Discover Debt Freedom!

Getting out of debt is the goal of many people that are finding themselves facing a difficult financial situation because of the downturn in the economy, a contraction in the credit markets, and the evaporation of home equity.  Some of these people were living beyond their means and financing their lifestyle with credit cards while other people were using the equity in their home to increase their quality of life and are now finding that they now owe more on the home than it is worth.  Getting out of debt can be very difficult if the person does not know where they should begin, but by following a few simple steps, the person can reduce their debt by a significant amount in a matter of months. 

The Power Of Positive Thinking

The first step to getting out of debt is to believe that you will be able to get out of debt.  Although it may seem like a long and difficult process, you have to believe that the process will work and free you from your debt if you want to be able to stick to the program long enough to eliminate your debt.  The initial steps of the process will be hard and take time to show the results that you want, but over time, you will see that the process is working and you are reducing your debt by a significant amount. 

Stop The Hemorrhaging

One of the most difficult steps for getting out of debt is altering common habits and spending to stop the creation of more debt.  The person needs to get into the mindset of every dollar spent is a dollar that is not going towards paying off debt, causing the debt to last longer.  Halting unnecessary spending is one of the fastest ways to save on monthly expenses and pay off excessive debt quickly.
 
Hide The Credit Cards

Everything that you purchase is more expensive when paying for them with a credit care because of the interest charges, finance charges, and the increased risk of a late payment fee or over limit fees.  A better choice is paying cash for all of your purchases or using a debit card that is linked to a checking account to prevent spending more than you can afford.

Reduce The Amount Of Additional Charges In Your Life

Additional charges can add up quickly when applied to everyday activities.  Reduce the amount of additional charges that you are subjected to by paying all bills on time, using the ATMs of your financial institution, and purchasing items at the store to save on shipping charges.

Begin An Emergency Fund

One of the main reasons that people fall into debt that they have difficulty getting out of is because they had to borrow money, either through their credit cards or for a loan, to pay for an emergency situation.  By having some money to use in the event of an emergency, the person will not be forced to use a credit card for the purchase and end up paying interest to the credit card company.

By following these five simple steps for dramatically reducing the amount of debt that a person is carrying, the person can begin to regain control of their finances and can eliminate their debt entirely over time.  There are no quick and painless solutions for the people that are in over their heads and deeply in debt, but following these simple steps will stop the accrual of debt and will begin the process of reducing the total amount of money owed to creditors to bring the debt to a much more manageable level.

As lenders begin to tighten their hold on their purse strings and restrict lending to fewer and fewer borrowers, it is becoming more difficult for homeowners to obtain loans to refinance their homes.  Homeowners with low credit scores or a lot of negative entries on their credit histories will be the hardest hit as many lenders will reject the homeowner’s application for refinancing loan.  There are ways for a homeowner that has bad credit to be able to refinance their home, but the methods will take more time and more of the homeowner’s money to complete the process.

Dealing With A Low Credit Score

The first thing that a creditor will see when determining whether to approve a homeowner’s application for refinancing their home loan is the homeowner’s credit history and credit score.  Most lenders believe that the homeowner’s credit score will tell them everything that they need to know about whether a homeowner is credit worthy and will be diligent in repaying the loan that has been extended to them.  Lenders base the interest rate for the loan on the homeowner’s credit score and if the homeowner has a credit score that is low, then most creditors will view the homeowner as a credit risk with a higher chance of not paying off the loan in a timely manner or defaulting on the loan entirely. 

What Are The Options?

There is some good news for these homeowners.   A low credit score may not disqualify the homeowner from being able to refinance the home loan, but the homeowner will have to pay more to obtain the loan.  The lending institution may decide to increase the interest rate on the loan to refinance the home so that the lending institution will be able to make more of their money back on the loan in a shorter about of time in case the homeowner defaults on the loan. 

The higher interest rate has the ability add a great amount of money to the loan over the years, but in some cases, this is the best option for a homeowner with a low credit score.  In recent years, many homeowners obtained adjustable rate loans to purchase a home, not realizing that the interest rate on the loan would routinely reset to a higher rate, dramatically increasing their monthly mortgage payments and causing a financial headache for the homeowner.  In these cases, obtaining a fixed rate mortgage with a higher initial interest rate may save the homeowner a significant amount of money by shielding the homeowner from the resetting interest rates.

