Discover Debt Freedom!

Might Bargain Hunter brings the Carnival of Personal Finance to us this week, with a tribute to the American Flag and lots of great articles to get or keep us on track financially.  Here is a sampling:

• Free Money Finance says: “You can save money by weighing your produce
• The Personal Financier teaches kids about finance through Monopoly
• Money Answer Guy discusses the benefits of a cash-only lifestyle
• Beating Broke tells where they began their journey at reducing their debt

Experts estimate that nearly 40% of adults across the country are carrying significant amounts of debt and the total amount of consumer debt across the nation has climbed to record high levels.  Many people are finding themselves drowning in debt as home equity lines of credit are cut off and credit card companies begin to restrict spending and increase interest rates to shore up their own bottom line. 

Because these people were used to having credit to fall back on, many are having trouble living within their means and their debts continue to increase as they find themselves spending more than they make each month.  People that are deeply in debt will need to find some strategies for tackling the debt effectively to eliminate it from their lives.

Tactic Number 1 – Be Honest About The Amount That You Owe To Creditors
One of the worst financial mistakes that a person can make is to be in denial about their financial situation.  Ignoring the problem will not make it go away and the longer you go without attempting to remedy the situation, the worst the problem will become.  As soon as you recognize that there is a debt problem, a plan should be made for reducing that debt as quickly as possible.

Tactic Number 2 – Create A Payment Plan
To effectively reduce the amount of debt that you owe, you will need a plan for repaying that debt.  The easiest way to do this is to create a monthly budget that covers your needed expenses for the month and eliminates any unnecessary expenses.  Any money that is left over after paying for the items in your budget should be applied towards paying down your existing debt.

Tactic Number 3 – Get Caught Up On Any Bills That You’ve Let Slide
If you have been avoiding paying certain bills, it is very important that you get caught up on these bills as quickly as possible.  Paying bills late or missing payments will result in a decreased credit score, which will make it difficult for you to get credit in the future, and will also result in producing more debt because of the late payment fees associated with missing payments on these accounts.  If it is difficult for you to pay off your bills and put a significant amount of money towards paying down your credit cards, you should pay the minimum payment on your credit cards and focus on paying off any bills that are late.

Tactic Number 4 – Consolidate Your Bills, If Possible
Many credit card companies have been offering a zero percent interest rate for balance transfers that have been placed on a new credit card.  If you find that you have numerous different credit cards that are carrying a balance, it may be more cost effective to place these balances on a single credit card with a low interest rate for balance transfers so that you are only paying one bill each month.  Be sure to read the terms and conditions of the credit card carefully to ensure that you know exactly what will be expected of you if you decide to apply for the credit card.

Tactic Number 5 – Stop Creating More Debt
You will never pay down your debt if you continue to create more debt each month by charging purchases to your credit cards.  Take the credit cards out of your wallet while you are trying to pay down your debt so that you will not be tempted to use the credit cards to pay for items that you want, but you do not need.

One of the most important purchases that you can make to protect your family is life insurance, especially if you are the primary wage earner for your family.  Many families find themselves deeply in debt and unable to maintain their quality of life if a death occurs, either by sickness or by accident, and they have not prepared for the unexpected.  When raising a family, a life insurance coverage premium may seem like just another expensive bill to pay each month, but there are some ways that the cost of the insurance coverage can be brought down to a more manageable level that will not break the family budget.

Shop Around For The Best Rates
One of the biggest mistakes that many people make when trying to secure life insurance coverage is assuming that all life insurance companies are the same and going with the first company that they find that will cover them.  In reality, life insurance policies can be very complex and the coverage and price can change from provider to provider.  Shopping around for the best price on the life insurance coverage that you desire can save you thousands of dollars over the life of the policy.

