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5 Pieces of Advice That Could Help You Become Debt Free

June 13, 2017 debtmanagement

You would like to get out of debt, right? Of course, you would. But if you’re struggling with debt it’s probably due to overspending in three categories: 1) too much house, 2) too much car, 3): too much entertainment.

If you truly want to get out of debt, the first thing you need to do is take a hard look at your spending in these three categories. If you’re not sure of your spending in these categories, you need to track your spending for at least a month. A number of free apps are available that make this drop-dead simple. Three of the more popular of these are Mint, Xpenser, and Pennies.

Be prepared to sacrifice

Reducing your spending in the three categories mentioned above won’t be easy. It can be especially hard if your problem is too much house. This means either finding a cheaper place to rent or worse, yet selling your home and buying a less expensive one. It can also be hard to reduce how much you spend on your car or cars. You might have to sell your current vehicle and buy something cheaper. You might feel great driving around in that Lexus SUV but it could feel even greater to drive around in a car where the payment was less than $100 a month. It might feel even better if you could pay cash for that cheaper car.

The easiest area to reduce your spending is on entertainment. The simple answer to this is just don’t go out so much and don’t eat out so often. You also may find you’re spending a lot more than you thought on just the “little” things like that drive-through latte you get every morning.

Have a goal

It’s practically impossible to save money unless you have a good reason to do so. This means having a worthwhile goal. In this case, it will be to get out of debt. Other times it might be to create an emergency fund or to save up enough to make a down payment on a house. Then, whenever you get the urge to go out for dinner or to buy that great sweater, take a minute to remind yourself that if you spend the money, you will be that amount further away from becoming debt free.

Develop self-discipline

This is where a budget can help. Mint is a great budgeting tool as is HomeBudget with Sync and Spendbook. In fact, if you are committed to becoming debt free, you must have a budget. Even more important, you need to stick to it, and this is where the self-discipline comes in. No budget can help you take control of your money if you’re constantly busting it.

If you just can’t stand the idea of making a budget, there’s an easier solution. It’s using the 50/30/20 rule of thumb.

The way this works is that you dedicate 50% of your net pay to your “needs.” This could include your rent or mortgage payment, automobile payment, utilities, groceries, and health insurance. In other words, those things you absolutely need. The 30% is for your “wants” – dinner at that great Italian restaurant, those fabulous shoes, or a weekend in the mountains. Last, is the 20% which is the percentage of your net pay you should save and use to pay down your debts.

Learn to live on one income

Two may not be able to live as cheaply as one, but if there are two of you, and you can live on just one income, you can become debt free in just a matter of months. Banking one of your incomes could also get you that down payment on a house in just a few years or could allow you to pay cash for a decent car. This should also mean money you could stick away in an IRA. If your employer offers a 401(k), you could increase your contribution, which could mean retirement sooner rather than later.

Consider settling your debts

You might also consider settling your debts. This is a process where you contact a lender and offer to pay a lump sum for less than the debt’s balance. Some people have been able to settle their debts for 50% or 40% of their balances. This, in fact, is the only way to pay off debts for less than you owe. However, you need to have the cash available to make those lump-sum payments, and you need to be a very good negotiator. This is wy many people turn to a professional debt settlement company like National Debt Relief. This eliminates the need to have money for lump sum payments, and the company does all the negotiating for you.

In conclusion

Getting out of debt isn’t easy. But if you’re committed to the idea, you can do it. Just follow the advice you’ve read in this article, reduce your spending, use some self-discipline, and you could be debt-free in just a few years.

Things You’ll Need to Give Up to Become Debt Free

June 5, 2017 debtmanagement

How good would it feel to be debt free? Some people say it would feel like getting out of prison. Others say it would feel like they’d gotten a 500-pound monkey off their backs.

Regardless of how it would feel to you, make no mistake about this. Becoming debt-free requires work, patience, and discipline. You need to have a budget and the self-discipline required to stick with it. You have to be patient because it won’t happen overnight, and you need to be willing to work at it. If you owe $20,000, or even more then becoming debt-free won’t be a sprint. It will be more like a marathon. In addition, things you will need to give up include one that may be very painful.