There are many reasons why insurance is needed by you and your family.  Insurance products are becoming more popular each year so that people can replace items that are important to them without incurring a great deal of fair credit to pay out of pocket costs.  The benefits of having proper insurance products to protect your family or any expensive possessions are the main reason why people choose to purchase these insurance products.

Advantages Of Insurance

One of the main advantages of insurance is that the person will pay a lot less out of pocket to replace the item that is insured in the event of damage or theft, sometimes after you  pay your expenses, you’ll even get extra Cash Back if you shop wisely.  A perfect example of this is home owner’s insurance, which insures the home against fires, water damage, structural damage, and natural disasters.  Having home owner’s insurance for ensures the ability to repair or rebuild the home in the event of something bad happening or being able to purchase another home if the dwelling has been completed destroyed.

Car insurance can keep more money in your pocket if you are unfortunate enough to have an accident while driving or if the car is damaged or stolen while parked.  Having car insurance ensure that the person can have the car repaired or replaced by paying the deductible for their policy, which may be anywhere from $500 to $2,500.  This helps because the person will not have to pay the entire cost of the repair, which could be thousands of dollars or have to pay off the wrecked car while attempting to purchase a new car. 

Life insurance is a very important for people that have a family or children that need to be taken care of in the event of an untimely death.  Having life insurance policy allows the family to pay off any debts that have been incurred and will provide them with money for the funeral.  The money given to the family from the life insurance company may replace the wages of the primary wage earner for the family in the event of an early death which will help them cope until they are able to replace those wages by another method.

Another advantage to having the proper insurance is peace of mind, knowing that you are covered in the event of a disaster.  The loss of treasured items or a loved one will be traumatic, but with insurance it will be easier to pick up the pieces and get the life of the family back on track as quickly as possible.  It is important to purchase the insurance before something bad happens, as insurance is protection from these events and will do no good when purchased after the event has already occurred.

Always make sure to insure items that you owe money on, such as your car and house. If you were to lose one of these due to fire or another natural disaster, you would still owe the loan but no longer have the asset. You don’t want to have to be filling out a credit card application just to make the monthly payment for an item that doesn’t exist anymore.

Over the last several years, many credit card issuers have begun to issue credit cards that offer travel rewards to the people that are requesting them.  These travel rewards credit cards offer points for certain types of purchases that can be redeemed at a later date for discounted rates or travel vouchers for hotels, airfare, cruises, or rental cars.  Many people wonder if the rewards offered by the credit cards are worth applying for the credit cards or if the rewards are only a ploy to get you to use the credit card because it will take a ridiculously long time to earn any rewards.

The Features Of The Credit Cards

Most travel rewards credit cards are amazingly similar in their features except for one thing and that is where the points earned on the credit cards can be redeemed.  Each of the credit cards will have similar interest rates for individuals with similar credit scores and most of them have no annual fee for using the credit card.  Because these credit cards are generally offered to people with good credit scores, there are no account maintenance fees or account set up fees for the credit cards.  The other fees that are charged to the credit card, such as over limit fees, late payment fees, and balance transfer fees, will typically conform to industry standards.

Different types of travel rewards credit cards will offer different point levels for different purchases.  Most of these credit cards will offer higher point levels for travel purchases, such as charging an airline ticket to the credit card, but will also offer points for general purchases as well, typically a point per dollar spent.  The amount of time that it takes to earn a reward with the points from the credit card will depend on how much you are charging to the credit card each month, how much you are paying off on the credit card each month, and what types of items you are charging to the credit card.

Redeeming Rewards

One of the biggest questions about whether a travel rewards credit card is worth applying for is how long would it take to earn a desirable reward from the points credited to the credit card.  For people that travel often and place a great deal of travel related charges on the credit card, they will earn points fairly quickly and be able to qualify for some of the better rewards.  People that use the credit card for more general purposes or do not place large charges on the credit card on a regular basis will find that it will take a very long time to earn enough points for the rewards and may become frustrated waiting for their points to accumulate.  If the person believes that the rewards are worth the amount that they will need to use the card, then applying for a travel rewards credit card may be a good idea for them because they can earn free travel and save money from purchases that they would have made anyway.

Many people across the nation find it difficult to save money because the temptation to spend money on different things, necessary and unnecessary is all around us.  People are spending their money on their bills, on food, on clothing, and on gasoline to travel from place to place in addition to all of the optional items that television and radio commercials are telling us that we need.  Because of this, many people are having trouble saving for the future but there is a way to make sure to save a part of your salary every month and that is by putting the money away before you can spend it.

