Free From Broke

A Personal Finance Blog for Regular Folks

Debt

Dealing With Financial Problems With A Loved One

Published or updated by

Purity

There may come a time when a financial problem comes up between you and a loved one. Maybe it’s a late payment that runs up some fees.  It could be an old debt that rears it’s ugly head again.  Perhaps someone did a little too much damage with credit card spending?  Whatever it is the issue will have to be addressed so a solution can be figured out.

Here are some things to consider when confronting your loved one about their financial management problems:

Don’t blame or accuse the other person for the problem.  Arguing and blaming doesn’t help.  When you lay blame and argue it’s like telling the other person that you’re right and they are wrong.  It may be that’s the case but nobody likes to hear that.  Start off a discussion like this and you immediately turn your loved one off to what you are saying.  Remember the situation has already happened.  The point now is to figure out how to solve it.

State the facts.  Talk about what has actually happened.  Try not to get your emotions involved.  This means no name calling.  It also means talking about the situation at hand and not bringing up any past discretion.  The facts will help you find a resolution.

Talk to your loved one about how the problem arose.  How did it get to this point?  Ask what they think can be done to solve the problem.  Offer your help.  Suggest some ideas of your own as a solution.  Assure your loved one that you are their for them and that you are in this together.  This leads us to…

Take accountability for the problem with your loved one. “But it wasn’t my fault” you might say.  Maybe not directly but by sharing in the responsibility you let your loved one know that you are there to help them.  The fact that this person is a loved one makes their pain yours as well to some extent.  Take that extra step with the olive branch and assure them that together you’ll figure out a solution.

Remember you want to open the person up to discussion. Getting into a financial mess is embarrassing for most.  Your loved one probably knows they screwed up somehow so they don’t want to be reminded of how bad a blunder it was.  Listen to them.  Work on finding a way to both fix the problem at hand and prevent it from happening in the future.

Hopefully you don’t have many financial problems with loved ones in your life.  If you come across any, these ideas should help you work things out.

photo credit: timsamoff

Will The Economic Stimulus Payments Have To Be Paid Back

Published or updated by 41 Comments

Will you have to pay the Economic Stimulus back?

Now that many have already received their economic stimulus payments, and have figured out what to do with it, I’m seeing a lot of questions asking “Will the stimulus payment need to be paid back?”

The quick answer is no. According to the IRS the economic stimulus payment is not taxable and will not reduce what you may be owed in a tax refund for 2008 (filed in 2009). In fact it’s possible that you get more back next year, if you didn’t already get the maximum, based on next year’s return. See the amount was based on your 2007 return so if you didn’t qualify for the full amount you may still qualify for the difference based on your 2008 return. Don’t worry if you received the full amount already. No matter what your 2008 return says you won’t have to pay anything back.

Now the the longer answer – You are going to have to pay back the economic stimulus payment! In some way, shape, or form we will pay that back. The money has to come from somewhere.

Let’s look at the ways in which the gov’t receives income:

  • Taxes (from income and corporate taxes).
  • Loans (in the forms of government backed securities such as bonds, bills, and notes).
  • Printing more money in the treasury.

Which do you think the money will come from? Printing money sounds like an easy way to find the dough but it’s not a policy the US uses due to the fact that more money creates inflation (Inflation is always and everywhere a monetary phenomenon – thank you Milton Friedman). And who wants even higher prices?!? We can issue more loans. Did you know that in 2006 we paid $406 Billion in interest payments on loans made to cover the national debt? Where does that money come from? See above. So that leaves us with taxes.

Yes, I believe we will be paying back the economic stimulus payments in the form of taxes. It may not be as one lump sum like we received it but it will be paid out. It’s just lumped together with the rest of the national debt.

Could this be avoided? Maybe. But only if the national debt, which is over $9 Trillion, is reduced to zero in our lifetimes. This would mean that government would have to cut back it’s size and spending. Most likely many programs that help people would fall victim to the cuts. I’m not saying it’s impossible for this to happen, just improbable. I hope I’m wrong.

Of course another way to look at it is it won’t be us but our kid’s generation that will pay it back. I’m not too sure that’s a positive spin on it though.

So there you have it! Do we have to pay the economic stimulus payments back?

No, but yes.

What do you think?

Update: There has been a lot of confusion over paying the Economic Stimulus Payment back.  Please read Paying Back the Economic Stimulus – Lots of Tax Confusion for more information and clarification!

photo by Refracted Moments

Buy That Fun Stuff Without Going Into Debt

Published or updated by

Cash Register

You want to buy that new something.

Maybe it’s the Nintendo Wii and the Wii Fit?  Maybe it’s a new digital camera?  Perhaps it’s a new flat-screen TV or a GPS?  You can’t afford to buy it out-right.  If you charge it to a credit card you will be paying interest on top of the price of the item.

What if there was a way to buy the item and earn interest?  What if we can help make sure you buy it at a great price?

Sounds interesting right?

I’ll tell you what we’re going to do.  First off I have to tell we’re going to wait to buy this item.  Bummer I know.  You want it now.  But you don’t have the cash and paying interest on it, as well as being in debt, isn’t a great option.  Deal with it.

We’re trying to be responsible here and still get our new thingamajig.

Do you have an online savings account that allows you to create sub-accounts?  Good.  Now go into your account and create a sub-account titled Thingamajig (or whatever it is that you want to buy).  This is where you are going to save your money.

Now what amount of money can you put away into this account monthly without hurting your budget?  Can you cut back on Starbucks or something similar every week?  What would you expect to pay on your credit card if you charged it?  That’s a good amount to start with too.

