Tag: debt management
Many people around the country live outside of their means. Whether it is trying to keep up with the Jones or having an unexpected emergency happen, it’s very easy to go outside of your budget and plunge into debt.
In fact, according to Credit.com, 80 percent of Americans are in debt. This includes types of debt such as credit card and mortgage. If you are one of the millions of American who are plagued by debt, here are five simple ways to get out of it.
Formulate a Budget
Create a weekly or monthly budget and stick with it. You can easily make a template for a budget in a Microsoft Excel document. Be honest with yourself and include all of your bills that must get paid monthly, including your rent or mortgage, utility expenses, car payment, credit card bill, and other necessities, including your weekly food shopping list. Plan on paying all of your bills in full and on time.
Living within your means can be difficult at first, but is a necessary habit to abide by if you wish to get out of debt.
Create a Savings Account
Open up a separate checking or savings account and set aside some money every month that is designated for savings. Do not touch that money unless you absolutely need to. You never know when a rainy day is going to come.
Different Sources of Income
If you find that you’re not making enough money to cover all bills, it may be helpful to find a supplement source of income. Pick up a part time job for a period of time to help you pay off some of your debt. You can also invest in real estate, stocks, or other items to pick up some extra cash.
Lower Your Rates
Do you know your exact credit card rates? You may be paying high interest rates on existing debts that can really mount up, making it almost impossible to pay off.
Based on your credit, you may be able to qualify for better interest rates on your existing credit cards. Or you may be able to consolidate all of your credit onto one card for easier payment options.
Get the Numbers
Once you have consolidated your debt and know the exact number you need to pay off, it’s time to formulate a real goal to work towards. Total the three-year pay-off amount of your debt and add monthly payment of everything else you owe. Write the results down and that is your total monthly payment.
Getting out of debt and bankruptcy is totally doable. You just need to make a plan of action and stick with it.
A $10 purchase can help you save more than $40 a month — and get you started on paring down what you owe.
If you find yourself falling deeper into credit card trouble, it’s time to take a hard look at what’s coming in, what’s going out and see where you can free up some cash quickly to start hacking away at your debt.
Some trims may seem small, but if you package several of them together, you can soon get started on a respectable payment plan. Here are some ideas for places to turn first.
1. Cell Phones
“For $9.88, you can buy a TracFone (prepaid cell phone) with pretty decent coverage and pay by the minute,” says Mike Sullivan, director of education at Take Charge America in Phoenix. “And if you’re careful, you can end up saving $40 to $50 a month off a typical $80 cell phone bill.” He also recommends canceling your land line unless you have medical issues that may require emergency calls.
2. Cable / Satellite
Most people can save money just by getting rid of the extra pay packages they have — such as premium movie channels and extra services. “If you’re really in trouble, cancel the whole package,” Sullivan says. Check out the library for free movies, DVDs and CDs to bridge the entertainment gap.
3. Homeowners Insurance and Car Insurance
By increasing the deductible of your policy from $500 to $1,000, you can see big decreases on your premium, says Michael Barry, vice president of media relations for Insurance Information Institute in New York. “People pay about $880 a year, so if I can knock $88 off, it’s a start.” Regarding auto insurance, take a look at your collision insurance if you have an older car. If you have even a fender-bender, sometimes the cost to repair the car would be more than it’s worth, so perhaps you could cancel the collision insurance altogether.
First, look up the value of the car at Kelley Blue Book, Edmunds.com or the National Automobile Dealers Association, then check the collision line on your auto insurance bill and see what it’s worth to you to keep that insurance. Also, if you don’t drive that car much, look for a discount. “If you drive from 7,000 to 7,500 miles a year, you can often qualify for low-mileage discounts,” Barry says.
Americans are increasingly finding alternatives here. In fact, consumers spent 11 percent less last year in this category, according to the Bureau of Labor Statistics’ 2009 Consumer Expenditures Survey released in October. If you have more than one car, this may be the time to look at downsizing to just one car and getting around with better planning, carpooling, bike riding, public transportation or car sharing. Car-sharing companies such as Zipcar operate in a growing number of cities and on many university campuses. You can rent a car by the hour when you have to have one without the expense of insuring and maintaining your own car.
“People often overlook programmable thermostats,” says Edward Tonini, director of education of Alliance Credit Counseling in Charlotte, N.C. “You can spend $20 to get a programmable thermostat and if you set it right, it can save you $100 over the course of a year easily.”
Households spent an average of just more than $300 a month on food eaten at home and about $215 per month on food outside the home in 2009, the BLS survey reported. “Maybe eating out isn’t necessary for you,” Tonini says. “Packing lunches and eating at home will lower your discretionary spending.”
7. Gym Membership
Are you really using it multiple times a week? Divide your monthly dues by the number of times you go in a month and get a realistic picture of what you’re spending on a one-hour workout. Park districts or community centers often have low-cost or free programs. Also check into exercise videos or a piece of home exercise equipment that you would use regularly. If you decide to keep the membership, check to see whether the facility offers discounts for coming at off-peak times.
A family of four can quickly rack up nearly $100 on one movie with popcorn, drinks and maybe even parking fees. “Instead of going to the movies, have a game night at home. It sounds kind of corny, but it will be more meaningful than sitting in the dark when you can’t talk to each other,” says Dave Gilbreath, a regional director with Apprisen Financial Advocates in Yakima, Wash.
