Debt Management http://www.wisebread.com/taxonomy/term/7681/all en-US How to Never Succumb to Impulse Spending Again http://www.wisebread.com/how-to-never-succumb-to-impulse-spending-again <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-never-succumb-to-impulse-spending-again" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/shopping-81172431-small.jpg" alt="shopping" title="shopping" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Impulse spending can make it almost impossible for someone to manage their finances effectively. It creates a habitual need to spend and a knee-jerk reaction to sales, products, and advertising. And the result is usually the same: a lack of cashflow, problems saving, and almost always an inability to maintain a budget.</p> <p>But what exactly is impulse spending? How do we define and/or recognize it?</p> <h2>Defining Impulse Spending</h2> <p>First, impulse spending is almost always chronic and recurring. To see something every once in a while and &quot;splurge&quot; is normal. Impulse spending is something that happens regularly and develops into a bad habit. (See also: <a href="http://www.wisebread.com/13-creative-ways-to-avoid-spending-money?ref=seealso">13 Creative Ways to Defeat Impulse Spending</a>)</p> <p>Second, buying on an impulse means that you're making an unplanned purchase that you hadn't already recognized a need for. These purchases might be useful and might even seem wise on the surface, but had you not made visual contact with the item, you probably wouldn't have wanted to spend money on it. In other words, an impulse purchase is made when a product or ad instigates the transaction. Instead of you deciding that you need something and then going to find it, you see a product or service and decide immediately that it warrants your money. Those who struggle with this end up spending a lot of money that they didn't need to spend or that wouldn't have been spent, had they been in control of their purchases. In fact, that's the real goal here &mdash; to be in control of how purchases.</p> <h2>1. Break the Habit With a Freeze on All Discretionary Spending</h2> <p>Impulse spending is a habit, so try breaking it by going cold turkey on all discretionary spending. That's not to say that you can't pick back up after a few weeks, but stick to essentials until you've given yourself enough time to get comfortable spending money on just those things.</p> <p>The goal is to take away your tendency to be a reactive purchaser, before you take the steps necessary to build yourself back into a proactive budgeter. Once you can go into stores and see ads without feeling that twitch making you want to spend money, you're ready to move on. It'll happen quicker than you think.</p> <h2>2. Make a Weekly Budget</h2> <p>Budgeting is one of the simplest and most basic safety nets you have to protect yourself against impulse spending. There are plenty of ways to do it, like using a <a href="http://www.daveramsey.com/tools/budget-forms/">Dave Ramsey budget sheet</a>. But the general concept is to start by writing down both your expected income and expenses for each month. Separate your expenses between the amounts that are fixed (rent, insurance, etc.) and those that fluctuate (gas, groceries). Use what's left to disperse between savings, discretionary spending, charitable giving, or however you choose to divide it up. That discretionary amount will serve as a safeguard to help limit your ability to spend impulsively.</p> <p>You'll know that there's a limit to what you can spend, thereby making you less likely to buy something on an impulse. Instead, you end up asking yourself the question: &quot;Do I really want to buy this?&quot;</p> <h2>3. Practice Deciding What to Buy Before You Leave the House</h2> <p>After breaking with your bad spending habits, a good habit to get into is to always make a list or at least plan in your mind what you want to buy before you shop. This ensures that you're in control of your purchasing and that you're not being pushed around by products and advertisements that you might see. Make sure you decide specifically what you want to purchase and avoid deviating from that plan. In time, you'll be able to shop around in a way that isn't impulsive. But until you get better spending habits established, it's best to never deviate from intentional expenses.</p> <h2>4. Put Potential Purchases Through a Litmus Test</h2> <p>There will be gray areas that come up regarding whether or not you're being impulsive or if a purchase is actually necessary or beneficial in some way. A good way to figure that out is to come up with a litmus test in the form of a few questions that you can use to figure out whether or not you really need to spend money on something.</p> <ol> <li>Is there room in the budget for it?<br /> &nbsp;</li> <li>Is the purchase redundant (do you already have the item or something similar to it)?<br /> &nbsp;</li> <li>Will it substantially improve your quality of life?<br /> &nbsp;</li> <li>Did you want or need this item before you were made aware of its existence?<br /> &nbsp;</li> <li>What really made you want the item (an ad, visual appeal, need, practical use, etc.)?</li> </ol> <p>These questions can help give you a clearer picture of why you might want to buy something and whether or not that purchase will benefit you in a way that justifies the amount of money needed to acquire it.</p> <h2>Be the One in Control</h2> <p>The underlying problem with impulse spending is that you end up losing control of your money. If products, services or advertisements are completely driving you to spend, then you'll never be able to stop, because those things will always be there. While it's true that those things have an informative impact (i.e. you see a product and can tell it's useful), the bulk of the decision should stem from your own needs and decisions. Thus, learning how to avoid impulse buys will go a long way in freeing up your financial situation and putting you back in control of your money. It's well worth the effort.</p> <p><em>How do you control impulse spending? Please share in comments!</em></p> <a href="http://www.wisebread.com/how-to-never-succumb-to-impulse-spending-again" class="sharethis-link" title="How to Never Succumb to Impulse Spending Again" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/mikey-rox">Mikey Rox</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Budgeting Debt Management budgets impulse spending mindful spending spending Thu, 16 Oct 2014 09:00:08 +0000 Mikey Rox 1236048 at http://www.wisebread.com Best Money Tips: Ways to Deal With Student Loan Debt http://www.wisebread.com/best-money-tips-ways-to-deal-with-student-loan-debt <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/best-money-tips-ways-to-deal-with-student-loan-debt" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/sad-graduate-student-177704055-small.jpg" alt="sad graduate student" title="sad graduate student" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Welcome to Wise Bread's <a href="http://www.wisebread.com/topic/best-money-tips">Best Money Tips</a> Roundup! Today we found some awesome articles on dealing with student loan debt, feeling less stress, and money moves for the fall.</p> <h2>Top 5 Articles</h2> <p><a href="http://www.thesimpledollar.com/15-ways-to-deal-with-student-loan-debt/">15 Ways to Deal with Student Loan Debt</a> &mdash; To deal with student loan debt, take advantage of your grace period and understand your loans.[The Simple Dollar]</p> <p><a href="http://www.marcandangel.com/2014/10/05/11-ways-to-let-go-and-feel-less-stress/">11 Ways to Let Go and Feel Less Stress</a> &mdash; Saying less and breathing more when you are angry can help you feel less stress. [Marc and Angel Hack Life]</p> <p><a href="https://www.mint.com/blog/planning/5-money-moves-for-fall-100714/">5 Money Moves for Fall</a> &mdash; Now that fall is here, start saving for the holidays and shopping strategically. [MintLife Blog]</p> <p><a href="http://timemanagementninja.com/2014/10/the-4-key-components-of-every-time-management-system/">The 4 Key Components of Every Time Management System</a> &mdash; Every time management system has a todo list and calendar.[Time Management Ninja]</p> <p><a href="http://moneyplansos.com/why-getting-out-of-debt-is-so-hard/">Why Getting Out of Debt Is So Hard (and What to Do About It)</a> &mdash; The secret to getting out of debt is to not quit, keep trying! [MoneyPlan SOS]</p> <h2>Other Essential Reading</h2> <p><a href="http://outofyourrut.com/need-approach-life-mindset-student/">Why We Need to Approach Life With the Mindset of a Student</a> &mdash; Students have the mindset to learn new disciplines and ideas. [Out Of Your Rut]</p> <p><a href="http://www.lifehack.org/articles/communication/the-top-10-things-that-could-make-wedding-disaster.html">The Top 10 Things That Could Make a Wedding a Disaster</a> &mdash; Running out of food and having your guest list become out of control can make your wedding a disaster. [Lifehack]</p> <p><a href="http://www.dumblittleman.com/2014/10/5-things-complicates-lives.html">5 Things We All Do That Over Complicates Our Lives</a> &mdash; Taking pride in working hard may be over complicating your life. [Dumb Little Man]</p> <p><a href="http://www.popsugar.com/smart-living/Uses-Club-Soda-30394321">11 Extraordinary Uses for Ordinary Club Soda</a> &mdash; Did you know the minerals in club soda makes it better for plants than actual water? [PopSugar Smart Living]</p> <p><a href="http://parentingsquad.com/5-books-to-help-prepare-your-preschooler-for-her-education">5 Books to Help Prepare Your Preschooler for Her Education</a> &mdash; To help your preschooler prepare for their education, read the &quot;I Am&quot; series with him or her. [Parenting Squad]</p> <a href="http://www.wisebread.com/best-money-tips-ways-to-deal-with-student-loan-debt" class="sharethis-link" title="Best Money Tips: Ways to Deal With Student Loan Debt" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/ashley-jacobs">Ashley Jacobs</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Debt Management best money tips debt loan student loans Thu, 09 Oct 2014 19:00:04 +0000 Ashley Jacobs 1230391 at http://www.wisebread.com How One Inspiring Saver Found True Love, Shook Off Debt Denial, and Paid Off $123,000 http://www.wisebread.com/how-one-inspiring-saver-found-true-love-shook-off-debt-denial-and-paid-off-123000 <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-one-inspiring-saver-found-true-love-shook-off-debt-denial-and-paid-off-123000" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/couple-paying-bills-89654425-small.jpg" alt="couple paying bills" title="couple paying bills" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>American <a href="http://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/">debt is on the rise</a>, up 3.8% from last year. We're carrying higher mortgage balances, more <a href="http://www.wisebread.com/5-strategies-to-wipe-out-your-credit-card-balance?ref=inarticleinarticle">credit card debt</a>, and significantly higher student loan burdens (which are up an astonishing 11.5% from last year).</p> <p>For students in particular, it's easy to overspend. The cost of college is staggering and, to make matters worse, few students come to campus prepared with financial literacy training. Both federal and private loans are readily available for most students, but so are a barrage of credit card offers. Credit is so easy to obtain for many students that, according to one recent survey, most college graduates are <a href="http://www.fidelity.com/inside-fidelity/individual-investing/college-grads-surprised-by-student-debt-level-exceeds-35000">shocked to discover how much debt they've racked up</a>.</p> <h2>A Young Dentist in Debt</h2> <p>Just ask Paul Amato, DDS at LeCuyer Amato Dentistry who, according to one <a href="http://money.msn.com/debt-management/debt-calculator.aspx">debt calculator</a> I ran his numbers through, owed over 85% of his first year take-home pay to creditors. &quot;When I finally sat down and looked at the numbers,&quot; he says, &quot;the interest was like a gut punch.&quot; Amato had finished dental school and had landed a well-paying job, but even so, the path he'd taken to get there had left him struggling with more debt than he could manage. (See also: <a href="http://www.wisebread.com/5-inspiring-people-who-each-paid-off-over-100000-in-debt?ref=seealso">5 Inspiring People Who Paid off Over $100,000 Each in Debt</a>)</p> <h2>Being in Debt Denial</h2> <p>Amato graduated with $120,000 in <a href="http://www.wisebread.com/can-borrowers-still-pay-off-their-student-loans-in-10-years?ref=inarticle">student loan debt</a> and and another $40,000 in <a href="http://www.wisebread.com/6-warning-signs-that-you-need-to-stop-using-your-credit-cards?ref=inarticle">credit card loans</a>. Shortly after graduation, he took on an additional $40,000 in auto financing. All told, his debt burden was 2.5 times that of his first year take-home pay and he didn't even have a mortgage to show for it. &quot;I had six credit cards,&quot; says Amato. &quot;I never added up how much I was paying on the cards. I just paid the minimum. I wasn't thinking much about the interest. I was really kind of careless.&quot;</p> <p>Looking back, Amato accepts he could have lived on his student loan disbursements alone. He didn't need the credit cards. &quot;I overdid it,&quot; he admits. &quot;I had friends who had money I didn't have and I wanted to hang out with them. I wanted to do the things they were doing.&quot; Amato also accepts that he could have bought a less expensive car. &quot;At first I thought it wasn't a big deal. Then I saw it was a huge deal. I was paying a lot in interest. I paid that car off and I kept it for eight years. But now I have a more practical car.&quot;</p> <p>Amato admits to <a href="http://www.wisebread.com/6-harmful-money-beliefs-that-are-keeping-you-poor?ref=inarticle">being in denial about the debt</a> he was accruing until he and his then girlfriend (and now wife), Rebecca, got serious, moved in together, and started talking about their money. &quot;She noticed that I had a lot of credit card bills coming in,&quot; says Amato. &quot;That's when we sat down and started looking at everything together.&quot;</p> <h2>Getting Motivated</h2> <p>&quot;Rebecca had no debt and she always paid everything off. She was a buy-what-you-can-afford kind of gal,&quot; says Amato. &quot;She wanted me to get my finances in order before we committed to a relationship.