Discover Debt Freedom!

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.

One of the biggest reasons that people fall into insurmountable debt is because they routinely spend more than they intend to, reducing the amount of money that they have available for any financial emergencies that arise.  For many people, it is very difficult to get out of debt and the troubles caused by a high amount of debt could last for many years.  The best way to avoid getting into debt is to learn some money management tips that can help you save more of your money and provide a cushion for any financial emergencies that you may encounter.

Tip 1 – Document Your Spending Habits
In order to learn how much money you are spending on a monthly basis, you should document all of your financial transaction and whether they were paid with money from your bank account or placed on your credit card.  This will give you a good idea of how much money you are spending and identify areas where your spending could be cut to save money.  It will also prevent you from spending more than you intend because you will be able to see the amount of money that you are spending add up each month.

Tip 2 – Avoiding Paying For Overpriced Items
There are a number of items that many people purchase everyday that are greatly overpriced compared to purchasing the items from the grocery store or preparing the items for themselves.  For example, purchasing a six pack of beer at the grocery store will cost you about $5.00, but purchasing those same six beers at your neighborhood bar will cost you about $18.00, an increase in price of 260%.  Specialty coffees are another item that could be avoided in order to save more money as coffee made at home costs about 1/8 of the price.

Tip 3 – Use Automatic Deposits For Your Savings Account
Many businesses will now allow direct deposited paychecks to be split into as many as three different accounts, so take advantage of this benefit and set up to have a percentage of your paycheck paid into directly into your savings account each payday.  Having the money directly deposited into your savings account prevents you from spending the money just because it is in your checking account and saves you from having to remember to make the transfer.

Tip 4 – Round Up Your Purchase Amounts
Want an easy way to create a cushion of money in your checking account?  Every time that you write a check or use your debit card, round up the amount of the purchase in your ledger to the nearest whole dollar.  This makes it easier to subtract the purchases from your balance because you are not dealing with dollars and cents and over time the cents that were not included in the accounting will add up to a significant amount of money to hedge against going over the balance of your checking account by accident.

Tip 5 – Remember To Check Your Credit Report
Experts estimate that as many as 25% of the credit reports held by the three major credit bureaus contain mistakes that can be very costly.  By reviewing your credit report on a regular basis, you will notice any mistakes that have been placed on your credit report and take the steps to correct the information in a timely manner, which will make resolving the issue much easier.

Many people view the consequences of a late payment as something that is insignificant and not worth worrying about.  After all, the person pays a nominal late fee and that is the end of the story, right?  Wrong.  Late payments on your accounts can have a number of devastating consequences that you may not be aware of until it affects your life in a major way.  In these days of tightening credit standards and lender’s reluctance to lend to any but the most worthy borrowers, the pain created by multiple delinquent payments on your accounts may be felt sooner than you think.

The Late Fee
The first result of a delinquent payment is the late fee that is charged to the account.  The amount of this fee can range between $5 and $39, depending on the type of account that the payment was going towards and the individual rules of the company that issued the account.  Although some people may believe that the amount of the late fee is too small to worry their head about, the truth is that paying a late fee is giving your money to a company for nothing and multiple late fees will begin to add up and hurt your wallet more than you can imagine.

Account Default
If your payment becomes late by thirty days or more, it could throw your account into default.  This means that your account is no longer in good standing and the company will consider you to be a risk to their bottom line.  Having your account placed into default makes it much more difficult to do business with the company holding the account because you have showed yourself to be untrustworthy when it comes to paying your debts.

Higher Interest Rates
Even if the payment for the account is only hours late, most creditors reserve the right to dramatically increase your interest rate in the event that a payment is not made in time and will exercise this right in the majority of the cases that they come across.  The increase could double or even triple your interest rate, which could be financially devastating if there is a large balance on the account.  In some cases, some people that have made a late payment on a credit card account have seen their interest rates skyrocket to almost 30%.

Universal Default
In one of the worst consequences of a late payment would have to be triggering a universal default clause for your accounts.  Under this clause, if you default on one of your accounts, creditors can apply the default to all of the accounts that you hold, triggering massive interest rate increases across the board.  For example, if you have four credit cards and you make a late payment on one, the interest rate for all four cards will rise as if you had defaulted on all four accounts.  The accounts do not have to be issued by the same creditor for universal default to take place because as soon as other creditors see the late payment on your credit report, they will automatically invoke the universal default clause.

