Debt Consolidation Lowdown

Ever heard the old adage: A penny saved is a penny earned … Don’t think so if you are an American. Nearly 50 percent of all US adults say they don’t have enough money in liquid savings to cover at least three months of living expenses. And one in every five adults does not have any savings at all! So what happens if you suddenly break a leg or fall ill? Severe Debt, creditors breathing down your neck and finally, bankruptcy.

It does not have to be so bad, really. Financial security is an extremely simple thing. Self-discipline is the only absolute must have on the route to debt freedom. Here are some of the easiest methods to becoming financially secure:

1. Set goals: The first step toward financial independence is knowing where you want to be. Once you’ve identified your goals, you must ask yourself a few questions: What’s important to me? What do I need? What do I want? Your answers to these questions will help define your goals. Next, put your goals in writing and get on the road to financial independence.

2. Track spending: One trait that is common to most people with financial problems is their inability to track their spending. Dig out your paycheck stubs, last year’s federal income tax return, credit card statements and year-end summaries, details of home, car and any other loans, and financial statements from your banks and investment firms and keep detailed records.

Also try to get into the habit of maintaining an expense book and write down everything. You’ll be surprised to know how much money gets wasted on unnecessary expenses like coffee, soda, magazines. So, once you know what part of your expenditure is wasteful, eliminate the expense and reallocate your money to pay off your debts.

3. Budget: You can organize your finances by keeping a budget. Even if you are facing severe financial problems, a budget can still help you get out of debt. A budget essentially organizes your spending. Sticking to a budget may be easier than creating a workable one. so if you find yourself budget-challenged, there are a lot of websites that help you create a budget to suit your specific needs.

4. Healthy bottom line: The bottom line is the difference between what you earn and what you spend. And it’s basic math when we say that you must earn more than what you spend. So if your expenses race ahead of your earnings, you’ve got a problem. You are probably financing the difference with credit and that is even more dangerous. If you are spending up to 12 percent more than you earn, you need to rework your finances. But if you are in the 15- 20 percent overspending area, you are in a danger zone. Examine each variable expense and decide how to bring your spending under control.

5. Pay yourself first: Ever thought of paying yourself some money? The first thing you must do when you get your pay is set aside a certain amount. Allocate a certain amount to repay all your loans, debts, fees, and bills, etc. Create a ‘Me’ account and direct a portion of your monthly paycheck to this account. The money can be used to fund your retirement, children’s education or even your personal travel. And every time you get a raise, increase your contribution to the Me account.

6. Emergency fund: As the name suggests, this fund helps you in times of emergency. For instance, if you suddenly lose your job, or are involved in an accident and are unable to work, you can turn to your emergency fund for help. No matter what your income, you must have a minimum of three to six months’ worth of savings for living expenses.

7. Repayment fund: This is something you can do even if you don’t have too many debts (that’s a laugh). Regularly set aside some money for a repayment fund. It doesn’t have to be too much to begin with, but as the weeks pass, you’ll watch it grow into a huge amount.

8. Automate: All this talk about creating various funds may make you wonder if you’ll remember to pay each account. Simple solution: automate. This will also help you make your financial life much easier. Try to automate your bill payments as well. This means you’ll no longer have to worry about your mortgage, student loans, and credit card bills. Payments will automatically come out of your account every month.

9. Carpool: Gas isn’t cheap and your fuel bills take away a huge chunk of your salary. You’ll be surprised at the amount of money you can save once you find a workable alternative. One of the best solutions to this problem is to avoid driving to work everyday. Try other means of getting to work, like carpooling, using the public transport system, or even walking.

You can reduce home fuel costs by purchasing programmable thermostats. These thermostats automatically lower the heat level at home. Use the money you save to repay your debts and bills.

10. Tighten your belt: The mantra to save money: use coupons; purchase during sales; and buy in bulk may sound good on paper, but if you don’t need something and buy it only because it is cheaply available is not good financial sense. For instance, when you buy a $100 item on sale for $60, you don’t save $40. You spend $60. To save money decide what you want and buy only the things you need â?? coupons or no coupons. Try to cut down on unnecessary expenditure. If you really don’t need that lovely new dress but are buying it only because it’s on sale, avoid it.

11. Have fun: Face it, we cannot lead an eventless life, so it wouldn’t help to stop doing all of the things we enjoy. Instead, try reducing those that require money. For instance if you are in the habit of stopping by Starbucks every morning for your dash of caffeine, try going alternate days instead of stopping altogether. Eliminating your entertainment and allowances from your daily life will only restrict you and hasten your return to chaos.

12. Check for errors: Machines and humans make mistakes; don’t pay for the mistakes of others. Every time you receive a bill, take time to read through, and understand the bill instead of dumping it in your to-do cabinet. There have been many instances where people have got erroneous bills charging them much more than what they need to pay.

13. Self help: There are many expenses, which may seem small but add up to huge amounts. Make time to do things for yourself that you used to pay for. For instance, it takes just 10-15 minutes to iron a shirt, or an extra hour to mow your lawn. That saves money and is good for exercise.