The most efficient way for many people to save money is to transfer the cash into a savings account as soon as the person is paid.  This takes the money out of their checking account or their pocket before they are tempted to spend it on items that they want but do not need.  Using this savings method, the person will take 10% of the amount of their paycheck and transfer the money to a savings account that draws interest, leaving it there until the money is needed for an emergency situation.  By taking a small amount of money out of the amount that the person has to spend as soon as the person gets paid, the risk that the person will spend the money instead of saving it for a rainy day is dramatically reduced.

Why This Method Works

Everyone in the nation has had an experience where they have walked into a store intending to purchase a single item and came out with much more than they intended to buy.  Retail stores pay experts to find ways to entice you to spend more money than you want to in their stores and the advertising and displays make it difficult for people to not purchase an item at what they believe to be a good price.  Passing up a bargain may be hard, but most of these people will not spend money that they do not have available.  This is why taking the money out of the person’s checking account is so effective.  The person will not count it as extra money to spend if it is not showing in the balance of their checking account.

No person should spend all of the money that they bring home each month, even if the person is not making a great deal of money.  Living paycheck to paycheck and having all of the money spent before the check is received means that a serious reevaluation of your lifestyle needs to occur.  One you have determined what you are spending all of your money on each month and eliminated the things that are unnecessary, you should able to save at least 10% of the money that you earn.

The amount of individuals in debt continues to increase each month and as the credit crunch continues and the national economy slows, more and more people will find themselves facing this situation.  Some people have been depending on their credit cards or securing a home equity loan to bridge the gap between what they were making and what they have been spending, but now they are in the trap of owing a great deal of money to creditors and banks are not extending home equity loans like they did in the past, even if the value of the home is not underwater. 

Living solely on what they bring home in each paycheck may be difficult for these people, but in the times that we are living in being able adapt and decrease the amount of money that is spent each month is key to financial survival during the downturn in the economy.  To keep themselves from spiraling further into debt, the individual must create a strict budget detailing their monthly expenditures and how much they bring home in their paycheck.  Then the person must stick to this budget so they are not spending more than they can afford each month. 

Calculating Expenses

The first step for making a budget that you can stick to is figuring out how much is spent each month on necessities and extra items.  For between one and three months, everything that you spend money on should be tracked and all receipts kept so that you can see exactly where your money is going each month.  This gives you a complete picture of your financial situation without you having to attempt to remember each thing that you have spent money on during the month and how much each item has cost.

Keeping the receipts for everything that is purchased during the time period will also allow you to see how much money you are wasting each month on things that you do not need.  Most people make many needless purchases during the month that they do not think about when they have discretionary income because there is no concern about the cost of the items.  When you have a great deal of debt hanging over your head, these unnecessary purchases should be the first things that are eliminated from your spending so that the money saved can be used for paying down debt.

Creating The Budget

Once you determine what necessary expenditures you have each month, it is time to create the monthly budget.  The task is to create a scenario where less money is being spent each month than is coming in from your paycheck. The bigger the gap between what you make and what you spend, the better it will be because any additional money can be used to pay down any debt that has been incurred.  By detailing expenditures that must be paid each month and the cost of the expense, you will be able to create a complete budget that includes all of your monthly spending.

Your credit history is one of the most important pieces of personal information that you have because it is used in many different parts of your life.  An error in your credit history could end up costing you hundreds of dollars in additional interest payments, get you turned down for a loan, have your job application rejected, or disqualify you from renting a particular apartment.  Experts estimate that nearly 25% of adults have errors in their credit history through no fault of their own.  To fix errors that have been placed in your credit history, there are several steps that need to be taken to ensure that the information has been corrected properly.

1st Step – Take The Time To Review Your Credit History At All Three Credit Bureaus
Checking your credit history is one of the easiest ways to discover if there are errors that need to be fixed.  Errors in your credit history can cause a drop in your credit score which could result in increased interest rates and the denial of applications for loans or other financial products.  Reviewing your credit history reports from each of the three credit reporting bureaus will show you what information is in your credit history and allow you to spot any errors before they become major issues.  It is important to check the reports of all three credit reporting bureaus to make sure that none of them contain any mistakes.

