Friday, September 29, 2006
Envelope Budgeting and Utilizing it in a Cashless Society
Envelope budgeting has been around for a very long time. Even if you've never used it personally, you probably recall your mother - or even your grandmother - tucking cash away in individual envelopes each payday. Unfortunately, in today's mostly cashless society, envelope budgeting is simply not as effective as it once was. However, with some planning, it can still be used to assist you in keeping to your personal budget.
Let's begin with Envelope Budgeting 101. The concept is easy - you take a stack of envelopes and write a spending category on the front of each one. They might look something like this:
1. Mortgage/Rent
2. Utilities
3. Gas
4. Groceries
6. Entertainment
You may have more categories - it's your budget, so you get to label them however you want. Once you've separated your finances by expense type, you figure out how much you are allowed to spend in each, and you put the corresponding dollar amount in the correct envelope. If you go to the movies, you pay for it out of the entertainment envelope. When you run out of entertainment money; you're done until the next month, when you get to fill up the envelope again. It's a nice system and definitely helped many a family stick to a fixed spending limit.
If you're comfortable carrying cash around with you, it can still work exactly as outlined, however, if you're like most people and rarely even have a dollar bill on you, it's time to revamp the envelope budget. This can be done in a couple of different ways.
You can create a spreadsheet, or chart, with each of your expense categories in a separate column, and beneath it the total dollar amount you're budgeting for the month. When you pay your rent, deduct that from the rent column. When you go out to dinner, save the receipt, and deduct that from the entertainment column. If you're religious about saving receipts and recording your expenditures when you make them, this system will work quite well. When you've used all your allocated funds in one area, you are out of funds until the following month.
Another option is a mixture of the two. You can use the chart/spreadsheet for fixed payments, such as your mortgage, and other normal house expenses, such as utilities. Then you can use the envelopes for entertainment, groceries, gas, etc. There are benefits to this - where most people fail on their budget isn't the fixed expenses, but the fun ones, like buying clothes or going out to dinner. By having the cash already set aside, when it's spent, you have an empty envelope - can't get much more of a visual reminder that you're out of cash!
With some tweaking, and self-control, envelope budgeting can still be an effective tool in managing your money. Regardless of what type of budget you use, be sure to be honest about your income and expenses so you don't end up in the red at the end of the month.
Let's begin with Envelope Budgeting 101. The concept is easy - you take a stack of envelopes and write a spending category on the front of each one. They might look something like this:
1. Mortgage/Rent
2. Utilities
3. Gas
4. Groceries
6. Entertainment
You may have more categories - it's your budget, so you get to label them however you want. Once you've separated your finances by expense type, you figure out how much you are allowed to spend in each, and you put the corresponding dollar amount in the correct envelope. If you go to the movies, you pay for it out of the entertainment envelope. When you run out of entertainment money; you're done until the next month, when you get to fill up the envelope again. It's a nice system and definitely helped many a family stick to a fixed spending limit.
If you're comfortable carrying cash around with you, it can still work exactly as outlined, however, if you're like most people and rarely even have a dollar bill on you, it's time to revamp the envelope budget. This can be done in a couple of different ways.
You can create a spreadsheet, or chart, with each of your expense categories in a separate column, and beneath it the total dollar amount you're budgeting for the month. When you pay your rent, deduct that from the rent column. When you go out to dinner, save the receipt, and deduct that from the entertainment column. If you're religious about saving receipts and recording your expenditures when you make them, this system will work quite well. When you've used all your allocated funds in one area, you are out of funds until the following month.
Another option is a mixture of the two. You can use the chart/spreadsheet for fixed payments, such as your mortgage, and other normal house expenses, such as utilities. Then you can use the envelopes for entertainment, groceries, gas, etc. There are benefits to this - where most people fail on their budget isn't the fixed expenses, but the fun ones, like buying clothes or going out to dinner. By having the cash already set aside, when it's spent, you have an empty envelope - can't get much more of a visual reminder that you're out of cash!
With some tweaking, and self-control, envelope budgeting can still be an effective tool in managing your money. Regardless of what type of budget you use, be sure to be honest about your income and expenses so you don't end up in the red at the end of the month.
