All Entries in the "Debt Reduction" Category

Hosting the Carnival of Debt Reduction #165 Monday, Nov. 10th, 2008

Are you one of the Debt Set?  I’ll be hosting the Carnival of Debt Reduction next Monday.  Come check out some great articles on reducing your personal debt.  Or if you’d like to submit an article, go here.  The deadline for submissions is Sunday night at 5 pm.

The theme will be “A History of National Debt in America.”

Here’s a link to this week’s carnival at The Financial Wellness Project.

And here’s a link to some articles on debt reduction you might enjoy.

If you’d like to be notified when the carnival launches, sign up for my RSS Feed or E-Mail Feed.

See you next Monday!

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Try Your Hand at Solving the National Debt Crisis

When I played Budget Hero, by the year 2070 I had reduced the national deficit by 28 percent.

I withdrew U.S. troops from Iraq, and that gave me lots of money!  I used it to create a National Health Care Plan, save Social Security, and increase spending in education.

Could it be this simple?

From American Public Media, I give you, Budget Hero.

Click Here

↓

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Credit Scores - How They Are Determined May Surprise You

John knows he’d better pay his bills on time if he and his wife are to buy their dream house next spring.  He finally has his credit score cleaned up, and doesn’t want to go through that arduous process again.

What John doesn’t know is that the bar tab he picks up with his credit card every Friday - to collect points towards the honeymoon plane tickets - could work against him.  His buddies always reimburse him immediately with cash for their portion of the tab, and he always pays the bill off completely when it comes due.

So why is it a problem?

Credit score calculators such as FICO incorporate a number of factors besides the obvious - keeping up with your payments.  Where and what you purchase can also play a role.

So, when crunch time comes, the fact that John frequents a bar every Friday, and spends a large amount of money while he’s there, could effect his credit score.

And as we all know, the level of his credit score will determine the interest rate he’ll pay on that mortgage.

Here’s an example of how your credit score affects your mortgage payments from Fair Isaac.

Here’s how Americans rate:

So what other lifestyle habits could bring that score down?  Business Week reports that:

• frequenting gambling resorts, massage parlors, billiard halls, and liquor stores.
• visiting a marriage counselor or individual therapist.
• buying retreads or retreading tires ( I don’t quite understand this one.)

More stringent credit score calculators are used under different circumstances.  For example, when someone applies for a high risk subprime loan, they are being judged on more criteria than someone with good credit applying for a standard loan.

Recently the Federal Trade Commission (FTC) sued Atlanta-based CompuCredit for not disclosing to its customers the exact terms they were being measured on when applying for credit.  Mind you , the FTC sued them for not disclosing the terms, not what the terms are.

The customer is purposely mislead, and the terms are kept vague.  It’s been a gray area in the credit world, trade secret.

The fear is that these calculators are being used to “weed out” people based on race, gender, or sexual orientation.

More regulation needs to be legislated that would force credit companies to openly divulge the exact terms that it’s potential clients will be judged on.

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The Dope on National Debt Revisited

In light of the gloom and doom IOUSA movie released last week, I thought it relevant to repeat my post from March on National Debt.  Check out these statistics.  You think you have debt problems.

The post:

Are you sitting down?

The US National Debt is 9.5 trillion dollars. If you divide that by the U.S. population, that means each American owes 31 thousand dollars. We are all paying interest on this money through our taxes.

The government adds to the national debt by not balancing the budget each year. Its current budget deficit is growing the national debt at a rate of 1.66 billion dollars per day. That’s about 1 million dollars a minute. Click this link if you’d like to see the history of how the national debt has gotten so high. National debt has increased during Republican administrations, and decreased during Democratic administrations. Financing the wars in Iraq is not cheap. Nancy Pelosi states that “right now we pay in interest four times the amount we spend on education and four times what it will cost to cover ten million children with health insurance for five years.”

Who do we owe this money to? 2.4 trillion dollars is currently owed to foreign countries. The major holders of this debt are Japan ($587 million) and China ($493 million). 40% is owed to the Federal Reserve. The Federal Reserve is actually privately as well as publicly owned. The remaining is owed to social security, individuals, corporations, and states through various bonds.

