Finance

download (21)Christmas and holiday spending can be brutal on any household budget, considering most families significantly overspend during the holiday season. It is estimated that the average American household has more than $8000 in credit card debt. After all the fun and festivities are over, you should take control of your household budget and expenses. Unfortunately, one of the biggest yet most controllable expenses for most individuals or households is their revolving debt. The payments may not only handcuff your spending ability, but they can limit your financial options to purchase a car or house. In order to escape from the trap of credit card debt, you will need to determine the best way to pay down and eliminate your debt. The following is a list of suggestions on how to pay down your debt and improve your financial situation.

• Collect Your Information - Gather your last pay stub and all your latest credit card statements. Write down the name of the creditor, balance, interest rate, due date, and the minimum payment for each card. Then add up all the minimum payments for each account. Based on your disposable income after you pay your mortgage, utilities, and other necessities; do you have enough money left over each month to make the minimum credit card payments? Also, write down how much interest you are paying monthly and annually. This is the amount of money that is being wasted.

• Make a Plan - Once you have a basic budget that includes your income and debts, you can then decide if you want to consolidate your debt, start to reduce your debt by paying off the cards with the highest interest rates first, or start by paying off the cards with the lowest balances first. Choose a plan you can stick to, no one knows your financial situation better than you do.

• Consolidate Your Debt - Turn your revolving debt into a term loan. If you close your credit cards after consolidating them, you will no longer have the ability to add to your debt. Also, part of your payments will be reducing the principal balance of your debt, unlike minimum credit card payments that are usually just paying the interest on the outstanding balance. Therefore, you will be paying down your debt and the consolidation loan should be paid off within a certain number of years. If you are financially capable, it would benefit you to make more than the minimum payment, thereby reducing the principal balance on the debt faster. If you decide to consolidate your credit card debt, take the time to thoroughly compare your options and shop for an interest rate that is lower than your credit card interest rates. Also, set up an automatic payment arrangement for your consolidation loan. This will prevent you from falling behind in the payment and potentially facing penalties and/or a higher interest rate.

• Debt Settlement - This is the program that is an alternative to bankruptcy. When you go through your finances, if you find out that your monthly payments exceed your financial ability, you will need to seek alternative options, such as: working with a financial institution to consolidation your credit, discuss your options with a bankruptcy attorney, or talk to the credit card companies directly to reduce the principal balances owed on your debt.

• Stop Charging - Once you make your plan to pay off your debt, you will need to be committed to stop charging on your credit cards and creating new debt until your finances are under control. Your plan will not work unless you reduce your spending.

Taking control of your finances may create short-term hardships and limit your ability to purchase items over the next few years, such as: a new car, new house, or a vacation. Nevertheless, it is imperative that you control your spending, so you can improve your finances and get out of debt. Once your debt is paid off, you will have a significant increase in disposable income. In addition, you should have higher credit scores and a lower debt to income ratio; therefore in the future, you should qualify for preferential rates on auto and home loans.

images (18)You may ask - what is the difference?

"They are the same thing - loaning money I don't have - I'd rather not risk my lifestyle having a debt!"

The best way to define a "bad" debt, is when you borrow/ leverage money to purchase something that generates a loss (also known as a liability). A good example of this is a car, flat screen TV or a doodad, simply because they depreciates in value. The best way to define a "good" debt, is when you borrow/ leverage money to purchase something that generates profit (also known as an asset). A good example of this is an investment property.

Most people generally tend to have more bad debt than good, such as;

- Credit cards
- Car loan
- Personal loan
- Holiday finance
- White goods finance

Sounds familiar doesn't it! Don't get us wrong, it's not an offence or anything, but keep this in mind - by decreasing these debts, you are more likely to steer yourself in the right path of financial success.

On the other hand, some people think having a debt is a taboo/ sin/ whatever they want to call it - so they don't believe in buying a property until they have earned their money to pay their house in cash. That can do - it's just going to take them longer that's all. Yes, debt is a risk, it is leveraging the bank, and you may not be able to repay that if you quit/ lose your job.

