Posts filed under 'Debt'
What do you do if you find yourself with a lot of unstylish debt you know you can’t pay back?
First, stop, absolutely stop, using your credit cards. Find a way to live within your means.
Second, pay off your credit card debt. If your credit card debt is the debt you can’t pay, you can often work with the credit card company to set up a payment plan or to reduce your interest rates. If your credit card company won’t help you, you can call a reputable credit counselor for assistance. Often, they will work with your credit card company and other companies you owe money to and can help reduce what you owe. Log onto www.consumercredit.com for assistance finding a credit counselor who can help you.
Third, if you have many types of the same kind of loans, consolidate. Consolidation means you group all of your similar loans together with just one company. For example, you can get a student consolidation loan where you combine multiple student loans and pay a fixed interest rate to just one company. Or you can combine all of your credit card balances onto one single card (with a lower rate than those you have) that you pay off on a regular basis.
Fourth, beware of scams. There are a lot of con artists who prey on people desperate to solve their credit problems. They may offer to get your debt “suspended” or “canceled” if you pay their fees in advance, sell you supposed credit protection, or offer to help you re-build your credit. These kinds of offers can be very tempting, especially when you are vulnerable. Remember, if it sounds too good to be true, it probably is. Keep in mind that saying about free lunches, as in, there’s no such thing.
The most crucial thing to learn about debt—after the number one rule, which is don’t incur it—is that you should always take it seriously. Wasting it on something frivolous does not become a true Fashionista. A true Fashionista searches out the highest style, but only at a price she can afford.
April 30th, 2009
You’ve been really good. The statement chandelier earrings you were lusting after will have to sparkle on someone else. You’ve curtailed your spending and finally have some extra money this month. What should you do with it? Are you better off paying down some of your debt or tucking it away in your savings account? For overall finance purposes, paying off debt and saving are the same. Incurring debt is negative savings; paying down debt is savings; and savings are savings. That being said, the single best thing you can do for your finances is to pay down your credit card debt (see Barbie: January 23, 2008; Interest: January 15, 2008 and Gift Yourself: December 1, 2007).
Once your credit debt is gone, make sure you have some savings. You should have a minimum of three months living expenses saved up. This may take awhile, but it is really crucial. You want to be able to take care of yourself if you hit any bumps. Promise yourself you won’t touch that money unless there is an emergency.
Then turn your attention to your other debts – high interest, non-tax beneficial ones first. Just like there are good trends and bad trends, there is such a thing as good debt and bad debt. Not all debts are created equal.
For example, a college or graduate school education and a home are sometimes considered good debt because although you had to borrow money to pay for them, you have something of value after you have paid back what you owe, interest and all. You also get to deduct a portion of these debts from your taxes. Credit cards and car loans are often considered bad debt. The value of what you purchased tends to decrease after you borrowed the money to pay for them. Worse, you cannot deduct any portion of these debts from your taxes.
So pay off your bad debts first – as an added benefit, once you have paid them off your monthly income will increase. Earrings, here you come!
February 3rd, 2009
Cinderella stomped her foot. Where was her fairy godmother when she needed her? Marrying the prince had not turned out happily ever after and she had become quite short tempered. The monotony of palace life was bound to get on anyone’s nerves. She knew her shopping habit was out of control. Since it was her job to be the belle of the ball, and Manolo’s are so pretty, she had always been able to rationalize her purchases. Lately though she had begun to feel embarrassed. She had taken to putting her purchases into plain brown bags so the prince – and town people – couldn’t monitor her spending.
She knew she was overspending and if she didn’t start cutting back on expenses she would have to go back to work. Unfortunately, due to her limited skill set and education, that meant a return to the scullery.
She needed her fairy godmother to wave her magic wand and fix it all. After all, that woman could do anything. Then reality hit. Her fairy godmother had been cut in the last round of palace lay-offs. She was going to have to go it alone.
Rather than panic, she decided to do some homework and some financial planning. To begin she re-read some of the post from So Many Shoes – especially the ones on credit cards, interest rates and debt. She also turned to No Regrets for savings ideas. She vowed to get her financial life under control and to check back more often.
January 28th, 2009
You thought you knew all about bonds – friendships, relationships, marriage, the hot one who actually did call the next day. So all this economic talk about rates and payments has you flummoxed.
In financial terms a bond is a loan to a company or to a government. When you buy a bond, you agree to loan your money to the company or government in exchange for interest payments they make to you and the return of your money at a later set date. You receive your interest rate payments in the form of checks, sent out within a set time frame. You receive the full amount of your original loan back when the loan matures. The interest rate you receive depends on how strong the company is. The stronger the company, the less risky the loan and therefore the less interest you receive. (Conversely, the weaker the company, the riskier the loan and the more interest you receive.)
Just as you have a credit score, so do companies and governments. Like you, the better their score, the lower interest rate they have to pay. Where are bonds traded? Just as there is a stock market, so is there a bond market. (See January 12 Stocks posting). However, unlike stocks, some bonds don’t have to be traded in the market. When bonds are not sold on the bond market the transaction is called Over the Counter (OTC).
Turns out, financial bonds are so much easier to comprehend than the real ones.
January 26th, 2009
Barbie thought she had it all. Ken had come to senses, left Midge, and wouldn’t stop calling. She had a lovely town home, a corvette, her pilot’s license, a fabulous body and a wardrobe which put the Bratz to shame.
Unfortunately, much of this had been purchased with debt. Her mortgage, car lease, student loans and credit card bills were killing her. Then the bottom fell out of the stock market. It was time to get things under control. Marrying Ken was not the answer – they had been on and off again for years and who knew if she could trust him. She was loaded with debt. Where to start?
First, she needed to get those credit cards under control by not using them anymore. No more shopping, gym memberships or expensive dinners out. (Besides, people had been complaining she looked too thin for years.)
Once she stopped spending more, it was time to pay down her credit cards. She called the credit card company to set up a payment plan and to reduce her interest rates. If they didn’t go for it, she decided she would call a reputable credit counselor for assistance.
Then she looked for ways to consolidate her loans. For example, she grouped her student loans into a student consolidation loan allowing her to combine her multiple loans and pay a fixed interest rate to just one company. She also combined her credit card balances onto one single card (with a lower rate than her current card).
She also reviewed her budget and determined ways to increase her income. She had many skills and talents: over the years she had taught, practiced medicine, served in the military, hell she had even been President of the United States.
Once she had her plan she felt better. She picked up the phone and called G.I. Joe and the girls. Rather than a night on the town, why didn’t they all come over for pot-luck and movie?
January 23rd, 2009
Per yesterday’s post, sung to the twelve days of Christmas…
On the twelfth day of Christmas proper spending meant to me:
Twelve affordable gifts purchased
Eleven charities helped
Ten happy friends
Nine happy family
No unpaid bills
Nothing for myself
No more gifts to buy
Nothing for my pets
No forgotten friends
Lot’s of happy calls
Plenty of good-will
and a debt free hol-i-day…
December 3rd, 2008
Sung to the twelve nights of Christmas
On the twelfth day of Christmas over-spending meant to me:
Twelve new credit card applications
Eleven outstanding bills
Ten gifts I couldn’t afford
Nine things for myself
Eight things for my family
Seven things for my friends
Six different interest rates
Five more gifts to buy…
Four thank you calls
Three thank you notes
Two forgotten friends
and a debt filled hol-i-day…
December 3rd, 2008