Thursday, September 28, 2006
Credit Card Debt Consolidation
If you're like most people, you have a credit card or two (or ten) in your wallet. You use them for gas, for entertainment, for travel, and for groceries. Unless you're avid about paying off your balances each month, you also have credit card debt. If you're one of the multitudes of people in this dilemma, and you're ready to do something about it, there is some information you need to know.
Are you aware of the Universal Default Clause? This clause allows your credit card issuers to raise your interest rate if you default, or even have a late payment, to another creditor. That's right! Even if your credit with company "A" is top notch, if you were late on a payment to company "B", then all of your other credit card issuers can raise your interest rate. Unfortunately, that's not it - they can also hike your rate if you have a high balance or charge up another line of credit.
It's no wonder so many of us are facing a bleak future with our debt. Luckily, there are choices to assist you in changing the landscape of your financial future. To begin with, consider getting another credit card. Seriously! Shop around - many cards offer low to zero percent interest rates for new customers. Make sure the offer includes transferring existing balances, and if they do, you can consolidate your high interest debt into a lower, easier to pay off, interest card.
If this isn't a possibility for you, or if you prefer to go a different route, consider looking into a debt consolidation loan. The basic thrust is you take out a loan for the total of your credit card debt, pay off your existing balances, and then have one payment per month at a lower annual percentage rate. There are three types of loans to look at if you're considering this option. You can refinance your house, take out a home equity loan, or apply for a personal loan. Do some research and then contact your bank's loan officer or a mortgage broker to get the details.
Another possibility is picking up your phone and talking to each credit card company. They may reduce your interest rate or even lower your payoff amount. Don't rule this option out before you give it a try - after all, they'll get far less, if any, if you decide to declare bankruptcy. You could also give a credit card debt consolidation agency a try. Their job, usually for a small fee, is to reduce your debt with each credit card issuer and arrange for lower interest payments. Just be sure the company you choose is legitimate, otherwise you could end up in a worse financial mess.
While credit card debt can seem like an endless cycle of despair and worry, it doesn't have to be. Be honest with your situation, make a solid plan, and follow it to financial success.
Are you aware of the Universal Default Clause? This clause allows your credit card issuers to raise your interest rate if you default, or even have a late payment, to another creditor. That's right! Even if your credit with company "A" is top notch, if you were late on a payment to company "B", then all of your other credit card issuers can raise your interest rate. Unfortunately, that's not it - they can also hike your rate if you have a high balance or charge up another line of credit.
It's no wonder so many of us are facing a bleak future with our debt. Luckily, there are choices to assist you in changing the landscape of your financial future. To begin with, consider getting another credit card. Seriously! Shop around - many cards offer low to zero percent interest rates for new customers. Make sure the offer includes transferring existing balances, and if they do, you can consolidate your high interest debt into a lower, easier to pay off, interest card.
If this isn't a possibility for you, or if you prefer to go a different route, consider looking into a debt consolidation loan. The basic thrust is you take out a loan for the total of your credit card debt, pay off your existing balances, and then have one payment per month at a lower annual percentage rate. There are three types of loans to look at if you're considering this option. You can refinance your house, take out a home equity loan, or apply for a personal loan. Do some research and then contact your bank's loan officer or a mortgage broker to get the details.
Another possibility is picking up your phone and talking to each credit card company. They may reduce your interest rate or even lower your payoff amount. Don't rule this option out before you give it a try - after all, they'll get far less, if any, if you decide to declare bankruptcy. You could also give a credit card debt consolidation agency a try. Their job, usually for a small fee, is to reduce your debt with each credit card issuer and arrange for lower interest payments. Just be sure the company you choose is legitimate, otherwise you could end up in a worse financial mess.
While credit card debt can seem like an endless cycle of despair and worry, it doesn't have to be. Be honest with your situation, make a solid plan, and follow it to financial success.
Wednesday, September 27, 2006
Bankruptcy and Debt - Is it right for you?
