Discover Debt Freedom!

Currently only 3% of Americans actually pay cash for their vehicles, everyone else gets financing of some sort, whether it be a lease, a traditional auto loan through a bank, or financing through the dealer. It’s always best to pay cash if you can afford to do so, but if you need a car right away and don’t have the time or money to save up and pay cash for a vehicle, make sure to borrow conservatively and get the best loan available to you.

Remember that you don’t need a $25,000 new car, there are plenty of used vehicles for $5,000-$10,000 that will serve you very well, and will come with a much lower loan payment and will allow you to pay off your vehicle in a much shorter period of time. Having a brand new car might be emotionally appealing, but 6 months down the road you would likely much rather have a smaller payment and a car that is not depreciating nearly as quickly.

So the question comes up, how do we get the best deal on a loan for an automobile or just a small personal loan? Often times people just visit their bank and take whatever is being offered to them, but the internet has provided us with comparison shopping sites for all sorts of products, including financial products. There are sites like the Loan Network, which will help you compare loans for all sorts of different purchases, including auto loans, personal loans, real estate loans, and the like.

They will search across dozens of different lender and make sure that you get the best terms and the best interest rate available. They even have information about exotic loans such as jumbo loans for mortgages or a refinance if you happen to live in a very expensive area part of the country for real estate.

The moral of the story is that you should not just go to one or two lenders to compare loans, but instead use the power of the internet and automated quote systems to give you the lowest mortgage rates or the deal available on auto loans, mortgage loans, credit cards, and any other type of debt. The best loan is not having to borrow at all, but that’s not always possible, so get a conservative loan at the best interest rate possible for your next car purchase if you can’t pay cash.

Many people have been conditioned over time to buy things that they do not need and to spend money that they do not have.  Shopping has become a personal quest for some individuals, almost like a hunt with the perfect pair of $200 shoes as the trophy at the end.  This mindset is one of the reasons why individuals have racked up the largest amount of personal debt in the history of the nation.

Reversing this mindset is the only way that many individuals will be able to extract themselves from the debt that they are in.  Many have found themselves unable to resist the lure of a good deal and at the end of the month they find themselves surrounded by items that they did not really need while wondering where all of their money has gone.  These people often do not realize that they are spending as much money as they do and are often too embarrassed or just unwilling to return the items to get their money back.

There are several ways that a person can use to curb this trend and take control of their finances.

1.  Track Your Spending
One of the easiest ways for a person to keep track of the money that they are spending is to track their purchases each day.  By writing down everything that you spend money on each day, from the gas you are putting in your car to the snacks that you purchase out of the office vending machine, you will be better able to see where your money is going and what purchases could be eliminated to save money. 

2.  Stop Using Your Credit Cards
Many people have no problem with pulling out their credit card to pay for unnecessary purchase because of a buy now/pay later mentality.  They place expensive items on their credit cards without considering that those items must be paid for at a later date, with the price of the item often increased by the interest charges and financing fees that are added by the credit card company.  If there is a balance on your credit card, put the card away and spend your money paying down the balance of the credit card to free yourself from debt.

3.  Choose Your Purchases Wisely
Before you purchase that $200 pair of shoes, stop to think “Do I really need these?”  Chances are that if you take the time to think about your purchases, many of the purchases that you make on a regular basis will not seem as important and will be easier to avoid.  Plus, in most cases, $60 pairs of shoes are just as attractive as the pairs that cost $200.

Settling down and creating a budget is a difficult task, but actually sticking to the budget can be a much more difficult task.  There are many reasons why you may not be able to stick to the budget that you created and the solution will often be to change your mindset or revise your budget into something that is more easily accomplished.  There are 4 common budget killers to watch out for because if these budget killers are present, it will be nearly impossible to stick to the budget that you have made.

1. You Are Not Motivated To Follow The Budget
Creating a budget under duress or because of dire threats from your loved ones may actually have the opposite effect that is needed by causing you to unconsciously rebel against the budget that you have created and sabotage your success.  For your budgeting to be successful, you will have to want it to work and believe in your heart that you can make it work for you.  It may help to set rewards for reaching certain milestones if you cannot become motivated any other way.

2.  The Budget Is Not Realistic
It is impossible to stick to a budget that does not reflect reality and trying to do so will only cause you endless frustration and annoyance.  Before creating the budget, take the time to figure out what each item on the list actually costs each month and use that information as the starting point for your budgeting.  Although reducing the amount that you are spending on certain items is one of the main reasons for creating a budget in the first place, reducing the amounts of necessities like food and gasoline too far may not be possible under any reasonable circumstances.

