debt reduction http://www.wisebread.com/taxonomy/term/3065/all en-US This Trick Could Help You Finally Pay Off Your Debt http://www.wisebread.com/this-trick-could-help-you-finally-pay-off-your-debt <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/this-trick-could-help-you-finally-pay-off-your-debt" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/cash-86521236.jpg" alt="coins" title="coins" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>There are some people who are able to make and keep promises to themselves. When they say that they will stop eating ice cream every night or that they will send an extra $1000 to their credit card company every month, they do it. (See also: <a href="http://www.wisebread.com/5-ways-to-make-yourself-accountable?ref=seealso">Ways to Make Yourself Accountable</a>)</p> <p>I have never met one of these people.</p> <p>My guess is that you haven't either.</p> <p>For the rest of us mortals, the accountability that comes from making a promise to another person may be just what we need to stick to our commitments. After all, it's easy to blow off a promise to yourself, whereas disappointing someone else is another matter entirely.</p> <p>So why not try this trick with a commitment to pay off debt? Working with a debt partner who is focused on a similar debt-payoff goal can help you reach that finish line faster. (See also: <a href="http://www.wisebread.com/how-to-pay-down-100-worth-of-debt-this-week?ref=seealso">Pay Down $100 Worth of Debt This Week</a>)</p> <h2>The Importance of Accountability</h2> <p>A common piece of advice for goal-setters is to <a href="http://www.wisebread.com/how-to-trick-yourself-into-better-credit-card-behavior">tell everyone about the improvement plan</a>. That way, you'll face social consequences for not following through on your goal.</p> <p>However, just telling people that you plan to pay off your credit cards once and for all can backfire. According to career coach Shana Montesol Johnson, &quot;when we tell someone that we are going to do something big&hellip;the praise and positive reaction we get from our audience gives us a part of <a href="http://developmentcrossroads.com/2010/12/enough-already-about-your-new-year%E2%80%99s-resolutions/">the experience of having already accomplished</a> these things&hellip; And so we are less motivated to actually work toward these goals.&quot;</p> <p>This happened to me recently, when I told several friends that I planned to complete the National Novel Writing Month (NaNoWriMo) challenge to write a 50,000-word novel during the month of November. Everyone was very positive and supportive, and I felt great knowing that my friends thought so highly of my plan.</p> <p>Then I wrote a grand total of 3,000 words during the month.</p> <p>I thought I had given myself accountability by telling people about my writing plan, but I was missing a key ingredient: specific responsibility for my actions. While I had one or two friends who asked me in passing how the writing was going, no one was checking in on my progress.</p> <p>Had I vowed to complete the NaNoWriMo challenge with a writing buddy, I'd know that a particular person would be asking me on a daily basis where I was &mdash; as I would ask her. That would give me motivation to turn off the cat videos on YouTube and get back to crafting brilliant prose.</p> <p>When it comes to debt payoff, that kind of personal accountability will also have a motivating effect. If you find yourself tempted to spend money you don't have on something you don't need, thinking about the fact that you would have to tell your debt partner about your slip-up can be enough to stop you. (See also: <a href="http://www.wisebread.com/6-frugal-promises-i-have-not-kept?ref=seealso">Frugal Promises I Haven't Kept</a>)</p> <h2>Staying Encouraged Is Easier With a Cheerleader</h2> <p>Debt reduction does not offer much in the way of instant gratification. The progress you make in paying off your large debt is incremental and not particularly satisfying. And since <a href="http://www.psychologytoday.com/blog/dont-delay/200902/self-regulation-failure-part-2-willpower-is-muscle">willpower &mdash; like a muscle &mdash; can be exhausted</a>, you cannot simply force yourself to stay virtuous throughout the journey to debt freedom.</p> <p>So how do you stay the course when you feel like giving up? Ask your debt partner to be your number one fan. It's easy to forget how far you've come. But your debt partner can remind you how big an accomplishment it is that you have already paid down some of your debt.</p> <p>This is especially important when you hit a setback. Perhaps you forgot a payment due date and were hit with a late fee &mdash; and you feel like throwing in the towel since you'll never get ahead anyway. Your debt partner can remind you that before you started your debt payoff goal, you paid late fees all the time, and this is the first one you've seen in months. (See also: <a href="http://www.wisebread.com/how-to-get-rid-of-and-avoid-late-fees?ref=seealso">How to Avoid Late Fees</a>)</p> <p>It is important, however, that your debt partner not just be a yes man. According to Mandi Ehman of The Art of Simple, &quot;if an accountability partner is just patting you on the back or nodding their head when you make excuses, then they're not really holding you accountable after all. An important part of being accountable to someone is giving them permission to be honest with you. They should be comfortable telling you when you've gotten off track or pointing out areas where you may want to focus more of your efforts.&quot;</p> <h3>Plus, It's More Fun</h3> <p>In addition, working with a partner can make the slow progress much more fun. You and your debt buddy can determine ahead of time how you will celebrate your small victories, and you can remind each other of those upcoming celebrations when you are feeling discouraged.&nbsp;(See also: <a href="http://www.wisebread.com/the-secret-to-succeeding-at-absolutely-everything?ref=seealso">The Secret to Succeeding at Everything</a>)</p> <h2>Write Out a Contract</h2> <p>When it comes to the nitty-gritty of partnering with a friend to make a debt payoff plan, experts say that an important start is to create a contract. Not only does this exercise help you and your debt partner understand just what you are in for with your partnership, but it also makes clear from the beginning exactly what success will look like and how each partner will help the other to achieve success. (See also: <a href="http://www.wisebread.com/get-it-in-writing-a-quick-guide-to-agreements-and-contracts?ref=seealso">A Quick Guide to Agreements and Contracts</a>)</p> <p>You may have heard of these sorts of contracts for weight loss partners. They are very effective for weight loss, and can easily be adapted for debt reduction. According to Colette Bouchez of WebMD, a partner contract should &quot;spell out your mutual goals and the ways you plan to help each other achieve them.&quot; In addition, your contract should &quot;include both short-term goals and long-term ones.&quot;</p> <p>For instance, one of your short-term goals may be dining out less often in order to save money. You might write into the contract that you want to cook meals for the week every weekend so that you won't be tempted to order carryout after a long work day &mdash; and you could specify that you and your partner will cook together every Sunday and share your week's worth of food. Writing those short-term goals into your contract can help you to plan ahead for both potential setbacks and for the type of accountability you need in order to meet your goals.</p> <h2>Two Heads Are Better Than One</h2> <p>When it comes to self-improvement, promises you make to yourself will always be easy to break. After all, the only one affected is you.</p> <p>So find a friend who has a similar goal and work out a partnership to keep yourselves accountable. You'll both be better off for it, and you'll enjoy the process of improving yourself that much more.</p> <p><em>Have you worked with a debt partner to help you reduce debt? Were you successful?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/emily-guy-birken">Emily Guy Birken</a> of <a href="http://www.wisebread.com/this-trick-could-help-you-finally-pay-off-your-debt">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/snowballs-or-avalanches-which-debt-reduction-strategy-is-best-for-you">Snowballs or Avalanches: Which Debt Reduction Strategy Is Best for You?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-dark-side-motivations-to-get-you-out-of-debt">10 Dark-Side Motivations to Get You Out of Debt</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/debt-repayment-is-not-an-expense">Debt repayment is not an expense</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/contributing-to-a-roth-versus-paying-down-debt">Contributing to a Roth Versus Paying Down Debt</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-places-to-start-your-debt-management-crusade">4 Places to Start Your Debt Management Crusade</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management debt debt elimination debt reduction Thu, 20 Feb 2014 10:48:54 +0000 Emily Guy Birken 1126680 at http://www.wisebread.com 6 Hidden Dangers of Credit Card Balance Transfers http://www.wisebread.com/6-hidden-dangers-of-credit-card-balance-transfers <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-hidden-dangers-of-credit-card-balance-transfers" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/credit-cards-86487567.jpg" alt="credit cards" title="credit cards" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <p>The credit card balance transfer is often touted as one of the best ways to tackle credit card debt. You move your high-rate balance to a new card with a 0% introductory rate, and your payments aggressively reduce your debt. (See also: <a href="http://www.wisebread.com/what-you-must-know-before-transferring-credit-card-balances?ref=seealso">Balance Transfer Basics</a>)</p> <p>Before you get too excited, though, it's a good idea to step back and evaluate your situation. Credit card issuers wouldn't offer such a screaming deal if there wasn't something in it for them. Here are six of the &quot;hidden&quot; dangers associated with balance transfer offers.</p> <h2>1. The Transferred Balance Is Usually Credited First</h2> <p>True, the Credit CARD Act of 2009 requires credit card issuer to apply your payment to the highest-rate balance first. But there is a loophole: Issuers can allocate the minimum required payment in any way they want.</p> <p>Say you have a 0% APR balance transfer on a card amounting to $1,500, and you make a few new purchases at the rate of 19.99% totaling $500. Your minimum payment is $60, and you decide to pay $100, as part of your debt reduction strategy. (See also: <a href="http://www.wisebread.com/snowballs-or-avalanches-which-debt-reduction-strategy-is-best-for-you?ref=seealso">Which Debt Reduction Strategy Is Right for You?</a>)</p> <p>The credit card issuer has the option to apply the $60 of your minimum payment toward the high rate purchase or to the low rate balance transfer. Of course, the issuer will apply all of the minimum to the 0% balance, then apply what's left &mdash; $40 &mdash; to the high rate purchase balance, according to the law. This keeps the high rate balance on the account longer, earning the card issuer more interest.</p> <p>To avoid this, don't use the card to make additional purchases, especially if there is no introductory purchase APR. Be aware that credit card issuers divide up your balances. Your purchase APR is different from your balance transfer APR, and both are different from a cash advance APR.</p> <p>Your balance transfer card should be used exclusively to pay down debt faster, and you don't need high-rate purchases mucking up those efforts. (See also: <a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards?ref=seealso">Best 0% Balance Transfer Cards</a>)</p> <h2>2. Post-Introductory APRs and Tricky Terms Snare a Majority of Transferees</h2> <p>Once the 0% APR period is up, your balance is subject to the regular APR &mdash; which is often higher than you might see with other cards. Often, these cards come with rates as high as 21.99%.</p> <p>As long as you pay off your card before this higher rate slams you, you're fine. However, research indicates that 34% of <a href="http://www.thisismoney.co.uk/money/cardsloans/article-2522468/A-balance-transfer-customers-pay-debts-0-period.html">consumers <em>don't</em> pay off their balances</a> within the introductory period.</p> <p>On top of that, 20% of balance transferees don't get the entire introductory period because they violate some term. If you pay late, or don't make the minimum, your intro rate is revoked and you revert to a higher rate. Add these groups up, and 54% of consumers who take advantage of balance transfer offers don't reap the reward of eliminating their debt. Worse, they find themselves with balances on cards with the highest rates.</p> <p>If you do transfer a balance, make sure you have a plan to pay it off within the introductory period and do not run afoul of the issuer's policies. (See also: <a href="http://www.wisebread.com/how-much-does-your-credit-card-debt-cost-you?ref=seealso">How Much Does Your Credit Card Cost You?</a>)</p> <h2>3. Balance Transfer Fees Eat Up Savings From Transferring</h2> <p>It's so easy to get excited about a balance transfer deal that you forget to look at the balance transfer fee. However, a balance transfer fee can significantly reduce the effectiveness of your balance transfer. Balance transfer fees range from 3% to 5% of the transferred amount. This fee is often added to your balance &mdash; and it may or may not be considered part of the 0% APR &mdash; check the fine print! (See also: <a href="http://www.wisebread.com/decipher-credit-card-offers-with-the-schumer-box?ref=seealso">Use the Schumer Box to Decipher Credit Card Offers</a>)</p> <p>Before you transfer your balance, make sure that the interest savings outweigh the balance transfer fee.</p> <h2>4. Rewards Can Entice You to Spend More</h2> <p>Watch out for balance transfer cards that also offer rewards. The problem here is that many of the cards that offer rewards programs <em>and</em> introductory balance transfer rates don't offer an introductory rate on purchases. So you are encouraged to make purchases to get the rewards. However, those purchases come with interest charges that can offset what you save with your balance transfer. Add in a balance transfer fee, and your balance transfer can cost you even more.