Debt Reduction Information

2006-10-28T13:33:00.000-07:00

The Ghost of Future Debt – Not For the Faint of Heart

By Annette Miller

What kind of future are we creating for ourselves today? I’m sure at one point or another we’ve all wished we had a magic crystal ball that could foretell our future. We’ve all wondered when that big job promotion is coming our way, or whether we’ll ever win the lottery and be able to take that world round trip, or if we’ll be financially secure in our older years.

Looking at the figures and projections based upon our current level of debt doesn’t paint a heartwarming picture for the future.

Like the very real threat of today’s global warming and our impact on climate change as a result of our influence, we humans have transferred an equally insatiable appetite toward debt and consumerism.

To get perspective on just how dire our situation really is you need to know the facts.

Fact Number One:

The ten percent of Americans who owe $10,000 or more on their credit cards have incomes of under $30,000, that means they owe over a third of their income to someone else before even sparing a thought toward their living expenses. One third of Americans below the $50,000 income threshold also have credit card debt in excess of $10,000, that’s still a 20% chunk of your income that you give to someone else, money that will never be put to work for you, money you will never see again.

Your best defense to alleviate debt now is to consolidate. Condense the debt in to one manageable loan and get rid of all credit cards except one. Get a budget sorted, put it into action and resist the urge to apply for any more cards as this will only impede your future financial goals. Remember why you’re doing it, give yourself good enough reason and you’ll overcome any temptation to overspend.

Fact Number Two:

Why are so many companies offering you endless credit card solicitations each month when they know you can’t afford them? They know that if you’re over extended financially that you’ll struggle to keep up with your payments. The late payment penalty alone has become a very lucrative income stream for the banks and credit card companies. Did you know that in 2004 late payment fees attributed to an extra 45 billion dollars in revenue for the credit card companies alone?

It’s in their best interests that you incur these late fee penalties or continue paying the minimum each month, in fact if you continued to pay only the minimum, it would take you on average, 13 years to fully pay off your cards assuming an interest rate of 14%, for many companies this rate is much higher.It’s a honey trap coated in the promise of having the things you want right now at the expense of forever paying for it later. Again, if your debts are spiraling out of control, consolidation may be for you.

Pay more than the minimum to whittle the debt down quicker, the faster you eliminate the debt, the less you pay over time.Pay on time, you don’t want to incur unnecessary late penalty fees. Remember, paying late only adds to the 45 billion revenue the companies are already making from you, don’t give them another penny more.

Fact Number Three:

Bankruptcy’s not the get out of jail free card it once was. In the past most people were able to file for Chapter 7, allowing them to walk away from the debts they owed without having their assets liquidated, but ever since the law changed in 2005 and saw the enforcement of Chapter 13, people could have their assets included for the disbursements of their debts, they lost their current lines of credit and had a hard slog ahead of them to repair their credit rating.

Keep up with your debts to avoid ever having to apply for bankruptcy. Seek debt management or debt counseling if you need external help. Examine all your options before considering bankruptcy, it’s a major decision and not without it’s downside and repercussions.

Fact Number Four:

70% of low to middle income earners refer to their credit cards as their financial back up rather than relying upon personal savings.In our day, savings has decreased to an all time low, in fact our ancestors during the time of the 1930’s depression saved comparatively more than we do, and we have more disposable income. This means that over 90% of Americans will be dependent upon the government for assistance when they retire. This frightening statistic also predicts that the majority of funds of older Americans’ will go towards covering their medical expenses and the ever ballooning cost of prescriptions.

No one is really able to rely wholeheartedly on government assistance, unless you want to drastically downscale your lifestyle, just because you think you’re doing okay today doesn’t mean that circumstances won’t change tomorrow. The only way to ensure you’re taken care of in your golden years is to rely on yourself.Save, save, save.

Put aside 10-15% of your income, have it automatically diverted to a specially designated bank account. You won’t miss the funds you never see and it’ll build gradually over time. Negotiate terms with your bank to see which favorable interest rates they can offer you. Turn the interest to your advantage and use it to make more money for you.

