Category Archives: Debt

Fact or Fiction: “Good” Debt?

Good DebtDebt stinks. I was in credit card debt through college; I paid it off, but then I had all of the debt that I graduated with. Well, still have. Can’t say I had it when I’m still paying it off, can I? Anyway, there are some economists and financial advisers who will tell you that some debt, like student debt, is good debt. “Good” debt is debt that helps you build your credit with little to no risk involved. Let’s look at a few of those types of debt and analyze if they really are good debt in our current economy.

Student Loans- The most obvious of debts that can be considered “good.” You take out money, you get an education which is supposed to assist in getting you a good job with decent pay. But, is this really how it is nowadays? It’s becoming harder and harder for college graduates to get jobs, and many of them have to move back home after they graduate. On the other hand, Income-based repayment and other government programs help recent grads when they’re trying to get on their feet. So, is a student loan good debt? I think it depends.

Home mortgages- Homes can be a liability, because, like cars, they can deprecate quickly.  In many cases, this isn’t an issues, especially if you take care of your home and make necessary upgrades. That being said, home mortgages, especially if the home is cared for properly, can be good debt. On the other hand, foreclosures are incredibly common right now. If you can’t afford it, don’t get it, even if the interest rate seems great.

Small business loans- This one is almost as obvious as the student loans. Sure, any loan is a risk, and starting a small business can be a huge risk, but overall, the intent is that it brings you a profit later on. Due to the state of the economy, it’s a toss up whether or not you should take the risk right now. On the other hand, movements like “small business Saturday” (the day after Black Friday) support the small businessperson, and people are more apt to go to small businesses for what they need because they may know the people who own the business. Weigh out your pros and cons before you make a decision about starting your own business.  Will you be financially stable even if it falls through?

I ask these questions about “good” debt because our economy is still unstable. If you are going to take out any of these loans, make sure to sit down and talk about it with family, friends, and a financial adviser. In a poor economy like the one we’re currently in, the last thing that anyone needs is to declare bankruptcy. Have a great weekend, and we’ll see you here next week!

Don’t Let Your Pet Put You in Debt

Don’t Let Your Pet Put you in Debt

Lots of little kids want a pony. Or a puppy. A teenager I know wants a pet turtle (and ended up with a cat). I had a dog growing up, and after I got my first apartment, I had pet rats. Everyone likes to have some kind of pet. But, did you know that one of the top reasons for people to have problems with debt is because of their pets? I didn’t either.

Why do people go in debt because of an animal? Here are a few reasons.

 

  • They don’t realize how much the pet they’re getting really costs. Yes, that rat that you get at the pet store may only cost $5, but what about a properly sized cage, a well-balanced diet and the need for a buddy? Someone may have given you the kitten for free for Christmas, but now you have to get him neutered, buy him food and water bowls, and all of those fun things. In 2010, Americans spent over 18 billion dollars on pet food. That’s a lot of Meow Mix.
  • Unexpected medical costs. People get sick and have to go to the doctor; pets get sick and have to go to the vet. Some people don’t realize that even small animals have to go to the vet, and depending on what kind of pet it is, that could be pricey and you may have to go to a special kind of vet. I was lucky when I owned rats; but I have a friend who owns ferrets and there are only two vets who see ferrets within about 15 miles of her home. 
  • They don’t realize what their chosen pet is like. I babysit for a family that has a pair of dogs. One of them has an anxiety issue that causes her to pee on the floor. Replacing rugs or getting them specially cleaned can get expensive! Most rodents shouldn’t stay in a cage all day, they need time out, and during that time they may chew on stuff, causing expensive repairs and replacements.

So, how do you prevent yourself from making these mistakes and having your penny pooch become a million-dollar mutt? Here’s a few hints.