3.  You Do Not Make Enough To Cover The Budget
When some individuals create their budget, they include money that they regularly make in overtime or bonuses in the amount of money that they have available.  If they have a month where they cannot work overtime or their performance is not good enough to earn their bonus, then their budget is thrown into disarray.  It is important to only include the money that you know that you can count on, like your salary, in your budgeting estimates so that unforeseen events do not kill your budget.

4.  Unexpected Expenses Are Not Taken Into Account
Unexpected expenses will always occur, whether it is a car repair, a doctor’s bill, or needing a new pair of shoes for work because the old pair broke.  Although the expenses are unexpected, they should be taken into account as well as possible to ensure that an unexpected expense does not destroy your budget.  A budget should not account for every single penny that you make each week, giving you some room to maneuver if unexpected expenses arise.

One of the biggest myths about being in debt is that you have no control over it and that outside forces are conspiring to drive you deeper into debt.  While there are some common practices that are being used to squeeze individuals that are in debt even further, it is possible for each and every individual to take financial control of their lives and extract themselves from debt.  Taking financial control of your life will require you to act responsibly regarding your money and for you to take responsibility for your actions, two things that are very hard for some individuals to do.

Step 1 – Separate Your Wants From Your Needs
One of the hardest steps for many people to take regarding their finances is separating the things that they want to spend their money on from the things that they need to spend their money on.  New clothes are not a need unless you have gained enough weight that nothing in your closet fits and you need clothes to go to work.  Food is a need, but a $3 latte from the neighborhood coffee shop is not.  If you are in debt, you will need to vastly reduce the amount of money that you are spending on your wants and focus on spending your money on the things that you need.

Step 2 – Downgrade, If Possible
Many individuals have been suckered into believing that they need to purchase the best of everything to be happy in life.  The truth is that there are many lower priced options that are just as good and cost a significant amount less than their brand name counterparts.  For example, when grocery shopping a person can save 25% or more on their grocery bill by purchasing the store brands instead of the brand name items and in most cases the person will not even be able to tell the difference in the taste of the food.

Step 3 – Cut Unnecessary Expenses
Almost every individual has unnecessary expenses that can be cut to reduce the amount of money the individual is spending each month.  A cell phone bill can be cut in half by reducing the amount of daytime minutes used each month and limiting personal phone calls to nights and weekends.  Premium channels on your cable bill can be eliminated to reduce the cost of the cable bill or cable can be eliminated altogether and the person can choose to read books instead.  There are many examples of where expenses can be cut by reducing the amount of unnecessary items in your life and each item cut frees up money for other necessities.

Step 4 – Pay Bills Before Spending Money On Other Things
Many people are irresponsible when it comes to paying their bills, spending their money on the things that they want to spend their money on and not having enough at the end of the month to take care of all of their bills.  This often results in late charges being added to the bills, which steadily increases the overall amount that the individual owes.  It is important to take care of your debts before spending you money on items that you do not really need.

Step 5 – Put Money Away For A Rainy Day
If following the previous steps cause a money surplus in your bank account, do not rush out and spend it on the first new thing that catches your eye.  Instead, put the money into a savings account to be used for a rainy day.  Many individuals become mired in debt because of an unforeseen expense that they did not have the money to pay for, causing them to borrow money at ridiculous interest rates or putting off paying other bills which damages their credit score and increases their debt with late penalties and other charges.

This week’s carnival is hosted at Consumerism Commentary and is the third anniversary edition.  A number of excellent articles from various personal finance bloggers were included. Here is a sample:

• Jennifer Derrick from Saving Advice presents  Quit Complaining About Fuel Prices and Do Something
• Silicon Valley Blogger from The Digerati Life presents Our Financial Progress Over The Last 10 Years.
• The Writer’s Coin presents Saving for Retirement vs. Living Your Life
• American Consumer News presents  Tips for Teaching Kids Better Money Management.
• Money Answer Guy from Money Answer Guy presents Is it Possible to Save Money on Gas?
• Debbie from Debbie the Debt Destroyer presents Go on Vacation Without Adding More Debt

Every person with a financial stake in their future will be facing financial risks at some point in their lives.  In many cases, the choice will be accept the risk and increase finances quickly or avoid the risk and have to work harder to grow your money.  Different situations call for different risk assessments, but by following a few financial tips you can limit the amount of financial risk you are exposed to and help you choose the right financial risks to take.

