Archive for January, 2009

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How to Use Friends and Family to Eliminate Debt

Saturday, January 31st, 2009

To cap this week’s theme of what to do right away after deciding to get out of debt, I provide some quick tips on how to enlist friends and family in your fight for debt reduction. So far I’ve reviewed some common sense techniques and tips for creating an immediate impact in your life: setting up an instant budget, tips on how to treat critical expenses in anyone’s life, and how to seize control of a disorganized life and quickly put things in order. Even if you follow this advice for the first couple of days, the pressures to fall back into a lifestyle of high spending is a threat.

Much of the struggle to not fall off of the wagon of debt reduction stems from social pressures – friends and family that you spend time with, day in and day out – that encourage you to live beyond your budget. Here are several pointers to turn the people in your life from challenges to sidekicks in your path towards debt elimination.

Make a Debt Pledge

By making a pledge to get out of debt in front of friends and family, you can overcome much of the stress of hiding your financial situation from those in your life. And since a substantial component to spending behavior is derived from social pressures, it is better to turn this around and make your challenge moving forward known to those with whom your share your life.

Avoid Shopping Areas

If your descent into debt stems from a tendency to shop too much, then alert your friends and family that your goal is to stay away from shopping environments. Depending on how your spend your free time, perhaps they can even keep you away from stores in which you habitually whip out the plastic or greenback since a major impediment to eliminating debt are bills that you incur repeatedly.

Actively Host Get-togethers

The social pressures to spend are tremendous. Eliminate the situations in which you feel obligated to spend money by steering your entourage towards your home. Better yet, by providing a space to hang out, have friends and family be responsible for bringing the food and entertainment.

Make a Group Commitment

While making a debt pledge is valuable to get the word out that you’re aggressively going to drive down your existing debt, having others commit to the same pledge makes an even greater impact. If others in your life do not have outstanding debt themselves, then have them pledge to limit their spending to what you are shelling out. Living frugally also entails great financial gains for those who do not struggle with debt.

Enlist Help from Others

Consider having your friends and family take an even more active role in helping you to eliminate debt. Encourage them to suggest guidelines for your spending; let them set up rules to follow in order to avoid tempting situations. They may even provide you with some informal advice on debt reduction that assuages a desire to get credit counseling.

Collaborate on a Plan and Budget

As we’ve advised, getting organized and setting up a plan is paramount to successfully eliminating debt. Along these lines, solicit the advice of friends and family when deciding on what and how much to budget for each need. Not only will they clue you in to a better target amount for each item on your list, but some group brainstorming may generate creative ways of making your lifestyle work without derailing your debt reduction efforts.

A key thought to keep in mind is that for many that struggle with debt, the negatives to visiting a credit counselor can outweigh the upside: while some tips on dealing with debt will be heard, visiting a credit counselor can cause one’s credit score to drop and thus make escaping debt harder to achieve. In short, make sure to weigh all debt reduction options carefully.

Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

Learn More

Visit our website - DebtGoal.com

Learn about the DebtGoal management tool

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Posted in Debt Management, Paying Down Debt, Spending | View Comments

Build a Rough and Quick Budget in Minutes

Friday, January 30th, 2009

One of the cornerstones to successfully making progress towards debt reduction is forming a budget. But the idea of having a finely-tuned budget with a laundry list of items on it can scare some off. It is much more important to make and execute a rough budget first rather than to shy away from it and succumb to inaction. Once you’ve made the decision to reduce and eliminate debt, don’t kill your efforts. Make a simple budget that captures the major expenses each month and follow through with it. Here’s what to do.

The Big Three: Housing, Food, and Transportation

Make quick rough estimates of how much you need for one month in each of the three areas. Housing: estimate this as your rent, mortgage payment, maintenance costs, and utilities. Food: estimate this as a reasonable grocery bill for one week worth of food and multiply this by 4.5 to come up with a month-long budget amount. Transportation: estimate this as your monthly car payment, gas for commuting to and from work at 5 days per week plus one extra day for any non-work-related trips (times 4.5 for the month), plus basic car maintenance like an oil change. These three areas comprise a rough list of mandatory expenses.