  • Always do your research. Make sure you know what you’re getting into before you get into it. See how much space the breed of dog you want needs to run away. Realize that many small animals (guinea pigs, rats, ferrets, mice) do better in pairs or groups. Find out that that pretty fish you want needs a 70 gallon tank, special food and this funky thermostat thing in order to live well. Don’t get a pet just because it’s cheap initially; know what the costs are before you get into it.
  • Get pet insurance and have an emergency fund. Pet insurance is a lot cheaper than human health insurance; some are only $20+ dollars a month.  Things happen; my friends’ dog started having tooth problems when he turned 10. Pet insurance can help defray those unknown, yet unavoidable, medical costs. Also, have an emergency fund especially for your pet. You (hopefully) have one for your car- why not for something that’s actually alive?
  • Take time for training. Whether you take your dog to a local chain pet store to get trained by their experts or you take time to do it at home, it’s totally worth every second. I knew someone that had a pet rabbit who would go back into his cage to go to the bathroom instead of on the floor. Save yourself money and a big headache (whether due to the money or due to the smell- ew).

Pets have been proven to be wonderful for anxiety and stress, unless you’re in a situation where they’re the reason for your stress. They can hurt your wallet if you don’t prepare yourself to take care of your new cuddly buddy well. Be willing to take some time to do research and training, and a new best friend won’t cost you your credit score!

Some tips on negotiating a lower interest rate

Ever been in debt? If you have, and you’ve tried to get by by means of only paying the minimum payment, you may notice that it takes awhile. Why? A big part of this is how high your interest rate is. Most standard credit cards have an interest rate of at least 15%, so on a $1,000 debt, half or more of your minimum payment could be interest.

Did you know that there are ways to negotiate a lower interest rate on your credit cards? Honestly, it just takes a phone call and a conversation with the right tone in order to do so. Here are some hints.

  1. Don’t even try if your payments are erratic. A bad pay history means that your importance as a customer isn’t as high as it could be. You’re a bit of a threat, so to “reward” your mistakes with a lower interest rate is out of the question.
  2. Be polite. Threats like “I’m gonna leave if you don’t give me a lower rate!” aren’t going to help your situation any. If you are polite and mention that you’ve been offered a lower rate with another company, they’re more likely to cater to your inquiry.
  3. Talk to them about transferring other balances. If you talk to them about other cards and that you’re considering consolidating them, your creditor may be more likely to give you a lower rate so that their company is the one you consolidate to.
  4. Always double check if it’s introductory or fixed. This is incredibly important, especially when transferring balances. A lot of times, your card company will give you an introductory rate for those transfers, and then it’ll go up to a normal fixed rate after a set period of time has passed. Try to see if they will give you a lower fixed rate, even at the cost of losing the lower introductory rate. Having 7% interest throughout the duration of paying off your card is better than paying 5% interest for 6 months then having to pay 15% after that.
  5. Have a backup plan. Some creditors just won’t budge. If this is the case, make sure you do have a backup plan to transfer your balance to another company. Even though your current creditor may not have budged for you, losing your business (especially if you were a good and/or long time customer) may give them a message so that other people can negotiate lower rates.

Consolidating your debt and trying to fight for lower interest is totally worth it. If you stay polite while not allowing yourself to be walked all over, you should be able to slowly get away from a painful life of debt management more quickly.

Credit Card Debt Consolidation – The Why’s and How’s

I was in debt for a long time. It was absolutely miserable. It wasn’t a lot based on today’s standards; for a college kid though, the $3,000 I was suffering with was truly a burden. Before I paid it off I considered debt consolidation. Why would I consider such a thing? Today, we’re going to explore this concept a little bit more.

Why would I consider debt consolidation at all? Students consolidate their student loans after they graduate from school; if you’ve heard this term at all it’s usually been in that context.  Did you know that could you also consolidate your credit card debt? If you are paying off multiple credit cards, this may be a good option for you to consider.

Why shouldn’t I consider debt consolidation? If you don’t have a set budget or if your spending is out of control. If your money flow is already crazy, please deal with that before consolidating your debt. You could end up spending the money or using the new line of credit for a totally different purpose than the one you originally intended.

How do I do it? There are two ways that you can consolidate your credit card debt.

  • Another credit card. This is potentially risky, considering that if you already have a spending problem, you are more likely to max that card out as well. The good thing? A lot of credit card companies offer a lower interest rate if you transfer a balance. One of your current credit card companies can also assist you with this, so always check with all of them before making a decision. A family member of mine ended up getting 0% interest for hers because she’d been a loyal and dependable customer for years.
  • A loan from your bank or other financial institution. Many banks offer loans for credit card consolidation to encourage paying off debts. The people who work at your bank can help you make the best decision for your situation. My institution, for example, offers these where the payment time can be anywhere from 12 to 60 months. The interest rates then fluctuate based on the amount of time you schedule to pay off your loan. Most banks work similarly.