Tip 1 – Don’t Risk More Than You Can Afford To Lose
No matter how good a financial decision may sound, there are always risks involved with the situation.  Whether the decision is to change jobs, go into business for yourself, or to purchase some type of financial product, there is always a chance that the decision will not work out well and that the money that you have invested in your decision may be lost.  If you do not risk more than you can afford to lose, then you will never become mired in debt because of a bad financial decision.

Tip 2 – Choose Risks That Are Age Appropriate
There are certain financial decisions that can have a long term effect on a person’s life.  Individuals that are in their late twenties will have more time to rebound from a bad financial decision than individuals that are in their late forties, so the amount of financial risk that a person is willing to take should decrease as the person gets older.  For example, individuals that have stock portfolios or 401K accounts may choose to pepper their holdings with high risk, high yield investments when they are younger, but as they get closer to their retirement age, the level of risk in their holdings should decrease and they should focus more on bonds than risky stocks.

Tip 3 – Do Your Research Before Making A Decision
It is important to have all of the information that you need to make an informed decision about the amount of risk that you will be assuming.  If you are interested in leaving your job to start your own business or want to purchase a certain type of financial product that boasts of great returns, you should make sure to learn all you can about the choices to ensure that you know exactly what you are getting into and what you will need to do to make the situation work for you.

Tip 4 – Weigh The Pros And Cons Carefully
There are pros and cons to every financial decision that you will make in your life, but many people have developed the bad habit of only looking at the pros and ignoring the negative aspects of the financial decision.  By focusing only on the positives of the transaction and the benefits that you can reap, you are exposing yourself to financial disaster if the decision you make has been the wrong one.  It is important to examine all aspects of the financial decision before deciding what option to choose in order to limit your financial risk.

Many of us know David L. Ramsey III as an outspoken financial counselor, an author, and the radio host of “The Dave Ramsey Show.” His advice is certainly several deviations from the mean of what you will hear on the radio and in the office of most financial counselors. Millions of Americans listen to his show each and every day, and hundreds of thousands of them have paid off all of their debts through his “baby steps” financial plan. The question remains, Are Dave Ramsey’s teachings everything they are cracked up to be?

Let’s take a look at where Ramsey came from and what caused him to hold the beliefs that he now has and preaches every day. After graduating from the University of Tennessee, Dave Ramsey started a foreclosure real-estate business and did very well in doing so. Most of his purchases were done through leveraging and after the Tax Reform Act of 1986, his businesses became very negatively effected. Several of the banks soon called his short term notes to be due, and eventually the business went bankrupt. Ramsey was bankrupt had had thousands in IRS debt. To find debt relief, he vowed to never borrow money again.

He began his financial career by counseling other couples in his church after people saw Ramsey recover from such a financial disaster. He soon began offering a private counseling service and eventually came up with a set of lessons and finally self-published his first book in 1992. That same year, a local radio station, WWTN, filed bankruptcy. Ramsey agreed to host a show for free, in hopes of sharing the good information and building his business. By mid 1996, the show became syndicated and since then his business has been exploded. Ramsey has now published several books, has a nationally syndicated radio show, does several live events each year, and is working with CBS on a television deal.

Overall Ramsey offers much more conservative advice than most other financial counselors. He never suggests that his listeners borrow money, even for a house! He also tells his listeners to never file bankruptcy, regardless of how bad their situation is. Dave Ramsey also suggests his readers do not invest in gold, avoid debt management programs, buy new vehicles or get cash value insurance.

Ramsey teaches his listeners to save money for emergencies, pay off debt using his debt snowball plan, invest money in mutual funds for retirement, use educational savings accounts to pay for the kids college, do a monthly budget, teach your children about money, and the like. Most of these things are very common sense things that everyone should do.

A lot of the more sophisticated financial counselors criticize Ramsey because they state his advice oversimplifies complex financial situations, and that not borrowing money is very unrealistic. His advice is almost counter-cultural, so it makes sense that some people are going to think he is a bit off.

First, let’s look at his notion of never borrowing money. Often times consumers really mess up borrowing money, and get into all sorts of debt that they cannot afford to pay off. People get stuck in high interest rate credit cards and payday loans which are financially disastrous and then have to do anything they can to get credit card debt relief. If people knew not to borrow money, than they would never get in these messes. There certainly are some cases that you can make a little bit more by making use of other people’s money and getting rewards on your credit card and the like, but the problem is that 90% of people mess it up. The statistics say that most people don’t pay their credit cards off each month, and most people have lots of consumer debt that is just beating them up financially. If you’re not very good with money, just saying no to consumer debt all together is a good way to keep yourself from getting in a mess.If you are one of the 10% of people that take an active interest in your money, than it might be okay to use a credit card if you pay it off each month and can use these things responsibly. You might make a few extra dollars here and there by playing arbitrage games and using rewards points, but you won’t become a millionaire by playing those games. There’s nothing inherently wrong with doing so, but those things alone will not make you wealthy. Don’t lie to yourself and tell yourself that you’re part of this 10% if you aren’t. You’ll only get yourself in financial trouble for doing so. If you are one of these few and far between people, go ahead and use those things responsibly and make a few more bucks doing so.

