This post may contain affiliate links. Read my disclosure policy here.
by Joshua Rodriguez on April 26, 2013
Debt is a very touchy subject for most people. So stressed out by overwhelming monthly payments, many people just like you look for what seems to be the easiest way out. This is when the salesmen tend to strike, as a good deal of your financial information can be considered public knowledge. Every day, many in debt get phone calls from high energy salesmen talking about the miraculous debt settlement concept. So, I’m going to start by saying, one great lesson we all learn young in life is, “If it sounds too good to be true, it probably is!”. Here are a few chilling facts that you should know about debt settlement programs that may just prove that the concept is too good to be true!
Fact #1: You May Be Sued For Not Paying Debts Even As You Make Payments
When working with a debt settlement company, the payments that you make on a monthly basis do not go to your lenders on a monthly basis. Instead, these companies hold the funds from your payments. In most cases, the money is held in special purpose savings accounts until it has reached enough to pay off a debt. Once one debt is paid off, the savings process is started for the next. Therefore, the last lender or two may wait 3, 4 or even 5 years before they see the next payment. The truth is, if you look at it from their perspective, it’s cheaper to take you to court. They will get the money faster through a settlement because they can garnish your wages. Also, in many cases, you will have to pay the court costs as well!
Fact #2: Your Credit Will Be Destroyed
While talking to a debt settlement agent, you will find that their last interest is in your credit score. Also, if you bring up the topic, they may try to downplay the effects of debt settlement on consumer credit scores. With that said, I’m not going to downplay it at all for you! Here is the truth…Because lenders are not being paid for long periods of time, your debts will be charged off. One collections agency will sell it to the next and each time, it will damage your credit score! This is why I generally advise against this option if the consumer has good or excellent credit scores. The effects of credit card debt settlement programs will not pass in 6 months either! They will last throughout the term of your settlement and at least a year and a half to 2 years afterwords.
Fact #3: Debt Settlement Costs Thousands Of Dollars In Most Cases
The truth is, if you are going to settle your debts, with a little bit of online research, you can do it on your own. However, when you higher a debt settlement company, chances are, you will pay a percentage of the total amount owed, somewhere around 15%. That means if you have the minimum amount of debt that most companies accept, $10,000.00, your fee will be $1,500.00 minimum in most cases. This does not include the cost of a special purpose savings account which, usually runs about $25 per month. Add in the cost of paying an attorney when you get taken to curt and, you will now find yourself paying just as much as you did before you hired the debt settlement company in the first place!
Every Dark Cloud Has A Silver Lining
Although debt settlement may not be the option for most, always remember, there is an option for you. As a matter of fact, I recently wrote an article that included a few great options called DIY Alternatives To Debt Consolidation. Trust me, those alternatives only begin to touch the tip of the iceberg when it comes to great, legitimate ways to get out of debt! On that note, thank you for reading Friday Finance With Josh!
About The Author – Joshua Rodriguez
This article was written by Joshua Rodriguez, proud owner and founder of CNA Finance and avid personal finance journalist. Join the discussion about this article on facebook and Google+!
Budget. This is not a fun word nor topic, but if you don’t have a budget, you have absolutely no control of your finances. Budgets are one of the first steps to take in financial freedom and working yourself out of debt.
I have always had a budget. Well, it was really more of a piece of paper with the bills listed that I had to pay – but not a true budget. I couldn’t force myself to create one because it made me sick to my stomach to see it on paper — when our bills were paid we had NOTHING left for groceries – or to even be able to eat out. As my husband I worked our way out of debt, we slowly took off debtors names from the “pay to” list and added in fun things like dine out, vacation, movies, and even SAVINGS. When you have a budget, you are taking charge of telling your money where it needs to go rather than it telling you where it wants to go.
WHY DO I NEED A BUDGET?
This is a question that many people have asked me over the years. I like to actually turn it around and ask you to tell me why you think you don’t. Do you think you don’t need to remember which bills need to be paid? Do you think that you don’t need to remember to plan for annual or unexpected expenses? If you feel you don’t have to do this, then you are right, you don’t need a budget. However, 99.9% of people need one.