</p> <p>Be clear about your objectives before you use a balance transfer card. If you want to get rid of debt, you don't need the rewards program. Instead, devote yourself to paying off the balance before the end of the introductory period, and avoid making new purchases with a credit card.</p> <h2>5. Your Credit Score Can Drop</h2> <p>Depending on how you accomplish your balance transfer, your credit score can drop. First, the hard credit inquiry can ding your score a bit when you open an account. Plus, your new account lowers the average age of your credit profile. If you cancel your old card after transferring your balance, you could end up with a higher credit utilization, which is a negative in the credit scoring algorithm. A lower credit score can mean higher costs in various areas of your life. (See also: <a href="http://www.wisebread.com/10-surprising-ways-to-negatively-affect-your-credit-score?ref=seealso">Surprising Ways to Hurt Your Credit Score</a>)</p> <p>When transferring a credit card balance, make sure that you are careful to keep your old account open (as long as you have the discipline not to run up new balances).</p> <h2>6. Other Fees May Be Lurking</h2> <p>Pay attention to other fees that might be charged by the credit issuer. There might be a higher late payment fee on your new card, or there might be an annual fee. These types of fees reduce the effectiveness of your 0% APR balance transfer.</p> <h2>Bottom Line: Pencil It Out Before You Make the Transfer</h2> <p>Make sure that you run the numbers before you transfer a balance. For example, transferring $10,000 in debt will cost $300&ndash;$500 in fees alone. The same debt left on a 15.99% card will incur $1300 in interest, <em>assuming it is paid off in 18 months</em> (and much, much more if it isn't). That's still a significant savings of $800&ndash;$1000 in just 18 months, but given the other hidden risks, you should verify that transferring your balance really will benefit you, and that you really can pay off the debt in a timely manner.</p> <p>If you are looking for a balance transfer credit card now, Wise Bread's top pick is the <a target="_blank" rel="nofollow" href="http://ct.wisebread.com/click.php?pg=144&amp;pid=54">Citi Simplicity&reg; MasterCard</a> from our partner Citi with its industry-leading 21 months of 0% APR and no annual fee. <a target="_blank" rel="nofollow" href="http://ct.wisebread.com/click.php?pg=144&amp;pid=54"><strong>Click here for details.</strong></a></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/miranda-marquit">Miranda Marquit</a> of <a href="http://www.wisebread.com/6-hidden-dangers-of-credit-card-balance-transfers">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-rebuild-your-credit-in-8-simple-steps">How to Rebuild Your Credit in 8 Simple Steps</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/debit-or-credit-which-one-should-you-choose-at-the-checkout">Debit Or Credit? Which One Should You Choose At The Checkout?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-much-does-your-credit-card-debt-cost-you">How Much Does Your Credit Card Debt Cost You?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-tricks-to-save-money-with-credit-cards">10 Tricks to Save Money with Credit Cards</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/six-steps-to-eliminating-your-debt-painlessly">6 Steps to Eliminating Your Debt Painlessly</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Credit Cards credit credit balance transfer debt reduction Thu, 13 Feb 2014 10:36:17 +0000 Miranda Marquit 1125162 at http://www.wisebread.com Now Is the Best Time in Years to Do a Credit Card Balance Transfer http://www.wisebread.com/now-is-the-best-time-in-years-to-do-a-credit-card-balance-transfer <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/now-is-the-best-time-in-years-to-do-a-credit-card-balance-transfer" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/credit-card-461520219.jpg" alt="credit card" title="credit card" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>One of the most frustrating realities in personal finance is the high rate charged on credit card balances. Even if you pay more than the minimum each month, the high interest rate severely limits the effectiveness of your payment. Whether you are trying to deal with holiday debt or take control of your finances, a balance transfer can be just the thing. (See also: <a href="http://www.wisebread.com/why-do-a-credit-card-balance-transfer-and-how?ref=seealso">Why and How to Do a Balance Transfer</a>)</p> <p>And the best part? Now is a great time to do a balance transfer.</p> <h2>Why Transfer Balances Now?</h2> <p>Balance transfer deals have been ramping up in recent months. The <a href="http://business.time.com/2013/09/06/0-balance-transfers-are-tempting-but-beware-the-risks/">credit freeze is thawing</a>, and 0% APR balance transfers are being offered to more people.</p> <p>During and immediately after the Great Recession, you had to have practically impeccable credit to receive these attractive offers. Now, however, with <a href="http://www.forbes.com/sites/sharding/2013/06/01/banks-making-record-profits-again-while-consumers-still-have-losses/">banks enjoying record profits</a>, they are willing to take a little more risk and expand the offers. Chances are that a 0% APR offer is coming to mailbox near you.</p> <p>Not only is the number of these offers increasing, but the deals are getting sweeter. The highest offers in the United States are at 18 months of that introductory rate. During the past few years, most of these offers were capped between six and 12 months. Now you have up to a year and a half to make a serious dent in your transferred debt. (See also: <a href="http://www.wisebread.com/10-worst-ways-to-pay-off-your-credit-card-debt?ref-seealso">The Worst Ways to Pay Off Credit Card Debt</a>)</p> <h2>Use a 0% Balance Transfer to Help Your Finances</h2> <p>Using a 0% balance transfer credit card helps you demolish your debt because your entire monthly payment goes toward reducing your principal. You don&#39;t have to worry about how big a chunk the interest payment is taking out of your payment. Here are some of the ways a 0% APR credit card can help your finances. (See also: <a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards?ref=seealso">Best 0% Balance Transfer Credit Cards</a>)</p> <h3>Get Rid of Holiday Debt Fast</h3> <p>Even with the best intentions, many of us end up carrying balances following the holidays. It&#39;s so easy to get caught up in the season with sales, entertaining, and gift giving. Transfer your high-rate balances to a 0% APR credit card, and you have a little breathing room to pay off your holiday debt and keep it from dominating your life. Plus, you pay it off faster when everything goes toward principal. If you have cash back from rewards credit cards, apply that to your debt, too, for even faster results. (See also: <a href="http://www.wisebread.com/dealing-with-post-holiday-credit-card-debt?ref=seealso">How to Deal With Post-Holiday Debt</a>)</p> <p>There&#39;s no reason to let holiday debt ruin the first few months of the new year. A 0% balance transfer will help you better manage that debt. And, since you have that breathing room, you can even start saving up for next holiday season now so that you aren&#39;t in this position again.</p> <h3>Reboot Your Personal Finances</h3> <p>You can reboot your personal finances no matter the time of year, and a balance transfer can help. When you&#39;re ready to take charge of your money situation, the first thing to do is organize a debt paydown plan. A 0% balance transfer card can help your efforts. (See also: <a href="http://www.wisebread.com/snowballs-or-avalanches-which-debt-reduction-strategy-is-best-for-you?ref=seealso">Which Debt Repayment Strategy Is Best for You?</a>)</p> <h3>Manage Your Debt Better</h3> <p>The great thing about long introductory rates with balance transfers is that you can tackle other high-interest debt without accumulating more due to interest. Take your highest-interest credit card balances, and transfer as much as you can to the 0% APR credit card. If you have balances left on other cards, you can call to ask for a reduction in the interest rate. Account holders in good standing can sometimes see a 1% to 3% reduction in rate just for asking. (See also: <a href="http://www.wisebread.com/what-you-must-know-before-transferring-credit-card-balances?ref=seealso">What You Should Know Before You Do a Balance Transfer</a>)</p> <h3>Use the Snowball Method to Reduce Debt</h3> <p>Once you have re-arranged all of your debt, you can then tackle the high-rate debt while paying the minimum on the 0% APR card for now. The beauty of this method is that you are paying down your high-rate cards at a faster rate, and at the same time the minimum you put toward your balance transfer card is going toward reducing that balance. Here&#39;s an example, using three credit cards:</p> <ul> <li>Credit Card A has a balance of $2,500 and a rate of 19.99%</li> <li>Credit Card B has a balance of $1,500 and a rate of 15.99%</li> <li>Credit Card C has a balance of $3,000 and a rate of 13.99%</li> </ul> <p>You are approved for a 0% APR balance transfer card with a credit limit of $3,500 and an introductory rate of 18 months. The first thing you do is transfer the balance from Credit Card A and $1,000 of the balance from Credit Card B. Now you have balances of $500 (at 15.99%), $3,000 (13.99%), and $3,500 (0%).</p> <p>Call your credit card issuers and ask for rate reductions if you are in good standing. Let&#39;s say you are offered a reduction to 14.99% on the one card, and a reduction to 11.99% on the other card.</p> <p>After reviewing your finances, you discover that you can put an extra $300 per month toward debt reduction, on top of the minimum payments you are making on all of your cards. Start with the highest-rate card, which only has $500 on it. You put that extra $300 toward that balance and keep paying the minimum on everything else. (Don&#39;t reduce the amount you pay as the &quot;minimum&quot; as you progress. The minimum will drop with your slowly falling balance, but keep paying the level you started with.)</p> <p>After two months, you&#39;re ready to tackle the next card on the list. Bring the $300, plus the minimum you had been paying on your other card, and add it to the minimum you have been paying on the second card. It&#39;s important to transfer the original minimum you have been paying so that your payment snowballs and gets bigger. It takes another nine months to pay off the next debt, for a total of 11 months. (See also: <a href="http://www.wisebread.com/a-comprehensive-guide-to-the-debt-snowball-method-0?ref=seealso">Guide to the Debt Snowball Method</a>)</p> <p>Now you&#39;re on to the balance transfer card. You still have another seven months to pay off this card before the 0% runs out. Remember, every penny that you&#39;ve paid in the minimum balance for the last 11 months has gone toward reducing the principal. So let&#39;s say you&#39;ve managed to knock off close to $1,100 of the balance. So you have seven months to pay of the remaining $2,400. Since you&#39;ve moved your other minimums over, along with your original $300, you should be putting $350 or so toward debt reduction on your final card. That should be enough to allow you to finish paying off your debt before the 0% introductory period ends.</p> <p>Adding a balance transfer card to the mix can be an amazing way to re-order your finances and fix your debt problem. Just make sure you create a plan that allows you to pay off the balance before the intro period runs out.</p> <p><em>Have you taken advantage of long introductory periods on balance transfers to reduce debt? Were you successful?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/miranda-marquit">Miranda Marquit</a> of <a href="http://www.wisebread.com/now-is-the-best-time-in-years-to-do-a-credit-card-balance-transfer">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-much-does-your-credit-card-debt-cost-you">How Much Does Your Credit Card Debt Cost You?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/six-steps-to-eliminating-your-debt-painlessly">6 Steps to Eliminating Your Debt Painlessly</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-best-credit-cards-with-no-balance-transfer-fees">5 Best Credit Cards with No Balance Transfer Fees</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-ways-paying-off-credit-cards-is-like-playing-beer-pong">3 Ways Paying Off Credit Cards Is Like Playing Beer Pong</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/your-interest-rates-are-about-to-go-up">Your Interest Rates Are About to Go Up</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Credit Cards Debt Management balance transfer credit card debt reduction Fri, 07 Feb 2014 10:36:41 +0000 Miranda Marquit 1123544 at http://www.wisebread.com Snowballs or Avalanches: Which Debt Reduction Strategy Is Best for You? http://www.wisebread.com/snowballs-or-avalanches-which-debt-reduction-strategy-is-best-for-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/snowballs-or-avalanches-which-debt-reduction-strategy-is-best-for-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/snowball-3893330-small.jpg" alt="man throwing snowball" title="man throwing snowball" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>Are you in debt? Well, according to Transunion, <a href="http://newsroom.transunion.com/press-releases/transunion-credit-card-delinquencies-and-debt-ope-1019129#.UhqAJmzn_5p">many of us are</a> &mdash; at least when it comes to credit cards.</p> <p>If you answered &quot;yes,&quot; then my guess is that you really want to get out of debt. (See also: <a href="http://www.wisebread.com/six-steps-to-eliminating-your-debt-painlessly">6 Painless Steps to Eliminate Debt</a>)</p> <p>Once you come to this decision and begin looking for ways to get out of debt, you'll likely find two methods:</p> <ol> <li>The Snowball Method</li> <li>The Avalanche Method</li> </ol> <p>Let me briefly describe both &mdash; and which one is better.</p> <h2>The Snowball Method</h2> <p>This was made famous by financial author Dave Ramsey. In it, you list all your debts from the <em>smallest</em> balance to the <em>largest </em>balance &mdash; regardless of the interest rate. You begin by paying the minimum amounts on all debts and send any extra money to the debt with the smallest balance. (See also: <a href="http://www.wisebread.com/a-comprehensive-guide-to-the-debt-snowball-method-0">A Guide to the Snowball Method</a>)</p> <p>Once your smallest balance is paid off, you take that payment, along with any extra money you have, and apply it to the debt with the next smallest balance. Then you continue this process until all of your debts are paid off.