Discover Debt Freedom!

It is much easier to get into financial trouble than many people would think, with minor actions causing major trouble for a large number of people.  There are some actions that will take you down the path of financial devastation much more quickly than others and avoiding these actions is the best way to reduce your risk of amassing insurmountable debt.  Although some of these actions may be hard habits to break, it is important to avoid these items so that you can keep your debt at a manageable level.

Forgetting To Check Credit History

Not checking your credit history is one of the fastest ways to get into financial trouble because many financial issues can be solved quickly if they are discovered quickly.  Many people credit the fact that they check their credit history annually with the early discovery of identity theft and fraudulent accounts being opened in their name.  The government has mandated that one free credit report from each of the credit rating agencies be made available to everyone that wishes to view their credit report.

Opening Credit Cards For Discounts Or Rewards

Numerous companies across the nation are issuing credit cards and offering attractive deals to entice consumers to sign up for the cards, including offering store discounts for using the card or reward points for certain types of purchases.  What many people fail to realize is that the interest rate that they are paying for placing a balance on the credit card is much higher than the rewards they will be earning for making those purchases.  Although the rewards being offered may be appealing at first glance, it will almost always be cheaper to save your money and purchase any items that you desire with cash instead of reward points.

Neglecting To Create A Budget

It is impossible to manage your money if you do not know where your money is going each month.  Planning out how much of your paycheck you will be spending and how much you will be saving will help you meet your financial goals more quickly and help you identify spending issues before they become major financial problems.  If you are serious about managing your money and building a secure financial future, you must create a budget and stick with it as much as possible.

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.

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.

Everyone has interests that they take pleasure in and being able to take part in these interests is one of the main reasons that they work as hard as they do every day.  Many of these interests can be pretty expensive and can cause a person to spend much more than they intend.  Here are several tips to ensure that your interests do not end up costing you more than you are able to afford.

Choose Cheaper Entertainment

People love many different types of entertainment and will often pull out their wallet to attend events that they think they would enjoy, but there are several different ways to reduce the amount of money that they are spending for their entertainment.  For example, people that like live music may be willing to shell out big bucks to see the biggest names in the biggest arena in the city, but they can save more than 90% of that cost by choosing to hear some local talent in some of the smaller venues in their city.  While a ticket to see a top notch musician may be close to $100, you can generally see up and coming bands for $10 or less.

It is easy to save money on home entertainment as well.  Movies that are newly released often drop in price after they have been on the shelves for a while and choosing used movies from a reseller or a movie rental company can cut the cost of the movie even further.  Watching a movie at home will also save you the cost of the snacks and drinks that you probably would have ordered if you had gone to a movie theater to see the movie.

Switch To Inexpensive Hobbies

Every person has things that they enjoy doing and some people enjoy these activities so much that they make a hobby out of them.  Hobbies can be a fun and interesting way to past the time, but many of these hobbies cost a deal of money to continue.  If you are finding yourself spending a large chunk of your earnings on your hobbies, it may be time to reevaluate your priorities and choose a less expensive hobby to follow.  Choosing an inexpensive hobby is not difficult and often can be adapted to the same interests that caused you to fall in love with the more expensive hobby in the first place.

Getting out of debt can be a difficult task to accomplish and you will spend a great deal of your time dealing with the issues related to eliminating your debt.  Just getting started on the path to debt freedom can be a chore, but the best way to begin is to figure out the amount that you actually owe.  Determining the exact amount of debt that you are carrying will help you choose the best course of action for paying down and paying off your debts.

Making The List

To figure out the amount of money that you owe to various creditors, you will first need to gather all of your statements related to your debt obligations and make a list of the total amount that you owe to each creditor.  When you are simply paying the minimum amount or a little bit more on each statement when it comes in the mail each month, it is very easy to overlook the total amount that you owe.  Many people are in denial about the actual amount that they owe and only realize how many thousands of dollars in debt they are in when they compile all of these amounts into a single list.

This method is especially effective for individuals that have more than three credit cards, multiple loans, or many monthly payment obligations because it provides an overall picture of their spending habits and a complete total of the money that needs to be repaid.  It will also provide an accounting of the amount that you are paying to carry this debt, including interest charges, finance charges, and fees.  The number will generally be a lot higher than you believed it would be and knowing the total amount that you owe can be great motivation to begin paying off those debts.

