A Goal Based Approach To Debt Management

money-up-close

Good debt management advice is hard to come by.

Traditional financial wisdom states that certain debts, such as mortgage and student loans are good debts, while most other debts such as credit card debt, car loans, etc… are bad debts.

On the other hand, many Personal Finance bloggers express the opinion that ALL debt is essentially bad, to be paid down as quickly as possible, sometimes even at the cost of establishing a sustainable savings plan for the household.

So what is the truth?

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Subscriber Swap Saturday – Interview With No Debt Plan

no-debt-plan

No Debt Plan is about getting and staying out of debt with a plan. Kevin, the author, is passionate about budgeting, saving for the future, and using goals to reach financial freedom. You can subscribe to his blog by RSS or email.

This interview is part of a new feature he’s developed called Subscriber Swap Saturday. The basic idea is to get the subscribers of one blog to subscribe to the other blog for at least a week, just to try it out. After a week if you don’t find that blogger’s content enticing, drop it. The hope is that over time you will find several writers that you weren’t familiar with who provide meaningful content to you. You can read more about Subscriber Swap Saturday at his get out of debt blog, as well as his interview with me

What’s No Debt Plan all about?

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Credit Cards Don’t Suck, You Suck!

I wrote last time about how credit cards suck.

While that may be true at times, it may be more the truth that you suck!

Sounds harsh I know.  But a lot of people who have credit card problems need to take a deep breath and look at themselves.

Let’s look at some reasons you say credit cards suck but really you suck:

Late Fees Suck

They sure do!  That’s why they are there.  It’s meant to punish you for being late and hopefully you remember the next time to get your payment in on time.  If there weren’t late fees then everyone would pay late.  If you pay late once it’s an accident and you can ask your credit card company to remove the charge.  If you’re late more often then it’s all your fault and you have to look at your bill/pay system.  You know you can ask to have your due date changed, don’t you?

They Trick You on Rates

Look, they may put the details in small print but the details are still there.  If you didn’t read through them then that’s your fault.  Read the details and ask questions!

The Minimums Are So Low I Can’t Get My Balance Paid

credit card on computer keyboard

Are credit cards really to blame or is it your fault?

Every now and then we need a little help with our finances.  Something come up this month?  You can pay the minimum.  But if you make it a habit to pay the minimum and you can’t afford more then you have to look at your spending habits and your finances.  It’s not the credit card company’s fault you find yourself unable to pay more.

The Interest Rates Are Too High

Why are they high?  Probably because you don’t have good credit and you are a risk.  The credit card is giving you money remember?  It’s like an instant loan.  You know what it would take to go to a bank to get a personal loan just to buy a new sweater?  Very inconvenient!  That’s why the credit card company can charge you their rate.  If you don’t like the high rate then start paying off your credit card balance and make sure your payments are on time.  Then call them up and ask them to lower the rate.  And here’s something else – If you pay your balance on time every month then it doesn’t matter what the rate is because you won’t have to pay interest!

It’s Too Easy to Spend

C’mon!  Seriously?!?  Have some self control.  Take a look at why you think you need to use a credit card so often.  Why are you spending so much?  You can’t blame the credit card company because you can’t control yourself.

Stop blaming credit card companies!

No one told you to get a credit card.  OK, maybe it helps to have one to build up a credit history but it’s not their fault if you abuse the card.  Take control of you situation and start to do something about it!

What do you think?  Is it the spender who sucks?

12 Things Every Teenager Needs To Know About Money (And How To Teach Them)

There Is More Free Money Than You Realize For College

Before Cell Phones - A Quieter Life

This is a guest post from Grant Baldwin, the author of Reality Check, a book about helping students transition into the real world. His new website, BrokePiggy.com, answers questions from teenagers about personal finance, savings, and all things money.

BREAKING NEWS…THIS JUST IN…SPECIAL ANNOUNCEMENT….

College Is Expensive.

