For several years, I used credit cards haphazardly. I would charge nearly everything, from a twenty-five cent pack of gum to a twenty-five hundred dollar vacation. Also, I accumulated credit and store cards like it was a hobby. When I “bottomed out,” I owned 12 to 14 cards (some with zero balance) and was approximately $12,000 in credit card debt.
I felt like the “middle man” with my money. I was paid by my boss and simply handed over much of what I made to the credit card companies. Like the proverbial “hamster on the wheel,” I was “getting nowhere fast.” In my gut, I felt that something was wrong. That “something” was my misuse of credit cards. It had to change.
I sat down and wrote out what I owed on each of my credit cards, with its corresponding interest rate. Then, I calculated that grand total of all of the cards, the aforementioned $12,000. I felt sick to my stomach, but by putting this information on paper, I could devise a system to get out of debt, instead of spending frivolously and making the situation worse.
To start, I contacted the credit card companies to negotiate lower interest rates. Most of the companies worked with me and I was able to lower the rates by at least a few percentage points. Then, I listed my debts from smallest to largest and began to accelerate payments on the card with the lowest balance. Simultaneously, I paid the minimum on the other balances. NOTE – A very important point to make here is that, while I was devising and implementing my repayment plan, I was drastically reducing the number of times I was using the credit cards. In my first year of “recovery,” I used the cards a grand total of 12 times. During my years of debting, I would use cards 12 times per month, without thinking twice about it.
Once the card with the lowest balance was paid off, I rolled that monthly payment onto the card with the next lowest balance. Coupled with the minimum payment that I was already making, this card was paid off quickly, since I was now paying more on it than I had previously (and I was NOT using it). I continued this process, a snowball of sorts, until all of my credit card debt was paid, which took approximately five years.
As I made a “significant dent” in my credit card debt, I started to feel better about myself. I saw “a light at the end of the tunnel.” The “light” symbolized freedom from this debt. As my self-esteem grew, I began to dream about a better life for myself. I no longer had to stay at jobs which were either unfulfilling or low paying, simply because they “paid the bills.” I enjoy communicating. So, I began teaching. Also, I focused more on writing and eventually turned my experience with debt into a book called Master The Card: Say Goodbye to Credit Card Debt…Forever!, which traces my climb out of debt and details how my life has improved, as a result. In addition, I am pursuing work in the fields of voiceovers and sports play-by-play announcing. These were ventures that I could not pursue when I was mired in debt. Now, my dreams are becoming reality.
Lastly, now that I am out of credit card debt, I am able to help others. I can give of myself in various ways. I give to and serve at my church every week and also offer monetary and time support to a number of organizations. This further enhances my self-esteem and inspires me to increase my giving on a yearly basis.
In closing, as I write on the jacket of my book, “When you Master The Card, you begin to master your life!”
Joe Paretta is a coach, author, speaker, and teacher. He published his first book in November 2010, Master The Card: Say Goodbye to Credit Card Debt…Forever!, which he considers a “labor of love.” He has a passion for helping people overcome credit card debt, and his book embodies that desire. To learn more about Joe and his efforts, check out JoeParetta.com.
When talking about budgeting, all you hear about is debt, debt, debt. Like most Americans, you begin to wonder what to do because everything in America it seems carries debt. When I talk about debt, I usually think of it in two categories: good debt and bad debt.
This is when I borrow money to make more money.
For example, I borrow money and buy an investment home. I call this home an investment because I rent it out. Each month, my tenant pays my mortgage, taxes, and insurance in the form of rental income. My borrowed money gets paid back without me. Each month, I begin to gather equity in the home and, if I made a good investment, a little extra cash in my bank account.
Good debt could also be that I need to purchase a refrigerator for my house. In today’s market, I go to Sears (if they are still around) buy my refrigerator with no money down and 1-year free financing. I have the cash to pay it off in the bank (note I HAVE the cash).
