Budgeting & Banking

Use Budgeting to Reduce Your Debt

Many Americans live their daily lives without a budget, possibly why the average American household is  over $8,000 in credit card debt. People in these difficult financial situations often say that the reason they have fallen upon hard times is because they do not make enough money. More money does not always solve the problem; more money often leads to more problems. The real solution to financial problems is planning, or budgeting.

With a little knowledge and effort, anyone can begin creating a budget to reduce their overall debt.

First, stop adding debt upon debt. It’s of the upmost importance that you quit accruing debt immediately. Use cash for your purchases, not your credit cards. If you can’t pay cash, you don’t buy it. Period.

Next, 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 – everything.

Now, determine your total income. Subtract this total from your monthly income total. Where do you stand? 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 can you get rid of? Eliminate extraneous expenses. 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. Consider contacting a non-profit credit counseling company. Debt consolidation or debt settlement might be a consideration for your situation. Your goal here is to reduce your overall debt from your credit lenders.

If you shift your focus from short term to a long term point of view, you will find that you will eliminate many of your wasteful spending habits. Furthermore, you may find that you are saving money for a rainy day, possibly even investing. Once your financial maturity reaches this point, you will no longer fall prey to life’s unexpected expenses. This is the only way to reach financial independence.

Return to Thrifty Spending Issue 106

Signs that you may be in trouble with your debt!

The following are indications you have a debt problem:

1. You do not have any savings.

2. You make minimum payments on your credit cards.

3. You use credit cards for things you used to buy with cash, such as groceries.

4. You use increasing amounts of your total income to pay off debts.

5. You have more than two or three major credit cards.

6. After you pay your credit card bill, you increase your balance by the same amount (or more) the following month.

7. You are at or near your credit limit on your credit cards.

8. You count on the float in order to pay your bills, writing a check hoping that you’ll be able to cover it by the time it clears your bank.

9. You are unsure of the total amount you owe on all your debts.

10. You take out cash advances on your credit card to pay other bills.

11. You have tried to make a purchase with your credit card and been declined.

12. You have been denied credit.

13. You bounce checks.

14. You get calls from collectors.

15. You lie to your spouse or other family member about your spending, hide credit card statements or constantly argue with family members about your finances.

Here are some other warning signs that you might be piling up too much debt:

• You cannot pay off the bill in full each month. Even before you get to the stage where you’re only paying the minimum, there are warning signs. If you rarely see your credit card balance drop to zero, you need to start rethinking your spending/saving plan.

• You are charging because you haven’t got the money. If you are making purchases with your credit card because you can’t afford to pay cash for it, that’s a strong sign you are in financial trouble.

• You are near or at the limit with your credit cards. You have spent yourself into a corner, and the credit you need for everyday life is used up.

• You are suffering physically. Your brain is recognizing that your spending patterns are in conflict with your income and your anxiety level increases.

• You are running up unsecured lines of credit. Many institutions offer lines of credit or overdraft protection on checking or savings accounts. If you are utilizing these services on your accounts month to month, then you have a problem. Because these services usually have a cost associated with them, they can be costly every time they are used.

If you realize that you are in over your head, the sooner you act, the easier it will be to get out from under the burden of debt. Beware of companies that promise to fix your credit. Talk to a Certified Credit Counselor at DMCC today and start with a free budget counseling session  and get control of your finances today!

DMCC is a 501 (c)3 nonprofit organization committed to educating consumers on financial issues and providing personal assistance to consumers who have become overextended with debt.  Education is provided free of charge to consumers, as well as personal counseling to identify the best options for the repayment of their debt. To speak to a certified credit counselor, call toll-free 866-618-3328 or email contact@dmcconline.org

Ever wonder how someone with limited income manage to live comfortably while someone with a more desirable income manages to be under water? While some people may believe that inadequate income contributes to their mismanagement of their finances, those who desire to get out of debt and remain debt free believe in a different approach Its not how much you make, its how you spend it.  More often than not, it seems people of modest means who exhibit an ability to properly manage their finances have a combination of multiple characteristics.

1. They’re Detail-Oriented

People who are in a good financial position always pay close attention to their personal finances. They know how much they earn and they keep track of how much they spend and where every penny goes. Because they’ve got a good handle on the state of their personal finances, they are less likely to buy something they can’t afford.

2. They Realize Debt Is A Mortgage on Their Future

I remember somebody once telling me that debt is a form of indentured servitude where we end up sacrificing our future earnings in exchange for instant gratification. Financially savvy people understand that, in most cases, such a trade almost always ends up being a Faustian bargain.