The sun will always come up, the earth will always go round and the cost of medical expenses will always rise. Take out health and life insurance. Always make sure you have current medical coverage so you won’t be financially devastated by any unforeseen emergencies.

Fact Number Five:

In 2004, only 14% of Americans used cash for their purchases compared to 25% opting to use their credit cards. There’s a higher tendency to spend more (up to 20%) on credit card purchases than if you paid with cash, you can’t spend what you don’t physically have.The advantages of paying with cash means that you don’t overspend, you get greater discounts on cash purchases giving you a stronger buying position, there are no interest penalties or fees associated with using cash.

It has it psychological benefits too, it’s more difficult to blow $100 cash when you’re forking it over note for note compared to a couple of swift swipes with the plastic. You’ll have a greater appreciation and new found respect for the money you earned and you’re not spending anyone else’s in the process, namely, the credit companies. More power to you.

Ensure the security of your future by taking action today.

2006-10-26T00:59:00.000-07:00

Are You In Debt Denial?

By Annette Miller

In more recent times I’ve developed a keen fascination towards the word “denial”. I’ve noticed its increasing prevalence throughout the mid 1990’s when psychological phrases previously reserved only for use by professionals became commonplace in the home, and one of the words that was at the forefront of this explosion was the word, you guessed it, “denial”.

Nowadays the word is liberally tossed around and has such broad application being used from anything ranging to a middle aged guy carrying a little extra weight around his middle thinking he looks great in a Baywatch cherry red speedo (I shudder upon writing this) all the way to the other side of the spectrum of a bad tempered woman refusing to admit she has anger issues.

According to my trusty companion the Encarta World English Dictionary, the word “denial” means “a state of mind marked by a refusal or inability to recognize and deal with a serious problem” and in any good rehabilitation program whether it be alcohol or drug in nature, a patient cannot get better unless they first admit to, or own the fact that they are an addict, and until they recognize this they can never be rehabilitated. In other words, if they remain in a state of denial, they will never get better.

So, just how many of us are comfortably riding on the “denial” wagon?

Could we possibly be in denial about our current debt level?

I know what you’re thinking, “debt and drugs are like chalk and cheese, they do not merit the same weight”, while this maybe true in the “harmful” sense of drugs, if allowed to, the denial of our debts can have detrimental effects of their own if we don’t get them under control.

How Can I Know If I’m In Debt Denial?

1. If you have no idea how much you owe, even a ballpark figure. How are you expected to get out of debt if you don’t know the extent of it? It’s the equivalent of slowly sinking on capsizing boat while your happily sipping pina colodas. Sooner or later the boat will go down if you don’t know the extent of the damage and repair the leak.

2. When you throw out your credit card statement before opening it or never open it at all.

3. Think that you’ll be fine continuing to pay the bare minimum even if you’re no meeting your current financial commitments.

4. Have more than 3 credit cards and don’t hesitate in getting another one even when you’re struggling to keep up with your present payments for existing cards.

5. Here’s a biggie, when your spouse doesn’t know the true extent of your debt, if you feel the need to keep secrets for fear of reprehension then you may have a serious problem you need to deal with.

Cure for Debt Denial – Rip That Band Aid Off

When I was a child, whenever I had a sore, my mother taught me to rip the band aid off in one go, it was less painful than to pick at the edges and tug slowly away at it.

I’m giving you the exact same advice, go ahead and rip that band aid off in one fell swoop, face the debt, embrace it by resurrecting those credit card statements from the dusty shoe boxes, call your bank, lending institution and creditors to get the full picture of your current situation.

Negotiate favorable terms and conditions to pay back your debts and honor them. Banks and lending institutions love it when you make an honest effort to pay them back plus it comes with the added bonus of strengthening your credit rating just by improving the regularity and consistency of your payments.

No matter how traumatizing this may be at first just remember this is a hug step in the right direction because you will never be free of debt if you have no idea how deep in you really are. Knowledge truly is power.

2006-10-21T02:38:00.000-07:00

Suck It In – How Does Your Financial Fitness Measure Up?

