Archive for March, 2009
Knowledge is power, and it isn’t that we don’t thirst for knowledge, it is just that knowledge oftentimes comes with a little bit of work. A book that I highly recommend is “
The Millionaire Next Door” by Thomas J. Stanley. I was brought up believing that being a millionaire is a life of lighting cigars with rolled up $100 bills, Rolex watches, and a Mercedes 450 SL. This book largely dispells that myth. Just as I mentioned yesterday, little things add up. You don’t think about the pennies and nickels that fall down between the cushions of the couch (until you wake up from your Sunday afternoon nap to find yourself on a mountain of money). In order to pay down your mounting credit card debt, oftentimes is begins with minute changes that free up a quarter here, a dime there, a buck somewhere else. After a while, you find that you have been piddling away a fortune without realizing it.
The premise of the book is that many of today’s millionaires are not those that are living in the biggest houses, driving the fanciest cars, are doctors, and take luxury vacations. Truth be told, there are some that are. One example of the great spending ability of some of those “excess hounds” is the television show from the 1980’s that Robin Leach hosted called “Lifestyles of the Rich and Famous”. People got their misguidance from this show and believed that you had to live the extravagant lifestyle to be rich. That simply is not so. One big key is not to live by the credit card, but to unendingy live beneath your means and save what you don’t spend.
Tags: money, saving, wealth creation
I can still remember 25 years ago when I was poor and in college (as opposed to being an adult and being poor). I was living in the dorms, and the dorm did not feed students on Sunday night. Several local establishments made profit on this as they offered all-you-can eat buffets on Sunday evening. Dominos Pizza did a booming business on Sundays. But soon the summer lawn-mowing money ran out and we were forced to find a low-cost alternative. To the rescue came Ramen noodles. Back then you could buy fifteen packs for a buck (now it is more like 8 packs a buck on sale). We were in heaven. We could fill our bellies with cheap food and life was good. But we grew up. We shuddered at the thought of buying Ramen noodles just to save some cash. But now, the analytical mind kicks in. Even if you only had it one night a week, there’s money to be saved there. Let’s say that a meal costs on average five dollars to fix. If you were to fix just a bowl of Ramen noodles, you could save $4.75 (that’s when you purchse them not on sale). If you were to be able to save that at 10% for twenty years, you will have saved $14,364.57. Not bac for one meal a week. For some delicious noodle recipes, you could always go here.
The point is this: sometimes making a small change can build up to big results. The key is to looking long term and keep in mind that the “expensive” dreams are really achievable with just a few moderate changes in everyday habits. It can help you to eliminate your credit card debt.
Tags: credit card debt elimination, money, saving
I have had a soda habit since 1982. At first, it was a can or two in the evenings when I would sit down at my dorm desk to study. But as many habits do, it grew and it grew. No longer satisfied to grab a Diet Coke© from the dorm refridgerator, I would purchase one the local convenience store (located conveniently near campus). I would spend approximately $0.79. I have figured that in spending about $2.00 a day, if I would have invested that money instead, I would have saved $96,976.83. (I used the calculator
here.). That’s enough to pay for my son’s complete college education. I have failed because I squandered a little here, a little there. Believe me when I tell you that it all adds up.
I haven’t yet (but I am pretty darn close) to completely doing without. I now spend about $0.46 per day, which means I save about $10 per week. Using that same calculator, I now will be able to free up $32,761.3 over the next 20 years. Looking at that figure, it makes me want to go cold turkey and end up with close to $40,000. When we go out to eat (no more than once a week), we now get water to drink, thereby saving $4. Believe me when I tell you that it all adds up.
Tomorrow, let’s begin discussion on ways you can save on food (and save a bundle over a lifetime).
Have you ever seen a penny on the ground and left it there thinking “it’s only a penny, it isn’t worth it”? You may want to think again. The little things quickly add up to be big things, especially when there is compound interest involved. If you were to save one dollar per week (which is a mere $0.14 a day), over a twenty year period, that would add up to be $3,276.14 (with a 10% compounded interest). Divide that amount by 14 and it works out to be $234.01. I can only imagine that if you were doing laundry and found $234 in a pocket, you wouldn’t throw it away. Saving those pennies is actually worth it. In reverse, if you were to charge a dollar or two a day on coffee and snacks, with the interest charged, it could end up costing you even more. I found the calculator at David Bach’s site to be a real eye-opener. Now I know why people use coupons, attempt to find the lowest price on things — it all adds up!
