How to Get Out of Debt With the Get Out of Debt Guy &#187; savings-account

We Can’t Seem to Make Ends Meet and Save. Is Bankruptcy Right For Us? – Matt & Patti

Steve Rhode — Wed, 01 Jun 2011 17:33:49 +0000

“Dear Steve,

My wife and I gross $93K. We owe $38K in credit cards, $1290 mortgage and two kids in private HS @$15K/year. Take home is approx. $3200/mo. We are upsdie down on our house by at least $20K. Our current credit scores are – me 690′s, wife low 700′s. We make all our payments on time but emergencies like car repairs, root canals, etc put us on more CC debt. Have been working on a budget all year, but unknowns kill us. Thanks for the ear and advice!!!

We seem to be getting nowhere with the CC debt and wondered if we are good candidates for bankruptcy or what?

Matt & Patti”

The Answer:

Dear Matt & Patti,

On the surface the first area others are going to target in on is the private school. It’s a situation I’ve seen over and over again. My experience has been that parents in similar situations have felt the need for the private school education was more important than almost anything else.

If that sounds like your situation then we’d need to look at intervening on the debt to allow you to continue to pay the tuition.

If you feel the kids can come out of the private school then the reduction in tuition would probably get you back to a point where you could easily pay down your debt faster.

Your score might allow you to get a fixed rate debt consolidation loan through LendingClub.com and that might be the breathing room you are looking for to reduce your card payments.

But a bigger underlying issue is brewing. Your current budget might need more breathing room than a debt consolidation loan can give you. When people tell me that they have no savings account or emergency fund to pay for those life surprises that get us all, I worry.

You should have several thousand dollars at least in such an account and if you can’t manage to save on your current income and expenses then bankruptcy might be the smart play here. A bankruptcy would allow you to trim expenses and put you back in a position to save to better protect yourself financially.

I’m going to give you some homework. Check out what the payment would be with a LendingClub.com debt consolidation loan and also click here to talk to a local bankruptcy attorney.

After hearing from both then I want you to come back and post an update in the comments below so we can figure out what the next logical step is. Sound reasonable?

By the way, the reason the budget is not working out for you is because you are probably doing it backwards. Before you can build your budget you need to first track your expenses for several months to find out where your money is really going. Otherwise the budget you will draw up will be just a page of lies and not based on fact.

Follow the budgeting process in my free book you can download, “Eliminate Your Debt Like a Pro.”

If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

You’ve Paid Off Your Debt, Now What?

Cheryl Bigos — Tue, 31 May 2011 20:57:05 +0000

Your final payment has been made, and you’ve contacted your credit counseling representative to let them know you will be finished with your plan.

Wow! You are officially debt free! It’s so exciting that you can hardly contain yourself.

That one payment you had been struggling to make for years is now yours – all yours. So now what?

Well, for me, I knew I needed to make some new financial goals.

I figured since I didn’t use my monthly payment for four years, I wouldn’t miss it, and should start to save it.

I watched my debt go down month by month, now it was time to watch my savings go up.

The big question was: What should I do with my money?

Again, I’m not a financial advisor. However, I do work for a private club that has a few wealthy members.

They gave me a few suggestions; you can also do your own research on the internet or read some of the financial blogs.

In the meantime, here are three basic things you can do once you’ve paid off your debt.

1. Increase Your Retirement Contribution or Start One: I started a retirement fund at my job almost immediately, but wasn’t putting much into it while trying to pay down my debt. Once it was paid off, I increased my 401k contribution from 4% to 10%, and increased it again to 12%. The great thing about a 401k is you don’t really feel the deduction, as it’s automatically taken from your paycheck, and most companies will match a percentage. This is a long-term investment you’ll be glad you started and it certainly falls under the “pay yourself first” motto. Wouldn’t it be great to be able to retire?

2. Add a Long-Term Savings Account: Put at least 40% of your monthly payment into a savings account for the long term. Do a monthly automatic transfer from your checking to your savings so you’re not tempted to spend it. Once you have a few thousand dollars, you can put it in a CD or a money market account to get a better interest rate. Imagine, a few thousand dollars that isn’t debt? Although interest rates aren’t great right now, you’ll make some money on your savings and will have better investment opportunities once the economy gets better.

3. Increase Your Emergency Fund: My emergency fund was approximately $500 while in the DMP. Since then, I have increased that fund. My goal is to have enough to live off of for six to eight months in case I ever lose my job or I’m prevented from working due to illness, etc. I use this same account for car repairs, unexpected bills, etc. I do an automatic transfer to this account every month. Although it fluctuates depending on what’s going on in my life, it is growing at a steady rate.

These really are some basic suggestions to get you started. If you have children, you should speak to a financial advisor concerning their savings or college savings.

If you can continue to live without the monthly payment you made, then invest it, save it, and watch your money grow!

You are starting a whole new chapter in your financial life – one without debt! What are your financial plans once you are debt free?

Cheryl Bigos graduated from a CareOne Debt Relief Services Debt Management Plan (DMP) in 2008. She is now blogging about life as a DMP graduate in the My Journey out of Debt blog. She works as a Purchasing Manager in Los Angeles, teaches Pilates, and lives with her boyfriend of four years. Cheryl is looking forward to sharing what she has learned from her experience in the DMP and after! Look for great tips about life ‘after’ debt! Compensated Blogger for CareOne Debt Relief Services.

I’ve Never Missed a Payment But I Have No Savings and Not Really Getting Out of Debt. – Brian

Andy Faria — Thu, 19 May 2011 14:51:14 +0000

“Dear Andy,

I am 31 years old and I own my own house. I have never missed a payment, yet can’t get refinanced due to my lowered house value. (Currently I owe about 149,000 and I just had it appraised at 140,000). My mortgage rate is 6.2%.

That is part of the story…the other part is: I have about 18,000 in student loans from obtaining my master degree and 2 credit cards that total about 30,000 in debt. (One at 6% and the other at 19%.) I also have a Home Equity Loan for 18,000 and a home improvement loan which is about 8,000.

I have a full time job and can make all my minimum payments, but can’t make any more than that. if anything “big” happens, I end up putting it on my credit card becuase I don’t have much savings. Up until 2 weeks ago I had a part time job and was finally starting to pay some of the things down/build a savings, but the restaurant I was working at just closed.

How can I get out of debt? I realize that my home loan will “always”be there, but how can I get rid of the rest sooner rather than later? I was contacted by a “Debt Reduction Company” and it sounded really good on the phone, but was a little leery…

Do you have any suggestions for someone who is in over their head/able to make monthly payments but not go anywhere by making them? Thank you!

Brian”

The Answer:

Dear Brian,

The easy answer to your question is to increase your income. Before you to try to reach through your computer screen and poke me in the eye for stating the obvious, hear me out. You mentioned that you have the ability to cover all of your monthly payments now but you have nothing to build a reserve with in case of emergencies. If you were able to take on a second job or a roommate, or both, that would allow you to start building those reserves or paying down your accounts faster. As you pay down the accounts, the minimums will decrease and you’ll be in a much more manageable position. It wouldn’t last forever and this would help you to maintain a solid credit rating as you chip away at the debt.

If increasing your income is impossible than maybe you could look into some of the debt relief options available to you. Based on your situation I would probably start by looking into a consolidation loan (Lending Club is a good place to start for this), then look at the credit counseling approach and see what they have to say. If by “debt reduction” you mean debt settlement, be careful. Those programs will require that you stop making payments to your creditors and based on what you said I don’t believe that will help you at this point. To find reputable help in the debt relief area I would suggest you look into one of the members of the AACC, they are a small group of debt relief companies that have all pledged to put the consumer first and all have a great track record of doing so.

If you have further questions or would like to keep us posted on your progress please use the comment section below. I am subscribed to this post and will always try to respond promptly. Good Luck!

Best Regards,

Andy is a licensed real estate broker in Massachusetts and is the founder of Northeast Properties in Norton, Massachusetts. His brokerage is designed to help homeowners in today’s difficult real estate market, specializing in short sales. Andy speaks with Massachusetts homeowners every day, helping them to address their questions or issues with short sale or loan modification. He enjoys helping consumers arrive at the correct solution to their problem, and believes that the only way to correctly do that is by presenting them with all of their options in an un-biased manner.

If you have a mortgage, short sale, real estate, or loan modification question you’d like to ask just use the online form. I’m happy to help you totally for free.

I’m an Independent Recruiter, Living With My Girlfriend and Way in Debt. – Bill

Steve Rhode — Thu, 10 Jun 2010 16:12:27 +0000

“Dear Steve,

52 years old, Male, independant recruiter(start-up DBA), living with girlfriend/partner and 9 year old daughter in home owned by her.

$21K unsecured debt. Car loan(upside down due to rollover from lease) with 43 months remaining at $358 per month.

Monthly expenses ~$3K(but could reduce to $2.6K) including $750 month minimum payments on credit cards. Have been carrying this debt for give or take $5K for 5+ years. Income during that time averaged $35K-$60K. Have exhausted savings with only $10K remaining and I am taking a part-time jobs that will earn ~$500/wk.

Have no other imcome projected in short term and any long term income is unpredictable but I am hopeful. Any lump sum potential can wipe out debt…..but like I said, don’t know when. No assets and minimal 401K (less than $5K). I want to pay this off but feel I will fall into default very soon and I don’t know if I can, although to this date all credit cards are current.

Worried, partner upset although she makes a great pay enough to support the household. The feeling is that I came into this relationship in this debt condidtion and I need to get myself out of it. Very stressed. Working my desk during the day and other employment at night and week-ends will start within 2 weeks. Under current scenario, money will run out in July and I am not elegible for unemployment.

What do I do?

Bill”

The Answer:

Dear Bill,

I can see how your girlfriend/partner might be stressed, feed up, and worried. I’m sure she feels like she’s carrying the weight of both of you and is sick of seeing you as a financial anchor.

Living through money troubles is like two people looking at the same painting and walking away with two different perceptions. In your situation you are working as hard as you can to make the situation better. You are stressed, worried, frantic, probably a bit depressed, nervous, scared, and afraid. And at the same time the partner/spouse that is not involved is pissed off, feed up, angry, etc. All of these feelings and emotions, none of which are positive, all radiate from the central issue, not enough money coming in to meet your obligations.

You and I can hope that things change and I’m a big fan of visualization and seeing the change in our head and then waiting for the perception to become a reality. But who knows how long that will take.

Here is what we know for an absolute fact. At some point in the past you entered into legal agreements to repay funds in exchange for services or things. Those agreements were not based on the condition of the economy, your health or the continuation of life as we know it. No, those financial contracts are absolute agreements that extend our hope that the future will be as good as today so we can meet our promises and commitments. The problem is that the future is now and it sucks financially for you.

You really have two choices here. You could work with a debt management company to develop a debt management plan to repay your creditors. The downside is that those plans are not based on what you can afford, but what creditors demand or want when working with a credit counseling group.

