Posted: April 1st, 2011 | Author: Joe | Filed under: Debt | Tags: Debt, gett, getting out of debt, Saving Money | No Comments »
Kiplinger.com recently profiled a young woman who was determined to wipe out her $70,000 in debt in order to stay at home and start her family. As regular readers of this blog know, I am a big supporter of living on a single income to raise a family. That being said, I acknowledge it is a lifestyle choice that is not for everyone.
But the fact remains that getting out of debt is always a good thing, and it’s especially helpful if you do need to live on a single income. After all, when a sizable chunk of your income is going toward paying off your lifestyle of the past it leaves you somewhat handcuffed in times of emergency or financial hardship.
So, how did Jaime Tardy (the woman in the Kiplinger article) accumulate her $70k in debt? Well, it broke down like this:
- About $26k in student loans
- $25k home equity loan
- $20k car loan
Looking at the breakdown of her debt, it seems to me like a fairly average breakdown for most people.
Her secret to getting out from under all this debt – and gaining a $23,000 surplus in savings?
Hard work, downsizing and determination to doing what it took.
That’s it folks. It’s not Rocket science. Getting out of debt is simple, but that doesn’t mean it’s easy. Jaime and her husband took on extra work where they could. The downsized their lifestyle by trading in their new car for a used car, canceling the cable and cell phones. They then took all the money they were saving and the extra money they were making and whacked off the debt.
While my wife and I were (thankfully) never quite so far in debt when we decided to get our financial house in order, we followed many of the same steps. We’ve cut our cable bill by $40 a month, traded our costly monthly cell phone plan for a pay-as-you-go Tracfone and bought a used car instead of a new car when we needed something bigger for the expanding family.
It’s not always easy, but it can be done. It’s amazing how much you can do when you put your mind to it and you realize it’s for a short period of time. And chances are, after that period of time where you’ve cut costs and busted your rear to make that extra you’ll discover you’ve changed your whole outlook on money an materialism. You’ll likely discover you’ll lead a simpler, happier life as a result
You can follow Jaime on her new goal of amassing $1 million on her blog: http://www.eventualmillionaire.com/
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Posted: February 3rd, 2011 | Author: Joe | Filed under: Credit, Debt, Tips | Tags: 0% balance transfer, Credit Cards, Credit Debt, Debt, getting out of debt, Guest Post | 1 Comment »
A balance transfer credit card is a tool that can be used either effectively or haphazardly as a debt relief solution. A consumer has an opportunity to relieve some of the burden of debt but in many cases, the balance transfer card is too much of a temptation that results in even more debt. Should balance transfer cards be considered a solution to consumer credit card debt?
Here’s a look at how things work:
Understanding Balance Transfer Credit Cards
Credit card companies issue balance transfer cards to a target market of consumers who actively use credit cards. The balance transfer cards typically offer a low (or no) interest rate for a promotional period of time – usually 6-12 months. A consumer can use the balance transfer cards to move existing credit card balances to one card and consolidate the amount of credit card payments they make each month. Provided a card holder can pay off the entire balance placed on the new card at the lowered interest rate within the promotional time period, a balance transfer credit card can be a valuable tool for debt elimination.
Understanding the Risk of Balance Transfers
While the resource can be ideal for some consumers, there are also risks associated using this tactic. Traditionally, using other credit cards to pay off credit card debt has been known to start a vicious cycle of bad debts. However, if there is a sufficient plan in place for effectively paying off the total balance before the low interest rate ends, the benefits are greater than the risk.
It is the temptation that may make balance transfer cards a non-viable resource for eliminating debt. Cardholders that consolidate their balances to one card only have one payment to make each month. They may become inclined to either use their now balance-free card to make more purchases or allocate the ‘extra’ money they have after consolidating payments for other things besides debt elimination. The vicious cycle of spending more than you have is often a big factor for consumer continually in debt. Adding a new credit card to the mix may be a dangerous financial move.
How to Make It Work
If you still have good credit and can get approval for a balance transfer credit card, you must first make some considerations about your finances and spending habits before signing up.
Say you consolidate $3000 worth of balances from several other credit cards. Your low interest rate period of the balance transfer card is 12 months. You have to calculate the outstanding balance divided by 12 months to figure out how much you need to pay each month to be debt free within the year. In this case, you would need to pay at least $250 a month, every month for a year to zero out the balance. You also have to factor in the interest charges on the card each month so add a few more dollars to your monthly payment to account for that. Even if your minimum payment each month is only $75, you need to commit to allocating a full $250-$275 a month to eliminate the debt in time. Resist the temptation to only pay the minimum and spend the rest elsewhere.