Check Out Employer Sponsored Plans
Many employers offer their employees life insurance coverage as part of their benefits package.  The premiums on these life insurance policies are generally low because they are considered to be group life insurance policies, with many employees paying into the pool for the policy.  Although the benefit limits on these insurance policies may be lower than you would like, they ensure that you are covered and additional coverage can always be purchased and added to the policy to increase the benefit limits.

Do Not Purchase More Coverage Than Is Needed
The purpose of life insurance is not to make your family rich if the unthinkable happens and you are taken from them by accident or illness, but to ensure that the family will have time to grieve and get back on their feet after the death without having their financial security destroyed.  Life insurance policies that have high payouts after death will cost you higher premiums each month to cover the large amount of money the insurance company may have to pay.  By sticking to a more reasonable coverage amount, you will reduce the amount of money that you will be spending on the monthly insurance premium and can use that money for the things that you desire now. 

Financial freedom is a term that is used when individuals are speaking about getting out of debt and staying out of debt.  With many individuals living beyond their means, wages receding, and inflation rising, finding financial freedom is becoming more and more difficult each year.  Here are several tips that can help an individual find financial freedom and remain debt free.

Tip #1 – Use Debit Cards Instead Of Credit Cards
Many people do not like to carry cash with them because they are afraid of being robbed, having someone steal their money when they are not looking, or losing their cash out of their pocket, purse, or wallet.  If you are one of the people that do not like carrying cash around with you, consider using a debit card.  Debit cards use the money in your bank account to pay for your purchases and you will not have to worry about interest payments or late fees on the items that you purchase. Although some find credit card options much better. It’s a personal decision.  Some of the best cash back credit cards are way better deals than debit cards.

Tip #2 – Don’t Spend More Than You Have Available
Each year, banks and credit card companies take in billions of dollars in over-limit charges and bounced check fees.  Each transaction that puts you over the limit could cost as much as $35 and many companies will process the largest purchases before the smaller ones in order to collect more fees.  Be sure to know how much money you have available and what your credit limit is before you begin to spend money to avoid numerous fees and a destroyed credit score.

Tip #3 – Avoid Buying On Impulse
One of the biggest money drains you will encounter is the impulse purchase.  Many of the items that are bought on impulse are rarely used and often sit in a closet still in the box or with the tags still attached for months or years after the purchase.  By learning how to resist the temptation of the impulse purchase, you will find that you save a great deal of money and avoid cluttering your home with unnecessary items.

Tip #4 – Compare Prices
Often, the first price you see or receive for an item is not the best price on that item.  Price comparisons can save you money on everything from groceries to insurance to club memberships and can often get you a lot more for your money.  Price comparisons are so popular that there are many websites on the internet that allows you to compare items across a number of different retailers to determine which one has the best price.

Tip #5 – Keep Track Of Your Spending
Keeping an accurate account of how much money you are spending and what items you are spending your money on will help you identify areas where money is being spent unnecessarily.  Identifying problem spending areas in your life and correcting them is one of the best ways to discover financial freedom.

Your credit score is a very important part of your financial future, affecting a number of different areas of your life.  A bad credit score from excessive balance transfers or otherwise can affect your ability to obtain a home loan, a car loan, an apartment, even a job.  There are several things that will definitely destroy your credit score and these actions should be avoided at all costs.

Credit Score Killer #1 – Late Payments On Your Credit Cards

Information about your credit card accounts is the easiest information for the credit bureaus to obtain and is the information most likely to affect your credit score.  If you regularly miss payments on your credit card accounts, that information is being reported to the credit bureaus each time and each time your total credit score is being decreased by a significant amount.  If you miss several credit card payments on several different credit card accounts, your score could decrease by 100 points or more in a relatively short period of time and it may take years to rebuild your credit score to its previous level.

Credit Score Killer #2 – Canceling Old Credit Cards

An important part of your credit score is the length of your credit history, which is often calculated by how long you have held your credit card accounts.  Canceling your oldest credit card, even if you have not used it in a while and do not intend to use it in the future, reduces the length of time listed in your credit history and can drop your credit score by a large amount.