The second option is the only legal power you have, bankruptcy. With bankruptcy you could step up, take responsibility for your debt, reduce the pressure you are under right now, get a fresh start and start looking forward instead of running backwards trying to repair the past.

Bill, I think before you do anything you should click here for debt management information and click here for a free bankruptcy consultation. Investigate both logical options and then come back and give me an update and we’ll take it from there.

But you are going to have to alter your current path because we both know that the route you are on will hit a brick all soon without some sort of intervention. You owe it to your daughter also to make the hard choices and take action to change your course.

Marriage and Money: How to Talk to Your New Spouse About Finances

Amanda Miller — Thu, 03 Jun 2010 02:43:40 +0000

So you’re engaged. Or thinking about it. If you’re really serious about spending the rest of your life with another person, it’s time to get some of the tougher issues out in the open.

Somewhere near the top of your list should be MONEY.

Conflicts about money issues can stop a relationship before it has a chance to be successful. Unless each of you understands the other’s money habits and spending preferences, an unhappy relationship can be created, eventually leading to the big D – divorce. Trust me, there are a lot of other things to fight about rather than money. You’ve got the toothpaste tube, who sleeps on which side and whose turn it is to do the laundry.

Talking about your financial situation is often considered taboo. Many couples tie the knot without knowing a thing about how much their partner spends, saves or charges.

Discussions about money can be emotionally charged and you may find it difficult to raise the subject. Use this article as a springboard to get things going. By talking about money now, you’ll be setting yourself up for a much happier relationship in the future.

Another important reason to talk about money now is so your spouse’s finances do not surprise you once you get married. How will you feel when you discover your new spouse has $50,000 of debt he or she never told you about? Yikes! If you suddenly have kids, who may not be planned, the repayment of that “new” debt will fall on your shoulders.

When you get married you not only get new family in-laws, you also get debt in laws. The first time you go out to dinner as a married couple you can hand the waiter the credit card and say, “I’d like to introduce you to my new American Express in-law.”

One guy even said that he was afraid to marry the love of his life after seven years of engagement simply because he was embarrassed to tell her about his bad credit and debt. His girlfriend could not understand his reluctance to get married and gave him an ultimatum, “After seven years of being engaged, we either get married or I’m leaving.” He could never bring himself to be honest with her. She left him and he was brokenhearted because he could not bring himself to tell her the truth about his finances.

The Big Day

Before maxing out your credit cards or taking out loans to pay for a dream wedding, think about it carefully. Do you really want to start your life together with huge debts? Starting a marriage with this added burden will be very trying on your relationship.

Keep the cost of your wedding to a reasonable level so you don’t bring a boatload of debt into your marriage. It is very easy to get carried away when planning your big bash. Set aside time to sit down with your future spouse and make a list prioritizing every aspect and expense of the wedding. Each of you should make a separate list so that you both feel happy that your ideas for the perfect wedding were heard. Eliminate those things that are a low priority for both of you.

Work together to plan a wedding that you can afford and enjoy without putting yourself deep in debt. (Check out “Bridal Bargains,” by Denise and Alan Fields at windsorpeak.com.) If you plan your wedding carefully you may begin your new journey with little to no debt.

Plan the wedding at least a year in advance, so you have time to start saving a little each month and can look for bargains. Both of you should save a specific amount each month in a money market fund, savings account or certificate of deposit. The more time you give yourself, the more you can save.

Who’s paying?

Today it is no longer clear who pays for what.

Traditionally, the bride’s parents paid for thewedding and the groom paid for the honeymoon. Today, many couples are paying for their own wedding and honeymoon.

Because the rules are no longer rigid, it is important that everyone be open about costs. If parents are willing to pay for a specific item, like flowers, let them know how much flowers really cost. The stress level will be high for all involved anyway, don’t compound it by surprising family members with an expense they weren’t expecting (and may not be able to afford). And keep in mind that they will probably have specific ideas as to what type of flowers they want to buy.

If you both agree you have to take on debt to pay for your wedding make sure you have a solid plan for paying it back in no more than a year. You will have many new expenses and challenges as you start your life together. Don’t let yourselves be weighed down by debt.

Expect Differences

Even in the most blissfully happy marriages there are disagreements, and you’re likely to disagree about money more than anything else. It is, after all, the number one source of conflict between couples.

Before you marry, take the time to sit down and learn about each other’s attitudes toward money. You should discuss where each of you currently stands financially, your individual goals, the kind of lifestyle you want, your saving and spending habits and your personal needs. It is important that both of you are open and honest. Hiding something at this stage will only cause problems later on.

This should not be a critical session of one or other person’s spending habits. This does not have to be a one-session deal. If you need time to think about your differences before you attempt to reach a definitive resolution, take it. Just agree that you will both look at the situation objectively in order to find the best way forward for you both in your new life together.

Discuss what kind of lifestyle you expect to have. You may be surprised to find that your partner considers one or more of your “necessities” as a luxury. For example, do you expect to travel to the Caribbean every year? Do you want a big house? How about a new car every year or so? Discuss how important having money is to both of you.

The following questions can give you an idea as to what issues are important:

How much of your income do you want to put in savings?
What kinds of financial risks are you and your partner comfortable taking when investing?
How will you handle debts you both bring into the marriage? Are you willing to use some of your income or savings to pay off your partner’s debt and vice versa?
If you have been married before and are bringing substantial assets into the new relationship, you might want to think about a written agreement about exactly how you would handle those assets if you ever split.
How will you decide how much spending money each of you should have?
Will you have a spending limit above which you will need to let the other person know about the purchases before you make it?

Understanding your future partner’s perspective on money is very important. If you can’t talk about it now, it will become worse after you marry and have to share expenses. Make sure you pay attention to important cues when you’re dating. If your loved one seems to be lavishly spending more than his or her income, but you never like to take on debt yourself, you’ll want to start working on a compromise now. Lavish spending while dating may seem very enjoyable if you are the recipient of such attention, but it may be a sign that your significant other’s spending may be out of control. If that is the case, financial troubles may be in your future. Trust me, individuals with such spending issues rarely rein in their spending on command.

Spending Behavior

Compare spending behaviors and identify where they are the same and where they differ. You will have to compromise and make sacrifices if one of you is a big spender and the other isn’t, or if you are both big spenders but like to spend money on different items. The last thing you want is to have the “spender” lie to the “saver” about how much he or she spent on an item. Interestingly, spenders often attract people who are savers and savers attract spenders.

We often look for mates with the traits we subconsciously wish we possessed. This can lead to marital conflict later, once the initial romantic blinders have worn off and you start to see your spouse clearly. So it’s best to tackle these difficult financial issues before you tie the knot.

Reviewing these issues should give you a good start:

How often does each of you use a credit card?
What do you use credit cards for?
Do you use a debit card for impulse purchases? If yes, do you record your withdrawals so you know exactly how much money is being sucked from your account?
Do you pay off your cards every month, or only use them for big-ticket items and pay off the balance over time?
Should your spouse get your approval before making an extravagant purchase, such as a $500 dress or new set of golf clubs? If so, what level should you set as “extravagant?”
What would you do if your spouse didn’t approve of your making an extravagant purchase?

Managing the Cash Flow

There are generally three ways to handle the finances:

Pool all money into one joint account.
Keep separate accounts and divide the bills between you.
Keep separate accounts, but also have a joint account for joint expenses.

If you are going to become marital partners you should prepare to become financial partners as well. Maintaining separate accounts can be the first step towards keeping financial secrets from each other and leaving you in the dark regarding your spouse’s finances. We’ve talked with many couples who have never been honest with each other regarding their finances and the fact they maintained separate accounts never let them have a clear understanding of their current financial state of the union.

It is so sad to talk with couples who discover one of the partners in the marriage is way over their head in debt, and their spouse never had a clue. They get blindsided and the illusion of what their world was is suddenly replaced with financial conflict, strife and pain.

The old excuse that each spouse needs to maintain separate accounts in case they are going to purchase a gift for the other is just that, an excuse to maintain separate accounts. There is little logical basis to support this behavior.

The third approach is the one that many couples want to start with. They fear giving up their independence and want to cling to what was theirs before the knot was tied. Don’t assume your spouse-to-be will agree. Your betrothed may feel upset that you don’t want to share everything. Decide ahead of time which approach you’d like to try.

If you decide to use a joint account for joint expenses, decide how much money each person will contribute. If one of you makes a lot more than the other, it may make sense to have that person contribute a larger share. And don’t forget to decide what will be considered “joint expenses.” Her dry-cleaning? His boat payment? Both of your long-distance phone calls?

Divide up the Chores

Unless you keep totally separate accounts, someone is going to have to take responsibility for paying the bills. Usually, this task falls to the spouse who feels more comfortable handling money. But that may be a mistake. Both spouses should know about the bills and that there are other expenses that occur each month. If you just let one person handle it, the other may end up with an unrealistic view of the family finances, or worse yet, not know what is happening at all.

One of the biggest mistakes couples make when it comes to finances is not talking about the little things before they become big things. Consider holding a monthly “meeting” where you can pay bills, talk about your financial progress and goals, and discuss any issues or problems that have arisen during the month.

A great idea is to share the responsibility. One month one spouse will pay the bills and the following month, the other.

Put money in its place: Money is simply a tool to help you achieve your goals. If one of you starts using money to control the other person, as a “drug” to make you feel better about your life, or if one of you develops a problem such as a gambling addiction or secretly running up debts, seek help together. Money should help improve your life together, not make you miserable.

Credit Advice for Couples

Another decision you’ll have to make is how many credit cards you plan to have and whether to have joint or individual credit accounts with your spouse.

So you have decided to have joint credit accounts. Before you use those cards, decide who will use which card, if the two of you will carry the same cards and how you will communicate when the cards have been used. If you don’t communicate about the purchases on the cards, you may exceed the credit limit, which will cost you more.

Another idea is to have a joint credit account you use for joint credit purposes. But if you want to maintain an individual account – you know how we feel about that – do it. If you do use a joint credit card, decide together what kinds of limits you want to place on it so one of you isn’t surprised with a bigger bill than you expected. Also, decide whether you will pay that bill in full each month or if you feel comfortable carrying balances.

If one spouse has good credit and the other has damaged credit, it is especially important that you don’t merge the bad credit onto the report of the other one. You can avoid that by keeping those accounts separate. Do not add the name of a spouse onto an account with a poor payment record or that information will hurt the credit report of the other person.

Here’s the rule of thumb:

Individual accounts should not be reported on your spouse’s credit report. Only joint accounts, or accounts with the “authorized user” status, should appear on both of your reports.

Before either of you considers the issue of individual versus joint credit, you should each get a copy of your consolidated credit report and review them together. You can get a consolidated credit report from GetOutOfDebt.org. It will show you what the three major credit-reporting bureaus say about you. You’ll be surprised how much difference there will be between credit bureaus. That’s why it is so important that you get a consolidated report rather than one that just shows a single credit bureau’s file on you. Your credit reports may determine whether you will be able to buy a home together, how much you’ll pay for auto or homeowner’s insurance or whether you’ll have to put up deposits for utility or cable service.

