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Five Signs You Have A Debt Problem

01.14.2013 by Kevin Mercadante //

When you’re managing your debt payments it’s easy to ignore the fact that you have too much debt. The purpose of debt – from a sales standpoint – is to spread the payment out over many years so that what isn’t affordable suddenly is. It’s all about the payment!

With all of the focus on monthly payment, the total amount owed – which is the number that really matters – can sort of disappear. After all, when it comes to debt and expenses, we don’t like big, ugly numbers. Small numbers are so much less disturbing.

Here are five signs that you may be carrying too much debt.

1. You don’t bother to total up how much you owe

Most of us know that we have debt, and usually about how much. When you’re getting in over your head there’s often a reluctance to spend much time dwelling on it. Specific numbers provide frightening confirmation of what we suspect – and prefer to avoid.

One of the best indications that you have too much debt is when you’re reluctant to find out just how much you have. You know that you owe on Credit Cards X, Y and Z, but you try not to pay too much attention to how much you owe on each. And you never bother to add up all the balances either.

Your attention centers instead on the monthly payments for each account, because they look much more reasonable than the combined balances on all accounts.

2. There’s little or no money for savings

Cars and appliances break down or need to be replaced, homes need to be repaired and medical episodes and auto accidents require co-payments. There has to be money sitting somewhere in reserve to pay for those.

If you typically don’t have savings to cover contingencies, there’s a very good chance that the cause is either excess spending or too much debt. The two are closely related, so it’s probably some of both.

Credit card bills and other loan payments are a quiet drain on monthly income. Not only do they leave little room for a regular savings plan, but they can also force you to reduce retirement plan contributions.

A sure sign that you have too much debt is when you come to view your credit lines as your emergency savings.

3. Debt payments – excluding mortgage – are one of your top two expenses

Add up all of your monthly debt payments – student loans, auto loans, credit cards, installment loans – every loan except your mortgage. How does that total monthly payment look compared to other expense categories in your budget? If it’s one of the top two expenses in your budget, you almost certainly have too much debt.

In most households, the monthly house payment will be the largest single expense. In second place might be groceries (if you have a family), health insurance or even combined utility payments (especially if you live in an area with severe weather).

If debt payments are second only to your house payment – or if they’re your number one budget outlay – you’re carrying way too much debt. In that situation, you won’t be able to make any financial progress until your debt is brought under control.

4. You can’t buy extras without using a credit card

Because of the combination of high monthly credit card bills and the lack of savings, there’s never quite enough money to pay for extras. A weekend away, a trip to the dentist, or even a night on the town are covered by a credit card.

Although it may be normal, it’s not acceptable if you want to win with money.

5. You’re shopping for a consolidation loan

For the most part, consolidation loans are about lowering the monthly payment. You’ll still owe the same amount as you did before the consolidation, it’ll just look neater in a single package. And it’s a strong indication that you have too much debt.

It’s not that a lower payment doesn’t have merit. The problem is that the lower payment makes debt easier to live with, rather than making it go away. And the lower payment could also clear the way for more borrowing. After all, if you’re comfortable with the new consolidated payment, it’s often easy to slip back into bad habits.

Note: Matt consolidated his credit cards and auto loans using Lending Club, and he recommends it, but only if you’re going to pay it off as fast as possible and are committed to taking on zero additional debt.

Getting out when you have too much debt

If you’re experiencing one or more of these situation there’s no alternative to taking action against your debt. It’s always better to deal with it while you still have control of the situation – before it reaches the crisis stage.

Here are some tips:

  1. pay close attention to your outstanding balances – that’s your real debt situation, not monthly payments
  2. do whatever it takes to stop using credit immediately
  3. cut back on non-essential spending
  4. sell as many possessions as you can
  5. increase your income with overtime, a part-time job or some type of side gig
  6. get some money in the bank (from steps 3, 4 and 5) so you won’t rely on credit
  7. start the Debt Snowball of paying off your debts from the smallest to the largest.

