8 Steps for Getting Out of Debt

by Alan Olsen

The Average American spends a great deal more than they make every year. This results in a financial pitfall to them later in life. If you find yourself digging deeper into the empty wallet there are ten steps that you can use as a crutch to help free you of the overwhelming financial burden of debt.

Create and follow a budget - Creating a monthly budget will help you to track where your monthly income is going. In order to do this, you should add up how much your expenses will be for the month and then add up your monthly income. Once you have calculated how the money should be spent you should have some money left over for emergencies.

Stop spending what you don’t have - When you spend what you don’t have your debt is only climbing higher. If your monthly budget disables you from making a purchase, then the purchase should wait until the money is within your reach.

Learn to distinguish between wants and needs - In a world filled with televisions, computer games, luxury cars and other costly trinkets, our perspective on wants and needs at times becomes distorted. A need is something that is essential to your survival. Although sometimes we think that we will not be able to function without that big screen TV, waiting until the money is in the bank and paying cash for large purchases is a better option.

Spend less than you earn - After you have covered all of your monthly expenses there should be a little money left over. If not, adjust your monthly budget. You never know when an emergency may arise.

Track your spending - Many people who are in debt are unaware of where their money goes during the month. If you carry a notebook around and write down every penny that you spend when you make a purchase, you will be able to see where your money is going.

Pay yourself - Building up your savings monthly will only ensure that you do not fall into debt again. It is always good to have a little extra money stashed away.

Use a credit card responsibly - Credit cards are convenient for record keeping and budgeting, but can be dangerous if used improperly. You should not make purchases that you can not pay off at the end of the month.

Use a debit card - Debit cards will not allow you to spend more than you have in your account because it draws directly from your bank account. This way you cannot spend what you do not have.

Remember that the key to escaping debt is spending less than you earn.

About the Author

Alan Olsen is the managing partner at Greenstein Rogoff Olsen & Co., a top Bay Area CPA firm. He focuses on developing innovative strategies for business enterprises and individuals. A specialist in income tax planning, he frequently lectures and writes articles on tax issues for professional organizations and community groups. His website is ranked among the top in the nation for accounting firms, featuring tax tools and business leadership articles: http://www.groco.com

Should You Pay Off Your Mortgage?

A new look at the old fashioned concept of being debt free.

About five years ago we worked with some clients coming to Austin, Texas, from California. I was a little shocked by their choice of mortgage - a 100%, interest-only loan. At the risk of sounding a little backwater, I asked them, Why would you not want to pay off your loan? Their answer was, We both have MBA's. I assumed that meant that they were better informed than I. And, I am sure that was true. But, I still wonder (for non-MBA's), is it better to pay off your mortgage?

It is true that a home mortgage loan is still the best loan program available. It often referred to as good debt. But, does leveraging this loan to put cash into other investments make sense?

Certainly, the deflation in housing prices in many parts of the country makes clear that there is some risk in this strategy. As the real estate market heated up during the past few years, the expectation was that values would increase quickly, and buyers would be covered, if they needed to sell.

If people could put zero down to buy a real estate investment, and use their cash for other things, who would not want to play? If folks could expect 10% - 30% appreciation and get 6% interest rates, who would turn down the opportunity? A subtle change took place in how we bought homes. Home ownership became speculative. In many cases, buyers did not realize that speculation has a risk factor. No pain, no gain, as they say.

Regardless of the state of the real estate market, most of the expert advice that I have read suggests that, for most people, it is safer to pay off your mortgage as quickly as possible. The truth is, mortgage debt is a long term burden. There is really no good long term burden. Of course mortgage loans do not have the high rates of credit cards or payday loans. And, the federal government has favored mortgages by making the interest deductible. Nevertheless, a 15 year mortgage is worth considering. It has a lower interest rate, and pays off fast.

No matter how you look at it, debt free is a nice place to be. First of all, when you move into retirement, you will be in a much better position if you are debt free. You will be able to exercise more control over your savings. Second, when you have a fixed income, you will have less ability to make money to contribute toward paying down debts. And, third, most of us are not able to control the success of our other investments. The stock market has its ups and downs. But, paying down a mortgage offers a clear and predictable return.