For women, you’ll have another decision: do you want to change your name on your credit accounts when you marry? The federal Equal Credit Opportunity Act gives you the right to maintain credit in your maiden name, your married surname or a combination of both. If you decide to go with your married name, notify all three major credit bureaus (Experian, Equifax and Trans Union).

What if one person comes to the marriage with a lot of debt?

If that’s the case, it’s important you work together to reduce the debt, without just “rescuing” the over-spender. After all, most people get into debt by spending more than they earn. To get out of debt, you have to learn to live within your means and deal with the issues that got you into debt.

Make sure the person who racked up the bills makes a serious effort to change his or her ways. Otherwise, if the spender continues to spend, you may both end up in trouble.

You should both track your spending and come up with a spending plan that includes paying off the debt.

Lifestyle Choices

Home buying:

If buying a home is your next priority after the honeymoon, here are a few steps you should take:

If you have debt, and feel it may keep you from buying your dream home, consider decreasing and/or paying it off. The less debt you have, the larger the mortgage payment you’ll be able to afford. Focus on paying down debt as rapidly as possible, and then you can start saving for a down payment. With little debt and a decent credit report, you may also be able to find a mortgage with little money down.

If one of you has damaged credit, take steps to improve and repair your credit as soon as possible. It won’t happen overnight, but it will improve with time and effort.

Children:

Talk about having children, how many children you would like and how you’ll raise them. If you decide to have children, will one of you stay home full time or will you use day care? How will you afford those options? Do you want to create a college savings fund? How much do you need to save and where will you find the money?

If your goal is for one of you to stay at home and look after the children, you need to prepare now to live on one income. Talk together about what you will sacrifice.

You might be surprised to find that losing the second income doesn’t make as much a difference to your bottom line as you thought. There are considerable expenses to having children if you both keep your jobs — higher taxes, higher FICA and Medicare taxes, Social Security (although you may lose Social Security income opportunities), a second car, increased auto insurance premiums for commuter driving, gas, parking fees, maintenance costs, a second career wardrobe, bigger food bills if you eat out, child-care expenses and parental stress of not being able to be with your kids as much as you want, etc. It may be that the second wage earner is adding only a small net amount each month.

Savings:

The average American family saves very little money and many people end up deeply in debt at some point in their lives. Once you’ve paid down debt (if there is any), get in the savings habit. Together, you should find a method that works for you. You might have money taken from your paycheck for savings or investments. You can write a check each month, just like a bill, to a savings account. Come to an agreement about what that money can be spent for, though, so you don’t sabotage your efforts.

Your savings strategy should include an emergency fund that can cover between three to six months of living expenses. Those savings can be kept anywhere that gives you easy access to the money, such as a savings account, money market fund, certificates of deposit or treasury bills.

You should also have long-term savings for future expenses like a car, house and, most of all, retirement. That’s right, your company sponsored 401(k) or 403(b) may not be the only cash you’re going to need in your golden years.

Prenuptial Agreements

It may not sound very romantic, but for some people, prenuptial agreements are important. First, they are an excellent tool to force a couple to discuss where they are now financially and where they want to be. It is especially useful if you are getting married for a second time, if you have kids, if you are older and have built up savings, or if one partner has a lot of money and the other does not. A prenuptial agreement is usually not legally enforceable unless it is made before the wedding. Talk to an attorney about preparing a prenuptial agreement if your situation requires one.

After the honeymoon is over

Insurance:

Research your respective insurance policies and decide how you can merge them to your benefit. In particular, look at the following:

Auto Insurance is usually lower for married drivers. Let your insurer know when you get married so you’ll get decreased premiums on a joint/family auto insurance policy.
Health Insurance. Look at your respective policies. If one is better than the other, merge into that plan. Don’t forget to look at the premium costs
each month; your deductibles, if any; your co-payments; the quality and type of coverage; and extras, such as dental, optical and prescriptions. Consider child care if you plan to have children.
Disability insurance gives you monthly payments to replace the insured person’s income if he or she can’t work because of an accident or an illness. If you pay for your disability insurance with after-tax dollars, your disability insurance benefits could be tax free when you receive them. For this reason, you probably need disability insurance to cover 60 to 70 percent of your gross income. Figure out exactly how much disability insurance you need based on your monthly expenses — food, shelter, transportation, clothing — plus other expenses that may increase due to your disability, such as medical expenses. Also, keep in mind how much of your savings you are willing to use before relying on insurance.
Life Insurance pays a certain amount of money to the beneficiary of the policy in the event of the named insured’s death. Life insurance is necessary if you have children or expenses like a mortgage and one of you couldn’t meet the expenses alone. The amount should be enough to cover immediate expenses in
the event of your death (funeral costs, for example) as well as longer-term financial obligations, like paying the mortgage. If you plan to have children, you will need to update the amount again to make sure it covers the cost of raising and educating your kids.

If you are young, it is preferable to get term life insurance. Term policies only insure you for the period of time for which you need the insurance and are cheaper than whole or universal life insurance. Whole and universal life insurance policies build cash value and cover you for life. If you are an older couple, however, term insurance is more expensive.

If you already have life and/or disability insurance, make sure you update the beneficiary information. Your policies will only pay out to the person(s) named.
Homeowner’s and/or renter’s insurance protects your property against theft, fire, floods and other hazards.
Check your policy to see how much it covers for your belongings and your “loss of use,” which includes your temporary living expenses while your home is being repaired. Your insurance needs will change when you get married, as your personal property will increase in value as you merge your belongings.

Often insurance companies recommend taking pictures of, or videotaping, your personal property, to substantiate any future claims that may arise.

If you have certain expensive items, like silver or expensive jewelry, you may want to get extra insurance to cover the actual worth of those items, since it won’t be reflected in your regular homeowner’s insurance policy.

For example, you may want to get insurance for wedding and engagement rings. You will have to decide how much loss you are willing to pay out of savings and how much you want the insurance company to assume. People generally insure between 80 and 100 percent of the replacement cost.

Documents:

Write a will. Because each state has different laws regarding wills, you should consult an attorney licensed in your state.
Prepare a power of attorney. Powers of attorney give a named person authorization to act on your behalf should you become incapacitated. Without a power of attorney, your spouse may have a difficult time taking care of your affairs should you become incapacitated.
If you change your name, make sure you legally change your driver’s license, social security card, income tax forms, voter registration card, passport, bank accounts, credit cards and insurance policies.

Taxes:

Think about whether you should file your taxes jointly and whether you should adjust your tax withholding. Most couples are better off filing jointly but it doesn’t always pay to do so.

If both of you have been claiming one exemption, one of you may want to reduce it to zero. Consult with a qualified tax professional for other helpful tips and questions you may have.

Retirement:

“Waddya mean I have to think about retiring? I just got married!”

The best time to plan for retirement is NOW! People are living longer and have more leisure years to fund. The sooner you start saving for the future, the less it’s going to cost you each month to generate the cash you’ll need.

Generally you should plan to have enough capital saved to provide you with an annual retirement income to pay your monthly expenses and still put money into savings. If you’re unsure about how to invest for your retirements, get the advice of an independent financial adviser licensed in your state.

If you already have a 401(k) plan, or other financial holdings, make sure your spouse is named as your beneficiary on those plans.

Happy ever after

Despite the alarming divorce statistics, it is possible to stay together forever. There are plenty of success stories out there. Openness, honesty, planning, cooperation, compromise and an enormous sense of humor will help you write your own fairy tale ending.

Marriage and Money Questionnaire

Take the time to discuss these questions before you get married:

How will you pool your money? Separate accounts, joint accounts, a combination?
Will you be able to cover your living expenses, such as rent or mortgage, utilities, car payments, food, cable, etc? What about discretionary spending like travel, entertainment, clothing or personal expenses?
How often will you eat out or travel, and how much will you spend?
What are each person’s top three financial goals? How will you reconcile different goals?
What do your credit reports look like? How can either be improved?
How does each of you feel about carrying debt? How much are you willing to have? What type (mortgage, credit cards, car loans and unsecured loans)?
What is your investment tolerance, high risk, medium risk or conservative?
What is each person’s strength when it comes to finances? Weakness?
Who is going to manage the finances at home or are you both going to share the responsibility?

Do It Yourself Guide to Credit Reports: 10 Ways to Improve Your Credit

Amanda Miller — Wed, 02 Jun 2010 21:39:00 +0000

So your credit’s not so hot. A few late payments, maybe an account or two that went to collections. What’s the big deal?

As you’ve probably found out, it may be a very big deal. You’ve probably already been turned down for the best credit cards and maybe you’ve had trouble getting a car loan.

Perhaps you’ve even put off buying a house because you’re sure you can’t qualify. And though you may not realize it, you might even be paying more for car insurance because of your damaged credit report.

Is there anything you can do to clean up your credit rating? Absolutely! But it shouldn’t cost you a lot of money. And you shouldn’t expect overnight miracles. In this publication, we’ll sort out fact from fiction and suggest legitimate steps you can take to start improving your credit today.

Step #1 : Review Your Credit Report

First things first: Get your credit report. You have to know what’s there before you can make it better. There are three major credit reporting agencies:

You can order your report from any one of the three. There is usually a fee, unless you live in Colorado, Georgia, Massachusetts, Maryland, New Jersey or Vermont, where you can get a copy for free. You can also get a free copy if you have been turned down for credit in the past 60 days, are on public assistance, are unemployed and looking for work or have been a victim of credit fraud. But whether or not you have to pay for it, make sure you get it.

I recommend you get a consolidated credit report, which contains information from all three credit-reporting agencies. A consolidated credit report is easier to understand, will arrive faster and will cost approximately the same as ordering separate reports from each of the big three agencies. You can order your consolidate credit report at GetOutOfDebt.org.

Once you have your credit report, then what? With some work and some patience, you will be able to get your credit report in better shape. Here’s how:

Step #2 : Make Sure It’s Accurate

You’ll want to make sure your credit report is as accurate and complete as possible. For example, if you have paid off an account but it is still listed, make sure the report lists a zero balance. In particular, look for:

Incorrect or incomplete name, address or phone number
Incorrect Social Security number or birthdate
Incorrect, missing or outdated employment information
Incorrect marital status — a former spouse listed as your current spouse
Bankruptcies older than 10 years or not identified by the specific chapter of the bankruptcy code
Lawsuits or judgments older than seven years
Paid tax liens older than seven years, delinquent accounts older than seven years or that omit the date of the delinquency
Credit application inquiries older than two years
Unauthorized credit (not promotional) inquiries — credit-reporting agencies usually do not remove these at a consumer’s request, but it never hurts to ask
Commingled accounts — credit histories for someone with the same name or similar Social Security number
Duplicate accounts
Premarital debts of your current spouse attributed to you
Lawsuits you were not involved in
Incorrect account histories — such as a late payment notation when you paid on time or a debt shown as past due when it was discharged in bankruptcy
Paid tax, judgment, mechanic’s or other liens listed as unpaid
A missing notation when you disputed a charge on a credit card bill
Closed accounts incorrectly listed as open
Accounts you closed that don’t indicate, “closed by consumer”
Incorrect aliases

A few caveats:

Accounts that have been paid off can still be listed on your report, although they should indicate that you’ve paid them off.
If you’ve been through bankruptcy, both the public record information about the fact that you’ve been through bankruptcy can be listed and the individual accounts that were discharged may also have a notation that they were included in your bankruptcy.
Information about accounts you share, or used to share, with a spouse will be listed in both your reports.
Many people incorrectly assume that if they have paid off a past-due debt, the old negative information will be removed. It will remain on the credit report for up to seven years, six months.