Figure out how much a week this comes out to.  Go back to that sub-account.  We’re going to set up an automatic, weekly withdrawal into this account.  Why weekly?  This way you can see the money building up quicker.  I don’t want you getting impatient waiting for a monthly addition to the account.

Now we wait until the account fills up with the cost of your thingamajig!  This can be tough as you’ll test your patience but it will pay off.  Resist cashing out until you have the full amount to cover the purchase (you calculated taxes, accessories, possible warranty, delivery, etc…into your cost already, right?).

Here’s where this plan is great:

  • You earn interest while you save! – Every month you save you’re helping yourself with the interest you are earning rather than paying a credit card company interest for the privilege of using their money!
  • You now have time to do research – Go check out the thingamajig in a few different stores and ask the salespeople about the item. Go online and read consumer reactions. Check everyone’s price and see what locations give you the most bang for your buck (do some throw in accessories or have better return policies should something not work?).
  • A new improved model may come out – In the time you’re saving you may find that a better version has come out. Maybe the first was discontinued. Technology changes rapidly. today’s top of the line cell phone could be a clunker after a little while. It could be another company now has a better product.
  • The price could drop – Look at that. Now the thingamajig isn’t even as expensive as it was. You’ve earned interest and saved on the cost!
  • You may find you don’t want it anymore – This may sound crazy but in giving yourself some time to save and watching your savings grow you may not feel the thingamajig is worth the money anymore. Maybe it was just a fad that’s already faded? Either way, you now have a little extra to add to your savings. Sweet!
  • You became more responsible with your money – You didn’t go into debt buying your thingamajig. You set up a savings plan and stuck to it. You might have even looked at your expenses and found some things you didn’t really need in order to save quicker. What you were saving is now extra savings for you if you choose after you buy your thingamajig!

There you go!  You got your thingamjig, you didn’t go into debt, you earned interest to help pay for it, and you got the best possible price for it.

I bet it’ll feel good when you get home and open it up!

photo by skippy13

7 Credit Card Tips From ING Direct

Published or updated by

I was just on the ING Direct site checking out my savings accounts and decided to check out their tips. They list seven great credit card tips. Check them out (descriptions are mine):

  • Make your payments on time – Very important! Late fees can be very expensive on credit cards and can negatively affect your credit score. If you have problems with the due date you may be able to change your credit card due date.
  • Try to pay off the full balance every month – Pay off the full balance to avoid any interest charges.
  • Avoid cash advances – Cash advances on your credit card have different rates than normal credit. Yeah, it’s gonna be more expensive than if you just charged it.
  • Shop around – Compare rates and services from different credit card companies to get the best credit card offers.  Find one that fits your spending habits.  Make sure to read the fine print as well.
  • Use savings to pay off the cards – It’s great that ING Direct exists offering high interest rates on savings but that high rate doesn’t compare with the interest on your credit card (unless you have a low introductory rate).
  • If you’d like a better rate, just ask – If you have been a good customer you can call the credit card company and ask for a better rate. Try telling them that you received an offer from another company with a better credit card rate; odds are they can lower it for you. Make sure you understand what the new rate is though. It may only apply to new purchases not your outstanding balance.
  • Don’t be left holding all the cards – If you have a lot of cards it means you can do a lot of spending damage. This is bad for both you wallet and your credit score. Get rid of credit cards you hardly use or ask that the credits limits be lowered (a high credit limit can hurt you for some credit card companies).

Of course you should also watch your spending as well.  Don’t abuse your card and know what you can really afford.

Do you have any credit card tips to share?

Family – Can’t Live With ‘Em…Unless It Helps Debt

Published or updated by

I was in the hole for thousands over a few credit cards.

I was getting better at paying on time and I was managing to pay more than the minimum due. I was also transferring balances to lower and zero interest rate cards (which had it’s ups and downs). The totals were chipping away but it still felt like it would take forever to pay my credit debt off. At the time I was living on my own supporting myself with a full-time job. What I could save I did.

Then something interesting happened – I lost my apartment.

Seems my landlord wasn’t really supposed to be renting his basement out to tenants. Some funny NYC law that said he wasn’t zoned for it. Great. I had a few dollars saved but really I was still living paycheck to paycheck. If I went and found a new apartment, which would be more expensive and involve moving costs, real estate fees, etc…, I would be completely tapped out and would have to add more to my credit cards to get by.

Fortunately my parents came to the rescue.

They still had an extra room and they were ok with me moving back in with them. Now understand, I love my parents and they were great in helping me out but the last thing I wanted to do was move back into my parents’ place. But I didn’t really have many better options either. So I managed to cram all of my stuff back at their place. My original idea was to stay as long as needed to save up enough to move to a new apartment (I wasn’t paying rent now so I should have enough in a few months or so). It was not fun being back at the ‘rents. All the freedom I had grown accustomed to were gone. But I needed time to save.

After the first month I realized something – by not paying rent or electricity I was able to save a lot more than I had been. By the end of the second month, seeing how my bank account had grown, I decided to put a new apartment on the back burner. I was gonna suck it up and stay at my folks until my debt was gone!

What was the point of moving back out and being in the same debt situation?

With my new resolution I started to pay much more than the minimum on my credit cards.

Soon one card was paid off. Then another. One day I was finally able to get rid of all of my credit card debt! I felt like a slave that had just been freed!! No more of that debt monkey on my back. I was able to look at all of my bills and accounts and finally say that I had a positive net worth! This was not just a financial victory but a huge psychological victory!

I started to save for real. Not saving to pay debt but saving for me. As tough as it was living with my parents I realized what freedom really was. Sure I couldn’t live the same way under my parents’ roof as I did on my own, but freedom meant being free from debt (or free from broke)! It took me being thrown out of my apartment and moving back with my parents to realize that.

Do you have a debt story? Let me know in the comments