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Guest Post – How to pay off debts and take control of your financial situation

February 11, 2011 · Filed Under Paying off Debt · 28 Comments 
Ryan Smith is a contributory writer associated with the Debt Consolidation Care Community and has written several articles for various financial websites. He holds his expertise in the Debt industry and has made significant contribution through his various articles.

In order to take proper control of your life it is very important that you keep a good control on your finances. This means that you must take good control even on your debts and make efforts towards paying them off.

Some tips that you may follow in order to take control of your debts are as follows.

1. Lowering the debt to income ratio: It is very important for you to lower your debt to income ratio. This is because the debt to income ratio is a reflection of your financial state. Most lenders will check your debt to income ratio along with your credit report. In case you have a very high debt to income ratio you may be denied loans. This will have a very bad effect on your financial life. Thus, you are to try and lower your debt to income ratio if the ratio is more than 30%. This will help you take control of your financial life.

2. Setting up a debt repayment plan: If you want to get out of a financial crisis and maintain a healthy financial life, then you will have to pay off your debts. In order to do so you must set up a debt repayment plan. The purpose of formulating such a plan is that it helps you to concentrate all the extra amount of money that you have and use it to pay off your debts. Another advantage of setting up a plan is that the process of debt repayment will be faster than it would have been otherwise.

3. Paying off all your old debts: One of the ways in which you will be able to come back on track is by trying to pay off your old debts. In order to do so you may approach a single company at a single time and gradually pay off your debts. As you keep on paying off your old debts you will be improving your credit score as well. This helps your financial situation greatly.

4. Stopping the usage of credit cards: It is very easy to get into credit card debts because you will not be able to realize that you are sinking into debts until it’s too late. Thus, when you face a financial difficulty and want to take control of your finances, then you will have to stop using your credit cards.

These are a few things that you can do in order to pay off your debts and take control of your financial situation.

BFN Giveaway: Win a Premium Membership to BeDebtFreeAmerica.com

January 28, 2010 · Filed Under Giveaways, Paying off Debt · 6 Comments 

Last week I shared a debt repayment calculator site and today I’d like to share another one that you might find interesting.  This week, let’s take a look at BeDebtFreeAmerica.  Also, Chris, the creator of BeDebtFreeAmerica, has donated a certificate for a free Premium membership at the site so let’s take it a step further and run a giveaway, too.  Check out the bottom of the post for details.

What is BeDebtFreeAmerica?

BeDebtFreeAmerica.com

BeDebtFreeAmerica is a “debt elimination tool” that can help you optimize your debt repayment schedule.    It seems to work in the standard manner you would expect from such a site.  You enter all of your debts and their associated information (balance, interest rate, etc) and the software creates a customized, and customizable, plan for you to efficiently pay them all off.

Multiple Reports

BeDebtFreeAmerica provides the user with multiple reports so that can keep on top of your plan and how it is proceeding.  You can view the details for one debt at a time, or a detailed list of every debt, monthly payment, interest paid, balance remaining, or just the stripped down basics of what to pay each month.  For people who like to look at data a bunch of different ways (ok, for nerds like me) this is a handy feature.  Click here to check out a sample account.

The tool appears to use the interest rate method for determining to order of payoff (pay off the highest rate loan first) but the site states that sometimes it chooses to give a smaller debt higher priority in the payoff list a la Dave Ramsey’s debt snowball.  It does provide what I consider to be a nice feature in that you can manually adjust the order the debts are paid off if you decide that you really want to pay off a specific debt first (or last, I guess).

Free “Kick-the-Tires” and Premium Memberships

I like that BeDebtFreeAmerica provides free access as well as a premium membership.  Even the premium component currently only costs $30 for a lifetime membership though, so it’s not exactly big bucks we’re talking about.  The free component provides the basic functionality but you are limited to four debts and it limits some of the capabilities.  For instance, with a premium membership, you can modify interest rates and add extra payments at any time and can view all of the reports (you only get the basic report in the free account).  Check out this comparison for more details.