Will we actually ever pay back the national debt? There is controversy over whether or not we even want to. Many analysts argue that reducing this debt would create a bizarro deflation scenario so acute that the readjustment period would create havoc.

Some say it would be impossible to do. ” Stephen Moore wrote in the Wall Street Journal:

Here’s an experiment. What if we were to try to pay off the $4-plus trillion national debt by having Congress put one dollar every second into a special debt buy-down account? How many years would it take to pay off the debt? One million seconds is about 12 days. One billion is roughly 32 years. But one trillion seconds is almost 32,000 years. So to pay off the debt, Congress would have to put dollar bills into this account for about the next 130,000 years—roughly the amount of time that has passed since the Ice Age. Even if we were to require Congress to put $100 a second into this debt-buy-down account, it would still take well over 1,000 years to pay the debt down.

But much of the money is borrowed in the form of guaranteed loans, so it has to be paid back. And taxes will continue to increase as the interest increases. And what happens if we don’t pay back the money borrowed from Social Security?

It is a complicated problem, and we are in deep. Where is our current administration? They have let the deficit spiral out of control. In fact, the government is borrowing money for our upcoming tax rebate. What’s wrong with that picture?

Are you looking forward to November as much as I am?

For more information on the IOUSA movie, see the N.Y. Times article “Tackling Our Unsexy National Debt.”

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10 Ways to Bury Yourself In Debt

Guaranteed budget killers.

1. Get Divorced.
   Divorce court = lawyer’s paradise.  Cha-ching.
2. Gamble.
   This includes copius amounts of lottery tickets.
3. Play the stock market when you don’t know what you’re doing.
   Same as #2.
4. Buy a Cadillac when a Corolla will do.
   Repeat after me:  I can’t afford it.
5. Spend tomorrow’s money today just for fun.
   Only spend tomorrow’s money today if the bottom falls out of the barrel.  Like if your washing machine crashes and burns.
6. Don’t put money into a retirement plan.
   Not only do you lose the tax breaks, you’ll be working until your next life.
7. Pay only the minimum payment on current credit card debt.
   Rule of thumb:  Credit card companies want all your money.  Unless you’re lucky enough to have a 0% interest loan, pay it down as fast as you can.  Pay the highest interest loans off first.
8. Keep smoking too much, drinking too much, collecting too much (books, CD’s, movies, hats.)
   Kick the habit and join the unhooked generation.
9. Live Paycheck to Paycheck.
   If you create a budget, the money will be there for the big hits, like car insurance or your water bill.
10. Don’t use automatic Bill Pay or Direct Deposit.
    Not taking advantage of these easy tools gives you more chances to forget to send that payment, deposit that check, or otherwise mess up your money.

***

Some ways to get yourself out of debt include putting your money into an internet bank that offers good savings account rates. You should also refrain from signing up for credit card offers unless you know you can control your credit spending. These additional tips will help you stay in good financial shape.

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Thinking of Going Back to Graduate School? Make Sure There’s a Payoff

NPR recently reported that the cost of attending graduate school can often outweigh the benefits.

If you’re already working, but considering graduate school - either full time or part time - there are a number of factors to evaluate before taking the plunge:

What is your motivation?

If your motivation is financial, determine if the pay-off is there by:

evaluating your target job market over the next 5-10 years.

• Is it increasing?
• What is the pay scale? Will you make more money when you graduate?
• Where are the jobs located?

discussing with your current employer any potential job opportunites. Do they include a pay increase

If your motivation is to study what you love, Lucky you!

Not everyone finds something that draws them. In this case, the sacrifice is absolutely worth it, but you still want to be smart about your decisions.