Of course, if you have an investment that you are sure will offer a better rate than you are saving by paying off your mortgage, then that might be the best choice for you. Or, if you have high rate credit card loans, then these should take precedence over paying off your mortgage. Homeowners should look at their whole situation before making a decision to work on paying down their mortgage.

But for most of us non-MBA's, the security and peace of mind that comes from being debt free is well worth the effort.

About the Author

Roselind Hejl is a Realtor with Coldwell Banker United in Austin, Texas. Her website - Austin Texas Real Estate - http://www.weloveaustin.com - offers homes for sale, market trends, buyer and seller guides. Let Roselind help you make your move to Austin, Texas.

Paying Off Your Credit Cards

Credit card debt is a huge problem for many if not most Americans. We know that we need to get the cards paid down but it can be difficult. You might never seem to be able to make a dent in them. Read this article and get a few tips to help you pay your credit cards off for good.

The first tip and the one you have probably heard the most is that you must pay more than your monthly minimum to get your cards paid off. This is absolutely true. If you just pay the minimum payment on your card it will take decades to pay them off. Try to at least double the payment so that you are actually paying principal off instead of just interest.

Next, transfer balances to 0% interest cards. Many credit card companies will give you promotional rates of 0% interest when you transfer card balances over to them. This will save you a huge amount in interest payments. Be careful not to charge up the new card or the card you transferred the balance from. Cancel your old credit card or at least cut it up to keep from being tempted.

If you have a home and have equity, get a home equity loan to pay off debt. If you have equity in your home cash it out and pay off that debt. The interest you will pay on the home equity loan is much less than you will pay on your credit cards. This can save you hundreds of dollars a month, depending on your debt.

My last tip and the most important one is to not make nay new charges. Take all of your cards out of your wallet and leave them at home. If necessary, cut them up. This will keep you from making those impulse credit card purchases that will keep you from paying them off.

Overall the most important thing to have when trying to pay down credit cards is discipline and patience. make yourself a plan, follow these simple tips and have patience. Eventually you will get yourself out of debt.

How To Get A Car Loan Even With Bad Credit

by JON ARNOLD

So you have had some problems with your credit in the past, maybe even with a car loan, and maybe the circumstances were not your fault. Even if they were, learning to manage your credit and make timely payments to your creditors is something that you learn along the way. But in the meantime, you have gotten your act together and now you are looking at a way to finance a new car and your current credit problems are behind you.
The problem is that the credit bureaus have a memory like an elephant, or at least that is the way it seems when you go to apply for an auto loan. It seems like they remember every little thing, even though you are in a much better financial position today and have learned your lessons.

The truth is that it is not at all impossible to get a great deal on a car loan even if you have bad credit. Of course it is easier if your credit is good, but if that were the case, you would not be reading this. In fact, an auto loan when you have bad credit is an excellent way to firm up your credit score and affirm the fact that you have gotten your financial act together.

There are many sources that will give you credit for an auto loan even if you have bad credit. If the dealership that you want to purchase the car from is not real innovative, you may want to bypass your neighborhood banks and look elsewhere. If you live in New York and the company offering you the loan is in California, does it really matter, since even if they are in your same city, you will more than likely be mailing your monthly payments anyway. In other words, do not limit your searching to your local city, but take the time to search for who is willing to offer the best deal for your needs.

You may also want to consider car leasing options, but be careful here. Usually the credit requirements are a bit higher, and you need to be aware of how many miles per year you anticipate putting on the car. If you exceed that number of miles, say 12000 per year at the end of the lease, you may end up paying a whopping 30 cents per mile over what it should be. Also be aware that with a car lease, you are not building any equity in the car, even though you still have all the responsibilities for gas, oil, maintenance, tires, tune-ups, insurance, etc. On the bright side, your payments will probably be lower, depending on the estimated resale value of the particular make and model you are looking at.

Yes, you can get a great car loan even with bad credit. Be aware that you will likely pay a bit higher of an interest rate on the loan, but this makes sense in the eyes of the lender since he feels like he is taking a chance on you. Your goal is to prove him wrong after you get your loan and your car, by making each and every payment on time, which will go a long ways towards reversing the negative items in your credit report.

