The Four L’s

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March 2013′s issue of Money magazine has a great feature article entitled “Retire the Way You Want: Six Secrets to Securing Your Dream” What I expected the article would be about was six different investment vehicles or instruments, i.e. diversified portfolio of stocks, treasury bonds, ETF’s, Mutual funds, etc. In fact only the first of the six secrets talked about Investments.

Family Health Career Investments1. Investments
2. Health
3. Career
4. Family
5. Midlife Changes
6. Debt

These were the six topics discussed with relation to your dream retirement. While most retirement planning will involve making sure your financial house is in order, and that your portfolio is diversified, I really enjoyed reading an article that pointed to some overlooked important issues that greatly effect how and when we can retire, like Health and Family.

I definitely suggest any and everyone read this article. A lot of financial guides and books on personal finance will point out “the things college doesn’t teach us” with regards to our money. The book will go on to talk about real estate tricks and tips and knowing tax law. What a lot of the books won’t talk about however is how important our health is in our younger years to our retirement. Staying active throughout our 30s, and 40s will help us avoid ailments or chronic sickness in our 50s and 60s. By avoiding health issues around retirement we are able to save that money that might have otherwise been spent on Healthcare costs. This is just one example of why its important to not focus solely on money or our portfolio, but in fact there are some other major related factors when it comes to retiring when and how we’d like.

So, without getting too mushy and off topic I thought of a few words that seemed relate-able to the aforementioned article.

The Four L’s

Live Modestly – By this I mean, keep your expenses low. The majority of us, as we save for retirement, will not have the luxury of living a luxurious lifestyle. We will need to budget, save and live within our means. A mistake many people make is to increase their expenses as their salaries and savings increase. Instead of allowing your expenses to rise, increase your savings.

Love your family – A family that stays together, plays together. When it comes to your relationships, spouses and children, put them first. Don’t live at the office or live to work. Live to love and be with family. An good and decent employer will respect the home / work life balance. Sleeping at the office may get your that raise but what good will all that extra money do if you end up divorced or missing your children’s milestones.

Laugh Often – Even when its not that funny. Laughing every day will will decrease blood pressure, reduces stress brought on by hormones, increase the response of tumor and disease killing cells and increase memory and learning. That doesn’t include the short term gratification we get from laughing and other benefits.

Learn, Learn, Learn – Never stop learning. As we get comfortable in our older years we get complacent. Complacency is a huge disadvantage in our career and in our home lives. If there is one constant in the world, it is change. As things change so must we. Getting stuck in our ways is a great way to lose our job, keep bad spending habits and lose touch with family and our kids. As your children grow old everything will change. Their taste in music, clothes and friends. Learn about your children, listen to their music listen to their banter and respect their opinions and feelings. Stay close to your family and grow with your job and company. Never stop learning.

Debt Consolidation – Pros & Cons

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Can debt consolidation be beneficial for debtors or people who are in debt trap?

Debt is a word that all of us are quite scared of. Unfortunately, today most of the Americans have got used to this word because debt has become an integral part of their lives. The reason for this appalling condition has stemmed out due to our ever increasing urge to spend and spill more than what we earn or what we have, the increased usage of credit cards or plastic money or better still the ease of getting money for tying over emergencies in the form of pay day loans or cash advances. But in this process, we forget the repercussions of getting ourselves into debt and worse still the subsequent difficulties in coming out of this debt trap. But just like to every problem there is a solution, so in order to get out of the debt problem, we have a debt consolidation program in place. However, it entirely depends upon the circumstances in which we make use of such an arrangement.

debtDebt consolidation – What is it all about?

Debt consolidation is a method of combining all the existing debts into one single payment option taken from different lenders to pay off the overdue amount in installments over a certain length of time and relatively at a much lesser rate of interests. There are different types of debt consolidation options available like pay day loans debt consolidation,credit card debt consolidation,signature loan,debt consolidation mortgages etc. But to ascertain which debt consolidation would be be beneficial for you , it is important for you to know the interest rates and the amount that you would have to pay over a given period of time as many consolidation programes are accompanied with a high rate of interest too.