Ok, so I figured you already knew that. I think most of us would probably agree that college is a solid investment that has the potential to pay big returns in the future, but like we already established…

College Is Expensive.

Statistics say that approximately two-thirds of college students have some education debt and that the average student loan debt is around $21,000. The inaccurate perception is that student loan debt is okay, because you are investing in education. But if you graduate from college with several thousand dollars in student loan debt and no way to pay it off, that’s a bad start to the real world.

So how do you graduate with as little debt as possible, or even better, no debt at all?

• FAFSA (Free Application For Federal Student Aid) – This is the single largest source of financial aid available, so you definitely want to fill this form out. The government will use this form to determine your eligibility for things like Pell grants and even some work-study programs.

• Scholarships – This is a numbers game. The more you apply for, the better your chances are of getting some. Think of it this way: if it takes you an hour to apply, and you get a $500 scholarship as a result, that’s a pretty good payday considering how little time you put into it. Last time I checked, McDonald’s wasn’t paying $500 per hour!

• Community College – I highly recommend getting some of your general education classes taken care of at a local community college. You will almost always find it to be much less expensive, and the classes can often transfer to a “better” school that you are interested in attending later.

• Work-Study Programs – Many schools offer the opportunity to have a part-time job on campus to help contribute towards the cost of your education. Check with the financial aid office of the school you’re interested in to see what opportunities are available.

• AP & CLEP Tests – These are two great ways to not only save money but to earn college credit while still in high school. AP (Advanced Placement) and CLEP (College Level Examination Program) are programs that allow you the opportunity to receive college credit for what you already know by earning qualifying scores on various tests.

• Live At Home – Living on your own isn’t cheap. While there is nothing wrong with wanting to leave the nest, spread your wings and fly, the airfare is expensive. You can save literally thousands of dollars by postponing your departure for a little longer.

Can you add any other ideas?

This series “12 Things Every Teenager Needs To Know About Money (And How To Teach Them)” is a community blog experience.  This post is only one of the 12 points in the series so to view the other 11, please visit the list of links below.

  • Money Doesn’t Grow On Trees @ Bargaineering
  • Two Words: Compound Interest @ PoorerThanYou
  • Delay Gratification To Succeed @ GatherLittleByLittle
  • Living On A Budget Isn’t An Option @ TotalCandor
  • Credit Cards Will Steal Your Lunch Money @ Prime Time Money
  • Should You Earn A College Degree? @ TheDigeratiLife
  • Spend Money Based On Needs Not Wants @ MoneyNing
  • Living On Your Own Isn’t Cheap @ Studenomics
  • Taxes Are A Necessary Evil In Life @ MoneySmartLife
  • Do What You Love, Love What You Do @ GenXFinance
  • Don’t Be A Tightwad: Give Generously @ CashMoneyLife
  • This is a guest post from Grant Baldwin, the author of Reality Check, a book about helping students transition into the real world. His new website, BrokePiggy.com, answers questions from teenagers about personal finance, savings, and all things money.

    Creative Commons License photo credit: Sister72

    Never Mind A New Economic Stimulus Package – Save Yourself!

    There’s been a lot of talk in the news about a new economic stimulus package.  Some are talking about a new one being approved this year while others speculate that it won’t happen until President-Elect Obama takes office.  There’s been talk that a new economic stimulus package would be more infrastructure and not checks as the last package was.  And there definitely has been a lot of talk of whether we even need a new economic stimulus package; questioning if it even makes a difference.  Here’s what I say:

    Never mind a new economic stimulus package – Save yourself!

    Don’t count on the government to come through with legislation to help you make ends meet.   That attitude will never get you ahead.  You need to take matters into your own hands.  If you are in a bad financial situation you need take control and ownership of the problem and fix it yourself.

