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Archive for March, 2008

Carnival of Personal Finance #146 is Available

Written by admin on Mar 31st, 2008 | Filed under: blog carnivals

This week’s carnival is brought to us by StockTradingtoGo.com and offers some valuable tips on how to choose an online broker along with links to some great personal finance blog posts.

We like:

Here’s an article posted this week on a credit card offers website that I think most everyone can benefit from- ways to get cheap or even free vacations from your credit cards. Nothing wrong with that ! Here are 21 Ways Your Credit Cards Can Save You Money On Your Summer Vacation.


Sitting in a Financial Mess? Here’s How to Get Out

Written by admin on Mar 30th, 2008 | Filed under: Uncategorized

After my first year of college, I came to the stark realization that I had several thousand dollars in student loan debt and a credit card bill that was getting a bit higher each month, and definitely was not moving in the right direction. I had next to nothing in savings, and even worse, I had a $2000 tuition check to write in the fall. I knew that if I was going to turn things around and be able to attend college, some changes would have to be made. I was in a financial mess, and I needed to make some changes.

In order to begin this process of taking a 180 in my finances, the first thing I did was try to figure out where I was at and what I was doing that put me there. I made a fancy spreadsheet in Excel and looked at all the things I spent money on in the last couple of months. In the column next to each of the expenses, I wrote if they were essential purchases or not, and most of them weren’t. I was spending way too much money.

I knew that I had to cutback and do so dramatically if I was going to get my head above water financially. I went through each purchase that I made and asked myself whether or not I –really- needed it. A lot of stuff I didn’t. I wound up canceling quite a few different things, such as the two MMORPGs I was playing, and a lot of wasted money in fast food. Especially as I was living with my parents at the time, I really didn’t need to spend much of any money at all! When all was said and done, I cut my expenses in half per month quite easily. You might not be able to do that much, but chances are you can cut it out a few hundred dollars a month to help yourself get out of your debts.

The next thing I did was take the extra money that I saved every month, and started putting it on my debt. In addition, I talked to my boss at work and managed to pick up a few extra hours to make for some more cash-flow. I sold my DVD and CD collection, as well as a lot of other books and miscellaneous items on eBay. I found additional employment for the school year so that I would have more income when I moved back to college. In about a month, I was wholly done with my credit card, and by the end of my sophomore year of college I was done with my debt completely, was back in the positive, and moving in the right direction.

The mathematics of turning yourself around are extremely simple, yet very difficult to follow. It involves dramatically changing your behavior, which is not always the easiest. We have to be able to tell ourselves “no”, spend a lot less money, and throw everything we possibly can at our debts. In most cases, we have the cash flow to achieve our goals, we’re just not using it effectively.

If you’re in a mess, be honest with yourself, something has got to change. If you keep doing what you’ve been doing, you’re going to keep getting what you’ve been getting. For the sake of you retirement and your children’s college fund, make a commitment to move in a positive direction.


Reverse Mortgages are a Terrible Idea And You Should Never Get One

Written by admin on Mar 28th, 2008 | Filed under: Uncategorized

For whatever reason, a lot of people fail to plan for their retirement. They know that retirement is coming sometime and that they can’t work forever, but don’t take any active steps in order to successfully plan for their retirement. They find themselves at age 65 without any money, probably some debt, and nothing but Social Security to take care of them. This isn’t the best place to be at age 65, and they know it.

Some people try to live off of their Social Security income, but a lot of people aren’t willing to give up the luxuries that they’ve been able to have when they did have an income, so they look for other options. Some people choose to work in a part-time job for extra income, but there are those who think that they should be able to retire regardless of whether or not they did a good job saving for retirement or not. In most cases these people borrow money to finance their lifestyle, and one of the growing ways to pay for life throughout one’s golden years is through what is called a reverse mortgage. They’re some of the worst financial products on the market, and you should avoid them.

Essentially, a reverse mortgage is a loan which is available to senior citizens (people of age 62+ in the United States) that is used to liquidate the home equity the person has, but allow them to stay in the home until they sell it or pass away. Typically the loan money taken through a reverse mortgage comes on a monthly basis, but there are also instances where a lump sum is given. The borrower won’t make any payments until he/she moves or dies, but when the person is no longer in the house, the balance will be due in full.