• Do you need to attend a prestigious school? You pay a lot for a big name.
• Will your current employer pick up the tab?
• Is your major one that allows you to teach undergraduates as part of your education? For example, science graduate students almost always can get some financial support for teaching science labs.
• Would you consider an ROTC program? These programs commit you to five years of military service upon completion, but will pay for everything while you are in school.
• Will you go full time or part time? What will the impact be on your current lifestyle? Are these sacrifices you are able to make until you graduate?
• Are you eligible for any scholarships? There are many opportunities out there for scholarship money. Doing your homework could pay off.

How will you pay for it?

Graduate school costs have increased 60% in the last decade, 240% in the last 20 years, states the Wall Street Journal. If you’re borrowing the cash, even with an education loan, you could be paying back that money over the next twenty years. Will your increase in salary compensate for this additional payment? Does that matter to you?

Has anyone gone back to graduate school after working a few years? What has been your experience?

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Debt Can Ruin Your Health In More Ways Than One

People with newly acquired extreme debt also reported having a higher percentage of stress induced illnesses than those without extreme debt.

A recently conducted AP-AOL Health Poll found that:

• 27 percent had ulcers or digestive tract problems, compared with 8 percent of those with low levels of debt stress.
• 44 percent had migraines or other headaches, compared with 15 percent.
• 29 percent suffered severe anxiety, compared with 4 percent.
• 23 percent had severe depression, compared with 4 percent.
• 6 percent reported heart attacks, double the rate for those with low debt stress.
• More than half, 51 percent, had muscle tension, including pain in the lower back. That compared with 31 percent of those with low levels of debt stress.

These people also reported having “more trouble focusing and sleeping,” and were also more likely to fly off the handle without provocation.

What you can do:

If you’re experiencing any of the above symptoms, whether it be caused by debt, or caused by other stress related factors in your life, there are actions you can take to ease the pain:

• Cut out coffee and other caffeinated beverages.
• Exercise. You don’t have to run a marathon. Go for a walk, or wash the kitchen floor. If you’re more energetic, try a yoga class, or join the local gym.
• Meditate. I hate this one, never do it, but many are successful at it, and I hear it works wonders.
• Breathe. Often during a stressful situation, people “forget” to breathe. Consciously reminding yourself to do it can keep the oxygen flowing to your brain, and have a surprisingly calming effect. Slow, comfortable, deep breathes.
• Get Enough Sleep. A good night’s sleep can do wonders for the psyche. This can be a tough one to manage, especially if your worry genes are working in overdrive, or your burning the candle at both ends with an extra job.
• Reframing. One of the most powerful stress reducers, “reframing is changing the way you look at things so you can feel better about them.” e.g. - keep the cup half full rather than half empty.
• Keep your expectations realistic. or as my father used to say, “you can’t get water from a stone.”
• Make sure you take some time off. If you burn yourself out, you’ll only make matters worse. Strive to maintain balance in your life.

If this interests you, you may also want to check out “Having a Bad Hair Day? Four Stress-Relieving Tips.”

What are some ways you ease stress?

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There’s No Lake

I was talking to a friend about money, and for some reason they kept talking about some lake.

They kept saying “There’s no lake. There’s no lake.”

What?

Ohhhhh, Snowflake. You mean saving small amounts of money until you have enough to build a glacier or something.

ugh.

Hey, they could’ve been talking about the lake effect.

Or, it appears that, at 49, I have the hearing of a 70 year old.

Deaf as——–>

Anyway, I’m living proof, that flake by flake, those flakes really add up.

My only debt is my mortgage, so right now the money goes towards paying off the mortgage principal, as well as building up my emergency fund.

It takes a bit of effort, but there’s opportunity everywhere. And it’s much more fun then getting a part time job!

Here’s the tally of what I’ve made so far this year:

Snowflake Savings from Jan 1st - May 17th, 2008

That’s $288.44 per month. Extra.

Just another success story about the powers of snowflaking.

I Had a Dream That I Maxed Out All of My Credit Cards in One Glorious Day

And what a day it was! A massive spending spree.

I just woke up, and I’m still a little fuzzy as to whether or not I dreamed it, or actually did it.

I currently have seven credit cards, six of which I don’t use. At this very moment, I have a total of 97 thousand dollars available credit.