Overall this looks to be a pretty nice tool and I’d recommend you take a  look at it if you are in need of the assistance.  The ability to try it out via the free membership is a great way to delve into it and take it for a test spin.

Win a Premium Membership

But why settle for the free membership when you win a premium membership!  If you are interested in winning a premium membership to BeDebtFreeAmerica, all you have to do is leave a comment on this post.  Tell us how many debts you are going to pay off with its help….or if you don’t feel like doing that, then just say it’s none of our business!

To Review:

  1. Leave a comment below
  2. Updated: The giveaway will close Tuesday, February 9th, 2010 at 11:59 PM EDT.
  3. I will randomly select a winner using random.org .  The winner will be announced February 10th and I will contact you via email – so please leave a valid email address in your comment.
  4. Good luck!

Check Out SeeBeyond2020.com – Online Debt Repayment Calculator

January 21, 2010 · Filed Under Paying off Debt · 2 Comments 

As I come across interesting and/or helpful sites on the web, I try to pass them along in the hopes that you might find the interesting and/or helpful as well.  Through my personal experience, I’ve seen the freedom that comes with being out of debt and after taking Dave Ramsey’s Financial Peace University, I’ve seen the power of the debt snowball as a tool to accomplish that goal.  Along those lines, this online debt repayment calculator was brought to my attention: SeeBeyond2020.com.

SeeBeyond2020.com is a subscription service that attempts to provide you with a plan to get out of debt in the shortest amount of time possible.  Now, this is not some debt consolidation deal or anything along those lines.  Instead, it simply provides you with a plan to apply your current payments to your various debts in the most efficient manner to reduce your overall time until you have paid off all your debts and save you some money (hopefully a lot of money). You can see their little “How it Works” section for a bit more detail.  Probably the most interesting thing to investigate if you are considering the service is an actual example plan.

As I mentioned, this service is a yearly subscription service.  And it appears to me that you don’t really get an overall, comprehensive plan.  Instead, I think that you get a monthly email telling you exactly what to do that month with each of your current debts.  For full disclosure purposes – I have not used this service so I can’t offer any personal recommendation one way or another.  In this case, I’m just pointing out a service that you might be interested in investigating. One other note if you are a big Dave Ramsey fan – I was not able to tell if this service followed Ramsey’s debt snowball technique for getting out of debt.  Frankly, I doubt that they do but I am not sure.  UPDATE – per the comment from Roger below, see that SeeBeyond2020 uses a hybrid snowball/avalanche method for determining your payment plan.

If you have used this tool, please leave a comment to let us know how well it worked for you and  your overall impression and recommendation.

Financial Peace University Lesson 4 – Dumping Debt

October 23, 2009 · Filed Under Financial Peace University · 5 Comments 

Beaking the Chains of Debt

I mentioned in the previous FPU post that Dave Ramsey is very big on creating and using a cash flow plan each month.  I now have to say this week that he stresses even more the importance of getting out of and staying out of debt.  I would probably say that this is the most important facet of his financial peace plan.

If you tell a lie often enough, loud enough, and long enough, it becomes accepted as truth

Ramsey spends the majority of this session presenting and debunking various myths about money and debt – some that I found very interesting.  I’m not going to go through every myth in this post – I’ll just hit some I found more intriguing (I have to leave something for you when you actually take the course, right?).

Myth: Playing the lottery and other forms of gambling will make me rich.

Truth: Playing the lottery is a tax on the poor and on people who can’t do math.  Ramsey asked this question, “Why is the lottery line not filled with rich people?” and also presented this telling statistic: People with no high-school diploma spend on average $173/month on the lottery while people with a college degree spend an average of $49/month.  Do you know how much money $173 will grow to over time if you invested that money each month instead of wasting it on lottery tickets?

