Small businesses in the US are the bread and butter of innovation; Good news for small businesses also often means good news for the country and local communities alike. While starting a business may appeal strongly to the entrepreneurial American spirit, how are start-ups and smaller businesses faring in the uncertain economic climate?

One leading newspaper recently ran an story on small businesses that didn’t make it through 2011, but things aren’t all doom and gloom. In fact, according to research from the National Federation of Independent Business (NFIB), lending prospects look better for 2012 than they have done in recent times and there is a growing sense of optimism in the small business sector as many predict a certain level of growth across the year.

Setting up a business can be tough though, and not everyone is lucky enough to see it through. For every successful idea there are many that don’t make it. However, there are certain steps you can take to ensure that your start-up starts up with the best possible chance of making it in a fickle and sometimes unsteady world.

There’s no denying it’s a tough market to raise capital in order to get started, but it’s not impossible, and it may even be getting better. A sound business plan will help others understand how your business will work practically and financially and can give you greater confidence knowing exactly how much risk you yourself are exposed to by taking matters into your own hands.

Starting out in business, perhaps unsurprisingly, takes more than a good idea. What you really need is a good idea that will appeal to a target market and make them want to buy your product. According to the survey by the NFIB poor sales is cited by a quarter of small businesses as the top problem that they face. Nevertheless, and this is where starting in business draws some similarities with other types of investment, though the nation is in the economic doldrums wise choices can still generate a return.

As with other types of investment starting a small business requires strategy and plenty of it. You don’t invest in someone else’s company without considering how well their product sells, and how well it is likely to sell in the future. Likewise when starting your own business your business plan sets out the findings of your own research into projected sales and potential for increase, and there’s your investment strategy.

The national economy is by no means in recovery yet, and much depends on international monetary health, but reports of a marginal rise in optimism and falling unemployment could mean a better year all round. Careful planning can help make your idea a success even in difficult times.

This post was written by John Hughes who is the resident blogger at http://www.independentfinancialadvisor.co.uk , a UK based site that provides access to financial advisors as well as to debt advice charities for those struggling with their debts.

National debt in the US currently stands at over $14 trillion, after a dramatic rise across the last three decades. Since the financial crisis in particular US government spending has sky-rocketed pushing up the deficit, increasing national debt.

This national crisis has been mirrored by a very personal debt crisis for US citizens, with total consumer debt currently exceeding the $16 trillion mark. The US has steadily become a nation enthralled by loans, mortgages, and credit cards.

The US is suffering from an increasingly ingrained debt culture, and getting into debt has become the modus operandi for many of us. Building significant consumer debt has become normalised, while good debt management has often been left by the wayside with many struggling to repay borrowed funds.

So what does this have to do with the national debt crisis? The problem with acquiring debt, as we can see from the national deficit, arises when the consumer borrows beyond the means to repay. The US government has been borrowing at a rate faster than it can afford to repay, with far-reaching and devastating consequences for the economy, which we are likely to feel the repercussions of for some time to come. Unmanageable consumer debt can have similar consequences for the individual.

In times of increasing unemployment, when many more of us may be tempted to borrow in excess, having an excellent strategy for dealing with debt is paramount. Even in the face of great personal difficulty, inadequate debt planning or management will inevitably lead to a magnification of those difficulties, until our individual debt spirals out of control.

Borrowing can be beneficial to the economy and a form of investment in the future, and sensibly planned and managed it can be beneficial to both consumer and creditor. However, we would do well to remember that it can also easily leap out of control.

We should perhaps take the national debt crisis as a warning of what can happen when debt is inadequately managed, and view it as an opportunity to learn something about the importance of planning and foresight in our own debt management strategies.

This guest post was written by John Hughes who is the resident blogger at Independent Financial Advisor, a small UK based site that provides access to independent financial advisors as well as to debt advice charities for those struggling with their debts.
 

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With most of us facing one of the most challenging economic times in history, we must adapt new ways of doing things. The majority of us would agree that there is no more job stability or loyalty for that matter. With that concept, in order to become truly successful financially it will require you going in and join the world of business.

Most of us dream of going into business for ourselves and quite frankly there has never been a better time. However, with that being said, most of us have not gone through the economic downturn unscathed as a good portion of the population has some issues with debt.

Everyone has debt to some degree; however, it can be an obstacle holding us back from success especially when trying to open our own business. Anyone who has been bankrupt will attest to the difficulty in trying to open a business bank account or even becoming a director of a company.

Getting business overdraft and credit for your business will also be challenging if you have unaddressed credit problems from the past. Banks look at the credit report of the business owner before extending any credit facilities. This is also true for vendors that will supply your business with the products and services it needs. If you have no credit or bad credit, it will prevent you from being able to function normally. All businesses, unless it is a strictly cash business, will need to offer and receive credit facilities in order to run properly.

While having credit issues may cause a person anxiety that affects them emotionally, financially and professionally, there is a solution to it. If a person attempts to ignore these problems, they will remain there. However, if a person takes decisive action, they will be on the path towards a brighter future.

The first step towards getting your credit and debt situation under control is working with a professional debt counseling service. These debt counseling providers help hardworking people everyday who are victims of circumstances. By being in your corner when facing the creditors, they are able to get more favorable terms than someone going up against their creditors without help.

When selecting a firm to provide you with debt counseling, make sure they are reputable. Asking the firm for testimonials is a great way to gauge their level of professionalism. It is also recommended to check to see if the debt counseling firm is registered with the Better Business Bureau.
 
Living with debt can cripple a person emotionally and financially for many years. This is not only toxic for personal relationships but for a person’s health overall. The sooner action is taken, the better off a person will be in the long run.

John is a financial adviser and has been writing finance blogs since 2009. His goal is to help people solve their financial problems without spending even a cent. If you want a guest post from him, feel free to contact him at jconcep30(at)gmail.com with the subject “Guest Post”.

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When you’re choosing a strategy for paying your debt, it all comes down to the numbers – the payment you’ll have to send each month, the amount of interest you’ll ultimately pay, and the number of months (or years) it will take to completely pay off all your debt. You can take the guesswork – and complex calculations – out of the process by using an online debt reduction calculator like the one from CNN Money. The tool is simple to use and lets you calculate your debt repayment in various scenarios.

Calculating Minimum-Only Repayment Plan

Consider this hypothetical situation: 3 credit card balances of $5,000; $10,000; and $15,000 (total $30,000) and interest rates of 12.9%, 17.9%, and 24.9% respectively.

You could use CNN Money’s calculator to figure out how long it would take you to pay off these balances making only the minimum payment. We’ll assume 3% minimum payments for all these credit cards, which would total $900 in minimum payments for all three balances.

If you make only the minimum payment, it will take you 30 years and 9 months to pay off your balance. By the time you finish paying your balance, you’ll have paid $41,056.44 in interest. In other words, you’ll pay a total of $71,056.44 even though the balance you began with was only $30,000. “Minimum-only payments” is the most expensive repayment plan.