The Positive Aspects of debt consolidation

There are situations when debt goes out of control for almost everyone, be it debtor or people who have fallen into debt. In such a situation, debt consolidation will help them solve their debt problems soon. The main advantage of opting for this program is firstly, your several bills get combined into one. As such, you don’t have to take the trouble of handling more than one creditor at a time. You make a single monthly payment on all your outstanding debts. Also, you get the advantage of reduced interest rate on your bills. which makes it much easier for the debtors to wipe away debt problems without defaulting on their payments. Hence, this method helps many to get rid of the debt payments gradually but in an effective manner.

The Negative Aspects of debt consolidation

Though debt consolidation can help you to bring your finances under control to some extent, but there are few negative points to it as well. Though debt consolidation companies give you the relaxation to make your payments over an extended period of time, yet many of them make money by charging higher rate of interest on the given loan which finally leads you to pay more than your original principal amount. So, eventually you find yourself paying more than you actually owed which can be quite frustrating at times. Secondly, this method helps you to get over debt but cannot help you to develop the habit of avoiding the need to borrow and pay off. Once the debt gets paid off, the next thing you think of doing is borrowing money again since you know you could do away again with the help of a debt consolidation program.

Hence, spending within limits and a proper financial planning can do wonders for most of us in helping us getting out of debt than falling into the debt trap and looking for several options for debt consolidation.

Author Bio: Robert Stone is a financial writer who has an expertise in writing variety of personal financial topics like debt consolidation, debt snowfall, debt avalanche, and waterfall approach to debt free™ and the likes. He is also a columnist for various financial websites as well.

Student Loan Debt Expert

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Total Federal and private student loan debt now exceeds 1 Trillion dollars in the United States. As of June 2012 the total student loan debt exceeded total credit card debt. Student loan debt poses an enormous obstacle to college age students and recent college graduates entering the workforce. As if the poor economy and competition with peers isn’t enough of a challenge. I personally think this country needs to rethink the way we educate our youth. As of November 2012 the United States ranked 17th in the developed world in education, yet somehow our schools and universities get away with charging tens of thousands dollars per year to students and families that can only borrow and borrow and borrow. Putting themselves deeper and deeper in debt.

Tips From The Expert: Mark Kantrowitz

Borrowing money to pay for something, whether it be tuition, a car or a pair of jeans is an easy fix to satisfying a want or need. What the people loaning you the money don’t tell you is there is no easy fix to paying it all back. Paying down debt can be a slow painful road. Student loan debt in particular is one of those necessary evils. There is a lot of advice out there for paying down your debt and I can guarantee that the best advice starts with having discipline. Mark Kantrowitz is a nationally recognized financial aid expert. Here is a list of tips he included in an April 2011 article “How to Minimize Student Loan Debt”

  • Save before enrolling in college.
  • Search for scholarships on free scholarship-matching sites like Fastweb.
  • Enroll at a less expensive college.
  • If you enroll at an out-of-state public college, try to establish residency first so that you can qualify for in-state tuition.
  • Compare colleges based on the out-of-pocket cost.
  • Live at home with your parents.
  • Borrow federal first.
  • Before buying something with student loan money, ask yourself whether you’d still buy it at twice the price.
  • Pay the interest on unsubsidized loans during the in-school and grace periods to prevent the loan balance from growing larger.
  • Work part-time during the school year and full-time during the summer to earn money for college.
  • Graduate with a Bachelor’s degree in four years, not five or six.
  • Don’t switch majors or transfer colleges.
  • After you graduate, accelerate repayment of the highest cost loan first.

Kantrowiz goes into detail on each list item above in his article “How to Minimize Student Loan Debt“

Don’t pretend like your student loans are non-existent. Don’t indulge in expensive dinners or clothing. Admit openly and publicly that you want to GET OUT OF DEBT. Live like a student in debt. Do everything you can in the short term, be thrifty, save and focus on paying down your loans so that you have a better quality of life long term.

Related articles

What Is a Mortgage?

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Your mortgage in real terms means ‘mortgage loan’ and this loan is secured by real property.  There are a number of features of a mortgage loan, the size (amount) of the loan, maturity of the loan, interest rate and method of paying off the loan are a few characteristics. Mortgages are most often obtained through a bank or a credit union. It is normal for home purchases to be funded by a mortgage loan.