The idea of creative financing seems like a reasonable and creative way to pay for one’s retirement until you look at it a little bit deeper. When you look at the numbers of a reverse mortgage, you’ll find that the fees and interest rate are some of the highest available on the market for any type of mortgage. Chances are you’re a lot better off just getting a regular mortgage if you think you must absolutely borrow money on your home to live.

There is also a lot of fraud in reverse mortgages. Senior citizens have long been preyed upon for financial scams; often time’s senior citizens could be on the very raw end of a deal and have their home taken from them! You personally might not be hit with some sort of reverse mortgage fraud, but given that this is a very highly targeted method of taking money from seniors, one shouldn’t even bother risking it.

Reverse mortgages are never a really desirable option. If the only wealth that you have is your home equity, it might just be time to sell your home. Most seniors will never do this because they are unwilling to face the reality that they cannot afford their home, and instead will try to keep up their lifestyle by borrowing money, because it’s the seemingly easy way out. Of course in doing so you’re throwing money away in fees and making sure that your family does not have any sort of inheritance!

It’s time to face the facts, if you find yourself in such a situation, you really can’t afford to retire. Take on a part-time job for some extra income, and consider moving into a smaller house or into a nice apartment, because as you get older, you really won’t be able to keep the house up and too much of your life will be invested in one piece of property. Stay away from reverse mortgages, they’re not the answer.

Essentially, a reverse mortgage is a loan which is available to senior citizens (people of age 62+ in the United States) that is used to liquidate the home equity the person has, but allow them to stay in the home until they sell it or pass away


How to Pay For College without Borrowing on Student Loans

Written by admin on Mar 26th, 2008 | Filed under: Uncategorized

So it’s your senior year of high-school and it slaps you in the head that you’re going to want to go to college next fall, and you didn’t save any money to do so! Unfortunately your parents are just as broke as you, and they can’t bail you out either! You have no money, and want to get an education. At this point most people default to finance their education up to their eyeballs and only realize that they borrowed well into five figures of debt after they graduate. This is not a winning plan! Who wants to start out their life with tens of thousand dollars in student loan debt? Here’s how you can pay for college without borrowing money.

The first thing that you have to realize is that you cannot afford to go to a fancy private school. Having a Champaign taste on a beer budget just does not work when it comes to college. All you can afford is an in-state public school, and that’s fine. We all don’t get to go to the college of our dreams; it’s called being an adult. Deal with it. Private schools are just too expensive to pay for out of pocket unless you get some big fancy scholarship to go to them. By going to an in-state school at the very nice tax-payer subsidized rates, you can usually get tuition down to about $5000 a year or $10000 with room and board.

Most college people live in dorms, and you should be able to do that if you want to, because it’s a lot of fun and you’ll meet a lot of great people. We do have to come up with $10,000 a year. That’s no easy task. Depending on when you’ll be entering college, you still could have a chance to get some scholarships to help pay for school, and if you do, apply for every single one of them. This is the easiest money that you’ll ever earn.

If scholarships aren’t an option, and for a lot of people they just aren’t, there is really only one option left, work. Don’t lie to yourself and think that you are too busy to be in college. You have plenty of time, chances are you’re only actually in a classroom for 15 to 20 hours a week. There’s ample time to work during college, and there’s nothing wrong with doing so.

So we know that we need to work, but how much do we need to work? You’ll need to work full time during the summer for sure. Any decent college student should be able to find a full-time job somewhere over the summer making around $8.00-$10.00 an hour. After taxes, you’ll probably make around $5,000. That’s about half of your college paid for, and now you have to come up with another $5000 during the 9 months that school’s going on. This means that you’ll have to work around 15-20 hours a week during school and over breaks, which is very doable. It’s not always pretty, but you’ll still have time for classes and friends.

The sad thing is that 99% of people will not work their way through college, instead they take the “easy” way out and finance their education over the next 20 years. They end up paying for their education multiple times over after interest is factor in. Let’s put it this way, after graduation where would you rather be, debt free, or have a $25,000 student loan to go with your new job? It might not be fun, but it will pay off in the long run.


Debt Advice: How to Defeat Your Debt Once and For All.