Compare Offers
If your credit is good and you have the option of several cards, make sure you check the terms and conditions of each of the balance transfers to find the right one for you. You may be tempted to sign up for the first offer you get, but it is in your best interest to find the card that best suits your lifestyle.
You may be approved for a balance transfer credit card but be cautious of your limitations. You may have $5000 in existing credit card balances but only a $2500 limit. Work out the numbers to see if it is worth making transfers if you can only deal with a portion of your total balance owed.
Stop Spending
Once you have zeroed out your other credit card balances, stop spending beyond your means. A clean slate may be too strong a temptation so consider taking the cards out of your wallet and only use one for emergency purposes – at least until the balance transfer card is also zeroed out.
This is a Guest post from Jeff Weber of SmartBalanceTransfers.com.
Jeff Weber writes about saving money and reducing credit card debt with balance transfers at SmartBalanceTransfers.com, a website designed to educate consumers about 0% APR balance transfer credit cards.Related Posts:
Posted: December 24th, 2009 | Author: Joe | Filed under: Credit, Debt, Tips | Tags: debt collector, debt management, Debt Negotiation, debt settlement, getting out of debt | 3 Comments »
If you find yourself in a tough financial situation and are considering seeking the help of a professional credit counselor, there may be good news for you.
Since the credit crunch of 2008, and the current recession have led to historic bankruptcy and foreclosure rates, help is a little easier to come by. That’s the good part of this financial mess we are in – the social stigma has been removed. It’s now easier than ever to talk about money problems because it seems like everyone has them.
Here are 10 tips to help you talk to your credit counselor.
1. Determine what services you need.
Terms like credit counseling and debt counseling cover a wide range of services, but they can be broken down into 2 broad categories: 1. counseling and education, 2. debt reduction or negotiation. Credit counselors typically offer the counseling and education services, while debt management and debt settlement agencies offer the latter. You also need to be more wary when dealing with debt management and debt settlement agencies in general as they can harm your credit score and often simply don’t work
2. Make sure the counselor meets the legal requirements.
If you’re filing chapter 7 or 13 bankruptcy, a 2005 law requires you to complete an instructional course in personal finance management before your debts can be discharged. Before you sign on with a credit counseling agency, be sure they’re on the approved list of agencies to cover the legal requirements.
3. Verify they are the right kind of nonprofit status.
The term “nonprofit” is a bit like the term “organic” – everyone has an idea of what it means to them, but there are loose (if any) restrictions on who can use the term. Make sure your nonprofit counseling agency is listed under Section 501(c)(3) of the Internal Revenue Service Code. You can check the listing at the IRS charities website.
4. Verify their accreditation.
The term “accredited” is a lot like organic and nonprofit (see above). Make sure the counselor is accredited with the National Foundation for Credit Counseling, or the Better Business Bureau.
5. Are all the counselors trained and certified?
An old, but effective trick in advertising is to imply that all members of an organization are professionally trained and certified while it may only be a small subset of those employed. Ask the pointed question: “Are all the counselors trained and certified?”, followed by “and what kind of training and certification is that?”
6. Get (and check) references.
Be sure to ask the agency directly, but also check on the Better Business Bureau website.
7. Find out how this will affect your credit score.
The truth of the matter is that your credit has already been hit by late payments and the like, but what you’re looking for from the counselor is an honest commitment to help you make the most of your current situation. If they promise to guarantee to clean your credit history, or make an everything for nothing kind of promise – run.
8. Know the costs.
It should be a simple, straightforward cost. If they start down a complex road of “possibilities” or a menu of fees and percentages – run. If they say they will hold your payments, and that you should stop paying your creditor yourself – run.
Legitimate nonprofit counselors will charge something less than $100 per hour for counseling, and some may be free! But if things seem too good to be true, it probably isn’t true.
9. If the price $0, or close to it – find out why.
Sometimes credit card and mortgage companies provide funding to counselors. This can be ok, but you should be made aware of it if this is the case. The important thing is that the counseling agency is working for you. If they seem to be giving advice that helps your creditors at your expense, then there may be a conflict of interest.