Decrease In Credit Score
In addition to placing a blemish on your credit report, a late payment can decrease your credit score by a significant amount.  When the late payment is reported to the three major credit bureaus, they respond by deducting points from your credit score.  Because it is much easier to decrease your credit score than to increase it, the results of the decreased score, such as higher interest rates and the denial of credit, can follow you for a number of years before you can get your credit score back up to its previous level.

There are a number of habits that people follow every day without thinking that can have a devastating effect on their financial stability.  Although the dangers of these habits are not readily apparent, over time the habits will end up costing the person a great deal of money in late fees and interest payments.  These habits can also harm their credit score, causing a steady decrease that lowers the credit score month after month.  By changing these habits or eliminating them from your daily life, you will be able to decrease their effects on your financial future and may even find yourself more financially stable within a short period of time.

Bad Habit 1 – Being A Free Spender

Many people neglect to budget the amount of money that is coming into the household each month and the amount of money that is being paid out for bills and other additional expenses.  In many cases, the failure to create a budget for the household results in a person spending more money each month that they intend to spend and often leaves the person with no money to be placed into savings.  In some cases, the person overspends the money that they have and are left without an amount adequate for paying their bills, resulting in late charges and higher interest payments on other accounts.

Bad Habit 2 – Opening Credit Card Accounts On A Whim

A recent trend has many retail stores offering a discount on their merchandise for people that open up a credit card account with the store.  This can be good for people that choose to do the majority of their shopping at the store that is offering the credit card, but a more common scenario is for the person to open up the credit card account simply to get a discount on the merchandise that they are purchasing at the time and then the card remains unused for a long period of time.  Every time a new credit account is opened in your name, your credit score decreases by as many as 5 points and the number of open accounts that you have in your name may cause you to be denied credit in the future.

Bad Habit 3 – Neglecting To Review Your Credit Report

Many people do not check their credit report because they don’t think that there is anything that can be done to change the information that is contained within the report.  The truth is that nearly 25% of the credit reports held by the three major credit bureaus contain mistakes that could be costing those people hundreds of dollars in increased interest payments and could be causing them to be denied credit that they would otherwise be qualified.  Experts recommend reviewing your credit report at least once per year to ensure that there is nothing on there that shouldn’t be.

Bad Habit 4 – Depending On Credit For Handling Emergencies

The recent years of easy access to credit and high credit limits offered by credit card companies has caused many people to stop placing money into their savings accounts for emergencies because they believe that they will be able to handle anything that comes up with the amount of credit available on their credit cards.  What they fail to remember is that any payments that they place on their credit cards will have interest charges placed on them, making the total amount paid for the item much more than anticipated, and placing the amount on the credit card means that you will not have those funds available for any other emergencies until that balance has been paid off.

Bad Habit 5 – Denying Financial Trouble

The worst thing that a person can do when facing a financial difficulty is pretend like the problem does not exist.  Avoiding phone calls from creditors, throwing away mail unopened, and hoping that the problem will go away will only make the situation worse and cause more financial hardship the longer that the problem goes on.  If you are facing a financial difficulty, the best thing to do is to confront the problem head on and take the steps necessary to correct the problem as soon as possible.

In recent years, the easy access to credit severely reduced the amount of people across the nation that saved up their money to purchase the things that they desired.  Instead of budgeting their money and putting a little of it away each paycheck to save up for the expensive items and vacations that they wanted, people began to place these massive purchases on their credit cards with the realization that they could pay off the balance of the credit card over time.  In effect, the common trend was reversed with people buying first and paying later instead of saving first and buying later.

What Makes Debt A Bad Idea?

What many people forget to remember is that there was a reason that our parents and our grandparents tried to stay away from debt as much as possible.  In most cases, debt is not a good thing and it can get you into a lot of trouble fairly quickly.  As people get into debt, they find that their financial options are limited, they are less able to handle emergencies, and they can lose every thing that they have worked for in order for their debt to be paid off.