 Making A Plan

After you have made a detailed accounting of the amount that you owe to each creditor and the total amount that you owe, it is time to come up with a repayment plan.  Paying only the minimum amount to each creditor will not pay down your account and in some cases may get you deeper into debt as the amount that you are paying is dwarfed by the amount of interest that is being charged to the account.  The goal is to pay down the accounts as quickly as possible without causing yourself financial hardship.

Many people are able to make a budget allowing for the payment of recurring bills while designating a large portion of their disposable income to reducing their debt levels.  Others that do not make a large amount of money or that have high debt totals may need to enlist the help of a professional to create a repayment plan that they can adhere to.  There are many options available for the repayment of debt and paying off your debt will make your future much more financially secure.

Many people that are facing debt problems are in denial.  They avoid picking up their phones for fear there is a debt collector on the line, avoid opening bills, and do not do anything productive to correct their circumstances.  These people are making the worst mistake in finance – ignoring debt. 

There are many productive things that you can do to decrease debt and improve your credit rating, as ignoring debt obligations will only cause more problems.  Using these methods is not always easy, but they will make a difference in your financial stability.  Following this straightforward guide will help you reduce your obligations and ensure that your credit profile is not damaged further.

Avoiding Lenders Is A Big No-No

Avoiding the problem by refusing to open your bills and refusing to answer calls from lenders is not going to do anything but ruin your credit and increase the amount of debt you are carrying.  To get out of the circumstances that you are in, you will need to know the amounts that you owe to each lender and create a plan for paying each of these financial companies the money that is owed.  There are many different types of financial products that can help you make these repayment plans, including budget log books, financial planning software, internet websites geared towards reducing debt, and debt reduction programs and classes.

Cut Spending

The first thing that you should do when facing debt problems is to cut spending on non-essential items.  If you are having trouble paying your bills, you should not be paying for lattes at the local coffee shop or gym memberships.  Cut excesses from your life and reapply the money saved to your debts.

Talk To The Financial Companies

If you are facing unexpected debt problems, such as the loss of a job or medical issues, talk to the financial companies and explain your current circumstances.  Many lenders have procedures in place to help people facing these types of issues and they can work out an agreement with you to help you until you can get back on your feet and make full payments again.
 
Avoid Overusing Credit Cards

Many people begin using credit cards to pay for everyday purchases when they are facing a large amount of debt.  Placing purchases on a credit card is not going to solve the issue and the interest rate on the balance carried on the credit card will only drive you deeper into debt.  Instead of using a credit card, you should start paying cash for everything and marking it in a notebook as soon as the money is spent.  This will help you get a handle on your finances and show you exactly what you are spending your money on so that you can make more informed financial choices.

If you have received your credit card bill for the month already, you may have noticed some changes when you opened up the envelope.  Due to the rules for credit card companies recently passed by the federal government, credit card companies are now required to disclose more information to their card holders and the way that they have chosen to provide this information to the consumer is to have the information printed on the cardholder’s credit card statement.  There are several new information items that are now included on your credit card statement.

Minimum Payment Information

One of the pieces of information that is now being added to credit card statements is clarifying information about the minimum payment for the credit card.  Previously, the only information provided about the minimum payment required by the credit card company was the actual amount of the minimum payment that would be accepted by the company.  The cardholder was simply informed that they had to pay at least this amount to keep their account in good standing.

Now, more information has been added to the minimum payment section of the credit card statement.  Per the federal credit card rules, the credit card company must now disclose how long it will take to pay off the credit card if only the minimum payment is made each time.  Card holders may be interested to learn that paying the minimum payment on a credit card with a $6,000 balance could take 26 years to pay off the credit card, using an example from a recently mailed statement.

The minimum payment information included on the credit card statement will also show how much you are estimated to pay in total for the balance and interest if you choose to pay off the credit card by making the minimum payment only.  Using the previous example, by making the minimum payment on a $6,000 balance for 26 years to pay off the credit card, the cardholder would end up paying a total of $11, 127 for that $6,000 in purchasing power.  Federal regulators believe that having this information available will help the cardholder make better, more informed decisions about their finances and their use of their credit cards.

3 Year Payoff Information

Another piece of information that has been added to the credit card statements mailed out by credit card companies is what it would take to pay off your credit card in a three year period if no further purchases are made with the credit card.  This information is included just under the section that provides information about the minimum payment for the credit card, allowing for an easy comparison between how much would be paid if only the minimum is paid and how much would be paid if the card was paid off within three years.  In the case viewed for this article, it was striking to see that paying $119 on a $6,000 balance would result in payments for 26 years with over $5,000 of those payments going to interest, while making a payment of $197 – $78 more per month – would allow the credit card to be paid off in three years with a little over $1,000 going towards interest payments.