3. They’re Pragmatic

More often than not, folks who are debt-free are also practical people. Because they are practical, they understand the meaning of value. For example, a car is often looked at merely as means to get from point A to point B, so why buy a Lexus when a Corolla will do? In the same vein, why pay double for designer jeans that will last just as long as the no-name alternatives? Such a philosophy even stretches to the grocery store, where name-brand items often give way to their store-brand counterparts.

4. They’re Self-Reliant

Most people who work hard to maintain a life of financial freedom take pride in being self-reliant. To that aim, they make sure they always live within their means, and save as much money as they can for a rainy day or when times get lean. (They’re also quick to give when others fall on hard times.)

5. They Aren’t Addicted to Shopping

We all know there are people out there who get a high on spending money, whether they have it or not. While not physically destructive like a drug or alcohol addiction, an uncontrolled shopping habit will make it virtually impossible to remain debt free.

6. They’re Patient

People who are debt-free didn’t get there because they were impulsive shoppers, or always looking for instant gratification. If the money for something wasn’t in the budget, then they saved their money and waited.

7. They’re Self-Confident

Because they refuse to let their self-worth be defined by their possessions, the financially free never feel any pressure to spend money in order to try and keep up with the Joneses. Those who are debt-free understand that their status in life is more accurately conveyed by self-confidence, rather than dubiously deceptive displays of wealth.

8. They Realize Credit Cards Are a Double-Edged Sword

People who are in control of their personal finances aren’t afraid of credit cards. In fact, they embrace them. And while the financially savvy understand the incredible benefits that credit cards provide their owners, they also know that if they fail to pay them off in full at the end of each month, they will pay a heavy price. This knowledge fosters a healthy respect that keeps their credit cards from being abused.

9. They Believe In Personal Responsibility

Financially responsible people refuse to make excuses. If they lose their job, they know it’s their responsibility to have a rainy day fund in place – and if they don’t they’ve got no one to blame but themselves. Short of an unforeseen catastrophic medical issue or natural disaster, they also understand that when it comes to living within one’s means, they are in complete control of their own destiny.

10. They’re Not Materialistic

The pursuit of expensive toys and other possessions can certainly make life more luxurious. But at what cost? I know it’s a cliche, but most people who are debt-free understand better than most that money cannot buy lasting happiness. As such, they often tend to live simpler lives that focus on the joys of family, rather than the accumulation of material possessions.

How many of them apply to you?

REFERENCE : 10 Key Characteristics of Debt Free People

If you find yourself using your savings account to pay bills or prevent your checks from bouncing, then its time to reevaluate your spending habits. This may seem like a difficult task at first, but after a short period of time, saving money should become a breeze. To better reap the rewards of a savings account, update your budget on a regular basis and become familiar with your banking options.

It seems tedious and time consuming to keep track of every dollar you make, but starting now is better then walking a tight financial rope. Once you have figured out how much you can safely deposit into a savings account, then your next step is to make the most out of what is being offered by financial institutions. Interest bearing savings accounts are offered with most major banks, but how would you know if there are better rates being offered elsewhere?

The easiest method is researching and comparing rates through the Internet. If you are computer savvy, jump online and check out local banks as well as www.bankrate.com. This one stop shop offers comparisons between many of the local, national, and virtual banking institutions and even includes current promotional information. Linking an existing bank account with a savings account offered by another bank can be tricky, but many of the virtual banks allow you to make deposits and withdrawals as often as you need to. You have completecontrol of your money. Virtual banking is no different then banking online with the traditional bank; both financial institutions offer all of the same benefits. When looking at banks, be sure to compare virtual banks with the standard “brick and mortar” banks. Virtual banks do not have the costs of maintaining physical locations so they can provide their customers slightly higher returns on their investments.

As with budgeting, when you put your money into a savings account, it is a good idea to review your financial goals. What do you have planned for the next 5, 10, or 15 years? When you figure out an amount you wish to save each pay period and a specific goal to achieve, you can safely make timely deposits into and watch your money as it works for you. This can be done through a regular savings account, by purchasing a certificate of deposit or committing to a retirement fund.Before you open a bank account, take the extra time you need to get all of your information. First, make sure that you know exactly what fees they charge and how they assess them. No matter what type of account you open, you want to make sure it is free of monthly service fees and, unless you have enough saved elsewhere, that they do not require a minimum balance. If an emergency comes up that requires you to withdraw an amount that would lower the balance below what they require, being penalized will do you little good. Also be certain to review the banks history, credentials and make verify that it is FDIC insured. Lastly, pay attention to the customer service you and others have received. This will give you an idea of what type of service you can expect to receive in the future. If you are not content, take your money and business to another bank.