Let’s just use a simple example. Where I work during the day, we have vending machines that offer candy bars, soda, and the like. If someone find themselves hungry for a snack (or skipped breakfast or lunch), they can always find refuge in the vending machine. A candy bar costs $0.85 and a soda costs $1.10 (your findings may differ slightly). $1.95 a day for five days equals $9.75 a week (let’s round it to $10 for simplicity sake. If you were to take that $10 a week, invest it at 10% and compound it for twenty years, that candy bar and soda habit adds up to $32,761.30. Now that is one expensive habit (and you though it was trivial). We will explore little things that you can do to free up cash to help pay down your credit card debt.
More at my website.
Tags: Add new tag, credit card debt elimination, money, saving, wealth creation
We have been discussing the various was to eliminate your credit card debt, but now that you have an idea on how your are going to do it, you need to free up some money so that you can redirect it to where you would use the little bit of of extra money that you free up to immediately begin paying down your debt. One of the most effective ways is to write down
everything that you spend money on, regardless if it is with some change in the cup holder of your car or with a swipe of your debit card. Do this for one month. It will absolutely amaze you when it is all added up. There are several tools out there for you to use. Since I now use only my debit card (and I do most of my transactions online), I used tools available at
mint.com. Another one is
The Latte Factor that is courtesy of David Bach of the
Finish Rich series of books. The premise is that there is usually something small that you engage in each day, but think that it doesn’t cost very much, so you really don’t have to worry about it. He uses the example of a $5.00 latte (I usually drink a cup of the free coffee at work, so I had a bit of a tough time relating to that, so I used a $1.49 cup of Diet Coke © for myself). David Bach has a great
calculator (free).
Just take a moment to see how much you are wasting/could be using for credit card debt elimination. In the example I had used, I had a $1.49 Diet Coke © and multiplied it times seven (because I work seven days a week) to have a figure of $10.43 per week. I used a period of 20 years and plugged that into the calculator. According the the calculations, my Diet Coke © habit costs me (over a period of 20 years) a whopping $34,170.04, practically half of my current credit card debt. And that is just one little thing. The premise is this: you probably have one or more things that you mindlessly spend your money on that can be used to build real wealth…it doesn’t have to be difficult. You might think about taking a month to write down all of your expenditures and see where your wealth is being wasted.
No matter what strategy you will use to lower your credit card debt, there is no “easy” way to hold it…it takes discipline. I realize that it may take some conditioning to get you to whee you have developed some financial muscles to overcome a rising wall of debt, it can be done. You wouldn’t expect an eighteen month-old to be able to run a lap around the local high school track: it is a progressive thing. You don’t have to have all of the answers at the very beginning. Nobody does.
The key is to do something. Ignoring the challenge does not make it go away. In fact, that is probably the worst thing that you can do…nothing. Do something. Decide to end your reliance on high interest credit cards once and for all and do something. Maybe it would begin with a taking inventory of what you owe. Knowledge is power. Read articles on the Internet about it. Talk to others about it. Arm yourself with knowledge and begin to build those financial muscles so that you will learn more, be able to do more, and gain confidence in the process. Use the little successes to build upon and have even greater successes. I began with analysis and I began by using a budget. At first I had to guess at it, but I used tools like the budgeting tools at
mint.com.
Over time, I saw patterns of spending begin to emerge and I tackled one challenge at a time. There is a lot more out there too.
I will begin talking about some ways to save money so that you can begin to free up cash to help in your credit card debt elimination.
“The times they are a changing”, at least that’s how the old Bob Dylan song went. In these tough financial times, everybody is feeling the pinch. I have read that people simply aren’t charging as much as they used to (whether they don’t want to, or they are completely maxed out on their credit cards). This may be good news for a country who has become dependent on oil, gas, fast food, and, dare I say, credit cards. This may make your journey for credit card debt elimination a bit of a gauntlet rather than a simple side-step to another path.