&quot; (See also: <a href="http://www.wisebread.com/say-no-7-reasons-why-you-shouldnt-get-married-if-youre-in-debt?ref=seealso">Say No! 7 Reasons You Shouldn't Get Married if You're in Debt</a>)</p> <p>Every month, the two would sit down and review Amato's balance sheet. It quickly became clear that he'd need additional income to make a dent in his debt. &quot;I filled in wherever I could,&quot; says Amato. &quot;I took hygienist shifts. I'd drive one to two hours away to take an extra job. If there was somewhere I could work, I worked.&quot; (See also: <a href="http://www.wisebread.com/what-20-somethings-can-do-about-credit-card-debt?ref=seealso">What 20-Somethings Can Do About Credit Card Debt</a>)</p> <p>In addition to increasing his income, Amato also lowered his living expenses. &quot;We lived on the cheap,&quot; he says. &quot;We lived in a modest apartment in a questionable part of town. We didn't have cable. We rarely went out.&quot;</p> <p>It wasn't always easy, Amato admits. &quot;I wanted to spend my money every time I got paid. Rebecca really kept me rooted in reality. She'd say, 'You can have those things one day but now is not the time.'&quot; (See also: <a href="http://www.wisebread.com/10-dark-side-motivations-to-get-you-out-of-debt?ref=seealso">10 Dark-Side Motivations to Get You Out of Debt</a>)</p> <h2>Digging Out of the Hole</h2> <p>Amato tackled his debt by paying the minimum payments on all debts except his highest interest loan. &quot;I paid off the credit card with the highest rate first and then I kept going, in order,&quot; he says. &quot;Then came the car loan and eventually I started doubling up on my student loan payments.&quot;</p> <h3>Reset Goals</h3> <p>Life isn't always a linear journey, though, and Amato reprioritized his financial goals several times along the way. After making his final credit card payment, Amato bought the engagement ring. A few years later the Amatos bought their first house. The big purchases didn't re-open the door to bad habits, though. &quot;Ever since I paid off the credit card debt, I've been much more savvy about other bills like car or home-owners insurance. I'm a much better saver.&quot; (See also: <a href="http://www.wisebread.com/how-to-trick-yourself-into-better-credit-card-behavior?ref=seealso">How to Trick Yourself Into Better Credit Card Behavior</a>)</p> <h3>Refinance</h3> <p>Amato also consolidated his federally-funded student loans. The rate on his private education debt was substantially higher so he kept those loans separate, and paid them off as early as he could. During those early years, as Amato's income grew, he kept his standard of living low, and paid as much toward his debts as he could.</p> <p>&quot;I became even more Type-A. I could see the light at the end of the tunnel,&quot; says Amato. &quot;If I could run a tighter ship, I could be more profitable.&quot; It was a philosophy that helped Amato with his personal finances, but also within his professional practice.</p> <h3>Shift to Retirement</h3> <p>Eventually, the Amatos eased off their student loan and mortgage repayment strategies and focused more on boosting retirement savings. Today Amato still has $80,000 in student loans and a substantial mortgage balance to contend with. They've since filled the house with 18-month-old twin boys and, because of the frugal choices they made early on, were able to put Rebecca through dental school without taking on any additional debt. &quot;It helped that we didn't have to re-buy books or equipment,&quot; says Amato. &quot;That made her cost less than when I had gone to school.&quot;</p> <h2>Looking Back</h2> <p>&quot;Paying off that credit card debt really gave me a lot of perspective about living beneath my means,&quot; says Amato. &quot;Without that debt I can take life into my own hands and work toward my long-term goals. I want financial freedom. I don't want to be constrained by debt.&quot;</p> <p>What Amato learned is that financial freedom isn't about how much money you make. It's really about how you manage what you have. &quot;I made some poor decisions early on,&quot; he says, &quot;but fortunately I was able to learn from them.&quot;</p> <p><em>Have you retired a significant debt? Tell us your story in comments!</em></p> <a href="http://www.wisebread.com/how-one-inspiring-saver-found-true-love-shook-off-debt-denial-and-paid-off-123000" class="sharethis-link" title="How One Inspiring Saver Found True Love, Shook Off Debt Denial, and Paid Off $123,000" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/alaina-tweddale">Alaina Tweddale</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Credit Cards Debt Management credit cards debt debt management debt stories paying debt Fri, 03 Oct 2014 13:00:06 +0000 Alaina Tweddale 1226229 at http://www.wisebread.com Why One-Third of Americans Haven't Saved for Retirement http://www.wisebread.com/why-one-third-of-americans-havent-saved-for-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/why-one-third-of-americans-havent-saved-for-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/old-man-frustrated-bills-179813059-small.jpg" alt="old man frustrated" title="old man frustrated" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>More than a third of <a href="http://www.bankrate.com/finance/consumer-index/survey-36-percent-not-saving-for-retirement.aspx">Americans haven't started saving for retirement</a>, according to a recent report by Bankrate.com. Interestingly, it's not just young workers who aren't banking their bucks. The survey found that more than a quarter of those aged 50 &ndash; 64 haven't started saving for retirement, either. (See also: <a href="http://www.wisebread.com/10-easy-ways-to-supercharge-your-retirement?ref=seealso">10 Easy Ways to Supercharge Your Retirement</a>)</p> <p>While it's true that the current generation of retirees and pre-retirees are more likely to have a pension plan to cushion their financial burden, the Bankrate.com results point to a staggering conclusion. A large number of Americans &mdash; regardless of age &mdash; are unprepared to take financial responsibility for retirement. So, what's holding us back?</p> <h2>1. We're Living Paycheck to Paycheck</h2> <p>One-third of American households <a href="http://www.brookings.edu/about/projects/bpea/papers/2014/wealthy-hand-to-mouth">live paycheck to paycheck</a>. Of those families, 66% are middle class and have a median income of $41,000.</p> <p>It's difficult to save for retirement when disposable income is limited, but if you manage to do it, most employers offer a match on your 401(k) contributions. An employer match can add a substantial boost to your retirement account balance. (See also: <a href="http://www.wisebread.com/trick-yourself-into-saving-more-of-your-biweekly-paychecks?ref=seealso">Trick Yourself into Saving More of Your Biweekly Paychecks</a>)</p> <h2>2. We Procrastinate</h2> <p>It's tempting to put big decisions off and wait for the next big raise, until the next bill is paid off, or until the kids are through college. The problem, <a href="https://time.com/money/3265108/retirement-savings-crisis-solution/">as defined by one financial journalist</a>, is that savings levels aren't all that different between new workers and those already retired.</p> <p>Putting an end to procrastination can have a monumental effect on your end balance. According to recent research from the Employee Benefit Research Institute, 401(k) participants who consistently contributed to their accounts over the five years ending in 2012<a href="http://www.ebri.org/pdf/PR1089.Longit.31July14.pdf"> saw a healthy 6.8% average annual uptick</a> in their collective balances, even despite a 34.7% drop during the financial crisis of 2008.</p> <p>Further, the earlier you start, the easier it is to build substantial savings. In his analysis of the Bankrate.com poll results, Greg McBride, CFA and Bankrate's chief financial analyst says, &quot;the power of compounding is most evident over long periods of time, and having a longer period of time for your retirement savings to grow and compound makes today's contributions much more impactful.&quot; (See also: <a href="http://www.wisebread.com/this-is-why-you-cant-postpone-planning-for-your-retirement-and-how-to-start?ref=seealso">This is Why You Can't Postpone Planning for Your Retirement</a>)</p> <h2>3. We Don't Have a Retirement Plan at Work</h2> <p>Even if you don't have access to an employer-sponsored retirement savings option, don't let that keep you from having a plan of your own. According to the Employee Benefit Research Institute study noted above, those with a plan are 72% likely to feel very or somewhat confident about their prospects for retirement. Those without a plan, meanwhile, are 69% more likely to feel not at all or not too confident about retirement.</p> <p><a href="http://money.cnn.com/2014/04/01/pf/expert/retirement-savings/">Those without a plan</a> can benefit from several plans such as the traditional IRA, Roth IRA, MyRA, or a traditional brokerage account.</p> <h2>4. We're in Denial</h2> <p>Some workers assume they can maintain their current workload for the remainder of their lives and so choose to forego or limit retirement savings. While later-life retirements are increasing in frequency, the assumption that one can work until death doesn't account for uncontrollable factors like an unexpected job loss or medical issue.</p> <p>Even among those who are saving, many are not saving enough. In <a href="http://www.cnbc.com/id/101480388%23">a recent article</a>, one finance giant CEO tagged the average retirement contribution level at 6% while suggesting that 10% would be better. (See also: <a href="http://www.wisebread.com/6-harmful-money-beliefs-that-are-keeping-you-poor?ref=seealso">6 Harmful Money Beliefs That Are Keeping You Poor</a>)</p> <p>Low or nonexistent contribution levels indicate that many workers aren't taking the time to figure out just <a href="http://www.wisebread.com/how-much-money-will-you-need-to-retire">how much they'll need in retirement</a>. Being aware of your end goal number is the first step to getting financially prepared for retirement &mdash; at every age.</p> <p><em>Are you among the one-third of Americans who haven't saved for retirement?</em></p> <a href="http://www.wisebread.com/why-one-third-of-americans-havent-saved-for-retirement" class="sharethis-link" title="Why One-Third of Americans Haven&#039;t Saved for Retirement" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/alaina-tweddale">Alaina Tweddale</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Debt Management Retirement 401(k) retirement saving Tue, 23 Sep 2014 13:00:06 +0000 Alaina Tweddale 1218886 at http://www.wisebread.com 8 Dark-Side Motivations to Start Saving http://www.wisebread.com/8-dark-side-motivations-to-start-saving <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-dark-side-motivations-to-start-saving" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/business-couple-flirting-480187847-small.jpg" alt="business couple flirting" title="business couple flirting" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>From ruling the galaxy to getting out of debt, embracing the dark side can be a powerful tool. Sure, the motivations may be impure, but if it's monetary results you're after, maybe that's okay. (See also: <a href="http://www.wisebread.com/10-dark-side-motivations-to-get-you-out-of-debt?ref=seealso">10 Dark Side Motivations to Getting Out of Debt</a>)</p> <p>So embrace your demons and get ready to stockpile some cash with these eight ways you can use the darker side of your nature as a driving force to save more money.</p> <h2>1. To Impress Someone</h2> <p>Whether it's a potential new partner, or just someone you really want to one-up, having a nice wad of cash in the bank can be a great way to get noticed. You can't just casually drop &quot;hey, I've got $30k in my savings account&quot; into conversation, though. You'll need to find more underhand ways to do it. You could check your balance, get a receipt, and just happen to leave it in a place someone else could see it. Or, you could ask about investment opportunities for your enormous rainy day fund. This works well at those high school reunions.</p> <h2>2. To Get Laid Off</h2> <p>Most people don't want to get fired. These days, jobs are tough to get in many industries, and just as tough to keep. Why on earth would anyone want to get laid off, or fired?</p> <p>Well, some people do have <a href="http://www.wisebread.com/how-to-get-laid-off-a-step-by-step-guide">reasons for wanting to leave a job</a>. They may genuinely hate it, but leaving is not as lucrative as being kicked out, with many companies offering handsome severance packages. If this is your plan, you need to have some savings as a safety net. When the time comes, you can use it as buffer until you find work. A word of warning though: be sure to check the redundancy policy of the job you plan to &quot;leave.&quot; Some companies are making cuts everywhere, and that includes termination benefits.</p> <h2>3. To Get Revenge</h2> <p>It may be a dish best served cold, but it can also be an expensive one. If you really want to hit someone where it hurts, you are going to have to put down some cash to make it happen. Revenge can be as simple as a college prank, or as complicated as the plot from a movie. It could be something that takes five minutes to plan or several months. Depending on the level of vengeance you're aiming for, you may need to put away a large sum of money to finance your cunning plan.</p> <h2>4. To Spy on Someone</h2> <p>Cheating spouse? Co-worker embezzling money? Neighbor's dog using your lawn as a toilet? Whatever your reason, you'll need a nice sum of money if you want to get hard evidence. This could involve hiring a private investigator, setting up a substantial hidden camera system, and even wearing recording devices (check the legality of this in your state first). However you plan to spy, you'll need to bankroll your operation. Start saving now &mdash; some of these people will only accept cold, hard cash.</p> <h2>5. To Get Plastic Surgery</h2> <p>Some would say that improving yourself is very worthwhile, and I tend to agree. Are breast implants, tummy tucks, and lip injections really that bad? Well, it all depends. If you're saving for those and letting your kids go hungry, then yes, that's bad. If everyone is taken care of, and this is something you'd rather do than buy a new car or go on vacation, then more power to you.