I bought a complete set of the best furniture for the entire house, dishes, and All-Clad pots and pans for the kitchen. An All-Clad Slow Cooker I’ve been eyeing, but not willing to spring the $150 dollars for. And $1000 dollars worth of books. And not just any old books. New books.

In my dream, that is.

It was wild. A rush like no other.

I’ve never had the experience of going out and just spending, without a thought of how I would pay the money back. I can see why people do it. Especially younger people, not used to the new found freedoms of adulthood.

I’ve had some regrettable smaller splurges over the years. I have a beautiful 12 foot, dark blue kevlar Adirondack guide boat hanging in my garage. Cha-ching: three thousand dollars. I love the boat, glad I have it, but I sure didn’t love having to pay that debt off.

I remember the feeling when I made the purchase. It was so easy. I had been pining the boat for a while. I knew exactly what I wanted. And in five minutes, it was over, strapped on the top of my car, my boat.

Sort of. Three weeks later the bill came in. Ouch.

But with middle age comes wisdom.

Now I use one credit card, which I pay off every month. I only use it because I get 2% credit directly against the principal on my mortgage. Period. No ifs, ands, or buts.

But, in my dream at least, for one day, I was rich.

I hope I don’t dream about the day after I maxed out all my credit cards tonight. What a nightmare that would be.

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Running the Gauntlet on Debt: A Debt Reduction Plan

OK, you got yourself here, now what? You’re surrounded by your 44 inch flat screen TV, there’s a new car in the driveway, and you could start a company called Video Game Central. But you’re bottom of the barrel broke. You’re paying the minimum on three of those fancy “Platinum” Credit Cards, and there’s no end in sight.

Even if you can’t afford to seek out professional help, there are steps you can take to climb out of the mire.

1) Make a Plan. Begin with the end in mind. The goal: no debt, and a $1000 emergency fund. (you can insert your own goal here.)

• A) List out all of your debts. Make 3 columns: Total Owed, Minimum Payment/month, Rate of Interest. Add them up.
• B) List out all of your monthly bills. Rent, phone, heat, cable, spending money, etc. Add them up.
• C) Now List your monthly take home income.
• D) Subtract A and B from C.

2) Take Action. If the result of (D) is a negative number, first you cry. Then, consider:

• -a part time job.
• -reducing (B). Can you decrease your cable bill? Move to a lower rent apartment, or get a roommate? Cancel your land line and just use your cell phone? Go out to dinner less?

If the result of (D) is a positive number, Congratulations! That’s a good thing. Enjoy the moment. Then:

• Apply 90% of the money towards paying down the highest interest credit card.
• Put the other 10% into a savings account. You need an emergency fund. Even if it’s $10 lousy dollars, put it in there!
• Play the “Save Game”. Think about ways you can save little bits of money. Buy the Miller Light instead of the Guinness Stout. Whatever you save, put in a container of your choice. I, personally, have a “lucky can.” Add 75% of this to your savings account every month, and blow the rest! You have to have some fun!

3) Over the Top Debt Reduction. If you’re really ambitious about this, you can calculate how many months it will take you to get back on level ground. If it’s longer than you like, try to be creative about ways to reduce that debt:

• Instead of getting a big tax return for that vacation every year, could you change your withholdings and add the extra money each month to paying down your debt?
• Deliver newspapers on the weekends?
• Cutting coupons can add up. Don’t be proud.
• Help me out here. Anyone out there like to share creative ways they’ve reduced their debt more quickly? For another take on debt, check out The Dope on Credit Card Debt and The Dope on National Debt.

4) Finally Remember: It’s for a finite time only! You can do anything for six months, while you’re paying those credit cards off. And once you’re out of debt, for goodness, sake, stay out of debt!

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“Cha-Ching” Spending

Sometimes, at the end of the month, I’m scratching my head thinking “Where’s the money?!”

Well, I know where it is: gone from “Cha-Ching” Spending, that’s where!

Grrrr, it gets me mad. So, I’ve put together a list of spending watch-outs.

Credit

Even in Subprime Meltdown World, credit is too easy to get.