</p> <p>The benefit you get from using this method comes from seeing one of your debts paid off sooner. This, in turn, can provide an emotional boost.</p> <p>Let's face it. Sometimes, the road to debt freedom can be a long one. With the Snowball Method, you get a quick win that'll provide the motivation you need to continue the process of getting out of debt.</p> <h2>The Avalanche Method</h2> <p>With this method, you do things a bit differently. Rather than listing all your debts from the smallest balance to the largest balance, you list your debts from the <em>highest interest rate</em> to the <em>lowest interest rate</em> &mdash; regardless of the dollar amount of the debt. You begin by paying the minimum amounts on all debts, and send any extra money to the debt with the highest interest rate.</p> <p>Once your debt with the highest interest rate is paid off, you take that payment, along with any extra money you have, and apply it to the debt with the next highest interest rate. Then you continue this process until all of your debts are paid off.</p> <p>Unlike the Snowball Method, this doesn't get you paying off individual debts as quickly. But it does benefit you by saving you the most amount of money in terms of interest paid. And it gets you completely debt-free sooner.</p> <h2>So Which Method Is Better?</h2> <p>Well, both methods are effective &mdash; as long as you stick to the plan. (See also: <a href="http://www.wisebread.com/how-to-stick-to-personal-deadlines">How to Stick to Personal Deadlines</a>)</p> <p>The Snowball Method has worked well for many people, as Dave Ramsey fans will attest. But from a savings standpoint (in terms of time and money) &mdash; and with all due respect to Dave Ramsey &mdash; the Avalanche Method is the clear winner.</p> <p>Let's take a look at an example.</p> <p>Suppose you have the following three debts:</p> <ul> <li>$5,000 student loan, 3.75% interest, $50 minimum payment</li> <li>$11,000 credit card, 14% interest, $120 minimum payment</li> <li>$25,000 credit card, 15% interest, $480 minimum payment</li> </ul> <p>Let's assume you scrimp and save and find a way to pay an extra $350 each month toward your debts.</p> <p>If you used the Snowball Method, your first debt would be paid off in 13 months. You'd be completely debt free in 57 months, and you'd pay a total of $15,792.45 in interest.</p> <p>But if you used the Avalanche Method, your first debt would be paid off in 39 months. You'd be completely debt free in 55 months, and you'd pay a total of $13,149.01 in interest. (See also: <a href="http://www.wisebread.com/15-ways-to-pay-back-student-loans-faster">How to Pay Back Student Loans Faster</a>)</p> <p>In other words, that's a savings of <em>2 months</em> and <em>$2,643.44 in interest</em> with the Avalanche Method.</p> <p>If you want to run the numbers on your own debt situation, you can download this<a href="http://www.vertex42.com/Calculators/debt-reduction-calculator.html"> calculator</a> for free.</p> <h2>But Which Method Is for You?</h2> <p>That depends.</p> <p>If you need to see the visible progress of having a debt paid off and you're not as concerned about numbers, then the Snowball Method may work for you.</p> <p>But if you're willing to be more patient, so that you can save the most time and money, then the Avalanche Method is the clear winner. Staying focused on this end goal is the key to your success.</p> <h2>A Hybrid Approach</h2> <p>What if you don't like either method? Do you want a bit of the best of both worlds?</p> <p>If so, consider paying off the smallest balance first. After that, switch to the highest interest rate next.</p> <p>With this method, you get the quick win by seeing one of your debts paid off in a shorter time frame. And you also save a little bit more money than you would if you stuck with the Snowball Method.</p> <p>Here's how your results would look.</p> <p>If you used the Hybrid Approach, your first debt would be paid off in 13 months. You'd be completely debt-free in 57 months, and you'd pay a total of $15,493.87 in interest.</p> <p>In other words, you'd pay off your first debt and be completely debt-free in the same amount of time as compared to the Snowball Method. But you'd also save an extra $298.58.</p> <p>So the bottom line is that all methods work. But again, if you want to save the most amount of time and money, use the Avalanche Method.</p> <p><em>If you climbed (or are climbing) out of debt, which method did you use?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/darren-wu">Darren Wu</a> of <a href="http://www.wisebread.com/snowballs-or-avalanches-which-debt-reduction-strategy-is-best-for-you">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/debt-repayment-is-not-an-expense">Debt repayment is not an expense</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-fastest-method-to-eliminate-credit-card-debt">The Fastest Method to Eliminate Credit Card Debt</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-get-back-on-track-when-youre-behind-on-your-bills">How to Get Back on Track When You&#039;re Behind on Your Bills</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-most-valuable-thing-debt-takes-from-you-isnt-money-its-this">The Most Valuable Thing Debt Takes From You Isn&#039;t Money — It&#039;s This</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/contributing-to-a-roth-versus-paying-down-debt">Contributing to a Roth Versus Paying Down Debt</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management budgeting debt debt reduction Mon, 23 Sep 2013 09:48:06 +0000 Darren Wu 988400 at http://www.wisebread.com Taming Your Debt: Aggressive Repayment Strategies http://www.wisebread.com/taming-your-debt-aggressive-repayment-strategies <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/taming-your-debt-aggressive-repayment-strategies" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/5928728030_a5cdca2890_z.jpg" alt="writing check" title="writing check" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Why is it so easy to get into debt and so hard to get out? I think the answer lies somewhere in the machinery of our consumer culture. We&rsquo;re constantly encouraged to buy things whether we can afford them or not. There are creditors lining up to finance whatever they&rsquo;ve convinced us that we not only need, but rightfully deserve. And what happens when we find ourselves on that predictable but precarious ledge &mdash; teetering on the edge of financial ruin? There are more products and services to buy that can help us solve our financial problems. And (surprise!) not only do we need these essential tools, we deserve them!</p> <p>If you see the sick cycle here, you&rsquo;re not alone. More and more folks are waking up and realizing that taming debt just takes a bit of planning, some conscious choices, and some very hard work. Let&rsquo;s explore a few strategies to tackle your debt and empower your financial future. (See also: <a href="http://www.wisebread.com/how-to-start-fighting-debt-today">How to Start Fighting Debt &mdash; Today</a>)</p> <h3>Face How Much You Owe</h3> <p>The first step to any successful debt repayment plan is to get an accurate idea of exactly what you&rsquo;re up against. Avoidance is not your friend; organize your statements, make calls, and determine exactly how much you owe to each creditor. It&rsquo;ll inform the rest of your strategy and help prepare you for the next essential steps.</p> <h3>Go Cash-Only</h3> <p>I was tempted to make this the first step, but people tend to be much more motivated to adopt a cash-only life when they see how much they owe. Consciously choosing to spurn all but the most essential (read: life-and-death) debt is a vital piece of the puzzle. Put your credit cards on ice and resolve to <a href="http://www.wisebread.com/going-green-how-to-live-a-nearly-cash-only-life">pay with cash only</a>. Consider rudimentary cash management systems like envelope budgeting to keep your spending in-check. Withdraw all the cash you'll need at the beginning of the month and divide it between envelopes that are labeled by expense. Force yourself to spend only within the parameters of each envelope's available cash. Nothing saps motivation like hammering down one debt while another one pops up somewhere else.</p> <h3>Chart It Out</h3> <p>Equipped with your figures, create a spreadsheet of what you owe. This doesn&rsquo;t have to be fancy. Whether you use a computer and budgeting software or poster-board and a Sharpie, just take the information out of the abstract and make it visual. Keep your chart prominent and easily accessible to encourage updates maintain laser-like focus. Use it to track progress, make notes, document your successes, and motivate yourself along the way.</p> <h3>Start Communicating</h3> <p>Once you know how much you owe and can see the challenge ahead, it&rsquo;s time to start communicating (if you haven&rsquo;t already done so). Start a discourse between yourself and your creditors. Explain your situation &mdash; share the circumstances that helped create this debt and stress your motivation to pay. Ask if there&rsquo;s any opportunity to lower your interest rates, have penalties waived, or set up a payment plan that will prevent interest from accumulating. Create a list of important <a href="http://www.wisebread.com/how-to-get-what-you-want-on-customer-service-calls">customer service</a> numbers to keep the communication channels open during the entire repayment process. This active communication does two things. First, it demystifies the debt and tames it in your mind. Second, it establishes a history of communication and positive interactions that often allow creditors be more flexible with terms.</p> <h3>Attach a Source of Income for Each Debt or Debt Category</h3> <p>Depending on your employment situation and time obligations, consider servicing each debt or debt category through a part-time job. For example, could you work in a coffee shop on weekends and direct everything you make to your car loan? What about tutoring students during the evenings and splitting the income between all your credit card debts? Though it may sound extreme, if your financial resources are already stretched paper-thin, this tactic creates a brand-new money stream that&rsquo;s earmarked solely for debt repayment. It&rsquo;s a powerful tool that can often tame debt faster than budgeting and re-budgeting a single source of income.</p> <h3>Pay Off the Small Debts First...and Fast</h3> <p>I know it goes against most number-crunching advice, but I&rsquo;m still a fan of <a href="http://www.wisebread.com/a-comprehensive-guide-to-the-debt-snowball-method-0">paying off the smallest debts first</a>. Of course, every situation is unique and there may be extenuating circumstances that make this approach impossible. But if there are no immediate financial disasters looming, (i.e., foreclosure/eviction, repossession, wage garnishments, etc), consider making the smaller debts top priority and taking care of them quickly. This approach gives you a bit of breathing room to focus on the &quot;big kahuna&quot; debts, creates some positive reinforcement, and gives you that most essential tool of all &mdash; the encouragement to do it again.</p> <p>More than likely, when that last payment is made you&rsquo;ll experience some sort of natural exhilaration. You&rsquo;ll look at that scrawled chart and all your notes and inadvertently find your motivation for the very last step, the one that goes almost without saying &mdash; stay debt-free.</p> <p><em>Do you have a debt-defeating story? What methods did you use to tame your debt and start fresh?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/kentin-waits">Kentin Waits</a> of <a href="http://www.wisebread.com/taming-your-debt-aggressive-repayment-strategies">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-much-does-your-credit-card-debt-cost-you">How Much Does Your Credit Card Debt Cost You?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/snowballs-or-avalanches-which-debt-reduction-strategy-is-best-for-you">Snowballs or Avalanches: Which Debt Reduction Strategy Is Best for You?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/six-steps-to-eliminating-your-debt-painlessly">6 Steps to Eliminating Your Debt Painlessly</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/debt-repayment-is-not-an-expense">Debt repayment is not an expense</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/ways-to-track-debt-0">Ways to Track Debt</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management carrying cash debt reduction side income tracking debt Fri, 03 Aug 2012 10:24:42 +0000 Kentin Waits 947047 at http://www.wisebread.com How Much Does Your Credit Card Debt Cost You? http://www.wisebread.com/how-much-does-your-credit-card-debt-cost-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-much-does-your-credit-card-debt-cost-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/4222474443_a5e2ebaabe_z.jpg" alt="credit card debt" title="credit card debt" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Credit cards sometimes make a purchase hard to pass up. For example, they make it possible to buy something for $3,000 and pay just $60 per month until it's paid off. Most people can afford a $60 monthly payment, but what is often overlooked is how much you end up paying in interest. A common mistake people who are new to credit cards often make is paying just the minimum payment on their credit card bills. The small monthly minimum payments seem insignificant and comfortable in most budgets until you look closer at what your credit card debt is really costing you over time. (See also: <a href="http://www.wisebread.com/six-steps-to-eliminating-your-debt-painlessly">6 Steps to Eliminating Debt</a>)</p> <h3>How to Calculate True Credit Card Debt Costs</h3> <p>If you carry an average daily balance of $3,000 in credit card debt, your minimum payment will be around $60 a month (assuming a 2% minimum payment requirement &mdash; but some cards may have a different minimum percentage). If the credit card charges a 15% APR, interest could cost you between $400 and $450 per year.