Once your strategy for savings is put in motion, the most important thing to do is keep yourself motivated. Dipping into a savings account is tempting and, all things considered, cheaper then using a credit card. If you decide to take out money from your savings account, be sure you set a limit on how much you are going to spend and plan for how you can put additional money into the savings account to cover the withdrawal. It is all too easy to use the money you work so hard for on items you may not need. If you notice the amount in your savings account dropping and havent set up a good plan to put the money back in, then get creative. Bake cookies, paint a picture, write a poem; these are not only great gifts for the holidays are very rewarding activities too.

DMCC is a 501 (c)3 nonprofit organization committed to educating consumers on financial issues and providing personal assistance to consumers who have become overextended with debt.  Education is provided free of charge to consumers, as well as personal counseling to identify the best options for the repayment of their debt. To speak to a certified credit counselor, call toll-free 866-618-3328 or email contact@dmcconline.org.

Although it is extremely easy to get into massive amounts of debt very quickly, it takes time, discipline, and commitment to get out of debt. You have to make a life-changing decision that you no longer wish to be in debt because getting out of debt is going to affect every area of your life.

The first thing you need to do is to complete a spending inventory to find out where you are right now. A spending inventory is simply a list of everything you spend for an entire month, whether by check, charge, or cash. This will help you locate the waste in your budget. Most everyone can find $100 to $200 a month in wasteful spending that can be cut. This additional money can be used in your plan to get out of debt.

When you make getting out of debt your top priority, it affects your thinking, decision making, and habits. If you usually walk around the mall at lunchtime and end up compulsively buying things, then you will no longer go to the mall. Instead, you will take a brown bag lunch to work or eat in the company’s cafeteria. You will begin to analyze every purchase to decide if it is really necessary. You will cut unnecessary expenses and learn to live frugally. It’s important, as you start your plan of action, that you do not incur any new debt. Begin to only purchase things that you can pay for in cash.

One of the biggest benefits of being debt-free is peace of mind. You will no longer have to be stressed out about money.

DMCC is a 501 (c)3 nonprofit organization committed to educating consumers on financial issues and providing personal assistance to consumers who have become overextended with debt.  Education is provided free of charge to consumers, as well as personal counseling to identify the best options for the repayment of their debt. To speak to a certified credit counselor, call toll-free 866-618-3328 or email contact@dmcconline.org.

Debit cards  also known as check cards, ATM cards, and express checking cards can be used to withdraw cash from your bank account via ATM and make purchases without using credit. They look similar to a credit card and work by taking the money directly out of your bank account.

Two types of Debit Cards

A traditional debit card is issued through your bank and requires a personal identification number, or PIN, to complete a transaction. A PIN-based or direct debit card removes a purchase price from your checking account almost immediately. These kinds of debit cards are accepted at gas stations, supermarkets and stores such as Wal-Mart, Walgreen’s and Target. A deferred debit card is also issued through your bank but bears a logo of a major credit card company. To use it you can enter a PIN or sign for the purchase as you would with a credit card. A signature-based or deferred debit card has a Visa or MasterCard logo. These cards are accepted anywhere Visa and MasterCard are accepted. Just hand the clerk your card and sign a sales slip and you’re done. The purchase amount will be removed from your bank account in two or three days. When you swipe your card through at the checkout line, you’ll be asked if you want to pay by debit or credit. If you hit “debit,” you’ll need to input your PIN number. If you hit “credit,” you’ll need to sign the sales slip.

PIN offers the best protection

Some consumer experts urge people to choose PIN-based, direct debit cards only. With a PIN-based debit card you have to know the PIN number to make a purchase. With a signature-based debit card, anyone could pick up the card and sign your name to it. It may limit the number of places you can use it. But that’s the tradeoff you make for extra security.

Return policies can vary

According to the ABA many merchants treat a debit card purchase as they would a personal check or cash. This means you may get several hundred dollars in store credit instead of a refund for debit card purchases. So as a dissatisfied debit card customer you’re pretty much stuck trying to resolve the dispute with a merchant on your own. It could go on for weeks or months and when it’s all said and done you may not get your money back. When you make a purchase with a credit card you have the option of withholding payment should you be unsatisfied with the quality of an item. This right is protected under the Fair Credit Billing Act. This federal law does not apply to debit card purchases. In summary it makes sense to use credit cards when ordering merchandise from the Internet or a catalog or for big-ticket items or expensive services. Debit cards are a great way to pay for everyday items such as gas or groceries. A debit card can also be a good money management tool if you’re diligent about recording every single transaction in your checkbook.

