Learning Personal Finance

Until recently, secondary schools did not have courses in personal finance. Students entered the world of work without the skills to develop a budget, to determine how much debt is too much, and to understand the importance of planning for regular savings. Without these skills, along with the societal pressure for immediate gratification, it has been easy for consumers to get into great debt early in their adulthood and to remain in debt throughout their entire lives. Consumer debt may be an accepted fact of life, but it is not ideal and can certainly become overwhelming if spending habits are not changed. In the absence of formal training, you can, at any age, educate your financially and eliminate your debt by taking correct steps as recommended by all experts.

The Steps

1. If you have never had formal training, you probably are not adept in the process of budget development. You cannot possibly become a responsible consumer if you do not have a budget, for it is the plan by which you manage your finances month by month. If you are not managing your finances, chances are you are increasing your debt without knowing if it is too much to reasonably have. You can develop a budget by totaling your net income each month and subtracting from it the absolute essential expenses, such as rent or mortgage, utilities, car and insurance payments, groceries, gas, etc. The remainder is what you have left for non-essential expenses and debt payment. If there is not enough left, you are in trouble and need to develop a plan for getting out of debt.
2. Stop charging this moment. Cut up all of your cards but one, which you put away for emergency use only. At least your debt will not increase.
3. Attack one debt at a time, starting with the smallest total. Dump every penny you can on this debt, always making more than the minimum payment. Every bit you can pay beyond the minimum payment goes directly to the principle of the debt. As well, pay this as soon as the bill arrives. Waiting until the due date allows the creditor to charge additional days of interest on the unpaid balance. You must do everything possible to stop the bleeding of money due to interest.
4. As you pay off each debt, all of that payment must now be applied to the next debt. Be sure to reward yourself with some small splurge as you pay each debt off, because these are important benchmarks for you. Celebrate!
5. Consider debt consolidation if you are getting behind in payments and do not see a way out of this situation. Getting one loan to pay off all of the others can get you a lower single monthly payment and get you more organized. Again, cut up your credit cards!
6. Use bankruptcy if your debt is so overwhelming that only a fresh start is a plausible solution. Your credit rating will suffer initially, but there are ways to repair it in an organized sequential manner. Consult an attorney who will advise you on which type of bankruptcy fits your situation and who can counsel you on credit repair following the action.

Once your debt is eliminated, you will need to do some self-educating on means to avoid recurrence of the same situation. Becoming a responsible consumer really involves not spending money you do not have, unless it is for a major purchase with lasting value, such as a home.

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The Value of a Debt-Free Existence

No one can dispute the wonderful feeling of serenity and comfort when one can state that he/she truly owes no money to anyone. There is no stress and discord when the mail arrives each day, and no loss of sleep wondering how to get debt paid off. The additional value of being debt-free, however, is they way you can make the most of your personal financial position to begin to accumulate great amounts of savings for your future financially independent lifestyle.

Become Debt-Free

No matter how much debt you may now have, you do have the means to eliminate that debt by choosing from a variety of options. Even the most stressed debtor with overwhelming debt that cannot be met on a monthly basis, has options to clean up the mess. Among the options are the following:

1. Attack each credit card or revolving debt, one at a time, dumping every penny available on one debt at a time until it is eliminated. This will require suspension of non-essential expenses, but the benefits will be so worth it. Ease the pain and motivate yourself by one splurge or reward as each debt is paid off. Confide in a friend so that there is support and encouragement. Announce your intention to as many as you wish to tell. When others know what you intend to do, you are more apt to stick with your plan.
2. Get rid of your credit cards. Cut them up and cut up any replacement cards that may come in the mail. It is usually wise not to close the accounts, because that can damage your credit rating some. If you do not have the self-control, however, close the accounts. Your credit score is not the big concern right now.
3. Don’t trade your car in as soon as it is paid for. Continue to drive it for two more years. The savings of not having a car payment will be substantial and can be used to pay off other existing debt or placed in savings.
4. Consider a counseling or consolidation professional if you are unable to accomplish debt elimination yourself. They will negotiate with your creditors for lower total debt amount and help you secure a consolidation loan if necessary. The fees you pay will be well worth it if you cannot do it yourself.
5. If you are completely drowning in debt, consider bankruptcy. Chapter 13 will establish lower overall debt and monthly payments you can afford for a 3-5 year period. Chapter 7, more difficult to get, will eliminate your debt entirely, but consulting an attorney will be necessary for either of these steps.

You are Debt Free – Now What?

The other value of being debt free is the opportunity you now have to begin to accumulate savings and investments at a much faster rate. All of that money that was going to pay off debt can now go into interest-bearing savings or dividend-paying investments. If that savings interest and investment dividend is re-invested, it simply allows additional growth. Savings and investments accumulates quickly if not touched, so be certain to keep some amount of money each month for current enjoyment.

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The Vicious Cycle of Debt

When one gets into significant debt, it is very difficult to get out. But getting out is absolutely critical if one is to avoid the stress and anxiety of always owing money to others and having to continue to accumulate debt because current payments do not allow the savings cushion necessary when emergencies arise.

Steps to Eliminate Debt

There are a number of options to eliminate debt, and each debtor will have to decide on the correct path for himself.