</p> <p>Here's how to figure it out:</p> <ol> <li>Divide your APR by 365 days per year. 15% / 365 = (about) .04%</li> <li>Multiply .04% by 30 days per month. .04% x 30 = 1.2, or .012%</li> <li>Multiply .012% by the $3,000 original balance = $36.00 a month in interest&nbsp;</li> </ol> <p>With a $60 minimum payment, $36 goes toward interest each month and $24 goes toward your $3,000 credit card balance. So after you send your first $60 payment to your $3,000 credit card bill, you will still owe $2,976.</p> <p>If you only pay your minimum balance due each month (2% or $25 minimum), it will take approximately 16 years to pay off your $3,000 debt. During those 16 years of making the minimum payments, you will have paid $3,641 in interest, turning your $3,000 purchase into a $6,641 one, according to results from a minimum payment calculator on <a rel="nofollow" target="_blank" href="http://www.creditcards.com/calculators/minimum-payment.php">CreditCards.com</a>. Whatever you purchased for $3,000 will likely be broken and forgotten long before you've paid for it in full!</p> <h3>Avoid Becoming a Credit Card Victim</h3> <p>Credit cards are important in our lives now &mdash; you need one to reserve a hotel room, rent a car, or book tickets for travel. They can provide a source of emergency funds if you've been injured or have another emergency that must be paid for right away. But you want to get into the habit of paying for your credit card debt in full each month as often as possible to avoid paying interest &mdash; or at least pay as much as you can toward any credit card debt to reduce the amount of interest you pay rather than making just the minimum payment.</p> <h3>How to Reduce Your Current Credit Card Debt</h3> <p>If you've already racked up debt on a credit card or two and want to avoid paying the credit card company high interest amounts, you'll want to become proactive in paying off your credit card balances.</p> <p>Start by creating a budget that allows you to allocate as much money as possible to credit card debts, rather than sending just a minimum payment to each account every month. Get a <a href="http://www.wisebread.com/4-places-to-start-your-debt-management-crusade">debt management</a> plan in place.</p> <p>You should also take a look at <a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards">balance transfer credit cards</a>. If you are eligible for a card with a 0% interest promotional offer for balance transfers, you can move your higher-interest credit card balances to the lower-interest card and focus on paying off your debt. Since you won&rsquo;t be charged interest during the promotional period, all of your monthly payments will be applied toward the principal balance, which will help you pay your debt off faster.</p> <p>Finally, if you find you are barely able to pay just your minimum credit card payments, you should contact the <a target="_blank" href="http://www.nfcc.org/">National Foundation for Credit Counseling</a> for advice.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/debbie-dragon">Debbie Dragon</a> of <a href="http://www.wisebread.com/how-much-does-your-credit-card-debt-cost-you">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/six-steps-to-eliminating-your-debt-painlessly">6 Steps to Eliminating Your Debt Painlessly</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-ways-paying-off-credit-cards-is-like-playing-beer-pong">3 Ways Paying Off Credit Cards Is Like Playing Beer Pong</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/now-is-the-best-time-in-years-to-do-a-credit-card-balance-transfer">Now Is the Best Time in Years to Do a Credit Card Balance Transfer</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards">The 5 Best 0% Balance Transfer Credit Cards</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-rebuild-your-credit-in-8-simple-steps">How to Rebuild Your Credit in 8 Simple Steps</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Credit Cards Debt Management cost of credit cards debt reduction interest calculation Tue, 07 Dec 2010 14:00:15 +0000 Debbie Dragon 365851 at http://www.wisebread.com Contributing to a Roth Versus Paying Down Debt http://www.wisebread.com/contributing-to-a-roth-versus-paying-down-debt <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/contributing-to-a-roth-versus-paying-down-debt" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/forest-steps_0.jpg" alt="Forest Steps" title="Forest Steps" class="imagecache imagecache-250w" width="250" height="263" /></a> </div> </div> </div> <p>This post was prompted by a reader question, but it's an issue that many people face &mdash; we see versions of it all the time in the forums. So, I thought I'd walk through what I think is the best way to approach any problem of this sort. It starts with comparing interest rates, but it ends with a comparison to lottery tickets.</p> <p>The general solution to this kind of problem is to compare rates of return: Is the interest that you have to pay on your debts higher than the return that you can expect get on your investments? If it is (and it usually is), then pay down the debt.</p> <p>In fact it's even stronger than that, because there's the asymmetry between the interest that you <strong>have to</strong> pay versus the return you're only <strong>expecting</strong> to receive. It wasn't long ago that lots of people were expecting to receive 12% (or more) on their stock market investments.</p> <p>Based on that, here's my starting place on where your money ought to go, after you've covered your household expenses and the minimum payment on any debts:</p> <ol> <li>fund 401(k) enough to capture any corporate match</li> <li>accelerated payments on debts</li> <li>max out your Roth</li> <li>further fund 401(k) to the corporate (or IRS) limit</li> <li>regular old (after-tax) investing</li> </ol> <p>(Sometimes it makes sense to skip step 4 and go straight to step 5. I talk about that in my post <a href="http://www.wisebread.com/when-not-to-put-money-in-your-401-k ">When NOT to put money in your 401(k)</a>.)</p> <p>The reader's question, though, has to do with partially skipping step 2 (accelerated payments on debt) in order to get to step 3. Here's what she asked:</p> <p>&nbsp;</p> <blockquote><p>Thanks to a recent promotion, my salary jumped to $100k. The one downside is that I may only be able to contribute to my Roth for 2009 and maybe 2010 (it's my understanding that the income limits to convert will be eliminated in 2010, but the limits to contribute will remain, and start at $105k for single filers). I'm aggressively paying down student loans and will finish by November, but since 2009 may be the last year I can contribute to a Roth, I'm thinking of stopping the extra loan payments for 3 months in order to contribute the $5k max to my Roth for 2009. I contribute 9% to my company 401k and receive an employer contribution of around 7%, my mortgage is my only other debt, and I'm late 20s. My overall retirement savings is lower than I'd like (the loans have been my priority), and I planned to max out contributions once the loans are gone.</p></blockquote> <p>&nbsp;</p> <p>My answer is: Yes, it makes perfect sense to fund the Roth under these circumstances, even though it means that the student loan will take a bit longer to pay off. In fact, it might well make sense even without the special circumstance of having only this narrow window within which to contribute to a Roth.</p> <p>Usually it makes more sense to just get the debt paid off, which is why step 2 comes first. That's because the interest owed on debt is usually higher than you can reliably earn on your investments. But the Roth is a special case because of the tax advantages and the very long time-scale. Money invested in a Roth by a 20-something has the opportunity to grow tax-free for decades &mdash; and then you never have to pay taxes on the earnings.</p> <p>With those advantages, your gain in the Roth is very likely to match the extra interest you end up paying. On top of that, there's a real chance that, over a few decades, it'll do much better yet. To my mind, that tips the scales: Your cost is low and predictable (the extra interest) and your gain can be reasonably expected to match it &mdash; with a substantial chance of an outsized win.</p> <p>Here's another way to look at it. Investing instead of paying down debt is kind of like buying a lottery ticket. You pay $1 and can expect to win (on average) something like 50 cents &mdash; but with a small chance that you'll win thousands of dollars. Because of the unique advantages of a Roth, in this case it'd be like buying a ticket for $1 and expecting that your average return will be very close to $1 (the expected return on your Roth will be close to what you're paying on your student loan) &mdash; but you still keep the chance that you'll win thousands of dollars, because of the future decades during which your Roth has the opportunity to rack up tax-free gains.</p> <p>I think it makes good sense.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/contributing-to-a-roth-versus-paying-down-debt">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-6"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/snowballs-or-avalanches-which-debt-reduction-strategy-is-best-for-you">Snowballs or Avalanches: Which Debt Reduction Strategy Is Best for You?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/when-to-use-savings-to-pay-off-debt">When to Use Savings to Pay Off Debt</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/acknowledge-you-have-a-problem-with-debt">Acknowledge You Have a Problem with Debt</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/9-tax-friendly-ways-to-save-beyond-your-retirement-fund">9 Tax-Friendly Ways to Save Beyond Your Retirement Fund</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/debt-repayment-is-not-an-expense">Debt repayment is not an expense</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Debt Management debt debt reduction investment return Roth IRA Roth IRAs student loan debt taxes Thu, 07 Jan 2010 14:00:28 +0000 Philip Brewer 4503 at http://www.wisebread.com 3 Ways Paying Off Credit Cards Is Like Playing Beer Pong http://www.wisebread.com/3-ways-paying-off-credit-cards-is-like-playing-beer-pong <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/3-ways-paying-off-credit-cards-is-like-playing-beer-pong" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/3584984540_f35192e67a.jpg" alt="plastic cups" title="plastic cups" class="imagecache imagecache-250w" width="250" height="176" /></a> </div> </div> </div> <p>I'll admit right away &mdash; I miss college. I miss the friends, the freedom, and especially the parties. What I don't miss is all that credit card debt that once accumulated!</p> <p>I'm smart enough to stay away from those &quot;free&quot; t-shirt deals now, but it took me a while to get a good game plan down. And luckily, I can present it in a way our inner college student can appreciate &mdash; through a little game we like to call Beer Pong. Paying off your debt isn't as FUN as playing beer pong, of course, but it's a much better way to think about it than your old wrinkly neighbor would have it.</p> <p>Here are three ways the rules of play are similar to paying off your debt.</p> <h3>1. You pick your partner (or credit card you want to start with).</h3> <p>Some say this is the most important part of the game. After all, if you pick the wrong partner it'll take you much longer to win! With beer pong, it's easy &mdash; you look for the guy (or hot girl) who has the best aim. You get them going, and BAM! You've knocked away all 6 of your competitor's cups and you win.</p> <p>With credit cards, it's a bit trickier. Do you start with the one at the higher interest rate, or do you go with the card with the lowest balance to knock out quicker? Personally, I like the faster option as it gives you a better feeling of accomplishment and a little more momentum. Mathematically, it makes much more sense to start at the higher rate card though. Why pay off a card at 8% when you have one at 16%, right?</p> <p>When it comes down to it, it's all about personal preference. There are no right or wrong answers here &mdash; just that you CHOOSE ONE and start. Begin paying down the lowest amount first, or get started on the biggest interest rates. Just pick one and get moving.</p> <h3>2. You set up the cups (aka you set up your gameplan).</h3> <p>For a second, I'll pretend you've never heard of beer pong before. To set up the game you place 6 cups opposite from each other on a long flat surface, fixed in triangular fashion (3 cups in the back, 2 in the middle, 1 at the tip), pour a few ounces of beer in them, grab yourself a few ping-pong balls, and voila! You're ready to go.</p> <p>The game of wiping away credit cards, however, requires a little more calculation. First, how much money do you have to start paying this first card off? After all your bills are paid, do you have $100? $200? Do you just have to look at <a href="http://www.budgetsaresexy.com/2009/07/free-budget-templates-sites.html">your budget</a>?</p> <p>If not, spend a few minutes going back and looking through the last 2 months of expenses and income. Don't trick yourself into thinking you can pay XXX amount every month if you know you can't do it. Instead, come up with a number you're comfortable with and feel confident about. Being honest with yourself makes it all go by much smoother, believe me. It also gets a lot easier once you're used to setting aside the same amount every month (on top of paying your minimum amounts on the other cards, of course).</p> <h3>3. You shoot until you've won the game (or until you've paid off the card)!</h3> <p>In beer pong, both teams take turns tossing their pong balls across the table until they've sunk all of their competitor's cups. Once you win the game (because you have a game plan and those debt mongers don't), you celebrate for a bit and then get right back to defend your crown!</p> <p>The same goes for your credit card debt. Once you've scoured your finances and finally set up that budget, you now know you've got an extra $100 to play with (for example), even after paying off all the minimum requirements on the other cards.</p> <p>Then you shoot, and you shoot, and you pay off that card by $100 every month until one day it's all gone! It may take 6 months, or it may take 16, but the point is that the more you knock away every month, the less interest you're accumulating and the better you feel. Over time you'll notice it gets much easier, and you might even find yourself with a few extra dollars laying around which you could ALSO apply to the debt! Life has a funny way of working out like that. And by &quot;life&quot; I mean &quot;when you manage your money and know what you're playing with&quot;!