</p> <h2>6. To Annoy Your Neighbor</h2> <p>Have you ever watched a show about battling neighbors? It happens often, and it can go from the silly to the downright bizarre. Case in point &mdash; the Bank of Manhattan and the Chrysler building. Both wanted to be taller than the Woolworth back in 1929. It looked like the Bank of Manhattan won the battle, but the war went to the Chrysler building a few months later, when a spire was secretly assembled on its roof. From building bigger fences, to painting houses brighter colors, suburban neighbors have also battled for years. If you want to get into it, you'll need the money to compete.</p> <h2>7. To Get Divorced</h2> <p>Maybe you're in a relationship that is just barely hanging on for life. You may be tied to the other person financially, and cannot separate until you have the money to do so. This is where saving money comes in, but you will have to be careful how you do it. You cannot just squirrel away money from your partner, and not declare it. But if you do it legally, and with full disclosure, saving money now is the best way to ensure you can finally start down the road to unwedded bliss. As Louis CK has so rightly said, don't commiserate with people going through this; no good marriage ended in divorce.</p> <h2>8. To Do Nothing</h2> <p>Some people have a dream that is neither productive, nor inspiring. They simply want to save enough money so that they don't have to work again. Or do anything else remotely connected to work, if truth be told. There's a famous quote from <a href="http://www.wisebread.com/7-secrets-about-life-and-career-from-office-space">Office Space</a> that sums it up, uttered by the protagonist Peter Gibbons, when asked what he'd do with a million dollars: &quot;I would relax&hellip; I would sit on my ass all day&hellip; I would do nothing.&quot;</p> <p>Of course, his friend Lawrence counters that with, &quot;Well, you don't need a million dollars to do nothing, man. Take a look at my cousin; he's broke, don't do sh*t.&quot; Sorry, Lawrence, you do need money. A lot of money. Doing nothing may not cost a lot, but you still need to eat, pay bills, and live a somewhat comfortable existence. Start saving.</p> <p><em>So, those are eight dark side motivations, but what are yours? What dark things inspire you to save money? Let us know in comments below!</em></p> <a href="http://www.wisebread.com/8-dark-side-motivations-to-start-saving" class="sharethis-link" title="8 Dark-Side Motivations to Start Saving" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/paul-michael">Paul Michael</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Budgeting Debt Management debt goals motivation saving Mon, 15 Sep 2014 17:00:05 +0000 Paul Michael 1209316 at http://www.wisebread.com 8 Organizations That REALLY Can Help You With Your Debt http://www.wisebread.com/8-organizations-that-really-can-help-you-with-your-debt <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-organizations-that-really-can-help-you-with-your-debt" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/debt-177716803-small.jpg" alt="debt" title="debt" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Pinpointing the exact moment you got over your head in debt may be tricky. But if you suspect you're never going to pay off your loans without a drastic change in circumstances, then you are likely stuck in a bad spot.</p> <p>You may need to seek outside help, and that means being careful to avoid shady companies that promise to make you debt-free quickly and painlessly. Consider tapping the capabilities of these organizations to do a financial turnaround.</p> <h2>1. Non-Profit Credit Counseling Agencies</h2> <p>If you're struggling and unsure about your financial future, a reputable non-profit credit counseling agency may be able to help. Visit the <a href="http://www.nfcc.org/FirstStep/firststep_01.cfm">National Foundation for Credit Counseling (NFCC)</a> website to find a NFCC member agency licensed in your state. There are local, regional, and national agencies that offer face-to-face, telephone, and online counseling.</p> <p>Generally, credit counselors at non-profit agencies develop a debt management plan and support you in its implementation. You give them a list of your obligations (outstanding balances, monthly payments, interest rates, late payment amounts, etc.). They negotiate with lenders on your behalf to reduce interest rates and waive penalties; otherwise, you may continue to make extremely slow or negligible progress in reducing balances as much of your money goes to fees and interest charges.</p> <p>At the same time, they should work with you to develop a budget that includes making regular payments to eliminate debt over time, often three to five years. This can mean making monthly payments to the agency, who then disburse funds to creditors, as well as receiving guidance on developing better money habits to avoid future debt.</p> <p>Note that even though services are provided by non-profit agencies, there are upfront fees for plan set-up along with monthly fees. Review proposals to make sure that these expenses won't exceed your savings associated with the debt management plan. And get a signed agreement before you move forward.</p> <h2>2. Federal Trade Commission (FTC)</h2> <p>The FTC has valuable tips on managing credit and dealing with debt overload at its <a href="http://www.consumer.ftc.gov/articles/0150-coping-debt">consumer website</a>. For example, you can learn about vetting a credit counseling agency with the Attorney General's office in your state.</p> <p>Plus, the difference between a debt management plan and a debt settlement plan is explained. Briefly, debt management involves a plan to pay off debt in a reasonable manner; debt settlement requires you to default on loans so that the debt-help organization can then attempt to negotiate payment of pennies on dollars owed. Creditors may refuse to deal with the debt settlement firm, demanding full payment plus late fees. As a result, this approach often worsens your situation.</p> <p>Also at the FTC site, you can access a budget worksheet. Complete the form to help you see where you might eliminate expenses and accelerate paying down debt.</p> <h2>3. Credit Reporting Agencies</h2> <p>Your local credit reporting agency, along with national ones (Equifax, Experian, Trans Union), can be allies in making sure your <a href="http://www.consumer.ftc.gov/articles/0151-disputing-errors-credit-reports">credit information is accurate</a>.</p> <p>Correcting errors may help improve your credit score. As a result, you may be able to negotiate lower interest rates and insurance premiums, leaving you with more money to apply to loan balances.</p> <p>The idea here is not to wrangle removal of negative-but-true items but to remedy any problems. Start by <a href="http://www.fdic.gov/consumers/consumer/ccc/reporting.html">ordering and reviewing your reports</a>. Then deal with inaccuracies through communications with the reporting agency and information provider.</p> <h2>4. Creditors</h2> <p>Going to your creditors may seem like an odd way to get out of debt. But you may be able to negotiate lower interest rates and get fees waived directly, rather than through a third-party agency. Be prepared when you make calls to discuss possibilities (such as proposing a reasonable interest rate) based on current offers for which you qualify.</p> <p>If you decide to take this approach, make sure that you can meet the requirements of a revised payment schedule. <a href="http://www.extension.org/pages/16134/deciding-which-bills-to-pay-first#.U8lj_fldUlk">Creditors may be lenient</a> with those who demonstrate earnestness to repay debts but show less mercy to those who renege repeatedly on agreements.</p> <h2>5. StudentLoans.gov</h2> <p>The <a href="https://studentloans.gov/myDirectLoan/index.action">Student Loans website</a> run by the federal government offers a wealth of information on ways to manage your debt. You can learn how to avoid default, get your loans forgiven through public service or cancelled through other methods, and consolidate your federal education loans.</p> <p>Loan consolidation and income-based repayment plans may be useful if you want to lower your monthly payments, although you may pay more interest over the life of your loan.</p> <h2>6. Private Student Loan Consolidators</h2> <p>Consolidators may be able to help you manage debt, if you have multiple private student loans. For example, Wells Fargo offers <a href="https://www.wellsfargo.com/student/private-loan-consolidation/">consolidation of private student loans</a> and the <a href="http://www.studentloannetwork.com/consolidation/private-student-loan-consolidation.php">Student Loan Network</a> provides resources for consumers looking for this service.</p> <p>Through consolidation, you eliminate the need to deal with multiple organizations. You may be able to save by lowering your interest rate or getting a fixed rate, rather than a variable one.</p> <p>Even if you are not able to get a better rate, you may be able to lower your monthly payments so that you are better able to handle debt obligations. Like federal student loan consolidation, this approach may result in higher interest charges over the life of the loan (by extending the term) but could provide short-term relief.</p> <h2>7. National Institutes of Health</h2> <p>Those with doctoral degrees in a health profession may be eligible to receive loan forgiveness of up to $35,000 per year if they work in medical research after graduation. Check out the <a href="http://www.lrp.nih.gov/index.aspx">Loan Repayment Program (LPR)</a> on the National Institutes of Health website for details.</p> <h2>8. The United States Department of Justice</h2> <p>The Department of Justice maintains a list of approved <a href="http://www.justice.gov/ust/eo/bapcpa/ccde/cc_approved.htm">debtor education providers</a> and <a href="http://www.justice.gov/ust/eo/bapcpa/ccde/cc_approved.htm">credit counseling agencies</a> on the <a href="http://www.justice.gov/ust/eo/ust_org/index.htm">United States Trustee Program &amp; Bankruptcy</a> section of its website. You can also find information on avoiding foreclosure through this site.</p> <p>Much of this information is focused on bankruptcy but could be useful in understanding processes for dealing with debt and avoiding scams relating to getting out of debt.</p> <p><em>Have you worked with any of these organizations to deal with debt? Or have you chosen a different path? Tell us what worked for you in the comments.</em></p> <a href="http://www.wisebread.com/8-organizations-that-really-can-help-you-with-your-debt" class="sharethis-link" title="8 Organizations That REALLY Can Help You With Your Debt" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Debt Management debt debt repayment getting out of debt Fri, 08 Aug 2014 13:00:04 +0000 Julie Rains 1178249 at http://www.wisebread.com 6 Ways Debt Settlement Can Leave You Deeper in Debt (Even With Trustworthy Companies) http://www.wisebread.com/6-ways-debt-settlement-can-leave-you-deeper-in-debt-even-with-trustworthy-companies <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-ways-debt-settlement-can-leave-you-deeper-in-debt-even-with-trustworthy-companies" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/couple-debt-91460038-small.jpg" alt="couple debt" title="couple debt" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Late night TV ads and radio ads promise that you can obtain debt relief, paying &quot;pennies on the dollar&quot; for what you owe to creditors.</p> <p>These ads are for debt settlement, a process designed to convince creditors to accept a lump sum payment for less than you owe them. Your account is closed and considered paid off, and you no longer have onerous debt payments. (Although the settlement might be noted in your credit report and impact your score.) (See also: <a href="http://www.wisebread.com/surprising-things-that-can-kill-your-credit?ref=seealso">Surprising Things That Can Kill Your Credit</a>)</p> <p>Unfortunately, debt settlement often comes with pitfalls that can cause you problems &mdash; even if you are dealing with a reputable company. According to a report from ResponsibleLending.org titled, &quot;<a href="http://www.responsiblelending.org/state-of-lending/reports/12-Debt-Settlement.pdf">State of Lending: Debt Settlement</a>,&quot; a debt settlement program can <em>increase</em> a successfully enrolled consumer's debt by 20% on average.</p> <p>Here are six debt settlement realities that can cause you to end up with up with more debt, instead of less.</p> <h2>1. You Have to Stop Paying Your Debts</h2> <p>In most cases, debt settlement doesn't work unless the creditor thinks that you won't repay the debt without a settlement. If you are going to convince the creditor of this, you need to stop making payments on your debt.</p> <p>Most debt settlement companies require you to make regular payments to them, instead of making payments to creditors. They keep the money in an account, and use the accumulated savings to make lump sum payments to creditors who agree to settle.</p> <p>As you might imagine, this doesn't bode well for your credit score. Additionally, as you miss payments, fees and penalties (and interest) add up. If you can't reach a settlement with some of your creditors, you are in deeper through all the costs of missing payments and defaulting.</p> <h2>2. Some Creditors Won't Work With Debt Settlement Companies</h2> <p>Not all creditors are willing to work with debt settlement companies, so the fact that you aren't making payments becomes increasingly problematic as the process continues. The creditor, instead of settling your debt, might decide to send your account to collections. This move further dings your credit score, and adds to your debt through fees, penalties, and interest accruing on all of it. (See also: <a href="http://www.wisebread.com/how-a-solid-credit-score-saves-you-money?ref=seealso">How a Solid Credit Score Saves You Money</a>)</p> <p>And, of course, as your credit score continues to drop, it's harder for you to get loans at good rates. You will continue to pay more money over time as a result of your destroyed credit &mdash; even for non-credit financial services like insurance.</p> <h2>3. Creditors Could Decide to Sue</h2> <p>In some cases, turning your account over to collections is the least of your worries. Creditors who don't negotiate with debt settlement companies might decide to sue you for what you owe instead of just turning over your debts. This can add to your debt, since you now have attorney fees and other costs related to the lawsuit.