Written by admin on Mar 24th, 2008 | Filed under: Uncategorized

When I was 19, I went and filled out my 1040 EZ like a good little citizen, and it told me that I made about $30,000 that year, and I really didn’t have anything to show for it except several thousand dollars in student loan debt. Sure, some of that money went to tuition, books, room and board, but I wasted a whole bunch of that money! I knew something had to change! I decided that it wasn’t going to stay like that forever, and I was going to have something to show for all of the money I made. I cut back on spending, worked harder, and instead of being $7000 in the red, I was $5000 in the black just over a year later. Here are some tips that you can make use of to get very intense and pay off your debts!

Sell Stuff – You probably have a lot of random toys sitting around that you rarely make use of, maybe a boat, extra television set, computer, motorcycle, or something like that. Put that stuff on eBay or in the newspaper and get rid of them. If you wouldn’t buy them in the situation that you are now again, sell those items!

Cash Out Savings Bonds – Most of us got some sort of small savings bonds when we were little that have just been sitting around collecting dust. Take this advice, It’s time to cash those in and put them on your debts!

Have a Garage Sale – Everyone has piles of stuff that they don’t need and really don’t want and are just too lazy to get rid of. Grab a couple of neighbors and have yourself a garage sale and get rid of that stuff, take everything that doesn’t sell to the local Good Will to free up space!

Say No To Fast Food – We spend ridiculous amounts of money on fast food, some of us a lot more than others, you can always make food at home for cheaper. If you’re looking for one solid thing you can do to save money, quit eating out!

Drive Debt Free – A lot of us buy new cars that we can’t afford. If you have a big expensive new car, put it up for sale and get a reasonable $2000 or $3000 car that you can drive around until you actually have some money to upgrade and pay cash for a vehicle. Dave Ramsey, of Fox Business News, is a big advocate of this method.

The Dreaded Part Time Job – A lot of us hate the idea of a part-time job because it means going back to those service jobs we thought that we left a long time ago. Don’t worry, it doesn’t have to be this way! You can create your own part-time business and make way more money than you would by working at the mall! Even if you do get a retail or service job, you’ll be making some extra money that you didn’t have before!

Addictions – If you just can’t stop smoking, consuming alcohol, or even are drinking too much pop, it might be a good time to finally put these nasty little habits away forever. It’s amazing how much money that you can spend on these things.

Cancel the Vacation – If you’re in a lot of debt, let’s face it, you just can’t afford to go on vacation, and that’s the way it is. The money’s not there, and don’t fool yourself into thinking that it is there.

Economize Your Lifestyle – Part of getting out of debt is just spending less money, I know it might seem too simple, but you need to focus on getting the best deals when you buy stuff, buying generic brands, and not buying stuff that you don’t need. Just spend less money, you can do it if you try!


How I live on $600 a month and Not a Penny More.

Written by admin on Mar 22nd, 2008 | Filed under: Uncategorized

There’s a commonly held belief that college students are dirt poor and have to find ways of living on practically nothing, and it’s absolutely true. Most students believe they don’t have time to work any serious amount of hours while they are in school, so they don’t make very much money. For being in college, I am doing rather well, but choose to live on next to nothing anyway, because it allows me to put away a ton of money in savings and investments for the future. There are months when I live on 20% to 30% of my income easily, and I really only spend about $600 a month. Here’s how I do it.

The biggest expense that people generally have is their home. Since I’m in college, it really doesn’t make sense to consider buying a home. I had two options for living, a dormitory and a mandatory overpriced meal plan that would cost around $2000 for a semester, or I could try to find a house or apartment to rent. I decided that it was about time for me to move off campus, so I found a room-mate, and we started looking for places to live.

We must have looked at 10 different apartments and houses before we found a winner. It’s only $350 a month plus utilities, and it’s not totally a trash-heap. The utilities average $150 a month between city utilities and the home heating oil bill, so we’re doing pretty well. I do happen to live in rural South Dakota, so that makes the real-estate part of the process much easier. This just can’t be done in a lot of major cities, but don’t think you need to have a very big and fancy house or apartment when a reasonable and livable place can be had for a lot less, if you put the effort in to find it.