That's why without a doubt, you must budget. Manage your finances as early as possible. Good debts are risks worth taking, so you can generate more income. If you don't take the risk, you won't know what you can achieve.

Likewise, bad debts are risks too. Having them might be inevitable but sometimes you can prevent it! A simple formula to avoid bad debt is: if you can't afford it, don't buy it.

If you decrease your "bad" debts the banks are actually more likely to provide you with "good" debts such as home loans, which if you use correctly, will grow your wealth.

TIP: Chat with a mortgage broker about your ability to leverage "good" debt. They should let you know if your level of "bad" debt is acceptable to the banks or not, and how to get rid of these as soon as possible.

images (19)It certainly isn't hard to get into debt today. Businesses create compelling ads that entice you into buying things you don't really need. Paying cash is a thing of the past. Items can be easily purchased on credit or debit cards, either in person or on-line. This results in careless spending and improper financial planning that can quickly throw you into the debt trap. Then once you are caught, it is very hard to get back on track again.

Why do so many people get caught in the debt trap? This is mainly because we have developed an entitlement mindset and believing that we deserve to have everything we want. We don't even need the cash to cover our purchases, all we have to do put it on our credit cards and pay for it later. Sometimes we even ignore the needs of our families and waste money on things we don't need instead of paying for important things like bills and groceries.

We continually hear these statements: you deserve the best, shop till you drop, just charge it, treat yourself, pay later. What sounds like a good idea ends up becoming a burden when the credit card statements come and there isn't enough in our bank account to cover the minimum amount.

Have you ever considered how much money you spend on stuff you don't really need? There is a huge difference between needs and wants. We might really believe that we need something when in fact, we really don't need it, we just want it. Here is a quick list of some costly wants:

  • COFFEE - If you buy 2 coffees a day costing $1.60 - in one year you will spend $1,168.00.
  • EATING OUT - If you eat out at a restaurant once a week and spend $80.00 - in one year you will spend $4,160.
  • TAKE OUT - If you bring home food once a week and spend $40 - in one year you will spend $2,080.
  • CLOTHING - If you buy 1 new item of clothing each week and spend $50 - in one year you will spend $2,600.
  • GROCERIES - If you buy extra snacks, sweets and treats each week when you buy groceries and spend $40 - in one year you will spend $2,080.

If you total all these things, they come to over $12,000! Yikes. This could buy a car, a down payment on a house or even be saved towards the future.

Think about the things that you buy that are totally unnecessary. It may not seem like you are spending much money at the time, but it really adds up. Don't put yourself in debt over unimportant things. Digging yourself into debt is not fun and it takes a long time to recover. Make sure you are spending your money wisely. Don't get yourself into a debt trap.

 

images (17)Getting out of debt is on the hotlist of New Year's resolutions for so many people, yet there always seems to be something standing in the way of truly eliminating mounting debt. The car needs repairs and so does your home. Your kids always need school supplies and new clothes constantly as they grow. Don't forget retirement savings and pet food for the dog; insurance bills, medical bills and the like. Where does all the money go every month? If you're like most people, getting out of debt seems endless and daunting. Debt can sometimes be so overwhelming that we get stuck in indecision, which, by the way, is also a decision. Don't give up. There's hope and help, but it's up to you to find the right direction that will save the most time and money.

If you want to achieve a goal; if you really want it, you will get there. However, you also have choices on how you arrive at your destination. You can pay your debt off like a "gazelle;" you can negotiate and settle most past due debts directly with the creditor; refinance or consolidate all debts into one giant loan; or consider a bankruptcy option to help get there. Each of these options for eliminating debt has its pros and cons. The benefits are all the same, meaning that debt will be eliminated. However, there are landmines and pitfalls everywhere.

For example, paying off debt like a "gazelle" takes longer and costs more money, but there are bragging rights and pride in avoiding debt. Are you so proud to have avoided bankruptcy that you would spend tens of thousands of dollars and your future to get there?