</p> <p>And when you've finished paying that first card off? You celebrate (although, not by using that card again, or by drinking excessively). Then you start the whole process again with the next one in line &mdash; only this time, you've now got an extra $100 to use towards this 2nd card, on top of that minimum payment you've already been paying! This is called the <strong>debt snowball theory</strong>, and as you move from one card to the next, the amount you have to pay every card increases, and your overall debt DECREASES. It really is a most beautiful thing, and something you can easily put to use any time of the day.</p> <p>So there you have it &mdash; 3 ways paying off credit cards is like playing beer pong! And unlike Beer Pong, there's no losing in this game, nor any messes to clean up. You stick with your game plan until it's all done, and if you have to take a month off as things come up, that's perfectly fine &mdash; but only if you start right back up again and you don't miss any minimum payments. You might not realize it now, but a $10 mistake can easily cost you $100 or more down the road. It's not worth it, believe me. Stick with your plan, and be proud of yourself.</p> <p>Maybe, just maybe, you'll find yourself next to me at the next beer pong game. Only we'll be teammates instead of competitors, and we'll no longer be anywhere close to the college years anymore. And you know what? We'll be okay with that. We've had our fun, we've caused our trouble, and we'll now be ready to live like civilized adults. With $0 credit card debt!</p> <div class="field field-type-text field-field-guestpost-blurb"> <div class="field-label">Guest Post Blurb:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <p>This is a guest post by J at <a href="http://www.budgetsaresexy.com/">Budgets are Sexy</a>.</p> <p>Here are more articles by J:</p> <ul> <li><a href="http://www.budgetsaresexy.com/2009/08/living-minimalist-lifestyle-is-it.html">Living The Minimalist Lifestyle - Is It Possible?</a></li> <li><a href="http://www.budgetsaresexy.com/2009/10/internet-transformed-banking-gave-us.html">The Internet Transformed Banking &amp; Gave Us Options!</a></li> <li><a href="http://www.budgetsaresexy.com/2009/09/inspiration-from-my-homeless-friend.html">Inspiration From My Homeless Friend</a></li> </ul> </div> </div> </div> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/j-money">J. Money</a> of <a href="http://www.wisebread.com/3-ways-paying-off-credit-cards-is-like-playing-beer-pong">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-7"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-much-does-your-credit-card-debt-cost-you">How Much Does Your Credit Card Debt Cost You?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/snowballs-or-avalanches-which-debt-reduction-strategy-is-best-for-you">Snowballs or Avalanches: Which Debt Reduction Strategy Is Best for You?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-fastest-method-to-eliminate-credit-card-debt">The Fastest Method to Eliminate Credit Card Debt</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/six-steps-to-eliminating-your-debt-painlessly">6 Steps to Eliminating Your Debt Painlessly</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/debt-repayment-is-not-an-expense">Debt repayment is not an expense</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Credit Cards Debt Management budgeting debt reduction Thu, 22 Oct 2009 14:00:02 +0000 J. Money 3735 at http://www.wisebread.com Johnny Says: Read This Post and Get Riyyyyyyyyyyatch http://www.wisebread.com/johnny-says-read-this-post-and-get-riyyyyyyyyyyatch <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/johnny-says-read-this-post-and-get-riyyyyyyyyyyatch" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/Dr. Graves Tooth Powder.jpg" alt="" title="" class="imagecache imagecache-250w" width="103" height="138" /></a> </div> </div> </div> <p>&nbsp;</p> <div style="margin: 0in 0in 0pt">A wise poet once quipped: &ldquo;That buck that bought the bottle coulda&rsquo; struck the Lotto.&rdquo;</div> <div style="margin: 0in 0in 0pt">&nbsp;</div> <div style="margin: 0in 0in 0pt">You will find fewer stanzas that better convey the essence of opportunity cost. To that end, at times like these when many are in financial jams, we tend to look for intoxicants, diversions, fiscal analgesics to sooth our pain, elixicirs to turn our fortunes around expeditiously. This is often a more palatable alternative to the slow methodical dig out of debt.</div> <div style="margin: 0in 0in 0pt">&nbsp;</div> <div style="margin: 0in 0in 0pt">And this snap choice, this groping for immediacy and &ldquo;right now&rdquo; gratification, is what makes us susceptible to&hellip;..<i>gasp</i>&hellip;.. the financial guru.</div> <div style="margin: 0in 0in 0pt">&nbsp;</div> <div style="margin: 0in 0in 0pt">Consider these real world italicized promotional blurbs compiled from your favorite experts. Let&rsquo;s fold them together as one entity called the &ldquo;Johnny Upinya&rdquo; plan, brought to you by slithery finance guru and gadfly, Johnny Upinya.</div> <div style="margin: 0in 0in 0pt">&nbsp;</div> <div style="margin: 0in 0in 0pt">&nbsp;<i>Under my plan, your debt disappears in anywhere from right ^%$*&amp;^ now, to&nbsp;two days to &nbsp;five to seven years&nbsp; from when you buy my package. And your house and bills are completely paid off. Stop being a prisoner of debt today! Discover how you can own your car, house and everything that you have without owing a single penny, maybe a few dollars but not a single penny.</i></div> <div style="margin: 0in 0in 0pt">&nbsp;</div> <div style="margin: 0in 0in 0pt">Of course the real irony of the success of the financial self-help genre is that most of the stuff in these books, workshops and classes, is stuff that even the least studious of us already know: don&rsquo;t spend more than you earn.</div> <div style="margin: 0in 0in 0pt">&nbsp;</div> <div style="margin: 0in 0in 0pt">Thus the best thing to do is find someone or something that works for you, something or someone that&rsquo;s a little more tailored to your needs (more on that later). There&rsquo;s nothing wrong with emulating someone who is rich or debt free or seemingly on &ldquo;Easy Street&rdquo; but what you must know is in that nine times out of ten, they got debt free because of your trip to Borders.</div> <div style="margin: 0in 0in 0pt">&nbsp;</div> <div style="margin: 0in 0in 0pt"><i>My method transforms your debt into wealth &ndash; growing to $100 million - using nothing more than the money you&rsquo;re currently earning. Thanks to the best-kept secret in personal finance, you&rsquo;re in control of your own life, free, with financial freedom having your finances free and having your money with liberty and uhhhh justice for all, yeah, justice. Get justice and peace as well as piece of mind, know that you and your family are set for life, yesterday, today, tomorrow and next week. Get debt free by Nevuary 31<sup>st</sup>.</i></div> <div style="margin: 0in 0in 0pt">&nbsp;</div> <div style="margin: 0in 0in 0pt">The best personal finance guru is actually closer to you than you think. Stand up, make a right, down the hall, yeah keep going. Turn on the light, that&rsquo;s it. You see that glass? Look into it? Who&rsquo;s that?</div> <div style="margin: 0in 0in 0pt">&nbsp;</div> <div style="margin: 0in 0in 0pt">&nbsp;<i>Over a million people have used my method now it&rsquo;s your turn to get a million people to use your method so I can eat off of all of&nbsp;you good people. </i></div> <div style="margin: 0in 0in 0pt">&nbsp;</div> <div style="margin: 0in 0in 0pt">The first question you have to ask yourself before you turn on CNBC or spring for the CDs, DVDs, tear-out worksheets and seminar schedules is this: Have I even followed my <em>own </em>advice?</div> <div style="margin: 0in 0in 0pt">&nbsp;</div> <div style="margin: 0in 0in 0pt 0.5in; text-indent: -0.25in">1)<span style="font: 7pt 'Times New Roman'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Do my wants exceed my needs?</div> <div style="margin: 0in 0in 0pt 0.5in; text-indent: -0.25in">2)<span style="font: 7pt 'Times New Roman'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Am I ready to change how I determine my own self worth in relation to my financial&nbsp;net worth?</div> <div style="margin: 0in 0in 0pt 0.5in; text-indent: -0.25in">3)<span style="font: 7pt 'Times New Roman'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Should I maybe put this hundred bucks, I was going to spend on&nbsp;<em>Rich Dad Poor&nbsp;Dad </em>and <em>Richest Man in Babylon</em>,&nbsp;in an online savings account and let it sit there and have the online savings accounts subtract a negligible amount from my paycheck or checking account every month or pay period so that I&nbsp;pay less&nbsp;attention to what I&rsquo;m saving&nbsp;and more to&nbsp;what I&rsquo;m spending?</div> <div style="margin: 0in 0in 0pt 0.5in; text-indent: -0.25in">4)<span style="font: 7pt 'Times New Roman'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Do I want to be real with myself and surmise that unless I have I have an idea for the next wisebread.com tech&nbsp;start-up, a&nbsp;wicked jump shot, sing like an angel and dance like the rain on the surface of a pond&nbsp;--&nbsp;or have a rich uncle to whom I can submit a business plan -- solvency and peace and&nbsp;piece&nbsp;of mind take time and soul searching?</div> <div style="margin: 0in 0in 0pt">&nbsp;</div> <div style="margin: 0in 0in 0pt">We interrupt this logical programming for some testimonials:</div> <div style="margin: 0in 0in 0pt">&nbsp;</div> <div style="margin: 0in 0in 0pt"><i>Johnny Upinya changed my *&amp;^%$ life! &nbsp;Just four months ago, I was selling blood. &nbsp;I didn&rsquo;t know what to do, and had to sell my priceless heirlooms at a pawn shop. Now I have a boat, a mink, a Rabbit's foot and arm and a McMansion in the suburbs. Thanks Johnny.</i></div> <div style="margin: 0in 0in 0pt">&nbsp;</div> <div style="margin: 0in 0in 0pt"><i>My family was over $300,000 in debt, now just three months later, I&rsquo;m retiring with no balance on my mortgage and I&rsquo;m ridin&rsquo; sweet on chrome, Johnny you da man. </i></div> <div style="margin: 0in 0in 0pt">&nbsp;</div> <div style="margin: 0in 0in 0pt"><i>Get with the Johnny Upinya plan now! What are you waiting on? Get Riyattttttttch Today!</i></div> <div style="margin: 0in 0in 0pt">&nbsp;</div> <div style="margin: 0in 0in 0pt">In summary, the personal finance advice industry (this site and yours truly included) is a multi-billion dollar sector&nbsp;for a reason. We all need&nbsp;help&nbsp;and I&rsquo;m not knocking anybody&rsquo;s hustle. Certainly Suze Orman, Liz Weston, Chuck Jaffe and even Jim Cramer have their place. But much like that treadmill that holds your sweaters or that exercise DVD you use to break up sunflower seeds on and pick up the shells when your done, personal finance advisory content can be just another unneeded expense.</div> <div style="margin: 0in 0in 0pt">&nbsp;</div> <div style="margin: 0in 0in 0pt">Don&rsquo;t let Johnny Upinya, upend you.</div> <div style="margin: 0in 0in 0pt">&nbsp;</div> <div style="margin: 0in 0in 0pt">Do you want to <em>feel </em>better or <em>get </em>better?</div> <div style="margin: 0in 0in 0pt">&nbsp;</div> <div style="margin: 0in 0in 0pt">That&rsquo;s opportunity cost for you, monetary poetry in motion if you will.</div> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/jabulani-leffall">Jabulani Leffall</a> of <a href="http://www.wisebread.com/johnny-says-read-this-post-and-get-riyyyyyyyyyyatch">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-8"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-free-and-low-cost-ways-to-protect-your-credit">7 Free and Low Cost Ways To Protect Your Credit</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/contributing-to-a-roth-versus-paying-down-debt">Contributing to a Roth Versus Paying Down Debt</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/financial-tricks-to-master-for-a-happier-life">Financial Tricks to Master for a Happier Life</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-the-economic-crisis-challenges-our-financial-beliefs">How The Economic Crisis Challenges Our Financial Beliefs</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/friends-dont-let-friends">Friends Don&#039;t Let Friends...</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Debt Management debt reduction frural living money management personal finance Mon, 09 Feb 2009 04:45:37 +0000 Jabulani Leffall 2825 at http://www.wisebread.com Debt repayment is not an expense http://www.wisebread.com/debt-repayment-is-not-an-expense <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/debt-repayment-is-not-an-expense" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/credit-cards.jpg" alt="Credit cards" title="Credit cards" class="imagecache imagecache-250w" width="250" height="178" /></a> </div> </div> </div> <p>Over and over again, in budgeting articles and even books on personal finance, I see sample budgets that include debt repayment as if it were an expense. This shows a fundamental misunderstanding of what debt is. Your <strong>debt repayment is not an expense, it's an internal transfer</strong>. The only part that's an expense is the interest. The rest of the money was spent some time in the past, when you incurred the debt.</p> <p>The same principle applies when you put money into your savings account. That's not &quot;saving.&quot; The <strong>saving occured when you spent less than you earned</strong>. Putting the money into the savings account is, again, just an internal transfer.</p> <p>Suppose you owe $1000 on your credit card and you have $300 in your checking account and no other savings. Your net worth is $-700. After you write a $100 check and send it to the credit card company you've got $900 in debt and $200 in your checking account. Your net worth is still $-700. The result would be the same if you opened a savings account with $100 from your checking account: Your net worth is still $-700.</p> <p>This is important for two reasons:</p> <p>First, <em>you should track the interest part of the payment as a current expense.</em> Knowing how much of your monthly income is going to interest payments gives you important information about where your money is going.</p> <p>Second, <em>it's worth thinking what the rest of the money was spent for.</em> Today's debt payments are paying for stuff you bought in the past--maybe things you're still using, maybe things (like restaurant meals) that were used up before you even put the credit card back in your wallet. That's where your money went, not to some amorphous blob called debt repayment.