Browsing Category: "Debt"
Saving to pay off debt
A few days ago I stumbled on an article that talked about an interesting way of paying off debt. It’s actually something that I’ve been doing but never thought about writing an article about it. The basic principal is to keep putting money in savings until you have enough saved to pay off an entire debt.
Why is this method of paying of debt effective? Almost every financial plan you will find involves saving an emergency fund before you start paying off debt. By saving money in a savings account until you have enough to pay off an entire debt you are also keeping an emergency fund in case something major comes up during this time. I would suggest saving enough money to pay off the debt as well as some extra before paying off the debt.
For example, we owed about $10,000 on our car. We kept putting money in our savings account until we had about $13,000. We paid off the entire balance on the car loan and still had over $3,000 in savings. If at any time during this period an emergency came up we could have paid for it with cash and then continued to save.
I’m not saying this is the best way of paying debt from a maximum amount of money saved, but I think it’s effective. Paying down large interest rate debt month by month may allow for increased money saved, but might not be as effective for some. It’s just another method to consider for yourself.
How much debt do you have?
With the year end fast approaching I thought it would be fun to do a post about personal debt. I’m curious to know how much personal debt you have, maybe this will encourage some people to actually calculate how much debt they have and get them motivated to start paying it off in the new year. Let’s not include house debt but anything else in your life that drains your bring home pay.
I’ll start with my personal numbers and the minimum payments. I would also like to know how long you expect to take to pay off these debts.
Car Debt: $16,500 / $400 month
Student Loan: $9,000 / $100 month
Credit Card: $4,000 / $100 month (will be paid off this month)
Hope to have everything paid off in less that 18 months! What about you?
Debt causes problems with relationships
Debt and financial problems can cause problems in all areas of our lives, including our relationships with our co-workers, friends, and family. You may notice a negative attitude toward others, causing problems at home and at work. The relationships we develop in life are one of the most important aspects of being happy, so don’t let debt get in the way. Here are some great tips on how to beat the stress of debt and keep your relationships in tact:
- Talk about it to your family, friends and co-workers and don’t try to hide your emotions. It’s possible they have similar situations and you can help each other through the hard times. It will also help them understand your problems and assure them it’s nothing they have done.
- Take a break from the stress. If you are feeling overwhelmed at home or at work walk away for a few minutes. Step outside and go for a walk in order to give you mind a break.
- Exercise a few minutes each day. Exercise is not only a great way to stay fit and healthy, but it can take you mind off debt and other life stresses. Even if you can only spare 15 or 20 minutes each day it’s a lot better than nothing.
- Make a plan to get out of debt. The best way to take you mind off debt is to be debt free. It may seem like and endless goal, but it is possible. There are millions of success stories on the Internet of people who were consumed in debt and are now on the path to financial freedom.
- Ask for help. Don’t try to tackle these problems yourself. That’s why you have friends and family. Even if it’s only to talk to them about what’s going on in your life it will help. At the very least it will help them better understand your situation.
If you are acting unkind to your friends, co-workers and family consider these tips to help improve your relationships. The first step to fixing a problem is admiting you have one. Don’t abondan the people in your life that you are close too. Use all the resources you have available to help you with these troubled times.
Financial Problems and Debt cause Problems at work
Money, finances, and debt are the top concerns for individuals today. Difficulties paying utility bills, meeting deadlines on credit card debts and personal loans are always on our minds. For some people the situation is worse and they worry about how they are going to pay their house payment or even how they will have enough money to feed their children.
With debt being the number one concern among Americans it’s obviously starting to cause work performance issues. Many people are performing badly in the workplace as a result of debt concerns plaguing their minds. Some examples of problems that debt causes at the workplace include:
- debt collectors calling your workplace
- leaving work early because of stress issues
- dealing with personal finance issues on the phone while at work
- personality issues such as short tempers, poor relationships with work colleagues and a less focused attitude towards their work
- Using current employers time to search for a new better paying job
It’s impossible to completely remove personal issues from the workplace. You should however make it a priority to balance your work and personal life. Poor job performance could lead to losing your job, which will make financial problems and debt an even bigger issue. Focus on getting out of debt while continuing to work hard at your job!