Once you’ve compiled your list, complete the request for reinvestigation form that came with your credit report or type a letter describing every problem. Send your letter to the address provided by the credit-reporting agency for disputing information. Enclose copies of any documents you have that support your claim. Once the credit reporting agency receives your letter, it must:

Complete its investigation within 30 days of receiving your letter
Contact the creditor reporting the information you dispute within five days
Review and consider all relevant information submitted by you
Remove all inaccurate and unverified information
Adopt procedures to keep the information from reappearing
Reinsert the information only if the creditor certifies that it is accurate and notifies you within five days of the reinsertion, and
Provide you with the results of its reinvestigation, including a new credit report, within five days of completion

If the credit-reporting agency claims that the creditor reporting the information verified its accuracy, contact the creditor. Explain that it is incorrect and demand that it be removed. Creditors who report information to credit reporting agencies must:

Not report information they know is incorrect
Not ignore information they know contradicts what they have on file
Notify credit-reporting agencies when you dispute information
Note when accounts are “closed by the consumer”
Provide credit reporting agencies with the month and year of the delinquency of all accounts placed for collection, charged off or similarly treated, and
Finish their investigation of your dispute within 30 days

If the creditor will not remove the incorrect information, contact the credit-reporting agency directly for help.

If you get nowhere, you have the right to put a 100-word statement in your file explaining your dispute. Don’t always assume that adding a 100-word statement is the best approach. In fact, it’s often wiser to simply explain the negative mark to future creditors than to try and explain it in 100 words or fewer. Adding a 100-word statement may be the wrong thing to do if you are not going to be diligent about removing the comment. If you don’t, it will stay on your credit report, alerting creditors to your problems, long after the negative information falls off your credit report.

After you have completed Step #2, you’re ready to start working on the rest of your report. Here are the main items you’ll need to focus on:

Step #3 : Build Credit References

Ideally, you want to have at least a couple of major credit cards (Visa, MasterCard, American Express or Discover) as references on your report. These will be the strongest references on your report if they’re paid on time.

Often, credit reports don’t include accounts that you might expect to find. Some major commercial lenders don’t report mortgages or car loans, for example. Local banks or credit unions may not provide information to credit reporting agencies. Before you apply for a new account, ask if your on-time payments will be reported monthly to a credit reporting agency.

If you don’t qualify for a regular credit card, consider one of the following:

Cosigned or guaranteed account: Someone else promises to repay if you default. Pay the bill on time each month or you’ll hurt your cosigner’s credit too!
Add onto someone else’s account: A relative or friend can add you on to their account as a cosigner or joint account holder and you’ll benefit from their on-time payment history. But if they are late with payments, that will show up on your credit too! Having someone add you on to his or her account as an authorized user does not help your credit that much.
Secured credit card: You deposit a sum of money with a bank and are given a credit card with a credit limit for a percentage of the amount you deposit. These cards can be very helpful for rebuilding credit quickly.

Step #4 : Add Information Showing Stability to Your Credit File

Creditors like to see evidence of stability in your file. If any of the items listed below are missing, send a letter to the credit reporting agencies asking that the information be added. Enclose any documentation that verifies information you’re providing, such as your driver’s license, a canceled check, a bill addressed to you, a pay stub showing your employer’s name and address or anything else similar.

Current employment — employer’s name and address and your job title
Previous employment if you’ve had your current job less than two years
Current residence, and if you own it
Previous residence if you’ve been at your current place under two years
Date of birth
Social Security number

Again, credit-reporting agencies aren’t required to add this information, but they often do.

Step #5 : Build a Great Payment History

It goes without saying that paying your bills on time is the key to a great credit rating, but if your payment history were perfect, you wouldn’t be reading this. Before I talk about what to do about it, I need to explain how long negative information can stay on your report.

Generally, the rule is that negative information – such as late payments, collection accounts or judgments – can be reported for no more than seven years and six months from the date the original payment should have been made.

Strategy:

While there’s not much you can do to remove accurate late payments, you can start mailing every single payment on time from here on out. Eventually lenders will consider the most recent payment information more important than the older information.

Step #6 : Take Care of Collection Accounts

Accounts that have been sent to collections are a problem in two ways. First, the original account (the credit card, for example) may be listed as a “charge off” or “profit and loss” account. (Both simply mean that the lender wrote off the account as a bad debt — and probably sent it to collections.) Secondly, the account may be sold to more than one collection agency if the first one can’t collect.

Collection or profit-and-loss accounts, that were placed on your credit report before January 1, 1998 (when a new credit reporting law went into effect) may be reported for seven years from the date they were placed for collection, regardless of whether they were placed for collection internally or with an outside collection agency.

In the case of profit and loss accounts, the seven-year period begins with the date that the account was written off. Unfortunately, it’s not always clear exactly when an account was written off or sent to collections. Also, in some cases, lenders wait months or years before writing off accounts or sending them to collections — and that can drag out the reporting period for a long, long time.

The updated law is much clearer. Under the new law, the seven-year reporting period for collection or profit and loss accounts begins 180 days after the payment should have been made, regardless of how long it takes the lender to write it off or turn it over to collections. The new reporting period applies only to information added to a credit report on or after January 1, 1998.

If an account is sent to a different collection agency because the first one couldn’t collect, that is not supposed to start a new seven-year reporting period. All three major credit reporting agencies try only to report collection accounts for seven years from the date they were placed for collection.

Strategy:

Make sure collection accounts are paid, and listed as paid on your report. You may be able to negotiate a reduced settlement with the collection agency to get a debt paid, but there may be consequences.

Step #7 : Open Deposit Accounts

Creditors look for bank accounts as a sign of stability. They also look for bank accounts as a source of how you will pay your bills. If you fill out a credit application and cannot provide a bank account number, you won’t be given credit.

A savings account, too, will improve your standing with creditors. Even if you never deposit additional money into the account, creditors assume that people who have savings accounts use them. Having an account reassures creditors of two things: you are making an effort to build up savings, and if you don’t pay your bill and the creditor sues you, it has a source to collect from.

Step #8 : Avoid Unnecessary Inquiries

Every time you apply for credit, or your credit report is accessed for another reason, that fact will be listed on your credit report as an inquiry. If you’ve been trying to get credit, your report may show many recent inquiries — and that can hurt your chances of qualifying.

Inquiries for pre-approved credit card offers you didn’t accept, as well as inquiries created when you review your own credit report, will not count against you.

Strategy:

Legitimate inquiries can’t be removed, so only apply for one loan or credit card at a time. Try to avoid more than four or five inquiries in a six-month period.

If you find inquiries on your report from companies you don’t know, dispute them with the credit reporting agency. They may be able to erase those inquiries if they prove to be truly unauthorized.

If you apply for a car loan at a dealer or home loan through a mortgage broker, you may see a sudden flurry of inquiries as they present your application to many lenders. Don’t worry. They will not count against you. When it comes to those kinds of credit inquiries, made within 30 days of each other, they count as only one inquiry. This is so that you are not penalized for shopping around for the best deal.

Step #9 : Recover From Bankruptcy

Bankruptcies can generally be reported for 10 years from the date you filed. The credit reporting agencies will remove Chapter 13 bankruptcies (where you pay back some or all of your debts over several years) seven years from the date of filing, even though they are not required to do so. In addition, the individual accounts that were included in your bankruptcy can be noted as such.

Strategy:

You can’t remove a bankruptcy early, but you can take other steps to improve your credit in the meantime. Use the strategies outlined in this article to build your credit rating. With work and patience, you will likely be able to get car loans, credit cards and even a mortgage — even with bankruptcy on your file.

Step #10 : Create a Spending Plan

Take a month or two to make lists of every outlay of cash or cash equivalent, such as check or debit card, used to make purchases or pay bills. Also, track your income for those months. At the end, list every category of expense and then write down the total amount per month (taking an average if you tracked expenses for two months) you spent in that category.

You are now ready to make a spending plan. One goal is to generate enough cash each month to put toward savings — a necessary step in rebuilding your credit. Your list indicates how much you project spending each month.

If the total exceeds your income or leaves you with little left over, you’ll have to cut back. For example, if you love to read and spend a lot on books, you can reduce that amount by checking books out from the library or buying only at used bookstores. If you go out to lunch every day, consider bringing your lunch from home.

But They Told Me They Can Remove Negative Information!

If you haven’t been tempted to find a faster way out of your credit problems, you wouldn’t be human. But there is no easy way out, no matter what some companies say. Have any of these ads caught your attention?

We can help you remove negative information — even bankruptcy!

There simply is no legal “loophole” that will allow you to remove accurate, but negative, information. So how do companies make these claims?

Usually, what they’ll do is flood the credit reporting agencies with disputes of correct, but negative information. They are counting on the fact that some information won’t be verified and will have to be dropped from your file. But you shouldn’t count on it. Most information is verified quickly. Even if it were removed from the file at one of the three credit reporting agencies, you’d have to luck out at the others, too.

Is it really worth paying hundreds of dollars for a tactic that isn’t likely to work? Besides, just because it may be been removed today, does not mean won’t reappear tomorrow.

At any rate, a new credit repair organizations law makes it more difficult for these companies to operate.

“We can get you a new credit file!”

Tempting, isn’t it? Forget it! What these companies will tell you to do is to apply for an Employer Identification Number (EIN), which looks similar to a Social Security number. You’ll also be advised to get another address. Then, the company will tell you to apply for credit using your new address and EIN so you’ll have new credit references and a “new” credit identity. This is called the “file segregation” scam and it’s illegal.

It’s a crime for you to make false statements on a loan or credit application or to misrepresent your Social Security number. Obtaining an EIN under false pretenses is also illegal. And, according to the Federal Trade Commission, you could be charged with mail or wire fraud if you use the mail or phone to apply for credit using false information. File segregation may constitute civil fraud under your state’s law.

Another trick is to give you a Social Security number from someone who has died in a far off place like Guam or Puerto Rico. That’s illegal too, and can really ruin your life if you get caught!

