How to get debt free

If you’re like a lot of people, the goal for the coming years is to be debt-free, or at least, on top of debt. I’m with you, if there’s one thing in life that hangs over me, it’s debt.

It doesn’t matter whether it’s a mortgage or a couple of thousand in consumer debt, if it’s causing you to lose sleep, now is the time to start conquering it. A fresh start, a fresh approach. Onwards and upwards to a debt-free existence.

Here are some tips to get you on the way.

Know What You Owe

Want a good credit report? What better way than to pay off your debts more quickly than minimum, eliminate high interest credit cards and pay your bills on-time or early?

Sit down and start working out dates. This is the first step. When are your bills due? Write it down in your diary and put a coloured Post-It next to it so you don’t forget.

When are your repayments due, and what’s the minimum you can pay? Write down how much you owe in total, and keep a progress report.

Get Organised

Pay your bills on the same day every month. That way, you’ll never be incurring late fees or being threatened with any utility being turned off. Pay your bills with cash, not credit.

The last thing you need to be doing is paying off debt on one hand, and increasing it on the other. Then organise to pay off your debt on the same day of every month (or with a credit card, paying off a little every week). The routine makes it easier, and makes it unlikely you’ll forget and get yourself a nasty late fee.

Know What You Can Change

How can you start to pay back your debt faster? Is there an expense you can eliminate, or some extra income you can channel towards repayments? Start thinking about how you can get rid of chunks of your debt. Maybe start with eliminating credit card debt, or paying off your higher interest cards. Choose one debt you are going to aggressively attack. Once you’ve gotten control of that debt, move onto the next one.

The Bare Minimum


Paying the minimum on your credit card isn’t going to cut it. If you want to get on top of your debt, you need to be repaying over the minimum repayments. It doesn’t have to be an astronomical amount, just enough to get a handle on your debt within a sensible timeframe.

Once you start getting somewhere, you’ll start feeling in control and finding it easier to control your debt.

Budget

You need a budget if you are going to get on top of the beast. Work out expenses, and some savings. There will always be a couple of variables, so ensure that you’ve left some space for them. Then budget everything else into your debt repayments.

Rewrite your budget once a month to make sure it’s completely realistic and has taken account of all the changes in your income or expenditure. This is your decade. Make it a debt-free one, or at least, a decade that’ll make the decades after that much more pleasant.

source: bigpondmoney.com.au

Ten Practical Moves to Avoid Problem Debt in 2013

To avoid your own "fiscal cliff" in 2013, I suggest you stop arguing with yourself and take 10 -- and by that, I mean 10 positive steps for a better, more prosperous new year.

Tip 1: Develop a spending plan
If you don't have a plan for your money, you will end up following someone else's plan. That's no fun! A plan puts you in control of how much you spend and on what. Trust me, plan for spending, and you will have a much richer financial life.

Tip 2: Save for emergencies
If you don't have savings, you will fail. End of story. Life can't be totally predicted, so to avoid being in a hole every time a surprise happens, you must have savings. Your goal is to save six to 12 months' worth of living expenses. Not what you earn each month, but what you spend each month. They should be different, and what you earn should be more.

Tip 3: Study up before taking on student loan debt
Starting a working career with six figures of student loan debt drastically reduces your spending options once you graduate -- that is, if you graduate and if you get a job. Be smart. Limit your student debt to what your take-home pay in your chosen career can afford. Crunch the numbers before you sign on the dotted line. Remember, it is a bill you will have to pay no matter what. If you don't have a career field in mind, don't take on any debt until you do.

Tip 4: Don't try to borrow your way out of debt
Consolidating debts into one lower payment sounds like a perfect financial move. It may not be, however. The main reason is because many people continue to add to their debt burden after the consolidation and end up with more debt than they can manage. Restructure your spending instead of your debt, and make a concerted effort to pay down what you owe as quickly as possible.

Tip 5: Never co-sign on a loan -- never, ever
You have ample opportunity to mess up your finances. Never share that opportunity with someone else. There is a reason why a professional lender won't approve this loan. So, why should you? Lend your support and encouragement, but not access to your credit.

Tip 6: Payday loans: No, no and no
You need money that you don't have, so you borrow what you need for a very large fee and a promise to pay when you are next paid. The problem, and it's a big one, is you won't have the extra money to pay back the loan when you get paid next time, either. This begins a vicious cycle of ever-increasing fees. Do without, pay something late, borrow from a friend, work part time, but don't take out a payday loan.

