his food, “What was the original ticket price, son?” I glance at Lindsay hoping she’ll faint or something so I don’t have to say, but nothing happens. “$2,000.00.” my voice squeeks for added affect, of course. I can feel his eyes burning holes in me, but I don’t look up. “Aaron, you paid a thousand bucks for a TV when you owe me nearly two grand? Why wouldn’t you just give me the thousand and knock 50% of your debt?” Not feeling like there was anything left to add to this wonderful dinner and conversation, we left early.

The above scenario has never happened to us, but you can see how it could (if we were stupid, basically).

Tear Your Family Apart

Money is a nasty thing if not used correctly and if not borrowed correctly. If you plan to borrow any amount of money from a family member, talk about the terms of the loan and WRITE A DOCUMENT THAT SPELLS OUT THE TERMS. Have everyone involved in the loan sign, print, and date the document; and make sure that everyone has a hard copy. Keep extras in a fire proof safe, a saftey deposit box, on the moon, and with the President of the United States of America. If anything EVER comes into question about the loan, you want to have that document available so that you can see EXACTLY what was agreed to. Without this document they could tell you that you owed them the money yesterday (but they verbally told you 2 years from yesterday) and they are now suing you for it. This will tear your family apart and then some.

While I am not happy that we have the debt that we do, I am thankful that it is with famliy members. They are exactly the “pros” I mention above: interest free for the life of the loan, spread out over 5 years (60 months), and both parties would be very understanding if we ever got to the point financialy where we just could not make a payment. If these loans were from credit card company, I would lose sleep at night. (Even though I am not losing sleep over our current state of debt, that does not mean that we do not have a plan in place to repay these loans ASAP and move on with our life into true profit and true financial freedom. I will discuss our plan in more detail with you on Friday.)

Will I borrow from family again? No. The chance for things to get muddy are too great, and no amount of money is worth dragging a family through the mud. Since I have borrowed from my grandparents and Lindsay’s dad, I have learned so much about money and have developed a set of principles that have guided me to a place where I will not need to borrow from them ever again.

Have you borrowed money from family? If so, tell us about your experience in the comments below.

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