Credit Repair Organizations Act

Because credit repair scams are so popular and rip off so many people, Congress passed a law to help protect consumers when dealing with for-profit credit repair companies. These are the main protections offered by the credit repair law that went into effect April 1, 1997:

It is illegal for a credit repair company to make any statement that is untrue or misleading, or advise anyone to make a statement that is untrue or misleading, to a credit reporting agency or a credit grantor. (They can’t tell you to lie about accurate, but negative information!)
It is also illegal to advise people to alter their identification or alter the identification of their credit report in order to remove or hide negative, accurate information in their credit report.
Credit repair organizations cannot accept payment for services until they have been performed.
Before you sign a contract with credit repair organizations, they must give you a statement that explains your credit reporting rights under state and federal laws. The company must get your signature on that document and keep it on file for two years.
You must be given a dated, written contract to sign, which explains the services that will be performed, any guarantees about services, how much it will cost you and the date by which the services will be performed.
You have the right to cancel the contract, without penalty, within three business days of when you sign it. The contract must explain how to do this.

Keep in mind that additional state laws may also require credit repair firms to be licensed or bonded. If you are still considering doing business with one, check with your state attorney general or consumer affairs office for more information.

Have You Lost Money in a Credit Repair Scam?

Tell someone! It’s the only way to stop these companies from ripping off many more people. You may also be able to sue in court and get some of your money back.

To report a credit repair company, contact your state attorney general’s office and/or your state consumer protection office (look in the government pages of your phone book).

You can also contact the Federal Trade Commission, Consumer Response Center, Washington DC 20580; www.ftc.gov, 1-877-FTC-HELP.

Lowen Wants to Know “Can I Budget My Way Out Of Debt?”

Steve Rhode — Thu, 20 May 2010 20:28:27 +0000

Lowen

“Dear Steve,

I have $102,000.00 in student loans, $21,000 in credit debt, and can’t budget my way out of a wet paper bag. I make $21.40 per hr and work 36 hrs a week, my wife works and makes $11.50 per hr and works 30 hrs per week. I own nothing of value, no homes, my cars are at least 20 years old. and i pay rent.

Please help me budget my way out of this hole I’m about to bury myself in.

Lowen”

The Answer:

Dear Lowen,

The first time I read your question I felt like I was right back in the middle of one of those school math problems. You know the ones, if a train leaves Chicago at noon… LOL.

Here is some good, honest and free advice to help you get out of debt and develop a budget that can work for you.

More information about how to create a budget can be found in my book, “Eliminate Your Debt Like a Pro” that you can download here for free. After you download the book, go to chapter 4, How to start doing what you need to do to get out of debt.

For some, budgeting is almost like an orgasm. They find the experience pleasurable and enjoy the feeling it gives them. For the rest of us, the majority of us, it is a colossal pain in the ass.

Even the word budget is horrible and budgets are nothing more than a page of lies or a wish list on how you would like to spend your money. A budget can defeat your attempts to storm your financial castle and cause you to lose both the battle and the war. The reason? Most budgets are not based in fact, but guesses and dreams.

Before you can create a plan on how to spend your money, a spending plan, you first need to take the time to track where you money is going. Once you can figure that out you can then make some good and informed decisions about how to change your spending habits to meet your needs.

If you don’t want to track your spending forever, just do it for the next 30 days and at the end of that time you’ll have a much better idea of where your hard earned money is actually vanishing to.

Properly spending your money isn’t about what percentage you spend on this or that. It’s about how you spread it around and the total of those expenditures that counts.

Frankly I don’t care how you spend your money as long as you can live within what you make and can save a bit for your future goals.

A spending plan will accomplish two things. First, simply by tracking where you spend your money you will reduce your spending by 10%. Second, the reason you reduce your spending is because you are more self-aware about where your money is actually going. That knowledge helps you to make choices about what you want to spend. And good information about where your money is going and good choices about how to spend what you can afford are the best building blocks to getting control over your money.

Now the easiest way to save is to make it automatic. Use a savings account that is not tied to your local bank account, one that you can drain with an ATM card. There are some really good savings accounts out there. Follow this savings account link.

With your new savings account, setup an automatic withdrawal from your primary checking account into your saving account. Start with maybe $50 a month and then move to $50 twice a month and then $50 a week. This money will be taken out without you having to do anything and will be saved automatically for you. As long as you leave that account alone you will accumulate and grow your cash savings.

I truly think that the secret to your overcoming this financial hurdle lies in automatic investment and savings and awareness about where the rest of your money goes.

The Answer:

We Have a Lot of Debt, But Not a Lot of Savings. – Ann

Steve Rhode — Fri, 07 May 2010 22:10:22 +0000

“Dear Steve,

Currently we have a lot of debt. We are making this the year to pay a lot of this down. We don’t have much of a savings. Our current debt is this: a first mortgage = 170K, second mortgage that = 35K, first credit card = 17K, second credit card = 5K, and a truck that equals 25K. We want to pay this down because we struggle making the high monthly payments on each one of these.

Should we use the snowball effect? Would it also help at all to make an additional $10-$15 weekly payments to the debt on top of the monthly payments?

Ann”

The Answer:

Dear Ann,

I find that applying the debt snowball approach really helps to keep people on track and motivated to get out of debt. You will see that what you will do is pay minimums to all creditors but minimum plus all the extra money you can send to the highest priority creditor in your debt snowball reduction.

Just remember, the best way to get out of debt is to reduce the amount of debt BUT save at the same time. Open a regular old boring savings account and put at least $50 a month into the account. Unless you save money for emergencies you will only have to turn back to the cards when a surprise expense comes up and that will erode the progress you mad in reducing your debt.

Should I Still Save Money Even When I’m Trying to Get Out of Debt? – Lisa

Steve Rhode — Fri, 09 Apr 2010 20:36:09 +0000

“Dear Steve,

I am a student and receive monthly disability compensation. I have about $40,000 worth of debt…credit card, car loan, student loan… I recently started a payment plan through a debt consolidation company and am working on getting out of debt. I do not work and have a fixed income.

Should I still be putting money aside in savings or should I be focusing only on getting out of debt before I start saving and investing? I have heard so many different things. Some say to pay off debt first because my interest on my debt is more than I will earn from savings. Some say to start saving as soon as possible. Should I at least be putting a little bit aside for savings? If so, how do I determine how much to save and what type of account to save it in?

Lisa”

The Answer:

Dear Lisa,

Excellent question.

This is a time that you need to stop listening to the mathematical answer and start listening to commonsense. The mathematical answer is that you will get a better return on your money if you use available debt reduction dollars to reduce the amount you owe. Numerically, it makes sense, I understand that. But…

Life is not logical not linear. It gives us wild twists and turns. It is not predictable. If it was then you could just use the mathematical model and feel confident that you’d have your debt paid off before anything unexpected happened.

I think the commonsense and most prudent method is for you to save at the same time you are reducing your debt. If you are saving each month and something unexpected did come up, which it will, you’d have the cash to pay for it rather than having to lump it back on plastic and erode any progress you had already made in reducing your debt.

I really like this savings account. Use this savings account link. It pays a high rate of interest, there are no minimum investments and you can deposit your money automatically or at will, electronically. This savings account is paying about 27x more interest right now than a standard bank savings account. And no worries, it is FDIC insured.

I would start out with putting $50 a month in and increase it as much as you can per month as you go. The key to know if you are putting too much in is if you have to take money out for routine expenses. You don’t get bonus points for putting money in and then having to take it out to get through the month.

I am a huge fan of savings accounts and think that saving is prudent in all types of economies and times.

Here is a big hug from me with extra interest!

Steve

I Have $747 in Savings. How Can I Pay Down My Debt? – Annette

Steve Rhode — Wed, 31 Mar 2010 20:23:39 +0000

Annette

“Dear Steve,

I owe $94,023 total. I owe $41,089 on my mortgage, at 6% interest, and $2,754 on my car, at 6% interest. I owe $50,189 on my credit cards and line of credit, at interest rates ranging from 3.99% to 12%. My annual income is $56732. My house payment is $549, my car payment is $353, and my minimum credit card payments for last month were $960. I have $747 in emergency savings.

I try to keep my emergency savings at $1,000 and use any available money to pay down the credit cards, highest interest rate first. Is this the best approach to getting rid of this mess?

Annette”

The Answer:

Dear Annette,

I recently wrote “Don’t Pay More Than the Minimums on Your Credit Cards” that I think applies to your situation.

My gut reaction is that $747 or even $1,000 is not of an emergency cushion to protect you. I’d like to see you have several thousand dollars at least in savings.

Once you reach that target then use the debt snowball approach to reduce your debt. It seems to be the most effective in motivating people to slog through the long grind of eliminating debt.

I Don’t Want to Lose My Boat or Home. – Doug

Steve Rhode — Thu, 18 Mar 2010 15:47:17 +0000

Doug

“Dear Steve,

I have 20k of ccard debt and have lost my job. I am paying my bills with unemployment and savings but time is running out. I have thought about Bankruptcy but have been told i will lose my boat which is paid for and the court might auction my home also. My house is paid for also

What would be my best solution to my problem?

Doug”

The Answer:

Dear Doug,

You certainly are in a jam. It is true that both the boat and house are valuable assets and could be sold. Using your savings to tread water is a limited game. When the savings run out, if the income problem is not resolved by then, you seriously risk losing the boat and the house.

I think the best course of action at this point is to draw a line in the sand, say six weeks from now. If you have not secured new income by that date then you will need to think about selling either your boat or your house to pay off your debts. If you can sell one and raise enough money to pay off the debts you can save the other.

I realize that might be like trying to chose which child is your favorite but better to save one than lose both.

Check back in and post an update in the comments section. let me know what you decide to do.

I’m Feeling Defeated About My Financial Future. – Nicki

Steve Rhode — Mon, 15 Mar 2010 00:43:41 +0000

Nicki

“Dear Steve,

When I left college with credit card debt I had no way of paying, no real job and student loans piled on top, I was struggling to keep from drowning in debt. Top that off with medical isses (no insurance) and those bills, it took almost seven years to pay back the largest items after being delinquent about three years.

I currently have several small bills, including bills under dispute that the original creditor has still not validated, that are on my credit report. I find myself in a cycle of paying on time for 6 months and having a crisis (family, health, auto, etc.) that causes me to fall behind and those negative items seem to pile up.

Suffice to say that while I’m currently in the catchup mode, my credit score is not. I’m in my early 30s, still renting though I make a decent salary now, and frustrated. I just want to get everything paid off, have my credit score be reasonable so that I can buy a house.

I know with the current economy many people feel I don’t deserve to buy a home because I’ve had terrible history managing my credit – but I don’t seem to know the magic point to turn this cycle around. In total I’ve managed to pay off about 20k of debt since 1999 and currently have a total of about $2900 spread over random small accounts and a collection that can’t be validated. I’m feeling pretty defeated about my financial future.

What’s the likelihood of my buying a house anytime in the next couple years and do you have any recommendations for seeing near-term improvement to an extremely low credit score?

Nicki”

The Answer:

Dear Nicki,

I can see how you feel defeated but there is tremendous good news to help you here. You really deserve a huge hug for all the progress you’ve made. The struggle you have been through is not one that many could have tolerated. I’m really, really proud of you.