Another example is that of debt settlement. Many good folks believe that settling past due debts is also another great way to avoid bankruptcy and get out of debt, but they are shocked when they receive a IRS Form 1099 for the cancelled debt. They work so hard to negotiate their debts, only to get a tax bill. Plus, the irony here too, is that the credit report may not be properly updated and debt settlement does not really help improve credit scores.

We know that life is a never ending cycle of your money seemingly running through your fingers. Isn't it time you put an end to the misery? My latest book, 5 Steps to Freedom From Debt is available on Amazon.com, but here are the steps outlined below:

1. Know the type and total amount of debt you owe

2. Set your financial goals

3. Explore all of your options for getting out of debt (including Bankruptcy)

4. Consult with your professionals

5. Make a well informed decision

These steps are important because so many people think that borrowing or cashing out retirement is an option for financial freedom, but they don't talk to their tax professional about the consequences of making such a choice to eliminate debt. Spending retirement savings to pay off debt is like stealing from grandma! Combining Debt into one giant loan seems to be another popular way that folks want to help them manage, and eliminate debt. The problem with rolling debt into a single loan is that it's more DEBT. So many honest folks will spend their future, or roll over the debt before tackling it with the bankruptcy option because they are emotionally attached to their credit score. However, when we look at all of the options for eliminating debt, we must ask ourselves, "Is this helping me get out of debt, or am I simply playing a "shell game" by shuffling the debt?"

My advice is consistent and simple, if it will take you longer than 5 years to get out of debt, you're wasting valuable time and money and it will take you longer to retire. To put it another way, every little thing you do financially, ends up having a compound effect on your financial future. If you're spending more than 5 years to get out of debt, you lose 5 years you could have been saving for that car, house, and retirement. You would never advise your friends to do that, so why should you?

Recently, Sally came in to my office for a consultation about her credit card debt. She was working hard to pay off her credit cards, but it seemed as if the balances never went down. For the past two (2) years Sally had struggled to keep up with minimum credit card payments and all her other bills, rent and food. I showed Sally how she could save $48,000.00 and eliminate her debt without making another single payment on it. Here's how:

Let's look at this from a numbers perspective:

  • $30,000.00 in unsecured debt at 18% interest with $500.00/mo. payments will take 13 years to pay off; paying a total amount of $78,000.00!
  • $30,000.00 can be FULLY paid in FIVE (5) years under a court ordered repayment plan in Chapter 13 Bankruptcy with a $500.00/mo. payments at 0% interest.
  • That same $30,000.00 can be discharged in Chapter 7 Bankruptcy with NO Payments. (Bankruptcy costs and Attorney fees vary)

Let's just focus on the difference between repaying all the debt using the "snowball" method and a bankruptcy repayment plan. The real difference here is the Eight (8) years of payments of $500.00/mo., which totals $48,000.00! So, the secret trick of facing shame and embarrassment will save both time and money.

Now imagine if you took the $48,000.00 savings and invested it in a mutual fund that earned 6% interest. After Eight (8) years, that amount would grow to be $63,744.82! The person that filed bankruptcy and fully repaid their debt in Five (5) years, who then took the $500.00 monthly payment, invested in a mutual fund that earned a 6% interest over the next eight years, not only paid off all their debt, but also made $15,744.82. Who does that? Those that take a different perspective to eliminating their debts; that's who!

 

download (20)As a business, debt is incurred by customers and clients, no matter what type of business it is. Every company will have uncollected debts and there is no way around that. It's like knowing that every steel car will rust. It goes with the territory. Collection agencies help businesses like yours get some of that money back and this article discusses some on the types of debts you can collect on.

Credit and Personal Loans
For those of you that loan money to customers for personal loans or issue a line of credit for purchases; debt collectors can help attempt to get some of that incurred debt back to you, while staying within the local rules, terms, and laws. This type of debt can include any amount of debt, whether it is $100 or $10,000.

Mortgages
If your line of business involves loaning funds to customers for purchasing homes or other real estate in the form of a mortgage, then collection agencies can help attempt to retrieve past due amounts. In some situations, a repayment plan may be established while other times it can go through court.