Let’s take a look at how debt works.  When you are incurring debt, you are paying someone to lend you money for a short period of time and the person that is lending you the money gets all of their money back plus some of yours for having the money for you to borrow.  When you are buying items on credit, you are paying more for the item than you would have if you had paid in cash and sometimes it can be significantly more depending on the interest rate on the credit card that you used to pay for the purchase.  For example, if you purchased a table that costs $200 on a credit card that had a 15% interest rate and took six months to pay off the purchase, you could end up spending around $450 to buy the table – $250 more than you would have paid if you would have purchased the table with cash.

Why Is ‘Save To Spend’ A Good Idea?

When you use the save to spend method, you determine what item you would like to purchase and place a certain amount of money aside each month to be able to pay for the purchase in cash when the time comes.  For example, a person who would like to go on a vacation that will cost $1,000 may decide to save $200 per month for 5 months in order to have the money that they need to take their vacation.  This makes obtaining the money more manageable and ensures that you will not be working off the costs of the vacation for months to come.

Items purchased using the save to spend method cost less than purchasing items with a credit card and if the person is really savvy with their money, they will be more inclined to seek out deals on the things that they want in order to maximize what they are getting for their money.  People seem to be more aware of money leaving their bank account than they are of charges racking up on their credit card and tend to be more cautious about the prices of items when they are paying for the purchases out of their pocket or out of their bank account.  They will also avoid having interest charges placed on the cost of the items that they will have to pay off eventually which can greatly increase the cost of owning the items.

Ask any financial expert in the country what the biggest problem facing the people of this nation is today and they will say that it is the high level of personal debt that many of the people across the nation are carrying.  Since this century has begun, many people have been spending more than they can afford to live a lifestyle funded by home equity loans and credit cards.  Now that the days of easy and plentiful credit are gone and the values of many homes across the nation are plunging, people are beginning to see just how deep the financial hole that they were digging is and are having a great deal of trouble extracting themselves from that hole.

What Happened?

Over the last twenty years, the culture of the nation has switched from a culture of savers to a culture of spenders.  People were told that it was their national duty to go out and spend money because that is what caused the economy to grow and keep moving.  If you did not have the cash to spend, there were no worries because there was always some credit card company that was willing to give you a credit card so that you could spend more money now and could worry about paying it back at a later date.

Commercials for items became more prevalent over time, with companies trying to convince people that they had to have items that they really didn’t need and taught the children of the country that if they didn’t convince their parents to buy them the latest and greatest things, then they would become social outcasts among their peers.  Of course, the parents that would do anything for their loving children put these new expensive items on their credit cards so that their children would have the same items as all of their friends.  This resulted in many middle class children sporting $200 shoes, $150 jeans, and a new cell phone every several years.

Add this to people purchasing larger homes than they could afford without having to document their income or provide a down payment and college kids having credit limits of thousands of dollars on multiple credit cards and you can see why the nation is facing the problem that it is in today.  Now those payments on earlier purchases are coming due, people are unable to take equity out of their homes to pay off their debts, and they cannot support their current lifestyle on the money that they are making at their job.  This is driving people deeper and deeper into debt as interest payments and penalty fees continue to increase the amount that is owed.

The housing crisis has caused many problems for personal finances as well.  Houses are losing their value quickly because of the housing bubble that inflated prices beyond all reason so people that would like to purchase a home cannot afford to buy them at the current prices.  People that need to sell their homes because they cannot afford them cannot find buyers willing to pay a high enough price to cover the amount of money the owners owe on or have invested into the home so they are stuck in a home that they cannot afford.

The problem is going to become worse before it gets better, as more and more people fall victim to the forces of the economy that are against them.  Over time, the economy will stabilize and reason will return to the financial sector of the country, but not before the many excesses of the current decade have been shed and people that have spent more than they could afford either make the sacrifices that are required for them to regain their financial footing or they declare bankruptcy so that they can begin again new, but with a serious disadvantage.  The problems are not too big to surmount, but it will take time and the cooperation of the entire nation.

Are you interested in getting out of debt and stopping the monthly payments you must make to your creditors?  If so, you are in the company of about 75% of the population that has found themselves with more debt than they are comfortable with.  There are certain steps that can be taken to eliminate the debt that you have and prevent you from accumulating more, which is the only way to truly realize debt freedom.

Step 1 – Changing The Way You Think About Debt
In recent years, debt has become an acceptable way to get the things that you want quickly, instead of saving up for the items over time as our parents did and only purchasing the things that you can afford.  This has translated into the highest level of consumer debt in history and millions of people across the nation filing for bankruptcy protection from crushing debt.  In order to become debt free, you must begin to think of debt as something to be avoided at all cost and conduct your life accordingly.