The cycle of debt is primarily because getting out of debt should not be a goal that excludes saving money at the same time. Without saving money in a regular boring savings account, at the same time that you are trying to get out of debt, you will find those odd events throwing you under the bus again. Sure, it will take you a bit longer to get out of debt that way but you will avoid the twice yearly debt crisis.

You are close to the end of your debt repayment, I can see the light for you at the end of the tunnel, and now is the right time to start dreaming about your new home.

I sure don’t know what your consolidated credit report looks like right now, but I really think you need to take a look at it. This consolidated credit report is the one I use and love. It is so simple to read and interpret. When you get your consolidated credit report you should also get the credit score option. It will tell you exactly what is bringing your score down and how to fix it.

I suspect that the biggest anchor on your credit score is your past history of money troubles with little or no new good credit to start showing what a good job you are doing now.

Credit reports are not report cards on how great you are doing, but on how great your creditors think you are doing of being a good target and low risk for them.

If you’ve spent the last ten years responsibly paying off old debt, that is good for you, and smart, but does not demonstrate you can handle credit now. Nicki, it’s all a game and you just need some advice on how to play it to achieve your goal, that’s all. You’re on the right track.

So how can you get major unsecured credit reported about you will minimizing your risk of getting back into trouble? Why with a secured credit card. A secured credit card will allow you to put up a deposit that will be equal to your credit limit. If something was to happen and you could not pay your bill then the deposit would be there to cover you.

But many secured cards also report to credit bureaus, sometimes for a fee, and that’s what you want. You want them to show you responsibly using your credit and that, in conjunction with clearing the remaining debts, will help you to bring your credit score back to life.

Now, with the end so close in sight the last thing you need is yet another crisis to pop up and erode the progress that you’ve made. So what I want you to do is to open a savings account and put 50% of the money above the minimum payments that you would have sent, in the savings account each month. This will help to protect you against those unexpected expenses and it will be the beginning of you saving a down payment for your new home.

I sense that you are probably a few years from moving into your new house, but if you follow this plan your old debt will get resolved, you will increase your credit score in preparation of your new mortgage, you’ll protect yourself when the next crisis occurs and you’ll have cash in the bank for your down payment.

I want you to follow me on Twitter at @GetOutOfDebtGuy because I want you to tweet me so I can celebrate on that day you move in to your future home.

I’m really excited for you.

I Am Panicked About Our Situation. Help! – Deb

Steve Rhode — Thu, 04 Mar 2010 23:50:52 +0000

Deb

“Dear Steve,

I’ve been married for 17 years, I let my spouse take over finances for a 2 year period and found out end of last year that we were completely overextended (even though income is good), and more importantly have mutliple late payments on probably every account/credit card we had.

Some in his name, some in both our names. I took control of finances back in January. I closed out every credit card we had open. I got my $11,000 bonus and used it to pay off some smaller cards. I made my husband take out $23,000 from his 401K and we paid off the remaining debt with the exception of a $20,000 “loan” from capital one and a $13,000 balance on a bank of america credit card. (this is AFTER we paid off the rest of the cards).

Thankfully our mortgage is very reasonable. So now, day to day living is pretty good, paying bills timely, no phone calls from creditors – however we have absolutely no backup. We tried to get add’l money on our home equity loan – but were turned down due to “too many delinquent accounts” on our credit history. If something were to happen where we suddenly needed cash – I don’t know what we would do. We have about 9K still left in savings. (we both have good life insurance policies).

Based on the above, should I try and get a credit card in my name only? Would switching banks and developing a new relationship help? I’m a little panicky about this situation.

Deb”

The Answer:

Dear Deb,

The situation is unfortunate, but it does happen. Goodness, look at all the valuable lessons you learned from this. I always say there is no sense wasting a perfectly good mistake, so taking something away from it is good.

For whatever reason, your husband sucks at managing the money. I suspect that in your relationship he is the spender and you are the saver. Opposites seem to attract in relationships on one person is typically the spender.

Your husband may be someone who just does not think about money the same way say an accountant would. But then again I’ve had plenty of accountant clients over the years.

If you do decide to give him a second chance on letting him manage the finances again, may I humbly suggest that it be a cooperative effort. You might even want to consider getting a copy of your consolidated credit report once a year and sit down together and review it.

Since you closed all your old accounts, and I wish you had not done that, you will only be able to bring your credit score back up will be to get a new credit card or installment loan. Otherwise your credit history ends with the reporting of negative information about you. Applying for a couple of cards in your name alone would help you to do this.

And while it feels like you are living on the edge with only $9,000 in savings, you have a lot more than most people do.

What I’d suggest that you do is open the two new cards, use them, pay them off as you go, and get back to stashing some additional cash in a savings account each month.

Oh yes, switching banks won’t help. Your credit score follows you everywhere you go.

I’ve Got Some Cash on Hand. Should I Settle With Amex? – James

Steve Rhode — Fri, 26 Feb 2010 21:02:45 +0000

“Dear Steve,

I live in California and have been self employed for 15 years. Long story short, in 2006 business was extremely slow and I acquired a $32,000 balance between two Amex cards. One card is business one personal and have an interest rate of 8% and 10%. I also have two or three other credit cards with zero balances. Like everyone, I am upside down on my house, but can handle the mortgage payments. My credit score is 790, I have NO late payments including Amex.

I sold a vehicle and have $22,400 (70% Of Debt) to pay towards my Amex accounts.

My question is, should I just pay the 22.4K and continue to work on the rest, or should I try to settle my debt with Amex. I have read a lot of the posts on your site and you have indicated that:

1. Amex will not negotiate unless I am behind: Does this change if I indicate to them that I considering bankruptcy to get out from under the debt? I do not want to initiate contact with Amex about settlement unless I am going to go all the way with it.

2. This will reflect negatively on my credit score: How exactly will this affect my credit score and for how long? 40 points? 100 points? Just a notation? If I am not planning on any big purchases, can my score take a hit?

3. I will receive a 1099 from the IRS for the amount I did not pay: With write-offs’ paying taxes on the amount not paid is better than paying it…

James”

The Answer:

Dear James,

Great questions. Thank you.

If you are not having financial problems, as you indicated you are not, then I would suggest that you not settle the debt.

Here’s why. If you don’t have any money is savings, I would suggest that you spend no more than $12,000 paying off one of the AMEX accounts and hopefully that will pay off one of the accounts. Using the money that will be freed up from the paid off account, you can then roll that onto the other account to get out of debt faster.

This will leave you with $10,000 in a savings account that you could tap in case of an emergency so unexpected expenses did not go back on the American Express card and run the debt back up, eroding any progress that you may have made.

I think lump-sum debt settlement can be a good tool to use when you have the cash on hand and you are faced otherwise with certain bankruptcy, which would expose your cash to the creditors anyway.

The best way to protect your excellent credit rating would be to not fall behind, not settle the debt and not have a negative entry on your credit report.

Now, all that being said, if you just want to take a chance to screw it to your creditors because you don’t want to pay them for some reason, you are not concerned about your credit and don’t care about your credit score, go the debt settlement route. But if you do that, hire a professional debt settlement firm to represent you, otherwise American Express is going to play you. You have no experience in doing this.

My vote, don’t settle.

I Am Bankrupt What Do I Do Now? – Mary

Steve Rhode — Wed, 17 Feb 2010 23:32:09 +0000

“Dear Steve,

I am bankrupt what do i do now?

Mary”

The Answer:

Dear Mary,

Excellent question.

Being declared bankrupt and having your debt discharged ends one part of your financial life. It buries it but now is the time for your new financial life to be born.

Here are the key steps to focus on next.

Start Saving – It is time to use this radical change in your financial situation to make it a point to live within your means. That means you need to include a regular savings program in your monthly expenses. Just use this link open a savings account. And set it up to automatically draft your regular bank account each month to put money into your new savings account. Your savings account will help to protect you during this time that you don’t have access to credit card to fall back on. If you need to get a grip on how much money you can afford to save, start tracking where you money goes. I really like the Mvelopes online tool.
Get Back in the Credit Game – I know, I know, it sounds crazy but bear with me. If your financial life is a history that ends with bankruptcy and then you stop using credit you will not be able to bring your credit score back up. There will not be any new good credit to add. And your credit score is so important in many areas of life, not just applying for credit. But this time, click here to get a secured card that will report your usage to the credit bureaus. And be sure not to use the card for anything that you can’t pay off in full this month.
Put Your Feelings of Failure Behind – You may feel ashamed, like you have failed or you may feel depressed, that’s exactly how I felt after my bankruptcy but what I learned was that those feelings were created in my head and not a reflection of what others really thought about me. Sure you will have to be judged at times about the fact that you have gone bankrupt but you know what, you and ten million other people have gone bankrupt in the last decade. It’s not like you are alone. Your financial situation needed you to responsibly file bankruptcy so you could begin a new life. You did what you had to do so while it is easy to say, really, let’s move on.

These are the critical basic steps but most importantly, find a way to enjoy life, find gratefulness for the good things around you and like me, give all the hugs you can.

Here is your big hug.

Steve

Should I Cash Out my 401K to Pay Off Debt? – Anna

Steve Rhode — Fri, 01 Jan 2010 17:12:51 +0000

“Dear Steve,

I am currently a stay at home mom and my husband is working outside the US. Our monthly income is $13,000/mo. And our revolving debt is listed below:

Home Mortgage – $340,376.98 – 2,098.82
Line of Credit 191,529.48 – 568.53
Credit Card 1 10,088.49 – 336.00
Credit Card 2 15,865.05 – 343.00
Credit Card 3 13,321.12 – 231.00
Total Debt 571,181.12 – 3,577.35

We currently are able to make the payments, but it seems like we can never get out of debt. I currently have about $120,000 in my 401K and my husband has about $130,000. But we have no money in our savings account. Can you tell me if I should cash out my 401K to pay off the credit card debts and part of my line of credit? Please keep in mind I am currently not working and borrow against my 401K is not an option at this time. Please advise. Thank you

Anna”

The Answer:

Dear Anna,

You should not cash out your 401K. Leave it in there and protected from creditors. If you are making $13,000 a month and your debt payments are $3,500 a month, would that not leave you with a significant surplus each month to use to reduce your debts? You could use the debt snowball method.

And please, before you start using all your extra cash to pay down debt, open a savings account and put at least $5,000 in that.

My House Needs a New Roof. – George

Steve Rhode — Thu, 31 Dec 2009 17:57:56 +0000

“Hi Steve,

Im finally on the right financial track since I am starting to pay off my $20,000 credit card balance since I stopped using the card and am now paying more than the minimum due. Also, I just started contributing to the retirement plan at work as well and also started putting a little in a savings account. Doing all this is pretty much maxing me out and not giving me much spending money but at least I feel like I am heading in the right direction.

However, heres the problem: my house needs a new roof. I have been putting it off for over 5 years. Now It absolutely must be done in a few months when it gets warm. That will be between $5K-$7K. Obviously I don’t have that money but if i want to have a house, it must be done. I also have some other things that need to be done as well. Do you have a suggestion about the best way to pay for this?? So here i thought I was heading in the right direction but now I will be in worse shape and more debt.