A budget helps you know where you money is going. It can help you ensure you are saving enough and paying down your debts. It can help control your spending. Simply put – a budget helps you gain financial control. We all know we can’t control a lot of things in our lives, so it is nice to know there is something we can!
Even if you don’t have debt and are financial stable, you still need a budget so you can just monitor your spending and make your money work for you rather than against you.
WHERE DO I START?
If you have never had a budget before, you may not even know where to begin. It can really be scary and overwhelming to get started. I’ll break it down for you into simple steps so that you can get yours set up and working for you.
1. BUDGET FORM. First of all, you need a budget form. I have created a budget template for you to use. Just either download or make a copy of the form in your Google Drive, so that you can edit it as needed.
There are some sites which provide budgets. Two of them I would recommend are Manilla and Mint.com. They are both free sites which can help you gain control of your finances.
If you want something more high tech, I’d recommend You Need A Budget (YNAB). You can try it for free for 34 days and then it is $60. However, I don’t pay for most apps or software I personally use as there is so much out there that is FREE!!!
2. INCOME. Next, look at your paycheck(s) – what we call your Income Source. Since your budget is based upon your monthly income, you will have to possibly complete some calculations to reach that figure. Here are some calculations to help you:
Paid Bi-Weekly (i.e. every other Friday): Take the first 4 income totals and subtotal them. Divide them by 2 and you will read your average monthly income.
Paid Monthly: Take the total of all 4 or 5 pay period and divide by 4 or 5 (whichever you totaled) to reach your monthly income. (If the amount listed in each pay period is exactly the same, you can just use the monthly income you see).
Paid Weekly: Take the total of the first 4 income periods and that will give you an average monthly income.
Hourly or Commission Based (i.e. fluctuating income): If your income fluctuates greatly from month to month, you will have to revisit your budget more frequently since your income and expenses can vary from week to week.
3. EXPENSES. Up next, determine your expenses. You will want to make a list showing each payee and the amount paid. In order to ensure an accurate budget, you will handle your fixed expenses differently than discretionary.
Your fixed expenses include items such as your mortgage, car payment, insurance, etc. The things you pay every month which do not change (or only vary in payment slightly).
Your discretionary expenses include those which are not always the same payment (like your mortgage or cell phone bill), take the amount you spent on the past 3 months and average it out reach a monthly figure (i.e. if you spent $500 in October, $600 in November and $575 in December, add those 3 numbers up and divide by 3 to reach an average of $558.33).
Take a look at one of the budget forms from Step 1 to ensure that you did not overlook any of the items you may need to include.
4. FILL OUT THE BUDGET. This is the “fun” part. Transfer the amounts you have listed above into each spot on the budget. Your monthly income should go at the top and then the amounts for each expense in the appropriate location. Those listed on the form are to be used as a guide (reminder if you will) to ensure you properly account for all of your expense. You can add rows / edit the descriptions as needed.
Subtotal both the income and expenses. If you see that you are spending more than you take home, then you are short on income and will need to adjust your expenses. If you are not spending all you make, then you might consider increasing your savings or retirement account contributions.
I’ve got a short tutorial which can help you fill out your own budget:
WIPE YOUR TEARS AND LET’S MAKE SOME CHANGES
Yes, tears are common at this point. When I saw our budget for the very first time, I cried. I was even sick to my stomach. I could not believe that we were in such horrible shape financially. However, the tears were quickly wiped away and my husband and I tackled our budget and started to rework the numbers and I started to feel better. I actually started to feel like I could do it. It would be tough, but nothing in life worth having is ever easy!
What we had to do was just really look at where we were spending our money. The first thing that had to go was dining out. Did we need to dine out every single week? No. We wanted to get out of debt, so we wanted to free up extra income to apply towards our debt. That was far more important than dinner out. Eliminating that expense immediately freed up more money which we were able to apply towards other mandatory expenses.