14. Refinance: Are interest rates low? If yes, it’s time you considered refinancing the mortgage on your home.

15. Love & Care: It’s the age of "use once and throwaway," so you may be a bit cynical when somebody advises you to treat everything you own as valuable. But if you do heed this advice, you’ll see how things last â?? from electronic gadgets to the simplest of things. This means additional revenue since you don’t have to replace your gadgets too often.

16. Avoid taking on new credit: If you are already in a debt trap, avoid taking up a new loan. Borrowing a new loan may be of great help to you, but it will be for a very short term. It may increase the debt burden and will add to your troubles rather then solving them.

17. Make money from junk: Find ways to make money out of just about anything. Over the years, you may have bought things you now don’t need. Instead of allowing them to occupy space in your home, why don’t you sell the things you don’t need and earn some money in the process. Ebay has amply proved that one person’s trash is another’s treasure; just because you don’t like something doesn’t mean someone else won’t.

18. Get a second job: If you think you are not earning enough and your savings are low, then you could always go in for a second job. It can be a part-time job like working at a restaurant, or behind a bar. It is a quick and easy way to make money even after paying tax and insurance.

19. Compare rates: Credit cards and loans are a fact of life and you cannot do without them. But you can choose your cards. So when you select a credit card, loan programs, and other debt facilities, ensure that you get the ones that offer advantageous interest rates. This helps keep your payments within manageable limits.

20. Spend responsibly: Avoid exceeding your credit limit. If you didn’t know, every time you exceed the limit, you are charged over-the-limit fees every month for the amount of money you owe that exceeds your credit limit.

21. Keep track of your credit purchases: Keep a detailed record of your spending on credit cards. Save copies of receipts and compare charges when monthly statements arrive.

22. Use cash advances only for emergencies: If you take frequent cash advances your card issuer may charge an extra fee for each cash advance and charge a higher APR than for regular purchases.

23. Prevent fraud: This is another reason why you must religiously check your monthly statements. You could be a victim of credit card fraud if you are not careful. Also take care while using your cards and never loan your card to anyone. In case you spot any errors, report them immediately.

24. Guard your identity: Identity theft is a reality and could cost you a whole lot of money. You can reduce the risk of theft by keeping all items that contain your personal information in a safe place at home. Don’t forget to notify your bank and other issuers when you change your address or phone number. Most importantly, if you lose your card, immediately contact the appropriate authorities.

25. Get Insurance: This is the most important step toward financial security. You need to protect everything you build â?? your home, your dependents, and your health. So it is important to check for the best rates available and get insurance.

26. Go Term: Be wary of the market. When it comes to life and disability insurance, there is a chance that you may end up paying too much. It is important to have enough insurance to protect your dependents and your income in the case of death or disability but there is absolutely no need to go overboard. Most smart people tend to go in for term life insurance for the simple reason that it works out a whole lot cheaper than a whole life insurance.

27. Build Your Portfolio: It’s not enough to save money; you should also know how to grow the money you save. You could invest in Certificates of Deposit or Money Market Funds for your short-term goals, and the stock market for your medium and long-term goals. If you have many years to go before you retire, it may be difficult for you to envision how you would want your future to be. The earlier you start, the longer your investments get to grow.

28. Plan for your retirement: Retirement may be decades away and probably isn’t easy to visualize what it will be like. But you must realize that it is important to have a financial plan to accumulate assets to reach retirement. Accumulation is only the first step, and you will also have to invest these funds in such a manner that you get a predictable income stream once you’ve hung up your shoes.

29. Avoid ‘balloon payments’: This is the biggest minefield you could step on. Sometimes, especially if you are a businessperson, you could face a balloon payment requiring you to pay off a large amount of debt at once. Such a situation could leave you bankrupt if you are not careful. First, keep a record of when each of your loans is due. Next, develop a plan well in advance to pay off or refinance the debt on acceptable terms.

30. Pay on time: You need to maintain your credit rating to get the best rates available for just about any kind of loan. Regular late payment could weaken your credit rating, making it imperative that you clear all your payments on time.

31. Keep business and pleasure separate: If you are a businessperson, it is important to have separate accounts for your personal and business expenses. Either use a credit card just for business or make sure that your records are clear and receipts have sufficient explanations.

32. Check your credit reports annually: It’s extremely important to check your reports to make sure they’re accurate. Sometimes, there are chances of serious errors creeping into the report. If it goes uncorrected, it could make it impossible for you to get credit in the future. How? Well, for one, an uncorrected error could damage your credit rating. This means your cost of borrowing could soar.

33. Know your rights: There are many laws that protect your rights as a consumer and it is in your best interests to know everything you can about these various laws. For information on your legal rights, you can visit the United States Federal Trade Commission (FTC) website at www.ftc.gov. You can also get in touch with Consumer Credit Counseling Service (CCCS), a non-profit service that can also answer questions about credit. Contact them at 1-800-640-CCCS or online at www.powersource.com/cccs.