    Here are 12 ways you can take matters in your own hands and save yourself:

    • Make sure you excel at your job.  Unemployment is the highest it’s been in quite a while and I’m sure there will be many more layoffs to come.  Don’t be the robot at work that does just enough to get by.  Get yourself interested and make yourself valuable to your company.  Don’t just get your job done – get it done well!  If layoffs are coming you may be able to save yourself from the chopping block.  Hey, maybe you could even get a promotion?
    • Build networking relationships with friends and co-workers.  Sometimes, as unfair as it seems, it’s not what you know but who you know.  Keep up with co-workers when they move to other jobs.  They can be your foot in the door if you leave your current job.  Stay in contact with friends as well.  Even if they don’t work in your industry they could prove to be a valuable contact.  Network!
    • Pay your bills on time.  Lenders are getting shy about giving out their money these days.  If you pay late you may find your interest skyrocketing.  Universal default allows one credit company to raise your interest rate if you’re late on a different company’s card.  A late payment can make all of your credit cards have high rates.  If you aren’t paying off your balances every month you can find yourself sinking faster into debt.
    • Put money away for emergency savings.  Really you don’t know what the future holds and as the saying goes: “when it rains it pours!”  What happens if you find yourself out of a job?  Then the car breaks?  Then you need a doctor’s appointment?  Hopefully you don’t need your savings but put yourself in good shape by having savings in place.
    • Make sure your credit report is clean.  Errors on your credit report can be costing you in higher interest rates on your credit cards and loans.  Make sure your credit report is accurate.
    • Check you credit score.  Your credit score is like your code of honor among credit agencies.  A low score means higher interest rates and could also mean you won’t get a needed loan or credit.  Credit scores are also used in housing and in job hunting.  Get that score up!
    • Cut costs.  Remember that emergency savings?  A way to help build that up is to cut costs.  Cut a few corners here and there and you can find yourself with significant savings!
    • Analyze your tax withholding.  Are you paying too much?  Pay what you need to and no more.  Many like to get a big tax refund but you’re better off having that money in each of your paychecks instead.  You don’t earn any interest when the government is holding your money!  Adjust your tax withholding so you maximize your paycheck.
    • Re-evaluate your holiday spending.  The holiday spending frenzy is starting.  Don’t get caught up in the current!  You don’t need to spend exorbitant amounts on every person you know this holiday season (here’s a challenge: see if you can keep a $100 holiday).  What really the point in spending so much if it puts you in a bad financial situation?  Budget what you can spend on gifts and don’t go over.  Make sure your budget is within reason of your financial situation (don’t spend more than you have!).
    • Go to school.  Yes, school is an expense.  But taking some extra courses or pursuing/finishing up a degree can help make yourself more marketable to employers.  This can be as simple as taking an advanced Excel course to working on a higher degree.
    • Work on building alternate sources of income.  Try your hand at blogging.  Work on developing a hobby that could earn money such as photography.  Other streams of income are a good thing, especially when money is tight.  And you never know, what you start could develop into something bigger.

    It always sounds nice when the government offers to give us money back but we have to remember there’s a price to this.  It could mean less services somewhere else or more taxes down the line.  Remember the money has to come from somewhere!

    Don’t hope the government will do something to ease your situation.  Get a hold of your finances and take care of it yourself!

    What other ways could we take financial matters in our own hands?

    What Are Your Kids Gift Expectations?

    The boys were a little puzzled about what to do on their last duck hunt

    I hear some people complain that they have to buy expensive things for their kids because it’s what they expect.  Some don’t know what they are going to do this holiday season as times are getting tight.  How are we going to get little Johnny the latest (insert expensive popular toy here)?!?

    Here’s what I say – Don’t!!

    Where do your kids get their expectations from?  Do they get them from friends?  From television?  Those are influences but not the real source.  Children get their expectations from their parents!!

    If you make it a habit to buy your kids expensive gifts for every occasion then you are setting yourself up for financial trouble!  The younger you start the worse it will be.  If you are already buying expensive items when the child is a toddler what are you going to do when they get older?  How about when they are in their teens?