By Annette Miller

These days we can’t change the channel without having the latest infomercial torture gadgets AKA, the latest craze of fitness equipment thrust upon our guilty consciences. We’re bombarded with messages touting the importance of physical fitness through the news, in newspapers, the internet and via radio on a daily basis.

We all know that physical fitness is important especially with the media exposure its afforded but how often do you hear about the importance of our financial fitness?

Physical fitness only covers one arena of our multi faceted personas, to enjoy the full potential from life we need to take a holistic approach and have other areas in balance, finances is one of them.

Take our financial fitness test and see how you measure up.

Just like taking any other quiz will only be effective if you answer honestly.

1. Do you have a budget?, if so are you sticking to it faithfully?

2. Do you miss bill payments because the money was used for other things? Does a considerable chunk of your wages go towards paying your bills?

3. Do you have an active savings account? Do you save for things you want or do you go ahead and buy them regardless if you can’t afford them?

4. Do you often worry about money to the point where it effects your sleep?

Small things that can make a dramatic difference to the amount of money you have at the end of the day can be as simple as having a budget.

If you plan to pay for things and budget for them you can keep on top of your finances, you can account for every dollar you earn. The only way a budget can work effectively is to stick to it, you’ll accomplish your financial goals of paying off bills faster and reducing your debt quicker.

If your money is not going towards meeting your financial commitments but being redirected elsewhere, then you need to do something about that. Starting with a budget is a great first step, that way you can foresee unexpected extra bills and plan accordingly.

If a considerable amount of your income goes towards covering your bills then perhaps you need to increase your income, a part-time job may be the solution to cover your temporary financial shortfall. If you’re still struggling to cope with your debt, then consolidation might be for you, condensing your payments into one, making your debt more manageable.

Did you know that we live in a plastic orientated society? Less and less people are paying with cash now, another emerging trend is that people are becoming less likely to save their money and more likely to purchase using credit, in fact, our ancestors from the depression era were better savers than we were even though they had less money.

Get tough, get disciplined. Put away 10-15% of your net income each payday, that’s how much you have left over after taxes. Set up a special savings account designated just for your savings. You do this and you’ll sleep better, you know deep down that if an emergency arises, and they always do, you will be better equipped to deal with it.

Take a page from the book of our ancestors, what they couldn’t afford, they simply didn’t get. Get tough with yourself and know that your money is going towards getting you out of debt faster which beats the feeling of a new pair of anything, hands down!

If you’re unable to sleep with the amount of debt circling round in your head you know you’re financially over stretched and over committed. Follow the steps above, in addition, depending upon how dire your circumstances, for peace of mind you may want to consider consolidation, as previously mentioned or even debt counseling to help put your debts into a more manageable perspective.

If you huffed and puffed and are a little financially unfit, that’s okay, life’s about learning and improving not for worrying about things that are within your control. With the right guidance and assistance, anybody can take stock of their finances and turn it to their advantage.

2006-10-19T22:34:00.000-07:00

What Does Your Credit Report Say About You?

By Annette Miller

Years ago as a youngster I remember watching an episode of one of my favorite sketch comedies, in this particular episode a woman was about to venture out on a blind date.

When her suitor arrived at her door she was pleasantly surprised to find a handsome man glancing back at her. Knowing that he’d successfully made it past the first hurdle judging by her positive reaction, he confidently started to joke with her. He then thoughtfully placed her coat around her shoulders and before the slipping out the door a fax started to arrive.

She began to read it, her smile fading by the second. It was a background check on her date. She found out that he’d been married 3 times, relied on all his previous wives for alimony, was up to his ears in debt and served prison time for fraud. She ended the date before it even began.

Although only a comedy sketch, it does run along similar lines of a credit report, your next date won’t have privy to such intimate details of your financial situation, however, your bank or credit lenders do.

Why So Much Emphasis On Credit Reports?

It gives potential lending institutions a snapshot into your personal financial history. From this they can determine how you handle your current debt, if you pay your bills in a timely manner, how many loans you have and how much you owe.

It also reveals if you’ve had troubles with other lending institutions in the past and if it required the assistance of a collections agency. This can be manifested as a negative mark against you in your report and adversely effect your credit rating.