Let’s look at his thoughts on bankruptcy. He tells us from his personal experience that it’s a gut-wrenching humiliating experience and it’s always better just to fight through the debt as long as you can rather than file bankruptcy. For most of the people that call his show, they really do not need to file bankruptcy, because it won’t solve their overspending or career problems. There are a few cases though when callers call in and there’s no possible way that they can pay off the money, because they are disabled or just have such a massive amount of debt that they will never pay it off. What good does it do for these people to continue to be harassed by creditors? If you’re just beat-up, broken, have six figures of debt, and no way to pay it off, I wouldn’t feel to bad about them filing bankruptcy. If you’re 30 years old, are in good health, and have five figures of debt, shut-up and get back to work. In the few and far between cases that are so out there, Dave still doesn’t recommend bankruptcy, but he tells them that “if you file bankruptcy, we’ll still be friends”, as if it would be an under the table endorsement of their bankruptcy, without going back on his policy of never endorsing bankruptcy.

Some people have criticized Ramsey because of the fact that he makes a living off income from the people who can probably least afford to buy his books. His starter book, “The Total Money Retailer” retails for $20.00. His live events are around $40.00, and offers a number of other products and services designed at those who are doing very poorly financially. I wouldn’t give these people a whole lot of credence. Ramsey gives out numerous copies of his book and tickets to his life events on his show. In some severe cases, he gives out personalized counseling services for free. There is also the “Share-It” foundation which helps give Ramsey’s course to people who cannot afford it, such as the homeless and battered wives.

Other than those two points of contention, Ramsey’s advice is overall very solid. Everyone should do a budget, everyone should work to pay off debt, everyone should save for retirement, nobody should buy a new car, and no one should buy whole-life life insurance. Nearly all of the time Ramsey’s advice is very solid, and I would have no hesitation to listen to it.

One of the biggest reasons that many individuals fall into debt is that they do not have emergency funds available to take care of the emergencies that arise in their lives.  Unexpected expenses can arise at any moment and can be devastating to an individual or family that is not prepared for it.  It is very important for everyone to have an emergency fund and here are a few quick tips for creating one.

Beginning An Emergency Fund

It is very easy to create an emergency fund.  The first step is to calculate how much money you spend on your monthly expenses each month.  It is important to add in some extra money to cover those expenses that are unexpected but tend to occur with some frequency, such as having to purchase a new pair of shoes because the old ones are worn out or spending extra money in gas because you have to travel much farther than you expect.

The next step is to choose a time frame to save for.  Everyone should try to have enough money in savings to cover at least six months of their expenses, in case they lose their job or face a huge financial issue, but many individuals could get by with around three months worth of savings in the bank.  Individuals that make more money should be trying to put more money away, but even individuals that are living paycheck to paycheck will be able to save some money for a rainy day.

Time To Save Money

Saving enough money for a good emergency fund will take some sacrifice on the part of the individual, but it will be well worth it in the long run.  There are many daily expenses in most individual’s lives that they can do without for a period of time and the money saved can be placed directly into the emergency fund so that it can build quickly.  Unnecessary items that many individuals spend money on during their daily lives, such as specialty coffees or expensive lunches out during the work week, can be sacrificed for the greater good of padding your emergency fund.

Many individuals find that the items that they sacrificed to create their emergency fund are not as important to their daily lives as the items first seemed.  These individuals continue to avoid the extra expenses and save more money towards their emergency fund or for things that they desire to make their lives better.  Learning to save money can be difficult for individuals that do not have much experience with saving money, but the skill will help the individual live a better life and assist them in preparing for their future. 

Over the last couple decades, credit cards have gone from a product that only a few worthy individuals could use to a product that anyone could use and abuse.  Credit card debt for the nation as a whole has more than tripled since 1989 and the amount of credit card debt held by individuals across the nation continues to rise at an alarming rate.  Experts believe that this trend will be difficult to stop and have identified five other trends that are occurring in the credit card market that could end up costing consumers a great deal of money in the long run.