After I spend my first $250 a month on housing and utilities, I generally like to eat too, so I buy some groceries. The small town of Madison does not have a Wal-Mart or other big grocery store chain, but fortunately my room-mate commutes to Sioux Falls (a city of 150,000 people) every weekend. We share the grocery bill for convenience, and I usually only spend about $25 a week on food for myself. I also have this habit of eating out after church on Sundays, and on occasion when I really don’t want to cook, which adds up to be another $50 a month.

I’ve got all of the basic requirements of living done, and I’m only at $400 a month. I need gasoline for my car, which averages to be another $50 a month fortunately I don’t need to do a whole lot of driving except to visit the parents that are an hour away every now and then. Oh, and my car is paid for by the way, so I don’t have to deal with a payment for it.

I’m getting married in August to a very wonderful woman, and I like to treat her as best I can. I usually buy her flowers once a month, and take her out to eat once or twice, so there’s another $50 spent. I know I don’t need to spend that much money on her, but I like to treat her well.

For us young people, television and the internet seem to be necessities, so we pay for high-speed cable internet, and cable television. That’s about $80 a month for both of those between me and my room-mate.

We’re at $540, and there’s $60 to go. This money goes to a number of different things, sort of a slush fund if you will. I know I’m going to spend money during the month on entertainment, and random things I might want from one of the box stores, but this is stuff that I never really know in advance, so it serves as a miscellaneous line in my budget.

I have no debt to speak of, so I don’t have to write any checks for things such as big nasty credit card payments, home equity loans, automobile loans, personal loans, and the like, which is very nice. Oh, and by the way, not borrowing the money in the first place is the best way to get and stay out of debt.

There you have it, it’s not pretty, it doesn’t have a lot of luxury in it, but it’s more than enough to give me a very satisfying standard of living and allow me to do the things that I enjoy doing and save a whole mess of money in the process.

I have no debt to speak of, so I don’t have to write any checks for things such as big nasty credit card payments, home equity loans, automobile loans, personal loans, and the like, which is very nice. Oh, and by the way, not borrowing the money in the first place is the best way to get and stay out of debt.


Why I Decided to Quit Borrowing Money Ever Again

Written by admin on Mar 20th, 2008 | Filed under: Uncategorized

I wonder if anyone has ever gotten out of bed, thrown off their covers, sat up, and said “Thank God, that I’m in debt It would really be a terrible thing if I didn’t owe anyone anything!” Nobody likes owing other people or banks money, yet the super majority of Americans are. People borrow money for everything, homes, automobiles, computers, furniture, appliances, clothing, even food. No one likes debt, yet debt is seemingly everywhere. How did this happen? I don’t owe anyone any money, and I sure don’t want to owe anyone any money, so I’m not ever going to borrow money again, period. The best way to stay out of debt is to never borrow the money in the first place.

At this point nay-sayers will chime in. They’ll tell me that I need to use other people’s money to become very wealthy, and that debt is a valuable financial tool. They’ll attack me, tell me that I’m out of the mainstream, and am just outright crazy. That’s fine; they were never going to seriously consider a completely debt-free lifestyle anyway. In fact, I’ll be surprised if I don’t get quite a few comments telling me I’m crazy in response to this article.

Don’t worry; you can do just fine in your financial life without ever borrowing money. Recently a survey was conducted of the Forbes 400 wealthiest people in America. In the survey, 75% of the respondents said that the best to become financially independent is to get and stay out of debt. You can build your business without debt too, Microsoft, Cisco, and Walgreens are all run without debt.

What makes debt so bad? Let’s stop a minute and think about it. When you are borrowing money, you are agreeing to pay someone more money so that you can have whatever item you want now. Borrowing money for purchases causes you to pay far too much for them. Instead of paying $10,000 for a car now, you get to pay it over a period of 5 years and end up paying closer to $12,000 for that same car. When you start looking at some of the very undesirable loan products such as credit cards and payday loans, the numbers even look more egregious. That $30 pair of pants you bought at the retailer could easily cost over $150 if you threw it on top of a credit card balance and made the minimum payments until it was paid off. Yes, it is that simple.