Time to Pay With Additional Payment

You can also use CNN Money’s calculator to determine how long it would take you to pay off your balance based on the payment you’re currently making, that’s more than the minimum. For example, let’s say you’re sending an extra $50 on top of the minimum for each of these accounts. Just enter your current monthly payment instead of the minimum payment in the table, but still choose the minimum payment option to calculate your plan. Sending $50 extra to each card every month would cut your repayment time down to 23 years and the total interest paid down to $30,468.45.

Paying extra every month is good, but spreading it among all your credit cards isn’t the most effective way to pay off your debt. Instead, you should send all extra payment to one credit card until you pay it off. Then, put everything you were paying toward the first debt to another debt, and so on. Using this strategy and still paying $150 extra on your debt each month, you’d pay off your debt in 3 years and two months, reducing your total interest payments to $9,694.

Effect of a Debt Consolidation Loan

What if you could consolidate your debt with a lower interest rate consolidation loan? You can use the calculator to see the effect of this, too. Instead of entering three credit cards, just enter one debt for the total amount of your balances and the interest rate you anticipate, e.g. $30,000 at 9%. You can enter anything for the minimum payment.

Then, in the “Choose a plan” section, enter the loan repayment period, e.g. 5 years, and press Calculate to get the monthly payment. In this scenario, your monthly payment would be $618.11, about $300 less than your initial minimum payment. You’d pay only $7,068 in interest. As you see, consolidating your debt with a low interest rate loan lowers your repayment well below what it would be if you were making minimum payments.

Debt Settlement Savings

With a 60% debt settlement, your repayment time and debt settlement amount would be reduced. You’d pay about $18,000 on your $30,000 debt. You could pay off your debt in 3 to 4 years, reducing your monthly payment to between $375 and $500.

Doing this type of comparison helps you decide between various debt relief options. You can pick the repayment plan that’s most affordable and saves you the most interest!

This guest post was written by Frank Collins, who specializes in topics related to personal finance, debt relief, credit repair and more. Pass through the debt settlement blog for more tips and advice!

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For many of us, the balancing act between debt and savings is an ongoing one – a constant battle to boost our savings and reduce our debt, when often we are achieving the opposite. So are we wasting our time trying to balance our personal finances in favor of a savings account over credit card debt when the latter is just so much more determined to rise? Conventional wisdom once put being debt free as the highest priority – higher even than having an emergency fund. However, when credit markets crumbled and cash was king during the Global Financial Crisis, many financial analysts and advisors began encouraging you to take up your balancing beam again and build up your cash reserves while paying down debt.

by David Beyer via Flickr

To help you decide which approach is right for managing your personal finances, consider the benefits of building an emergency savings fund versus paying off your debts and decide which option will be your priority.

Saving an Emergency Fund

If you want to start an emergency savings fund it is because you don’t want to rely on your credit card for every little unforeseen expense, so choose a savings goal which will help you cover those emergencies, while still being achievable, as this will help you maintain your financial confidence.

For example, if you have:

● An emergency savings fund goal of $1,000.
● A credit card debt of $5,000.
● A credit card interest rate of 15%.
● A minimum monthly credit card repayment of $100.

You want to know whether you are better off channeling your money to paying off your credit card, or sending any extra funds you have to a savings account. If you were to put aside $100 a month towards your emergency fund goal, you would reach $1,000 in 10 months – less than a year. During those 10 months you also would have:

● Made $1,000 worth of credit card repayments.
● Paid $603.19 in credit card interest.
● Paid off $396.81 from your credit card balance leaving $4,603.19.

However, to pay off your credit card balance in full it would take another 28 months, and cost an additional $859.01 in interest. This means, by starting an emergency savings fund instead of focusing on repaying your debt:

● It will take 38 months – over three years – to clear your credit card debt.
● It will cost you $1,462.20 in credit card interest.

As a result, the benefits of starting a savings fund while you are in credit card debt are primarily psychological, and depend on your own personal situation. For example, using your credit card to pay for things becomes a habit and when you have some money set aside in an emergency fund you feel relief at not living week to week on your credit card. You also now have the opportunity to break the bad habit of credit card debt by not using your credit card anymore, because you don’t have to turn to the plastic each time you face an unexpected expense – now you have an emergency fund so your credit card debt is no longer increasing.

Next take a look at your own circumstances, for example do you own an old car which is regularly in need of repairs? Then chances are you are going to have an emergency expense to deal with at the mechanic in the future, and so an emergency fund is valuable to you. Or perhaps you have seen recent cutbacks at your company or in your industry and you’re not sure about your job security – then an emergency fund can offer a level of security, knowing that if you do need extra funds you can access your savings and you won’t be charged interest, saving you from another financial worry.

It also doesn’t make sense to rely on your credit cards in an emergency because there is always the possibility that your provider will reassess your account and lower your credit line or even close your account. In the fine print of most credit card agreements it will state that the provider has the right to adjust your account terms at any time. However, having access to your own cash savings is something you can rely on in an emergency.

Paying Off Debt

In the same example above where you have:

● A $5,000 credit card balance.
● A 15% interest rate.
● A $100 monthly repayment.

You could put the extra $100 each month you were using to build your emergency fund, to pay extra off of your credit card balance. If you focused on repaying your debt you would:

● Pay off your credit card balance in 31 months, or two and a half years.
● Pay $1,032.66 in credit card interest.
● Be able to use the $200 you now have free every month to build a $1,000 in five months.

This means you have spent 36 months, paid off your credit card debt, built and emergency fund and saved over $400 in credit card interest.

However, remember that in this situation, if you have an emergency expense during the time you are paying off your credit card, you will have to use that card to pay for the emergency. This will then set back your plans because you have increased your credit card balance and interest charges.

Another consideration in paying off your debts before starting a savings fund is how well you are currently coping with those debts. For example if you are struggling to meet your minimum payment amount each month and the high interest rate is compounding your debt higher each month, then it is important to focus on reducing your credit card balance before you do anything else. Also consider whether you have a high interest rate on your credit card because often the interest you earn on your savings doesn’t outweigh the interest you are charged on your credit card. Therefore, unless you have a low interest rate card or are enjoying a low balance transfer interest rate, it is usually more financially viable to pay off your credit card debt as soon as possible, just like in the example above, where you can save $400.

Plus, paying off your credit card debt, or even working on paying it down faster, gives you more financial breathing room. For example, when your credit card repayments are lower – or gone for good – you have greater cash flow and the chance to make clear decisions about your personal finances, and what to do with that extra cash. Therefore, even if you focus on just paying off your lowest interest credit card because that will be the easiest, and with that repayment out of the way each month you can use the extra money to pay off other debts, save for an emergency, save for an investment, lock away your savings in a term deposit or simply take the time to consider your options.