Auto Loans
If you are a local bank or financial institution and you loan out money to purchase vehicles, you can retrieve bad debt through repayment plans, payoff discounts, or vehicle repossession. Oftentimes, garnishment can be another option. In many cases, debt collectors can make every attempt to help you get back the money that is owed.

Medical Bills
Medical charges are a very common form of debt for most people, mainly because they incur to a high amount and health insurance does not cover everything and also usually requires a deductible. Besides that, it often sits on the backburner by the medical facilities for some time before action is taken. This debt can usually be recovered through collections.

Banking Debts
With this category, it is not referring to bank loans, but balances owed own overdrawn accounts. Most of the time, an account receives several overdrafts and the owner cannot pay the negative balance to keep the account active. In these situations, the account usually gets closed and the debt awaits payments. Collection agencies can help you get that money back. This often happens through collection letters, followed by court action if the account is not repaid or paid back under a set agreement by the two parties involved. Collection agencies charge a fair commission to collect such debt.

images (16)It is good to look for alternative ways to collect debt from your customers. However, if all other avenues have failed, you may have to use debt collectors to get your cash. Every agency is different from the other and not every one that is right for your kind of business. Here are a few things to consider.

Some debt collectors specialize in dealing with large businesses while others deal with small businesses and households. Check in your locality for the collectors that target similar clients like the one that has defaulted. The method the agencies apply has a high likelihood of succeeding in your case.

Every state has its own regulations that cover how debt collection is done and how the agencies work. It is important to ensure that you select a firm that adheres to Fair Debt Collection Practices Act. Moreover, the firm should be bonded and licensed to work in the locality.

Sometimes the firms use very uncouth means to collect the debts. This may raise legal cases if the debtor feels that the agency has acted in bad faith. The insurance ensures that you are not held liable for hiring the agency to collect the debts. Ensure you pick a firm that has a valid errors and omission insurance. It will act as your protection if you are dragged to court.

Once you have a list of a few companies, take time to compare their costs. Different agencies use different formulas to come up with their rates. Some charge a small flat rate mostly associated with pre-collection activities. You are then charged a contingency fee that is part of the amount collected. The charge is about 20% to 30% of the amount collected. Pick a company that offers a no collection no fee model.

Some debtors tend to run away with your cash and ignore your calls. Some even skip town. If this is your situation, ask if the agency you are using has a skip tracing service. This service enables the debt collector track the defaulting client even when they have not left any forwarding address.

Just remember that you shall not receive all the cash once you have hired a debt collection agency. For this reason, it is advisable to exhaust all of the other means of collecting debt before asking for help. However, if none of the other methods work, hire a firm that will collect the debts right away.

 

download (19)As you read this, an employee in some part of the world is struggling to find his bill in order to file his reimbursements and his manager is having a miserable time going through a stack of receipts that are not making it any better for her. Have you been there as well? Then it is time to digitize the process and make it a lot easier.

Over the past few years there have been a lot of buzz about going paperless in offices, home and on-field workplaces. A bunch of reasons might have reached your ears about going paperless; like saving the environment, saving money for your company, hassle free procedures et al. However, another important approach, which remains unnoticed,is increased productivity. Remember the time, you used to keep all your receipts in a shoebox? They were stacked up at one place, but were they organized? They were not in any planned order and finding a specific one at the drop of a hat was a myth. It is time to change that.

Information as we know continues to grow at an astonishing rate, as is the technology that is used to create, store and share it. The clients, customers and public demands easy access to data and in order to achieve that, a collaborative effort is required to distinguish, sort and prioritize information, data and management tools. While Small and Medium Enterprises (SMEs) are taken into account, the digitization of expense management is required for saving time, high productivity and employee satisfaction. In a recent study by University of Michigan, it was found- paperless management enhances customer service, reduces cost, and improves speed, efficiency and productivity among employees in the workplace. In addition to that, government agencies and organizations in Australia are moving towards virtual business processes and digital record management to inculcate the true essence of the era of digitization.