</p> <h2>4. You May Pay Hidden Debt Settlement Fees</h2> <p>The Federal Trade Commission says that debt settlement companies can't charge fees upfront. They are only supposed to charge a fee after a settlement is reached. However, there are loopholes to this rule, and debt settlement companies have no problem taking advantage.</p> <p>In order to get around the FTC's requirement, many debt settlement companies claim they have attorneys working for them. They form very loose associations with willing attorneys, and then charge you an attorney fee. So, <em>technically</em>, it's not a fee for debt settlement; it's a fee for the attorney. However, the attorney doesn't actually do any of the work in most cases. The attorney gets a bit of a kickback, and most of the process is handled by non-attorney employees for the debt settlement company.</p> <h2>5. You'll Have to Pay Tax on the Settled Amount</h2> <p>Most consumers don't realize that forgiven debts are considered income by the IRS. So, if you owe $15,000 and you settle your debts for $8,000, the IRS requires you to report the $7,000 you were forgiven as income. You don't actually have the money in hand (it was spent a long time ago), but the IRS taxes you like you do.</p> <p>Depending on how much you benefit from debt settlement, even a successful experience with a debt settlement company can result in costly tax debt. If you have a big enough settlement, you could wind up in a higher tax bracket. You might need to set up an IRS payment plan to deal with the problem, and that means more interest payments.</p> <h2>6. You May Still Have Bad Credit Habits</h2> <p>Finally, one of the problems with debt settlement is that it might not address your underlying issues with money. Sure, you might settle your debt, but once everything is taken care of, will you end up back in debt down the road?</p> <p>Many consumers go through debt settlement, but do nothing to change their overall money habits. Once their credit recovers enough that they can qualify for credit again, they start accruing debt. Even if you have gone through debt settlement, it's possible to get a credit card again fairly easily. Debt settlement can also make the process of getting rid of debt <em>feel</em> easier. If you feel as though you've dodged a bullet, you might not have incentive to reform your financial habits for the long haul. You could easily end up back in debt &mdash; and looking to use debt settlement services again. (See also: <a href="http://www.wisebread.com/12-habits-of-highly-responsible-credit-card-users?ref=seealso">12 Habits of Highly Responsible Credit Card Users</a>)</p> <h2>Bottom Line</h2> <p>There are some people who use debt settlement effectively, but the truth is that there are so many pitfalls that true success with this process is hard to come by. Instead, you are far more likely to end up with more debt than you started with.</p> <p>This is especially true if you have mixed results. When you have some creditors accept the settlement, but others refuse, you end up with additional fees and interest &mdash; not to mention the extra tax liability from the accepted settlements. You might have to borrow just to deal with the aftermath of your debt settlement!</p> <p>If you are considering debt settlement, carefully think through your options, and consider consulting a different financial professional who can help you put together a realistic plan for repaying your debts and reforming your overall finances.</p> <p><em>Have you relied on a debt settlement firm to help you get out of debt? Please share your experience in comments!</em></p> <a href="http://www.wisebread.com/6-ways-debt-settlement-can-leave-you-deeper-in-debt-even-with-trustworthy-companies" class="sharethis-link" title="6 Ways Debt Settlement Can Leave You Deeper in Debt (Even With Trustworthy Companies)" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/miranda-marquit">Miranda Marquit</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Credit Cards Debt Management credit card debt debt debt scams debt settlement Wed, 06 Aug 2014 13:00:05 +0000 Miranda Marquit 1172366 at http://www.wisebread.com How to Get a Credit Card When You Have Bad Credit http://www.wisebread.com/how-to-get-a-credit-card-when-you-have-bad-credit <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-get-a-credit-card-when-you-have-bad-credit" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/couple-credit-card-91459990-small.jpg" alt="credit card" title="credit card" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>A <a href="http://www.wisebread.com/10-surprising-ways-to-negatively-affect-your-credit-score?ref=internal">bad credit score</a> can happen to anyone. Perhaps you bit off more that you could chew during the holiday season, or have been in between jobs for a long time and missed several monthly payments. Sometimes circumstances arise and you have to declare bankruptcy.</p> <p>When you have a terrible credit score, the last thing on your mind is getting a credit card. However, it can be a savvy way to start <a href="http://www.wisebread.com/how-to-rebuild-your-credit-in-8-simple-steps?ref=internal">rebuilding your credit</a>. Here is how to get a credit card when you have bad credit. (See also: <a href="http://www.wisebread.com/the-5-best-secured-credit-cards?ref=seealso">Best Secured Credit Cards</a>)</p> <h2>Become a Member of a Local Credit Union</h2> <p>Unlike banks, credit unions are not for-profit. The main goal of any credit union is to make financial services more accessible to its members. That's not a typo: Credit unions don't have clients as every member is a shareholder with voting rights. (See also: <a href="http://www.wisebread.com/9-good-reasons-to-choose-a-credit-union-instead-of-a-bank?ref=seealso">Why Choose a Credit Union Instead of a Bank</a>)</p> <p>To become a member, a credit union often holds your first deposit of about $100 for one to three years. Once the hold period expires, your credit union keeps only $5 on hold and gives the rest back to you. In exchange for your deposit, the credit union doesn't charge you monthly fees, require you to have a minimum account balance, charge you ATM fees within its network, or limit your withdrawals per month. This amounts to plenty of savings in fees, which is money that you can use to pay down your other debts and meet your monthly payments.</p> <p>The best part is that credit unions offer better <a href="http://www.wisebread.com/the-best-low-interest-rate-credit-cards?ref=internal">credit card interest rates</a> than banks. According to the National Credit Union Administration, the average annual interest rate for <a href="http://www.ncua.gov/DataApps/Documents/CUBNK201403.pdf">credit cards issued by credit unions is 11.56%</a>, while for those issued by banks is 12.87%. For example, the Aloha Pacific Federal Credit Union offers VISA credit cards starting at a 8.00% APR. Additionally, almost all credit unions charge no annual fees for their credit cards.</p> <p>Given the $100 initial deposit, several credit unions have very low requirements to issue a $400 to $500 credit card. The most important requirement is that you are able to provide proof of employment. This is a great way to access a credit card even with bad credit and work towards improving your credit score.</p> <h2>Get a Secured Credit Card</h2> <p>But, what if you are not eligible for any credit union? It is true that you have to qualify to become a member. For example, there are credit unions for university students, federal and state employees, or members of professional associations. Also, it is possible that there is just no credit unions available in your area.</p> <p>In that case, your best option is to get a <a href="http://www.wisebread.com/what-are-secured-credit-cards?ref=inernal">secured credit card</a>. Unlike regular credit cards, secured ones may not require a credit check. This is a great advantage for those with bad credit because it does away with a <a href="http://www.investopedia.com/terms/h/hard-inquiry.asp">hard inquiry</a> and the possibility of getting dinged with a credit denial.</p> <p>A secured credit card works just like a <a href="http://www.wisebread.com/5-best-prepaid-debit-cards">prepaid gift card</a>. For example, if you deposit $400 in your account, then your credit limit is $400.</p> <p>Secured credit cards offer several advantages to those with bad credit:</p> <ul> <li>Provides a &quot;last resort&quot; solution to getting a credit card, which is essential to build back up your credit score.<br /> &nbsp;</li> <li>Through responsible management over time, allows you to build higher credit limits that may not require a deposit.<br /> &nbsp;</li> <li>Gathers evidence for the three credit bureaus (<a href="http://www.equifax.com/">Equifax</a>, <a href="http://www.experian.com">Experian</a>, and <a href="http://www.transunion.com">TransUnion</a>) of good debt management, which boosts your credit score.<br /> &nbsp;</li> <li>Allows you to become eligible for &quot;regular&quot; credit cards from the same financial institution over time.</li> </ul> <p>When evaluating secured credit cards (See also: <a href="http://www.wisebread.com/the-5-best-secured-credit-cards">The 5 Best Secured Credit Cards</a>), remember to:</p> <ul> <li>Avoid cards with application or setup fees.</li> <li>Select a card with a low annual fee and a simple cost structure.</li> <li>Choose cards that appear as regular credit cards, not secured ones, on your credit report.</li> <li>Understand the rules to qualify the lowest interest rate before applying.</li> <li>Look for cards with cash or gas rewards.</li> <li>Inquire about additional benefits, such as car rental insurance and no charge for foreign transactions.</li> </ul> <h2>The Bottom Line on Credit Cards</h2> <p>Notice that we have not included here finding a cosigner as a recommended way to get a credit card in case of bad credit. While it is an easy route to qualify for certain credit cards, it does not address the main problem: your poor credit score. Additionally, it is a decision that if things go sour, could kill a relationship with a family or friend. (See also: <a href="http://www.wisebread.com/7-decisions-that-seem-ok-now-but-might-ruin-your-finances-later?ref=seealso">7 Decisions That Seem OK Now, but Might Ruin Your Finances Later</a>)</p> <p>Remember that a credit score is necessary for applying to some jobs and setting rates for financial products, such as car and life insurance. This is why it is important to maintain a credit card even during periods of bad credit, so that you can rebuild your credit score.</p> <p><em>How did you get a credit card while having bad credit?</em></p> <a href="http://www.wisebread.com/how-to-get-a-credit-card-when-you-have-bad-credit" class="sharethis-link" title="How to Get a Credit Card When You Have Bad Credit" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Credit Cards Debt Management bad credit credit credit score repair credit secured credit Wed, 30 Jul 2014 13:00:03 +0000 Damian Davila 1170316 at http://www.wisebread.com Best Money Tips: The Debt Edition http://www.wisebread.com/best-money-tips-the-debt-edition <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/best-money-tips-the-debt-edition" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/student-debt-iStock_000020939569Small.jpg" alt="student debt" title="student debt" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Welcome to Wise Bread's <a href="http://www.wisebread.com/topic/best-money-tips">Best Money Tips</a> Roundup! Today we are featuring some of the best articles from around the web on debt!</p> <h2>Top 5 Articles</h2> <p><a href="http://www.freemoneyfinance.com/2006/08/six_debt_tips_f.html">Six Debt Tips for College Students and Recent Grads</a> &mdash; College students and recent grads would be wise to know how much money they can borrow and pay bills on time. [Free Money Finance]</p> <p><a href="http://www.americandebtproject.com/2014/01/you-just-got-out-of-debt-now-what-6-things-to-do-once-your-debt-is-paid-off/">You Just Got Out of Debt. Now What? 6 Things to Do Once Your Debt Is Paid Off</a> &mdash; Not sure what to do after you've paid off your debt? Create a financial plan and save for an emergency. [American Debt Project]</p> <p><a href="http://cashmoneylife.com/get-out-of-debt-reduction-dave-ramsey/">Which Debt Should You Pay First?</a> &mdash; When it comes to paying off debt, it is important to try to reduce your interest rates. [Cash Money Life]</p> <p><a href="http://www.thesimpledollar.com/does-good-debt-exist/">Does Good Debt Exist?</a> &mdash; If you absolutely need a car, then a car loan may be a &quot;good&quot; debt for you to have. [The Simple Dollar]</p> <p><a href="http://www.narrowbridge.net/5-great-reasons-to-get-out-of-debt/">5 Great Reasons to Get Out of Debt</a> &mdash; Getting rid of debt means you can stop paying interest and live stress free. [NarrowBridge Finance]</p> <h2>Other Essential Reading</h2> <p><a href="http://www.consumerismcommentary.com/debt-reduction-methods-and-philosophies-snowball-avalanche-and-more/">Debt Reduction Methods and Philosophies: Snowball, Avalanche and More</a> &mdash; Do you know the difference between the snowball and avalanche debt reduction methods? [Consumerism Commentary]</p> <p><a href="http://livingonthecheap.com/dealing-debt-collectors/">How to Deal With Debt Collectors</a> &mdash; When dealing with debt collectors, be aware that they cannot call you before 8 a.m. or after 9 p.m. [Living on the Cheap]</p> <p><a href="http://www.stretcher.com/stories/01/011029d.cfm">Inherited Debts?</a> &mdash; Your parents cannot leave your debts to you. Typically a will determines financial affairs after someone dies. [TheDollarStretcher.com]</p> <p><a href="http://moneysmartlife.com/tools-to-help-you-pay-off-debt-and-reach-your-goals/">6 Tools to Help You Pay Off Debt and Reach Your Goals</a> &mdash; Online calculators and ReadyForZero can help you pay off your debt. [Money Smart Life]</p> <p><a href="http://www.savvysugar.com/How-Pay-Off-Debt-Five-Years-29776211">How This Couple Paid Off a $210,500 Debt in 5 Years</a> &mdash; To pay off your debt, sticking to a strategy and increasing your income can help. [PopSugar Smart Living]</p> <a href="http://www.wisebread.com/best-money-tips-the-debt-edition" class="sharethis-link" title="Best Money Tips: The Debt Edition" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/ashley-jacobs">Ashley Jacobs</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Debt Management best money tips debt Tue, 29 Jul 2014 19:00:07 +0000 Ashley Jacobs 1149839 at http://www.wisebread.com 10 Dark-Side Motivations to Get You Out of Debt http://www.wisebread.com/10-dark-side-motivations-to-get-you-out-of-debt <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/10-dark-side-motivations-to-get-you-out-of-debt" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/quitting-job-182298092-small.jpg" alt="quit job" title="quit job" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>We usually like to take the high ground when motivating ourselves. When it comes to getting out of debt, common reasons include &quot;I want to put more money into a college savings fund&quot; or &quot;it will lower my insurance premiums.