2nd Step – Check Your Records For Any Information That You Have
If you do not remember having a delinquent payment on an account but one has been reported to the credit bureau, check any records that you have first before calling the credit bureau to report the error.  In some cases, it may be a case of a payment that was sent not being applied to the account but in other cases, you may have never made the payment even though you thought you had.  By checking your records first, you will refresh your memory about the situation and will know what to say if you need to contact the company about an incorrect item on your credit history.

3rd Step – Call Or Contact The Credit Reporting Bureau To Have The Error Corrected
If incorrect information is found in your credit history, you will need to contact the credit reporting bureau to have the information corrected.  You will need to explain why you believe that the information in your credit history is inaccurate and ask the person that is helping you which steps you will need to take to correct the situation.  The credit reporting bureaus are required by law to investigate allegations of incorrect information in a credit history and must correct any information that is found to be invalid.

4th Step – Make A List Of Who You Talk To And When You Talked To Them
When you deal with a company or a creditor, you will want to create a log of what people at the company you communicated with and when the contact occurred.  Every time that a different person is contacted about the incorrect information in your credit history, you should write down their name, position, method of contact, and the time of the contact.  If any documentation must be sent by mail, pay the extra for a delivery receipt so that you know when the documentation was received by the company and which person at the company signed for the documentation.

5th Step – Take Your Case To Court If Needed
If the company is being uncooperative about taking incorrect information out of your credit history, it may be necessary to plead your case in court.  In most cases, the threat of having to prove to a court that the information that the company submitted to the credit reporting bureau is valid is enough for them to agree to remove the incorrect items from your credit history.  Keeping a record of what steps have been taken to correct the issue will be valuable if you need to testify about the situation and may even prove your case.  It is important to treat going to court as a last resort and attempt to resolve the situation using other means first.

Many people do not know about the large amount of money that they are spending each year paying for fees that are tacked on to their normal transactions by different types of companies.  In many cases, the person may not even know that the fee exists, much less that it is taking money out of their pocket every time they perform a certain type of transaction.  In today’s tough business climate, many businesses find it hard to raise prices on their customers because it is easy to compare prices on the internet and some people will just move to the products with the lower price.  So instead of raising the prices for their products, the companies tack on fees so that they can increase their revenue without losing their customers.

Bank Fees
There are many different types of fees that a bank can charge to their customers for basic transactions that a person will accept or may not even notice when the charges are posted to the person’s account.  These fees include transaction charges for using an out of network ATM, charges for too many transactions within a specified time period, and charges for using a teller instead of the ATM. Some banks even charge a fee for a new Credit card application.  The easiest way to avoid these charges is to learn what will trigger them and take the time to avoid performing the actions that will cause you to be charged these fees.

Bill Payment Fees
In recent years, many companies have added more options to allow consumers to pay their bills more quickly and efficiently, but some of these options will trigger an additional charge for the consumer.  For some companies, paying the bill by telephone when talking to a customer service representative will cost an additional $10 while some other companies charge a fee for paying the bill over the internet.  Determine what the policies for the company are before deciding to pay your bill using a particular method and if the company charges for using these payment methods, take the extra time to pay your bill by mail to avoid the additional charges.

Travel Fees
Because many travel companies find it difficult to raise their base rates in the competitive travel industry, many of these companies have tacked on additional fees to the final bill to boost the profits of their company.  Some of the most notable fees for hotels include resort fees for hotels that have pools and fitness centers for guests to use, charges for having telephone service and internet access available even if they are not used, and mandatory valet parking charges.  With these types of fees, it is best for the person to choose a company that does not charge them instead of trying to argue with management to get the fees removed at the end of your stay.

Other types of travel companies have additional fees that should be avoided as well.  Many rental car companies will add fuel charges that are double the going rate for gasoline for not returning the rental car with a full tank of gas.  Some airlines will charge as much as $80 for a suitcase that is overweight and an additional fee for taking more than one suitcase on the flight.  Online companies that allow a person to book airfare will charge up to $35 for booking the flight online.  There are many hidden fees that may be charged by a travel company, but by knowing what they are and what companies are charging them, you can avoid having to pay them and can save a lot of money over the course of a year.

Does it ever seem like the more you try to save some money, the farther you fall behind?  If so, you are joining millions of other Americans that find themselves living from paycheck to paycheck or using their credit card to bridge the gap between what they make and what they feel they need to spend.  The bad news is that the situation will never change unless some steps are taken to solve the problem and even then, a single financial emergency can have you right back to where you started from.  By learning to recognize these 5 financial pitfalls, you will have a better chance of avoiding the traps that keep a person in debt and can put yourself on the path to financial freedom.