</p> <p>It's true that, whether it's an expense or not, you do have to come up with cash to make your credit card payments. My pointing out that (as far as your personal balance sheet goes) it's really an internal transfer, cuts no ice with the credit card companies. They'll be delighted to tack on late charges if you don't pay. So you need to have room in your budget to shift actual cash from your checking account to the credit card company. Remember, though, that (except for the interest) it's not an expense.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/debt-repayment-is-not-an-expense">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-9"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/snowballs-or-avalanches-which-debt-reduction-strategy-is-best-for-you">Snowballs or Avalanches: Which Debt Reduction Strategy Is Best for You?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-most-valuable-thing-debt-takes-from-you-isnt-money-its-this">The Most Valuable Thing Debt Takes From You Isn&#039;t Money — It&#039;s This</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-fastest-method-to-eliminate-credit-card-debt">The Fastest Method to Eliminate Credit Card Debt</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/when-to-use-savings-to-pay-off-debt">When to Use Savings to Pay Off Debt</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/are-your-financial-habits-just-bad">Are Your Financial Habits Just Bad?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Budgeting Debt Management budget budgeting debt debt reduction paying off Tue, 21 Aug 2007 21:51:50 +0000 Philip Brewer 1031 at http://www.wisebread.com 6 Steps to Eliminating Your Debt Painlessly http://www.wisebread.com/six-steps-to-eliminating-your-debt-painlessly <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/six-steps-to-eliminating-your-debt-painlessly" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/000022364600.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p class="MsoNormal"><span>Eliminating Debt Painlessly. Rarely do you see these words fit together in a neat little sentence. The very act of putting your hard earned money towards the stack of debts you've accrued is painful. The good news is you can snowball your progress against mounting debts if you do it the right way. </span></p> <p class="MsoNormal"><span>Let's say you are juggling a number of debts, from student loans to <a title="Guide to Using Credit Cards Wisely" href="http://www.wisebread.com/credit-card-guide">credit cards</a> to that loan your parents don't expect to ever see repaid but won't let you forget about either. Here are 6 simple steps to getting rid of it all.</span></p> <p class="MsoNormal"><strong><span>1. Make a list.</span></strong></p> <p class="MsoNormal"><span>Write down each debt vehicle you have, the amount of the debt, and the rate of interest being charged. Department store cards are inevitably the worst culprits, charging interest rates that border on criminal. Next in line are usually the credit cards, student loans, then lines of credit, and your parents (unfortunately) usually come last. </span></p> <p class="MsoNormal"><span>EXAMPLE: </span></p> <p class="MsoNormal"><span><span> </span>Balance Owing<span> </span>Interest</span></p> <p class="MsoNormal"><span>Sears<span> </span>$500<span> </span>28%</span></p> <p class="MsoNormal"><span>Visa<span> </span>$2,000<span> </span>18%</span></p> <p class="MsoNormal"><span>MC<span> </span>$1,000<span> </span>16%</span></p> <p class="MsoNormal"><span>Student Loan<span> </span>$6,000<span> </span>10%</span></p> <p class="MsoNormal"><span>Line of Credit<span> </span>$5,000<span> </span>8%</span></p> <p class="MsoNormal"><span>Mum &amp; Dad<span> </span>$1,500<span> </span>0%</span></p> <p><span> </span></p> <p class="MsoNormal"><strong><span>2. Determine your budget.</span></strong></p> <p class="MsoNormal"><span>How much money do you have available each month to put towards all your debts?&nbsp;If you're like most people on a tight budget you probably haphazardly throw the minimum payment plus a bit at each debt every month, hoping that eventually it will all magically disappear. Unfortunately, making minimum payments on most credit cards is a sentence to upwards of 15 years of paying off that debt, and paying at least double the original balance in interest only. </span></p> <p class="MsoNormal"><span>EXAMPLE: </span></p> <p class="MsoNormal"><span><span> </span>Balance Owing<span> </span>Interest<span> </span>Min Pymt</span></p> <p class="MsoNormal"><span>Sears<span> </span>$500<span> </span>28%<span> </span>$16</span></p> <p class="MsoNormal"><span>Visa<span> </span>$2,000<span> </span>18%<span> </span>$66</span></p> <p class="MsoNormal"><span>MC<span> </span>$1,000<span> </span>16%<span> </span>$25</span></p> <p class="MsoNormal"><span>Student Loan<span> </span>$6,000<span> </span>10%<span> </span>$150</span></p> <p class="MsoNormal"><span>Line of Credit<span> </span>$5,000<span> </span>8%<span> </span>$90</span></p> <p class="MsoNormal"><span>Mum &amp; Dad<span> </span>$1,500<span> </span>0%<span> </span>$0 </span></p> <p><strong><span>TOTAL:<span> </span>$16,000<span> </span>$347</span></strong><span> </span></p> <p class="MsoNormal"><span>Total amount you can put towards your debt each month: <span> </span>$450</span></p> <p class="MsoNormal"><span><span> </span></span></p> <p class="MsoNormal"><strong><span>3. Choose the highest interest debt on your list.</span></strong><span> </span></p> <p class="MsoNormal"><span>I don't care if it's the highest or lowest balance, just look at the interest rate. With the money you have designated towards all your debts, make ONLY minimum payments on all your debts, except your chosen highest interest debt, to which you put all the rest of your monthly allocation. Hopefully this is fair bit more than the minimum payment. </span></p> <p class="MsoNormal"><span>EXAMPLE: </span></p> <p class="MsoNormal"><span>Pay your extra $103/month to your Sears card in addition to the minimum payment, totalling $119/month. </span></p> <p><span> </span><span> </span></p> <p class="MsoNormal"><strong><span>4. Continue until your first debt is paid off. </span></strong></p> <p class="MsoNormal"><span>Now, you have one less debt to juggle each month. Yay! It may have taken a while to get here, but now you can cut up one card. No really. Cut it up. (Especially if it's a department store card. They're pure evil). The reason you got in this place to begin with is that you had too many cards, so let's reduce the number you have. </span></p> <p class="MsoNormal"><span>EXAMPLE: </span></p> <p class="MsoNormal"><span>Sears is paid off in 5 months. Card is destroyed. </span></p> <p><span> </span><span> </span></p> <p class="MsoNormal"><strong><span>5. Repeat.</span></strong></p> <p class="MsoNormal"><span>Choose the next highest interest debt on your list.</span><strong><span> </span></strong><span>Repeat the same process as in steps three and four. You'll notice now, though, that you have more money to contribute towards your next debt of choice, since you now have one less debt payment nagging at your pocketbook. </span></p> <p class="MsoNormal"><span>EXAMPLE: </span></p> <p class="MsoNormal"><span>Visa is next. Now have an extra $119/month since the Sears card is paid off, in addition to the minimum Visa payment. Your total Visa payments are now $185. </span></p> <p><span> </span><span> </span></p> <p class="MsoNormal"><strong><span>6. And so on. </span></strong></p> <p class="MsoNormal"><span>Each time you systematically pay off one of your debts, you'll have more and more money to pay off the next debt on your list, effectively snowballing the process of paying off your debts. It picks up momentum quickly, and by the end you're blasting through your debts and even your parents get paid. </span></p> <p class="MsoNormal"><span>EXAMPLE: </span></p> <p class="MsoNormal"><span>After the Visa is paid off, you have $210/month for your Mastercard. </span></p> <p class="MsoNormal"><span>After the Mastercard is paid off, you have $360 for your Student Loan. </span></p> <p class="MsoNormal"><span>After the Student Loan is paid off, you have the full $450 for your Line of Credit. </span></p> <p class="MsoNormal"><span>After that, pay off your parents! It will only take you three months, and will get you in their good books for sure. </span></p> <p class="MsoNormal"><span>The total amount of time required to pay off this laundry list of debts: Under 5 years. </span></p> <p class="MsoNormal"><span>This is a long time, but think of it this way: Now you're Debt Free! You didn't have to toil every month over how much extra cash you can throw at the never-ending debt load, and you minimized every single dollar of interest you possibly could. </span></p> <p class="MsoNormal"><span>The trick is, you need to continue to allocate the same amount of money (or more) towards your overall debt every month until all your debts are paid off. If after tackling one or two cards you decide you can decrease your monthly allocation towards your debts, you'll only prolong the process and end up paying a ton of interest. A little bit of short term pain makes for lots of long term gain. You deserve it! </span></p> <p><span> </span><span> </span></p> <p class="MsoNormal"><span><em>CAVEAT:</em> There are other debt elimination plans that would have you pay off the lowest balance first, instead of the highest interest debt. The reason for this is the feeling of satisfaction you get from knocking off a debt from the pile, even though you may be doling out more interest dollars on a higher balance elsewhere. </span></p> <p class="MsoNormal"><span>The wrong person without enough dedication to the plan outlined in this article might give up if the first few debts were slow to be paid off (for example, if your Sears card had the $6,000 balance, it would take you over 3 years just to pay off your first debt. That's a long time to wait for tangible progress, even if it is the most efficient). </span></p> <p class="MsoNormal"><span>So take a look at your debts and ask yourself if you have the discipline to stick to the high interest plan. If not, try paying off a few smaller debts to get your legs under you and then re-evaluate. It's a personal choice - not all money matters are pure dollars and cents (I mean - sense). </span></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/nora-dunn">Nora Dunn</a> of <a href="http://www.wisebread.com/six-steps-to-eliminating-your-debt-painlessly">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-10"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-much-does-your-credit-card-debt-cost-you">How Much Does Your Credit Card Debt Cost You?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-ways-paying-off-credit-cards-is-like-playing-beer-pong">3 Ways Paying Off Credit Cards Is Like Playing Beer Pong</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/now-is-the-best-time-in-years-to-do-a-credit-card-balance-transfer">Now Is the Best Time in Years to Do a Credit Card Balance Transfer</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards">The 5 Best 0% Balance Transfer Credit Cards</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-rebuild-your-credit-in-8-simple-steps">How to Rebuild Your Credit in 8 Simple Steps</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Credit Cards Debt Management debt reduction Mon, 20 Aug 2007 01:13:28 +0000 Nora Dunn 1017 at http://www.wisebread.com The seven deadly sins of consumerism (and the frugal redemption). http://www.wisebread.com/the-seven-deadly-sins-of-consumerism-and-the-frugal-redemption <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/wisebread_imce/demon.jpg" alt="demon" title="demon" width="243" height="212" /></p> <p>Sit ye down, hold your loved ones tight, and get ready for the seven deadliest sins of the modern day consumer.</p> <p>(By the way, I know I&rsquo;m a movie buff when I can reference two of the greatest films ever made in one blog headline. If you don&rsquo;t know what they are, shame on you. But even more shame on you if you&rsquo;re committing these sins right now.)</p> <p>Who says they&rsquo;re the seven deadly sins? Well, I do. I&rsquo;m no authority on the subject, I certainly didn&rsquo;t write the consumer bible. But life experience has taught me that indulging in any of these sins leads to a path of debt, disillusionment and despair. If you find yourself in the position of indulging one or more of these sins on a daily basis, seek the frugal redemption.</p> <p>&nbsp;</p> <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/wisebread_imce/greed.jpg" alt="greed" title="greed" width="300" height="244" /></p> <p><em> &ldquo;I&rsquo;ll take that, and that, and that, and that&hellip;and who cares how I&rsquo;ll pay for it. In fact, I&rsquo;ll put it on the good old credit card and think about it later. Hey, it comes with six months no interest anyway. Sweet!&rdquo;</em></p> <p>Sound familiar? Greed is fairly ugly and I see it everywhere. Our obsession as a society with material things has gone beyond the norm. As Madonna once said, we&rsquo;re living in a material world. But I don&rsquo;t think anyone realized how bad it&rsquo;s become. The &lsquo;buy now, pay later&rsquo; mentality is rife. But when our own government is in debt to the tune of $8,892,888,862,434.37 (that was at the time of writing this article, and climbing $1.93 billion per day) they&rsquo;re hardly setting the standard for fiscal responsibility. An argument for another time perhaps. Still, the message is clear. Give in to greed, make way for debt.<br /> <strong><br /> The Frugal Redemption</strong><br /> If you can&rsquo;t afford it, don&rsquo;t buy it. By that I don&rsquo;t mean save up $300,000 and drop it on a new house. But examine your budget (better still, MAKE a budget&hellip;the first step on the road to debt is not having a budget). Have three bank accounts &ndash; one for saving, one for bills, one for fun. If you spend your fun money for the month, hey guess what, you&rsquo;re done. </p> <p>Get out of the cycle of wanting things you really don&rsquo;t need or can afford. Stop and think. Often my wife will go shopping for baby clothes for our newborn. She&rsquo;ll get to the counter with an armful of clothes, then think again about what she really actually wants or needs. The pile gets much, much shorter.</p> <p>&nbsp;</p> <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/wisebread_imce/sloth.jpg" alt="sloth" title="sloth" width="300" height="225" /></p> <p>It can wait.