Jon is a computer engineer who maintains web sites on a variety of topics based on his knowledge and experience. You can read more about getting a great car loan or car lease even with bad credit at his web site Great Car Loans Even With Bad Credit.

Credit Repair: Tricks of the Trade

Great Credit is Within Reach
The benefits of great credit are significant. The effort that you put into improving your credit score will be well rewarded. Here are the some powerful credit repair strategies that can produce dramatic results in a short period of time.

Check Your High Credit Limits
The relationship between your current balance and the available credit limit on each of your revolving accounts has a major impact on your credit score. Consumers often overlook this important issue. Each and every revolving account on your report should be examined. If the high credit limit is understated send a dispute letter to each of the three credit bureaus asking them to update the information. Don’t bother calling the credit card companies directly. The credit bureaus are responsible. Let them do the work. The results will be better and faster.

Increase Your High Credit Limits
There is one additional course of action that you should consider that can also reduce the ratio of your current balance to your high credit limit. Call each and every credit card company and ask them to increase your available limit. They may or may not agree, but you might be surprised. By the way, please keep in mind that you are doing this to improve your credit. Having a higher credit limit does not mean that you should use it.

Check the Age of Your Accounts
New accounts count against your credit score. Conversely, the credit bureaus will reward you for the accounts that you have maintained over time. When reviewing your three credit reports be sure to look carefully at the initial reporting date for each revolving and installment account. If the age of the account is incorrect on your credit reports send dispute letters to the bureaus. Here also don’t bother contacting the creditor directly. You will find that this is well worth the time involved.

Resurrect an Old Account
It is not unusual to discover an account on your credit report that you forgot about years ago. If you don’t have much credit please don’t cancel the account. If you no longer have the card in your possession I suggest that you call the company and obtain a replacement card. When you get it you should make a small purchase. The exact algorithm used in the FICO score is a secret, but based on our observations it is best to have some occasional activity on a credit card. Old accounts are good accounts!

Secured Cards
If you have limited credit and want to improve your credit score it is essential that you get a few credit cards. Secured credit cards are an excellent option that is available to everyone regardless of credit history. In the credit repair business we recommend this course of action. It is true that opening a new account will have an adverse impact on your score, but it is worse to have a lack of credit. In this situation secured cards will have an important and positive impact. Typically there are some fees involved with these cards as well as relatively high interest rates.

Authorized User Cards
In addition to getting a couple of secured credit cards you should also ask a trusted friend or relative if they will make you an authorized card member on one of their accounts. Currently the FICO scoring model seems to give new authorized card members the full score benefit of the principle card members credit history. Please be aware that authorized user status is not the same as additional card member status. Authorized user status does not require that you qualify, and either your friend or you can cancel your status at any time. I suspect that both you and the principle card member will favor the authorized card member status.

Post Bankruptcy Cleanup
If you have had a bankruptcy you should take action to clean up your credit with all three bureaus immediately upon receiving your discharge. If you don’t feel up to the task of dealing with the paperwork I suggest that you hire a reputable credit repair company. A reputable credit repair company will be inexpensive and be able to do this for you very quickly. The credit bureaus are required to remove all of the derogatory information from each account that was discharged. If you don’t take action to clean up your credit report it will not happen by itself. A comprehensive post bankruptcy clean up can have a dramatic impact on your credit scores within as little a sixty days after your discharge.

Copyright © 2007 James W. Kemish. All Content. All Rights Reserved.

Jim Kemish is the president and founder of Power Mortgage, a Florida mortgage company based in Delray Beach, Florida. Power Mortgage Corp was established in 1989 and serves the states of Florida, Georgia, Massachusetts, and Virginia. Jim is also the President of Sky Blue Credit, a national credit repair business.