Just take a long, hard look at where you are spending your money. Even if you are not trying to work yourself out of debt like we were, you might see that you are spending more than you are making. You will need to eliminate some of your expenses. The simplest way to do this is to make two lists: Mandatory and Discretionary. Go through each item and indicate if it is a mandatory expense or discretionary.
Take a look at your mandatory expenses – like cable. If you get a high end package, you might want to scale back to basic cable to get your budget to work (or even do this and free up income to pay down your debts). You might be like us and find you spend a lot of money dining out and can save a lot of money that way as well.
Then, look at your discretionary spending. Are you paying $50 a month for a yoga class that you go to only now and again? What about your subscription to that magazine that sets you back $75 a year? These are luxuries. They will have to go. If you are spending more than you make or are trying to pay down your debt, you can’t afford anything but what it takes to keep a roof over your head, the lights on and food in your family’s stomachs (so to speak). Trim that budget down to bare bones and you might be surprised to find that extra $100 – $300 or so hiding that you can now start to use towards your debt elimination, or to help put food on the table.
If, once you have adjusted your budget it still doesn’t look right, make more adjustments. If you have already scaled back on everything and it isn’t balancing out, make some calls to your debtors. Ask for reduced interest rates or how to reduce your payments. You can also suggest to them a different monthly payment other than the one they are asking you for. You never know what they will accept if you don’t make that phone call.
You are going to have to make tough choices/changes to your budget to make it work. As I said, one that we did was dining out. We ate out only about 20 – 26 times for one full year (unless someone else took us out to eat). Was it hard – Darn Skippy it was!! Was it worth it? More than you can imagine.
I HAVE MY BUDGET – NOW WHAT?
Once your budget is created, does that mean you are done? Sorry, but the answer is no. You will need to revisit your budget at least once per month to make any necessary adjustments. For most there will not be any to be made, but for some, things will happen to cause your line items to need to be adjusted. That might mean you will remove something (once you pay down a debt) or may need to add one (saving for that new vehicle).
Budgets are not easy nor are they fun, but once you have one set up and continue to refer to it, it will work. You will find it helps as you are now telling your money where you want it to go rather than it telling you where it is going to end up each month. Financial control – such an amazing feeling!
(I am not a financial advisor and the information listed within these posts is not to be construed a financial advice. Financial concerns/issues should be addressed with a professional in order to receive advice and assistance.)
This post may contain affiliate links. Read my disclosure policy here.
by Tracie on January 1, 2013
During 2012, we held a Debt Free Challenge. And I will admit, that with the holiday shopping craziness, I did not post for several weeks. However, I sure hope that you kept the course and stayed on track to eliminate your debt! If you are new to the site and want to learn HOW to get out of debt, we’ve got great tips and articles to help you do just that! you can find that information here — the Penny Pinchin’ Mom Debt Free Challenge.
I kept track of what was paid down in 2012 and am so very, very proud of all of you! During 2012, we paid down:
$454,783.29 !!!!
Pat yourselves on the back – you did amazingly well! It really is humbling to me to know that I was able to help some of you on this journey. I love hearing your stories of how you overcame financial hurdles and/or worked yourselves out of debt. Please feel free to share them with me and I will feature them here on the site to try to help inspire others!
This post may contain affiliate links. Read my disclosure policy here.
by Tracie on October 31, 2012
I know, I know – I have gotten behind on the debt free posts. We’ve had a lot going on with our family and so I just haven’t been able to do any new posts on this over the past few weeks.
Instead of giving you new tips on how to get out of debt, let me try to INSPIRE you to get on board! You see, I ask readers to share their debt payoffs with me. While I know that this is not the total paid off as many don’t say anything, it is amazing to me what I can confirm has been paid off this year. Are you ready?
As of September 30, 2012, Penny Pinchin’ Mom readers have paid off……
….
…..
…..
MORE THAN $335,000 IN NINE MONTHS!!!!