<em> &quot;401k? It can wait. Savings account? Next month. Paying off the credit card? I&rsquo;ve got time. Coupons? Waste of time. Deal-hunting? Why bother?&rdquo;</em></p> <p>Sloth is a great enemy of frugality. And I know, I was a former indulger of sloth. I put off the 401k contributions because I wanted to use the extra money. I hated clipping coupons, and they were only worth 50 cents or a $1 so who cares? But boy, those little amounts soon add up. </p> <p>Basically, you snooze, you lose. Put off saving in your 401k (especially if your company matches it) and you&rsquo;re literally throwing away money. Plus, you have to put a whole lot more away later on to catch up. Make the minimum payments on your credit card and you&rsquo;ll be paying it off for decades. </p> <p><strong>The Frugal Redemption</strong><br /> Why put off till tomorrow what you can do today? Make it the day to finally start getting your life in order if you haven&rsquo;t yet made plans for the future. Ask your HR officer about the 401k plan. Look through the coupons in the Sunday paper. You will find some that apply to you, I guarantee it. Start adding more to your savings account, even if it&rsquo;s just $50 a month to begin with. Add more to your credit card payments if you can. This is all about forming good habits. </p> <p>If you can get a better deal by walking 10 minutes further down the high street, do it. Shop around whenever and wherever you can. The exercise won&rsquo;t hurt either, we&rsquo;ve become a nation of drivers. Use Internet shopping comparison tools to find great bargains. Check out sites like <a href="http://www.bargainist.com/">The Bargainist</a> , <a href="http://www.consumerist.com/">The Consumerist</a> , and of course, Wisebread. It&rsquo;s very easy to be lazy, but in the long run you&rsquo;re only fooling yourself and hurting your future. Seize the day.</p> <p>&nbsp;</p> <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/wisebread_imce/gluttony.jpg" alt="gluttony" title="gluttony" width="300" height="225" /></p> <p>My dad used to say to me <em>&ldquo;your eyes are bigger than your belly&rdquo; </em>and he was right. I was always happy to take more, be it candy or extra roast potatoes on my Sunday lunch. But all too often I didn&rsquo;t eat them and they went in the trash, or went bad. Or I made myself sick. </p> <p>Sadly, I am still the same today, although I&rsquo;m really trying to get out of it. &ldquo;Hey look hon, 8lbs of cheese for $10, bargain!&rdquo; It&rsquo;s only when my wife tells me that, as usual, the cheese will go bad before we finish it that I&rsquo;ll think twice. I&rsquo;m a sucker for BOGO deals, regardless of whether I need two, or even one of the item on sale. Buying in bulk is deceptive. Great for things like rice, toilet paper and diapers. Not so great when it&rsquo;s got an expiration date that&rsquo;s fast approaching. No-one wants cheese sandwiches three times a day. <br /> <strong><br /> The Frugal Redemption</strong><br /> Again, this is all about asking yourself a few questions before you pop something in the shopping cart. Do I really need 5 cartons of orange juice because I can save 20 cents per quart? Will my family benefit from this buy 10, get 10 free offer? Is it a deal, or false economy? As those great infomercials often say, when you throw away food it&rsquo;s &ldquo;cash in the trash.&rdquo; Remember, just because it&rsquo;s on clearance or a bargain, it doesn&rsquo;t mean it&rsquo;s the bargain for you. Being a glutton for special offers could make you a glutton for punishment.</p> <p>&nbsp;</p> <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/wisebread_imce/pride.jpg" alt="pride" title="pride" width="300" height="225" /></p> <p>I know people who tell themselves, &ldquo;heck, I deserved it&rdquo; when they&rsquo;re sporting a new jewel-encrusted watch or hand-made pair of the finest leather shoes. Maybe that&rsquo;s true, but it doesn&rsquo;t mean it&rsquo;s a wise move. It&rsquo;s fine to splurge once in a while, but making a habit of it can lead to all sorts of problems, including shopping addictions. </p> <p>Worse still, pride has this nasty habit of making you do things you don&rsquo;t want to do. People will borrow cash to go out on the town rather than admit to being short of money that week. And that means buying a new dress, or buying a few rounds of drinks, plus the expensive meal. All because pride won&rsquo;t let them admit, to their friends no less, that they&rsquo;re trying to save money or that they just don&rsquo;t have the cash. </p> <p><strong>The Frugal Redemption</strong><br /> Give pride a vacation. It&rsquo;s good to be proud of an achievement, or something your son or daughter has done at school, but embracing pride to allow yourself too many luxuries is never going to have a happy ending. Avoid places that will tempt you. If you have a habit of going nuts in Target or Macy&rsquo;s, stay away. If you&rsquo;re a sucker for a particular section of the store (watches, shoes) steer clear. </p> <p>As for feeling too proud to admit you don&rsquo;t quite have the cash to go out, your friends will understand. Your co-workers will understand. In fact, anyone who doesn&rsquo;t is probably someone you really don&rsquo;t want to know. There&rsquo;s no shame in staying home on a Friday night if it means you avoid the cycle of borrowing, debt and depression. Pride has its place&hellip;but it can be a frugal shopper&rsquo;s worst nightmare. <br /> &nbsp;</p> <p>&nbsp;</p> <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/wisebread_imce/wrath.jpg" alt="wrath" title="wrath" width="300" height="179" /></p> <p>&ldquo;Don&rsquo;t get mad, get even.&rdquo; Wise words, although the &lsquo;getting even&rsquo; part is not always appropriate either. I think it would be more apt to say &ldquo;don&rsquo;t get mad, get what you want.&rdquo; </p> <p>Anyway, the point is this. I&rsquo;ve watched people blow up at customer service folks. I&rsquo;ve seen angry letters, I&rsquo;ve heard angry phone calls. I&rsquo;ve witnessed huge lists of demands spouted by human versions of the Tazmanian Devil cartoon. Most of the time, all it gets them is higher blood pressure and a security guard showing them the door. Anger is the first way to show you&rsquo;ve lost control of the situation. </p> <p><strong>The Frugal Redemption</strong><br /> A frugal shopper knows that you get way more flies with honey than you do with vinegar. My <a href="/how-to-complain-and-get-a-good-result">former article on complaining</a> highlighted this process, but it&rsquo;s not just about making a complaint. It&rsquo;s about life in general. </p> <p>Guess what happens if you treat you waiter with appreciation and a smile instead of disdain. Quicker service, more fries, bigger drinks, you name it, I&rsquo;ve had them all. A polite conversation with most people will get you much further than raging and expecting something for nothing. Be nice.</p> <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/wisebread_imce/envy.jpg" alt="envy" title="envy" width="300" height="202" /></p> <p>This can best be summed up with that old &ldquo;Keeping Up With The Jones&rsquo;&rdquo; adage. And I have several friends who are both house-poor and car-poor because of it. </p> <p>Why are so many people in this country living in houses they cannot afford, driving cars they could never afford and wearing clothes that are way too expensive? The simple answer is still way too long to print here, but a big part of it is envy.</p> <p>I remember being told that people measure their own misery and success by their surroundings, and it&rsquo;s completely true. If you live in a nice little home and are surrounded by other nice little homes, you feel good. You&rsquo;ve done well. Transplant that nice little home into a rich area filled with mansions, swimming pools and landscaping. Now, it doesn&rsquo;t look so good. Actually it sucks. It&rsquo;s not fair, it&rsquo;s not fair, I want a big house! I want a Cadillac Escalade! I want a Rolex!</p> <p>The same applies to your job, your clothes, in fact, everything around you. But it&rsquo;s all relative. And most important, you have no idea what the people around you do, or how they pay for what they have. Maybe they&rsquo;re in debt up to their eyeballs and spend every night crying themselves to sleep. Maybe they work 24/7 to pay for the things they can never really enjoy. Maybe they had rich folks. But you should never compare, it will only lead to jealousy and misery.</p> <p><strong>The Frugal Redemption</strong><br /> This one is not easy. After all, as a species we&rsquo;re always going to compare ourselves to our friends and neighbors. But before you stop reading this and look out of your window to stare at the new Ferrari parked in your neighbor&rsquo;s driveway, here are a few facts (as of Nov 2006, provided by <a href="http://www.globalissues.org/">www.globalissues.org</a> ).</p> <p>&bull; Half the world &mdash; nearly three billion people &mdash; live on less than two dollars a day.<br /> &bull; Nearly a billion people entered the 21st century unable to read a book or sign their names.<br /> &bull; Approximately 790 million people in the developing world are still chronically undernourished, almost two-thirds of whom reside in Asia and the Pacific.<br /> &bull; According to UNICEF, 30,000 children die each day due to poverty.<br /> &bull; Some 1.1 billion people in developing countries have inadequate access to water, and 2.6 billion lack basic sanitation</p> <p>Now, I didn&rsquo;t mean to bring you down. But it certainly brings life crashing into perspective if you think you&rsquo;re not fortunate. Trust me, if you&rsquo;re reading this then you&rsquo;ve got access to more than most people will ever have. You&rsquo;re lucky. </p> <p> <img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/wisebread_imce/lust.jpg" alt="lust" title="lust" width="300" height="214" /></p> <p>First and foremost, you can relax. I&rsquo;m not about to tell you that sex is not a good way to be frugal (actually, a romantic night in bed with your partner is a lot cheaper than going to the movies&hellip;and much more fun).</p> <p>No, the kind of lust I&rsquo;m talking about is that longing, aching desire that takes over you and cuts off the common sense to your brain. In my case, I&rsquo;ve been lusting after a 42&rdquo; LCD TV for about, hmm, a year now. And every week, it grabs me a little bit more. It doesn&rsquo;t help that every time I go into Best Buy they have more of them, and they cost less. But the frugal shopper in me is winning, so far. It&rsquo;s saying &ldquo;wait, the price will drop more, the quality will go up, you don&rsquo;t need it.&rdquo; But it won&rsquo;t be long before the lust wins, telling me that I could be watching my Blade Runner DVD in HD on a huge screen and be drooling at the mouth in movie nirvana. </p> <p><strong>The Frugal Redemption</strong><br /> It&rsquo;s all a question of willpower. The 32&rdquo; goldfish bowl TV I have right now is not great. But it&rsquo;s not bad either. It&rsquo;s just a TV after all, which I watch less and less these days as my babies get older. Put things into perspective. You&rsquo;re a smart cookie&hellip;you&rsquo;re a frugal shopper after all. </p> <p>My advice is this. Concentrate on what you really need, not what you want. There&rsquo;s a big difference. And think for a second about how much better life would actually be with that object you&rsquo;re lusting after right now. If it&rsquo;s a new car, how much time do you actually spend in it? Is the one you have all that bad? Could the money be spent on something way more important or impactful, like perhaps a family vacation (life experiences stay with you forever&hellip;a car, on average, 5 years).</p> <p>At the end of the day, wants are fleeting. They are all too often replaced by bigger and more expensive wants. The objects of your desire will one day be put out with the garbage, or sold, or given away. You can&rsquo;t take them with you. So, calm your lusts.</p> <p>There you go. Seven deadly sins. Not a short tale, but a worthy one I think. We all succumb to them from time to time, but we can be strong. We can.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/paul-michael">Paul Michael</a> of <a href="http://www.wisebread.com/the-seven-deadly-sins-of-consumerism-and-the-frugal-redemption">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-11"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-live-better-without-spending-more">5 Ways to Live Better Without Spending More</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/jettison-the-junk-why-clutter-clouds-your-mind-and-saps-your-energy">Jettison the Junk: Why Clutter Clouds Your Mind and Saps Your Energy</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/do-you-have-what-you-want-and-do-you-want-what-you-have">Do you have what you want… and do you want what you have?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/snowballs-or-avalanches-which-debt-reduction-strategy-is-best-for-you">Snowballs or Avalanches: Which Debt Reduction Strategy Is Best for You?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/can-i-conquer-my-vanity-for-the-sake-of-my-sanity">Can I Conquer My Vanity for the Sake of My Sanity?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management Lifestyle debt debt reduction desire envy frugality gluttony greed lust overspending pride sins sloth spending habits willpower wrath Tue, 17 Apr 2007 22:43:46 +0000 Paul Michael 521 at http://www.wisebread.com How to live on $12,000 a year http://www.wisebread.com/how-to-live-on-12-000-a-year <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/wisebread_imce/mason_jarjpg.jpg" alt="saving jar" title="saving jar" width="300" height="212" /></p> <p>In my first job out of college, I was on 12,000 English pounds per year. That was back in London in 1996, i was single, lived with two friends and only had rent and travel to pay for. And I still remember how tough that was. Well, one person is doing that right now (right here in the US of course) and recording the experience for us all to share.</p> <p>The story comes from a site called <a href="http://w4resistance.org/simpleliving.html">w4resistance.org </a> (as you can imagine, it&#39;s more radical in its approach than your average blog). I can&#39;t say I am an advocate for everything in the list, I actually want to have a life. I like eating out now and then, and I really don&#39;t have the time to unplug every appliance after using it to save $20 a month. But, cherry pick the ones you think are applicable and leave the ones you don&#39;t. Here is the bulk of the list, with an introduction from the author...