However, instead of giving it up and saving for two months to pay myself back, I make 1% in interest which helps replenish what I am spending. If I am really smart, I have the cash in dividend paying stocks and my quarterly dividend pays for the refrigerator and I never have to touch the principal.
This is good debt: leveraging my money to work for me. Not once though did I overleverage. I did not borrow what I didn’t have and what I couldn’t pay. Each item paid for itself or was paid for through an investment without costing me my actual cash.
This is borrowing money for items that I can’t afford. These items lose value over time and do not provide me with an income in return.
Often, the debt can outlast the value of the item. For example, consider a car. My car is worth less than my loan when I drive it home. This is bad. If I had to sell it tomorrow, I would owe more than I have. While my car provides a service, it is not producing me a return on my money.
If I can pay for my car in cash, but chose not to because I take interest-free financing — this now is good debt. I can pay for the item, but chose to allow my money to grow free of charge.
The key to growing wealth is being able to make decisions, plan for the future, and be in a position that your money is always working for you. Buying a $20,000 car, taking out a full loan, having no cash, and driving it until it is worthless does not help grow my wealth.
Instead, I should have created an opportunity that will pay for my car without myself doing so. Make my money work for me.
In terms of a home, this like all other things, can go both ways. If I buy the most expensive house in the worst neighborhood, do no work, and let it fall down around me, I will lose money. Instead, I should buy a house and acquire skills to make it a better house, thereby increasing it’s value, selling it, taking the profits, and doing it again.
Now my profit is working for me, while I keep a roof over my head. Soon I will have wealth, while others still have debt.
The New Year is here and if you celebrated December 31, 2011 with confetti, champagne and a countdown but didn’t make the resolution to improve your personal finances—fear not, for it is never too late to give your financial lifestyle a makeover! We are just a few days into 2012 so forget about 2011, kiss your old wallet-draining habits goodbye and prepare to embark upon a fresh financial start with the following resolutions that you can easily stick to:
#1: Set goals. When making your financial resolutions, try to be as detailed as you can in outlining what it is exactly that you want to achieve. “Saving more money” is great but that isn’t specific enough. Make your goals measurable so you are able to track your progress—if you want to have your credit card paid off in six months or to have $5,000 in your savings account by the end of the year…then base your goals off of these concise metrics. Be sure to set mini-goals along the way and set an end goal with a deadline. In doing this you will find that your resolutions can be more real than just a wish at midnight.
#2: Eliminate debt. What better way to enter a new year and a new financial chapter in your life than by wiping your slate clean of debt? If you carry a balance on a credit card or have loans and other payments that are holding you back from doing what you really want with your money, paying these off can allow you to pursue other goals. Make a plan by prioritizing your liabilities by interest rate and eliminate the debts that incur the highest amount of interest before all others. Once you have paid off those debts, tackle the next in line until you have the satisfaction of seeing your balances reach an amount of $0.
#3: Paper, no plastic. Using a credit card is easy and it is also an important tool in building and maintaining good credit. However, keep in mind that those who lay down a credit card for purchases rather than cash tend to spend more money (in fact, these card users generally spend 12—18% more than cash users). Dishing out cash allows you to actively see how much you are removing from your bank account, when using credit cards tends to promote the bad habit of blind spending.
#4: Save, save, save. When giving your personal finances a makeover, you mustn’t forget to create a savings fund. Whether you are saving for something special like a family vacation or stashing some cash in an emergency fund in case of unexpected expenses, with a savings you will have the peace of mind knowing that you have the coverage when you need it. Even if you don’t have a lot of extra money to set aside, any little bit helps.
#5: Automate. It’s no surprise that when the bills arrive in your mail-box, so does the stress. Eliminate some of that and establish automated bill pay. When you have your bills set to be withdrawn from your bank account each month, it is less painful than handing over a check to your electric company. And when you payments are automatically deducted for you, you won’t have to worry about being late on your payments and incurring exorbitant late fees.