&quot; And yes, they're good reasons. (See also: <a href="http://www.wisebread.com/6-harmful-money-beliefs-that-are-keeping-you-poor?ref=seealso">6 Harmful Money Beliefs That Are Keeping You Poor</a>)</p> <p>But what if, for a second, we don't go the way of the good-hearted Luke Skywalker, and instead follow the path of his evil father? What if we use motivations that come from &quot;the dark side?&quot;</p> <p>Here are 10 dark-side motivations you could use to get out of debt. Feel the power of the force.</p> <h2>1. Beat the Joneses</h2> <p>Forget keeping up with the neighbors or co-workers who always seem to be doing better than you. It's time to beat them at their own game. Scrimp, save, cut back, and do whatever you can to get rid of that debt you have. Once you're debt-free, start throwing that in their face. The average indebted American has almost <a href="http://money.cnn.com/magazines/moneymag/money101/lesson9/">$16,000 in credit card debt</a>. If your neighbors are driving around in fancy cars, and always wearing new threads, they're probably in that camp. How good will it feel to casually tell them you have ZERO credit card debt. That's right. None. Zip. Nada. Watch their squirming faces and enjoy.</p> <h2>2. Better Still, Move Away From Them!</h2> <p>It's all well and good one-upping your neighbors, but why not just get out of dodge and save enough money to buy a bigger, better house in a more exclusive neighborhood? By getting out of debt, you'll get a better credit score, have money to put into savings, and will be able to move into the home you've always wanted. Won't it be nice to wave goodbye to that one neighbor you really cannot stand?</p> <h2>3. Splurge On Something Insanely Selfish</h2> <p>Yes, we know the reasons people want to get out of debt. Paying off those credit cards every month sucks, especially when your money is <a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards?ref=internal">paying off the interest first</a>. What if you put a goal in front of you that is a complete waste of money, for most people anyway? Maybe you've always wanted the original costume Michael Keaton wore in Batman. Or perhaps it's a half-eaten cheeseburger that Elvis left behind. Whatever your insane splurge is, don't let other people tell you it's not something worth getting out of debt for. It is. If it is the reason you're debt-free, it really is. Of course, don't go back into debt buying it!</p> <h2>4. Quit Your Crappy Job Earlier</h2> <p>Think about it. The sooner you get out of debt, the sooner you can start saving. And that also means saving for retirement. The more you put into your 401(k), the quicker it will accumulate. Before you know it, you've shaved five, or even ten, years off your retirement date. If that's not a reason to get out of debt, what is?! (See also: <a href="http://www.wisebread.com/14-ways-to-retire-early?ref=seealso">14 Ways to Retire Early</a>)</p> <h2>5. Pig Out</h2> <p>How about some gluttony? Usually, getting out of debt is something that requires some major sacrifices. You may really be <a href="http://www.wisebread.com/21-surprising-and-delicious-ways-to-cook-instant-ramen">eating ramen</a> for a few months, or if you're a Brit, the good old beans on toast. Why not give yourself a massive feast as a goal? Once you get out of debt, treat yourself to a meal fit for three kings. Order your favorite everything, have it delivered, eat it in the bathtub watching your favorite movie while drinking a one-gallon vanilla shake. It's only once, and to be honest, your stomach won't be able to handle the size or richness of the food you'll be throwing back. But who cares!</p> <h2>6. Destroy Something</h2> <p>Legally, of course. But think about this one; is there something you really hate that you want to get rid of? It can be small, like the clock in your mother-in-law's house that plays the sounds of different birds chirping, every single hour. Maybe it's an eyesore in the neighborhood. Whatever it is, promise yourself that when you get out of debt, you'll find a way to buy it&hellip; so that you can send it to a grisly end. Think this is silly? I talked to seven people in the office today; every single one had something in mind when I brought it up.</p> <p>What would you buy, only to put it on the chopping block?</p> <h2>7. Get Revenge</h2> <p>They say revenge is a dish best served cold. Well, it may be a while until you get out of debt, so your dish of vengeance could be quite cold indeed. But don't let that stop you from using it as grim motivation.</p> <p>Is there someone who wronged you? Someone who made (or is currently making) your life miserable? What could you do to them when you get out of debt? It could be a cheap and harmless prank, or it could be something more inventive and costly. Check out <a href="https://www.youtube.com/results?search_query=revenge+prank">YouTube here</a> for a few ideas. Just don't go breaking any laws, okay?</p> <h2>8. Publish a Tell-All Book</h2> <p>Tired of all those haters who hate on you? Really wish you had the money to put all the dirt you have on them into a book? Well, it can happen. It doesn't take a big deal with a publisher: you can publish your own book on sites like <a href="http://www.lulu.com/">Lulu</a> and <a href="https://www.youtube.com/results?search_query=revenge+prank">Blurb</a>. So, focus on getting out of debt, and spend those nights you're not going out writing everything down. When you hit your debt-free goals, use some of the money you're now saving to run off a few copies of the book and distribute it to those most deserving.</p> <h2>9. Invent Something Horrible</h2> <p>There's a device out there called &quot;the <a href="http://www.thinkgeek.com/product/b278/">Annoyatron</a>.&quot; Its sole purpose is to drive people absolutely nuts by emitting a random beep no one can trace. It's evil. Like Darth Vader meets the Joker evil. We are all capable of such creative mischief. Once you're out of debt, you can devote a little time and money into making your very own. And who knows, if it's popular it could make you a ton of money too!</p> <h2>10. Replace All Your Hand-Me-Downs</h2> <p>Right now, you may be calling them &quot;family keepsakes&quot; or &quot;precious memories.&quot; To be fair, some of them are. But some of them, like the old sofa with the weird smell, or the painting that scares you every time you pass it, are not so much keepsakes as heartaches. You're only keeping them around because you can't afford to replace them. Once you're out of debt, you can give them away, donate them, burn them, dump them, or give them back to the original owner &mdash; and replace them without something you actually like. And can now afford.</p> <p><em>So, this was clearly a list of more crazy, dark ideas, but how would you add to it? What dark motivation can you think of to help you (or anyone else) get out of debt?</em></p> <a href="http://www.wisebread.com/10-dark-side-motivations-to-get-you-out-of-debt" class="sharethis-link" title="10 Dark-Side Motivations to Get You Out of Debt " rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/paul-michael">Paul Michael</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Budgeting Debt Management debt debt elimination motivation spending Thu, 24 Jul 2014 17:00:04 +0000 Paul Michael 1166030 at http://www.wisebread.com 5 Inspiring People Who Each Paid Off Over $100,000 in Debt http://www.wisebread.com/5-inspiring-people-who-each-paid-off-over-100000-in-debt <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-inspiring-people-who-each-paid-off-over-100000-in-debt" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/paying-bill-122474302-small.jpg" alt="paying bills" title="paying bills" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Americans today owe over <a href="http://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/">$11 trillion in debt</a> and that number is on the rise. On a household level, that averages out to $15,191 in credit card debt, $154,365 in mortgage debt, and $33,607 in student loan debt &mdash; per indebted household.</p> <p>Carrying a large debt load may seem like a necessity for some, but for many it also keeps them from reaching their dreams. Bulky monthly payments to creditors deplete funds you could be using to fund your dreams for tomorrow. (See also: <a href="http://www.wisebread.com/the-most-valuable-thing-debt-takes-from-you-isnt-money-its-this?ref=seealso">The Most Valuable Thing Debt Is Costing You Isn't Money</a>)</p> <p>Meet five inspiring people who made a commitment to paying down over $100,000 in debt and changed their lives for the better.</p> <h2>Cherie Lowe, Greenwood, IN</h2> <p><a href="http://www.queenoffree.net">Blogger</a> and author of <a href="http://www.amazon.com/gp/product/1414397208/ref=as_li_tl?ie=UTF8&amp;camp=1789&amp;creative=390957&amp;creativeASIN=1414397208&amp;linkCode=as2&amp;tag=wisbre03-20&amp;linkId=TFUQ4T4DLAXIECG3">Slaying the Debt Dragon: How One Family Conquered Their Money Monster and Found an Inspired Happily After</a></p> <p><strong>Paid Off</strong>: $127,000 in four years</p> <h3>What She Paid Off</h3> <p>In four years, Cherie Lowe and her husband, Brian, paid off $127,000 in debts including $80,000 for student loans, $16,500 in credit card balances, $12,000 in car loans, and an additional $12,000 in assorted medical and home expenses.</p> <h3>How She Did It</h3> <p>&quot;We used the <a href="http://www.wisebread.com/a-comprehensive-guide-to-the-debt-snowball-method-0?ref=internal">debt snowball method</a> and followed many of the principles outlined by Dave Ramsey,&quot; says Cherie. Ramsey's methods are counterintuitive for many, she admits, but they worked wonders for her family. The Lowes also:</p> <ul> <li>Took on <a href="http://www.wisebread.com/30-great-side-jobs">extra work</a>. Brian worked three jobs at very long hours.<br /> &nbsp;</li> <li>Ran their home like a business. Cherie streamlined expenses by qualifying purchases with this question: &quot;Will this choice help us save as much as possible?&quot; If not, they didn't choose it.<br /> &nbsp;</li> <li>Made temporary <a href="http://www.wisebread.com/10-smart-ways-to-make-yourself-love-saving-money">sacrifices to save money</a>. &quot;We didn't eat meat for about six months so we could continue to use every penny to fuel our efforts.&quot; Brian didn't eat at a restaurant &mdash; even for a cup of coffee &mdash; for 2.5 years. The two didn't exchange gifts for Christmas, anniversaries, or Valentine's Day (although they did buy gifts for their kids!)</li> </ul> <h3>Why She's Glad She Did It</h3> <p>&quot;Paying off debt unified our relationship in ways I could never even describe,&quot; says Cherie. &quot;We're on the same page with our goals, saving 15% of all of our <a href="http://www.wisebread.com/10-easy-ways-to-supercharge-your-retirement">income for retirement</a>, quickly building college funds for our daughters (ages 11 &amp; 6), and saving for fun things like vacations, a more elaborate Christmas, and a new car.&quot;</p> <p>Unexpected expenses like the $600 car repair the Lowes faced the week we talked for this piece now have very little impact on their daily lives. &quot;[I] like not having to worry anymore when we have a major repair,&quot; says Cherie.</p> <h3>How You Can Do It, Too</h3> <p>&quot;So much of paying off debt has very little to do with money and math and more to do with personal behavior and your outlook on life,&quot; she says. &quot;Live from a mindset of scarcity and you'll never be satisfied, no matter how much money you have. Live from a place of wonder in the wealth you've already been blessed with and you'll be much happier and more successful in paying off debt.&quot;</p> <p>&quot;When we began our journey, we thought it would take 15 years, seven and a half if we really hustled,&quot; she says. Instead, the Lowes' willingness to get creative and sacrifice even the smallest of luxuries allowed them to meet their goal in just under four years. &quot;Success builds momentum, which fuels everything you do,&quot; she says.</p> <h2>Christine Sparacino, Walnut Creek, CA</h2> <p>Retiree and author of Energize Your Retirement: Stories of Passionate Pursuits (upcoming)</p> <p>She and her husband paid off a mortgage on their California home in 21 years.</p> <h3>What She Paid Off</h3> <p>Approximately $245,000 in mortgage debt.</p> <h3>How She Did It</h3> <p>The Sparacinos are from California, home to one of the priciest real estate markets in the nation. Even so, they were able to find a bargain, <a href="http://www.wisebread.com/what-happens-at-a-foreclosure-auction">buying a foreclosed property</a> for $291,000. (Their home is currently worth between $850,000 and $900,000, according to Christine.) &quot;[The house] was in a great neighborhood with excellent schools, but it was definitely the dog of the neighborhood,&quot; says Christine. &quot;Since my husband is a general contractor and I don't mind helping, it worked out.&quot;</p> <p>The Sparacinos <a href="http://www.wisebread.com/refi-shy-how-to-determine-if-now-is-the-time-to-refinance">refinanced their mortgage</a> twice to take advantage of a lower interest rate but, says Christine, &quot;We never took additional money out. That's one of the keys.&quot;</p> <p>The Sparacinos also:</p> <ul> <li>Paid extra toward their mortgage every month, even when money was short. They started with an additional $100 per month and bumped the extra amount to $200 &mdash; $300 once their kids graduated from college.<br /> &nbsp;</li> <li>Did most home renovations and repairs themselves, saving on costly contractor expenses.<br /> &nbsp;</li> <li>Used an inheritance to pay the last $105,000 of their mortgage.