</p> <p><em>&quot;How can one possibly live on just $12,000 year, unless you live on the streets?&quot; one might ask. Well it is possible, I&#39;ve been doing it for the past three years, ever since the Iraq war started and I wanted no part of it. I also had some reduction in my income due to the merger mania that is going on in the United States, so as one of the old jokes goes, &quot;This is a non profit corporation, it&#39;s not what we intended, but that&#39;s what it turned out to be&quot; </em></p> <p><em>When faced with a cash flow problem, the first thing to do is cut all expenses that you can immediately without having to spend money to do so. Use the money that you save to invest in money saving alternatives, then go to work on finding ways to reduce your greatest expense. For most of us, that will be your housing. But it might take awhile to find a cheaper apartment, sell that 4000 square foot monster you were talked into buying or find an alternative living arrangement.</em> </p> <p><em> So here is what I did first that doesn&#39;t require any &quot;investment&quot; at all.</em> </p> <ul> <li>I got rid of the cable TV/Satellite service. That saved me $50 a month. You&#39;ll save at least $40 and up to $100 if you got suckered into &quot;Premium&quot; services such as <em>Showtime</em> or <em>HBO</em>. Television is garbage anyway, and you are better off not watching it. True, there are some things on PBS, Discover and the History Channel that are worth while, but it&#39;s not worth spending $50 a month for. I still own a television set, but it is used mostly to watch tapes and DVDs borrowed from friends. It&#39;s hooked to an outside antenna for the rare moments, such as a flood emergency, that I even want to watch broadcast television.</li> </ul> <ul> <li>The next item was to get rid of all the &quot;Phantom Loads&quot;. What is that? You may ask. That is all the electrical appliances in a typical household that still draw current, even though they are &quot;off&quot;. The worst offenders are TV sets, VCRs, anything with a remote control. You see, in order to respond to the power on command from the remote control, part of the set still must be &quot;on&quot; in order to receive commands from the remote. While the drain may only be a couple of watts, the fact that the drain is continuous makes it all add up. I unplug all these appliances when not actually in use or put them on a switched outlet. I saved slightly over $20 a month on my electric bill by getting rid of these phantom loads. </li> </ul> <ul> <li>I started driving less. I was shocked to find that I was spending over $2000 a year for gasoline, and that was before prices went nuts. Since I run my own business, I don&#39;t have to show up 5 days a week. There was nothing at the post office that couldn&#39;t wait a day, so I started driving only three days a week. I took the time to work out on a map a minimum mileage route for things that need to be done. Grocery shopping is done only once a week. Before going on the shopping trip, I check the pantry for items that are running low and buy enough to last a week. If I run out of something, too bad, it waits till the next shopping trip and I learn to be more careful about checking stock before I go. Of course I always take advantage of sales, but only if the unit cost of the sale item is less than buying the house brands. Which is a good segue into the next item.</li> </ul> <ul> <li>I Buy house brands. With few exceptions, house brands are every bit as good as the over advertised national brands. You&#39;ll save anywhere from 5% to 25% by switching to a house brand. The only items that I found in house brands that were not as good were dry cat food (the cat&#39;s did not seem to do well) and lab tests have shown that house brand dietary supplements do not have the same level of active ingredients as name brand supplements. However note that the house brand OTC drugs and prescription drugs are every bit as good as the name brands, it&#39;s only the supplements that have the problem. You can also minimize the need for supplements by eating a well balanced diet. </li> </ul> <ul> <li>I Cook from scratch. Prepared food is always more expensive, and full of additives that are probably not good for you. Even simple items like <em>Bisquick</em> contain things like soluble salts of aluminum, which have been implicated in Alzheimer&#39;s disease. You are better off health wise and financially by making your own baking mix from flour and baking soda. <a href="http://w4resistance.org/weeklydiet.html">Here</a> is my weekly diet. It is mostly vegetarian, although it does have poultry two days a week.</li> </ul> <ul> <li>I never buy &quot;Soft Drinks&quot; (known as &#39;soda&#39; or &#39;pop&#39; in some parts of the country). Why waste money on sugared water that is not good for you? If I&#39;m thirsty, I&#39;ll drink tap water, which is the best thirst quencher. </li> </ul> <ul> <li>I Eat In, I Don&#39;t Eat Out: When you eat out, you have to pay for the rent or mortgage on the restaurant building, the wages of the employees, and the profit for the owner as well as the cost of the food and the fuel to cook it. By eating at home, the only costs are the food and the fuel. I saved $35 a month by switching to Friday night dinner at home. This is in an area where you can get a good restaurant meal for $10 a person. You&#39;ll save even more in an expensive city. Even a frugal meal at the local fast food emporium is going to set you back $5.00. You can &quot;brown bag&quot; a meal for less than $1.00. Oh, be sure to reuse the bag until it falls apart, which brings us to:</li> </ul> <ul> <li>I <strong>Never</strong> buy garbage bags. Reuse the bags that you get at the grocery store for your lunch container and for putting out the garbage. Sure they are small, but who cares? They all go into a garbage can just fine! I know that some people just set out the 20 gallon garbage bags by the curb, but that is just asking for the garbage to be raided by animals before it gets picked up. </li> </ul> <ul> <li>I keep the heat down during heating season. My house is zoned, so rooms that are not being used are set to 55 F. Rooms that are infrequently used are set to 60 F. I have one &quot;warm room&quot; that I keep at 65. If you have forced air, you can close off the registers to the unused rooms. If you have electric baseboard heat, those usually have individual controls. If you have hydronic baseboard heat, the best you can do is close the flaps on unused rooms. If you have one pipe steam, you can install a <em>Varivalve</em> in place of the standard vent, as the name implies, the device is adjustable. Don&#39;t try to moderate a one pipe steam system by closing the radiator valve part way, you&#39;ll just have knocking and banging if you do.</li> </ul> <ul> <li>I use the wood stove for heat: I&#39;m fortunate enough that the place where I live has a Franklin Stove and 50 acres of woodlot that can be harvested in a sustainable manner, so when I&#39;m home, I use the wood stove. </li> </ul> <ul> <li>I don&#39;t use air conditioning during cooling season. Where I live, there are only 10 or 12 really bad days a year. I set up a bed in the basement on really hot nights, rather than put in an air conditioning system. People in really warm climates can save by setting their AC to 85 F, which is enough to take the edge off the heat and even more important, reduce the humidity.</li> </ul> <ul> <li>I don&#39;t buy things that I don&#39;t really need: Making a shopping list before going to the store really helps. I only buy things that are on the list. I don&#39;t go to the grocery store on an empty stomach, so that I&#39;m not tempted to buy junk food. Instead of buying music CDs, which probably only have one good cut on them, I listen to music for free over broadcast radio. If it&#39;s a song that I really want my own copy of, I buy the single on the Internet for $1.00. Before buying anything, I ask myself, &quot;Do I really need this? Is it of lasting value? If I won&#39;t use it that often, can I borrow it from someone or rent it instead of buying my own?&quot; </li> </ul> <ul> <li>I repair things instead of buying a replacement: A good rule of thumb is repair it unless the repair is going to cost more than half of the replacement cost, or in the case of a car, more than half of it&#39;s market value. Learn to fix things yourself, which will reduce the repair cost. There are plenty of places on the web where you can learn how to do simple plumbing, car, and other house repairs. Even if a repair is beyond your skill or should not be attempted DYI because of safety reasons, you should at least learn the basic technology so that you won&#39;t get taken by a con artist.</li> </ul> <ul> <li>If I do need an item, I try to buy used: With the exception of some appliances like refrigerators, where it makes more sense to buy the newest most energy efficient model, I save money by buying used. I buy &quot;last years&quot; computers at close out sales, they are more than fast enough. When my truck is so old that it&#39;s rusted out or I can&#39;t get parts for it anymore, I replace it with a three or four year old model. Since depreciation is non linear, that is, the value goes down more quickly when it is brand new, you save a lot of money overall. Which is a good segue to the next item in this list. </li> </ul> <ul> <li>I never pay interest: If I can&#39;t afford to pay cash for an item, I either find a less expensive one, such as paying cash for a $9000 car instead of having to get a loan to buy a $12,000 car, or wait until I&#39;ve saved enough to pay cash. I always pay off the full balance on my credit card every month. The only exception to this rule is if I can get a really good deal on the loan, meaning that I can take the cash and invest it in a municipal bond fund that is paying more interest than the loan interest.</li> </ul> <ul> <li>Hang out clothes to dry instead of using a clothes dryer. This can save up to $40 a month, depending on the size of your family and how often you do laundry. During the winter, I hang clothes inside, as this serves to add needed humidity to the air. During the summer, this means planning to do laundry on a sunny day. </li> </ul> <ul> <li>I don&#39;t smoke, never have, but if you do smoke <strong>quit!</strong> Not only is quitting good for your health, it&#39;s good for you finances! A smoker with a two pack a day habit is blowing $180 a month on tobacco! </li> </ul> <p><em> With the money I saved from the first list, I went ahead and made the following investments.</em> <ul> <li>I Replaced incandescent bulbs and fixtures with compact fluorescent bulbs and fixtures. I would do this even before the existing bulbs burn out, you can always use the old, but still working bulbs as spares for infrequently used lights. The manufactures of compact fluorescent bulbs have finally worked out how to make the bulbs roughly the same size as what they replace, so you generally won&#39;t have to replace the whole fixture. After this, I was using less electricity living in my house than the former occupant who was only there three days a week!</li> </ul> <ul> <li>I Replaced my refrigerator with a modern energy efficient model. Actually, the old one&#39;s compressor decided to lock rotor on a hot Forth of July when all the stores were closed. I beat it into running with a hammer, but figured it was not long for this world and bought a replacement when the stores opened. I was amazed at how much my electric bill went down. If you still have a refrigerator built before 1993, you will probably save enough on your electric bill to pay for the new machine within three years! Be sure that your new box has the <em>Energy Star</em> label and recycle your old machine. It is also best to go with a traditional top freezer model of less than 25 cubic feet capacity as I did. Side by sides and refrigerators over 25 cubic feet use significantly more energy. </li> </ul> <ul> <li>I put in a vegetable garden: I&#39;ve puttered around in the garden off and on, with varying degrees of success. The best I&#39;ve done was to meet all my vegetable needs for the summer, plus have some extra tomatoes to can for use during the winter. I&#39;m still experimenting with the best way to have a garden with my relatively poor soil and the slug problem, I lost all my peas last year to a slug invasion. I avoid pesticides, since they are an additional expense and aren&#39;t good to eat. I estimate that I can grow my own veggies for half the price that I would pay in the store. If you live in the city, the best you can probably do is to have some containers out on the patio or inside a south facing window. </li> </ul> <p>While the author certainly seems to be living the ultimate life of frugality, I think there are many pointers we can all take from this article. Using energy-saving lightbulbs is something I&#39;ve been doing for a while. A vegetable garden is a great idea, you can&#39;t beat your own, home grown produce for taste or price. And my mum always hung our clothes out to dry. They smelled so fresh, too. I think most of us have plenty of room to trim the fat in our budgets. Save the pennies, and the dollars will take care of themselves, right? </p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/paul-michael">Paul Michael</a> of <a href="http://www.wisebread.com/how-to-live-on-12-000-a-year">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-12"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/try-these-6-money-saving-challenges-now">Try These 6 Money-Saving Challenges Now</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/debt-repayment-is-not-an-expense">Debt repayment is not an expense</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-psychological-traps-preventing-you-from-saving-and-how-to-fix-them">4 Psychological Traps Preventing You From Saving — And How to Fix Them</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-allocate-your-cash-when-you-are-broke">How to Allocate Your Cash When You Are Broke</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-ways-your-smartphone-saves-you-money">8 Ways Your Smartphone Saves You Money</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Budgeting Debt Management beating the system cutting back debt reduction frugal finance reducing expenses saving money true stories Mon, 02 Apr 2007 21:43:51 +0000 Paul Michael 438 at http://www.wisebread.com