Release Yourself From The Burden Of Debt

by: Christopher D. Beard

Do you feel like you are in debt prison? Are you in financial turmoil wondering how you can continue to keep everything from imploding on you? Did you know that there were actually debtor prisons in America before the Revolutionary War? Robert Morris, a signer of the Declaration of Independence, was imprisoned in the 1700's for failure to pay debts. The bible also warns against borrowing more than we can afford to pay. Proverbs 22:26-27 says do not be a man who strikes hands in pledge or puts up security for debts; if you lack the means to pay, your very bed will be snatched from under you.

Credit card use has continued to grow in leaps and bounds. From 1996 to 2005, the total number of bank credit cards almost doubled. In 2004 alone, credit card companies generated $43 billion in fee income from late payment, over-limit, and balance transfer fees. The Federal Reserve reports that the total US consumer revolving debt reached 2.46 trillion in 2007. This large increase in card usage has created a "fee feeding frenzy," among credit card issuers. The whole credit card industry has really evolved for the benefit of creditors in recent years, with the industry imposing fees and increasing interest rates if a single payment is late. Penalty interest rates usually are as much as 30-39%, while late fees now often are $39 a month and over-limit fees are as much as $35. If you consider how that can add up over just one year, it could be very expensive. Consider this: late and over-limit fees alone can easily rack up $900, and a 30 percent interest rate on a $3,000 balance can add another $1,000.

The bottom line is, credit card companies want to issue as much credit as possible to as many people as possible and hope you barely make the minimum payment. It’s the exact same way these cash advance companies all over town work. They couldn't care less if you ever pay it off. In fact, they do not want you to pay it off. While most card issuers claim this is the cost of doing business, consumers should not be charged excessively for small errors. Ultimately we are responsible for our own financial choices and credit purchase decisions. However its clear to see that credit card companies will continue to entice and market low teaser rate introductory offers (the bate) and make it easy for us to use the cards. This is attractive to the consumer because they can avoid waiting and have the items or purchases they want now. But what price will we actually pay for these items?

That said, roughly $355 billion in mortgage loans are set to adjust during 2008, to significantly higher interest rates. This means many borrowers may face additional difficulties. Hopefully the Bush administrations plan for a rate freeze for adjusting arms and foreclosure prevention will help many consumers avoid catastrophe. The combination of mortgage woes and credit card debt pileup has made many people feel as though they just walked out on a pirate ship plank with nowhere to turn.

So, what is the best way to find the road to financial prosperity?

First and most importantly, if you are in an adjustable rate arm loan, check the date that it is set to adjust in your paperwork from your title closing. If you closed two or three years ago and took one of these teaser loans it will adjust 24-36 months from the original closing date. This is very important because when it adjusts it can increase by two or three interest points. Your lender should notify you 30 days prior to your reset date and you may get reminders from lenders vying for your business. Don’t get yourself caught in this self destruction.

Mortgage interest rates are anticipated to remain steady or dip slightly in 2008; this may be a good opportunity to refinance into a 30-year fixed-rate. The FHA modernization act will make refinancing a good option for damaged credit borrowers to qualify for up to 95% of their homes value at competitive single digit interest rates and avoid incurring prepay penalties. The teaser arms sold over the past 2-3 years are under extreme scrutiny due to the explosive foreclosure epidemic and its effect on the overall economy. The FHA Secure is also a great option for those who need help to avoid foreclosure, allowing them to roll in the arrearage. The future of sub-prime lending appears to be bleak at best. Many borrowers had little options other than 2 or 3 year fixed rate sub prime arms over the last few years because of credit issues, and aggressive lenders pushing these loans on poor credit borrowers. Unfortunately, these same borrowers are now in trouble and imploding due to a cocktail of housing value depreciation, adjusting rates and maxed out credit cards. The bottom line to most of these issues is proper guidance and good decision making. Additionally, it is prudent that you choose an advisor that will educate you about any loans that are different than the norm, like arm loans, negative amortization loans and loans that do not collect escrows. Now, if that is not upsetting enough, federal regulators pressured credit card issuers to double the minimum payment requirements on credit card balances. This can be both good news and bad news for many Americans burdened by debt. While it may force you to pay the balance down, it can mean disaster for many who cannot afford the extra out-of-pocket expense each month.