Tip 7: Avoid an upside-down car loan
If you need to sell your car, you need to make enough from the sale to pay off your car loan. Because vehicles depreciate so much, a large down payment will give you the freedom to sell when you want or need to sell.

Tip 8: Pay off no-interest offers as soon as you can
Having 48 months to pay means having 48 chances to let a mistake happen. One late payment, and the retroactive interest payment will make your head spin!

Tip 9: Never turn your back on a debt
As much as we would like to believe an ignored problem will go away, it doesn't. Ignoring a debt means high interest rates, large fees, a summons to appear in court, years of bad credit and a possible wage garnishment. Look that debt in the eye, and get help if you don't know what to do now, not later.

Tip 10: File bankruptcy only as a last resort
Bankruptcy is a viable choice only after all other reasonable options have been exhausted. It may not get rid of all your debts, but it will ruin your credit and job prospects, and you'll have to wait from three to seven years before you are eligible to file again. Think of bankruptcy like a financial nuclear weapon. You may be worse off from the fallout than you were before.

Copyright 2012, Bankrate Inc.

source: foxbusiness.com

Why Your Credit Score Matters

How much do you know about your credit score? That three-digit number is tied inseparably to our financial lives, yet many young adults haven't given it the attention it deserves. Your score can play a role in your ability to rent an apartment, qualify for a loan or even get a job. It can also affect how much you'll pay on interest charges, insurance and even cell phone contracts.

Make building a stellar score a priority while you're young and you could actually save hundreds or thousands of dollars over your lifetime. However, if you don't take your credit seriously, a bad score -- or even a nonexistent score -- will cost you.

Who's keeping score?

Your credit score is basically used to predict the possibility that you won't pay your bills. They are compiled by Fair, Isaac & Co., and are sometimes called FICO scores. The top possible number is 850, but topping 800 is probably unrealistic. A median score usually falls in the 720-to-725 range, meaning half of consumers fall above that point, half below. Even if you haven't given your FICO score much thought, there are plenty of others who have or will, so you'll want to aim for the mid-700s to make the best impression on:

 1. Lenders. This group is the one most people associate with their credit score. Having a good rating can help you qualify for the best rates on a mortgage, car loan, credit card and even a small business loan if you've got that entrepreneurial spirit. A nonexistent score can make it impossible for you to qualify for a loan or credit card at all. (Learn how to overcome this obstacle below.)

2. Insurers. The majority of auto insurance companies use your credit score when determining your rates, and the practice is also common among home insurers. A recent survey by Consumer Reports among eight popular auto insurers found that drivers with top scores could pay up to 31% less on their premiums than if credit scoring wasn't factored in, while those with bad scores would pay as much as 143% more.

3. Landlords. Increasingly, you may need a good credit score to rent an apartment. Landlords view your credit rating as a measure of your responsibility to pay bills on time. If your rating is below par or you don't have a credit score yet, you may have to find a friend or relative to co-sign your lease, or you could be required to pay a higher rent or security deposit.

4. Employers. When you're applying for a job, potential employers can pull your credit report as long as they notify you first. And, in fact, about 35% of them do, according to the Society for Human Resource Management. Why? Bad credit can be a signal of irresponsibility, or employers might be worried you'll spend more time fretting about your financial woes than concentrating on the job.

5. Cell phone carriers. Even cell phone service providers may check your credit before signing you up for a plan. They want to make sure you're responsible and will pay your bill each month. Some utility providers may pull your report as well. If you have credit issues, you may not qualify for the best plan rates, you could be required to pay a deposit, or you could get turned down.

True cost of your score

So, how much does your credit score affect your finances? Say we have two friends, Jim and Mark. Both took steps right out of college to start building a credit report by getting their first credit cards and an auto loan. Jim made all his payments on time, never maxed out his credit cards and often paid more than the minimum required. Mark, however, frequently paid late, overextended his cards and applied for new credit to bail him out of his mismanaged debts.

Now both are ready to buy homes, and they each apply for a $250,000 30-year mortgage. Through Jim's responsibility, he's been able to build a score of 750, qualifying him for a loan with a 6.2% interest rate, according to Fair Isaac, a credit scoring bureau. Mark's score comes in around 650, netting him a rate at 7.3% interest. Jim's monthly mortgage payment is $1,536 while Mark pays $1,718 -- a difference of $182 per month. If they both live in their homes for ten years before selling or refinancing, Mark will pay $21,840 more in monthly payments than his friend. Ouch.