Saving vs Paying Off Debt

While it can be stressful to have the weight of credit card debt hanging over you, in most cases it is best to start saving an emergency fund as soon as you can, even if you are in debt. An emergency fund will benefit you over paying off your debt because:

● Credit cards are an expensive form of finance. When you use your credit card for an emergency expense, it is because you don’t have the financial ability to meet that cost any other way. Therefore, when you use your credit card you are simply compounding your financial problems, adding high interest and credit card fees to cause yet another emergency expense when your credit card statement and bill arrives next month.

● Credit cards are unreliable. The interest rate on your credit cards is variable and can go up without notice, increasing the cost of your emergency spending even further. Plus, if your provider finds that you are struggling financially they may lower your credit limit or call in your debt.

● Save when debt is manageable. Having debt is not the taboo it once was and it is acceptable to have some debt while you are building your emergency savings fund, as long as you are able to manage the repayments and don’t incur high penalty fees.

● Stop increasing your debts. The first key to reducing credit card debt is to stop spending on your cards, and when you have built an emergency savings fund, you can use the money in that account for unexpected expenses, rather than charging them to your credit card and undoing all of your hard work.

Savings Account Finder helps you compare savings accounts and term deposit products in Australia, and provide tips to help you save money and achieve financial independence.
 

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Debt elimination is not something you can do on the fly. It takes a certain amount of planning in order to orchestrate a solid debt elimination plan. Even with a plan, it is possible for things to come up unexpectedly but having a guideline makes it a little easier to find your way back to solid financial footing.

What’s In a Debt Elimination Plan?

There are no hard and fast rules involved in a debt elimination plan other than the fact that your priority is to pay off your debts in the fastest time possible while still managing to meet your other financial obligations. Since consumer debt is all different, different practices will be necessary within a plan to get the job done.

Some of the things to consider within a plan should include:

Your Budget

A budget will be your biggest guideline in the elimination plan. It will allow you to better understand how much money you pay out every month and within your budget you will be able to find some extra cash to dedicate toward your debt elimination plans.

Making Sacrifices

The extra cash you need to eliminate some of your expenses in order to put more money towards debt elimination is often found as ‘luxury’ expenses within your budget. For instance, if you pay $100 a month for cable, you surely can make better use of that money when paying off debts. This means you will have to stop your cable service, even if only on a temporary basis, and redirect the money towards your debt repayment. By writing down the various expenses you don’t necessarily need to live, you can see how much ‘extra’ cash your sacrifices will free up for debt payoffs.

Find Supplemental Cash

Depending on the amount of your outstanding debts, it may be necessary to not only cut your regular spending but to also add more cash to your situation. A part time job or a second job to earn additional income may be the best option on a temporary basis. You may also consider selling your belongings on the Internet auction sites or by hosting a yard sale at home. Borrowing cash may be an option if you have a good credit score to back up your credit application. Borrowing cash from family and friends can be a touchy situation but one you should consider if you feel it would work out.

Timelines Help

Using your math calculations, you should be able to get an idea of how long it will take you to eliminate your debts based on the ‘extra’ money you have directed to your debts. Write out estimated timelines to make it easy to see where you are and where you are going. Having a visual of your target days and a record of your accomplishments can go a long way towards personal motivation.

Stop Spending

One key ingredient to better control over debt is the ability to stop spending, especially on credit. The less you spend outside of the necessary and the more you can stash into savings, the more stable you will be with your overall financial outlook. Reduce your spending as much as you can and pay attention to how you shop in order to make permanent changes to your financial life.

Track Your Credit

As you make headway into your debt elimination, be sure to regularly check your credit reports and scores for accuracy. If you don’t take your credit into consideration, wrong information can hurt you for many years to come. Stay on top of your credit not only for your own piece of mind but to ensure someone else is not living the high life on your credit profile. Fraud is detectable on credit reports but you have to analyze your information to find such incidents.

Just like a budget, a debt elimination plan needs to be flexible and kept current as time and money matters change. A debt elimination plan should keep you on track and motivated toward reaching your goals, as well as helping you repair any credit problems you might have. Once you achieve your debt elimination goals, make a conscious effort to avoid debt in the future and continue to find the financial discipline necessary to build a solid financial foundation.

Ed O’Brien is a seasoned writer in personal finance, specializing in credit repair. You can find more of his articles located at CreditRepair.org.

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There have been a couple of articles on this blog about debt consolidation, but none have addressed the main question, which is if debt consolidation is a good deal or not. On the surface it seems like a good thing, but it isn’t necessarily a good thing at all; let’s take a look at a few things.

The first issue is whether you really need debt consolidation or not. Many people think that as soon as they start feeling overwhelmed with their bills that they need to consolidate their debt. The reality is that most people make enough money to pay all their bills and take care of their staples as well, but because they don’t understand the concept of budgeting they can’t see it. A well planned budget, or even hiring someone to put the numbers together so you can see what your income and expenses are can help greatly. No one should ever rush into debt consolidation without this first step.

The second issue is whether you want to try to do it on your own. This usually means getting a loan of some type, which includes getting a line of credit on your home to help out. This might not be the best idea in the world unless you’re going to start exhibiting some great restraint on yourself as far as your spending goes. If not, you’ll pay off your initial debt load, start paying down what you have, yet you’ll be adding to it and getting yourself into more financial difficulties. Only this time you might be putting your home in jeopardy as well, or creating a debt to someone you don’t want to miss a payment with.

The third issue is if you decide you need help. On this front it becomes a question of how much help you need and who you should trust. My first move would be to Consumer Credit Counseling because they’ll be able to tell you if you need more or less help than they can give you. If you decide to go the debt settlement/consolidation route, you need to really do strong research on the company because some companies will get you out of debt, but they’ll ruin your credit for years. Or maybe you can find someone to help you with budgeting, maybe a friend good with numbers or an accountant or bookkeeper, but in this case you really have to be diligent and listen to what they have to say.

Whatever you decide, know that there are always options and that you don’t ever have to do it alone.

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When you are struggling with debt, it may be serious enough to come down to only two resolutions: debt settlement or bankruptcy. When debt issues become this serious, it is important to understand what you are facing with both options.

Here is a look at the basic breakdown of how each debt relief process can affect you and your overall financial life now and in the future:

Comparing the Options

Both debt settlement and bankruptcy are serious undertakings for eliminating debt and starting back on the road to a debt free life. However, neither is an overnight or quick-fix solution.

Debt Settlement

Debt settlement involves the process of the consumer or a third-party debt settlement agency contacting your creditors directly to request a debt settlement. In order to be successful with this process, you need to have the cash to back up your agreement. Once you commit to paying a reduced amount to settle your debts, you must follow through with payment. This will require your review of your budget and even some time to save up enough cash to make a reasonable offer. Some companies will outright refuse any kind of settlement regardless of who is making the request. Other companies will be more flexible because they know that it may be their only chance at getting something from you towards the balance. Rather than face the risk of a total loss, many will agree to work with you to settle the debt for a lesser amount than owed.