Always make sure that you do your research before you use any resource for consolidating your debt. Read contracts carefully, and make sure you ask questions like the following:

  • How much is the interest rate? Are there special rates for transferring other balances?What happens if I miss a payment?
  • Will that increase my interest rate? (Especially with the credit card, your rate could go from the 3-5% you may have gotten as a special transfer rate up to the 15 or 16% that the company charges normally.)
  • If I pay more than the minimum, does that count toward the following month’s payment?
  • What if I pay it off before the suggested time?

Maybe debt consolidation is for you. One payment a month can make your life easier and help you to be debt-free quicker than you could have been before!

How do I know I have Debt Issues?

Debt issues run rampant in the United States. This is one of the main reasons that the US went into a bit of an economic mess throughout the beginning of the 21st century. Credit was incredibly easy to get, and because of that, people got a lot of it. As the stock market started to struggle, people were unable to pay their debts off, banks started to have issues because more and more people were not paying their loans off, and then the economy kept going down and down. People are slowly trying to get out of debt, so while the market struggles from a lack of new purchases, the economy is very slow on the upswing.

One of the biggest problems with this is that people didn’t realize that they had a debt issue. Since it became commonplace, people used the thought process that their debt wasn’t as bad as anyone else’s. I had this issue; I was only $3,000 in debt, not a big deal, right? Wrong! Here are some ways you can tell you have a debt problem.

  • Rotating minimum payments. I was $3,000 in debt for a long time. Why? Because I’d pay the minimum payment only, and on top of that, I’d normally put back on the card the amount of money I spent on a payment. If you’re doing this, the rest of your budget is obviously not working. You shouldn’t have to do this if your budget is balanced.
  • Your debt load is more than 20% of your income. This is the high end of the suggested average. If your debt is more than 20% of your annual income, think about all the money you’re wasting on interest and paying off your debt.
  • You use your card no matter what. Even if you have the money to buy groceries, you whip out the credit card. Not only is this bad practice, you may have an addiction to using credit.
  • You don’t know how much you owe. This is a huge problem. If you’re throwing out random numbers just to get inquisitive people off of your back, you may have a lot more than you think you do.
  • You have no savings. It makes sense doesn’t it? If you’re swimming in debt, you’re not going to be able to save a dime.
  • Necessities get pushed off because you’re too far in debt. I had this issue at one point; I had to go to the doctor for a severe knee injury, but I kept pushing it off because my debt controlled my life. Don’t let this happen to you; the last thing you need is for something horrible to happen and not be able to pay for it.
  • You’re borrowing a lot of money. At one point, I owed friends and family around $500. I would ask different people for that money so they wouldn’t suspect anything. Does your situation sound similar? If you can’t even afford to live and have to bum off everyone, it’s time to rethink things.
  • You’re barraged with phone calls and notices from creditors and collection agencies. This is probably the most obvious. If places that you owe money are stalking you to try and get it, you probably have a big issue with your credit.

There are lots of ways to get help with your debt. Make sure to check out any and all counseling agencies or debt reduction agencies before you use any of their paid services, but if you need help, don’t be afraid to go after it.

Avoid Debt Elimination Scams

Every day, especially if you read a lot of websites about finances, you are probably bombarded with phone calls, emails, and other forms of communication about debt elimination. It sounds appealing at first: Pay about 15 to 20 percent of your debt off, and then the rest goes away and creditors leave you alone. But, let me assure you, this doesn’t work.

With the economy we are currently in, a lot of these companies are trying to appeal to the masses. Why? Because debt is the reason the economy is in the state it’s in. The average American has thousands of dollars of debt. So, it’s the basic rule of supply and demand: There’s a need, people see a way to scam people with it, and then they go for it.