Just this morning I was reading about some of the sneaky ways that
credit card companies are trying to maintain their high profit at the expense of the lowly, unsuspecting consumer. It was certainly disheartening, to say the least. The credit card companies are raising minimum payments, adding new fees (which are pure profit for them), lowering credit limits (which can lower your credit score), and being less and less forgiving for late payments. All I can say is “Watch Out!!!”. One must remain steadfast and relentless in their pursuit to become less dependent on the need to have something now and pay a much bigger price later.
At times, it can be extremely tempting to consolidate all of your debt into one, convenient payment. Let’s look at some pros and cons
PROS
* Instead of having multiple payments to juggle and figure out which one gets paid at which time, when you consolidate, you will have a single payment to be made at one place.
* You know how much interest you are paying each month because it is all in one convenient location.
*Having everything in one place will show you immediate progress toward the whole.
CONS
* Depending on the interest rate that you get for your consolidation, you may end up paying more for everything in the long run.
* Once you have consolidated, it is much more difficult to get the interest rate lowered.
* The intimidation of one monthly lump sum may seem a bit unsettling at first.
I was fortunate the first time through (you will recall that I have been saddled with debt many times in my life) that I was able to secure a personal loan at my credit union. My father was kind enough to cosign for me and I was able to get a low rate with a decent monthly payment. It was certainly lower interest rate than I was paying combined on my credit cards. If you have someone who can cosign for you, a personal loan might be a good thing for you (but I am not in the position to offer you loan advice).
Read more at my website.
For The Very Disciplined
There is a school of though promoted out there that, when one exams it for the long-term effects, is an extremely good program. It makes sense because you will save money by paying less to eliminate you debt by paying the debts that have the highest interest rate first, thereby immediately lowering the interest in dollars by paying the highest percentage interest debts first. This is promoted by
John Cummuta and if you are a highly disciplined individual, you will find that this is an excellent program. Unlike last time when we discussed paying the lowest balance first and building on that success to build momentum to pay off the next-lowest bill, that plan advocates the strength in conditioning and has rewards of seeing you credit card debt eliminated chunk by noticable chunk. In the short term, you see success happen fairly rapidly. In the long term, you may have paid more interest (money) to see this success.
Let’s face it: if you were extremely disciplined, you probably would not be in the hunt for credit card debt elimination. This plan has you analyze all of your debt (not just your credit card debt) and rank them by interest rates. The theory goes that if you spend every extra dollar eliminating the highest interest first, you will pay less in interest because that balance diminishes more quickly. From a strictly analytical view, this plan does eliminate your debt well. While you may not pay off the credit card with the lowest balance first, you may pay it off before the highest interest credit card is paid off, but then you will have more money each month available to pay down that higher interest.
Next, we will examine consolidation. Visit my
website for more information.
When it comes to developing a plan to eliminate your credit card debt, there is a plethora of advice out there: some advocate paying your lowest balance first, some will preach about highest interest balances first, while others advocate evenly splitting your payment between all of the cards. Which one is right? Yes. In other words, there are good points to each method and one can argue in favor of each one, because it a certain style fits your personality, then that is the one for you.
Paying Your Lowest Balance First.
This one has some merit. Here is the premise of this plan: Let’s say you have five credit cards, all with various balances and all with different interest rates attached. Just for illustrative purposes, we’ll suppose that the minimum payment on each add up to $175 per month. You have scrimped and saved and you have an extra $75 per month (for a total available of credit card reduction cash of $250 per month). With this plan, you would pay just the minimum on four of the credit cards and apply the entire amount towards the card with the lowest balance. Once that card is paid off, you would then apply the extra $75 plus the amount that you had been paying on the lowest balance credit card to what you were paying on the next-lowest balance. When the second lowest balance card is paid off you add all you were paying on that one to the next one, and so on.
The cool thing about this is that you can see some measurable results in a fairly quick (relatively speaking) fashion. This helps to add to the feeling of success and may help you to stay the course. Some feel very strongly about this method. You can find more here.
Tomorrow, we will look at paying the highest interest cards first. Visit my website for more information.