Bankruptcy - it's a scary word, isn't it? In a way, that's good, because anything this serious should be a little scary. In the best of all scenarios, no one would have to declare bankruptcy; they'd be able to find a manageable solution to their financial distress without this final blow to their self-esteem. Sometimes, however, there truly is no other workable solution. There are a lot of reasons why someone may be driven toward bankruptcy. They could have unexpected medical bills, overwhelmingly large credit card debt, suffered a job loss, or just gotten divorced. Life is rough and sometimes it deals us a hand we have no choice but to play out. If this is you, educating yourself on the basics of bankruptcy is the first step you need to take.
For personal bankruptcy, there are two types - which one you choose will highly depend on your individual circumstances and needs.
1. A Chapter 7 Bankruptcy is the liquidation of all of your assets in order to pay your creditors; after which, you are then discharged from most, or even all, the debt you claimed in the bankruptcy. Under court supervision, your assets will be collected and sold, and the cash is then distributed among those you owe money to. You do have rights to retain various properties if they fall under certain exemptions; such as your house, your car, etc. However, the rules for these exemptions are strict. If you have a lot of equity in your home, or if it is worth a lot, it probably won't fall into an exemption category. If this is the case, a Chapter 7 bankruptcy may not be right for you.
2. A Chapter 13 Bankruptcy allows you to keep valuable assets you may wish to retain that do not fall under any of the exemptions in a Chapter 7 bankruptcy. However, in order for this to happen, you must create a repayment plan to pay off most, or all, of your debt to your creditors. These payments generally are on a monthly basis and range from 3 to 5 years in length. By filing a Chapter 13 bankruptcy, you are protected from any collection activities whatsoever, as long as you abide by the plan. Miss even one payment, however, and the court will dismiss your case.
Both types of bankruptcy will show up on your credit report; however, a Chapter 13 bankruptcy can only appear for a total of 7 years - just like any other damaging information (such as late payments). A Chapter 7 bankruptcy will be on your credit report for at least 10 years. Take this into consideration, as well, when deciding which type of bankruptcy will work best for your situation.
Deciding to declare bankruptcy is difficult for everyone. If this is the decision you've made, consult with an attorney to make sure you have the most up to date information that will apply to your finances. A bankruptcy attorney will know all the variances to the laws - particularly for the state you live in - how they may affect you, and will give you the assistance you need to have.
For personal bankruptcy, there are two types - which one you choose will highly depend on your individual circumstances and needs.
1. A Chapter 7 Bankruptcy is the liquidation of all of your assets in order to pay your creditors; after which, you are then discharged from most, or even all, the debt you claimed in the bankruptcy. Under court supervision, your assets will be collected and sold, and the cash is then distributed among those you owe money to. You do have rights to retain various properties if they fall under certain exemptions; such as your house, your car, etc. However, the rules for these exemptions are strict. If you have a lot of equity in your home, or if it is worth a lot, it probably won't fall into an exemption category. If this is the case, a Chapter 7 bankruptcy may not be right for you.
2. A Chapter 13 Bankruptcy allows you to keep valuable assets you may wish to retain that do not fall under any of the exemptions in a Chapter 7 bankruptcy. However, in order for this to happen, you must create a repayment plan to pay off most, or all, of your debt to your creditors. These payments generally are on a monthly basis and range from 3 to 5 years in length. By filing a Chapter 13 bankruptcy, you are protected from any collection activities whatsoever, as long as you abide by the plan. Miss even one payment, however, and the court will dismiss your case.
Both types of bankruptcy will show up on your credit report; however, a Chapter 13 bankruptcy can only appear for a total of 7 years - just like any other damaging information (such as late payments). A Chapter 7 bankruptcy will be on your credit report for at least 10 years. Take this into consideration, as well, when deciding which type of bankruptcy will work best for your situation.
Deciding to declare bankruptcy is difficult for everyone. If this is the decision you've made, consult with an attorney to make sure you have the most up to date information that will apply to your finances. A bankruptcy attorney will know all the variances to the laws - particularly for the state you live in - how they may affect you, and will give you the assistance you need to have.
Monday, September 25, 2006
Budgeting Techniques to Reduce Debt
Reducing debt can be a mind boggling experience. When all you see is your dwindling bank account - with no end in sight, how do you go about clearing a path to debt reduction? With a little knowledge and a concerted effort, anyone can begin creating a budget to reduce their overall debt.