I beware the credit card…

• -offers.

I have one credit card, with a 2% rebate. I use it for everything, and pay it off every month. I apply for credit cards to get the sign up rebates. I never use these. It’s my way of fighting back against questionable credit card company practices. Congress is discussing legislation to control them right now.
CNN reports: “Critics have charged that many credit card issuers engaged in “unfair” practices such as raising interest rates on debt even when consumers pay on time or imposing excessive fees.”

• -checks.

Credit card checks are a no-no-no for sure. They’re Totally Off Limits for me. They have higher interest than my regular card does, and 1-3% initiation fees.

• -no interest loans for a specific time.

I did this once and got burnt. If I do this again, I’ll verify with the company when exactly it needs to be paid off. They’re often vague about this date. I recently paid off a loan of this type on February 14th. The fine print said “in February.” It did not say February 1st or February 29th. I had to pay 14 days of high interest amounting to $40. But that aside, I would do this again if I needed to- like for a mandatory capital expense such as my refrigerator dying.

I beware the car loan.

• -The easiest loan I can get is a car loan.

I’ll be needing a car in about two years. I’ll need to decide how much I can afford per month, not let them do it. They’ll let me buy a Rolls Royce if I let them.

I pay more than the minimum payment.

• minimum payments are designed to make the credit card company shareholders rich, not you. I don’t carry money on my credit card, so I’m paying my mortgage down a little extra each month.

Social Pressures

Here are some scenarios I’ve been guilty of:

“If Joe can afford it, so can I.” Maybe Joe can’t afford it either.

“Drinks on me!“ My generosity is inversely proportional to the number of beers I’ve had.

“OK, count me in.“ And that night at the Red Sox game cost me $300 dollars!

Good Causes

I’ve learned to practice “controlled generosity.”

Again, the scenarios:

“I need to help out the kids.” As much as I believe in this, I need to keep reminding myself “If the ship sinks, we all go under.”

“It’s for a good cause.” Define your donation limits and stick to them. If you don’t, be sure you account for it in spending less somewhere else.

Emotional Pressures

“I work hard, I deserve it.” This happens to me mostly with books. I can control the big stuff, like vacations. but I nickel and dime myself with books, and those specialty Starbucks coffees.

“But I love them.“ This was especially bad for both of us before we got married. My spouse and I had a few credit cards we had to pay off after the honeymoon! Now we can talk about it, and are more careful.

To sum up-

Each opportunity I have to “cha-ching” blow money, is also a chance for me not to blow money.

If I keep tomorrow in mind, today will take care of itself.

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The Dope on Credit Card Debt

There’s a statistic floating around saying Americans carry an average of nine thousand dollars in monthly revolving credit card debt.

Sound bad?

The good news is, this average doesn’t reflect the reality. According to Liz Pullium Weston at MSN Money, it’s not as bad as it sounds. “Averages don’t reflect a true picture,” she says. “Say 20 people were in a room with Warren Buffett and Bill Gates. The average net worth of the people in this room is 4 billion dollars. The other 18 people could make 100,000 dollars, or even 1 million, or 10 million dollars, but this is not reflected in the average.”

She goes on to say that if you look at the median, the average household has just $1900 dollars in debt. Median is the midpoint where 50% of the households have more debt, and 50% have less debt.

She also states some healthier statistics:

23.8 % of American households have no credit card debt at all.
31.2 % have credit cards, but pay them off in full every month.
Only 1 in 20 households (or 5%) have credit card debt of $8000 dollars or more.

The credit card debt problems, it turns out, lie in specific sectors of the population. For example, undergraduates average $2300 dollars in credit card debt, graduate students, $5800 dollars. Getting your first credit card has become a right of passage for young adults, like getting your driver’s license, being able to vote, or buying your first beer at the local pub.

And 36 % of those who owe more than $10,000 dollars make less than $50,000 dollars per year. Of those, 13% make less than $30,000 dollars per year.