Fees

According to the Wall Street Journal one in five banks add a charge for each transaction completed by entering a PIN. Other fees are levied for minimum balance requirements, ATM use or even for having the debit card itself. The Board of Governors of the Federal Reserve estimates that 15% of all consumers with debit cards are subject to debit transaction fees. Therefore when you chose a debit card first find out what kind your bank offers and ask about the fees. If you chose to have overdraft protection, please refer to the overdraft protection article from DMCC for additional information.

DMCC is a 501 (c)3 nonprofit organization committed to educating consumers on financial issues and providing personal assistance to consumers who have become overextended with debt.  Education is provided free of charge to consumers, as well as personal counseling to identify the best options for the repayment of their debt. To speak to a certified credit counselor, call toll-free 866-618-3328 or email contact@dmcconline.org.

A budget, or spending plan, is the best way to get control of spending and review if your money is used the way that will benefit you best. Managing money is a skill, and like most skills it requires a bit of discipline and lots of practice.

Step 1: Journalize Your Spending

Using a spending diary can help identify areas where you can reduce unnecessary expenses. Logging your spending trends, such as the daily coffee and donut, the daily newspaper, or even the soda for lunch, can be a rude awakening. The coffee and donut can cost you $1,092 a year (assuming you are spending $3 for a medium coffee and a donut…$3 x 7 days a week = $21, $21 x 52 weeks per year = $1,092).

Step 2: Estimate Your Monthly Take-home Income and Expenditures

Gather all your bills including credit card statements, receipts for groceries, gas or anything else that you buy with cash. You should also have your checkbook register available to review additional expenditures. Write down all of your expenses, broken down into categories for (1) fixed expenses like the house payment, credit card payments and car payments; (2) flexible expenses that vary each month, including the phone and electric bills; and (3) discretionary expenses, such as a gift for someone’s birthday or a scheduled outing. Add up your total monthly expenses and total monthly income. Then subtract the total expenses from the total income. The difference is available for you to use as you desire. If the total difference is a negative amount, then you are spending more than you are earning. In this case you should take immediate action to adjust your lifestyle and expenses so you do not continue to accumulate more debt.

Step 3: Plan

It is comforting and almost second nature to think that you will have more money next year. But it will not happen without some serious commitment. Before making any promises and thinking that your financial situation will change automatically, plan for change. Sit down and make some goals. Goals give you direction to realize your dreams. Establishing goals for the short, mid and long term will help you achieve financial security. Short-term goals can be met within a year, mid-term goals would probably take a little longer, perhaps five years, and long-term goals may take ten to fifteen years to achieve. Be descriptive and define the means to the end. If your goals are specific enough, you will be motivated to cut down on your spending to reach those goals. For example, you can use this tactic:

Goal(s) _____________________________

Estimated Cost _______________________

Target Date__________________________

Monthly Savings ______________________

Step 4: Reduce Your Spending

The hardest part of the budgeting process is over; now comes the commitment. Although it may seem impossible to cut your ties with some of your expenditures, you will soon become comfortable with your new spending plan. Cutting expenses is perhaps the biggest challenge people face. This can be because they are already just meeting their financial responsibilities. However, it can be accomplished. There are a few suggestions to consider:

• Pay with cash instead of writing checks or swiping your credit card. It is so easy to just write out a check or to pay with plastic. The after effects are not felt until it is too late.

• Withdraw a set amount of money every week. If you only have $50 to spend in one week, you will monitor and perhaps be a little more frugal when it comes to buying something you do not need.

• Do not create more debt. If you cannot pay for it up front, do not buy it. Should you come across something you think you cannot live without, step back and reconsider. Do you really need the extra stress of one more bill? How is making that purchase going to affect your planned goals? Even when you know you deserve something, put your wants on hold until you have the cash to pay for them up front.

• Remember your weakness. If you like to shop for clothes on a weekly basis, try to avoid going to the mall or places of temptation. If you find yourself somewhere and you want to shop, only spend the allotted amount you budgeted for.

• Rethink your shopping style. Comparison shop! Plan your purchases before you buy. Make a list of things you need before you go into the grocery store – and stay within the list.

Step 5: Pay Yourself first

The easiest way to save is to think of this category as an expense. Try not to wait until the end of the month to see if you will have money left over to put into savings. Set up a separatmoney grow. It is very important to routinely compare your budget to how much you are actually spending. Once you become comfortable with the process you will be able to alter your categories and perhaps put a little more into savings.

DMCC is a 501 (c)3 nonprofit organization committed to educating consumers on financial issues and providing personal assistance to consumers who have become overextended with debt.  Education is provided free of charge to consumers, as well as personal counseling to identify the best options for the repayment of their debt. To speak to a certified credit counselor, call toll-free 866-618-3328 or email contact@dmcconline.org.