Debt

Pay Down Debt Or Build Savings?

October 7, 2016 By Twila VanLeer

The decision of what to do with left over money can be a serious one.

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 VanLeer

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 VanLeer

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.

Quit Making Excuses. Be Debt-Free

May 3, 2016 By Twila VanLeer

Quit making excuses when it comes to eliminating debt. — Making excuses only keeps you in debt.

Excuses are one of the most available of commodities. Easy to find. Easy to use. But if they are what’s keeping you from becoming free of debt, ditch them and get on with making your personal finances more healthy.

Sometimes, it’s attitude more than finances that keep you shackled to debt. Some self-examination of your beliefs may convince you that you can do better. Here are five common reasons that people stay debt-bound:

I Deserve It

This attitude leads some people to opt for a pricey vacation or a new car of electronic gadget (on credit, of course) that would require only a swift glance at the budget to see it is clearly out of reason. What you’re really saying is “I deserve to be in debt.” And it’s true. The result, however, is more stress, less savings and planning for retirement.

I Don’t Know Where To Start

If you don’t want to look honestly at your debt and accept responsibility for it, this may be the point at which you stop trying. It can be overwhelming to see what a mess you’ve created. But there are some options to consider. Debt consolidation may give you some more wiggle room. Balance transfer credit cards may offer lower interest. Or go to an expert for help. You have to be willing to face the magnitude of your debt load, but keep always in mind that things will be better if you get a handle on it.

I’ll Deal With It Later

The procrastination approach is just another excuse. Waiting for a better job, for your rich uncle to die and leave you wealthy – whatever allows you to delay the process will do just that – delay the process. This is one of those situations in which there’s no time like the present to act. It falls into the same category as the “I’ll diet next week, as soon as the company party is over” delaying tactic.

I Only Need To Make The Minimum Payment

Paying as much as you possibly can on credit card or other debt is a wise move. They longer it takes to pay off a balance, the more interest you pay and the longer you are burdened with the debt. Don’t look at your monthly statement and focus on the lowest figure that catches your eye. Adding a little extra to each payment, even if it is a small amount, will erase the debt faster. And of course, adding to the balance faster than you pay it off will leave you scrambling forever. You damage not only your current financial state, but may rack up less-than-satisfactory credit reports.

I’m Not Responsible

Placing blame on other people or circumstances, even emergencies, is the ultimate excuse. It allows you to refuse to accept responsibilities for your actions. Emergencies happen to all of us and do, inevitably, require changes in financial arrangements. Many creditors recognize genuine budget stress and will cooperate. But too often, debt is caused by trying to live like an upper-class family on a middle-class paycheck. When you get serious about debt reduction, you may have to steel yourselves to bypass your favorite high-end shopping outlets, avoid friends who tend to encourage free spending, and economize on things like eat-out lunches and high-cost entertainment. The best thing you can do is accept that your debt is your debt and you are responsible for it. Getting control of it may be the best feeling you’ve ever had.

Two Steps Toward Freedom From Credit Card Debt

April 23, 2016 By Twila VanLeer

Balance transfers help you get out of credit card debt.

There are perfectly legitimate ways to reduce the interest and ultimately pay off credit card debt. Personal finance experts suggest you use them.

First Step

Find a card that offers a 0 percent introductory balance transfer promotion and transfer your balance to it. These cards often offer new customers as much as 18 months during which no interest is charged on the transferred balances. The experts consistently track all the cards to find that ones offering these terms and there are reviews that are available to the public. Check bankrate.com.

It pays. Think of it: on a $10,000 balance, $100 to $200 of your monthly payment is sucked up by interest, leaving only about $50 to be applied to the principle.

Second Step

After you have found a card that will charge no interest for a certain period of time, use that time to break free of the debt. Continue to make the payments you would have done previously. Add a little if possible. You will see the overall debt dip very quickly.

After having been swimming upstream trying to make headway against your credit card debt, you’ll see immediate improvement. There simply is no way to make inroads until the high interest can be eliminated as a factor. Use this formula and then repeat the process with additional credit cards to see real progress.