Trend 1 – More Traps For Credit Card Users To Raise Interest Rates
Credit card companies are not going to stop offering their low introductory interest rate offers because that is one of the best ways to draw in new customers and get them to use their new credit cards.  Instead, expect that these companies will find more ways to get your interest rate for the credit card to rise, effectively negating the low introductory rate and bringing the individual into line with other individuals that have similar credit scores.

Trend 2 – More Expensive Fees
In today’s debt ridden society, many banks and creditors have found that levying fees against an account can be a very profitable business.  Over the last ten years, fees for everything from going over the credit limit to paying the bill late has more than tripled and more fees have been added to the credit cards for basic services such as opening the account or transferring a balance.  Experts predict that, in the future, creditors will find more ways to add fees to their products and the fees will continue to rise in cost.

Trend 3 – Climbing Interest Rates
The interest rate that is charged to individuals for keeping a balance on their credit card has steadily risen over the past few years and there seems to be no end in sight.  Before, only the individuals with low credit scores or shaky credit histories were hit with the higher interest rates, but now even individuals with excellent credit scores are paying more than 10% interest on their credit card purchases.  Some credit card companies have even started to charge all of their customers the same high interest rates, regardless of their credit score.

Trend 4 – Great Deals That Aren’t Really So Great
Credit card companies keep coming up with these great deals for consumers that are not so great when the consumer actually uses the card.  Many offers for high cash back percentages often have a cap on the amount that will qualify for the high percentage in the small print of the offer, often $1,000 or less, to prevent people with high credit limits from taking full advantage of the offer.  It is important to read the fine print for any credit card offer to ensure that you know exactly what you are getting and to avoid any unpleasant surprises in the future.

Trend 5 – Credit Card Security Will Continue To Be An Issue
As identity thieves become more and more sophisticated, credit card issuers are having trouble keeping up.  This is because of numerous factors such as new transaction methods with holes in their security features that can be exploited, merchants not securing the credit card information that they have stored in their computer banks, and individuals using their credit cards on the internet with websites that are not secured.  As fast as a credit card company finds a security loophole and closes it, hackers and identity thieves find and exploit another.  It is important to check account statements and credit reports on a regular basis to ensure that you have not become a victim of identity theft.

If security is a concern for you regarding your credit cards, you have to check your credit report at least once a year and preferably every 6 months to adequately monitor your credit score. Especially if you’re in the market for a new airline miles rewards card or an attractive balance transfer credit card, make sure that you are proactive in monitoring your credit score so you won’t have a problem qualifying for the credit card that you truly want or need.

The collection industry has changed a great deal in the last ten years.  Where companies used to assign a debt to their collection department or to a collection agency and paid them after they has collected the debt, now companies are selling their debt to the debt collection agencies at a fraction of the balance of the account.  If the collection agency is able to collect the rest of the debt from you, then they get to keep the difference between the money that they paid to the company and the money that you paid to them.

This trend has resulted in some debt collection companies using some unscrupulous practices in order to collect a debt that they think that you owe.  They attempt to collect debts that they are not legally entitled to, add additional fees to bump up their profit percentage, or use deceptive practices to get you to pay money that you do not owe.  But there is a way to ensure that you are only paying debts that the collection agency is entitled to and that is by asking for debt validation.

There are several things that the debt collection agency can provide for debt validation.

Proof Of Debt – the debt collection agency can provide you with proof that the creditor has assigned or sold the debt that you owe to the creditor to the collection agency.  The debt collector would not be able to legally require you to pay the debt without this paperwork and any court would throw out the case without it.  If the debt collector refuses to provide proof of debt to you, it is a good indication that the collector has no legal right to collect the money for the debt.

Account Statements From Original Creditor – the debt collection agency can provide you with account statements from the company that the account was opened with or the debt was originally owed to in order to prove their right to collect the debt.  This will also ensure that excessive fees have not been added by the collection agency to the total amount that was owed to the original creditor.

Copy Of Original Signed Credit Card Or Loan Agreement – if the debt collection agency can provide you with a copy of the signed original agreement between you and the original creditor, then they have a legal right to collect the debt on behalf of the original creditor.  It does not matter whether the debt was assigned or sold.

If the company cannot or refuses to produce at least one of these documents for you to prove that they have a legal right to pursue you for collection of the debt, then you should not send them any money regardless of whatever threats they make.  Without at least one of these documents, their case for collection will never hold up in court and they know this, which is why they will make dire threats and lie to you about the consequences of your actions if you do not pay them the money.  Do not be fooled and do not pay any debt collector money without first having the debt validated.