Myth: Car payments are a way of life and you’ll always have one

Truth: Staying away from car payments by driving reliable used cars is what the typical millionaire does.  I admit that I totally bought into this myth; I simply did not see a way that you could drive a decent car without having payments every month.  We used to pay $800/month on our two cars.  You know, you can do a lot with $800 if you don’t have to give it away each month.  We’re saving a lot more money these days since we accelerated and paid off our car loans.  In fact, Ramsey states that the average car payment is $464/month and if you invested this amount at a 12% interest rate starting when you are 30, when you reach age 70 you will have $5.5 Million.  Wow, I hope getting a nice, new car every few years is worth $5 M to you!

Myth: Leasing your car is what sophisticated financial people do.  You should always lease things that go down in value.

Truth: The car lease is the most expensive way to finance and operate a vehicle.  I remember reading reading an article in Consumer Reports about this exact topic.  In fact, I found these statistics that Ramsey offered very enlightening: If you buy a new car with cash, the dealership makes an average profit of $82.  If you finance that new car through them, the dealership makes an average profit of $775.  If you lease that new car, the dealership makes an average profit of $1300!

Myth: I’ll take out a 30-year mortgage and pay extra.  I promise!

Truth: Life happens!  Something else will always seem more important, so almost no one pays extra every month.  Never take more than a 15-year fixed-rate mortgage and your payment should be less that 25% of your take home pay.  It is true that using a 15-year mortgage will save you tons of interest!  In fact, on a $225,000 mortgage at 6% interest, you will save more than $143,000 in interest with a 15-year mortgage compared to a 30-year mortgage.

This is a hard one to do though.  When we bought our current house, we didn’t buy one anywhere near what we were qualified for, but we are barely below the 25% of our take home pay and that is on a 30-year mortgage!  Interestingly, this advice is the opposite of what Crown Financial Ministries will tell you to do.  They suggest paying extra on a fixed 30-year mortgage to make sure you can still afford the payments even if something changes in your financial situation (of course, that’s probably why Ramsey tells you to keep the payment below 25% of your take-home pay).

Myth: It is wise to take out an adjustable-rate or balloon mortgage if “I know I’ll be moving.”

Truth: You will be moving when they foreclose!  Remember, an adjustable rate mortgage transfers the interest rate risk from the bank to you.  They are good for the bank, not for you.  (Disclosure: we currently have a seven-year adjustable rate mortgage).

Myth: You need a credit card to rent a car or to make purchases online or by phone.

Truth: A debit card will do all of that, except for a few major rental companies (check in advance).  Remember that you get the same level of protection as a credit card when you swipe your debit card like you would for a credit card (not when you enter your PIN number).

Myth: “I pay my credit card off every month with no annual fee.  I get brownie points, air miles, and a free hat.”

Truth: A Dun and Bradstreet study found that when you use plastic instead of cash you spend 12-18% more because spending cash hurts.  So what if you get 1% back!  I am currently struggling with this actually.  We typically use credit cards for most of our purchases but I am really re-evaluating this strategy as we go through this class.  I hope to start moving to cash or debit card for some purchases next month as a trial to see if we spend less and if we can do a better job tracking it as we move through the month.

Myth: I’ll make sure my teenager gets a credit card so he/she can learn to be responsible with money.

Truth: Teens a huge target of credit card companies today.  This is chilling: more young adults filed bankruptcy last year than graduated from college.

Myth: Debt is a tool and should be used to create prosperity.

Truth: The borrower is slave to the lender.  In a survey, the Forbes 400 were asked, “What is the most important key to building wealth?”  75% responded that becoming and staying debt free was the number one key.  Think of it this way, your largest wealth building tool is your income so don’t waste it on interest payments each month.  Now think about this: How much money could you save, invest, blow, and give away if you had no debt payments each month?

Steps Out of Debt

Getting out of debt is hard and you have to be focused and serious about it to get it done.  “You can wander into debt but you can’t just wander out.”