It has also been proven over time that smart phones and cloud based application services can be used to their maximum potential and help to make cumbersome processes easier. With the latest mobile applications, that online automate expense management procedure, it easy to capture receipts or expenditure data. Take a simple snapshot of the receipt, send it for approval and your work is done. With this, it is much simpler to apply for reimbursements, review and approve these reports as well as tackle dishonest claims.

Well, even though you are almost finished reading this, that employee mentioned at the start of this article, is still struggling to find his bill and the manager isn't sorted with the stack of receipts yet. Think again, do you want to be one of them? Go paperless and get yourself a digital and hassle free solution.

Happay is a Bangalore based payment company that offers a unique business expense management solution interlinked to a prepaid expense card.Employees make business expenses (food, travel, fuel, hotel, etc) with the Happay card and submit expenses on-the-go. 500+ companies across 10 industry verticals including hyperlocal delivery, retail, hospitality, eCommerce, healthcare, education etc. use Happay to make their expense management workflow cashless, paperless and mobile.

 

download (18)The debt settlement is the means of negotiation that comes into play when you or a respective company is liable to pay money so that the creditors accept some portion of money against the full payment. The debt settlement company will force you to pay some amount on a monthly basis that is due until you have enough payment to pay off your creditor.

The theoretical aspect

As soon as you agree to a debt settlement program, many of the settlement firms will advise you to stop making the credit card payments monthly. Taking such a step will enable you to save money. Once you have enough money, the debt settlement firm will negotiate with your credit card company. It will offer them a one-time and a large payment that will settle your debt.

It is believed that many of the debt settlement firms claim that the one-time payment is much less that the original payment that you owe. They even state that will ensure that you no longer get bothered through endless calls from the creditor or the collection agency. But the downside is that people incur much debt, and debt settlement does not look good at all.

The reality

If you agree to the following debt settlement plan, then you would know the real picture. For instance, you have 10,000 dollars in debt and that it takes three years for you to save enough to reach a settlement. This usually amounts to the half of the amount you owe, but your total debt would have doubled.

By the time you save half of your original debt, which is 5000 dollars; the debt will become 20,000 dollars respectively. In this regard, to reach a settlement will mean that you should have half of the new amount which is 10,000 dollars.

Disadvantages

Fees can be substantially high: Several of the debt settlement companies not only charge an upfront fee but a percentage of the total debt as well.

Your credit score can get affected: It happens that the credit score gets dropped because of partial or late payments. This occurs because you do not make payment for some time as part of your debt settlement. On the other side, the financial experts believe that settling of the debt for less against the full credit card payment also hurts the credit card score considerably.

Your credit card company can sue you: The moment you stop paying credit card bill on time, the creditor can file a lawsuit against you.

Not all debt settlement companies are reliable: You need to remember that the industry is not solely run by the federal government. There are plenty of scams where the respective firms can collect money and never settle the debt payment at all.

images (15)When I designed my coaching website, I needed to create a tag line. A type of a one line description of what the site was all about. I wanted it to summarize how I felt about the process of getting out of debt and why so many people start at it but quickly give up.

Science was my first love as a career. I spent my first ten years of work life in the biotechnology world. So the idea of a math equation flashed into my mind.

There are thousands of websites and probably millions of blog posts and articles about how to get out of debt. "Seven methods to lower your credit card debt". "Five tips to reduce your holiday spending". Tons and tons of information out there.

So why do less than half of Americans pay off our credit card balances every month? Why do 35% of us have accounts in collections?

I reflected on my two journeys through debt. The first ended in credit counseling and bankruptcy. The second ended with everything paid off, including our home mortgage. What was the difference?

I "knew" that we had debt both times. In my head.

The difference was acknowledging my debt in my heart; my gut. The first time I did not do this. My "plan" to get out of debt was that my business would finally begin earning real money. My heart said everything would work out. My heart knowledge never supported my head knowledge. And I failed.