Those creditors that are agreeable to a settlement will either expect a one-time lump sum payment immediately or will allow for a few payments for the months going forward. It will depend on the creditor and the size of the debt. If you have not been in communication with your creditors during your hardship, a creditor will likely not take many risks and demand payment upfront. Many will also likely use pressure tactics to try and talk you into paying more. If you stand your ground about your repayment ability and are basically honest with your situation, you can likely settle the debt effectively.

If you hire a third party agency, you will be responsible for not only paying the costs for settling your debts but will also have to pay a percentage to the agency handling the work. If you do the work yourself, you will cut out the costs of the fees but still need enough money to make lump sum payments if required. Debt settlement may also have a significant impact on your credit score as the creditors will report back that you have ‘settled for less than owed’ which signals you may be a credit risk to future lenders.

Bankruptcy

Years ago, bankruptcy used to be used as a fail-safe to get out of debts. Large debts would be put into bankruptcy in an effort to wipe the slate clean for consumers. However, the bankruptcy rules have changed and it is now a much more involved process that may not necessarily come out in your favor. There will always be some debts you can not put into bankruptcy court. Additionally, you will have to go before a judge and your creditors will be requested to appear to plead their case. If it is found you have not been entirely upfront and have acquired debts due to poor money management, you potentially face the possibility you will still be responsible for your debts, even after the long trial process and other legal red tape.

If you are seriously in trouble with debt and bankruptcy is legitimately your only option, it is advisable to seek the counsel of a qualified attorney for help. Bankruptcy should be the very last course of action to take. Depending on what the court decides, you can effectively find relief from debts in order to start rebuilding your credit. However, a bankruptcy filing will remain on your credit report for up to 10 years. You will find it very difficult to secure other financing in that time and your credit score will drop accordingly.

Bankruptcy is also not a cheap option. In addition to attorney fees, there will be court costs for filing and other legal-related services. You must be able to afford bankruptcy proceedings in order to move forward. An attorney can advise you of the process and costs if you are considering bankruptcy but if you are already struggling with debts, bankruptcy costs may not be reasonable.

Making the Choice

Ultimately, both options are a way to get out from under the heavy burden of debt but nothing can be done in a hurry. A good start on the road to debt relief is to measure your capabilities by reviewing your budget and working to free up some money to be used to help your financial issues.

There is no one-size-fits-all solution to debt relief. The ins and outs of both debt settlement and bankruptcy will affect people in different ways. Regardless of your decision know that unless you take control of your debts as soon as possible, your debts can quickly take control of you.

Frank Collins is a seasoned personal and business finance writer. His specialties include budgeting, debt relief and investment. If you want to find out more about bankruptcy and debt settlement as debt relief options visit the debtsettlement.com blog.

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If you have been considering an offer from a credit card company that promotes low interest rates on balance transfers, there are two things you need to understand.

First – Yes a balance transfer can work well for you as a means of eliminating debt effectively.

Second –You should have a plan in place before signing up for the offer.

How Can Balance Transfers Work Effectively?

A balance transfer is an offer from a credit card company that provides a promotional interest rate that is on average much lower than traditional interest rates, typically 0%. A balance transfer offer opens the door for you to transfer existing balances from other credit cards to a new card with a significantly lower rate. Ideally, you can consolidate all of your high rate credit card balances to a single account, provided you have a large enough credit line to accommodate the debt you want to transfer.

The upside of using a balance transfer strategy is that you can eliminate other credit card balances and only have one monthly payment to focus on. With a 0% balance transfer, you can make more headway on the combined balances. For instance, by taking all the minimum card payments you have been paying and allocating them together towards one balance with lower finance charges, you can more effectively reduce your total debt and do it in a faster period of time, since your entire payment will go towards reducing your principal, rather than being split between new interest charges and your outstanding balances.

Why Proper Planning is Important

While transferring balances to a credit card with a 0% rate will provide interest savings no matter what, proper planning is the key to getting the most out of a balance transfer. The big catch with balance transfer deals is that their ultra low promotional rates only last for a limited time. After all, a promotional rate is just that – a promotion to lure customers in. Once a low promotional rate expires, typically after twelve months, the interest rate will increase to average rates similar to what you were paying before you consolidated your balances.

Ideally, you will want to create a budget that will allow you to repay your outstanding debt in full before the 0% introductory rate expires. Thus, if you owe $4,800, you will want to allocate $400 a month towards repaying your debt so you can eliminate if before the standard rates kick in.

If you can’t reasonably set aside enough money to repay your credit card debt in full before the 0% rate ends, focus on paying as much as you can. Don’t use a 0% balance transfer to kick the can down the road. Instead, create a plan that will allow you to reduce your outstanding balances as much as possible while you are under the umbrella of a 0% rate.

For example, if you can only afford to reduce your credit card debt by 50% during a promotional period, you may be able to secure a second balance transfer from a different company and finish paying off your credit card debt in two years without paying interest. However, it is best to assume that you won’t be able to do one balance transfer after another to avoid becoming complacent and maintain your focus on getting out of credit card debt.

Ultimately, balance transfers can go a long way in helping consumers get out of credit card debt. However, simply doing a balance transfer is not the solution to credit card problems. Yes, getting a 0% rate will save you money on interest. But if you don’t develop a serious plan to repay your credit cards, doing balance transfers will only push your credit card problems further into the future.

Guest post from Debbie Dragon, who contributes articles about saving money with balance transfer offers at Smart Balance Transfers.

Copyright secured by Digiprove © 2011 Mitch Mitchell

Many college students use the “buy now, pay later” approach to credit cards and end up with a substantial amount of debt before graduating. It can take a person years to recover from the bad financial decisions made while going to college. Many college students think money gives them freedom to do what they want, but if the money is borrowed and poorly managed, it can cause big problems.

Student Loans

Student loans are a smart investment if students do well in school and pick a major that’s in demand. Federal loans are typically a good way to go. College students can use the calculators provided by FinAid.org to get an idea of how much debt they can manage. The website offers a very useful “how much to borrow” calculator.

In 2007-08, two-thirds of undergraduate students graduated with a bachelor’s degree and some debt. The average student loan debt for graduating seniors was $23,186. This figure does not include PLUS Loans which are taken by parents to help pay for their kid’s college education.

College Students and Consumer Debt

To help avoid debt problems, students should avoid borrowing money for to fund their partying, eating out at restaurants, expensive Spring Break vacations, video games purchases, or other entertainment expenses. Consumer debt incurred during the college years can negatively affect students’ lifestyles upon graduation. A combination of lower-than-expected salaries, higher-than-expected living expenses, and substantial student loan payments make dealing with credit card debt very difficult. Problems with credit cards, including missed or late payments, stay in a person’s credit report for seven years.