It’ll take time and a good bit of effort, but soon enough you’ll get to the point where you won’t mind looking at your loan balances any more.

And that’s good news!

*******

Image : Vectorportal via Flickr

Categories // Debt, Money Management Tags // loans, money, planning

How To Save Money (at least $100) Fast

11.30.2011 by Matt Jabs //

How To Save Money FastI wrote this article to help people save $100 quickly so they could afford to attend Dave Ramsey’s Financial Peace University.

Whether you’re in need of financial help or just trying to save money fast, these strategies will help make you successful. Read through them with an open mind.

Saving money takes purpose and action so be ready to change and ready to work hard – your effort will be rewarded.

How to save $100 fast

Let’s define “fast” as occurring within one month from today. Follow these steps and 30 days from now you should have at least $100 saved.

1.  Spending moratorium.

A moratorium is nothing more than a suspension of activity.  Stop spending money.  Period.  Make sure the basic necessities of life are covered (food, shelter, warmth, etc.) then stop spending.

2.  Freelance or land some other temporary job.

Nothing makes saving easier than earning additional money outside your normal budget.  If you have skills of some sort you should be able to land a few gigs/month which will enable you to save at least $100.  w00t!

3.  Cancel TV and/or Internet service.

If you tell me you cannot save $100 and I come over to your house to find you watching Entourage, I’m gonna put the smack down.  Quit whining and cancel your cable/satellite TV service.  While you’re at it, cancel your Internet service too… unless you depend on it for income, or something else that is necessary to the functioning of your household.

As mentioned above… you can save money on entertainment every month by signing up for a Netflix free-trial for TV shows & movies, and a Gamefly free-trial for video games rather than renting at a local video store and paying late fees.

4.  Stop drinking/smoking.

Much the same, if you’re partaking in either of these expensive and potentially destructive pastimes while complaining that you can’t save $100… smack down.  Get your priorities in order and knock it off.

5.  Stop eating out and/or going to the movie theater.

One of the first things me and my wife did after embarking upon our debt free adventure, was to eliminate our seemingly insatiable appetite for dinner and a movie nights.  After calculating it out we discovered this dirty little habit was costing us around $500/month.  Ridiculous.  How much are you spending?  Write it down, and stop doing it. (Tip by @ericabiz)

6.  Start liking beans, rice, and tuna fish.

Rice and beans actually taste really good, and tuna fish is considered a luxury by some, and it’s all quite good for you to boot.  How much do you spend on groceries/month?  I’m guessing you could save $100 easily by adopting this little nugget of wisdom.  For good measure, go ahead and throw and apple in there once/week.

7.  Stop buying gifts for others.

If you cannot save $100 in a month then the last thing you need to do is buy gifts for other people.  Trust me, they’ll understand.

8. Apply the Pareto Principle to your possessions.

The Pareto Principle suggests that we use 20% of our stuff 80% of the time, and if you’re anything like me you have entirely too many clothes and other possessions.  I’m willing to bet that you wear 20% of your clothes 80% of the time, and the ratio of use is probably similar with your other possessions.  Instead of storing a bunch of stuff you don’t need, take the clothes to a consignment shop and trade ’em in for a cool Benjamin – hundred dolla bills y’all! (Tip by @2CFC)

9.  Sell something on eBay, CraigsList, or Amazon.

Take some of the other non-clothing stuff from step 7 and sell it online.  Even if you don’t think you own anything worth selling, go through your entire house, I guarantee you’ll find something.

10.  Cancel your home phone.

Unless you need it for business or emergencies, cancel it. Especially if you have or someone in the household with a mobile phone.

11.  Lower your mobile plan and/or drop your data plan.

I know, it’s nearly impossible to live without “your precious” but if Schmiegel can do it, so can you.  Again, do not cancel the service if you need it for business.