Step 2 – Stop Digging The Hole That You Are In
The biggest step in eliminating your debt is to stop creating more debt.  You will never eliminate the pile of debt you have accumulated if you are adding to the total each month by purchasing more items.  If you have credit cards, put them away somewhere that they are not easily accessible and stay away from the stores where you know that you always purchase more than you intended to.

Step 3 – Make All Of Your Payments On Time
Nothing increases debt faster than penalty fees on an account and you are not receiving any benefits from the extra money that you are paying to the companies.  Penalty fees assessed against an account for paying the bill late can range from $5 for the cable bill to $39 for a credit card bill.  If you are being assessed numerous penalty fees on several different accounts each year, you could end up paying thousands of dollars extra to these companies in a very short period of time.

Step 4 – Cut Out The Convenience Fees
There are many different things that people do without thinking that could be classified as a “convenience fee”, such as the $2.50 paid for the convenience of using an ATM that is not branded to your bank or the $4 paid for the convenience of purchasing a coffee instead of brewing your own at home.  Over time, these convenience fees can add up to thousands of dollars that could have been saved by taking a few minutes out of your busy schedule to do things for yourself or to plan ahead for the things that you will need throughout your day.

Step 5 – Save Money For Emergency Expenses
One of the biggest reasons that people fall into debt and remain in debt is that they spend all of the money that they make and do not have a cushion to use in the event of an emergency.  If you have no savings when an emergency financial situation arises, you are much more likely to charge the amount to your credit card, where you will pay up to 30% interest, or you will take out a payday loan, which charges 390% interest packaged to look like a fee and can trap you in a cycle of debt that may take months to release yourself from.  By placing some money aside in a savings account, you can ensure that you will not have to use either of these options when a financial emergency arises.

There are more people in debt across the nation today than at any other time period in history, as many people have been using credit to spend beyond their means and purchase large homes that they can not afford.  Many of these people are now having trouble paying all of their bills and are growing increasingly desperate as they find themselves falling farther and farther behind.  Many of these people may be tempted to turn to a debt relief company to help them eliminate their debt, but in some cases, turning to these companies can cause more harm to your financial future.

Although there are some debt relief programs that may be able to help you reduce the amount that you owe to creditors or help you make a plan to regain your financial freedom, there are also many debt relief companies doing business that will not do anything to help you reduce the amount of money that you owe and may even drive you deeper into debt by charging excessive fees for doing little to no work on your case.  Some people are so desperate for debt relief that they ignore the warning signs that the company may be scamming them and end up getting deeper into financial trouble.

There are some things that should be kept in mind when looking for a company to help you with your debt to keep you from making the wrong decision and owing more money than you currently owe.

1.  If it sounds too good to be true, then it is probably a scam.
There are many debt relief companies that promise to settle your debt for pennies on the dollar, wipe away your debt without hurting your credit score, or repair your credit in a quick and easy manner.  None of these actions can be accomplished legally and attempting to settle your debt or repair your credit in these ways can create just as many legal problems as financial ones.  If a company is telling you that they can do this for you, avoid this company like the plague because they are lying to you.

2.  The company is charging high up front fees.
If the company is requiring you to pay high fees, often more than $500, up front before they begin to work on your financial situation, this may be another red flag that the company is more concerned about padding their bottom line than with helping you with your financial problems.  The owners of companies offering debt relief are being sent to prison in increasing numbers because they have charged their customers outrageous fees, $7,500 per customer in one case in Ohio, for debt relief help that they would not or could not perform.  Even if these scam artists get sent to prison, that does not mean that the fees that you have paid will be refunded to you, meaning that you will be deeper in debt than when you began.

There are several legal ways that can be used to reduce the amount of debt that you owe to your creditors or lower the interest rates that are being charged on your debt, but they all involve talking to the creditors and explaining your financial situation.  Many of these creditors will be willing to work with you because obtaining some of the money that is owed is better than receiving nothing because the person was forced into bankruptcy.  There are a number of different government programs that can assist a person with navigating through these financial systems and getting the assistance that they need and these government agencies will not charge you thousands of dollars for the help.

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.

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.