Many creditors evaluate an individual’s debt-to-income ratio to determine if they will be approved. Individuals with a significant amount of student loan debt and large monthly student loan payments may not qualify for other lines of credit, even if they have a good credit rating.

Graduate School

Many college graduates go to graduate school simply because they’re not sure what they want to do after they obtain a bachelor’s degree. Graduate school is very expensive, and graduate students miss out on work experience and income. College graduates should consider gaining experience in the working world before going into further debt by attending graduate school. By gaining work experience, they’ll learn what they want in a career, which makes it much easier to select the appropriate graduate degree program.

Sallie Mae Report

According to a report by Sallie Mae called “How Undergraduate Students Use Credit Cards“:

• College seniors graduate with an average credit card debt of more than $4,100.
• Many college students use credit cards to live beyond their means. Over three-quarters of college students have incurred finance charges by carrying a monthly balance.
• Nearly one-third of undergraduates put college tuition on their credit card.
• Just 17 percent said they regularly paid off all credit cards every month.
• According to the survey, sixty percent of the students were surprised at how high their balance had reached.
• 40 percent said they charged items knowing they didn’t have the money to pay the bill.
• 84 percent of undergraduates reported they need more education regarding financial management subjects.

This report by Sallie Mae underscores the importance of using credit cards wisely.

Debt piled up during the college years can have a substantial negative impact for years. Be smart about debt!

Brian Jenkins has been writing about various career and education topics for BrainTrack.com, including college degree programs in finance, since 2008.

College can be an extremely exciting time for most students. It’s their first time away from home, and they’re anxious to get to their new classes and discover everything that life has in store for them. Unfortunately, one of the most common things that life has in store for them are brand-new credit cards. A lot of people might be surprised, but credit card companies actually love college students. The reason why they love college students is because for one thing, college students are 18 years of age.

When a person applies for a credit card, they have to be 18, because then they can be responsible for a credit card contract. A new college student is not only 18, but they have no debt. By the same token, a college student has a ton of things that they need to buy, and that they need to buy right away. For example, they need to buy a books, pencils, pens, and computer supplies.

Then again, there are always those unexpected expenses such as parking fees and lab fees. Or sometimes they might find themselves short of money when they want to get something to eat, or when they need personal supplies or groceries. Guess what? All of these can be purchased on a bright shiny new credit card!

When one thinks about all of the expenses that are expected and unexpected for a college student, it’s no wonder that credit card companies absolutely salivate when they see a new college student.

The one thing that college students have going for them is that they have no credit history. The thing that they have working against them, however, is that they don’t have the life experience and know-how to manage credit card debt. As such, they see credit cards as free money. All they have to do is use the card wherever they want to go, and get whatever they want. They don’t have to pay for it right then and there like they would with cash.

Yes, the college student understands that these are debts that need to be paid for, but that’s not what’s in the front of their minds. The thing that is on their mind is get what I need now, or get what I want now, and I’ll pay for it later.

Unfortunately, later usually doesn’t come. College students aren’t the wealthiest people, and they will find that despite their good intentions, they simply don’t have the money to pay their bills. Meanwhile, credit card companies already know this about college students, yet they continue to offer them credit cards. Sadly, by the end of a college student’s first year, they can find themselves in trouble with credit card debt.

So, what is a college student to do that has two or three more years left of college, and yet finds themselves buried up to their eyeballs in credit card debt? How can they save money, or make the money that they have stretch so that they can meet their basic needs, and still manage their credit card debt? There are a variety of things that a college student can do to make sure that they are meeting their personal responsibilities.

One thing that they can do is look at any areas of spending that are unnecessary. For example, college students are notorious for eating out. This means pizza, restaurants, bars and pubs. If a college student finds that they can’t manage their credit card debt, then all of these outside expenses need to stop immediately.

This will be hard for them at first, because they want to hang out with their friends, or be able to buy whatever they want. However, if they put a stop to carousing, this teaches them a really great lesson about delayed gratification. The college student will have to learn to manage a food budget that gets spent in the cafeteria. Or they learn how to cook foods in their dorm rooms that will save them money. For example, it might not hurt the college student to eat sandwiches for lunch, and maybe something quick for breakfast that’s nutritious and inexpensive. When a college student stops eating out, they’ll save a ton of money.

Another way a college student can live frugally is to bring in more money. A college student will overcome their debt when they stop spending on the one hand, and start bringing in more money on the other. If they have time, they can take a part-time job that will help them manage the load of their debt and still manage to take on their personal responsibilities.

They can also do things such as keep their car parked for the most part. Buying gas costs money, and in order to live frugally, the college student can learn to walk when reasonable, or take a bike when walking is unreasonable. They can also start to rely upon public transportation, if there is a public transportation system in their town. These methods aren’t as convenient or comfortable as riding in a car, but they certainly save money.

If a college student finds that they have gotten in over their head with credit card debt, while they might feel overwhelmed by this, they should not let it get them down. The fact of the matter is that most college students are struggling financially, and this is part of the sacrifice of gaining a higher education. What keeps college students motivated and living for their goal is the fact that when they obtain their college degrees, they will be able to obtain a job that will sustain them well for the next part of their lives. For many students, it’s well worth it to live for their goal to obtain an education, and the career earning power that they will have when they graduate.

Author Bio: Hasic M loves to share his knowledge about credit cards, especially helping people attain credit card debt relief and make their lifes less stressful.

Debtors usually file for bankruptcy for two reasons: to protect themselves from creditors and to get rid of unsecured debt. The latter has become more and more popular as people rack up credit card debt and fall victim to the tanking economy. But bankruptcy isn’t the only way out—in fact, it should be more of a last resort than a strategic move. There are a number of ways you can write off debt without having to file for bankruptcy. This guide offers a few suggestions.

Gather Your Debt Information

Sometimes debt just seems overwhelming—most people don’t actually have to file for bankruptcy to get out of them. Take all your financial statements and calculate your total debt against your paying capacity. You may find that you’re actually making enough to pay them off. Even if you’re a bit short, it’s likely you’ll be able to negotiate a deal with your creditors so you don’t have to file for bankruptcy.

Try Consolidating Your Debt

Two of the most common alternatives to bankruptcy filing are debt consolidation and debt settlement. Debt consolidation means combining all your debts into one loan with a lower interest rate, making it not only cheaper but also more convenient since you’re only answering to one creditor. The same thing happens when you file for bankruptcy under Chapter 13, but in debt consolidation, you pay a monthly service fee to the company that deals with your creditors.

Look Into Debt Settlement

In a debt settlement, you get your creditors to agree to a discounted lump sum payment. This means some of the debt will be discharged, just like when you file for bankruptcy. A debt settlement can get as much as 75% of your debt written off. The catch is that you have to settle with each creditor individually, whereas when you file for bankruptcy, you reach an agreement with all of them. A debt consolidation company can help you bargain with creditors for the best settlement terms.

