Discover Debt Freedom!

Millions of people are now finding themselves trapped beneath a massive layer of debt and despairing that they will never be able to repay their obligations and become debt free.  Extracting yourself from debt has become much harder over the years as banks and other creditors have lobbied Congress to make it harder for the average consumer to eliminate their debt obligations through bankruptcy court.  Although it will be difficult, becoming debt free is possible if you are willing to sacrifice and follow the following tips.

Immediate Spending Reduction

You will never be able to get your debt under control if you continue to spend in the same manner that got you into trouble in the first place.  Choose your purchases carefully and try not to purchase anything that is not an immediate necessity.  Saving money should be your most urgent priority and cutting costs is the only way to achieve the savings that you will need to get out of debt.

Eliminate Credit Card Usage

Credit cards should be used in emergencies only and not to finance a lifestyle that is beyond your ability to pay for.  If you find yourself using your credit cards at the end of the month because you have run out of cash or your bank account is low, then you are over spending and need to find areas of your life where you can cut spending so that you are not living off of your credit cards each month.  Less spending on your credit cards will mean that it will be easier to pay down the balances and reduce the amount of money you are spending in interest each month.

Transaction Documentation

You cannot reduce your spending if you do not know what you are spending your money on each month.  By keeping an accurate accounting of your spending, you can see what you are spending your money on each month and how much you are paying for different categories such as entertainment or food.  Once you have determined where your money is going each month, it will be easy to identify where spending can be cut without interfering with your general quality of life.

Start Saving

A common thread between many people who get trapped into a cycle of debt is that they needed money for a financial emergency and they did not have the savings available to cover the cost.  Their only option was to put the cost of the emergency on some type of credit and, already living paycheck to paycheck, defaulting on that credit agreement, causing skyrocketing interest rates, reduction in their credit score, and expensive fees.  As you allocate money to pay down your credit debt, you should also allocate money to be placed in a savings account for emergency purposes.

Spending money has always been a national pastime, but more and more people are seeing the prudence of not maxing out their credit cards and saving for a rainy day.  Money management skills are a very important part of a person being able to get out of debt and stay out of debt and individuals with poor money management skills often find themselves facing financial hardship throughout their lives.  By using a few simple money management techniques, you will be able to spend less and save more.

Automatic Deposits

Using the ability to make deposits into a savings account automatically can help make managing your money much easier.  Many people put saving last and only save the amount that they think that they can spare at the end of the month.  By having a set amount of money deposited into the savings account at regular intervals, such as every two weeks when paychecks are deposited, the temptation to spend the money intended for savings on items for immediate gratification will be greatly reduced.  This will cause the balance of your savings account to grow quickly.

Tracking Expenses

Individuals that track the amount of money that they are spending and what they are spending that money on are less likely to overspend or spend excessively on frivolous items.  By keeping a log of all deposits and withdrawals to your bank accounts, it will be easier to identify areas where spending can be trimmed or eliminated altogether in the event of an income reduction or a need for emergency spending.  Tracking your spending will also help you stay within your monthly budget as you will know when and where the money has been spent.

Rounding Up Purchases

A slow, but steady, method of saving money is to round up the cost of each of the purchases that you make in your transaction ledger so that the total balance does not reflect the difference between the rounded numbers and the actual amount of the purchase.  This way you will always have a cushion between the amount of money that you have available and the amount of money that you think you have to spend.  Some people choose to round the number up to the next dollar while others choose to round up to the next $5 interval to save money more quickly.

Credit History Checking

Checking your credit history on an annual basis will help you identify and correct any unusual or incorrect information quickly before the transactions cause a financial catastrophe.  Incorrect information in your credit history can be costly in a number of different ways, from paying higher interest on a loan to being denied credit, a promotion, or a job.  Incorrect information that is found quickly is typically easier to repair than incorrect information that has been listed in your credit history for a while, so it is important to check your credit history annually to stay in front of the situation.