1. If payments are affordable and there is any disposable income each month, then the process will be sequential and progressive. Any disposable income will be placed on the smallest of the debts until that debt is eliminated. All of the amount paid on that first debt will not be added to the normal payment of the second debt, and so on, until all debt is paid off. The additional commitment of cutting up credit cards will be a solution to incurring further debt. Most individuals, who adopt this path, keep one credit card to be used for emergency purposes only.
2. If a debtor knows that he does not have the self-control to practice an organized debt payoff plan, he should find another who is willing to take charge. This may be a trusted relative or friend. This method involves turning all income over to the trusted individual who in turn supplies the debtor with an allowance for necessary expenses. This third party then takes charge of getting the debt paid off. As well, credit cards are turned over to this third party, so that the temptation to use them is eliminated.
3. A debt consolidation loan can be secured to pay off all existing debt, obtaining one payment which is lower than the others combined. Again, the use of credit cards for any further purchases must be eliminated in some way, preferably by cutting up the cards, maintaining only one for emergencies.
4. Employment of debt counseling/consolidation specialists can be beneficial because they are often able to negotiate lower total debt amounts with creditors and assist in the securing of a debt consolidation loan.
5. Bankruptcy is a serious step but is often necessary if debt is overwhelming and the payments cannot be paid with current income. The negative impact on a credit rating is certainly a consideration, but this action does serve to give the debtor a fresh start.

Once Debt is Eliminated

The purpose of debt elimination is not simply to get oneself debt-free for the short-term. The purpose is to put someone on the path to remaining debt-free for the rest of his life. An unadulterated debt-free financial life requires key commitments and practices as follows;

1. Nothing is purchased unless there is cash to pay for it. Amounts charged on credit cards are no more than can be paid in full when the bill arrives.
2. Credit cards are used for emergencies only.
3. No luxury item is purchased nor any entertainment cost incurred unless there is cash on hand to pay for them.
4. A regular savings and investment plan is set up and strictly followed. This accumulated savings may be transferred to higher interest paying investments as amounts allow. Retirement savings is regularly accumulated as well.

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Phone

Debt collectors are allowed to contact debtors by phone. Whether or not a debt collector can leave messages on answering machines varies from state to state. Federally, it is illegal for collectors to even inform third parties that you possess a debt, let alone the amount or to whom. Because of this, any messages they do leave on machines are usually limited to a fairly significant level. Exact laws vary, ranging from nothing specific beyond the federal limits, to banning answering messages entirely. Federally, there are no laws specifically stating a collector can or cannot leave messages on answering machines. Because of varying state laws and the chance of being heard by third parties, most legitimate debt collection agencies will not leave answering machine messages beyond a request to return the call.

In person.

This is the second lease recommended method of dealing with debt collectors, as well as the least preferred. Collectors can meet with debtors in person, should the situation call for it. For the collection agency, this is detrimental because it requires transportation, manpower, and time over most other methods. For a debtor, it is a problem because, like phone contact, it does not allow for any documentation of what was said or done. For these reasons, debt collectors rarely contact debtors in person.

Telegrams

Like in-person meetings, telegrams are rarely used for communication. They are now so far out of date that it is unheard of for someone to be contacted in this manner.

Fax

This is the closest to an “ideal” form of contact with a debt collector that is covered by the Fair Debt Collection Practices Act. It is faster than standard mail, and often than email, and provides both the debtor and the agency with documentation of what was said and done, to whom, and when.

Post cards

The federal Fair Debt Collection Practices Act prohibits debt collectors from contacting debtors by post card, due to the inability to prevent information from being spread to third parties.

Other methods

Some of the more modern methods of contact are not covered under the Fair Debt Collection Practices Act, leaving them up to states to legislate. These include voice mail, email, and instant messaging. Most states have legislated whether and how debtors can be contacted in relation to these methods. Even if a particular method is not legislated, however, any contact must still follow the FDCPA standards of behavior.

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The advantages of a 0% balance transfer

Everyone needs a little bit of help from time to time when it comes to money. Think about it. Don’t you remember a time in your life when you needed to borrow a few dollars or asked for an extension on a debt you owed? Of course you can. Much like those times, a 0% balance transfer on a new credit card can be very helpful to you. First, you get to transfer the money (or, at least, a portion of the money) on a high-interest credit card onto a credit card that will hold an introductory 0% rate. Plus, with a 0% balance transfer, you won’t pay anything for making the transfer. This allows you to simply make the minimum payment every month on the card without accruing any additional fees or costs, provided you make your payments on time. It will also decrease the costs on your other card because the interest rate will be applied to a lesser amount. In these ways, a 0% balance transfer can greatly help out your credit situation.

But there are some disadvantages, too!

Many Americans get intrigued and then fooled by 0% balance transfers. Essentially, credit card companies are handing you a free line of credit for a certain number of months. However, this causes many people to simply make the minimum payments and forget about the balance. Companies are banking on this and will take the risk that you won’t pay off the credit card fully. As soon as the introductory period is over, you’ll start getting hit with normal interest rates and be forced to make payments on two credit cards now. It certainly is not the end of the world but you should have a plan before applying for a 0% balance transfer on a new credit card. Think about how you’re going to attack your debt and then do it!

How to decide whether you need a 0% balance transfer

Before you even think about applying for a 0% balance transfer, think about how it will help you—and how it could hurt you. Are you prepared to do everything you can to make payments on the new card and eliminate the debt before the introductory period ends? Are you prepared to make the transfer and then make payments on your other card or cards? Can you avoid racking up new debts on the old cards? If you can answer “yes” to all of these questions, then a 0% balance transfer could help you and your credit situation immensely. But before you apply, do your research and decide how you’re going to attack your debt.

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