Dave presents the following five steps to getting out of debt:

  1. Stop borrowing!
  2. You must save money
  3. Prayer really works
  4. Sell something.  (His famous line: “Sell so much that the kids think they’re next!”
  5. Take a part-time job or overtime (temporarily)

The Debt Snowball

A key component of Dave Ramsey’s FPU plan is the debt snowball.  You’ve probably heard about it and seen countless debates over whether paying off your debt this way make sense or not.  I’ll admit that in most cases, this is not the most “interest-efficient” way to pay off your debts but as Ramsey himself states, this is about behavior modification not about math (“besides, if you could do math you wouldn’t be in debt to begin with.”).  The debt snowball relies on seeing that you are actually making progress and that tangible progress motivating you to stick with it and make more and more progress.

Here is the debt snowball process:

  1. List all of your debts from smallest remaining balance to largest.
  2. Pay the minimum amount on each debt except for the first one.  Put all the extra money you can scrape together towards paying off the first one as quickly as possible.
  3. When the first one is paid off, put all the money that you were paying on the first one towards the second one.  So, the money from the first debt will be added to the minimum amount you were already paying on the second debt thus increasing the payment.
  4. Repeat this process for each subsequent debt.  As you can see, the amount of money being paid on each debt gets larger and larger as you pay off the smaller ones – hence the “snowball” concept.

This debt stuff is important!

I feel that this is one of the most important lessons in FPU.  Most people just assume that car payments, mortgages, home equity loans, credit cards, and so on, are just a way of life but it doesn’t have to be that way!  We strove for a few years to pay off our cars early and get rid of my wife’s student loans.  At one point, we were paying $800 on our cars and $2000 on student loans – that adds up to a lot of money each month!  Now, we’re saving that money.  Instead of giving away $2800 each month, we’re giving it ourselves.  That’s a great feeling.

My parents never made a ton of money through their working careers.  They rarely use credit cards, paid off their mortgage years ago, and live fairly simply though.  As a result, they can basically do whatever they want in retirement without even touching the principle of their savings.  They’re not just sitting around listening to the radio all day either.  Their indulgences are going out to eat a lot, getting a new car every couple years (and they lease!), and taking a three-week vacation to Florida each year.

Get out of debt – keep the money for yourself! If you want to give it away, it’s a lot more fun to choose whom to give your money to instead of being forced to give it to your bank.  And I’m sure your church or some missionaries or some people who are struggling need that money a lot more than your bank does!

Check out the previous FPU posts:

http://www.borrowfromnone.com/2009/10/financial-peace-university-lesson-3-%E2%80%93-cash-flow-planning/

Weekly Bible Verse – Avoiding Debt and Giving Generously

August 31, 2009 · Filed Under Weekly Bible Verse · 4 Comments 

The wicked borrow and do not repay, but the righteous give generously.  Psalm 37:21 (NIV)

Here is a nice, simple, straightforward verse for this week.  That being said, it is still something quite timely to remember in this day and age of credit defaults, short sales, foreclosures, layoffs, companies going out of business, and the like.

Obviously, not paying back money that you borrowed is a problem.  Taking out a loan is making an agreement to give back the money that you received plus some interest in most circumstances (if you did not realize that, you really should have read all the fine print on that document you signed!).  So, most of us would agree that the proper thing to do is to repay that borrowed money.  Simple…easy…

If you look at the entire verse, however, you see an interesting juxtaposition of two not directly related truths.  Notice that the wicked borrow money and do not repay it.  So you might expect the remainder of the verse to mention how the righteous do repay borrowed money, but in fact it says nothing about the righteous borrowing money at all.  Instead it states that the righteous give generously.  You can take this verse and go a lot of different places with it possibly leading to some interesting arguments discussions (but I’ll leave that up to your imagination).

I think a straightforward (possibly non-controversial) interpretation is that the righteous person simply does not get caught up in debt.  And by not being in debt and by not having to hinder his/her cash flow by paying back money and wasted interest, he/she is able to generously give money instead.  So in summary (purely my own interpretation, of course), don’t borrow money (but if you do, pay it back), spend wisely and buy only what you can afford when you can afford it and save up your money (in other words, be a good steward of it).  Then you can give generously to God honoring organizations and those in need.

God bless and have a great week…

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