Ask About Mortgage Workouts

If you’re one of the thousands of homeowners facing foreclosure, there are lots of ways out you can consider before you file for bankruptcy. Talk to your lender about getting your loan modified, getting a refinance, or doing a short sale of your home. Many of them would rather work things out than foreclose or have you file for bankruptcy. Not all of them can work for you, but they can help you stay in your home or at least reduce the damage compared to a bankruptcy filing or foreclosure.

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The writer of this article is Wystan North. He has made his mark by writing on legal issues especially on bankruptcy terms. The author regularly writes on bankruptcy related issues like bankruptcy Filing Bankruptcy In Ohio, filing chapter 13 and chapter 7 bankruptcy, etc.

It’s about time. In new legislation geared towards protection for people with credit card debt, the Federal Trade Commission (FTC) also added some protections for people from debt consolidation agencies.

The most sweeping part of the legislation is that debt consolidation companies can no longer collect money up front before they start helping you. Here’s a direct quote:

“At the FTC we strive every day to make sure America’s middle class families get straight deals for their dollars,” Chairman Jon Leibowitz said. “This rule will stop companies who offer consumers false promises of reducing credit card debts by half or more in exchange for large, up-front fees. Too many of these companies pick the last dollar out of consumers’ pockets – and far from leaving them better off, push them deeper into debt, even bankruptcy.”

Here’s how it’s always worked. Debt consolidation companies get you in, figure out you’re in trouble, and tell you they’re going to work it out for you. For a fee, they will “contact” all your creditors and get them to work with you on payment plans. You pay them a monthly fee, which helps build up the pool of money and they help you pay your bills.

What 99.7% (my calculation) do instead is collect your money and make nary a phone call. You start getting collection notices, phone calls, and threats of being sued. They’ll wait as long as 18 months before doing something. Then they call all of your creditors and work out a deal where they may pay 50% or less of your balance that’s owed to close the account. You end up getting a notice saying it was taken care of, but that the account was “closed by grantor”, which is a negative that sits on your credit report for 7 years. They end up saving you money long term, with your credit trashed, and they get a percentage of the savings, which they’ve been squirreling away. So, you’re out of debt, but you have no credit, and you got hit with a bill by the company on the front and back.

This legislation kicks in on October 27th; not sure why they picked such a strange date, but it’s better than never. There are some provisions that kick in on September 27th as well; once again, strange date. Actually, this information is all from their site, so it’s possible that one of these days is a typo. No matter, since we know it’s coming. Here are some specific rules they’ve indicated:

* require debt relief companies to make specific disclosures to consumers;

* prohibit them from making misrepresentations;

* extend the Telemarketing Sales Rule to cover calls consumers make to these firms in response to debt relief advertising

* the debt relief service successfully renegotiates, settles, reduces, or otherwise changes the terms of at least one of the consumer’s debts;

* there is a written settlement agreement, debt management plan, or other agreement between the consumer and the creditor, and the consumer has agreed to it;

* the consumer has made at least one payment to the creditor as a result of the agreement negotiated by the debt relief provider;

* the dedicated account is maintained at an insured financial institution;

* the consumer owns the funds (including any interest accrued);

* the consumer can withdraw the funds at any time without penalty;

* the provider does not own or control or have any affiliation with the company administering the account;

* the provider does not exchange any referral fees with the company administering the account.

There was an interesting news story on CNN last week. Actually, it wasn’t quite news, more of a feature. It was called Confessions of Former Debt Collectors, and at least half of them stated that they knew that they were breaking the law with some of their collection practices. Yet they knew that they had to break those laws to keep up with the quotas set by the company’s they worked for to not only keep their jobs, but to earn monthly bonuses.

I had two takes on the story. One was “duh”, because I know how collection agencies work. I used to hire collection agencies for some of the hospitals I worked for in the past, and all of them would say that they would follow all the rules and never put the hospital in a bad light. Then we would have someone calling the CEO complaining about something someone said to them on the phone, and of course the CEO would call me and I’d have to figure out a way to deal with it.

Over the years, here and there I’ve had to deal with a collection call as well. Lucky for me, I know the rules of the Fair Debt Collection Practices Act, and would always make sure they knew I knew the rules up front so that they wouldn’t dare try any of that stuff on me. Of course, it also helps to ask them to hold, wait for about a minute, then tell them that you’re recording the conversation you’re having with them, whether you are or not. One, it’s a great tactic, and two, in some states if you were recording someone you have to tell them that (who remembers Linda Tripp?).

The other side of some of what these people had to say are the threats that they ended up getting from people who said they’d track them down and kill them. While I don’t ever condone that type of thing, it seems like these people wanted to violate what I call the rule of consequence; don’t do it if you’re not ready to deal with the consequences of your action.

Here’s the thing. Collection agencies are needed to help companies recover money from debtors who have refused to pay. However, most companies will write off that debt and collect insurance on it, so don’t feel totally sorry for them. Not only that, but they then sell the debt to someone else, which means they’re not getting any more money from it. Now, you can be sued, and it’s always best to try to set up some kind of payment arrangement because it looks better on your credit report. But no one has the right to be intimidated, lied to, or threatened to collect money that the original owner has already written off the books.

If you’re ever threatened, call your state’s attorney general and complain. You might even end up getting money from the collection agencies, but better yet, you help change the culture of the industry and force them to follow the rules set by the federal government… just like everyone else.

Last week, I wrote my first post on debt consolidation frauds, and it got a lot of readers, if not a lot of commentary. I’m not sure what that means, but suffice it to say that many of these guys are just bad.

This is the other side of the fence, debt collection companies, or collection agencies. Since last year, when the economy was going south and the government finally acknowledged that it was, debt collection agencies have tried to get more aggressive, often going after debt that wasn’t debt at all. Some of them were legit companies who were trying to collect really old stuff that had been written off years ago by the banks, but since they suddenly all needed money, they decided to try to recover some of it. But some of them weren’t legit, buying old records, knowing debts were paid, and using tactics that aren’t quite legal to try to collect that money.

Case in point, New York. Attorney General Andrew Cuomo announced that their office is suing a debt collection company called Benning-Smith Group, based in Buffalo, which is actually 13 collection agencies run by these three sneaky guys for unlawful debt collection practices.

You want to talk bad. These guys had their people calling people and harassing them with things such as verbally calling them names, saying they were the police on their way over to take their property, and even threatening them with physical and sexual harm. That’s not quite following the Fair Debt Collection Practices Act at all, which basically says you can’t harass people, you can’t lie to people, and if they tell you to go away you must.

Anyway, here’s the scam. These folks would scare people into paying on debts that, for the most part, were already paid or nonexistent. They would tell people they had to pay by money order, wiring payments to Western Union offices so they could get the cash. Supposedly nice and clean; no real paper trail. The thing is, that’s illegal also; if you offer to pay by check, they’re supposed to take it.