10. Make sure the service is what works for you.
Whether the counseling is done in person, over the phone or on the Internet doesn’t matter as long as it’s what works for you.
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Posted: November 12th, 2009 | Author: Joe | Filed under: Debt, Tips | Tags: Debt, getting out of debt, How To, Tips | 3 Comments »
When your debt gets overwhelming, it can seem like debt consolidation is the only way out, but did you know you don’t need to use a costly debt consolidation service? Here’s how and why you should try the DIY debt consolidation solution.
Debt consolidation is a useful tool for many kinds of debt, whether it be credit card debt, student loans, personal loans, auto loans, etc. But what I am about to detail is probably best used for unsecured and non-tax advantaged debt. That is, any debt without collateral, or any associated tax deduction.
So, that eliminates car loans, home equity loans and student loans, typically. You can consolidate those too, but often times you lose the tax deduction or end up with a higher interest rate without collateral to back the loan.
Why you should avoid a debt consolidation service.
Many debt consolidation companies are little more than rip-off operations. Some simply bilk you with unnecessary fees and payments, while others can actually damage your credit score. Some are legitimate solutions and can offer genuine help, but telling the savior from the charlatan is often difficult. Why bother? You don’t really need them anyway. You’re just paying to have someone else do the dirty work, but that’s also risky.
Some debt consolidation services have been known to tell customers to stop making minimum payments and start making those payments to the debt consolidation agency instead. This only creates bad blood with the creditor and causes interest penalties and fees to be tacked on to the original loan balance. It can also reduce your credit score.
DIY debt consolidation.
Most debt consolidation services charge you for doing what you could do yourself. Once you know how to consolidate debt, it’s easy to do yourself, though it does take time and effort. But remember:
It took time to get into debt, and it will take time to get out of debt.
The basic concept behind debt consolidation is rolling up all your outstanding debt balances into a new loan. The benefit is that you have only one payment instead of many, but the down side is that you just extended the time it will take to pay back all that you owe.
But that’s OK – provided you get serious about paying it back.
All too often what happens is you free up some cash with the new, lower payment and just spend it on other things. What you need to do is put every last dime you can toward that new, single payment. Keep your eye on the goal – getting rid of this payment forever!
OK, so enough of the pep talk. Here are the steps to DIY debt consolidation:
1. Do a status check.
OK, you know you’re into debt up to your eye balls, but just how deep is that? Pull out all your statements and loans and put them into piles: 1 pile is for loans that have collateral (example: car loans) and loans that you can deduct the interest payments on (student loans, home equity, etc..), the other pile is for everything else – personal loans credit cards, medical loans, etc..
2. Start working the phones.
We’re officially in the midst of the Great Recession here, you can use that for leverage. Take all of the loans from pile #2 and call up the creditor and explain to them that you simply can’t make the payments. Ask them to work with you, and either cut the rate, lower the balance, or give you an interest freeze. It can work, but you need to be sure to do 1 simple thing: Be pleasant. Don’t get confrontational and in their face. I cannot stress this enough. If you are pleasant and explain your problem, and approach the conversation from the standpoint of being partner in a business transaction, you will get much further. Your creditor wants to make money, you want to pay back as much as you can and satisfy your original contract, but they need to work with you for that to happen. It may take several calls over several days or weeks, but the pay off can be huge.
3. Total up the damage.
Once you’ve gotten all the concessions you’re going to get from the creditors, you need to total up the damage and see what you’re on the hook for. After that, you can start looking to consolidate.
4. Look for 0% interest credit card offers.
I used this to do my own debt consolidation and I ended up being able to pay off the entire balance before a single interest charge hit! I can’t begin to tell you how much money I saved on that alone.
5. Tap the Equity (if there is any).
If you’re fortunate enough to own a home, and even more fortunate enough to have equity in that home, then try getting a home equity loan to pay off your other debts. This new loan would likely be at a lower rate, since your home is collateral, and the interest payments are tax deductible.
6. Get personal.
If you can’t find any credit card companies willing to let you transfer your balances to a 0% card offer and the home equity route is a dead end, look to personal loans or other credit card offers. Just try to get the lowest rate you can.
7. PAY. IT. DOWN.
Finally, the single biggest part of this process is to pay down your new loan ASAP! That may mean doing without the cable television and eating beans and rice 3 times a day, but this is your freedom and peace of mind we’re talking here. It’s worth the sacrifice. Trust me.
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