If you have high credit card debt, there are some things you can do:

Start living within your means. Don’t buy anything until you have the cash, or can pay off the card before any interest accrues. If you must pay for something over time, and we all need to at some point in our lives, don’t stretch yourself beyond the point of no return. Don’t buy that $2000 dollar stereo if you can only afford the $1000 dollar one. Never charge a vacation.

Come up with a plan to eliminate your debt. As you reduce the amount of interest you’re paying, that money becomes yours.

Pay off the higher interest rate cards first.

Be sure to pay more towards the balance than the amount of interest accruing each month.

If you can’t pay off the higher interest rate cards quickly, transfer their balance to cards with lower interest rates. This could save you hundreds of dollars. Be sure to read the fine print. Transfer fees can be high.

Consolidate all your cards on to one low interest card. This keeps it simpler.

Seek outside counseling. If money management is not your forte, get some advice. You can start by checking out this website: http://www.nfcc.org/, or by calling (800) 388-2227.

Go for getting to zero debt. And once you’re there, stay there.

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The Dope on National Debt

Are you sitting down?

The US National Debt is 9.5 trillion dollars. If you divide that by the U.S. population, that means each American owes 31 thousand dollars. We are all paying interest on this money through our taxes.

The government adds to the national debt by not balancing the budget each year. Its current budget deficit is growing the national debt at a rate of 1.66 billion dollars per day. That’s about 1 million dollars a minute. Click this link if you’d like to see the history of how the national debt has gotten so high. National debt has increased during Republican administrations, and decreased during Democratic administrations. Financing the wars in Iraq is not cheap. Nancy Pelosi states that “right now we pay in interest four times the amount we spend on education and four times what it will cost to cover ten million children with health insurance for five years.”

Who do we owe this money to? 2.4 trillion dollars is currently owed to foreign countries. The major holders of this debt are Japan ($587 million) and China ($493 million). 40% is owed to the Federal Reserve. The Federal Reserve is actually privately as well as publicly owned. The remaining is owed to social security, individuals, corporations, and states through various bonds.

Will we actually ever pay back the national debt? There is controversy over whether or not we even want to. Many analysts argue that reducing this debt would create a bizarro deflation scenario so acute that the readjustment period would create havoc.

Some say it would be impossible to do. ” Stephen Moore wrote in the Wall Street Journal:

Here’s an experiment. What if we were to try to pay off the $4-plus trillion national debt by having Congress put one dollar every second into a special debt buy-down account? How many years would it take to pay off the debt? One million seconds is about 12 days. One billion is roughly 32 years. But one trillion seconds is almost 32,000 years. So to pay off the debt, Congress would have to put dollar bills into this account for about the next 130,000 years—roughly the amount of time that has passed since the Ice Age. Even if we were to require Congress to put $100 a second into this debt-buy-down account, it would still take well over 1,000 years to pay the debt down.

But much of the money is borrowed in the form of guaranteed loans, so it has to be paid back. And taxes will continue to increase as the interest increases. And what happens if we don’t pay back the money borrowed from Social Security?

It is a complicated problem, and we are in deep. Where is our current administration? They have let the deficit spiral out of control. In fact, the government is borrowing money for our upcoming tax rebate. What’s wrong with that picture?

Are you looking forward to November as much as I am?

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Getting a Break on Your Student Loans

“The average college student graduates with $21,000 in debt,” says CNN in a recent article. That’s not exactly the best springboard to launch your life from. The good news is that there are a number of relief programs available that can ease the burden.

Loan Forgiveness- Working in public service jobs could buy you a loan reduction, or even a loan cancellation. The website Mapping Your Future provides tools to help you determine if you’re eligible for any of these programs. They can help you find out who holds your loan if you are unsure. There are also specific public service organizations that help their employees pay back their school loans.

Economic Hardship Deferments- if you’re struggling to make your payments, check out this hardship deferment calculator to see if you might qualify for a loan extension. This can ease some of the burden, but remember, you will be paying as much as twice the amount of interest by extending your payments over a longer period of time.

If you qualify for any of these programs, you can save thousands of loan dollars. I wish I had one of these for my mortgage!

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