Stop adding debt upon debt. Sure, this sounds simple, but it's of paramount importance that you quit accruing debt and that you quit it now. Use cash for your purchases, not your credit cards. Ignore pre-approved credit catalogs when they pop up in your mail. The bottom line is; if you can't pay cash, you don't buy it. Period.
Figure out how much you pay per month total for all of your expenses. This includes rent/mortgage, car payments, car/home insurance, utilities, credit card debt, other personal loan debt, food, gas, internet, cable television, clothes, eating out, and entertainment - literally everything. Now, determine your total income. Subtract this total from your monthly income total. How does it look? Are you comfortably in the positive or barely? Or are you in the negative?
If you're barely in the positive, or if you're in the negative, it's time to reduce your overall expenses. What are you willing to get rid of? Be ruthless and red line extraneous expenses out of the picture. You can also shop around for better telephone rates, cell phone rates, and insurance rates. Make changes where you can.
Phone your credit card companies and try to get your interest rates reduced; sometimes they're even willing to negate past due and over the limit fees. Your goal here is to reduce your overall debt from your credit lenders. See if you can refinance your home for a lower interest rate. Be relentless in searching for better deals.
Pay your highest interest rate debt first, over the minimum if you can, by as much as you can. When that one is paid off, do the same with your next highest interest rate debt. This is called Accelerated Debt Payoff, and it works extraordinarily well in reducing debt fast.
If your paycheck isn't already automatically deposited into your bank account, set that up. You're less likely to take cash out if you're not going to the bank to deposit it yourself. Set up a maximum of how much you can withdraw per pay period - and stick to it.
When you have to make a purchase; take the time and search for sales and discounts. Check internet auction sites and your local paper for gently used items to save even bigger bucks. Be a smart shopper and look for the best quality for the lowest amount out of your pocket.
If necessary, find ways to increase your income. Work a few extra hours at work; get a second job; capitalize on a skill you have (such as baking, automotive repair, computer technology) in your community, or even have a garage sale.
Make the decision now to adhere to a budget that includes some, or all, of the above techniques and you will succeed in reducing your debt to a more manageable level. The next step? Eliminating it completely so you can have a solid financial platform to build your life upon.
Stop adding debt upon debt. Sure, this sounds simple, but it's of paramount importance that you quit accruing debt and that you quit it now. Use cash for your purchases, not your credit cards. Ignore pre-approved credit catalogs when they pop up in your mail. The bottom line is; if you can't pay cash, you don't buy it. Period.
Figure out how much you pay per month total for all of your expenses. This includes rent/mortgage, car payments, car/home insurance, utilities, credit card debt, other personal loan debt, food, gas, internet, cable television, clothes, eating out, and entertainment - literally everything. Now, determine your total income. Subtract this total from your monthly income total. How does it look? Are you comfortably in the positive or barely? Or are you in the negative?
If you're barely in the positive, or if you're in the negative, it's time to reduce your overall expenses. What are you willing to get rid of? Be ruthless and red line extraneous expenses out of the picture. You can also shop around for better telephone rates, cell phone rates, and insurance rates. Make changes where you can.
Phone your credit card companies and try to get your interest rates reduced; sometimes they're even willing to negate past due and over the limit fees. Your goal here is to reduce your overall debt from your credit lenders. See if you can refinance your home for a lower interest rate. Be relentless in searching for better deals.
Pay your highest interest rate debt first, over the minimum if you can, by as much as you can. When that one is paid off, do the same with your next highest interest rate debt. This is called Accelerated Debt Payoff, and it works extraordinarily well in reducing debt fast.
If your paycheck isn't already automatically deposited into your bank account, set that up. You're less likely to take cash out if you're not going to the bank to deposit it yourself. Set up a maximum of how much you can withdraw per pay period - and stick to it.
When you have to make a purchase; take the time and search for sales and discounts. Check internet auction sites and your local paper for gently used items to save even bigger bucks. Be a smart shopper and look for the best quality for the lowest amount out of your pocket.
If necessary, find ways to increase your income. Work a few extra hours at work; get a second job; capitalize on a skill you have (such as baking, automotive repair, computer technology) in your community, or even have a garage sale.