Credit Score Killer #3 – Maxing Out Your Credit Limit

The amount of your available credit that you are using at any given time is another credit criteria used by the major credit bureaus in calculating your credit score.  If you are using close to your total amount of credit available, credit bureaus determine that you are not using your credit wisely which in turn causes them to drop your credit score because you are now a credit risk in the eyes of the lenders.  To keep your credit score high, you should be using no more than 50% of your available credit on each of your credit card accounts.

Credit Score Killer #4 – Opening Numerous Credit Accounts

Each time your credit score is pulled to determine your qualification for a new credit account, the credit bureaus reduce your credit score by 5 points.  Opening a number of accounts at the same time could reduce your credit score by a significant amount and even drop you into a lower credit score bracket.  Also, having a large number of revolving credit accounts, such as store credit cards, signals to the credit bureau that you have the ability to create a great deal of debt quickly, which makes you a credit risk. Having two many credit card applications open at once is a killer.

Credit Score Killer #5 – Not Reviewing Your Credit Report

It is estimated that nearly 25% of all credit reports contain an error and the size of this error could be costing you when it comes to your credit score.  Most of the information that is included in your credit report was entered into a computer system by a person, making that information susceptible to human error.  If the information found in your credit report is inaccurate, the credit bureau has a legal obligation to determine the validity of the debt reported and remove the debt from your credit report if it is not a valid debt.

The number of people that are falling into debt is increasing by an enormous amount each month and the numbers will only continue to grow as the credit crunch deepens and the economy continues to slow.  Many people that depended on credit cards and home equity loans to finance their style of living are now finding that they owe a large amount of money to numerous creditors and are unable to obtain a home equity loan to cover the costs like they may have been able to in the past.  These people are finding that they must live solely on what they are paid in each paycheck, which results in a large reduction in the amount of money that they are able to spend each month.

The only way that these people will be able to keep themselves from spiraling further into debt that they may not be able to extract themselves from is to create a strict budget and stick with it to ensure that they are not spending more money each month than they can afford.  While this may be difficult for people that were used to buying everything that they wanted with a swipe of a credit card without worrying about the consequences, the economic reality is that in the current economy, people are going to have to start living within their means.

How To Create A Budget

The first step in creating a strict budget that will help a person manage their finances is to determine how much the person actually spends each month.  For a period of at least one month (two months would be better), the person should keep track of all of their expenses and keep all of their receipts for review later.  This will give the person a much better picture of their financial needs than just sitting down and attempting to remember all of the things that they spend money on during the month and the cost of each item.

Keeping all of the receipts for items purchased during the month will also provide the person with a concrete picture of the items that they are wasting money on each month.  Many people make unnecessary purchases during the month that they may not be aware of because they were never concerned about how much money they were spending on frivolous items before.  If the person is in debt and needs to adhere to a strict budging plan, these frivolous items need to be eliminated from their lives and the money that is saved should be put toward paying down their debt.

Once the person has determined what they must spend money on each month and what can be eliminated from their lifestyle, it is time to create the monthly budget.  The goal is to have less money going out each month than you have coming in from your paycheck and any other sources of money that you get during the month and the bigger the gap is between them, the better it will be for the person’s financial future.  By detailing each expense that you must pay each month and the amount of money it will take to satisfy that expense, you will create a complete budget that accounts for all of your monthly spending.

The most important part of creating a budget is sticking to that budget in order to save your financial situation.  Training the mind to get out of the buy now – pay later mentality will be hard, especially for people that have never had to exercise financial responsibility, but it is possible to create a strict budget and stick to it until all debts have been repaid and the person has extracted themselves from the financial hole that they were in.   