I am just blown away!! Everyone has worked so hard and you should all be very, very proud of yourselves. This is not easy. However, the rewards are amazing. Congratulations and keep on with it!! You can do it!!!
**Please, if you have recently paid off another debt, share with us! You can report every single debt — so that we can have an accurate amount reflected!! As a reminder, the survey is completely anonymous – there is truly no way for me to know who you are at all. You can share your amount you have PAID OFF HERE.
(I am not a financial advisor and the information listed within these Debt Challenge posts is not to be construed a financial advice. This is knowledge we gained through our own personal experiences and information as outlined in Dave Ramsey’s Financial Makeover — and is being shared as such. Participants are not required to follow any steps listed if they do not wish to do so. Financial concerns/issues should be addressed with a professional in order to receive advice and assistance.)
You are all working very hard to pay down your debts. You are doing all you can to reduce your monthly financial obligations. However, it might be worth it to actually go ahead and increase your mortgage payment.
You might currently have a 30 year mortgage. You probably signed up for this re-payment option because it was easy, offered the lowest payment available and usually didn’t require a down payment. You might have a rate that you consider to be pretty good – it might be between 5 – 6%. Of course, rates have continued to decrease. This might be the right time to reconsider a 15 year note.
What we are learning is that you might pay a little more each month for your 15 year mortgage, however, the overall savings over the life of the loan is dramatic. Check out this example of what you would have paid to have a 30 year fixed mortgage a few years ago vs. opting for a 15 year fixed loan today. The savings really speaks for itself:
Loan Amount: $150,000 Loan Amount: $150,000
Term: 30 years Term: 15 years
Interest Rate: 6% Interest Rate: 3.25%
Monthly Payment: $899.33 Monthly Payment: $1,054.00 ($154.67 more)
Total Interest Paid: $173,757.38 Total Interest Paid: $39,720.57
TOTAL SAVINGS: $134,036.81 in interest
My husband and I were always 30 year mortgage home owners. We thought a 15 year was not wise for us, based upon our financial situation. We have learned that we had to change the way we also looked at our mortgage payment. It was more than just what we had to send to the bank each month. What became more important was the total amount we would have to repay.
We recently refinanced our own mortgage. And, we, like so many, opted for a 15 year re-payment schedule. Our payment increased by just $100. The bigger issue was the amount we will put into our pockets. Over the course of the life of the loan, we will end up saving more than $100,000 in interest! As an added bonus, we will be out from under our mortgage by the time our children finish high school.
There is actually even more to consider regarding home ownership since the economy declined. Gone are the days of no-money down loans. Now, most lending institutions require a 10-15% cash down payment.
Also gone are the days when we can go ahead and purchase a home worth what the bank says they will loan to us. Instead, we are all forced to take ownership of our own budget and financial well being. No longer is the status quo that we all can own a home worth 3x our annual income. Instead, less is more is the new mantra.
**Please, if you have recently paid off another debt, share with us! You can report every single debt — so that we can have an accurate amount reflected!! As a reminder, the survey is completely anonymous – there is truly no way for me to know who you are at all. You can share your amount you have PAID OFF HERE.
(I am not a financial advisor and the information listed within these Debt Challenge posts is not to be construed a financial advice. This is knowledge we gained through our own personal experiences and information as outlined in Dave Ramsey’s Financial Makeover — and is being shared as such. Participants are not required to follow any steps listed if they do not wish to do so. Financial concerns/issues should be addressed with a professional in order to receive advice and assistance.)
When it comes to making financial decisions, it can be trying to figure out which person in your relationship has the best idea. It might actually mean compromising or giving in s that you can reach an agreement.
So, what do you do when only one of you wants to get out of debt? Give up completely? Force them to do it? Unfortunately, you can’t force someone to do one thing or another. What you will want to do is just sit down and go through the numbers. It is not an easy talk to have, but it is important.