Should you use a mortgage refinance as an Option to Debt Consolidation? If you are a homeowner with verifiable income, who pays their bills on time for the most part, but who would sincerely like to be debt-free and financially secure while still young enough to enjoy it, maybe even become wealthy. Whether you've had some credit problems and have a blemished credit report, whether you're struggling now and need immediate help to avoid foreclosure, or are doing okay but wish there was a strategy to get out of debt and build some net worth. Then this could be a possible option.

When you really analyze your financial situation, are you using too much of your income just servicing debt making the minimum payments? You absolutely can not build wealth overusing your credit cards you have to make a conscious decision not to make purchases with credit cards unless you can payoff the balance. While home equity has been reduced dramatically in some declining markets, many people may still be able to benefit from restructuring the way they pay their bills and by using their home's equity as the means of accomplishing this.

Do you have two loans with one of them adjustable? Consider consolidating your 1st and 2nd mortgage loans. Do you have high balance credit card in which you are being charged late fees, over limit fees and excessive interest? Consider paying off obligations such as auto or high rate credit cards, overdue property taxes or insurance premiums.

This will wrap up your existing obligations into one tax-deductible payment and puts you back in control of your debt with one manageable payment. Consult your accountant or tax advisor on this as it could equate to a 20-30% savings in interest and your overall Net Effective Rate. If you can eliminate your credit card payments, late fees and penalties and start enjoying increased monthly disposable cash flow, you may actually be able to make financial choices that will help you build a positive net worth. Another way you can reduce mortgage interest further is by signing up for a biweekly repayment plan that splits your mortgage into two monthly payments, this forces you to pay down your mortgage interest much faster. I know, I know your friend said just make one additional payment per year to accomplish this, seriously! Who does this? I say forced biweekly, kind of like forced property taxes through escrows, you get the idea! Then take the savings, say for example $200 a month, and purchase an equity indexed life insurance policy that will protect your family if you die to cover the mortgage balance. More importantly, if you live, the account your premiums go into is tied to an investment account so that it will accumulate a cash value that could be drawn on at retirement, and essentially you could pay off your mortgage tax free. Imagine the benefits of having fewer bills to deal with every month and simplifying your financial life!

Here are a few things to consider to decide if you could benefit from a refinance consolidation:

Do you have equity based on a current appraised value?

Do you have a home equity line of credit that’s increasing out of control?

Do you have a loan that does not collect escrows for taxes and insurance and have difficulty paying them at the time they are due?

Do you have too many credit cards that are near or above the credit limit?

Do you have an Adjustable Rate Mortgage on the brink of spiking Up?

Do you make minimum payments on credit cards and are unable to make a dent in the balance?

Are you saving and investing less than 15% of your income?

Would you like to take advantage of the FHA Modernization and qualify for a great rate?

Would you like to get out of that high interest rate sub-prime loan and qualify for a single digit 30 year fixed rate loan without a prepay penalty?

Are there tax-deductible savings opportunities like pension plans, IRA, Keogh, Medical Savings Accounts, etc. that you are missing out on because you don't have enough money after paying bills to participate in them?

Would you like to take a really nice vacation or make some improvements to your home this year without going into debt to do it?

Would you like to eliminate years off of your mortgage balance?

Do you have a mortgage protection insurance plan to protect your home and family should you die or become disabled?

If any of these questions apply to you, consider the following:

The average personal savings of a retiree amounts to about $6,500. The average benefit check is about $968.00 according to the Social Security Administration. Baby boomers are expected to enter retirement starting in 2010 and considering people are living longer, it is expected that these funds will be exhausted by the year 2040 and will create a deficit in the trust, only providing 72% of what is needed.

The key thing to consider with proper debt management is to make a conscious effort to avoid using credit cards for unnecessary purchases. If you cannot afford it, do not buy it! More simply said than done, I know. Look for ways to curtail extra activities such as eating out everyday, soft drinks, anything you can do without. Use the extra savings to pay off your high interest cards first. Contact a credible mortgage advisor to see if you qualify for a debt consolidation loan at a competitive interest rate. Transfer non tax deductible interest from other debts to a tax deductible loan. If the loan will not create a tangible benefit to your financial picture do not do it.