34. The 401(k) advantage: If your employer has a 401(k) plan or any other tax-deferred retirement plan, take advantage of it. Your contribution will be made before deducting taxes. Taxes on earnings are deferred until you withdraw the funds at retirement. Some employers even match all or a percentage of your contribution â?? this could mean an even greater savings for you.

35. Know your worth: You must continually update yourself on what your job is worth in the marketplace. For this, you must evaluate your skills, productivity, job tasks, contribution to the company, and the going rate, both inside and outside the company, for what you do. What you probably don’t realize is that a difference of even a few hundred dollars can have a significant cumulative effect over the course of your working life.

36. Ready will: Did you know that nearly 75% of Americans don’t have a will? If you belong to this huge majority, it’s time you did something to correct the situation or all your hard work will be in vain. If you have dependents, no matter how little or how much you own, you need a will. This will also save your loved ones a lot of heartache once you are gone.

37. Maintain equity: Your home is your biggest asset, so it doesn’t make sense to play with it. You may be tempted to cash in on that equity to finance your child’s education or a vacation, but think twice before you use your home equity loan or line of credit for items other than home improvements. And even if you do take a home equity loan, ensure that the terms are reasonable so you can afford the payments comfortably.

38. Home beautiful home: Home improvement is a very tricky subject â?? what you probably consider improvement, may seem eccentric to others. So when you take a loan or spend money out of your pocket to improve the look of your home, know why you are doing it. Unless, the improvement actually adds considerable value to your home, don’t bother.

39. Be selfish: Never cosign a loan for someone else. It could be your best friend asking you for a small favor. Did you know that co-signing loans is a common factor in many bankruptcies? If the person you co-signed for defaults on the loan payments, you’re held responsible by the lender. When it comes to money, follow Shakespeare’s advice: "Neither a lender nor a borrower be."

40. Be your own master: It doesn’t help handing over the reins of your financial security to someone else â?? even your spouse. It is important to educate yourself about money management and investing.

41. No urge to splurge: Money is to be earned to create financial stability, not to make yourself feel good. As soon as you begin using money to buoy your spirits, you’ll just worsen your situation by losing your financial stability. And the worst thing is that this type of high is temporary. Try to do things that promote self-respect and creativity so you don’t have to seek those feelings through spending money.

42. Complete your education. Research shows that people with college degrees make on average significantly more money than those who don’t.

43. Go with the flow: Most people who achieve and maintain financial stability are those who don’t go against their natures. If you are the sort that dreads balancing checkbooks, you can use software programs that do the actual figuring for you. Likewise, you may want to invest in funds but don’t like the idea of spending hours poring over stock details. Instead of forcing yourself to pick a new stock or fund every time you have a few dollars to invest, schedule automatic monthly withdrawals from your checking account and have the money deposited into a mutual fund that you can stick with for the long term.

Change Your Attitude

Financial security is not money; it’s an attitude that you wear. A positive attitude toward life, yourself, your family, your goals, and just about everything you do helps you achieve and maintain your financial goals.

44. Be positive: A positive attitude about budgeting is essential if you want to succeed. Yes, budgeting is painful, it means giving up the things you like most, but try thinking of a budget as a means to an end â?? a way to achieve your dreams and goals. This way, you’ll realize that it is okay to trade the instant gratification of spending all the money you earn for the financial security you’ll achieve.

45. Patience is key: Psychologists claim that it takes an average of 21 days for a daily behavior to become a habit. So when you tighten your financial belt, expect a difficult first month. This is the time when your resolve has to be at its strongest.

46. Let your environment help: The best way to ensure that you don’t waste money unnecessarily is to keep temptations at bay. So, lock away your credit cards and take cash instead. You could feed a reminder into your PC or cell phone on loan or debt due dates which will help you remember to enter your daily expenses in your expense book.

47. Reward yourself: No one’s going to give you brownie points for having crossed another goalpost, so you better do it yourself. Caution: ensure that your rewards don’t clash with your ultimate goals. This means your effort would be useless if you spent $35 to celebrate your success if you’ve managed to save $30 this week.

48. Support group: Working in groups helps! You don’t need to physically meet people and form a group, you could just check online and you’ll find numerous support groups. Joining such a group not only provides you with the boost you need to get with the plan; it also gives you more ideas to save.

49. No Givin’ Up Pal: There is a stage where you plateau out and feel you cannot do anymore. Feeling frustrated and overwhelmed is natural. When you’re in such a state of mind, try writing down how much money your new habits are saving you. It may not be much â?? for instance $2 a day saved by walking to work instead of taking the bus. But when you add it up, it comes to a few hundreds â?? money that you can use for other things.

50. Health is wealth: Being financially secure also means getting into shape. Unless you are ultra rich and can get the best care available, you are in for a big problem. Health costs and health insurance in the country are on an upward spiral, and there is not much chance of them coming down anytime in the near future. A healthy body costs far less to maintain than an unhealthy body; keeping yourself healthy can improve your financial health too.

This entry was posted on Wednesday, February 14th, 2007 at 9:01 am and is filed under Features. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.