9. Tax Relief
Wendy Burkholder, executive director of Consumer Credit Counseling Service of Hawaii in Honolulu, says, “Many of the families we work with are struggling with credit card debt because of loss of income. One of the first things to do is re-evaluate your tax withholding on your paycheck (if your spouse or partner has lost a job). If you don’t make the change, you end up with a whopping refund. You don’t need the money a year from now, you need it now.” If you’re overpaying taxes, you’re also giving the government a free loan and are likely putting off paying for your own bills, which can lead to fees and penalties, she says.
10. Health Insurance for Dependents
“If you’re struggling with loss of income, you may no longer be able to afford $600 being deducted from a paycheck to cover your dependents,” Burkholder says. She suggests checking to see whether you now qualify for a state or federal coverage plan for dependents, such as the Children’s Health Insurance Plan, or coverage by health care providers that may offer reduced prices for basic health care for children.
Deciding what to cut first will be different for every consumer, but whatever the choice, it should be sustainable, rather than a one-time quick fix, Tonini says. Sometimes it’s cutting out the daily $4 coffee, but “they need to figure out what their ‘latte factor’ is.”
Low interest rates do not necessarily mean owners will save on their mortgages.
When interest rates are low, leading many owners to refinance before assessing the true consequences of their actions. A mortgage refinancing can benefit some homeowners, especially if they intend to stay in their homes for the long term or whether they can significantly reduce their interest rates. Sometimes, however, a mortgage refinance may be the wrong choice.
“People often make bad decisions because of what I call” the envy of interest rates “around the coffee table,” says AW Pickel III, CEO of Financial LeaderOne in Overland Park, Kansas “They jump to refinance just so they can tell their neighbors they got a lower rate.”
Here are five of the biggest mistakes homeowners make when refinancing.
Not comparing the actual rate
“Borrowers should shop around for a mortgage by comparing the APR (annual rate) of each loan, rather than the interest rate quoted,” said Gregg Busch, vice president of First Savings Mortgage Corp. in McLean, Va. “You must look at the actual cost of the loan and compare it to your current APR to ensure that you will really save a half point or more on the new loan. ”
Busch points out that many owners today are finding that their home is worth less than they assumed when they have an appreciation.
“Fannie Mae and Freddie Mac have added fees on loans with high loan to value, so borrowers need to reassess the rates and fees before they decide to refinance,” said Busch.
Borrowers who have little or no action may be eligible for refinancing under Home by the Government of affordable refinancing program, or harp, available to those with an existing mortgage owner or guaranteed by Fannie Mae or Freddie Mac.
“The beauty of the HARP program is that it does not require an appraisal, so if you think you are underwater on your loan, this could be a good option,” said Busch. “Just make sure to compare rates and fees to see if the new loan is worth the cost.”
Choosing the Wrong Loan
Pickel said the first step when deciding to refinance is to establish a clear objective.
“If you think you can lose your job, but you have a moment, your focus should be to reduce your overall payments regardless of the length of the loan,” says Pickel. “If you want to be debt free by some years, then you need to find a loan that meets that goal.”
Pickel said that sometimes, even with a lower interest rate, you could end up making higher monthly payments due to packing in closing costs has increased the size of your mortgage.
Each borrower must look at the cost of refinancing and the financial benefits before choosing a loan, said Busch. Forget that some borrowers to refinance into another 30-year mortgage can add years of payments, especially if they have paid on the loan during a long time.
“A ARM 10 / 1 (variable-rate mortgage) or a 10-year fixed rate loan can sometimes be a better choice depending on the individual circumstances of the borrower,” said Busch.
Not Shopping Around
While many borrowers to compare loan offers from more than one lender, they can also shop for title services and save hundreds or sometimes thousands of dollars on their loan.
“Check at least three lenders and at least three companies before choosing a title,” said Busch. “It can be an advantage to go to the Management Authority that manages your loan the same now, because they may require less documentation, but I recommend also searched at least one other direct lender to compare rates and expense. ”
Ask the company as a reissue rate on title insurance own your vehicle – Busch believes that this can save up to 35 percent on premiums.
When refinancing you should not
Charles A. Myers, president and CEO of Home Loan in Jackson, Mississippi, said refinancing can be a mistake if you do not plan to stay in your home for many years.
“One client wanted to refinance to improve his property and rent it, but it would have ended up with a larger mortgage and then need a different loan because the property is no longer the principal residence,” says Myers. “The key is to ensure that the refinancing has a net tangible benefit to the owner.”
Borrowers must decide how long they intend to stay in the property and determine the break-even as economies outweigh the costs before deciding to refinance, said Myers.
Does not follow the Borrower responsibilities
Owners should rely on a lender to refinance, but they have obligations of their own that they are not met, could derail the mortgage refinancing. Borrowers must have good credit to refinance with most lenders require a credit score of 640 and above even for a loan insured by the Federal Housing Administration, said Myers.
Lenders can check credit borrowers again just before closing, if you need to maintain good credit and avoid a new debt, even after the refi was approved.
“Check the lock-in date to the interest rate on your new loan to make sure you can close before the rate expires,” said Busch. “Be sure to turn in all your documents as soon as it is required, because a delay could mean that your date should be postponed.”