Currently, there are two different sides emerging in the debate over the benefits of homeownership to the general public.  The housing crisis of 2008 has challenged conventional wisdom and has changed the way that many view homeownership.  On one side of the debate are the individuals that claim homeownership is the path to the American dream and financial freedom while the other side is dominated by individuals that believe that the claimed benefits of homeownership are overblown and many people would be more secure financially if they chose to rent instead of own their home.

Initial Investment

One of the biggest arguments against homeownership today is the price of the initial investment required to obtain a home.  In the past, when many houses sold for $50,000 or less, the 20% down payment recommended by many lenders was less than $10,000.  Although this is a large sum, it is dwarfed by the amount required as a down payment today as the average housing price has nearly quadrupled over the last two decades.

The initial investment for securing a rental property is the payment of the first month’s rent, the last month’s rent, and a security deposit against damage to the property.  With average rents ranging from $500 per month for an apartment to $1,500 per month for a single family home, the total initial investment will range between $1,200 and $3,500.  This is a much more manageable investment amount for a person to save and allows them to obtain their home much more quickly.

Fees

There are many fees associated with homeownership and every person thinking about owning a home should be prepared to pay some, if not all, of these additional fees.  The costs of the fees, for items such as closing costs, realtor fees, documentation fees, and appraisal charges, can quickly climb into the thousands of dollars.  Some people choose to use their savings to pay these fees at closing while some other choose to add these fees to the balance of their mortgage loan.

On the other hand, there are little to no fees associated with obtaining a rental unit for a residence.  Generally, the only fee that will be charged to the renter is an application fee used to weed out those that are not serious about obtaining a rental unit at the property.  This fee is typically less than $100 and is paid at the time that the rental application is submitted.

Equity

One of the biggest benefits of homeownership is that homeowners build equity in their homes as they continue to pay off their mortgage loans.  Renters do not purchase a stake in the property that they are living in when they make their rental payments and when they leave the premises, the renter has no right to any portion of the property other than their personal belongings.  Although the equity in the home increases slowly for the homeowner, homeowners have the option to extract this equity from the home in the future to pay for expensive obligations, such as a hefty medical bill or college tuition for their children.

Whether homeownership will be an asset or a liability to a person’s financial future depends on the personal circumstances of that particular individual.  The choice to purchase a home should not be made lightly and all of the pros and cons should be weighed before a final decision is made.

Payday lenders can be found nearly everywhere.  They are located in store fronts and strip malls in almost every city in the nation, easily available to the middle class and lower income individuals that make up the majority of the payday lenders customers.  Payday loan lending has become one of the most notorious business practices examined today, with many people calling the lenders predatory and just as many calling them saviors.

Where Are They Located?

Payday lenders are typically located in the lower income areas of a city where poor and lower middle class individuals can easily access their services.  They are found along local bus routes and in areas where people come to obtain services on a regular basis, such as near grocery stores, restaurants, or clothing retailers.  They tend to cluster in areas that are not well served by local banking institutions or where opportunities to obtain short term personal loans are scarce.

Supporters Claim:

Supporters of payday lending claim that the lenders are providing a needed service to an underserved section of the nation.  The individuals that typically obtain payday loans do so because they are unable to obtain short term funding by any other method.  If they did not have the payday lenders available, they would not be able to secure money to pay for emergency situations and unexpected financial issues.  Many also claim that the fees charged by the payday lenders is less than the bounced check or over the limit fees that are charged by the nation’s largest banking institutions.

Opponents Claim:

Many opponents of payday loan lending claim that the loans that are made are predatory, prey on the working class, and trap individuals in a cycle of debt that is very difficult for them to free themselves from.  Loans that are obtained from a payday lender must be paid back to the company within a two week period – the average interval between paychecks for working individuals – along with the interest and fees charged for the transaction.  This generally works out to be 300% and 400% interest for a payday loan versus between 10% and 20% interest for placing the same amount of money on a credit card.

The Biggest Issue
 
The most contentious issue that arises in the payday loan debate is the fact that a large number of the individuals that patronize payday loan lenders end up taking out another loan immediately because they cannot afford to have the entire amount of the loan taken out of a single paycheck.  This leads to a vicious cycle where the amount of fees eventually paid for the loan far surpasses the original amount of the loan.  Because many of these individuals are already living paycheck to paycheck with little disposable income, these swiftly increasing fees can quickly result in financial devastation for the people who take out the loans.