Now, I’m not saying that all debt reduction is illegitimate. But, here’s some things for you to look into and/or do if you’re considering using one of these programs:

-          Do they claim reduction, elimination, or counseling? There’s a difference. Usually debt reduction and counseling programs help you to make a more manageable budget, assist you in consolidating your debt, and teach you to manage your money better. Elimination programs try to make you believe that you can just make your debt disappear by paying some of it.

-          Do they have proof of it working? If it’s an elimination ploy, they’d have to go to court to settle these debts. If that occurred, you’d be able to get the records; civil court cases are public access. If the company claims that they don’t have documents because “that violates their customers’ privacy,” then they’re probably scamming you.

-          Check out the BBB. Checking out any business you trust any form of money or investment in is always wise. I’d rather take the five minutes to look them up on the BBB website than waste a ton of time on a less-than reputable company.

-          Check out their websites. A lot of companies have public forums, or check out other websites about these types of companies. You’ll find out quite quickly which ones are legit and which ones aren’t.

The best option is to always do it yourself or find a financial counselor. If you are patient and are willing to make some sacrifices, debt reduction is a lot easier than it seems. People get overwhelmed by the amount of debt they’re in, and many times they can panic and just scramble to find the quick fix. If you do that (without answering the questions above or doing the research suggested), you could possibly lose even more money, kill your credit, or even end up filing bankruptcy. Be smart with your money and with your debt, don’t trust it to just anyone, and you’ll be able to fix the mess you’re in better than you could with the easy way out.

For Those With Damaged Credit

Sometimes we all make unwise financial decisions or take on more credit than we can handle. Sometimes we acquire bad credit from unfortunate circumstances like going through a divorce, loss of a spouse,  or experience  medical issues that results in the inability to work or excessive medical bills. Regardless how you get into debt, I think we can all agree that its much easier to get into debt than to get out of it.

If you have bad credit, or have no credit history, chances are you can still get a credit card but it will cost you more and the terms will not be as good as those who have good credit. For example you may be approved for a credit card with a $500 credit limit, and you’ll probably pay an outrageous  interest rate, anywhere from 22% to 33%.  If you choose to take the card, use it wisely and make sure to make your payments on time. Keep in mind you’re using this card as a tool to better your credit and not another way to purchase.

If all else fails…get a secured card.

For those who don’t trust yourself or nothing else seems to work, you may want to consider getting a secured card. It’s very simple, you put your own money into a saving/checking account and that amount, or a portion of it, becomes the security of your credit card. If you don’t pay your bills, the card issuer will take the money from your reserved account to pay your debt. It may be hard to come up with the initial amount to deposit but it’s a good way to build a credit history. Since your main goal for using a secured card is to build your credit, make sure that the card issuer reports to a credit bureau, if not, the card is not going to help you build your credit. Many people who have used this method and have successfully made 12 to 18 months of timely payments then upgrade to a regular credit card.

As with any credit card offers, you have to beware of disreputable card issuers, especially with secured cards. Make sure to read and study the fine print before applying. Do not accept any offers from people that contact you about secured credit cards, make sure to do your own research and contact the company yourself. Ask questions whether there are application or processing fees and the interest rates and fees. Generally secured cards carry higher interest rates and higher fees.

…if all else fails , get someone to cosign a credit card.

If you can find a relative or a good friend who is willing to help, get them to cosign on a credit card for you. Keep in mind that if you decide to go this path and don’t make your payments, you can ruin the credit of the cosigner who would have to pay off your debt. So be extra careful, you wouldn’t want to do this to someone who was willing to go out on a limb for you.

Keep in mind that paying the bill in full every month is not necessary, but paying-off the monthly charges, and on time, will eventually prove that you’re no longer a credit risk!

Credit Report and How It All Works

Digging your way out of credit card debt can be an overwhelming and feeling hopeless.  It is embarrassing for friends and family members to know that you’re struggling to pay your bills. You also may be tossing and turning at night thinking about how to get out of your current debt situation. You are not alone. With hard work and discipline, you can work your way out of debt!

If getting out of credit card debt is something you want to accomplish, then there are some basics you need to follow. You need to know what is on your credit report and understand why it is there, develop a plan to pay down that debt, and change your way of spending so that you can avoid repeating your mistake.