"Know Debt" was accomplished but nothing else.

In the second plan I got mad (as did my wife). We plugged into this anger and other emotions. We got our hearts involved. We "KNEW" our debt. 17 months later we had paid off our credit card, auto loan, department store card and orthodontist. And then 30 months later we paid off our home mortgage.

"KNOW Debt" was added to "Know Debt". They added up to "NO DEBT".

My math equation tag line crystallized. It explained why we want to get out of debt and have the best intentions to get out of debt. But we rarely get there.

We generally acknowledge that we have debt in our heads. We know we have three credit cards with balances on them. We know we have an auto loan that pays off in 2018. We know we have five student loans. And we might know the total debt that we owe. We have the head knowledge.

So we read posts, articles and forum advice that make logical sense on how to pay off our debts. Eliminate every expense that we can. No cable TV, no going out to a movie, etc. Live a spartan lifestyle.

And work three jobs.

Our heads can do this for 2-3 weeks. Maybe a month or two. But if our hearts do not support this lifestyle and behavior, something is going to cause us to quit this plan. Once the fun of the adventure dies off, the idea of living on dog food and replacing electricity with candles becomes so unappealing that we give up.

Once our hearts are out of the equation, our plans to get out of debt are dead in the water. Because there are no easy, pixie dust plans to get out of debt. It takes focus. It takes work. It may take some sacrifice. But your plan needs to be realistic; a plan that you can live with. Logically it may take longer. But emotionally you will stick with it all the way to the end and get to NO DEBT.

Take what you know in your head and get it into your heart. Then you will get out of debt.

download (17)Managing debts is a difficult task and many people do not have the means to pay off their debts. Often, people get overwhelmed by the options available for consolidation of debts and they cannot decide their course of action. Out of the available options for debt relief, seeking the help of an agency which provides credit counseling services is the best. There are many such agencies which offer credit counseling services and every month, thousands of people opt for the services of these agencies. People have benefited from using such services as they could consolidate their debt and pay them off over a short period of time.

What is Credit counseling?

It is a practical approach to tackling all kinds of debt and these agencies offer solutions based on the credit situation of the consumer. People should understand that there cannot be a general solution to everyone's debt issues as each individual is different. Hence, credit counseling agencies or companies can assist people on an individual basis, based on their ability to make payments, total available financial assets, total amount of debt, annual income and so on. The credit counseling agencies are present in countries around the globe and it is easy to approach any of these agencies when one is in need of their services.

How does credit counseling work?

It works for most people as they get to find practical solutions to their debt issues, which they can adhere to. Besides, they help the people in negotiating with the creditors and reaching settlement agreements, which make it possible for the borrowers to consolidate and reduce their total debt in due course of time. Also, the credit counseling agencies can assist the borrowers in applying for loans (both secured & unsecured), which can help them in clearing the debt amounts in a short period of time.

The agency can let people make realistic monthly budget which they can easily adhere to. People who take the help of these agencies can realize their financial goals and manage their money in an efficient and effective manner. In the end, people can find a balance between their expenses and income, and wisely use their available credit, so that they can achieve their goal of getting relief from debt and be financially stable.

Advantages of credit counseling services

  • People can achieve better understanding of their credit standing and financial situation;
  • They can arrange for the borrowers to make a single payment every month;
  • They can also assist in lowering the interest rates of the borrowers;
  • People do not have to face the calls of collection agencies and will not have to negotiate with the creditors on their own;
  • People will also be assisted in getting loans.

There are quite a few credit counseling agencies available in the market but not all of them are genuine. If you are looking for the services of a genuine debt relief agency, then you can opt for a reliable credit counseling or debt relief counseling service, which can help you with all kinds of debt management and relief solutions.

You must remember that a credit card is a not a bane but is actually a boon as long as you use it in the right manner. Make sure that you do not go overboard with your expenses and keep a track of the transactions completed with the card. In case there are supplementary cards, you should also keep a track of the transactions completed with them. Above all, you should always make the payments on time so that you do not have to worry about credit card debts.