Mark also gets burned on a new auto loan -- paying $1,332 more over three years on a $20,000 loan than Jim. Plus, Mark probably paid much more for his car insurance than Jim.

How to get started

Even if you don't plan on applying for a loan, or getting a new apartment or a new insurance policy anytime soon, it's a good idea to start building your credit score now so it's there when you need it.

When you're starting from scratch, a good place to begin is in college where lenders hand out credit cards like candy. But don't rush to indulge. Janet Bodnar, Kiplinger.com's Money-Smart Kids columnist, advises students to get just one card their junior or senior year, use it occasionally and pay off the balance each month. It's much easier to qualify for a credit card while you're in school than after you graduate (lenders figure that Mom and Dad will bail you out while you're in college if you can't pay your bill).

If you're already out of school, or you don't trust yourself with a full-fledged credit card yet, a secured card will help you get off on the right foot. This card allows you to make a deposit with a lender (such as your bank or credit union), and the amount usually becomes your credit limit. The issuer takes on zero risk because if you don't pay on time, it can dip into your account to cover the bill. Most issuers require a deposit of $300 to $5,000. You build a history just as fast with a secured card as with a regular one. And after making payments on time for a year with a secured card, you should have an adequate history to switch to an unsecured card and get your deposit back.

A new scoring system from FICO may soon help young adults trying to build a credit history. It is based on alternative data such as whether you pay your electric bill on time and maintain a clean checking account (learn more.) So you'd do well to keep all areas of your finances in tip-top shape.

Boost your score

Knowing what goes into your credit score can help you manage your debts well. Here's how to make the best impression on your credit history:

• Pay on time. 35% of your score depends on your payment history.
  
  
• Don't max out your cards. 30% of your score is based on how much you owe. You want to keep your "credit utilization" ratio -- the percentage of your credit limit that you've actually used -- no higher than 30% of your available credit limit.
  
  
• Start while you're young. 15% depends on the average age of your accounts.
  
  
• Avoid opening several accounts at once. Not only will this lower the average age of your accounts, but lenders will worry that you might go on a borrowing binge. 10% of your score depends on new credit.
  
  
• Get the right kind of credit. This accounts for the final 10% of your score. Your experience with revolving credit, such as credit cards, on which you control how much you charge and pay off each month, carries more weight than installment debt, such as car loans and mortgages, with fixed payments. But don't simply stock up on a pocketful of Visas -- lenders like to see that your money skills are well rounded.
  
  source: kiplinger.com
  
  
  
  
  

What You Need to Know Before Going Into Debt

Let’s face it, if you want to get ahead in today’s world, you’re going to need to go into debt, at least a little. The key is managing your debt properly and avoiding common traps. Not all debt is bad, even if we have been trained to think that it is. Going into small amounts of manageable debt with a goal of increasing your future income is known as leveraging your debt and this is a very smart practice.

Before you rush out and apply for credit cards willy nilly, there are a few things that you need to consider before going into debt. It is all too easy to fall into a bad debt trap, when you could have used those funds much more wisely. Let’s go over a few points that you must never forget when it comes to handling debts.

First and foremost, never go into debt beyond your means. This is not a good strategy and it rarely pays off. If you’re just starting out, you want to keep the amount of overall debt to a small amount that you could easily pay off if you had to. This helps you build up your credit score and helps you learn the ropes of proper debt management. It’s a good rule of thumb to keep your initial debts to less than three months of your current salary. This will make sure that you don’t get into too far over your head, but you should still have enough resources to leverage your debt properly.

Next, you never want to max out any credit card or blow through a loan. It’s easy to think of a loan or a credit card as free money, but it is anything but. Credit cards can have interest rates as high as 30% and once you start that process of maxing out a card, you’re going to have to deal with over limit fees (check out How A Credit Card Limit Is Determined), higher interest rates and it will take longer to pay back that debt. Use your loans and cards wisely, and leverage them to start making money for you. This means that you should avoid frivolous spending and focus on how to make that debt pay off for you in the future.

Lastly, it is vital to make sure that you are able to keep making your payments so that your debt doesn’t ruin your credit rating. One of the easiest ways to give yourself an insurance policy is to add up six months of your monthly minimum payments and put this aside in a savings account. If you should lose your job, you’ll have that six month cushion that will help you stay on track with paying your bills. This is a good strategy for all of your bills actually and can be very useful in many situations.

The key to proper management of your debt is using your debt for the right reasons. Spend that money wisely so that instead of ending up with a bunch of things you don’t need, you’ll have income coming in thanks to your leveraged debt.

source: richcreditdebtloan.com