The first thing you need to do is to find out what the creditors have on report for you. Why is this important? A credit report is your personal record of your credit payment history as reported to credit bureaus by bank, credit card companies, department stores, and other types of businesses you’ve borrowed from. This is where potential lenders get information that will determine the decision on whether or not they want to take a risk issuing you credit. It’s very important to understand how credit reports work because you can protect your rights and avoid being taken advantage of by credit repair clinic and the so-called credit doctors.

If you are considering on purchasing a home or applying for any other types of loans, you will need a good credit report. It is always good to know what is on your credit report before your lender looks into it, this way you will have the opportunity to clean up any mess or errors you may have on your record. You may also want to consider canceling any credit cards you are not using because lenders will include your credit limit as potential debt. If you have credit cards with no balance but with credit limit totaling $10,000, for example, the lender will consider it as an additional $10,000 of potential debt and may reduce the amount of the loan they are willing to give you.

Whats in a credit report?

Your credit report includes basic personal information such as name, current and previous addresses, telephone number,  social security, date of birth, and current and previous employers. The credit history portion includes information about each credit account, including things like when the account was opened, the credit limit, current balance, monthly payment, and your payment pattern during the past several years. In this report, they also include any bankruptcies, accounts sent to collection agencies, unpaid child support or alimony, tax liens, bounced checks, unpaid traffic/parking tickets, car repossessions, evictions from apartments, court records, and names of businesses or individuals who have obtained a copy of your personal credit report. Your credit report pretty  much reports everything that lenders may be interested in knowing. Some information that your credit report does not contain is information about your race, origin, religion, personal lifestyle, political affiliation, medical history, or other information unrelated to your credit history and ability to repay credit debt.

Review your entire credit report. Most financial advisers would recommend that you obtain a copy of the free credit report that you are entitled to once a year and review it carefully. If you have been rejected or turned down for credit, housing or employment due to your credit report, you may be entitled to a free copy of your credit report as well. There are three main credit bureaus that are available to you: Equifax, Experian, and TransUnion. All other credit companies obtain their information from one of these three. Since the information in your credit report may differ somewhat from one bureau to another, it is wise that you obtain a copy of your report from each of the three major bureaus once a year. If you cannot afford all three credit bureaus, then consider ordering your report from Equifax since it is the largest reporting bureau. Upon receiving your credit report, if you find an error in the report you can call or write to the credit bureau explaining the error in detail in 100 words or less. You want to provide any documents that may help prove your statements.  Your payment history will stick around for a long time. Chapter 7 bankruptcies will stay on your credit report for ten years from the filing date and Chapter 13 bankruptcies will remain on the report for seven years from the date fully paid or ten years if not paid as agreed. Unpaid tax liens may stay on your credit report as long as fifteen years.

So how do Lenders use the Credit Report?

Lenders typically use the information in your credit report to evaluate your personal character, your total debt capacity and your collateral or capital. Their study of your character is also based on the stability of your employment and residency history. They will check to see how often you have changed jobs, how often you moved and the length of time you stayed at each address. These kind of information gives the lenders a feel for your personal stability and an overall general assessment of your character. To evaluate your debt capacity, they will look into your living expenses, open credit account limits, current debts, and other payments to get a feel of how much debt you can afford with your current spending habits and your income. Another huge factor that goes into the lenders decision on lending credit is your credit score. Your credit score is a number or rating which indicates how likely you are to make payments on time and repay loans, based on information in your credit history. This score is computer generated and factors in your current income, education, job stability, how often you have changed addresses, whether you are a home owner, debt to income ratio, and past payment history.

You may obtain your credit score, or FICO score for a fee. All three major credit bureaus offer this option with your credit report or as a separate option. If you find that your credit score is not so great, do your best to improve your credit score by concentrating on paying your bills on time, paying down your credit balances, and avoiding new debt. Improving your credit score is not an over night task, and may take a long time, but is well worth the effort.

Carnival of Debt Reduction Edition #92

Welcome to the Carnival of Debt Reduction #92. I hope everyone had a wonderful fathers day weekend.

First of all, I want to thank John of Might Bargain Hunter for giving me the opportunity to host this edition. I was really surprised to see the number of submissions to this edition, it was really low.