Now that a health care reform bill has passed both houses of Congress, many people are wondering how the passage of the health reform bill will affect their household finances.  There has been much confusion on both sides of the aisle on explaining to their constituents exactly what health reform will mean to their wallets, but now that the reform efforts have passed, many experts have begun to calculate the general costs of this legislation for the general population.  Here are some of their findings.

Who Benefits?

The experts agree that the biggest beneficiaries of the health care reform bill that passed congress are the individuals that were uninsured or uninsurable.  This legislation helps the people that were previously shut out of the insurance market obtain health care coverage at a much more reasonable cost than what was previously available to them.  Many people that work for employers that do not offer health insurance as an employee benefit will be able to purchase insurance on an insurance exchange often using subsidies provided by the federal government.  It is expected that this provision in the health care legislation will expand the availability of insurance coverage to millions more people.

Individuals that receive their health insurance coverage through their employer are not expected to see many significant changes.  The employees could still enroll in their employer’s health insurance plans and enjoy the benefits of employer subsidized health insurance.  The coverage offered under these employer based health care plans is not expected to change significantly either, with most individuals utilizing the same insurance plans that they have been using before the legislation is passed.

Will My Insurance Cost More?

The provisions in the health insurance reform bill are paid for in a myriad of ways and some of these ways will affect more people than others.  For example, the more affluent among us will see the amount of taxes that they pay on their personal wealth increase while the actual costs of their health insurance will remain the same.  Healthy individuals that could purchase health insurance and choose not to do so for personal or financial reasons will now be required to purchase some type of health insurance to cover themselves.  If the government determines that purchasing health insurance would place an undue financial hardship on the individual, then subsidies would be offered to help reduce the person’s out of pocket expenses.

When Will We See Changes?

Many of the provisions of the health insurance reform bill are not scheduled to go into effect until 4 years from now.  This includes the individual mandate for everyone to purchase health insurance and the provision that health insurers cannot deny coverage to an individual due to a pre-existing condition.  Other provisions of the law took effect shortly after its passage; such as insurers can no longer deny coverage to children with preexisting conditions or drop people from the coverage that they have paid for when they become ill.  There are many different pieces to this health care legislation and most people will not see the full effects of the law until it is fully enacted.

Many people do not understand the importance of insuring the possessions in your home.  The insurance of possessions is one type of insurance that every person should have, regardless if they are renting or have a mortgage on their home.  It is very hard to replace all of your possessions in the event of fire, flood or theft and having the items insured will reduce your out of pocket cost for the replacement of the items.

Does My Homeowner’s Or Rental Insurance Cover These Items?

Many people are confident that their homeowner’s insurance policy or their renter’s insurance policy will cover the replacement costs of all of the possessions that are located within the residence that is insured.  In reality, most policies only cover structural damage or a limited quantity of the items in the home.  For this reason, insuring your possessions is the best way to protect yourself if an unfortunate event ever occurs.

Insurance policies that cover possessions located in the residence are generally purchased in addition to a basic insurance policy used to insure the physical residence.  It is important to request this additional coverage when purchasing homeowner’s or renter’s insurance policy. It would be regrettable to find that your possessions in the home are not covered under your insurance policy after they have been destroyed. 

What Can Be Covered?

One category that is frequently covered under this additional insurance policy is the appliances in the home.  In the event of a natural disaster or fire, major appliances in the home will possibly be damaged or destroyed and it will cost thousands of dollars to replace these appliances with items or a similar nature.  By ensuring that these possessions are insured, you can avoid having to drain your savings account to replace the items that are unusable.

This insurance can be used to cover items as varied as refrigerators, clothing, television sets, and/or jewelry.  The decision of what items to insure will be based on the personal preferences of the individual purchasing the policy. The importance of insuring the possessions in your residence is not often realized until it is too late.  By ensuring that these possessions are insured soon after you move into the residence or soon after purchase, you will ensure that you are not blindsided with excessive costs in the future.