Don’t just automate your bills—automate your savings as well. If you’ve had trouble saving in the past, this is one of the most effective methods of avoiding defaulting on your savings goals. Because your money is drawn directly from your check and is put into your account before you can even get your hands on it, you are forced to save.
#6: Be a giver. Whether donating to your favorite charity or treating a friend to lunch, your act of thoughtfulness will make someone else feel good and will make you a happier person. Charitable giving is one of the most effective ways to realize the value of money and you also have the added benefit of a tax deduction come April 15th.
Now that you know six financial resolutions guaranteed to jump start your New Year, you will be on your way to a happy, healthy 2012 with a happy, healthy wallet!
Cindy McDonald is a guest post author who enjoys educating readers on ways to improve their personal finances. In addition, Cindy also contributes her work to Christian Singles Dating Sites where she offers her tips for safe dating in the Christian cyber community.
We get it—shopping is fun, it’s thrilling and you can get a bunch of cool stuff—however, when you arrive home post impulsive shopping spree depressed and feeling guilty for your purchases, that feeling completely negates the euphoria you experienced when piling items into your basket as if you were saving up for the apocalypse.
So before you end up with an empty wallet, piles of debt and headlining your own episode of Intervention for your out of control shopping addiction, be sure to check out the following ways that you can avoid impulse buying when your money is burning a hole in your pocket and that shiny new display at your favorite store is calling your name:
Make a list. Maybe list-making isn’t your favorite hobby…but on the road to being a savvy shopper, it’s time to put ‘list making’ on the top of your list! Whether you are just going to the grocery store to do the food shopping for your house or if you are going into the mall to pick up a birthday present, write down everything that you need. Actually going into the store will be the real test—make sure that you stick to your list like you’ve never stuck to anything before. A great trick for avoiding buying items that you “forgot to add to the list” is to skip the aisles that have nothing you need.
Keep shopping trips to a minimum. To lower your risk for taking several mini-shopping trips and taking home an array of impulsive buys, make sure that you make set a shopping schedule that you can easily follow. Try planning trips to the grocery store once a week or once every other week to buy your goods in bulk. This can save you from the exposure of things you think you might need or want.
Dish out the cash. In a controlled fashion, only on merchandise you need, of course. What this means is it’s time to bid farewell to those plastic little cards of yours. When you shop with a credit card and see something in the store that you think is essential to your happiness, you often find yourself running to the checkout counter with the “want it, need it, GOT to have it” philosophy—not good. Credit cards are useful in case of emergencies but when used for other reasons (i.e. fulfilling your impulsive shopping needs), they have the ability to spiral you into a debilitating state of debt. Paying in cash is a mental technique that will keep you in control of your spending as you tend to be more aware of the cash exiting your wallet.
Skip sales. Sure you might find some good deals at a sale, but for a recovering impulse shopper, sales can be your worst enemy with the ammunition to derail all of the positive steps you’ve taken to change your impulsive ways…steer clear! When you see low prices and markdowns, you may think that you are saving money so you end up buying a ton of worthless stuff that you didn’t need—just because of a sale sticker! What really happens is you end up spending more money than you would have if you simply didn’t attend said sale.
Window shop no more. Window shopping…sounds innocent enough, right? WRONG! Be honest with yourself—we all know that when we say we are just going to “look” the chance is high that we could leave the alleged “browsing” trip with twelve shopping bags and an empty bank account in tow. Turning around your once-reckless spending habits can be tough…and when you window shop, the temptation to relapse can be overwhelming. So that you don’t give in, avoid the temptation and such shopping excursions altogether. Why put yourself through the misery of looking at things you can’t buy…or feeling the guilt after you’ve spent money you don’t have?
Cindy McDonald is a guest post author who enjoys writing about personal finance for the money-conscious consumer. In addition, Cindy also owns Catholic Dating Sites where she educates Catholic singles on safe ways to date online.
A few years back, when I didn’t keep a budget, I paid for the big TV package and, with it, I had FOX Business. One Saturday night, I sat down to watch TV before bed and on came Dave Ramsey. His opening was about living like no one else so that someday you can live like no one else. That stuck with me.