Thanks Steve”

The Answer:

Dear George,

Don’t feel dejected just yet. It sounds like you are doing the right things but the problem here is that you have not had enough time to save up the money to pay cash for the needed repairs.

This is one of those times that credit can be beneficial. When you enter into a credit agreement you use the money of others for your purpose, and pay a fee to do that. The fee is charged as interest.

If you are working with an established roofer you could ask if they work with someone to finance a new roof. Otherwise, check with your local bank and see if a home improvement loan might be available. If you have some equity in the house this might actually be a good time, while interest rates are low, to refinance the home and take out enough cash to pay for the needed repairs and pay off the credit cards, as long as you don’t run the card back up.

Outside of that, you might find yourself having to use the credit card to pay for the new roof. That roof is pretty important. If you let it go too long without repair it could wind up costing you a lot more in damage than just the cost of replacing the roof.

Once you get over this hurdle, I want you to focus on how much you are saving. You might need to adjust the balance of your savings so you can put more into a savings account right now to build up an emergency cash reserve to use for things just like the roof.

In order to do that you might have to return to just paying the minimum on the credit card for a bit. Paying more than the minimum but not having emergency cash just erodes the progress people make since emergency expenses tend to wind up back on the plastic.

I Can Pay Off My Loan But Need to Use Some Cash From My Savings Account. Should I? – Sulian

Steve Rhode — Fri, 25 Dec 2009 17:00:48 +0000

Sulian

“Dear Steve,

I have this 19% personal loan with a payoff of $816.00 I’ve been paying for the last 4 1/2 years. I am so ready to pay it off I can feel it. I bring home about $1220 a month after taxes from work and about $2,200 in a savings account.

The minimum payment is $150.33 and they say I have six months left. Basically I would like to know the quick and best way to pay this off? How much of saving should go toward it?

How much of $2,200 saving should go toward paying of $816.00 at %19 debt? I bring home about $1220 after taxes.

Sulian”

The Answer:

Dear Sulian,

Go ahead and pay the loan off now using the money from your savings account. Then to replenish the savings account put the old monthly payment for the loan in your savings account each month.

The risk in doing this is that an unexpected financial emergency might come up in the next eight months you might be a bit short, but you’ll still have $1,400 in your savings account and building it back up each month.

If you are comfortable with that approach, do it. Experiencing the joy of eliminating a debt is a special thrill to savor. Enjoy the accomplishment.

Diana Is Struggling to Make Credit Card Payments And Afraid

Steve Rhode — Wed, 16 Dec 2009 21:43:42 +0000

Diana

“Dear Steve,

I have approximately $25,000 in credit card debt, drained my savings and struggling to meet my payments. I can pay my mortgage and normal billing but not the cards

I am so confused about wha is available out there and frankly scared that I may not do the right thing with a repuable company. Can you help.

Diana”

The Answer:

Dear Diana,

It is normal to feel scared and afraid but I don’t want you to feel that way anymore. Consider yourself protected from this point on.

I wish you had found me before you started draining your savings account to get by and pay bills. I would have pulled you away from the checkbook, lovingly tossed cold water on you and said, “Diana dearest, what are you doing?”

Savings is there to be used in case of an emergency but not to continue living a life you can’t afford. Unless you can face the underlying issues that are leaving you financial abandoned, then dribbling cash from a savings account will only leave it bone dry and you, without further financial transportation. It is not a solution.

You should give yourself a real pat on the back that you reached a point and found the courage to reach out for help. That’s a huge step. And now that you’ve done that, you are absolutely right, who can you trust?

Now that you are tapped out there are really only a few logical options so let’s talk about them.

One of those options would be to explore entering a debt management program where you would make one monthly payment to the debt management company and they would divide it up amongst your creditors and pay them a new amount that might eliminate interest and fees.

But that’s not really a good solution for you at this point since you really don’t sound like you have the spare cash to be able to pay anything on a continual basis. I surely don’t want to see you enter a payment arrangement in a debt management program just because you are scared of your creditors. If you can’t make all the payments in the debt management program and eliminate your debt over five to seven years then you are throwing good money after bad.

You could immediately run and go bankrupt and discharge, get rid, of all your unsecured debt. Bankruptcy would eliminate the credit card debt but you could probably keep the house and car. I would suggest that if you consider bankruptcy as an option that you contact a bankruptcy attorney and ask for a free bankruptcy review to discuss your specific situation.

Another option, that will sound silly, but it’s not, is to do nothing at this time. You see the reason you have found yourself in this situation is either because your debt suddenly increased or your income dropped.

I suspect it is either a combination of those issues or primarily caused by a reduction in income. If that is truly the case then an option is to ignore the credit card bills that you can’t pay for right now and focus on trying to increase your income or get a second job. You might want to take a look at the America’s Job Bank page I created to help people find jobs.

This is a reasonable course to follow if you don’t want to go bankrupt right now, for your own reasons, and want to take a stab at repairing the situation. You’ll always have bankruptcy to fall back on in case a credit card company sues you or you just can’t increase your income to meet the financial demands.

If you do this the collection calls and letters will continue to come. Don’t let them rattle you, bankruptcy will be your fallback plan in case nothing else works out.

As far as being scared about working with a reputable company, that is less of an issue. Most every bankruptcy lawyer and debt management company does what they say they will do. Just watch out for a company that wants to sell you credit repair services as a solution or says if you pay them they will give you a debt consolidation loan.

While your situation feels dire, the reality is that it is a fairly common scenario that millions and millions of people are facing and suffering in silence with every single day.

If you need more help or advice, don’t hesitate to contact me.

The Answer:

I’m a Female in My Late 20s and My Credit is Horrible. – Tayumika

Steve Rhode — Tue, 10 Nov 2009 20:34:14 +0000

“Dear Steve,

Hello, I am a female in my late 20′s and my credit is horrible. However, I have been focusing on cancelling my credit card debts and paying down my school loans. My goal is to purchase my first home in about 3 to 5 years. I’m also interested in investing but don’t know much about it.

My question is what is the best way for me to pay off my debts while also trying to save at the same time. Also, what would be the best way to increase my credit score since I know a bad credit score follows you for a long time. Thank you in advance for your answer.

Tayumika”

The Answer:

Dear Tayumika,

Congratulations on working on this while you are still young.

The first thing that strikes me is your statement about closing your credit cards. Paying off the balances is fine but don’t close those cards. I need for you to get them current again and use them from time to time. The length of time you have had the card and new good use will help to increase your credit score.

You also need to get a current copy of your credit report and credit score from all three credit bureaus. If you follow the credit report link you can get it there. It’s the same report and scoring I use for myself. We need to establish a baseline and from that you can measure your progress upwards.

As far as building savings at the same time you are reducing debt. The secret is to adopt an approach that is not all or nothing. Directing part of your money to savings will lengthen the time it will take to payoff the debt. But so what. You really need to do both things at once.

I’d suggest opening a plain savings account and deposit 50% of the extra money you can afford above the minimum payment on the student loan. Keep sending the extra 50% towards the student loan.

That savings is critical for two reasons. Not only will it help you to accumulate a downpayment but it will also be an emergency fund in case a surprise expense comes up that you would have had to put on the credit cards. Now, instead, you’ll have money in savings to pay for it instead of increasing your debt.

Please update me on your progress by posting updates here in the comments section of your question. I’m very interested in how this works out for you.

P.S. Be sure to read ‘The Secret of Surviving Through Difficult Economic Times. What I Learned On My Journey‘.

If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

Should I Use All of My Savings to Pay Off My Credit Card? – Hal

Steve Rhode — Tue, 15 Sep 2009 12:55:30 +0000

Hal

“Dear Steve,

I have an outstanding credit card balance of $ 8,288.76 at 18.99% APR. We are paying roughly $500 a month, which is about 300 over the minimum. However, the finance charges costs about $138, seems to me to be a losing battle. I have 13K in a savings account that is making just over 1.3% interest. Just about 9k should cover 3 months worth of expenses.

I want to know, what many others seem to want to know…Should I pay off the card which costs me ~$130 a month in interest with money from my savings that earns me about ~$70 a year if lucky? The monthly credit card payment would then be applied back to the savings account to rebuild that.

Most of your past advice seems to lean towards keeping the savings…are there any situations in which you would recommend paying off the credit card if this is not one such case?

Hal”

The Answer:

Dear Hal,

I know, my position has been a perplexing conundrum. Mathematically, it does not make sense. But emotionally and prudently it is a better solution.

So let’s say that you do elect to wipe out the savings to pay off the high interest rate credit card. That leaves you out of debt (Ahhhh!) but without a safety net. So why is the safety net so important.

These days it is not unheard of to have a credit card issuer cancel a credit card. If you drain your savings and then are counting on the credit card to save you if you have a financial emergency, what happens if it is cancelled or interest rate raised even higher in the meantime?

If the savings is drained but the card is not cancelled and for some reason you are laid off or need supplemental cash where will you turn? Would you take cash advances from your card that is now paid off? The interest rate for those is sky high? And if you had to charge expenses just to get by, you are right back in debt again.

If you wanted to leave the savings at the level it is at, fine. Use all your available extra money to pay down the debt as you are.

Basically it all boils down to this. The interest you are paying is essentially an insurance policy that if some wild ass crap hit the fan for you you’d have cash in the bank to pay for it rather than drive you back or deeper into debt. Nobody ever found themselves in an emergency or accident with too much cash in savings.

If you are a risk taker by nature, you think I’m dead wrong, or you like math better than a safety net, do it.

Please update me on your progress by posting updates here in the comments section of your question. I’m very interested in how this works out for you.

P.S. Be sure to read ‘The Secret of Surviving Through Difficult Economic Times. What I Learned On My Journey‘.

Should I Use My Money in the Bank to Pay Down My Credit Card? – Jenn

Steve Rhode — Fri, 14 Aug 2009 14:21:32 +0000

Jenn

“Dear Steve,

I have been out of college for 3 years. I have 26,000 student loan debt with low interest rates 1-4%, 6000 in credt card debt with 9% interest.

I’m struggleing with if its better to have a savings accont or to pay down my debt. i currently have a savings account, but I dont know if I should take that money and use towards my credit card/student loan debt or continue to save in case something happens with my job. Any Opinons?

Jenn”

The Answer:

Dear Jenn,

I think your question is best answered by the Q&A and comment from Ashlee from her question. Read Ashlee’s question here.

Bottom line, the savings account is critical. Pay the minimums on your debts until you save up at least $1,000 in a savings account. Nobody ever went broke from saving.

P.S. Be sure to read ‘The Secret of Surviving Through Difficult Economic Times. What I Learned On My Journey‘.