Identity theft can turn life as you know it upside down. Despite the mass amounts of warnings to protect yourself, there are still countless victims who have their identities stolen. It can happen via the internet or on the street. Recently, there was a local story about a gas station that had their system “hacked” and anyone who has used a debit card at the pump in a span of several years was at risk to having their identity stolen and their credit card used unlawfully.While I never had my credit cards stolen and no one every tapped into my bank account, I too was a victim in a rather strange way. During my college years, I lived in an off-campus apartment with two other people. The third roommate never meshed well and after some time, we decided to part ways. I relocated to a new house with the other roommate and for two years we lived companionably. We split the bills and each of us chose a utility to be put in our name. After graduation, I moved out on my own. When I called to request phone service in my new apartment, I was told I owed over $800 in past due fees to the phone company and was therefore not able to receive service until the bill was paid in full. I never had a phone bill in my name so it seemed impossible.

Upon further investigation and agonizing phone conversations with company representatives, I was finally able to understand what had happened. When I moved out of my apartment two years earlier, my former roommate had managed to acquire phone service using her name and my social security number. To this day I do not know how she was able to get the number or be able to use it with her name at the phone company. I spent weeks writing letters and sending faxes to the phone company, disputing the bill. I had to prove over and over that I had not lived in that apartment in over two years. During that time, I was not able to have a phone connected in my apartment. Additionally, my credit report was negatively affected. If you find that your identity has been stolen, be sure to file a credit report dispute with the three major credit bureaus for fast credit repair. It’s very important to make sure to to fix reports otherwise when you try to apply for a credit card, car loan, or home loan, you might get unfairly turned done.  

The phone company could not answer as to how the roommate had gotten away with the fraud for so long. They could admit that the number and the name did not match up but went no further. Eventually, all of the charges were erased from my record and I was allowed service once again. However, nothing ever happened to the roommate. There was no prosecution for fraud and she was never even held responsible for the phone bill because the phone company did not have her social security number.

I know now how important it is to keep my credit report in check, especially because college kids use their social security numbers for everything. I was a lot younger and less financially educated at age 18. While having one obscene phone bill is small beans compared to what other victims have gone through, it is still a smack in the face and was definitely a wake up call for me.

Thousands of individuals across the nation are drowning in credit card debt and the interest rates for the credit cards are digging the hole deeper.  Some people are in despair, thinking that there is no way that they can ever extract themselves from the debt that they have accrued, but there is a silver lining for their cloud of doom.  By following these 5 simple tips, you can make credit card debt disappear and prevent it from returning to ruin your financial stability.

1.  Pay Off High Interest Rate Credit Cards First
People that have multiple credit cards will often have different interest rates for each credit card.  Begin by paying off the credit card with the highest interest rate because reducing the balance on that credit card will save you the most money in interest payments, which can then be applied to paying off your other credit cards.

2.  Do Not Miss Any Payments On Your Credit Cards
Many credit card companies apply a hefty fee to your account, often between $35 and $39, for every missed payment on the account, even if the payment is only a day late.  To make sure that fees are not erasing the work that you have done to pay down your credit card, be sure to make every credit card payment on time and pay at least the minimum amount due for payment.

3.  Stop Using The Credit Cards
It is impossible to pay off a credit card if you are still using it every month to pay for purchases.  Consider removing the credit cards from your wallet while you are trying to eliminate your credit card debt so that you will not be tempted to use the credit card.  Be sure to avoid closing the accounts that you have held the longest because this could have a negative impact on your credit score.

4.  Pay As Much As You Can Each Month
The more you pay towards your credit card bill each month, the faster your credit card debt will be eliminated.  Review your monthly expenses and see if there are any items that you can do without so that you can put that money towards paying down your credit card bills.  Common cost cutting methods include beginning to take your lunch to work each day instead of eating out or brewing your morning coffee at home instead of purchasing it each day from a coffee shop.

5.  Stay Motivated
Although it can be hard to have the discipline to cut your spending to pay off your credit card balances, keep in mind how much better your life will be without that huge balance hanging over your head each month.  Once you have paid off your credit card debt, you will have the processes put into place to easily save money for anything that your heart desires.