Make the decision now to adhere to a budget that includes some, or all, of the above techniques and you will succeed in reducing your debt to a more manageable level. The next step? Eliminating it completely so you can have a solid financial platform to build your life upon.
Sunday, September 24, 2006
Accelerated Debt Payoff or Debt-Stacking
If you're attempting to pay off your debt by sending slightly more than the minimum to each of your lenders per month, you're probably getting frustrated at how slowly the balances are dropping. Guess what? You can make a huge difference in shortening that payoff time, as well as paying far less interest, by making one important change. It's called Accelerated Debt Payoff - also known as Debt-Stacking - and it's a proven method of retiring your debt in a quick and speedy method. How does it work? Read on...
First, determine what you're currently paying, in total, toward debt per month. Once you have that figure, rank your debt from the highest interest rate to the lowest interest rate. Simple so far, right? It gets easier! Now, you pay the minimum only, not one dime over, to every debt you have EXCEPT for the one with the highest interest rate. For that debt, you pay the minimum plus whatever you have left from that total sum you figured out earlier. You continue to do this each and every month until your highest interest rate debt is paid off. When that happens, you apply the savings you now have from the paid off debt to the next highest interest rate debt on your list - and so on, and so on. Before you know it, you'll be debt free.
Why does this work? You are focusing all your extra money on one debt at a time instead of spreading it out over all of them. By targeting the highest interest rate debt, you're erasing your most expensive liability quicker. As each debt gets paid, and you have accumulated savings to continue to apply, each successive debt is wiped out faster than the one before. You'll be happily surprised at how expedient this process is!
Don't worry if you've already consolidated all of your debts into one big loan. You should still be able to do this, to a certain degree. As long as your monthly payment for the consolidated loan is less per month than your individual payments were combined, you can make this work. Take a bit of what you're saving, and apply it to the consolidated loan payment to see a quicker payoff and less interest paid overall. For example; let's imagine that your total debt payments before the consolidation came out at $250.00, and your consolidation loan payment is $135.00. You have a savings of $115.00, and even adding a miniscule $10.00 on per month will make a surprising difference in long term payoff time and interest savings.
With this knowledge, you can now apply the money you were already spending in a more effective manner. Which means each dollar you spend toward debt becomes far more valuable and works that much harder for you.
Let's face it, getting out of debt can be a lifelong battle if you go at it incorrectly. Having the proper information will make all the difference in dealing with you debt in the best possible way.
First, determine what you're currently paying, in total, toward debt per month. Once you have that figure, rank your debt from the highest interest rate to the lowest interest rate. Simple so far, right? It gets easier! Now, you pay the minimum only, not one dime over, to every debt you have EXCEPT for the one with the highest interest rate. For that debt, you pay the minimum plus whatever you have left from that total sum you figured out earlier. You continue to do this each and every month until your highest interest rate debt is paid off. When that happens, you apply the savings you now have from the paid off debt to the next highest interest rate debt on your list - and so on, and so on. Before you know it, you'll be debt free.
Why does this work? You are focusing all your extra money on one debt at a time instead of spreading it out over all of them. By targeting the highest interest rate debt, you're erasing your most expensive liability quicker. As each debt gets paid, and you have accumulated savings to continue to apply, each successive debt is wiped out faster than the one before. You'll be happily surprised at how expedient this process is!
Don't worry if you've already consolidated all of your debts into one big loan. You should still be able to do this, to a certain degree. As long as your monthly payment for the consolidated loan is less per month than your individual payments were combined, you can make this work. Take a bit of what you're saving, and apply it to the consolidated loan payment to see a quicker payoff and less interest paid overall. For example; let's imagine that your total debt payments before the consolidation came out at $250.00, and your consolidation loan payment is $135.00. You have a savings of $115.00, and even adding a miniscule $10.00 on per month will make a surprising difference in long term payoff time and interest savings.
With this knowledge, you can now apply the money you were already spending in a more effective manner. Which means each dollar you spend toward debt becomes far more valuable and works that much harder for you.
Let's face it, getting out of debt can be a lifelong battle if you go at it incorrectly. Having the proper information will make all the difference in dealing with you debt in the best possible way.