Most people are very poor in their use of credit. MSN Money reports that 43% of American families spend more money than they earn. The average household has more than $8,000 in credit card debt. Personal bankruptcies have doubled in the last decade, and Americans owe a total of $2,000,000,000,000 in consumer debt, yes, that’s trillion with a t. That’s almost $7000 of consumer debt for each person in North America. Knowing these figures, why would anyone even consider borrowing money? Some will say that they are the exception and that they pay their credit cards off every month and pat themselves on the back for doing so. And some are, but for the most part Americans mishandle borrowing money, so why not avoid this mess all together and just not borrow money?

But what about buying a home?! Everyone has to borrow money to buy a home, right? This is a very rare occurrence, but it is entirely possible to buy a home without ever borrowing a dime from anyone. All you have to do is live on a fraction of your income for a few years, it does work. It might not be easy, and you might not get to go on vacation and have all of those luxuries that most yuppies think they cannot live without, but five years from now instead of a mortgage, you’ll have a paid for house.

“But But But…!” There are just no instances when it’s necessary or desirable to borrow money. You can avoid having to pull out a credit card for emergencies by making what’s called a rainy day fund. Your grandmother did it, and so can you. When you borrow the money, you are making the bank money. When you save money and pay for cash, it’s like you’re paying yourself interest. You might not get that purchase right away, but you can wait. It’s called delaying pleasure, yes, you can do it. It’s called maturity. You don’t need to borrow money, and it’s just not a good idea!


Are Payday Loans Ever a Good Idea?

Written by admin on Mar 19th, 2008 | Filed under: payday loans

The current status of banking in the United States is much unlike any culture in the history of the world. There is much more capital to invest, and because of fractional reserve banking, there’s just so much money to loan out. Before only people who could surely pay off a loan would be able to get one, but this is no longer the case. The sheer amount of money available to be loaned has increased so dramatically that bankers and finance companies have found ways to make it mathematically viable to loan money to people who won’t always pay the money back.

One of the most common types of these sub-prime loans is called a payday loan. There are even companies that offer payday loans through the internet. They’re extremely easy to get. Essentially, you will give the finance company a post-dated check for the amount of your paycheck, and the amount of money that they will give you in cash is a bit less than the amount of the check you give them. A week or two later, your paycheck comes and they cash the check.

The idea seems simple enough, but many people have accused payday lenders of preying on the lower class. When you look at the mathematics of payday lending, you can see why. Quite often the interest rates that they charge are anywhere from 400% to 800% on an annual basis. This is much more than any normal person would think is reasonable to pay. There was even a recent piece of legislation which prevents these companies from being near military bases, because so many servicemen fell into the payday loan trap. Their debt to income ratio would become so high that they were deemed a security risk because they would be more likely to accept a bribe!

We know that payday loans are not the best financial product out there, but are they ever a good idea? What if you need money to put gas in your car or to pay for groceries? After all, you have to eat and drive to work! Is it okay to get a pay day loan then? Many people would think of this as a justifiable situation, and this is how most payday loans begin.

When we look a little bit closer, we find out that payday loans are really never the solution, and here’s why. Let’s say that it’s the 5th of the month, and you had an automobile accident or some other such emergency and are now out of money until the 15th. You need to eat, so you go get a payday loan for the $1000 paycheck you would be getting on the 15th. You get $900 from the payday loan place on the 5th, but now that money has to last until the end of the month. So instead of having $1000 from the 15th to the 30th, you now have $900 from the 5th through the 30th. Chances are there’ll be a lot of month left when the money’s all gone. Of course you have to eat, so what do you do? You go get another payday loan for the 1st, and it becomes a vicious cycle.

There’s the fundamental problem with payday loans. You don’t need your paycheck sooner, you just need more money. A payday loan will never do this for you, in fact you will have less money with all of the fees that you are paying. There is no situation where a payday loan will solve your money problems, ever!

So what’s the alternative? It’s the 20th of the month, there’s mo money for food, and your car is running out of gas. You have hungry mouths to feed and you have to get to work, what do you do? There are always options. A pay day loan might seem like the easy way out, but this is not the case. Instead consider searching for some temporary extra income. You can do this by having a garage sale, selling some stuff, doing day-labor type work, temp work, and the like. If it comes down to it, ask your church for some help, or your family. Don’t borrow money; because the last thing you need right now is another loan. There are people out there who will help you. If you really need food, go to the food pantry.

