Debt

Paying Off Debts Pays Off

September 28, 2017 By Twila Van Leer

Debt is the ultimate treadmill. Sometimes it seems no matter how hard you try, the load never gets lighter. Don’t despair. If you are serious about wanting to whack down some of that debt, it can be done. Just be prepared for the fact that it doesn’t happen fast.

There are several approaches to the issue. Let’s start with the “Snowball Method.” That means you start your attack on the accounts with the smallest balances. That might give you the greatest boost as you see the accounts disappear. But the “High Rate Method” has the most potential for actually saving money. That’s when you concentrate the accounts with the highest interest rates, chewing them down a little at a time and reducing the amount of interest you pay.

Before making a choice, make an assessment. List all of your debt balances from lowest to highest so you can actually see what might be the best plan of attack. When you pay your monthly bills, pay the minimum amount on each account.

Then, if you have chosen the “Snowball” approach, take any available cash you have and apply it to the account with the smallest balance. If two accounts are close, choose the one with the highest interest rate. Even a very small amount of extra payment adds up over time and it always reduces the amount of interest you will pay. When you get one of your smaller debts paid off, the trick is not to use it again until you have the total debt under control. If you have to hide your card from yourself, freeze it in a block of ice or simply close it, resist the urge to start the process over again.

After you have paid off a debt, take the money you had spent on payments and use it to make additional payments on the next smallest account. Repeat this process and you’ll soon have a considerable amount of extra money to tackle the larger accounts. You’ll be surprised how fast that can happen. The “Snowball” effect really works.

If you have opted to start with the accounts with the highest interest, your first step is the same. List your debts, but according to the interest rate, from highest to lowest. Again, pay the monthly minimum and then use any extra cash you can muster to add to your payment on the one with the highest interest. That means that each month, you will pay interest on a smaller amount of principle.

Do the same thing with the account with the next highest interest payment. Over time – and it isn’t likely to be fast – you will find you have manageable debt. Unless, of course, you don’t resist the urge to fill up the cards again. Having them free and clear is a powerful incentive to start the process again, but resist. Make careful choices between what you really need and what you only want.

Which approach to debt reduction you choose is up to you and must fit your personal financial realities. But those who have take the steps to get control of debt will tell you that you just can’t put a price on the peace of mind that comes with freedom from debt. Get help from an accredited consumer credit counselor if necessary.

Five Questions To Ask About Debt

September 14, 2017 By Twila Van Leer

Debt Questions — Failure to clarify questions can cause confusion and needless worry

Debt is a subject that many people find difficult to discuss. But the failure to clarify questions can cause confusion and needless worry.

A recent USA Today story listed these five questions that are common among debtors and the answers:

Will my debt ever get so old I don’t’ have to pay it? Many debt types, including credit card and medical bill balances, have a statute of limitations. The guidelines vary from state to state, but in general, these debts are dropped three to six years from the first missed payment or most recent payment. After seven years in most cases, the negative reports fall off your credit rating. But the debt is still collectible and you could be dunned by debt collectors. However, they are not able to sue you.

When family members die, might I be stuck with their debt? How the death of the debtor affects the debt varies, including how dependable the finances are of the person who might then become liable. The assets of the deceased may have to go toward paying off debt. The creditor has to absorb the loss if there is not enough to cover the debt. If you co-sign on a debt, chances are you will be liable if the major debt holder dies. Co-signing on mortgages and other loans may make you responsible. Don’t co-sign on credit accounts unless you have enough life insurance to cover the debt.

Can I be arrested for debt? Federal law prohibits debt collectors from threatening you with arrest or jail. Some collectors may threaten you with an arrest warrant but it’s uncommon. But you can be sued. About 90 percent of those sued for debt fail to appear in court, leading to a default judgment ordering repayment. Ignoring a court summons is a mistake. The court may order that payments be made directly from your wages or bank account.

Is there a maximum amount of debt I can accrue? No. Lenders may offer more credit than you can reasonably repay. Debt may be necessary to purchase a home or to build a business, but be realistic about your ability to repay. Avoiding the issue is easier than dealing with it after the fact.

Will bankruptcy erase all my debt? Some debts, including alimony and child support, cannot be erased by bankruptcy. Student loans, tax debt and judgments also are difficult, though not impossible, depending on the circumstances. If you are buried in debt and struggling to stay afloat, consult a credit counselor (there are those who are available through non-profit agencies) to see if bankruptcy is the answer for you.

Pay Down Debt Or Build Savings?

October 7, 2016 By Twila Van Leer

People who take personal finances seriously sometimes have a decision to make. If you have money left over after taking care of essentials, is it better to use it to pay down debt or put it into savings? It’s an ongoing debate with no absolute answer and you should make a decision based on your own personal situation and goals.

Factors to consider, according to financial planners, include the type of debt you are considering, the amount of interest you pay and how long your obligation will last.

Some advisers see debt as the fatal flaw in personal finance plans and they advise getting rid of it as quickly as possible. Consider the cost: As of late May this year, the average fixed interest rate on a credit card was 12.52 percent. Variable rate cards come with an even higher rate – 16.03 percent on average. That’s a compelling reason to opt for the pay-down-the-debt approach. Ultimately, having more money at the end of the process is a cogent argument.