Sit down with your budget. If your partner becomes overwhelmed, do it over a period of a few days. Start with the bills you have to pay every month. Show him or her that these bills can be covered by your income. Make sure you do not include dining out or anything outside of mandatory expenses. The next time you meet, show him or her the discretionary expenses. This would include your dining out, entertainment and items along that line. Finally, show them what you pay out every month in debt. Sometimes, lining up the numbers one next to the other can resonate.
Many times, it isn’t the idea of getting out of debt, it is that it seems too bit of a job to tackle. It sometimes is fear of giving up something (such as dining out or movie nights). Whatever the fear, just talk to your partner about it. Once you can work it out together, you can move forward to getting your debt plan into place and get on the path to financial independence.
If you can’t come to an agreement, then that might mean now is not the time for you. You can still use a budget and should do so in order to see where your money is going. However, if your partner is not ready to make the leap, just be patient. One of these days he or she will hopefully come around and you can tackle your debt plan with a vengeance.
**Please, if you have recently paid off another debt, share with us! You can report every single debt — so that we can have an accurate amount reflected!! As a reminder, the survey is completely anonymous – there is truly no way for me to know who you are at all. You can share your amount you have PAID OFF HERE.
(I am not a financial advisor and the information listed within these Debt Challenge posts is not to be construed a financial advice. This is knowledge we gained through our own personal experiences and information as outlined in Dave Ramsey’s Financial Makeover — and is being shared as such. Participants are not required to follow any steps listed if they do not wish to do so. Financial concerns/issues should be addressed with a professional in order to receive advice and assistance.)
This post may contain affiliate links. Read my disclosure policy here.
by Tracie on September 18, 2012
I didn’t do a post last week as things were busy here with two birthdays! Of course, we paid for the parties in cash — which we had included in our annual budget!
This week, I am going to talk about credit cards. It is no secret that I don’t use them. I just feel cash is always better. That being said, there is actually a time when a new credit can actually be a good thing!
If you have credit card debt, you are probably paying, 12%, 18% or even more in interest payments. If you can find a way to transfer your balances onto a card which offers 0% interest, you can potentially save a lot of money. You will want to review the fine print and know the following before you sign up:
How long will the introductory offer last?
When the reduced rate ends, what rate will be charged?
Will the new rate be retroactive to the initial transfer balance or simply applied to the remaining balance?
Are there any annual or hidden fees?
You can use these types of offers to your advantage. You can move from offer to offer, and not have to pay any future interest on your balances. It can be very helpful and savvy, if you do so the right way. The only thing I caution is to transfer that balance prior to the end of the introductory period, so you do not have any residual interest payments.
Outside of this reason, I do truly believe that credit cards are over rated – unless used wisely. If you pay them down ever month, then you are smart with your money and they probably work for you. If you have debt, why not look into finding a good transfer rate to help you get ahead and perhaps, pay down your debt! You can use this widget to help you determine if a transfer can help you get ahead!
How much can you save?
**Please, if you have recently paid off another debt, share with us! You can report every single debt — so that we can have an accurate amount reflected!! As a reminder, the survey is completely anonymous – there is truly no way for me to know who you are at all. You can share your amount you have PAID OFF HERE.
(I am not a financial advisor and the information listed within these Debt Challenge posts is not to be construed a financial advice. This is knowledge we gained through our own personal experiences and information as outlined in Dave Ramsey’s Financial Makeover — and is being shared as such. Participants are not required to follow any steps listed if they do not wish to do so. Financial concerns/issues should be addressed with a professional in order to receive advice and assistance.)
This column is written and edited by Joshua Rodriguez, proud owner CNA Finance. To suggest a topic for this column or ask a personal finance question, please feel free to contact Joshua at any time by email at Joshua@CNAFinance.com
Tracie is a stay at home mom to three young children; ages 4, 6 and 8 in Raymore, Missouri. In November 2007, she and her husband decided to eliminate their debt and made many changes in their lifestyle to do just that.
In 27 months, they eradicated over $37,000 in debt through both budgeting and learning how to live a frugal life. She now shares her knowledge in order to help you stretch your hard-earned dollars so you can live the life you want.