There are options out there, but don’t let a payday loan even come onto the radar of consideration. They won’t solve your short-term financial problems, and will only put you deeper into debt and give you another payment to worry about.


NEVER Go In Debt To Improve Your Credit Score!

Written by admin on Mar 16th, 2008 | Filed under: Uncategorized

In the last twenty-some years, there has been a transition in North America. People used to judge their financial worthiness by how much money had, and now people are merely focused on how great their credit score is and how good they look. People think that as long as they can make their payments and can keep their credit score looking good, they can continue to borrow money as much as they please. It is certainly an interesting reflection on how America has changed in the last few decades. Quite often young people are even told to borrow money that they don’t need to just so they can build a credit history. Is this the smart thing to do?

Let’s take a moment and think about this. When you take on a debt and pay at least your minimum payments, your credit score will improve. You will also become a lender’s best friend, because they love people who will borrow money at high interest rates and then pay that debt over a long period of time. You will certainly improve your credit score, but you shouldn’t take on additional or new debt to do it.

I’ve heard a number of stories from other college students and people just starting their financial life about how they took out a loan from a bank, opened up a credit card, or took on some sort of debt so that they could improve their credit score. There are a number of reasons why you shouldn’t borrow money to improve your credit score. The first is that you shouldn’t establish patterns of consistently borrowing money when you are just starting your financial life. Rather, you should establish habits of saving money, and paying cash for things once you save up enough money. You shouldn’t let yourself fall into the myth that you will always be in debt and always making payments on things such as a vehicle, furniture, or a home.

The other main reason that you should not borrow money to improve your credit score is because doing this is the equivalent of paying a fee to improve your credit score. You can’t really quantify how much money you will save by improving your credit score for future loans at all. Thus you are giving in money for the possibility of getting more out later, this is called gambling. It’s a fool’s game. You never know whether or not it’s actually going to be worth it to get that credit card or other loan.

When all is said and done, it’s just not worth your while to actively try to improve your credit score by borrowing money and paying it off. Instead focus on building wealth and actually having some money, rather than what some company tells you is your credit worthiness is.


Why Debt Consolidation Doesn’t Work

Written by admin on Mar 15th, 2008 | Filed under: consolidation

You’ve probably seen the commercials, whether it be on TV or the Radio. A man in a nice suit tells you how he can “pay off” all of your debts. He will tell you about how he can get rid of your multiple high interest payments and give you one low easy payment. It makes it seem like getting a debt consolidation loan is the answer to all of your problems. After you get passed the flashy commercials, you will find that they really do not have a whole lot to offer.

Basically, they will write a check to pay of all of your consumer debt, and then give you a new loan for all the checks they wrote. Usually these debt consolidation loans are second mortgages, which allow them to offer interest rates of about 8% or 9%. There are a number of problems with these type of loans, and are really just not worth your while.

The biggest problem with them is that they do not change your behavior. Debt is not the problem, rather debt is the symptom. The problem is that you are spending too much money, and getting a debt consolidation loan does nothing to stop your overspending habits. So you pay off your credit cards with a debt consolidation loan, and end up just going back into debt because you have a bunch of credit cards with a zero balance and a huge spending problem. It’s just not the solution to your financial problems.

Most of the time you won’t even get the great loan that they present to you in the advertisements. That’s the teaser rate for people with the best credit, but if you have all sorts of debt and need a debt consolidation loan, you probably won’t have the absolute best credit score and will get a less than decent loan. Often times there will be a number of hidden fees which they will use to get a lot more money out of you than you had expected.

Another problem with the loan is that your debt will moved from an unsecured loan to a secured loan. Before they could only yell and scream at you if you didn’t pay your debt, and eventually sue you after many years. Now since it’s a second mortgage, if you don’t pay your debt, then they can take your house from you. You are adding collateral where there was none before.

 The solution is simply not debt consolidation, rather the solution is getting very intense on paying on your debts, and eliminating them. Taking care of a few points of interest really won’t do anything. You think you did something, but in reality, you did not. Don’t bother with debt consolidation.

He will tell you about how he can get rid of your multiple high interest payments and give you one low easy payment. It makes it seem like getting a debt consolidation loan is the answer to all of your problems.