The state received over 850 complaints, but they found thousands of violations on their own. These are some of the sickest examples. This one collector kept repeating the name of a consumer’s daughter, describing various sexual things he would do to her unless the debt was paid. Another collector told a female consumer that if both she and her husband would engage in sexual acts with him, he would pay their debt himself. And there was all sorts of name-calling; they’re just not allowed to do that kind of thing.

To its credit, the Office of the Attorney General has gone after a lot of collection agencies and debt consolidation companies this year, as financial times have been tough and sneaky people have come out of the woodwork to play on our fears and frustrations. This highlights something I’ve always known, and sometimes talked about, that being most of us have no idea who or what we owe because we don’t keep records. So, we’re pretty much open to scams from all directions. It’s one reason I recommend people get copies of their credit reports, so they can keep up with what their financial history might be saying about them.

Here’s the name of the 13 companies run by this scum; if you hear from any of them, they’re fake: Abrams, Burke & Associates; Benning and Smith Acquisitions, Inc.; Brady and Caruso, LLC; DebtPayments.com; DebtPayments.com, LLC; Fredericks, Goldstein & Zoe; Graham, Noble & Associates Bookkeeping; Graham, Noble & Associates LLC; Graham, Beagle & Associates LLC; Kingman, Cole and Associates, LCC; Marshall and Ziolkowski Enterprise, LLC; Marshall Ziolkowski Acquisitions, LLC; Lansky, Goldstein, Zoe; OLS Payment Services; and University Debt Collection.

I haven’t talked a lot about debt consolidation here; matter of fact, I don’t think I’ve ever talked about it.

Debt consolidation pretty much means finding a way to take care of all your debt at once so that you can, hopefully, find some control on paying your bills off and still have some money for other things. There are basically three ways that debt consolidation can occur. One, you take out a loan of some kind, like a bank loan or a line of credit against your house. Two, you work with someone like Consumer Credit Counseling, who helps you to pay off your credit card bills and some other outstanding bills. Three, you go through a debt consolidation company.

This isn’t an official number, but based on my research, and I’ve done a lot of it, I’ve come to this conclusion; 95% of these debt consolidation companies are scams. Here’s how they all work. You go to them and they help you put together your list of debts. Then they tell you that you need to pay them a monthly amount, and a fee of so much of a percentage on top of that. They tell you that you won’t get any phone calls, that they’ll talk to your creditors, and that you’ll be out of debt in so many months.

That last part is the only part that’s actually true. They tell you to stop paying all your credit cards, and many of your other bills. What they don’t tell you is that you is that they want you to go into credit default on everything. You will get calls; you will be threatened with legal action. That’s exactly what they want to happen. After a year to 18 months, sometimes 24 months, they swoop in, call each carrier, make a deal to pay less than half of what you owe, take a percentage of what they “saved” you, then you get the rest. Indeed, your debt has been erased, but your credit is in the toilet. The only honest ones are those who tell you up front what’s going to happen, because none of them are going to call your creditors on your behalf, and even if they did, nothing can happen until you go into default; those are the rules.

Something that’s been added to the debt consolidation world is called “christian debt consolidation.” It purports itself to be an industry where its practices and ways of working with consumers is based on biblical principles, and therefore better for you than traditional debt consolidation companies.

Before I go any further, I want to mention that the word “christian” will be in small letters for the fakers, and large letters for those who truly believe in their religion.

What’s the real story? The real story is that most of them are the same as regular debt consolidation companies. They tell you that they’ll help you pay down debt at a specific rate, that you won’t have to file bankruptcy, that they can stop collection calls from coming your way, and that they’ll help you get better rates and eliminate over the limit fees.

Some of these christian debt consolidation companies will even tell you that, in order to take you on as one of their clients, you must sign up for religious studies, supposedly geared towards teaching you ways to stay out of debt based on biblical teachings. Those come at fees that are extra and separate from the fees you’re already being asked to pay for debt consolidation help.

I’m always suspect when I see certain industries catering to Christians directly on something that pretty much has nothing to do with religion at all. It’s a sneaky ploy to try to aim at a certain market that they know will usually be looking for someone purporting to be Christian themselves to work with.

What are some of those ploys? One company called Christian Debt Consolidators have a prayer on their site called “Steward’s Prayer.” There is no one steward’s prayer, though, and this one has nothing to do with finances. Another site, takes you to a blank page and asks you to click on a link to prove that you’re not a bot, and when you do, it takes you to another page that has nothing to do with debt consolidation, instead being a template page to apply for an online loan. And, unless you’re using Firefox, you won’t be able to just close the tab to get away from them.

Also, fees from these purported christian debt consolidation companies are traditionally higher than fees from other debt consolidation companies, which is easy to see why because, unfortunately, the Christian market has already proven themselves willing to pay more money towards Christian causes, whether they’ve been verified as legitimate or not, thanks to televangelists.

Of course, not all of these companies are scams, but you have to be careful. If they tell you to stop paying your credit card bills and send them the money instead, beware of a trap. True nonprofit Christian debt consolidation organizations will try to help you learn how to pay your bills, sometimes saying they’ll help you pay your bills in full, even if at a reduced rate. They will work more like Consumer Credit Counseling, truthfully talking to creditors on your behalf to try to get you better terms.

It’s always a buyer beware market, but if someone comes calling saying they’re representing Christianity, and that’s important to you, make them prove it, and with more than just words.

My opinion. Figure out what your debt is, put yourself on a budget, and if you need some help call all of your creditors and see what they can help you with. Trust me, especially in this economy, they’re willing to try to help.

Many people are in a crunch these days when it comes to paying bills. The ones that are the most scary are mortgage, utilities, and of course credit cards. These are the ones where the phone calls will start coming, and if you’re like almost everyone else, you’ll just decide not to answer the phone and deal with the pressure on the back end.

I’ve been in the same boat a few times in my past. I’ve avoided the phone calls and allowed the fear of what might happen to make me feel as though I were cowering in my own home. Well, there’s an answer for this, one that you should think about doing immediately.

That is to pick up the phone and call these people before they call you. This will serve two purposes. One, often you’ll find that these people will work with you in some fashion to help you out in a pinch. Many will allow you to skip a payment, or make a reduced payment for a month or two, which could help greatly. Some creditors will work with you on payment plans over time. And even with those few who won’t work with you, and they really are few, by law they can’t contact you again for 5 business days, which means you won’t have to deal with another phone call for a week, in which time something good might come along and give you at least a negotiating position of some sort.

Of course, if your issue is an outstanding credit card or debt of some other kind, one that you know is on a credit report somewhere, you should know your rights and what you’re really responsible for. On my other blog last year I wrote an article titled Know Your Charge-Off Amounts, and this one could save you a lot of money on outstanding payments because, by law, if you make a payment without verifying what the charge off amount is, you’re legally liable for the entire balance the collection agency wants to get out of you, which usually includes penalties and other fees.