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The majority of people do not have sufficient liquid funds to buy a home or property outright so they pay a fraction of the cost and borrow the rest from a bank or credit union. The most common type of mortgage loan is a 30 year conventional mortgage. This means if the owner makes the minimum payment on his loan each month, it will take him 30 years to repay the bank the principal balance of the loan plus all the interest the bank charges via a fixed interest rate attached to the mortgage. This interest rate is determined by the lender’s risk. In addition to a 30 year fixed loan you can choose a 15 yr fixed loan. (With a 15 year fixed loan it is typical that you’ll receive a lower interest rate). There are other types of mortgages such as 7/1 and 5/1 year ARMs or Adjustable Rate Mortgages. These types of loans are beyond the scope of this article.

Mortgage loan interest rates are currently at historic lows. Most home buyers are able to borrow money at interest rates of 3.5-4.5%. Interest is calculated on an annual basis. For example, if you borrow $100,000 with a 30 year mortgage and interest rate of 4% you would calculate your payments as follows.

$100,000 / 30 yr = $3,333.33 – This is how much principal you will owe the bank each year.
$100,000 x 4.00% = $4,000.00 – This is how much interest you will owe the bank each year.

Dividing these numbers by 12 will give you the amount of your monthly payment or $611.11 per month.

There is one additional figure that can be included in your mortgage payment. It is your choice as to whether you would like to escrow your property taxes into the loan. Most if not all states in the country charge homeowners a property tax. The bank can pay your property tax for you and if you choose this option your mortgage payment goes up. Using the above example let’s assume that property taxes on your home or land are $4,300 per year. Divide this number by 12 months or $358.33. This is how much your mortgage payment will increase for a total monthly payment of $969.44.

This is a simple and short explanation of a mortgage loan. If you’re interested in finding out what mortgage interest rates are in your area and based on your credit score I recommend visiting Zillow.com/mortgage-rates/.

Debt cont. (Mortgage)

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I want to take a moment to mention someone and her e-book who offers up an additional method for paying off your debt and more specifically your mortgage in up to 1/3 of the period of your loan.

With the amount of interest we pay the banks over 30 years, 15 years, or the life of our loan, any tips to pay down our mortgages faster is welcome. This particular tip was one I hadn’t heard before, and one that you might call a ‘reverse debt waterfall’. The best thing about this approach is that it starts with only a little extra money, which when we’re strapped with debt can be hard to come by. The example she uses starts with a mere extra $30 a month.

So check out Kate Ford’s e-book The Mortgage Freedom Project: Kate Ford’s Magical 6-Step System to Paying Off Your House Faster and Easier than You Ever Thought Possible. Check out Kate’s web site as well, Get Your Best Mortgage Rate.

The Mortgage Freedom Project

Pay Down Your Debt

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Think ZERO Debt, stay POSITIVE, get CREATIVE.
You can climb that mountain of debt successfully.

So many of us struggle with debt. Credit Card debt, Student loan debt and other forms of high interest debt that seems never ending. But it’s not never ending! You CAN climb that mountain of debt and there are several ways to do so, some more traditional and some more creative. Let’s start with the traditional.

Debt Waterfall and Avalanche

The Waterfall and Avalanche Method of paying down your debt, assume that you have a little extra money each month to pay down your credit cards. Before I knew about these two methods I wasn’t sure exactly how to approach paying off my credit cards. I used to evenly distribute the extra money across all cards. This isn’t bad but there are two better ways.

The Debt Waterfall method involves paying off your high balance card first. Here is a good way to go about it. Line up your credit cards from highest to lowest balance owed. Give a name to each card and input the info into your spreadsheet program along with due date, amount of payment, balance owed, credit limit, APR. Similar to the below example.

Debt Waterfall Example

 

With the little extra money you have each month, put it only towards the highest balance owed card and pay the minimums on your other cards. This way you are paying off the creditor you owe the most to first.

The Debt Avalanche approach is a little different and is based on paying down your high-interest cards first. As in the previous example, line up your cards on a spreadsheet program, except this time, instead of putting them in order of highest to lowest balance owed, line them up highest to lowest APR, like the below example;

Debt Avalanche Example

 

Is one way better than the other? I can tell you this, a majority of people prefer to use the Waterfall Method. With the waterfall method you are it’s possible you will be paying higher interest rates on the same balances. However, if you pay down enough of one card that has a lower interest rate, you can transfer the balance from your high interest card to your low interest cards. With the Avalanche method you are paying lower interest on the same balances. I paid down my cards using the Avalanche method.