Checking social media obsessively

Are you addicted to checking social media like Facebook, Twitter, and Snapchat? Many people are. But if you truly want to become debt free, you need to break the habit as it can just lead to spending more money. Avoid checking to see what everyone else is doing. It’s easy to get in trouble when you see one of your friends has taken a fabulous vacation and you want to have one too. Turn off your social media and learn to live simply. You’ll likely find this is much easier said than done due to the addition of filtered content and targeted ads on Facebook, Instagram, and TV. The only way to beat this is through self-discipline – just stop checking your social media accounts except for maybe once a day.

Eating out

Eating out several times a week – for lunch or dinner – can add up to a lot of money. If you don’t believe us, get one of those money tracking apps like Mint, BillGuard, or DollarBird. Use it for a few weeks and you may be astonished to see how much you’re spending on eating out. If you’ve been in the habit of going out for lunch, stop it. Start packing a lunch instead. It’s easy to do if you just spend a few hours on Sunday preparing a large batch of food that you can then eat throughout the week.

Denial

As the old saying goes, denial isn’t just a river in Egypt. If you tell yourself you have your debt under control when you don’t, you’ll only prolong things and pay more in interest. Do you feel as if your debt wasn’t your fault, that you were tricked into debt? If this is the case, you’ll need to tell yourself a new story – that you are responsible for your debt, that you don’t have it under control, and that there are things you must do. For example, is your problem student loan debt, and you’d like to pay it off quickly? Then, you need to find ways to earn more money and reduce your spending. Doing just one of these things won’t get you there.

Your other financial goals

If you’re really serious about becoming debt-free, you’ll need to give up on your other financial goals like buying a house. You will need to be very single-minded and focus exclusively on getting your debts paid off. This may mean sacrificing Starbucks and giving up your health club membership. If you’re investing, you may have to stop. You may even have to raid your emergency fund. None of this will be easy, and you’ll need to keep reminding yourself how good it will feel when you’re debt free.

Your job

Eliminating those morning drive-throughs, those restaurant lunches, and trimming your grocery bill can only get you so far. At some point, you’ll need to look at the other side of the equation, which is how to increase your income. Some people have been able to do this very successfully by moving out of the corporate world and becoming entrepreneurs. Of course, this may not be for you. You may have to work for a promotion, get a new job at a better salary or take on a side gig. It’s easy to make extra money these days thanks to the Internet. It’s also easy to get part-time jobs like driving for Lyft or Uber, or in retail. Spend a few minutes thinking about how you could tweak your income, and it’s likely you’ll come up with a number of other ideas.

In summary

As you have read, it’s not easy to become debt free. However, if you give up the things mentioned here and are willing to be patient and exercise some self-discipline, you will become debt free. It’s not a matter of if, it’s just a matter of when.

Tips for Becoming a Financial Superstar and in Two Easy Steps

September 26, 2016 debtmanagement

Are you among the 80% of Americans that can’t come up with $400 in the event of an emergency without borrowing the money or do you want to become a financial superstar?

The sad fact is that we have become a nation of debtors Americans between the age of 18 and 65 now owe an average of $4717 in credit card debt. The website CreditCards.com recently reported that the interest rate on a credit card now averages 15%. If you assume a minimum monthly payment of $189 it would take 10 years and a month to pay off that $4717.

Plus, the average household owes more than $15,000 in credit card debt. People that are debt-free – that pay off their bills at the end of every month – have become a very small minority. The credit card companies call these people “transactors” and they don’t like them because they never pay interest, which is where the credit card issuers make their money.

What does a financial superstar look like?

Here’s a good, working definition of a financial superstar:

A person who is debt-free (with the exception of a mortgage)
A person that has a six months’ emergency fund
A person that has saved at least 12 1/2 times her or his annual expenses.
At least 10 years

Given these three criteria it’s not possible to become a financial superstar overnight. Achieving these goals will probably take at least 10 years. The good news is that there are basically just two steps to becoming a financial superstar. They are: Get out of debt and save your income for 10 years. That may not seem very profound but that’s it. For example, if you were to save half of your income you would have 12.5 times your annual living expenses in about 8 1/2 years. Assuming you continue to save that 50% for another 1 ½ years, you would then have an emergency fund of 18 months. Of course, this means assuming you shun debt like the Ebola virus.

Tips for reducing household expenses

Are you committed to the idea of becoming a financial superstar? All it really takes is a little self-discipline and in some cases a change in your lifestyle. You say you’re not interested in changing your lifestyle? In that case, it’s unlikely that you’ll ever become a financial superstar. People who become superstars – whether it’s in film, music or especially athletics don’t get there without making sacrifices, which often means big changes in their lifestyles.