The whole point of the credit report from a lenders perspective is to see if you’re a prime candidate to lend money to and the likelihood they’re going to get it back, period.

Things that Can Go Against You

If you have a sketchy payment history, this can be interpreted as negative from the eyes of the lending institution and be seen as a risk to lend you money.

A high debt to income ratio. All they’re concerned about is getting back the money they borrowed you with extra interest added on. The more you owe in relation to how much you make is a big concern for lenders as that means you’ll struggle to meet your weekly/monthly commitments to them.

Debt counseling also shows up on your credit report and raises concerns that you’ve had difficulty in managing your finances. Try to fix your credit as much as you can on your own. Carefully budget to catch up with lagging payments. If you need credit counseling then only do so as a last resort.

How to Beef Up Your Credit

You can strengthen your credit simply by disputing charges you’re not responsible for and getting those negative marks on your credit report removed, why tolerate blemishes tarnishing your credit score when you don’t have to? Write to the credit bureau and challenge any charges (accompanied with proof) you didn’t incur. It may take a few attempts but persistency is the key.

Create history. Establish a predictable pattern of payment by building a regular payment history. Banks and lending institutions like consistency, it means reliability and shows that you’re good at paying your bills.

Embrace your credit report. It pays to immerse yourself in your finances at least twice a year, that way you can track your own progress and quickly catch any inconsistencies or errors and correct them. This way you know your financial status and there are no surprises when it comes time to apply for a loan.

2006-10-16T02:16:00.000-07:00

Are The Little Debts Drowning You?

By Annette Miller

At first glance it would have been hard to imagine that amidst its impervious metal frame and intimidating size that a tiny by comparison iceberg would eventually be the demise of the unsinkable “Titanic”, was the iceberg fully to blame?, upon closer inspection it was a variety of factors that lead to its undoing:

1. The speed the ship traveled left it unable to alter its course quickly

2. A fire burning for days in the hull weakened the integrity of the steel

3. Poor visibility lead to delayed reaction times

4. The temperature of the water caused the hull to fragment upon collision

5. Telegraph warnings from neighboring ships did not get through, and of course

6. There weren’t enough lifeboats onboard for everyone.

These factors combined brought down the mammoth ship of its day, much like mammoth debt begins innocently enough in the form of little spends it can accumulate quickly into BIG debt leading us on a financial collision course with bankruptcy.

Knowledge is Power

Most of us don’t know exactly how much debt we’re in because lots of smaller spends slip under the radar, it’s the bigger bills that get our attention when in actual fact the smaller ones can be even more menacing with their sheer volume and frequency.

Get a grip on those little spends! You can take control of your finances by finding out where your money is going on a daily basis in fact, I highly recommend keeping a daily log of all your spends and outgoings for the next month, you’ll be amazed to see where mostof your money is going. Buy yourself a 50 cent notepad and under eachday of the week, make a note of all the spends you made, how much you spent andwhat you spent it on. How much you are spending on car payments, mortgage payments, personal loans, insurances, rent, credit card payments, hire purchases, phone, food, power, water, bank fees, entertainment, car running and maintenance expenses, etc.

See where you can cut back on your spending by discarding the “wants” and keeping the “needs”. Don’t be nervous that you discover you’re spending far more than you’d expected at least now you can work on it. Remember, you can’t change what you don’t know. Knowledge is power.

Patterns to Your Habits

Keeping a daily log not only pinpoints where your money goes but also reveals some interesting things about you and your spending habits. I bet you didn’t realize you bought takeout twice a week translating into $120.00/month. Like my buddy The Cookie Monster now says, a cookie (or a treat) is a “sometimes” food, but an 8 takeouts a month occurrence can really add up and hurt the bank balance. Trust me, if you cut back on little spends like that you’ll grow your bank balance and shrink your bottom as well.

Give it a couple of months and you won’t even notice you’re not eating out as frequently as you used to and you’ve saved some money to boot.

So hop to it, get that notepad it’s well worth the 50 cents and can save you hundreds of dollars in the long run, start monitoring your spending today and plug that financial leak!