<br /> &nbsp;</li> <li>Made <a href="http://www.wisebread.com/this-one-financial-trick-lets-you-buy-happiness">conscious choices</a> about how to spend their money, making saving and conscious spending a priority over buying new cars (they drove theirs for about 200,000 miles before replacing) or moving to a larger home.<br /> &nbsp;</li> <li>Found a good accountant and built a long term relationship with him. &quot;We've had the same one since 1984. We grew up and prospered together,&quot; says Christine.<br /> &nbsp;</li> <li>Communicated with each other about spending. They always consulted the other before buying something that cost $100 or more.</li> </ul> <h3>Why She's Glad She Did It</h3> <p>Her two kids were each able to finish college without any student debt. &quot;We were very disciplined about saving,&quot; she says. &quot;Every month, even if it was only $50, we saved money.&quot;</p> <p>Despite their disciplined approach, the Sparacinos never felt they were living frugally. &quot;We spent a lot of money on our kids.&quot; Things like swim team, tutors, space camp, Boy Scouts, and family-centered vacations were their financial priorities.</p> <h3>How You Can Do It, Too</h3> <p>The key to financial success is in the prioritization of spending. &quot;Many of our friends drove expensive cars &mdash; but we didn't. Our accountant told us to move up to a more expensive house &mdash; but we didn't,&quot; she says. Even so, she never felt that they scrimped. They bought what was important to them and passed on what was not.</p> <h2>Matt Kelly, Durango, CO</h2> <p><a href="http://www.personalfinancecoaching.com/about/">Personal Finance Coach</a> and newspaper columnist</p> <p><strong>Paid Off</strong>: $165,000 in debt and saved $20,000 in 15 months.</p> <h3>What He Paid Off</h3> <p>In 15 months, Matt Kelly and his wife, Cheri, paid off $165,000 in credit card, medical, and student loan debt. At the same time, they also put away <a href="http://www.wisebread.com/how-to-save-26000-in-5-years-or-less">$20,000 in an emergency savings</a> fund. Subsequently, they reduced their mortgage burden by an additional $100,000.</p> <h3>How He Did It</h3> <p>&quot;We got very conscious about what's important to us,&quot; says Matt. &quot;We started really tapping into what our dreams are.&quot; By using their dreams as a compass, the Kellys gained clarity about how their debt was holding them back from getting what they wanted out of life.</p> <p>They also:</p> <ul> <li>Sold their condominium and <a href="http://www.wisebread.com/this-is-how-you-downsize-your-home-and-start-living-a-better-life">bought a smaller place</a>. &quot;We actually like the smaller, more connected feel than what we had in our larger, more lavish place,&quot; says Matt. &quot;With that one move alone, we were able to take about $100,000 off our overall debt load.&quot;<br /> &nbsp;</li> <li>Used a $40,000 inheritance to pay down debt, instead of taking a lavish vacation to Hawaii.<br /> &nbsp;</li> <li>Focused exclusively on debt reduction at first, but also set up a budget for monthly expenses and irregular but expected expenses like routine auto maintenance or regular home repairs.<br /> &nbsp;</li> <li>Budgeted for all expenses, not just the monthly ones, including a newspaper subscription, vet bills for their pet, and future car repairs. &quot;These things stopped impacting our budget once we started planning for them,&quot; says Matt. &quot;We were pretending every month would be a perfect month, and that the car would never break down. But, of course, the car does break down.&quot;</li> </ul> <h3>Why He's Glad He Did It</h3> <p>&quot;We were sick of being stressed out and fighting about money,&quot; says Matt. &quot;We still have a mortgage but it's been five to six years since we've had any consumer debt at all.&quot;</p> <p>Soon after paying off their consumer debt, the Kellys were financially able to send their young son, whose dyslexia they had recently uncovered, to a specialty school. &quot;We never would have been able to pay for private school if we were drowning in the debt that we were,&quot; says Matt. &quot;We couldn't have helped our son that way if we hadn't gotten control of our finances.&quot;</p> <h3>How You Can Do It, Too</h3> <p>&quot;I found it far more empowering to focus on what I want, rather than what I didn't want,&quot; says Matt. Thinking ahead about what you want, even if it's something small like a weekend getaway, gives you the power to make good financial choices. Like Matt says, &quot;Focus on your dreams.&quot;</p> <h2>Edward Nevraumont, Seattle, WA</h2> <p>Chief Marketing Officer, <a href="http://www.aplaceformom.com/">A Place for Mom</a></p> <p><strong>Paid Off</strong>: $120,000 in student loan debt in just two years.</p> <h3>What He Paid Off</h3> <p>In two years, Edward Nevraumont paid off $120,000 in student loan debt.</p> <h3>How He Did It</h3> <p>Being a foreign student was an advantage for Edward. &quot;I was a Canadian going to school in the U.S., so I actually got a better rate on the Canadian bank loan over a U.S. student loan,&quot; he says.</p> <p>Edward also:</p> <ul> <li>Was very cautious about any unnecessary spending until his debt was paid off in full.<br /> &nbsp;</li> <li>Paid a hefty $5,000 per month toward his loan. &quot;I had a job as a tax consultant and was making about $150,000 per year plus bonus,&quot; he says. &quot;My Canadian taxes took about a third, which left me a little over $8,000 per month. My apartment was $1,400. I lived on the remaining $600 per month, plus the float from my annual bonus.&quot;</li> </ul> <h2>Why He's Glad He Did It</h2> <p>After paying off his debt, Edward decided to splurge. &quot;I bought a nice racing bike,&quot; he said, &quot;as a gift to myself.&quot;</p> <h3>How You Can Do It, Too</h3> <p>Get a job that pays a lot but keep your expenses at the same level they were <a href="http://www.wisebread.com/15-life-hacks-for-college-students-or-anyone-else-trying-to-save-money">when you were a student</a>,&quot; says Edward. &quot;Just because you have a high income doesn't mean you are rich.&quot;</p> <h2>Kate McKeon, New York, NY</h2> <p>CEO of educational consulting firm <a href="http://www.prepwise.com">PrepWise</a>.</p> <p><strong>Paid Off</strong>: More than $150,000 in small business loans and expenses in under two years.</p> <h3>What She Paid Off</h3> <p>While living in Dallas, TX, Kate McKeon paid off approximately $105,000 in nine months. The remaining $45,000 was paid off in the subsequent 12 months. She later moved to NYC.</p> <h3>How She Did It</h3> <p>As a business owner, Kate personally took on the debts necessary to expand her company. (A move she doesn't recommend, by the way.) After two poor performing years, she faced a mountain of personal debt which forced her to temporarily shut down her business.</p> <p>Kate also:</p> <ul> <li>Picked up two side jobs and worked around the clock. &quot;I averaged 117 hours a week of billable time for eight months,&quot; she says, &quot;and then a more manageable 85 hours a week for the following year.&quot;<br /> &nbsp;</li> <li>Took on jobs with unreasonable clients.<br /> &nbsp;</li> <li>Spent spare moments doing odd jobs. &quot;I was very aware of the market rate for temp professional gigs and weighed every idea or possible cash flow opportunity against that hourly rate,&quot; says McKeon.<br /> &nbsp;</li> <li>Calculated the rate she needed to earn on her time based on the hours she could dedicate to paying back her debt. &quot;If I could make more teaching a bootcamp class than temping as a marketing analyst,&quot; she says, &quot;then I taught a bootcamp class.&quot;<br /> &nbsp;</li> <li>Accepted a debt forgiveness of 20&ndash;30%.</li> </ul> <h3>Why She's Glad She Did It</h3> <p>McKeon feels it was foolish to have taken the debts of her company on with a personal signature. However, she concedes, it was also the fastest way for her to <a href="http://www.wisebread.com/16-ways-to-get-money-for-your-business">get into business</a>.</p> <p>&quot;A mountain of debt is a lot like having a hacking cough that no one understands,&quot; she says. &quot;No one wants to be near a hacking cough.&quot;</p> <h3>How You Can Do It, Too</h3> <p>&quot;Prepare to get dirty,&quot; she says. Only you can dig yourself out of your debt load.</p> <p>Also, do excellent work. &quot;When you have a client who pays you fairly and respects your work, go the extra mile for them. You want to keep them as clients, sure. More important, they are giving you the opportunity to right the ship,&quot; she says. &quot;They may not realize it, but they are investing in you. Be grateful.&quot;</p> <p><em>Do you have massive debts to pay off or have you successfully paid your loans in full? How do you plan to do it or what have you already done? We want to hear about your debt reduction plan. Tell us in the comments below.</em></p> <a href="http://www.wisebread.com/5-inspiring-people-who-each-paid-off-over-100000-in-debt" class="sharethis-link" title="5 Inspiring People Who Each Paid Off Over $100,000 in Debt" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/alaina-tweddale">Alaina Tweddale</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Debt Management credit debt investing productivity saving savings Tue, 22 Jul 2014 13:00:03 +0000 Alaina Tweddale 1163690 at http://www.wisebread.com 10 Ways to Prevent an Emergency From Driving You Into Debt http://www.wisebread.com/10-ways-to-prevent-an-emergency-from-driving-you-into-debt <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/10-ways-to-prevent-an-emergency-from-driving-you-into-debt" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/couple-finances-86515975-small.jpg" alt="couple finances" title="couple finances" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Emergencies happen, and they can often be expensive &mdash; particularly crises like car accidents, unexpected dental or medical needs, high vet bills, or unexpected flooding in your apartment after a vicious storm. If you have not fully built up your emergency fund yet (or you are hit with back-to-back hardships that your emergency fund can't handle), then you can feel like you have no choice but to go into debt to pay for your emergency. (See also: <a href="http://www.wisebread.com/emergency-plan-better-than-an-emergency-fund?ref=seealso">Emergency Plan: Better Than an Emergency Fund</a>)</p> <p>Nothing could be further from the truth. There are much better ways to take care of emergencies without going into debt. Here are ten things you can do to pay for an emergency without debt:</p> <h2>1. Ask Family or Friends for Help</h2> <p>Asking for financial help can be a serious relationship killer, which is why many people would prefer to do anything (including go into debt) rather than ask a friend for money.</p> <p>But the real problem with getting financial help from a loved one is when there are unmet expectations. (See also: <a href="http://www.wisebread.com/how-to-navigate-4-tricky-family-money-situations?ref=seealso">How to Navigate 4 Tricky Family Money Situations</a>)</p> <p>For instance, you might think that your potential benefactor might be doing better financially than they are, or you might think that they ought to help you when they feel much more comfortable saying no to any such request. In either case, you might end up resenting your friend for saying no. You need to go into the conversation with the recognition that they can say no and that it does not reflect in any way on your relationship if they do.</p> <p>On the other end, your lender might feel that you need to pay them back on a quicker time frame than you are comfortable with.</p> <p>The only way to borrow money from a friend or family member with little chance for blowback is to treat it like a financial transaction and actually use a <a href="http://www.investopedia.com/terms/p/promissorynote.asp">promissory note</a>. This legal agreement (which will cost about <a href="http://www.nolo.com/products/promissory-notes">$9 to DIY</a>, and the borrower should be the one to pay for) will spell out the specifics of payment dates, interest, and other loan details.</p> <p>The other important thing to remember about borrowing from friends is that it cannot become a habit &mdash; no matter how diligent you are about repayment.</p> <h2>2. Ask Your Bank for an Emergency Overdraft</h2> <p>If your emergency occurs within a few days of payday, it could be worth your while to talk to your bank about an emergency overdraft. Explain the situation that you are in and tell the bank how much of an overdraft you will need. Be sure to ask how much the fee will be to cover your overdraft. From there, your bank can either approve or deny your request. Depending on the cost of your overdraft protection, this could be a relatively inexpensive way to get the money you need.</p> <h2>3. Sell or Pawn Something</h2> <p>In an emergency, it becomes clear that some of the stuff you own may be less important than you think. That's a good time to sell some of the things you have kept but no longer need. If you have some time, you can try to sell your things on Craigslist or eBay. If you need money in a hurry, you can take your valuables to a pawnshop. There you have the option of outright selling your goods or pawning them &mdash; taking a loan with a set amount of time to buy it back with interest.</p> <h2>4. Borrow From Your 401(k) or Your IRA</h2> <p>While it's generally a bad idea to borrow from your future to pay for a current need, there are some instances when it makes sense for you to take a loan from one of your retirement accounts. In particular, if you have a short-term emergency need for cash, borrowing that money from your 401(k) or your IRA could get potentially you through the emergency with few consequences to your retirement account. (See also: <a href="http://www.wisebread.com/this-is-when-you-should-borrow-from-your-retirement-account?ref=seealso">This Is When You Should Borrow From Your Retirement Account</a>)</p> <h3>401(k)</h3> <p>You are legally allowed to access a portion (generally the <a href="http://www.investopedia.com/articles/retirement/08/borrow-from-401k-loan.asp">lesser of 50% or $50,000</a>) of your retirement plan money tax-free. You are required to repay that amount, plus interest (paid to your account), which will help to restore some of the growth you have lost by taking the loan. Loan rules specify a five-year amortization repayment schedule, but there are no pre-payment penalties if you would like to rebuild your account more quickly. In addition, many plans will allow you to make repayments through payroll deduction, in the same way you make normal contributions.