I looked around my apartment and saw a world that looked like everyone else. With it, I saw a future like everyone else. I decided I wanted to change. I had been blessed to have zero debt by two amazing parents who refused to allow me to have college loans.
However, my boyfriend at the time (now my husband) was drowning in $20,000 of student loan debt. We had heard the lines that this debt will teach responsibility and that ‘it was the average amount.’ He had the same as everyone else! Isn’t that fair?
We talked over the next few days and decided we were going to be different. Sitting down and looking over everything else felt overwhelming. We had no idea how to pay it all off.
Debt no matter what size it is causes stress. Debt, in essence, is owing more than what you have. Some people talk about debt like it is part of life, but the reality is there are very few people comfortable with owing more than they take in each month. We have all come to accept debt as normal for buying a home, but this is because the home is “supposed” to increase in value. Car loans, school loans, and personal loans don’t increase in value. Each value decreases with time, while the interest on the debt grows — along with the pit in our stomachs.
In order to change our future and to become the couple that lives like no one else, we had to make some radical changes. We stopped going out and we stopped buying new clothes, electronics and furniture. We socked away each penny that we made and stretched it to see how far it would go. Still, the balance never seemed to change.
The thing with paying off debt is that you have to feel like you are making progress. Hence, Dave Ramsey’s debt snowball. I don’t really know if he invented this term, but since he is who taught it to me, I want to give him the credit. The idea behind the debt snowball is to take your smallest debt and pay it off first and move up the line.
We took the school loan and realize that there were three different loans in one. The total amount we paid was divided up between all three. This is why we never saw a difference — $100 extra spread three ways doesn’t really show up.
So, we looked at all three loans, we ranked them from smallest to largest and then looked at the interest rates. The two smallest loans were carrying a 6.5% interest rate, while the largest was carrying a 2.5% interest rate. We chose to start with the smallest for two reasons: (1)we would have progress the quickest and (2) we were paying more in interest than we would make in the bank. Because the bank is paying so little and loans still cost more than savings brings in, the old adage “it pays to save” just doesn’t apply. We chose to stop saving and just keep paying.
For 15 months, we paid $1,000 a month on one loan at a time until each one was gone. By paying so much, the progress was quicker. Also, when they were gone, saving $1,000 a month became easy. We just started paying ourselves.
FINANCIAL BIN TIP: HOW TO PAY OFF DEBT
When you are thinking of paying off debt, there are a couple questions to ask yourself:
- Is this debt making me any money? There are two types of debt: good debt and bad debt. A house usually increases in value and, if you stay long enough and keep it nice, you will make a nice return. Rental properties pay off their own debt. These debts are okay to carry for the life of the loan in many circumstances. Other debt such as school loans, car loans, and personal loans have no value or even lose value. A school loan got you an education, but after you get your first job, it becomes less valuable each year. Cars lose value each year that you drive them. Identifying whether the type of debt you have is good or bad will go a long in way in determining whether or not you need to commit to paying it off right away.
- Place debts in order from smallest to largest. This is what I learned from Dave Ramsey. Pay off the smallest first. You will feel a sense of progress.
- Move debt around based on the interest rates. If you are paying 5% on a $2,000 loan and 20% on a 10,000 loan, pay off the higher interest rate first.
- Is there a point to save right now? Depending on the markets, saving while having debt doesn’t always make sense. If the money in the bank is making 1% a year and having debt is costing me 5%, is it worth it to save $500 a month? Absolutely not! By saving you are losing a net 4%. When the debt is gone, you will have a gain of 1%. Get rid of the debt — not all savers are winners.
- Pay attention to the markets. Ten years ago, my Honda cost $21,000 and had an interest rate of 1.5% for 5 years. The bank was paying 6% on a 4-year CD. Back then, the choice was made to take on the $21,000 in debt and keep the money in the bank. I was making more by saving then by buying the car flat out. Markets change, though. Today, it does pay to get rid of the debt!