Mortgages

Mortgages often are the largest debt a person or family carries. They don’t usually come into consideration in this debate. Mortgage interest rates generally are lower than those on consumer debt. Also, they are tax-deductible.

Retirement Savings

On the flip side, consider these facts about saving. The most frequent target of savings is retirement. Workplace plans that sometimes offer an employer contribution also make this option desirable. Look into 401(k) or 403(b) opportunities.

Such plans withdraw the employee’s money before it is considered income, so there are tax savings. The arguments for putting your money into retirement options is great since many Americans find themselves facing the rocking chair with not enough padding to live on.

Still there are those who argue that having a cushion for retirement while still dealing with debt is not a good place to be. Make your decision based on the facts of your personal finance picture.

Of course, there is no rule that says you can’t do a little of both. Looking for an adequate but not cushy retirement option while putting the rest of your excess into debt payment may be the road you want to travel, Run the numbers and make them fit your own circumstances. Either way, there is compounding to consider: The interest on either debt or retirement savings goes on just the same. Take that into consideration while you ponder the question. There’s a good middle ground for you.

The Credit Elite Have Savvy Habits

June 23, 2016 By Twila Van Leer

Payment history most important factor used to determine overall score.

Ever yearned to be part of the “Credit Elite,” those whose credit ratings are up the 800-850 range as determined by the rating agencies? That kind of credit almost assures that you will be approved for loans and likely enjoy lower interest rates.

Those in the 800-plus range know that it doesn’t happen by chance. They make particular credit habits part of their regular personal finance strategies. Here are some of their suggestions:

Pay On Time

Without exception, pay on time. The payment history is the single most important factor that the agencies use to determine your overall score, being some 35 percent of the total. If you miss a payment or make one late, it has a negative effect.

Keep Balances Low Or Paid Off

Keep a rein on credit card balances. The size of the balance relative to the card limit is a factor. The best credit is generated by using less than 10 percent of the allowable limit.

Low Number of Credit Cards

Limit your credit accounts. Applying often for new credit can affect your bottom line. That activity represents 10 percent of the credit agency’s total. If you make frequent inquiries about new cards, for instance, trying to find the best mix of perks, it could have a negative effect. Try to get the right mix into place, then stand pat. A mix of debt, including credit cards, auto loans, mortgages, student loans, etc., all deftly managed, will impress the rating companies.

Don’t Spend More Than You Make

Live within your means. Overextending yourself financially will come home to roost. Don’t use credit to overspend. A solid, long-term credit history will keep your score in the range you want. The older your accounts become without serious lapses, the more they count. Stability is a factor when you’re looking at the 800 rankings.

Staying on course is important. Consistency is key to a good credit score. A small lapse can have a reverse effect. Make good credit a habit and stay on course. Check your credit score periodically and monitor your progress toward the elite standing.

Compulsive Shopping May Be Sign Of Trouble

May 23, 2016 By Twila Van Leer

How do you know if you have a problem with compulsive shopping?

If you start shopping and can’t quit, there could be serious complications ahead. Losing control of shopping habits indicates an impulse control disorder that is similar to addictive disorders, but without the drugs.

Factors That May Increase Behavior

A multiplicity of social and cultural factors may enter the picture by increasing the addictive behavior. One is today’s easy access to credit and society’s general focus on material things. People are encouraged to accumulate possessions now and pay later. Online shopping and television stations that focus on sales day and night add to the possibility.

What Are The Signs That Your Shopping Is Out Of Control?

Spending and shopping to offset disappointment, anger, discomfort or fear tops the list. If you are stressed by your own habits to the point of emotional distress, be concerned. Arguing with a spouse or other significant person over spending is a clue. Also on the list are feeling lost without credit cards, buying items on credit that you wouldn’t buy if you were paying cash, getting a “rush” from spending, experiencing guilt, shame or embarrassment after a spree, lying about how much you spend, thinking excessively about money or spending time trying to reconcile your accounts and bills.

How Do You Know If You Have A Problem?

Four or more of the above indicate a problem. You might get a feeling or happiness and power while spending, but you have to keep shopping to maintain that feeling. The brief but intense emotional high doesn’t last long.

Consequences Of Addiction

Researchers have related compulsive spending with interpersonal difficulties, occupational consequences, and family/financial problems. Anxiety and depression may be more troublesome as spending gets out of hand. Borrowing money to cover credit buying exacerbates the problem. Too often, the extent of an addict’s spending doesn’t become apparent until the debt becomes overwhelming. Then a drastic change in lifestyle becomes an absolute necessity, and the emotional effects come home to roost.

How To Get Help

If you suspect you may have gone too far in your spending, contact a certified addictions counselor. Your regular physician may be able to help in locating one. Check your state health agency or a local hospital to see if they can direct you to the help you need. The American Psychiatric Association also has resources that are useful.

Better at this stage of things to spend a little time rather than any more money.