As always, there were really good articles submitted so please take your time to read these posts. I made some comments on the articles and also took out a quote from each just to give a small idea on what each article talks about. I hope you have a great time here and take a lot out of these great tips with you. Without wasting any more of your time, here are the articles for edition #92:

These articles are in order in which they were submitted

Personal Finance Blog Articles on “Getting Money to Finance Your Purpose in Life“.

Editors Note: This is a nice article on how to get into the right mind set into helping you get out of debt. “No matter how much you earn from these financial streams of income, you must manage your money effectively….
You can have as much money as you want because money is an energy. You may need to change the way you think about money”

3 Debt Consolidation discusses “When Is Your Credit Card Debt Too High?“.

Editors Note: Also shares a nice list of ten indications that shows you carry too much credit card debt. “You know your credit card debt is too high when you have to spend more than 20% of your take-home pay towards paying off the interest + original principal balances on your credit cards”.

Stewart Hsu shares his experience on “Advice from a Billionaire“.

Editors Note: Stewart’s right, its not everyday that you get the chance to hear a billionaire speak about their experiences and their success stories. This article points out some useful tips from a billionaire. Stewart says “Sitting in the audience, what made him so compelling was the genuineness and warmth in which he spoke; I personally felt he was speaking from his heart”.

Family Finance Blog tells us “How to get out of debt – one day at a time“.

Editors Note: “Debt is one of the easiest things in the world to get into and one of the hardest to get out of. There are thousands upon thousands of tips for getting out of debt whether it be slowly or quickly”. FFB is right, debt is so easy and so inviting with hard temptations and once you’re in debt its so hard to get out of. Like what FFB says, take it one day at a time.

The Happy Rock posts, “Having Goals Is Great, But Having Purpose Is Better“.

Editors Note: Happy Rock gives us two situations in which deals with getting out of debt and explains that having purpose is the key success in becoming debt free. “Having goals is very helpful, but having purpose will change your life.”

Golden Fleece Blog on “Bundling Cable, Phone, and Internet Costs More“.

Editors Note: The title says is all. Read on to get some advices on how you can save money on cables, phones and internet costs. “One advantage to bundling is that you can periodically call your cable company and threaten to cancel, citing the low promotional rates offered by its competitors.”


Might bargain Hunter
explains that “A mortgage is still debt that needs to be reduced

Editors Note: Amy has a debt of 72,000 and she wants to pay it off by April 2009. Now that’s a great goal, shes going to have to pay roughly 3,000 each month to pay that off in time. MBH says, “I wonder why there’s not the same urgency for people to pay off their mortgages”.

No Credit Needed says he prefers “Creating The System Versus Doing The Work“.

Editors Note: NCN has many tips here on techniques for building better systems. “First, you need a budget that you can setup, modify, and actually use. Elaborate, fifty-page, multi-screen budgets only work for a select few. Create a budget can and will actually use”

That about concludes this edition of the Carnival of Debt Reduction. I hope you will take many tips from these articles and apply them somehow in your life. I hope you will have a great week. Submit your articles for the next edition of Carnival of Debt Reduction here.

Credit Card Completely Paid off!

credit-card.jpg

Yes, I’m really excited to announce that I have completely paid off my credit card as of this past weekend. I have wrote many posts about my credit card situation and it has been an ultimate goal for a while now. I am finally glad to announce that my long journey has finally reached an end.

For those who do not know, I originally had a credit card debt of about $9,000.00 as of last year May. Over this past year I have been trying really hard to fight temptation to not buy anything that I don’t need and only worrying about paying off this debt.

So now that it’s finally paid off, what’s my next goal? What am I now going to do since my debt has finally been paid off? It’s simple. Save, save and save. Invest, invest, and invest. That is going to be my next goal. Over this past year, paying off my debt has definitely been a great learning experience and through the process I’ve learned to budget effectively and to live frugally.

Now my main goal is to save up for my down payment for my first home. I plan on purchasing my first home in about 3-4 years from now, so I have plenty of time to start saving. I live in Maryland and houses here are quite expensive. If I want to save for a 20% down payment, I’m going to need about $70,000. That’s going to be my next 4 year goal.

Having this credit card debt paid off has relieved a lot of stress off my back and now I’m ready to continue my financial journey.

[Photo Credit]