Things you can do without dramatic lifestyle changes

So here, first, are tips for cutting expenses without making big lifestyle changes.

1. Take public transportation or walk or bike to work. Of course if you live in a place where there’s winter you probably won’t be able to bike to work to work year around. However, you should be able to take public transportation, which will still be cheaper than driving a car.

2. If none of these alternatives is feasible then buy the best car you can with cash. Forget about an automobile loan or a lease. Driving a car with 100,000 or so miles on it may not do your ego much good but it does offer some real benefits, not the least of which is all the money you’ll save because you won’t be making monthly payments.

3. Don’t have cats or dogs. They come with a number of visible costs such as food and vet care but also invisible costs such as what do you do with that pet when you want to go out of town for a week or more? Unless you have a friend who will pet sit for you, a week away will cost you $240 or even more.

Note: If you can’t stand the idea of living without a pet get a turtle or pet goldfish. They can be entertaining and will cost you much less than either a cat or dog.

4. Here’s a very difficult one. Don’t have children. If you’re married this may be mission impossible because your husband or wife will have a vote in the decision. But if you must have children wait until you’re at least 25. By then you should be emotionally and financially more ready. If you’re a guy, you might not want to date anyone you would consider for marriage. Staying single eliminates a lot of the temptation to have children.

Things that require lifestyle changes

Remember what we said earlier in this article about making lifestyle changes. Here some you would have to make if you truly want to become a financial superstar.

1. Move to a trailer or tiny home. The inescapable truth of homeownership is that the fewer square feet you have the less it will cost you not just in utilities but also in maintenance and insurance.

2. If neither of these is feasible live in an apartment. That will eliminate nearly 100% of the maintenance costs and renter’s insurance is considerably cheaper than homeowner’s insurance.

3. Finally, if there are reasons why you must have a house choose a modestly sized one. Trust us in that your kids won’t hate you if you put them in small bedrooms or even two of them in one bedroom.

In summary

If you’re really serious about saving 50% of your income you will need to find ways to economize on the two biggest expenses – housing and transportation – until you are saving 50%. If this means driving a beat-up looking car or living in a cramped space, so be it. Just keep reminding yourself how great your life will be once you’re a financial superstar and are still in your 30s.

7 Questions You Absolutely Must Ask Any Credit Counseling Agency

June 15, 2016 debtmanagement

One of the best ways to pay off debts is by going to a consumer credit counseling agency for help. If you choose a reputable non-profit agency it will cost you practically nothing to have your financial situation analyzed.

However, the key here is to pick a reputable credit counseling agency. To do so you will need to ask it these seven questions.

What are your services?

The best credit counseling agencies offer a wide variety of services, including budget counseling, classes in debt management and help with saving money. They also have counselors that are licensed in consumer credit, debt management and budgeting. Your counselor should discuss your total financial situation with you and then, if appropriate, offer you a debt management plan that will get your debts paid off and avoid other financial problems going forward. Beware of any agency that tells you that your only option is a debt management plan before its representative has thoroughly analyzed your financial situation.

What free information do you offer?

Stay totally away from any credit counseling organization that charges for information about its services. No reputable credit counseling agency does this.

Are you licensed in my state?

A number of states require credit counseling organizations to become licensed before they are allowed to offer debt management plans, credit counseling and other such services. Make sure that you don’t hire an organization that has not fulfilled your state’s requirements.

Will you provide me with a formal written agreement or contract?

Never agree to participate in a DMP over the phone. Get all agreements in writing. If you are offered a DMP be sure to read it very carefully before you sign it. If you feel pressured to agree to do something immediately, that’s a red flag. It would be best to stop talking to that organization and begin looking for another one.

What are your counselors’ qualifications?

Ask if the agency’s counselors are certified or accredited by an independent, outside company. If so, what was the organization that certified them? It’s important to choose an organization whose counselors were certified not by the agency itself but by an independent, outside organization.

What are your credit counseling fees?

Reputable credit counseling agencies generally charge a minimal fee to set up your account of maybe $25. It may also charge a monthly maintenance fee of $10 or so. If you’re quoted fees higher than this, then you may want to look for another credit counseling agency.

How will you keep my personal information secure?

Credit counseling organizations are like banks in that they will have a lot of your personal information including your name, phone number, address and, of course, your financial information. It’s important that they keep this information secure. Ask what safeguards it has in place to guard your information and prevent it from being misused.