</p> <p>One caveat &mdash; if you leave (or lose) your job before paying back the loan, it will be considered an early distribution, which will mean that you owe the 10% early withdrawal penalty and tax on your loan.</p> <h3>IRA</h3> <p>Strictly speaking, you cannot take a loan from an IRA. However, it is legal to <a href="http://www.creators.com/lifestylefeatures/business-and-finance/money-and-you/can-you-borrow-from-your-ira.html">withdraw money from your IRA for 60 days</a> with a tax-free rollover. Basically, you can take money out of your IRA with no taxes or penalties, provided you put the money back into that or another IRA within 60 calendar days. If you fail to replace the money within that time frame, it will be considered an early withdrawal and you will have to pay income taxes on the money and a 10% penalty.</p> <p>In addition, it's important to note that there is what's known as the one-year rule. You can only do such a tax-free rollover once within any 12-month period.</p> <h2>5. Research Alternatives to Your Emergency</h2> <p>Depending on what major bill has unexpectedly cropped up, you may be able to reduce the expense to something more manageable if you do a little shopping around.</p> <p>For instance, emergency dental work does not necessarily have to break the bank. Dental schools are in constant need of patients for students to practice on. A friend of mine who went through dental school at OSU had a great deal of trouble finding patients for each type of procedure she needed to complete for her degree, and even began offering token amounts of money to patients in order to get them to come in for needed procedures.</p> <p>Call your local university to see if they are in need of dental patients &mdash; or veterinary patients if it's your cat or dog that is having the emergency. In addition, vocational and technical schools need practice in diagnosing engine problems in cars. Your problem could be good experience for a budding professional, while having a student fix it could cost you a lot less.</p> <h2>6. Get a Charitable Grant</h2> <p>There are <a href="http://www.moneycrashers.com/get-help-paying-rent/">multiple charities</a> that offer one-time cash grants to help individuals in temporary financial difficulty. These grants do not have to be repaid, but qualifications depend on both the limits of the particular charity and your particular situation.</p> <h3>The Salvation Army</h3> <p>Local chapters of the <a href="http://www.salvationarmyusa.org">Salvation Army</a> offer one-time assistance to help cover things like rent. To apply, you must visit your local Salvation Army office and prove your hardship.</p> <h3>Catholic Charities</h3> <p><a href="http://catholiccharitiesusa.org/">Catholic Charities</a> offers emergency assistance grants for applicants who prove their need. You must apply in person and talk with a caseworker.</p> <h3>Modest Needs</h3> <p>This charity is funded similarly to Kickstarter. Private donors pledge money to fund specific grants for those in need, and the applicant will only receive the funds if his or her application is fully funded. Anyone with a job can apply. In particular, <a href="https://www.modestneeds.org/index.asp">Modest Needs</a> offers the Self Sufficiency Grant, which provides up to $1000 to cover one emergency expense.</p> <h3>211</h3> <p><a href="http://211.org/">211.org</a> is a program run through the United Way, and it offers an online database of local nonprofits across the United States.</p> <h2>7. Cut Way Back</h2> <p>How much do you spend each month on food, utilities, gas, and cell phone? You may be able to find enough money in your monthly budget to cover your emergency if you are willing to eat peanut butter and jelly, turn off the a/c, take the bus, and switch off your cell phone data plan for a month. This may sound drastic, but it's preferable to getting into debt just to avoid a few weeks of discomfort.</p> <h2>8. Adjust Your Withholding</h2> <p>One important and reassuring piece of information I learned from my financial planner father was that the IRS does not care what you say on your W-4, as long as you tell them the truth come tax time. That's because the W-4 is simply a form that tells your employer what your allowances are &mdash; not a legally binding claim to the IRS.</p> <p>What that means is that you can potentially <a href="http://www.kiplinger.com/article/taxes/T055-C000-S001-last-chance-to-fix-your-tax-withholding.html">adjust your withholding on your W-4 form</a> at your workplace and see more money in your very next paycheck. By claiming more allowances on your W-4, you will be sending less of your money to the IRS.</p> <p>If you regularly get a large refund, you can figure out exactly what your withholding should be using the <a href="http://www.irs.gov/Individuals/IRS-Withholding-Calculator">IRS online withholding calculator</a>. In this case, once you've adjusted your withholding, you can keep it at the adjusted amount for the rest of the year and save the difference (ideally in an interest-bearing account or in your retirement account).</p> <p>However, even if your refunds tend to be modest, you can still take advantage of this trick. Simply adjust your withholding for a short time &mdash; a month, for instance &mdash; and submit a new W-4 with your original allowances once the month is up. In this case, you will have to be careful that you have enough set aside at tax time in case there is a shortfall because of this. (And make certain that you re-adjust the numbers back, or else you'll be in for a nasty surprise next April 15.)</p> <h2>9. Try Crowdfunding</h2> <p>Websites like <a href="http://www.gofundme.com/">GoFundMe</a> offer opportunities to raise funds through online donations. These sites allow you to create a profile explaining who you are and why you need the funds. Donors give money to your campaign, and the site takes a percentage of the donation for operational costs. The fundraiser can withdraw the money raised on GoFundMe at any time. GoFundMe has no campaign deadlines or goal limits (although other crowdfunding sites do), and the service is free for the fundraiser.</p> <h2>10. Rent Out Something You Own</h2> <p>No matter where you live or what you do, it's likely that you own something someone else might need temporarily. For instance, if you live in an area that draws tourism or business travel, you might be able to rent out a room (or even the whole place, if you crash at a friend's house) on <a href="https://www.airbnb.com/">Airbnb</a>.</p> <p>Alternatively, if parking is at premium in your area, you could rent out your parking space or garage while you perfect your parallel parking skills (or leave your car elsewhere and take the bus for a few days). Check out sites like <a href="https://www.parkingpanda.com/how-it-works">ParkingPanda</a> and <a href="https://www.justpark.com/rent-out-a-parking-space/?source=pamh">JustPark</a>.</p> <p>Finally, as long as your car is not the basis of your emergency, you could rent it out to visitors who need wheels on <a href="https://relayrides.com/">RelayRides</a>.</p> <h2>Life Happens</h2> <p>In the best-case scenario, we would all have a robust emergency fund and appropriate insurance for every possible curve ball. But even the <a href="http://en.wikipedia.org/wiki/To_a_Mouse">best-laid schemes &quot;gang aft agley,&quot;</a> and it's important to remember that paying for an emergency does not have to mean taking on debt.</p> <p><em>Have you been fortunate enough to navigate an emergency without crippling your finances? What was your strategy? Please share in comments.</em></p> <a href="http://www.wisebread.com/10-ways-to-prevent-an-emergency-from-driving-you-into-debt" class="sharethis-link" title="10 Ways to Prevent an Emergency From Driving You Into Debt" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/emily-guy-birken">Emily Guy Birken</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Debt Management avoid debt debt emergency emergency fund quick cash Mon, 21 Jul 2014 09:00:03 +0000 Emily Guy Birken 1162784 at http://www.wisebread.com 8 Things People With Good Credit Never Do http://www.wisebread.com/8-things-people-with-good-credit-never-do <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-things-people-with-good-credit-never-do" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/credit-card-bill-79078261-small.jpg" alt="credit card bill" title="credit card bill" class="imagecache imagecache-250w" width="250" height="150" /></a> </div> </div> </div> <p>Paying your credit card on time every month can <a href="http://www.wisebread.com/a-secured-credit-card-can-repair-your-credit-score-heres-how-to-pick-the-best?ref=internal">raise your credit score</a>, and with an excellent FICO score it's easier to qualify for loans and a low interest rate. However, achieving a high credit score is just the beginning. You also need to maintain this score. (See also: <a href="http://www.wisebread.com/how-to-rebuild-your-credit-in-8-simple-steps?ref=seealso">How to Rebuild Your Credit Score in 8 Simple Steps</a>)</p> <p>If you don't know a lot about credit, you might unknowingly do things that lower your score over time. Maintaining good credit isn't rocket science, but you'll need to know the right ways to manage credit.</p> <p>For a solid place to start, here are eight things that people with good credit never do.</p> <h2>1. They Don't Rely on One Type of Credit</h2> <p>You might feel that it's safer to stick with one type of credit. This way, you can keep your finances simple and avoid unnecessary debt. However, credit scoring models take into account the types of accounts you have, and diversifying accounts work in your favor.</p> <p>A mixture of different types of accounts shows that you're able to manage multiple debt, which adds positive points to your credit score. A good mix includes a credit card and an installment loan, such as a mortgage, an auto loan, or a student loan.</p> <h2>2. They Don't Wait Until the Due Date to Pay Off Credit Cards</h2> <p>People with good credit know the danger of excessive credit card debt, and they might pay off balances each month to avoid debt. However, these individuals don't always wait until the due date to pay off their cards &mdash; they pay by the report date. (See also: <a href="http://www.wisebread.com/pay-bills-early-only-if-you-want-to-save-money?ref=seealso">Pay Bills Early? Only If You Want to Save Money</a>)</p> <p>The report date is when a creditor sends updates to the credit bureaus, and paying off credit cards by this date is a smart move for those who use their credit cards heavily during the month, perhaps to <a href="http://www.wisebread.com/5-best-cash-back-credit-cards?ref=internal">rack up rewards points</a>. Let me explain.</p> <p>Let's say you charge $2,000 to your credit card every month, and you don't pay off this balance until your due date on the 15th. If your creditor reports to the credit bureaus on the 10th of every month, it'll appear as if you're carrying a $2,000 balance from month-to-month, despite the fact that you always pay off the card by the due date. But if you pay off the credit card by the 10th of the month, the creditor reports a zero balance. The less debt on your credit report, the better.</p> <h2>3. They Don't Stop Using Their Credit Cards</h2> <p>Cutting up a credit card might be the answer when you cannot control spending. However, people with good credit never stop using their cards &mdash; even if they only charge $10 or $15 every few months.</p> <p>Some credit card companies cancel accounts due to inactivity, which can affect an account holder's credit score is two ways. A cancelled account might cause their overall credit utilization ratio to go above 30%, which can trigger a drop in credit score. Also, if a cancelled account happens to be the account holder's oldest account, closing this account can eventually reduce the length of the account holder's credit history, resulting in a lower credit score.</p> <h2>4. They Don't Turn Down Credit Limit Increases</h2> <p>You might be shocked to learn that a creditor increased your credit card limit by several thousand dollars. To avoid any temptation, you may even call the creditor to decline the increase. However, credit limit increases aren't necessarily a bad thing. They can widen the gap between your credit card balance and your credit limit. This lowers your credit card utilization ratio and helps maintain a good credit score.</p> <h2>5. They Don't Open Retail Accounts</h2> <p>Getting a retail charge card isn't credit suicide &mdash; as long as you apply sparingly. However, people with good credit know how credit inquiries impact credit scores, and they don't arbitrarily apply for store accounts to save 10% off a purchase.</p> <p>Each inquiry can reduce a credit score by up to five points, depending on the credit history. This might seem like a minor ding, but if you applied for ten accounts in a short period, that's up to 50 points off your score.</p> <h2>6. They Don't Ignore the Fine Print</h2> <p>There is no one-size-fits-all credit card. People with good credit know that terms and fees can vary by credit card company and they read the fine print before applying. This part of the application highlights everything from the <a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards?ref=internal">introductory rate to balance transfer</a> fees. Knowing the card's terms is how they take charge of their credit. This way, they don't get stuck paying unnecessary fees or a higher interest rate, and they can decide whether a card works for them.</p> <h2>7. They Don't Forget to Monitor for Fraud</h2> <p>Financial experts recommend that everyone order a free copy of their credit reports at least once a year. However, people with good credit don't rely solely on yearly checkups. They're always on top of their credit and they typically sign up for credit monitoring services. These services send an email alert whenever an account is opened in their name, allowing them to catch fraud before it destroys their credit score. (<a target="_blank" href="http://track.linkoffers.net/a.aspx?foid=18819056&amp;fot=1139&amp;foc=1" rel="nofollow">Discover it card</a> offers a free credit score with each monthly statement.)</p> <h2>8. They Don't Co-Sign Loans</h2> <p>People with good credit do not put their credit score at risk. They know that co-signing a credit card or loan can potentially ruin their credit history. Even if the primary account holder doesn't completely default, he might send payments 30 days late, which triggers a negative remark on his credit report and the cosigner's report.