Don’t be a victim to bad situations and outstanding debts. Everyone has them; pick up the phone, be proactive, and you’ll be amazed when good things come out of it.

Sure, it’s not as sexy a number as hearing that the debt of the United States is around $10.7 Trillion dollars, but it’s scary enough to learn that the federal budget deficit expanded by $83.6 billion in December, bringing the total deficit for the first three months of the 2009 fiscal year to $485.2 billion. That higher than it was the entire year of 2008!

Supposedly, the deficit went up because the U.S. started spending some of that $7.2 trillion dollars of bailout money, which I kind of said I was against when I gave my top five plan for turning the economy around. And yet, even with this, we have Federal Reserve chief Ben Bernanke suggesting that the Obama administration should tap a $700 billion financial rescue fund and help shore up the banking industry. My goodness, when will it all end?

The United States has less money because it’s spending more in unemployment, while taking in less on taxes because people don’t have jobs. Goodness, my little plan above took a part of that into consideration by saying that this country needs to focus more on helping some of these companies keep people employed, because that’s really the only way we’re going to pull out of all these problems. Here I was, earlier this evening, reading a story about a Westchester County, NY hospital about to lay off 400 people, which includes closing a nursing home, to try to close a major budget deficit. Depending on who you talk about, healthcare has either shown great resiliency in this economic downturn, or is suffering along with everyone else and then some, and the above example shows that even healthcare entities are looking at cutting people and holding onto the money they have in new ways. I know a few things about hospitals and how they could help improve their revenue stream, but that’s a conversation for another time. Of course, we have to balance what’s going on with hospitals against news like Med Assets reported today, maintaining its 2008 forecasts, and giving a small boost to profits in 2009. In afternoon trading, MedAssets stock advanced $1.20, or 10.4 percent, to $13.07. That’s not bad when we know that the Dow actually went down 23 points today.

Whereas everyone else checks currency rates to see how the dollar is faring against the Japanese yen, I like to stick closer to home. This means I compare the U.S. dollar against the Canadian dollar, to see how much my money will get me in Canadian denominations. Just three years ago the American dollar would get you the equivalent of $1.66 in Canada; as of today, it’s down to $1.21, which is still higher than a year ago, when the Canadian dollar had actually caught up with the American dollar. Still, it doesn’t show how strong the American dollar really is as much as how much it’s starting to devalue itself as our country has to create more money to be spend by the government.

All of this, and Mr. Obama hasn’t even taken office yet. I hope that, in a week when he becomes president, he is able to get his stimulus package into play, so that we can hopefully get on the road to recovery, and my prediction that, by summer, things will start looking better comes true.

At the beginning of the week, my wife and I decided to give up our water softener. We’re not doing it because we can’t afford it; we’re doing it because we really don’t know if it’s working throughout the entire house, and if we’re not sure it’s working or not, then there’s no benefit to us.

Once the decision was made, my wife said “Now we can take that money and apply it to the roof fund.” If you read this blog you’ll remember that when I wrote about my 2009 financial goals, I talked about trying to increase the value of my house. A big part of that is the roof, which has been the bane of our existence since we moved into the house. However, my response to her was “no, that money will get recycled into paying down more of our debt.”

What most people don’t think of when trying to assess the differences in saving money rather than paying down debt is that debt is actually more detrimental than saving is positive. Take your average credit card, where you might have an APR (annual percentage rate) of 15.9% on your outstanding balance, whereas you might be in a money market that’s paying you 3.5%, or something in your bank savings account that’s paying you way less than that. Debt is sneaky in that you see those low monthly payments and figure that’s easy to take care of, but low monthly payments means the debt you owe is getting bigger and growing faster and, ultimately, is going to take you longer to pay off, if you ever do pay it off.

Saying that, what I truly believe is that most people need to set up a process and plan for paying down debt, especially credit cards, than in saving money for the future, although that needs to be a part of it also. Many years ago, back in the early 90′s, I got into some credit problems myself, and I figured out that what I needed to do was a two pronged approach to paying off debt.

The first thing you have to do is actually write down all the debt that you have. This scares many people, but it has to be done because you can’t fix what you don’t know is out there. When you list everything, you need to have a column showing what the APR is, because it becomes an important factor in what you’re going to want to do. And I mean all debt, which includes car payments and mortgage, and any other outstanding loans you might have. Once you look at balances and APRs, you have to know what to pay first, and how. The way I did it was that I made slightly bigger payments to the smallest amount I had and the account that had the highest APR. When I got the lower balance to a place where I could actually pay it off in one chunk, I did that, because you learns that it feels like a victory whenever you pay off the entire balance of an outstanding debt, and that makes you feel empowered and in control of your finances, increasing your dedication to your goal. For all the other debt, continue paying the amount that’s being requested of you for the time being.

When you’ve paid something off in full, you then take that money and roll it into the next lowest debt to try to accelerate paying that one off. And you will continue with this process until you’ve finally gotten yourself to a place where your debt load is manageable. Notice I didn’t say when your debt is totally done. That’s because almost no one ever totally gets rid of debt, since we all need stuff, including houses and cars, but you have to be willing to stop spending and using credit cards just for the sake of wanting new things. When I made my budget, I decided I wasn’t going to use a single credit card until I got caught up, and I was able to stick with that for the most part. Turns out that I needed some new clothes when I got a new and higher paying job, so I did have to break out that one time to purchase new clothes. Other than that, though, I bit the bullet, paid for everything with cash as much as possible, and eventually cleared up all my outstanding credit card debt, since, at the time, I didn’t have either a car payment or own a house.

One thing you can do is cut up your credit cards and send them back to the issuer. I did that for most of my cards, but realized back then that I needed to keep at least one major card, and in today’s world that’s even more important than it was before. You can’t rent a car without a card. You can’t easily get a plane ticket without a credit card. You pretty much can’t get a hotel room without a credit card, as they want to have something on hand in case you decide to become a rock star overnight and trash the room. And, in today’s world, once you’ve gained control of yourself, you might start thinking about something I was recently reading, that being to always use your credit card if it builds up points or cash, then pay off the entire balance whenever you get the bill. That way, you actually start earning things while still staying out of debt.

However, let me mention this one to you, something that caught me off guard, but that I was able to rectify. I had paid off one of my wife’s credit cards, and the next month she still got a bill for the interest amount that supposedly had generated from the time the bill went out until the time the card was paid off. I had her call the credit card company up, then I got on the phone and ranted until they removed it. In my mind, that’s another one of those sneaky, underhanded things these banks and credit card issuers will do to try to get you in some fashion, and if that’s allowed to continue then you’ll be in perpetual debt, even if it’s only pennies. I don’t remember reading about that when I wrote about the new credit card rules coming in 18 months.

While you’re at it, you might want to think about getting a free copy of your credit report, just to make sure you’re looking at all your possible debt that’s out there. That might save you some consternation in the long run.

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