Identity theft is a terrible offense that continues to victimize the individual long after the theft has occurred.  The trouble begins when the theft is uncovered and continues as the individual attempts to correct the problems that are causing issues with their credit history.  If the individual is quick enough, they will be able to disclose the identity theft prior to the criminal attempting to use their information for fraudulent reasons.  The people that do not report identity theft fast enough may be denied a credit card or take significant hits to their credit history before they discover that identity theft has occurred.

Discovering Identity Theft

Generally, it is difficult to discover that identity theft has occurred because criminals are exceptional at covering their tracks.  The individual doesn’t know that their information has been compromised until the criminal has successfully obtained credit using their information or has used their personal information in other illegal manners.  The credit cards obtained using their personal information are typically sent to other homes, businesses, PO Boxes so the victim will never receive a statement for the credit card account or a default notice when the credit card balance is not paid.  If the telephone number entered on the application is fraudulent as well, the person won’t receive collection calls from the creditor and the creditor will have no way of getting in touch with the person whose information was used for the account.  It is very difficult to identify identity theft under these conditions.

Convincing The Creditor

If it is necessary to report identity theft, the person who has been victimized may have issues with persuading the creditor that they did not apply for the credit account and that they are not the person who has been using the account since its approval.  When identity theft is reported quickly, the individual can reduce the number of problems that they encounter by calling the creditor to cancel the account before the account is maxed out and it is easier to convince the customer service representative that their personal information has been compromised if the credit account has only been opened for a short period of time. 

Time Limitations

If identity theft is not reported quickly, a number of problems may occur.  Many creditors only acknowledge disputed charges made within a specific time period after the transaction has occurred.  If identity theft is not reported within that time period, the victim may be held responsible for the transactions made with that credit account.  Some creditors require verification that the person reporting the identity theft is not the individual who opened the accounts, which can be difficult to prove unless the thief has used entirely fraudulent addresses and telephone numbers for the account application.  If the debt has been sold to a collection agency before the identity theft is reported, the victim receive collection calls about the account for many years after the identity theft has occurred.

Over the past few years, it has been debated whether it is better to have overdraft protection on a personal debit or credit card or if it is better to take out a payday loan to cover end of the month expenses if the unexpected happens and the person runs out of money before that next paycheck.  Of course, the best option would be not to have to deal with either of these two options, but if the choice must be made, it would be helpful to know how these two options compare to each other.

Loan Amount

Payday loan amounts are based on the amount that the person receives in their weekly or bi-weekly paycheck.  The loan amounts begin at $100 and are typically capped at $500 or $800, depending on the policy of a particular payday lender.  The amount that is covered under overdraft protection is typically much less and can be denied by the banking institution at any time, resulting in a declined transaction in the case of a debit or credit card or a bounced check.

Repayment Period

Payday loans are considered to be an advance on your next paycheck and must typically be paid back at the end of a two week period.  This can cause financial hardship for the person taking out the short term loan if they do not make enough money to cover the repayment of the loan and cover the rest of the bills that come due during that time period.  Overdraft protection charges are immediately charged to the person’s bank or credit card account, giving their account a negative balance, and the overdraft charges must be paid quickly to prevent negative balance or over-limit fees from being charged to the account as well.

Occurrence Limits

With a payday loan, the person will only be able to have a single payday loan on file from a single payday loan lender location during each two week period, unless the original loan is paid off to allow the request of another payday loan.  Some people skirt this system by having payday loan accounts at multiple lenders so that they can take out multiple payday loans at the same time.  Overdraft protection can be used as many times as the person sees fit within a monthly period, although some banking institutions and credit card companies will deny the transactions if they feel that the system is being abused or that there is a chance that they will not be repaid.

Fee Amounts

Payday loan fees increase progressively depending on the amount of the loan but typically work out to $15 for every $100 borrowed.  Overdraft protection fees are a set amount regardless of the amount of the transaction and are typically between $29 and $39 per occurrence.  This means that going $5 over the limit in a single transaction will result in a $39 charge just the same as going $300 over the limit with a single transaction.