We Want to Start Paying Back Old Debt From Six Years Ago. – Jen

Steve Rhode — Fri, 17 Jul 2009 17:44:13 +0000

Jen

“Dear Steve,

Well we are young (24)married, and make good money, also live above our means a bit. depending on where you live this may sound high to you, but we make 70k a year, and about 4-7k per month varying. well it wasnt always this way, back when we were 18 my hubby got a truck re-posessed and into some debt. cell phones bounced checks, ect ect and they just blew up the bill after a few years of course. we knew we would pay them off someday and until then its a big burden on our credit. he did pay off the truck they took, but the remaining debt is about 3-4k. we were young and didnt make much then. we opened several credit cards ….all of which are maxed out still. most only have 200 or 300 limits and they charged it with 100 bucks in the first place to open them.

Well 6 years later now, and were finally making good money for about 2 years. weve been living on our own, and i guess above our means. i dont know what people normally spend per month, but our cost of living for an average month is all of it. lol.

We get paid once a month, so we often run out and pay a lot of fees to the bank, or loans for money back. really our cost of living is about 4k a month, and then sometimes we have nothing left, and rarely we will have 1-2k extra, which we spend on going out, vacation, our baby, ect ect ect.

This year we did our taxes and realized we owe 9k to the irs. we didnt really know what to expect when becoming self employed, but we owe a lot. So as of this month we pay 2k a month to irs, and our paycheck just got was 4k. thats half gone. were barely gonna pull thru this month. we are also trying to buy a house while prices are down, but credit is an issue. with that old debt from 18 years old on there. we’d like to pay it off, but arent sure if we can even afford it now! or the best way to go about it. i mean should we call them directly and negotiate? lump sum, or monthly payments? should we call a debt consolidation agency and try and do all of them on monthly payments?? or are they just an extra cost becasue you could call directly and do it yourself?

Jen”

The Answer:

Dear Jen,

I think before you contact anybody or do anything you should first concentrate on opening a savings account and building up cash to cover you in an emergency. I’d like to see at least $10,000 in that account as a cushion since you have little or no access to credit. If an emergency arises you will probably have to pay cash.

Building up a cash account will also let you save money to use to resolve these old debts when you can afford it. Just go and open a savings account at your bank or online with a group like ING. Start depositing a regular amount in that account each month, If you could put $1,000 a month in after you take care of the IRS issue, that would be a good start. Be sure to pay yourself first each month and put the money in savings in the account as soon as you get paid. Otherwise, the money will vanish into miscellaneous expenses.

Until you build up some cash reserves I think it would be a mistake to launch into any repayment of a big old debt.

I Want to Tidy Up My Debt And Make It Look Better. – Laurie

Steve Rhode — Thu, 26 Mar 2009 20:03:30 +0000

“Dear Steve,

Putting it nicely I want to “tidy” up my debt. I want to get my ducks in a row so my husband and I can eventually buy a different house. Here’s my financial picture:

Together my husband and I take home: $5800/month
Secured Debts: Total: $1503/month broken down as the following:
1st mortgage approx 72,000 @ 6.75% 30 year $643/month
2nd mortgage apprx $18,900 @ 8.99% 30 yr $152/month
Student Loan $205/month
MOnthly Living Expenses: $2116
Unsecured Debt: Line of Credit and Credit Cards $654/month
Total Debt $30,310

We owe about $90,000 on our house and it could appraise around $100,000. What should my first plan of action be: refinance (if possible) my mortgages or just keep plugging away at my debt. I’ve been doing Dave Ramsey’s snowball debt reduction and have found some success, it’s just staying focused. How do you suggest me getting out of debt?

Laurie”

The Answer:

Dear Laurie,

Adding up the expenses you gave me they total $4478. That is a difference between your income and expenses of $1,322 a month.

Of that amount I would suggest that you save 50% of the leftover money in a boring old savings account. This is for two reasons. First, I want you to build an emergency fund and second, you may need to use some of that cash to help you with your future move to your new home.

Based on your mortgage rates, I think you should look into refinancing both mortgages into a new single loan if you can. Contact a local mortgage broker to find out what deals might be available. With interest rates currently much lower than you are paying, a new mortgage with a lower interest rate can save you quite a bit each month and you could use that money you are paying now in interest to actually lower your other debts.

I find the snowball approach is a good way to reduce debt and provide emotional satisfaction that debts are getting knocked off. Nothing wrong with the debt snowball method.

But before you contact the mortgage broker, please get a copy of your consolidated credit report with the credit score option. This consolidated credit report is the same one I use and love. The consolidated credit report will show you exactly what you need to do to increase your credit score and with a higher score, you can get lower interest rates on the mortgage.

Don’t Pay More Than the Minimums on Your Credit Cards

Steve Rhode — Wed, 11 Mar 2009 15:19:01 +0000

I know this is going to sound like crazy talk but keep reading.

Now is not the time to pay more than the minimum payment on your credit card if you don’t have a lot of money in savings.

If you thought the foreclosure crisis was bad, just watch what is going to happen to credit cards. With twenty thousand Americans a day losing their jobs, you need to prepare for the worst. Remember after 9-11 when people bought bottled water, plastic sheeting and duct tape to protect themselves, well now is the time to start stashing cash to protect you from the financial storm we are in.

Already we have seen dramatic examples of creditors running for cover by slashing available credit limits and jacking interest rates up to the max, even for people with good credit.

Historically people have found comfort in their credit card available credit. They felt that in case of an emergency that the card would save them and in that belief people have failed to save sufficient cash on hand to protect them if the card was no longer available.

The economic tsunami that we are living through is causing more people to turn to living on their credit cards when they are faced with unprepared economic hardship. This is going to result in higher losses for banks and in response they are going a dramatic shutdown of credit limits or the card.

People forget that having a credit card is a privilege, not a right. The card is yours to use at the whim and discretion of the issuing institution.

What is probably going to accelerate this demise of the credit card is new legislation that is coming into effect next year that prohibits credit card companies from jacking your rates way up like they are now. It is a good piece of legislation that is intended to protect consumers, and it will, in the future. But next year, left with the option of keeping you at your current rate or closing your card, banks will opt to close cards or close down your credit limit because they see more customers at risk.

The card closures and credit limit reductions will hurt your credit score. More creditors will take notice of your lower credit score and close your card or reduce your credit limit. This is a bad news situation that will feed on itself.

So, just imagine right now, if you had not access to any of the credit currently extended to you on your cards, how much cash would you need to have access to right now? Do you have it on hand?

Most experts today say you need to have six to nine months, most people don’t. I think at the very least you should have at least three months of cash in a boring old savings account that you can get to within 48 hours if you had to.

Now, does this approach make mathematical sense? Absolutely not. The least expensive way to get out of debt is to pay down high interest rate debt first, but if you are doing that at the exclusion of saving you need to understand that the cost you will pay for not having emergency cash available, might be the loss of your home or the inability to eat.

So where are you going to get this cash to save? Well a recommendation in the Wall Street Journal suggested:

But people without enough on hand right now may find it makes sense to borrow from their credit cards and put that money in a bank account. Sure they will pay a negative spread, borrowing at 12% and earning 1%. But they may figure that is the price of being prepared.

I don’t think I’d go that far but at the very least, only pay the minimum payments on your credit cards right now and not a dime more. Use the extra cash you would have sent above the minimum payment to put in your savings account.

There is a value in the comfort of knowing you’ve got cash on hand to protect you if your credit cards were either no longer able to used or maxed out because your credit limits had been reduced to your current balance.

Saving cash in a savings account like that offered by ING will give you a higher return than your local bank and at least let you make some interest on your savings account.

I’m not screaming that the sky is falling. I just think you need to be reasonably and prudently prepared if a financial nuclear winter is coming, and it might be getting a whole lot worse.

Steve

Photo by Monojussi

Should I Use My Money in Savings to Pay Down My Credit Card? – Zach

Steve Rhode — Mon, 23 Feb 2009 16:10:16 +0000

Zach

“Dear Steve,

I just turned 26 years old and I’ve got $6700 in credit card debt (All at 0% except for $1700 at 11%) and $4500 in an emergency fund savings account.

It costs about $1600 a month for me to live, giving me about 3 months of living expenses saved up. I have a stable part-time job, and freelance income that is somewhat regular but has been decreasing since the economic events months ago.

I’m maxing out my IRA contributions, contribute to the point of employer match (i contribute 5%, they give 7%) in a 403(b). I don’t have a car, live with a roomate in the cheapest apartment I can find, work 3 jobs, and have cut out cable, gym membership, and anything else even remotely considered “discretionary” from my life, so I’m able to put more away a month in recent months for my savings & paying down debt goals.

Being in debt makes me incredibly uneasy, and I know that is my fault that I got here (although most of the expenses on credit were business-related) but it keeps me up at night and makes me feel like a bad person.

I don’t know whether I should take the money in my emergency fund and pay down my debt, or if I should continue to contribute to my emergency fund while paying the minimums (and more than the minimum to the high-interest card). Any advice you have is greatly appreciated. :-)

Zach”

The Answer:

Dear Zach,

First off, you are not a bad person. No way. If anything, you just made some mistakes. You’ve got to put this guilt behind you so you can move forward.

I hear what you are saying about tapping the savings account to pay down some of the cash but I’m afraid the impulse to do that is more emotional than logical.

You said yourself that income has been a bit less reliable in these uncertain economic times. Because of that I think you should keep the money you currently have in savings and not be in a rush to touch it.

However, now that you’ve got $4,500 tucked away, you should feel comfortable using most of your spare cash to reduce your debt levels using the debt snowball method.

I’d suggest that you take out a new gym membership if you will use the gym. Exercise is a great stress reducer and it will only benefit you during these times. And depending on how much you workout, it can even help you to sleep better.

Steve

Should I Use My Tax Refund to Pay Off My Credit Card? – Anna

Steve Rhode — Tue, 27 Jan 2009 18:21:48 +0000

“Dear Steve,

I owe $8000 dollars from one credit card. I don’t really owe any significant amount from the other credit cards I have. I’m expecting to receive about $8,000 from our income tax refund, should I just use all of that to pay my debt?

I was thinking of saving the $8000 refund instead in case we need it in this kind of economy we got right now, and just slowly pay down our debt with my husband’s salary ( I don’t work). I’m not sure but I think the interest on that credit card is 7-9 percent and it’s fixed.

Anna”

The Answer:

Dear Anna,

If you are getting that big of a tax refund you should look at increasing your withholdings so you get more in your check each month instead of a lump sum at the end of the year. I bet you’d enjoy that.

You ask an excellent question. On one hand, with the economy the way it is, $8,000 cash in the bank would be a nice cushion in case something happened. On the other hand, having no credit card debt would be sweet as well.

Actually I think that paying off half the debt and putting the other $4,000 in a savings account is the best of both worlds. It reduces your debt and gives you a bit of a cushion. If you change your withholding to break even at the end of the year then you can use the extra $667 in your paychecks each month to pay the debt off faster. In fact you’ll be debt free in three or four months with my strategy and have cash in the bank.

Make sense?

Steve

A 12-Step Plan to Get Out of Debt Fast!

Steve Rhode — Fri, 17 Oct 2008 17:30:51 +0000