Free From Broke

A Personal Finance Blog for Regular Folks

Debt

Debt. It can be used wisely to help free up money to build wealth, but most of us struggle with debt. Take a look at articles that help you deal with debt and eliminate your bad debt.

Should You Ever Cosign a Loan? Probably Not

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One of the absolutely most risky financial decisions you can make is to cosign a loan for someone.

The FTC has even done research to show consumers exactly how atrocious of a decision cosigning a loan is.  It can be really hard to turn down the need to cosign a loan; usually the person asking you is a relative or very close friend.  They are promising that it won’t be a big deal and they’ll be able to pay on time.

But is that true?

Should you ever cosign a loan?

For anyone?

Ever?

The Risks of Cosigning a Loan

Here are three risks of accepting the offer to cosign a loan.

The Person Asking is a Credit Risk

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When is Bankruptcy a Good Option?

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1,376,006.

That’s the number of bankruptcy filings in the United States (according to US Courts) for the 12 month period that ended March 31, 2012 – the most recent 12 month period for which statistics are available.

Obviously, if you are filing for bankruptcy you have plenty of company.

But when is bankruptcy a good option?

Bankruptcy has become so common, that is no longer carries the stigma it once did.  In there are folks out there that think ‘YOLO, I’ll just declare bankruptcy if it gets bad.’   That doesn’t mean you should file for bankruptcy or that it doesn’t come with risks.

The Cost of Bankruptcy

When I talk about the cost of bankruptcy, I’m not talking about attorney fees or court filing fees – what I’m referring to is the effect it will have upon your life.

That will be much more expensive than a couple thousand dollars you will pay for the bankruptcy procedure itself.

Before filing for bankruptcy, consider the impact it will have on your life… [Read more…] about When is Bankruptcy a Good Option?

Can We Break This Spending Cycle? Do We Want To?

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Amy Dacyczyn, author of the wildly popular 1990s The Tightwad Gazette, wrote a post one time about the television show Roseanne.

She noted that Dan and Roseanne are always struggling financially.

One time, they get an unexpected bonus of $50, and each Dan and Roseanne spend the money on things for themselves without discussing their purchases with one another.  Now, instead of having an extra $50, they are $50 in the hole.

Dacyczyn noted that every time Dan or Roseanne got extra money or worked overtime, they developed a “Yipee!-We-can-spend” attitude.  Yet, when money is tight, they scrimp and save and “feel poor” because they can’t spend.

Is America a Nation of Dan and Roseanne Connors?

The last several years have been rough ones financially for American citizens.

Many people lost their houses, and even if they were able to keep up with payments, they may have found themselves underwater.  People lost their jobs, and even if they were able to stay employed, they may not have seen a raise for years while health care and other costs escalated.

Yet, there are signs that the economy is improving.
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3 Debt Lessons from Game of Thrones

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“A Lannister always pays his debts.”

Growing up, Tyrion Lannister learned that lesson from his father.

Whether the debt was in promised payment for a deed done, or whether it was revenge for a debt of honor, that theme is something associated heavily with Tyrion Lannister in the A Song of Ice and Fire books (made famous by the HBO show Game of Thrones).

Warning: There may be spoilers, since this piece is based on the books, and not the TV show.

Even though it might take time to engineer your plan to get out of debt, it’s important to do what you can to reduce your obligations, and Tyrion Lannister is a perfect example of this.

Debt Lessons from Game of Thrones

Make a Plan to Pay Off Your Debt

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How Compound Interest Can Work Against You

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We hear a lot about compound interest, and how it can help you build your retirement.

Indeed, the power of compound interest is the subject of many articles on how to build wealth over time.

Even though compound interest is powerful, it’s not just a force for good.  In fact, compound interest, like so much in the world of finances, is itself neither good nor bad.  It’s how you use it that matters.

Understanding how compound interest works is essential.

A quote, commonly attributed to Albert Einstein (although it hasn’t been completely substantiated), points out that, “Compound interest is the eighth wonder of the world. He who understands it earns it, and he who doesn’t pays it.”

Compound interest can work against you just as well as it can work for you.

The key is to earn it — and not pay it.  Debt is the way that you pay compound interest, and it works against you.

Simple Interest vs. Compound Interest

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