Every year, people find themselves falling into unmanageable debt because they have not been able to manage their money properly.  Money management is not a task that many people feel comfortable with because they have never been taught the proper ways to manage their money and make common mistakes through ignorance.  Managing your money effectively may seem like a difficult task, but it is possible to take control of your finances and make it work for you by following a few simple tips.

Make Savings A Priority

Many people make the mistake of putting their spending first and making saving for the future one of their last priorities.  This short-sighted spending plan often results in the person not having enough money available to take care of financial emergencies, which typically leads to creating debt that must be paid off at a high interest rate.  By having savings available to handle these emergencies, a person can avoid going into debt if unexpected expenses occur. 

The easiest way to ensure that your savings account balance grows is to place money into your savings account every time you get paid before you start spending.  By removing the money from your checking account first, you reduce the risk that you will spend the money that you intend to save on unnecessary or frivolous purchases.  This will help ensure that your savings account will grow more quickly than using nearly any other method.

Keep On Top Of Your Credit

Letting your credit usage get out of control is one of the easiest ways to create insurmountable debt levels.  If you are maxing out your credit cards every month or obtaining new credit cards because you are close to the maximum debt level on the cards that you already have, you need to take a step back and seriously reevaluate your spending habits.  In many cases, the only option that you will have is to drastically cut your spending and try to find new sources of revenue, like a second job, to quickly pay down your debts.

By keeping your credit card usage in check and constantly monitoring the percentage of your credit that you are using, you can avoid creating large amounts of debt that will have to be paid off at interest rates of 15% or more.  It is easy to over spend with a credit card, but a good thing to keep in mind is to spend no more than you would be able to pay off in a month.  That way you will not be carrying a balance on the credit card that would be subject to fees and interest.

These past two years have been a difficult economic environment for nearly everyone across the nation and around the world.  The cost of staples keeps rising as wages stagnate or decline for a majority of the employed.  The unemployment rate is the highest it has been in nearly eighty years with large portions of many industries facing massive layoffs.  Housing values have plummeted to the point where many people owe much more on their mortgage than their homes are worth.  Add the lack of credit availability into the equation and you are looking at the worse economic climate that many people have ever experienced.

It is important to not only evaluate what happened to cause this economic distress to prevent it from occurring again in the future, but to also absorb the lessons that can only be learned in this type of economic climate.  There are many lessons that are being learned by the individuals hit by this recession, whether they are unemployed, have seen their working hours cut, or are employed but are still facing the high prices and lack of credit availability that has swept the nation.

Learning To Live Within Your Means

One of the hardest lessons being learned in the current economic climate is learning to live within your means.  For the past decade, credit cards and home equity loans enabled many people to make purchases that they would not have been able to afford otherwise.  The credit crunch and the cutting off of home equity loans created a rude awakening for thousands of individuals that could no longer finance a higher quality of life. 

Today, people are learning that they cannot spend all that they earn plus more and still remain financially afloat.  By scaling back monthly obligations and delaying purchasing until they have the cash to pay for the items, people are finding financial stability that is easier to maintain and more secure than the way that they were living before.  Learning to live within your means is a lesson that should have never been lost, but is returning today with a vengeance.

Learning To Do Without

After the heady days of instant gratification and purchasing everything that caught the eye, many people are now learning how to do without.  People are finding that they do not need a new wardrobe every season or a new cell phone as soon as the upgraded models are released by the manufacturers.  Instead of dinners out, people are relearning how to prepare their own meals.  Jewelry sales have suffered to the point that many jewelers are going out of business.  The mantra for this newfound frugality is “if it is not a necessity, it is not purchased.”

Learning To Reassess Priorities

One of the best lessons being learned in this distressing economic climate is the reassessing of priorities.  Before, the common wisdom was that children would be happy if parents could buy them everything that they wanted, but now parents are realizing that what their children really want is their time, some attention, and shared experiences that expand their world view.  Instead of dedicating all of their time towards working, making more money and spending that money, people are rediscovering the allure of simple things such as fishing in a local creek or taking long walks in the woods together.  Although everyone’s priorities may be different, a much lower percentage of them are focused on chasing after money.