Opportunity cost of debt for college students
According to the Department of Education over 30% of college students leave after the first year and almost 50% never graduate. The leading reason for this problem seems to be a lack of money. To make matters worse credit card companies have started invading college campuses offering credit cards to students. They offer free items such as t-shirts, water bottles and sports bags in exchange for a complete credit card application. So not only do 50% of college students never finish college but they leave with student loans and credit card debt.
According to Nellie Mae, in 2004, the average undergraduate owed $2,169 on credit cards, while the average graduate student owed $8,612 in 2006. What a great way to start out your new career! The debt alone isn’t the real problem, the opportunity cost of debt for college students is the major problem.
Opportunity cost, as us college graduates learned in our first economics class is the value of a product forgone to produce or obtain another product. In this case 50% of the students who enter never finish because of financial concerns. According to www.earnmydegree.com the average college graduate earns $52,200, the average person with some college earns $36,800, while a high school graduate earns $30,400. The opportunity cost of not finishing college will cost you an average salary of $15,400 per year! A more dramatic number is over a 35 year period of working you will lose almost $540,000!!!
The lesson to be learned here is don’t pay $540,000 for that t-shirt from the credit card company. There are so many financial temptations while in college and it’s not worth starting out your career in debt. Do yourself a big favor and buy yourself a $10 t-shirt and laugh at the credit card companies all the way to the bank.
Negative amortization (NegAm) loans actually exist
Just when I thought interest only loans were bad I find out about negative amortization loans. Can you believe reputable financial institutions such as banks and mortgage lenders actually allow such a product. A mortgage that actually increases instead of decreases as you pay the payment. Sure you can believe that, it’s a much better deal for the mortgage lender.
A negative amortization loan is a type of loan where the payment on the loan is less than the monthly interest charge. This causes the balance on the loan to actually increase each month instead of decrease. These types of loans are also referred to as a deferred interest or graduated payment mortgage. Most lenders will only allow the negative amortization period to last less than 5 years at which point the loan switches to a normal amortization schedule and the payment increases or the loan must be paid in full or refinanced.
Before you decide to take out a loan on a house do a major budget analysis. If you can’t afford to buy the house, don’t try to work out some creative way to purchase a house you really can’t afford!
Debt defined and explained in less than 600 words
Debt Defined
The definition of the term itself is simple, something that which is owed. However it’s meaning goes far beyond this simple 5 word phrase. Most of the time we refer to debt as something monetary, you owe someone else money or they owe you money. I suppose you can be in debt other ways such as owing someone your time, borrowing a cup of sugar (which usually never gets repaid) or if you save someone’s life I guess you would owe your life to them? Anyway, at this site we are going to talk about the monetary aspect of debt: the different types of debt, how to manage debt, personal debt, business debt, and we might even debate if debt is good or bad.
How Debt is Repaid
Before any debt is established there has to be an agreement of how the debtor will repay the creditor. The debt can be paid back in a lump sum or over a stated period of time. Most of the time the debtor will pay the creditor interest on the debt. For example, if you (the debtor) borrow a cup of sugar from your neighbor you might agree to pay back the sugar to your neighbor (the creditor) in a lump sum when you go to the store the following Saturday. You might also agree to pay back interest and buy them a whole bag of sugar for their courtesy.
Types of Debt
The simplest monetary type of debt is a basic loan. A lending institution such as a bank agrees to loan a certain amount of money for a fixed period of time usually paid back in payments over the agreed time. Many of us have borrowed money from a bank or lending institution in order to purchase big ticket items such as a car, house, boat. These loans are considered secured loans because the items stand good for the loan. If you don’t pay the payments the items can be taken back by the bank to help pay the loan. Other types of debt include syndicated loan, bonds, and promissory notes, but these mostly deal with businesses so we won’t discuss them much for now.
Effects of Debt
The effects of debt can be debated as good or bad. Many extremists such as Dave Ramsey see debt as a complete negative influence on our lives and should be avoided at all costs. Other disagree and say that debt allows people and organizations the opportunity to do many wonderful things they would otherwise not be able, or allowed to do. I guess I fall somewhere in the middle with my beliefs. I think if utilized correctly debt can used for good, but very few people or organizations possess the power to control debt for the greater good.
Get Out of Debt
Getting out of debt can be one of the hardest tasks you will every have to attempt. After all most of us didn’t get into debt overnight, it took months, maybe years to get deep into debt. I guarantee you won’t be able to get out of debt overnight either. If you want to get out of debt you have to have a plan and a lot of sacrifice and discipline. You may have to take a part-time job or work extra hours at your current job. You’ll also have to give up some of the things you enjoy. Most important you will have to track your spending and create a budget.