    It’s tough to tell kids they won’t be getting all the goodies they are used to. But if your spending is putting you in debt or you don’t have an adequate amount for savings and retirement then you better re-think your holiday spending plans!  Make your kids understand that they won’t be getting as much this year.

    But all their friends are getting it!! Hmm.  Are their friends paying your bills?  Are they putting money away for retirement.  Are they making sure the mortgage is on time?  I didn’t think so.  Teach your child to take pride in who they are not what they have.  This lesson will be valuable for their entire life!

    And you better practice what you preach!! Your child’s expectations come from watching you as well.  Don’t think you’re getting that new flat-screen TV or expensive cell phone while they don’t get the goods.  Parents must set the example for their kids.  We are not our stuff!!

    Say that to yourself – We are not our stuff! It’s important.  Get this into your mind set and teach it to your children, not just by explaining but by setting the example.

    I’m not saying don’t buy any gifts. But watch what you buy for your kids.  Yes, they love getting stuff.  I know I did as a kid.  But what is the child really getting out of it?  Are they using and loving the gift?  Not just for a day but for months, maybe years?  Or did they say it was their favorite for a few days then it joined all their other stuff in the corner?  Do your kids really appreciate the gift?  If your always buying them expensive stuff then your kids will start to see you a the person who will get them stuff.  Not for the person you are!  Think about that.

    Stop the cycle of consumerism that hurts us in the end. You don’t have to buy your kids everything they want.  Let them love you as the great parent you are rather than the person who gets them stuff.  They won’t hate you if you don’t get them all the hottest toys.  If they say they do then think about the values you are teaching them.  We all want to make our kids happy but we need them to grow up responsible too.

    Sign up with ING Direct and get a $25 bonus

    Creative Commons License photo credit: Gaetan Lee

    Personal Finance In One Simple Equation

    We’ve heard it all before haven’t we?

    The simple way to build wealth is to spend less than you earn.  Let me demonstrate this as a simple equation:

    Spending < Earnings = Savings

    That’s it in a nutshell.

    Take what you earn.  Now look at what you spend.  If what you spend is less than what you earn then what is left over is savings.  Let that grow and invest it properly and you will build wealth.   You only need two numbers to figure out that math!

    Let’s use dollar figures.  You earn $3000 a month.  If you spend $2999 you have a dollar left over for savings.  What’s a dollar you ask?  In today’s economic climate one dollar of savings will put you in better shape than corporate giants like Lehman Brothers, which is declaring bankruptcy, Enron, Worldcom, or Merrill Lynch, which was bought by Bank of America.  And that dollar will have friends joining it every month as long as your spending is less than your earnings.

    Now imagine if you could increase that savings amount either by spending less or earning more?  The savings will build up faster!

    Let’s change the equation slightly now:

    Spending > Earnings = Debt

    Spend more than you earn and you are in debt.  You have to be.  Where else could the money come from unless it’s borrowed?

    Back to the numbers…  You still earn $3000 a month but now you spend $3001.  You’re in debt.  Where do you get that extra dollar to get out of debt?  Maybe you borrow it from a friend?  Maybe you put it on a credit card (another name for debt)?   Either way it won’t materialize from out of nowhere.

    And what happens the next month? 

    Either you lower your spending by a dollar (assuming no interest) or you increase your earnings so you can pay back the debt.  If you don’t then your debt increases!  Just like our savings example that debt will keep growing until you find a way to pay it off.  If you let it grow too long then you get to be in the same boat as some financial institutions as you either have to declare bankruptcy or find someone to bail you out (and really if someone bails you out you will probably still be in some sort of debt).

    As complex as personal finance can be sometimes it still boils down to a simple equation.  Plug in your spending and earnings. 

    Too often we over-complicate the ideas that make up personal finance.  In reality the concepts are pretty simple, aren’t they.  Sure, you can go nuts poring over the different ways you can invest your money but the simple concept is clear — spend less than you earn and you can save.  That savings can help you build wealth.

    Are you saving or in debt?