Paying Too Much For Your Largest Expenses
One of the biggest pitfalls that keep people in debt for long periods of time is paying too much for their largest expenses, such as their home and their car.  The cost of your mortgage payment or your rent payment should never exceed 30% of your total monthly income and the monthly payment for your car should never exceed 10%.  If you are paying more than that, you are drastically reducing the amount of money that you have for other purchases and will have a very hard time finding any additional money in your budget to save for a rainy day.

Not Tracking Your Expenses
People that do not keep track of the money that they are spending on different items throughout the month will often find themselves wondering at the end of the month where all of their money has gone.  If you do not keep a record of what you are spending your money on each month, you will have no idea what areas of your spending could be trimmed to save you more money.  If you are trying to get out of debt, every penny that comes out of your pocket should be tracked so that you can identify where you money is going each month and how to reduce your spending.

Not Calculating The Total Cost Of A Purchase
Many people will only look at the upfront cost of the items that they are purchasing instead of looking at the total price that will be paid.  A good example of this is people that purchase items from a rent to own location.  The items at these locations can typically be purchased for a low monthly rate, but over the length of the contract the person will end up paying double or more than what they would have paid if they have saved up their money to purchase the items from a regular retail store.

Not Having Any Money In Reserve
Not having a small cushion of money tucked away makes any financial issue take on the form of a crisis.  If you do not have the money in reserve to pay for a repair for your car or to fix the furnace in your home, you will often have to take on more debt in order to solve the problem.  Over time, the amount of interest incurred on the debt will significantly increase the amount of money that you will be paying to solve the problem.

Over the last few years, more and more people have begun to express frustration with the way that credit card companies are handling their accounts and are angry with getting charged with fees for virtually everything that they do.  Credit card companies have dramatically increased the number of things that they will charge an additional fee for and have increased the amount of each of these charges to ensure that they will be making a healthy profit on the account regardless of the account balance or how often the person uses the credit card.  This has dramatically increased the average cost of using a credit card for most consumers.

So what are these charges and how to you avoid having to pay them?  There are a number of different types of charges that may be charged by the credit card company and tackling each of them will require a slightly different method.  The most important part of avoiding having to pay these charges is to learn how to recognize them and how to avoid triggering the charge.

1. Late Payment Charges
This is the most common charge facing consumers that use their credit cards to make purchases.  In order to increase the number of late payment charges that a credit card company takes in each year, many of them have shortened the number of days that the consumer has for making the payment, have charged the accounts for payments that are only hours late, and have increased the average late payment charge from $10 to $39. 

The easiest way to avoid having to pay a late payment charge is to make the payment for the credit card as soon as the new bill arrives and to make the payment with the credit card company’s website to eliminate the risk of the payment being lost in the mail.
 
2. Over The Limit Charges
This is another charge that commonly affects consumers.  If the amount of the balance on the credit card goes over the limit by even a single cent, the credit card company will charge the account an over the limit charge of $35 or more for each transaction that pushes the balance of the account over the line. 

To avoid having to pay an over the limit charge on your credit card, always know what your balance is on the card so that you know how much of your balance you have left to spend.  If you do not know if you have enough of a balance left to cover the transaction, err on the side of caution and check your balance before charging the purchase.

3. Account Management Charges
These charges are especially devious because many people are unaware that they will be paying these charges until they have already opened the account.  Account management charges can take on many forms, including annual fees, maintenance fees, account set up fees, program fees, and servicing fees.  Some credit card companies will only charge one of these additional charges while some others pile on as many charges as they can. 

The easiest way to avoid having to pay these charges is to carefully read the terms and conditions for the credit card before signing up for the credit card.  The terms and conditions for the credit card must disclose the additional charges that will be added to the credit card and knowing what credit cards charge these fees with make it much easier to avoid applying for those cards.

4. Transaction Charges
In many cases, the credit card company will charge the account an additional fee for certain types of transactions that are made with the credit card.  This will generally include additional fees for balance transfers and cash advances, but may also include fees for using the internet to pay your bill, for not placing a purchase on the account for awhile, and for being approved for a credit limit increase. 

These charges will be disclosed in the terms and conditions associated with the credit card along with the amounts that will be charged for each instance.  The best way to avoid having to pay one of these charges is to familiarize yourself with the actions that will trigger the charge and avoid those actions at all costs.