Reduce Debt and have fun!
Tired of the monthly budget? Want to something a little out of the ordinary when it comes to saving money or reducing your debt? I just went for a three hour drive today on my way to a business trip and came up with this idea. What if there was some type of incentive every month for you to save money, wouldn’t it make it much more fun? So what’s fun and different about this idea you ask?
First, you’ll need to do a little research into your budget. If you’ve kept a good budget then this shouldn’t be too difficult. Break down your budget into three categories:
- Completely Mandatory - This category contains all the necessary bills such as home, auto loans, electric, water, credit cards, etc. This does not include cable, phone or internet.
- Somewhat Mandatory - This category will include bills such as cable, phone, and internet services. It will also include grocery money, clothing money, etc. Things that you need but you could probably reduct the cost somewhat.
- Not Necessary - Finally the not necessary category includes entertainment money, and blow money. Money that if you didn’t have for a month you could live without. You really don’t need to go to the movies or spend $60 on dinner!
Now here is where the contest comes in and your reward. Total up the amounts from each category based on your last months bills. For example:
- Necessary: Electric $150, Water $35, Home $1000, Auto $400 total of $1585.
- Somewhat: Cable $40, Phone $35, Internet $40, Grocery : $400, Clothing $250, total of $765.
- Not: Entertainment $400, Blow $100, total of $500.
Now our goal is to reduce each category by a small amount each month paying down debt and rewarding ourselves in the process. Reducing all three categories may leave a good deal of leftover money. Use half of this money on paying down debt and the other half to spend on some type of reward. Something fun you normally wouldn’t buy yourself.
First, those necessary bills you can reduce your electric and water bills by simply being aware of the resources you are using. Turning off lights when you leave rooms, take showers instead of a baths, take shorter showers than usual, use lamps instead of overhead lights, don’t leave the water on while brushing your teeth or shaving, etc. As for that auto payment you may want to do something extreme like sell the car and buy something with cash you have on hand or finance something for half of your current payment. You can find decent cars for $5,000 or even less!
Second, those somewhat necessary bills can save us some major cash! Drop any premium channels from your cable service. You may be able to reduce your internet service by switching from cable to DSL or from DLS to cable. Drop that lan line phone service if everybody has a cell phone with enough minutes. Clothing is necessary, but name brand clothing is not necessary. Watch for sales and check out consignment shops for cheaper clothes. Groceries can also be a good money saver. Use those coupons you always toss out with the trash. Buy generic foods when possible. I’ve read multiple articles on saving hundreds of dollars per month on your grocery bill! It’s possible to save some good money in this category.
Finally, the enertainment/blow category can be your biggest savings area. Eating out is just not necessary and although enertainment is necessary it doesn’t always have to cost money. Limit eating out to a minimum. If you must eat out order water or get takeout and bring it home. Go to the park instead of the movies. Go on picnics and hikes instead of amusement parks. There are hundreds of ways to save money on enertainment.
Here is a revised sample budget and what can be done with the extra money.
- Necessary: Electric $145 (old $150), Water $31(old $35), Home $1000 (old $1000), Auto $175 (old $400) total of $1351 (old $1585). SAVINGS OF $234.
- Somewhat: Cable $40 (old $40), Phone $0 (old $35), Internet $35 DSL (old $40), Grocery : $360 (old $400), Clothing $225 (old $250), total of $660 (old $765), SAVINGS OF $105.
- Not: Entertainment $350 (old $400), Blow $80 (old $100), total of $430, SAVINGS OF $70.
In our sample budget we saved a total of $409!!! We didn’t make huge sacrafices just small sacrafices in each category. Now take the $409 and pay $200 toward one of your high interest rate debts and take the other $209 and spend it on something nice for yourself. You may even want to save the $209 for next month and pick up something much nicer. Reward yourself for saving money and it will be much more fun!
Do friends cause overspending and debt?
Is it possible that your friends can cause you to go farther into debt or prevent you from getting out of debt? I’m about 100% positive that friends do contribute to the problem of debt.
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Debt versus Saving
Debt Versus Saving
Which should be a greater priority? Saving is very important but so is paying off debt. When it comes to making a choice between paying off debt or saving for the future how do you do you decide what to do?