Debt Consolidation

The above examples include pictures which assume a person with 4 credit cards and balance outstanding of $16,250. The interest rates vary from 10.99% to 22.99% with a weighted average 16.21% (I used this free online credit card weighted average calculator to figure it out.) The idea behind consolidating your debt is lower that interest rate and pay only one creditor, instead of four. But before you start contacting Debt Consolidation companies (of which there are many) got to your local bank, maybe the one you have a checking account with, and see if you take out a conventional loan. A bank may be hesitant to do so if you do not have the assets to back up the loan, but it is worth a try.

There are tons of Debt Consolidation companies that would love to help you pay off those cards and give you a lower interest rate on your payments. The reason I mention trying to get a conventional loan first is because these Debt Consolidation companies can hurt your credit score. They will force you to close the credit cards. A closed account negatively effects your credit score.

Creative Financing

It wasn’t until recently I stumbled across two sites that I think are awesome. Fortunately right now I don’t need their services but if I did I would most definitely sign up. Prosper.com and LendingClub.com are two web sites that allow you to go into the open market and request funding from people who are looking to earn interest on their investments, and their investment is in YOU!
You apply to these web sites, explain why you need a loan. The most common reason being Debt Consolidation, but you can request a loan for anything, wedding funds, home repairs, etc. If approved your request is sent to the list of people looking to borrow money and presented to investors who see that you need $16,250 and are looking for interest rate of 10.99% and based on your credit score and other factors, investors then decide on whether or not they think you are a good investment. Pretty sweet!

The last option, and maybe not THAT creative is to ask people you know. Your parents, siblings, friends. Ask them for a loan with interest. Maybe you won’t get everything you need but you might be able to get some. You may even be able to provide them with services in return for repayment.

Most important is to stay positive. It is a burdening feeling to have creditors blowing up your phone, but if you let it get you down, or worse, if you ignore it you can end up hurting your credit score, attitude and future opportunities to borrow money.

Think ZERO Debt, stay POSITIVE, get CREATIVE. You can climb that mountain of debt successfully.

Debt, Get Serious!

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debt001It’s an UGLY word. A word so ugly that many of us love to ignore it. We open a credit card or department store card here or there, we make our minimum payments and then we run and hide. I know people who stuff their bills in a basket and sit down to pay them when the basket overflows. As if the size of the basket determines the due date of the bills!

When we do finally sit down to pay our bills, we think to ourselves, ‘I wish I had more money’ or ‘I wish I was a millionaire’ or if you’re a millionaire ‘I wish I was a billionaire’. The cold reality is that unless we win the lottery, in order to become a millionaire we need to get serious about our debt.

Paying off our debt is one of those necessary evils that seem like an endless uphill battle, and it can be! If you pay the minimums on your credit card each month, the $50 pair of jeans you charged to your card last year may end up costing you $150!

Minimum Payments Equal Maximum Cost!

Minimum payments are calculated as a percentage of your balance. Its typical this is between 1% and 3%. Included in the minimum payment is interest, also called the APR (annual percentage rate).  Your credit card agreement will describe how your minimum payment is calculated.

If you had a credit card with a $5,000 balance at 14% APR and a 2% minimum payment it could take you up to 22 YEARS to pay it off and over $5,000 in interest! Remember, minimum payments equal maximum cost.

A few years ago I had a credit card with a $4,000 limit and it was MAXED out. My interest rate was 22.99% APR. My minimum monthly payments were $110.00 per month. $76.63 of that was interest!

Put the Card Away!

Next time you go to use your credit card think about the real cost of the item you’re buying and ask yourself this question, “Am I willing to pay three times as much for this same item?” If the answer is no, then PUT THE CARD AWAY! If the answer is no then whatever you are buying, YOU DON’T NEED! All the interest you pay your credit card companies is money you could be using to invest in something else. This is called Opportunity Cost. If you can think of at least one better thing to do with your money than to pay $450 for a pair of shoes, then PUT THE CARD AWAY!

Saving, investing and growing our money all seem like visions of grandeur while we carry all this debt on our backs. But saving our money is a very real reality. One that each of can begin doing if we take the first step which is getting serious about our debt. The next step is actually paying it off!