12.  Drop your gym membership.

Whether you bought your membership and never go, or if you go every day, cancel it.  There are plenty of work out routines you can do around the house for free.  Don’t worry, your pecs, abs, and delts will be fine with push-ups, sit-ups, and pull-ups respectively. (Tip by @amabaie)

13.  Ride your bike for a month.

If you’re a wuss you can take a break on days when it rains, just kidding, you don’t have to be a freak about it and ride your bike every day, but do ride it whenever possible.  Doing this will help give you the exercise you lost by canceling your gym membership while helping you save money and save the environment – what a deal!

14.  Donate sperm and/or plasma.

Personally there is no way I would sell my sperm, I don’t believe in it and I don’t want a bunch of my offspring running around out there without me knowing anything about them.  But if this sounds like something you could do… I heard there is decent money in selling the lil’ fella’s.  Selling plasma is a little less controversial, and while it might not pay as well as sperm, you can still make decent money parting w/this life giving fluid.

15.  Go couchsurfing on business trips.

Go couchsurfing when on business trips instead of paying for hotels.  Sure, people might consider you weird if you tell ’em about it, but who cares?  If you believe in it, the for Pete’s Sake… do it!  It won’t work out every time, but it will to work out sometimes; and the more you travel the more you stand to save.  What a blessing.

Have you tried all these ideas?

Chances are there is at least one idea above you could use to save $100 fast so what are you waiting for? Without sacrifice there is no reward so muster the courage, step outside your comfort zone, and start saving ASAP.

**********

photo by rachdian

Categories // Debt, Expenses, Savings Tags // fast, fpu, money, save

Reasons To Budget Your Money

06.27.2011 by Mike Young //

You’ve heard all the hype. In fact, you may even be tired of all the hype. “You need to do a budget!” How many times have you heard that? With every (well, almost every) financial expert on the planet saying you should do a budget, why are so many still not? Maybe you’ve just never been given a persuasive argument. Allow me to attempt to convince you.

1) It acts as a blueprint.

Imagine the situation. You and your spouse decide that it’s time to build a house. You don’t really worry how much it’s going to cost and your builder tells you he sort of has an idea in his head what it will look like. Can you imagine the disaster this is going to turn into? What if the house ends up costing $700,000 and you can only afford a $200,000 house? What if the builder puts things in the wrong location and you end up hating everything about it? Not to mention how much time and money will be wasted by not having a plan. No one in their right mind would do that. The problem is most people do this with the monthly budget. Just think, if you make the household average income of around $45,000 per year, you will have 1.8 million dollars pass through your hands from age 25-65. That’s right: 1.8 million dollars! Having a budget will help you get the most out of all of that money. It’s like having a blueprint for your money. Often, not having that blueprint can turn into a financial disaster!

2) It forces communication in your marriage.

When you do a budget, it forces husbands and wives to spend time talking to each other. The only way for a budget to truly work long term is for both spouses to be on the same page. This means that they must share their hopes, dreams, and goals with each other. For example, your wife may say that she wants to put aside money in savings because she wants to take the kids to Disney World in two years. Your husband may say that it is really important to him to put a certain percentage into retirement because he would love to retire at age 55. It’s amazing what you can learn about your spouse simply by doing a budget.

3) Reduces stress.

Stress and worry are often born from the unknown. When you really don’t know if you have enough money to buy something you need, it causes stress. If you don’t really know where all of the money you make seems to disappear to, it causes stress. If you really don’t know how you are going to make it if your spouse loses their job, it causes stress. High levels of stress in marriage is a recipe for disaster. Money fights are often cited as the number one cause of divorce. If couples can get this part of their marriage straight, it will provide a huge step towards a long, happy marriage. The most important ingredient for a couple to reduce stress in finances is to get on a budget. A budget will tell you if you have enough money to buy something. It will take you from wondering where your money is going to you being in control of where it is spent (or saved).

I would love to hear your feedback. There are, perhaps, hundreds of good reasons to do a budget. Let us know what your thoughts are. Also, maybe there are good reasons not to do a budget, I would love to hear those as well.

Categories // Money Management Tags // money, Money Management, relationships, stress

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