</p> <p><em>Do you have good credit? What are some things you did to get there? Let me know in the comments below.</em></p> <a href="http://www.wisebread.com/8-things-people-with-good-credit-never-do" class="sharethis-link" title="8 Things People With Good Credit Never Do" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/mikey-rox">Mikey Rox</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Credit Cards Debt Management credit cards credit habits debt money management Thu, 10 Jul 2014 13:00:05 +0000 Mikey Rox 1156614 at http://www.wisebread.com This One Mistake Could Delay Your Retirement by 10 Years http://www.wisebread.com/this-one-mistake-could-delay-your-retirement-by-10-years <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/this-one-mistake-could-delay-your-retirement-by-10-years" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/senior-couple-budget-177715864-small.jpg" alt="senior couple budget" title="senior couple budget" class="imagecache imagecache-250w" width="250" height="147" /></a> </div> </div> </div> <p>A while back, during a housing boom (remember those?), I watched a TV news segment about homeownership. The reporter was interviewing a young married couple shopping for a house and the wife said: &quot;My parents told me to buy the biggest house you can afford, so that's what we're doing.&quot; After all, her parents probably saw the value of their home rise to many times its original price, eventually becoming one of their biggest assets &mdash; just in time for retirement.</p> <p>In fact, on average home values do rise &mdash; by about 4% per year, keeping pace with inflation &mdash; and over the long term this growth can be substantial. So on the surface, this &quot;buy the biggest&quot; strategy seemed to make sense. A bigger purchase price must lead to a bigger ending price, right? Maybe so, but something bothered me about this advice; a piece of the puzzle seemed to be missing, but I just couldn't put my finger on it at the time.</p> <h2>Buy the Biggest You Can Afford?</h2> <p>Fast forward a few years later. My wife and I and our two infant sons were squeezed into a one bedroom unit of a 2-family home. It was time to find something a little roomier. But why buy something only a little roomier? Why not buy the biggest? That's what we did&hellip;we purchased a McMansion. The parents of that young couple from the news report would have been proud of us. Just think how big our home's ending price would be after 30 years!</p> <h3>My Big House Ate My Cash Flow</h3> <p>What I failed to realize was that 30 years was a long way off. It was time to live in the present, and that meant making an enormous mortgage + property tax + homeowner's insurance payment every month. Add to that the ongoing maintenance, utility, and repair costs and what at first seemed to be a golden nest egg turned out to be a money pit. Our McMansion drained every last cent of our monthly income.</p> <p>That's when I discovered that the missing piece of the puzzle I had been looking for was cash flow. Sure, a house is a large asset that grows in value; that's the good side. Unfortunately, there's also a flip side: It can be a cash flow killer. The bigger the mortgage the more negative your monthly cash flow.</p> <p>In our case, over the full term of the mortgage we would have paid an <em>extra</em> $420,000 on this super-sized house compared to a more modest one! That's money we could have used to repay other loans or to invest in our retirement account, enabling us achieve financial independence many years sooner.</p> <h2>Downsize for Better Cash Flow</h2> <p>What did we do to correct the mistake?</p> <p>We downsized. And it worked. Suddenly we had a comfortable monthly positive cash flow cushion. What a nice feeling that was.</p> <p>Ah, but sometimes even a good decision can take a bad turn. We soon realized that we over-corrected and downsized to a house that was too small and inadequate for our growing family. So what did we do next? We approved plans for a $120,000 addition. After that came the bathroom renovations. I think you know where this is going. The lesson this time was that a small house can become a money pit, too.</p> <h2>The Goldilocks Principle</h2> <p>The key, then, is to apply what I like to call The Goldilocks Principle to home buying: Look for one that's not too big or too small, but just right. How? Run the numbers beforehand, when you're shopping. To help with this use the following table, which allows you to compare the monthly negative cash flows associated with homes you're considering. Your goal is &mdash; all other things equal &mdash; to find a house with the lowest (or nearly the lowest) negative cash flow.</p> <p><img width="605" height="336" src="http://www.wisebread.com/files/fruganomics/Whelan's Housing Chart 2.png" alt="" /></p> <p>I've pre-filled this chart with hypothetical numbers but the template is universal and you can use it to compare actual homes you're interested in purchasing. As you can see in this example buying Property 2, a bigger single-family home, would cost an additional $425 every month compared to Property 1, the condo. Over the term of a 30 year mortgage that adds up to an extra cost to you of $153,000. Ouch!</p> <p>Now take a look at Property 3.</p> <p>It's also a more expensive $250,000 house but is a two-family rental, which means there's some positive monthly cash flow (from rent) to offset all those negative numbers. In fact, because of the rental income from just one of the two units the total negative monthly cash flow is $655 lower than the single-family house having the same purchase price, and it's even $230 per month lower than the condo!</p> <p>So rental properties give you an opportunity to buy a higher-priced property (which translates to a much higher ending sales price over time) while also reducing your monthly negative cash flow. The rental income can even be used to help pre-pay your mortgage, which might then create a net positive monthly cash flow after all expenses. So it offers an opportunity to have your cake (or porridge) and eat it too.</p> <h2>Don't Forget Other Costs</h2> <p>One other thing to consider, though. In addition to these estimates of cash flow at the time of purchase, you should also estimate repair costs and future improvement costs after moving in. As I learned first-hand, those large lump sum future expenditures can make all the difference between a good and a not-so-good home choice, so be sure to also give them careful, honest consideration.</p> <p>Purchasing a home is a big, complicated decision. Emotional considerations are part of the equation, and they should be. After all, your family's comfort and your choice of a community are part of the package. But try not to let your emotions overwhelm the financial considerations. You'll want to get the decision right the first time rather than learn the hard way as I did. A bad decision on this one item, if uncorrected, can delay your progress towards financial independence by as much as a decade. So to help ensure a balanced review, filter your decision with immediate and longer-term cash flow considerations and let the numbers guide you to the choice that's best for your budget and for your long-term financial security.</p> <p><em>Was monthly cash flow a consideration for you when you purchased a home? Please share in comments!</em></p> <a href="http://www.wisebread.com/this-one-mistake-could-delay-your-retirement-by-10-years" class="sharethis-link" title="This One Mistake Could Delay Your Retirement by 10 Years" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/keith-whelan">Keith Whelan</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Debt Management Real Estate and Housing cash flow mortgages rental income retirement Mon, 07 Jul 2014 09:00:06 +0000 Keith Whelan 1153953 at http://www.wisebread.com The Most Valuable Thing Debt Takes From You Isn't Money — It's This http://www.wisebread.com/the-most-valuable-thing-debt-takes-from-you-isnt-money-its-this <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-most-valuable-thing-debt-takes-from-you-isnt-money-its-this" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/paying-bills-157864480-small.jpg" alt="paying bills" title="paying bills" class="imagecache imagecache-250w" width="250" height="154" /></a> </div> </div> </div> <p>Financial planners always stress the miracle of <a href="http://www.wisebread.com/the-5-most-important-financial-lessons-people-learn-in-their-20s-did-you">compound interest</a>. The earlier you start saving, the more compound interest works in your favor. Time is on your side.</p> <p>When you have debt, however, compound interest is <a href="http://www.wisebread.com/key-terms-new-credit-card-users-must-understand">the worst</a>. It's what makes paying down credit card debt so difficult. It's one of those things that make it harder to gain financial independence. Luckily, even when compound interest is working against you, time is still your friend. You just have to turn your relationship with time from a long-term partnership to a short-term fling. (See also: <a href="http://www.wisebread.com/lifestyle-inflation-the-ultimate-financial-trap?ref=seealso">Lifestyle Inflation: The Ultimate Financial Trap</a>)</p> <p>I am hugely motivated to pay down my debt by the <a href="http://www.wisebread.com/is-peer-pressure-keeping-you-poor">icky sensation</a> that I am just one step away from the poor house. I will do just about anything to avoid feeling finance-related stress. I am all about pain avoidance. (See also: <a href="http://www.wisebread.com/your-debt-is-killing-you-heres-the-cure?ref=seealso">Your Debt is Killing You</a>)</p> <p>My husband, on the other hand, has a much higher emotional tolerance for debt. He hates scrimping as much as he hates paying the bank for previous purchases. That said, once he discovered that paying down debt quickly saves a crap-ton of money, he jumped on the frugal bandwagon.</p> <h2>Think of the Time When You Won't Have Financial Stress</h2> <p>As of today my husband and I have both been unemployed for 177 days. Luckily, my husband starts working at a fantastic, new job tomorrow, so I will finally be able to go to the dentist without worrying about paying the bill.</p> <p>That said, even with the new income, my husband and I are going to continue to live on our no-frills, crisis budget, until we pay off all our debt.</p> <p>The big lesson of the last six months has been this: Regardless of how upper-middle class we appear, as long as we have debt we are actually poor. That's kind of the definition of poverty right? Not having money. So, as long as we have debt, we not only have NO money, we've got less than no money.</p> <p>After 177 days I don't see the point in extending our poverty for one day longer than we need to. We've got five years to pay off my Home Equity Line of Credit. But why extend our poverty for half a decade when we could save three years of financial stress and pay off the debt in two years instead? We've just lived through six months of grinding poverty, which was no fun, but survivable.</p> <p>Is 24 months of the same, cash-poor life, worth the reward of early financial freedom?</p> <p>I think so.</p> <h2>Less Time in Debt Equals Huge Financial Gains</h2> <p>Paying of my HELOC early will also save me thousands of dollars in interest. Money that I can turn around and spend on furthering my education, so I can get a higher paying job, put toward my retirement fund, or blow on an extravagant vacation.</p> <p>While I love to travel, what I will probably end up doing is using the savings to pay down the mortgage on my rental property.</p> <p>Like most Americans I don't have enough money put away for retirement. People in my family live to be 90. That's several decades of retirement income I've got to find sooner rather than later. Instead of a 401(k), I have a rental property that currently breaks even, but will be an income generator, once I pay off the mortgage. (See also: <a href="http://www.wisebread.com/just-saving-isnt-enough-how-cash-flow-allocation-helps-you-retire?ref=seealso">Just Saving Isn't Enough: How Cash Flow Allocation Helps You Retire</a>)</p> <p>While most people, even bank loan officers, refer to my house as an asset, I don't. Unless something makes money for me while I sleep, it's not an asset.</p> <p>I'll just come out and say it: I'd like to make money in my sleep ASAP.</p> <p>Shockingly, As Soon As Possible is a lot sooner than I expected. Using a <a href="http://money.cnn.com/calculator/pf/debt-free/">debt calculator</a>, I discovered that I could be making a passive rental income from my house that's bigger than my current poverty budget in just 13 years.</p> <h2>Here's the Math</h2> <p>If I make the minimum $1800 mortgage payment on my house every month with my current, yucky interest rate of 5.9%, it will take me until March of 2037 to pay off my house that cost $270,000 (including my HELOC). In addition to the $270,000, I will also spend a whopping $220,866 in interest.</p> <p>However, if I spend just $150 more per month (the equivalent of an one additional mortgage payment per year), I will pay off my mortgage in November of 2033 and instead pay $183,979 in interest. If I really stretch myself and my budget and start paying $2500 a month (an additional $8400 per year), I will pay off my house in May of 2027 and pay a total of $115,940 in interest. So what's the obstacle that's keeping me from becoming financially independent almost ten years sooner, saving $104,926 in interest, and owning a rental property that (by the current rental market) will make me $2000 per month in profit?</p> <p>$8400 per year.</p> <p>Do I think I can find a way to make an additional $8400 per year with that kind of incentive?</p> <p>Yes.</p> <p><em>Have you ever paid off a debt early? Please share your story in comments. Was it worth the extra suffering?</em></p> <a href="http://www.wisebread.com/the-most-valuable-thing-debt-takes-from-you-isnt-money-its-this" class="sharethis-link" title="The Most Valuable Thing Debt Takes From You Isn&#039;t Money — It&#039;s This" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/max-wong">Max Wong</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Budgeting Debt Management budgeting debt mortgage saving Wed, 02 Jul 2014 13:00:04 +0000 Max Wong 1151880 at http://www.wisebread.com