What to expect with a DMP

If you and your counselor agree that your best option would be a DMP you will begin depositing money with the credit counseling agency each month. It will use this money to pay your lenders based on the payment schedule it negotiated with them Your creditors may agree to lower your interest rates or waive certain fees because you’re now on a DMP, which should mean lower monthly payments.

Three things you must do

There are three things you must do once your creditors have accepted your DMP. First, it’s critical that you make all of your monthly payments on time. Second, you will receive monthly statements you must read carefully so that you’ll know your creditors are being paid per your DMP. And third, if for some reason you won’t be able to make a scheduled payment you need to immediately contact your credit counseling agency. You also need to contacted immediately if you find your creditors are not being paid.

Why this is important

If you do not make payments on your DMP’s schedule, or if you find that your creditors are not being paid, you may lose whatever progress you’ve made in repaying your debt or the benefits of being in a DMP. If your payments are late, you probably won’t be able to have your accounts “re-aged” again, your credit report will have “late” marks and you’ll likely rack up late fees that will lead to even more debt.

7 of the Simplest Debt Management Tips You’ll Ever Read

June 8, 2016 debtmanagement

Probably the best debt management tip of all is to begin managing your debt before you even become a borrower. Unfortunately, this is something that the overwhelming majority of us simply don’t do. But here’s what they can do to become much better debt managers.

Track your spending

You need to track your spending and how much income you can expect in the near future. Subtract your spending from your income and you’ll then know how much money you have to pay your creditors. Fortunately, it’s now practically drop-dead simple to track spending thanks to the myriad of free apps available. The most popular of these is probably Mint but there are countless other good ones such as DollarBird and GoodBudget.

Have an emergency fund

You can just count on the fact that you will have unexpected and unbudgeted emergencies. If you don’t have money set aside to cover them, you’ll have to borrow it – one way or another. This means just heaping on more debt. While most financial experts say your emergency fund should be the equivalent of six months’ living expenses that’s a bit extreme for most of this. Try instead for three months of your living expenses. That way, when the water heater dies or your old washer-dryer gives up the ghost, you’ll have the money to cover it and won’t have to use a credit card.

Don’t borrow without first doing your homework

The best way to look at borrowing money is as if you were buying it and treat it just as you would any other big purchase. Whether your choice is to borrow money from a bank, by opening a new credit card or through a finance company be sure to comparison shop to get the best deal you can. This can be especially true if you’re thinking of opening a new credit card. Check out at least three different offers and make sure you carefully review their terms and conditions. The top of the offer might scream, “Open a new account at just 12% interest and earn 2% cash back” but the fine print of the terms and conditions might be so full of fees and penalties that you would find it much less desirable.

Prioritize your debts

If you’re struggling to pay your debts, don’t make the mistake of just trying to juggle them. Prioritize them with the ones at the top of your list being the secured ones such as your mortgage or auto loan(s). The reason they should get top priority is because if you fall behind you could actually see your home or car repossessed. Next on your list should be those necessities of life such as your rent and utility bills. Last should be your unsecured debts like your credit card debts, personal loans and lines of credit.

Make a plan before you borrow

One of the worst things you can do is lose control of your money. When you do this you’re basically letting the lender decide your monthly payments. What you need to do instead is keep track of all your credit card purchases and have a plan for paying them off. Also, try hard not to make just the minimum monthly payment on any credit card. That’s a sure way to get into even more trouble with debt. As part of your plan set a goal for paying off the debt that has the highest interest rate as quickly as possible. And be sure to pay off those little credit card purchases every month. Stuff you purchased on sale isn’t a bargain any more when you add accrued interest to that sale price.

Comparison shop for debt management advice

Just because somebody wrote a book or an article on debt management or created a website related to debt management doesn’t necessarily mean that person is an expert on personal debt management. Comparison shop for your debt management advice just as you would for a loan. The best solution is to find several opinions that match up with those of other experts. For example, Dave Ramsey has written a number of books on debt management, the most popular of which is probably The Total Money Makeover. If you decide to read it be sure to make notes and then go look for other experts that have the same opinions as Dave. Ditto any other authors or websites you read.

Know your rights

You have rights as a debtor that can protect you from unscrupulous lenders or, worse yet, debt collectors. Our Federal Trade Commission (FTC) is an excellent resource that can help you better manage your debts along with good information about what to do should they spin out of control.