Many people believe that missing a credit card payment is a minor thing and that if they make the payment as soon as they have the money, the penalties for missing that payment will be minimal.  In reality, there are a number of penalties associated with missing a credit card payment and the effects of that missed payment can be felt for a long time after the payment has been made.  In order to be able to make informed financial decisions about using a credit card and making the required payments, it is important to know what the penalties are for missing a credit card payment.

Late Payment Fee

The first penalty of missing a payment date for a credit card account is the late payment fee that is assessed to the account.  This fee is charged directly to the account shortly after the deadline for making the payment has passed and is added to the principal balance of the account.  Different financial institutions charge various fees for missing a payment on the credit card accounts they hold, basing the fee on the type of credit card held and the balance of the account at the time of the payment default.  These fees typically range between $25 and $39 per occurrence.

Increased Interest Rate

Many credit card companies use the fact that a payment has been missed on the account to justify raising the interest rate on the account to the highest rate charged by the company.  By missing a payment, the account holder has become a credit risk to the company and in order to recoup as much of their money as possible as quickly as possible, the interest rate is immediately raised.  It is not uncommon for the interest rate assigned to a credit card account to increase by 10% or more due to a single missed payment on the account.

Blemish On Credit History

When a payment is missed on a credit card account, the company reports the default to the three major credit bureaus for inclusion on the account holder’s credit history.  This entry will remain on the account holder’s credit history for at least seven years and can only be removed if the account holder is able to prove that the entry was made in error. 

Drop In Credit Score

Once a missed payment has been reported to the three major credit bureaus, the account holder’s credit score will be recalculated to reflect the account holder’s drop in credit worthiness.  Up to 30% of the credit score calculation is based on the person’s credit history so the credit score can drop by a significant percentage based on a single missed payment on a credit card account.

Across the nation, millions of homeowners are faced with a difficult situation.  Due to an inability to pay their mortgage loan, either from financial hardship, loss of employment, or adjustment in the payment terms of the mortgage loan, they have fallen behind on their payments and are now facing foreclosure proceedings.  Although the situation can be a difficult and emotional one to handle, there are some steps that can be taken to limit your losses and make the foreclosure process much less painful for you.

Communication Is Key

One of the biggest mistakes made when a person is facing foreclosure is attempting to delay the inevitable by not speaking with the lender until the situation is dire.  Although acknowledging that you are unable to meet your financial obligations to a stranger can be very embarrassing, it is necessary if you are going to find a solution to your problem.  Talking to and being candid with the lender’s representative about your financial situation can buy you additional time to make the payments or may even result in a temporary interest rate reduction for a specific time period to assist you in becoming current with your payments.

If your current cash flow issues are the result of a temporary reduction in income, then the lender may choose to suspend payments or require a portion of the payment to be paid while adding the remainder not being paid to the balance of the loan.  If the payments have increased to the point where they are no longer affordable and you are unable to obtain refinancing, then the lender may agree to limit the amount of losses you will sustain by selling the home before you are too far underwater.  In either case, speaking with the lender about your options quickly produces more favorable results than waiting until you owe massive amounts of money to the lender.

Can You Sell?

In many cases, if the home is not underwater but the payments have become unaffordable, the homeowner will be able to sell the home for more than the amount that they owe and use that money to pay off the loan that they have taken out.  Even though they may no longer own their home, they will be able to escape the onerous payment with their credit score intact which will increase their ability to secure a rental or purchase a new home in the future.  Losing the money that was put into the home will be a difficult loss to bear, but with careful money management you can be ready to purchase a different home with more reasonable terms in a few years.

If the home is underwater, meaning that what is owed on the home is more than what the home is worth, it will be much more difficult to get the lender to agree to the sale of the home because they would be selling the home at a loss.  In many cases, the person selling the home is held responsible for the difference between the amount owed and the amount the home is sold for, meaning that they could still be making payments to the lender for the home for many years after the home has been sold.