Discretionary Expenses

These, unlike mandatory expenses, are easy to trim from a budget, because they are not fundamental to surviving or getting to and from work. Cut out all discretionary costs from your budget immediately, then add back in a small amount to use sparingly for your social life over the course of one month. It turns out to be a blessing in disguise to cut out certain items like cable TV, gym memberships, trips to fancy restaurants, and subscriptions of all types. The best things to cut represent expenses that recur from month to month.

Income vs. Budget

Now, examine your income. What is your monthly cash flow? This is basically the after-tax amount of one month worth of paychecks received. Do you make enough money to cover The Big Three? If you don’t, then you need to switch to a cheaper place to live. Consider looking on craigslist for rooms to rent for cheap. Or maybe you can telecommute to save on gas costs.

Do you make enough to cover The Big Three and your discretionary budget? If you do not, then the easiest decision is to either cut out your discretionary expenses each month until you’ve eliminated your debt, or to switch to cheaper housing. If you do cover The Big Three plus the discretionary, then subtract that total amount from your monthly income amount. Dedicate the remainder towards debt payments. Do not try and build up a savings, invest in retirement accounts, or engage in any other activity. Everything remaining should be applied directly towards debt reduction. For a bonus, cut out the discretionary expenses and add that amount to your monthly debt elimination payments. This way you will emerge from debt even faster than anticipated.

Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

Related Topics

Household Budgeting

Teaching Your Children How to Control Debt

10 Tips for a Better Budget

Learn More

Visit our website - DebtGoal.com

Learn about the DebtGoal management tool

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Posted in Debt Management, Paying Down Debt, Saving, Spending | View Comments

Top 5 Tips for Clutter Control When Debt is Out-of-Control

Thursday, January 29th, 2009

Upon deciding to make a serious stab at debt reduction, one of the obvious areas for generating some cash for your first targeted debt payment is things lying around the house. “Stuff” in the home is great to liquidate because:

  • Reducing clutter helps to reduce stress and get organized.
  • After being sold, we quickly find other ways of being happy that replace any of the sentiments attached to the item.
  • They can generate more instant cash than anticipated, depending on the item.

But the question remains, how to best go about deciding to sell stuff? The basic approach should be the same as for the larger effort towards debt reduction and elimination: make a list of what you have, prioritize the items according to cash value if sold and their value to you, and decide on the best strategy for selling the items. Most importantly, set the cash aside in an envelope labeled “for debt payments only” and use it for nothing else.

Here’s the top five tips to clutter control for debt management and reduction:


1. When on the fence about getting rid of something because of its sentimental value, lean towards selling it. Being on the fence at the moment of truth already indicates that it is not one of your most important possessions. This is a clear indicator that you will benefit more from the cash, and even more so since you will apply it to aggressive debt reduction payments.

2. Don’t get bogged down in cluttered, messy, and disorganized rooms. The minute you enter the room in which you think there’s lots of stuff that you can sell, you can become instantly discouraged because the items cannot be easily located. Overcome this by grabbing everything that you would be willing to sell and sticking it in its own pile somewhere else. Quickly creating a dedicated “sales” pile means you don’t have to worry about getting the room cleaned up, and thus can keep focus on the task at hand.

3. There’s more that you’re willing to sell than at first glance. Brainstorm. Generating instant cash for debt reduction and elimination is vital, in part because it gets you closer to making a serious dent in your outstanding debt. Because of this, don’t just sell the things that are on the top of your mind, but take time and brainstorm for a complete list. It will be more efficient and thus save you time to liquidate your stuff systematically.

4. Do not buy new stuff to replace sold stuff. A common tendency is to buy things to replace the empty space created by recently-departed clutter. Resist this temptation completely – it will negate your debt reduction efforts. Besides, more empty space can be stylish and the point is to reduce your stress as well as make organizing your existing stuff easier.

5. Repeat your liquidation rounds every few months. In addition to selling off stuff on your initial pass-through and skipping buying new stuff to fill the space, revisit the issue as frequently as possible and continue to sell. As time passes since you first “clutter-controlled”, you will more easily think about things you don’t need as well as fear less the selling off of things that appear in the house yet in reality hold little or no real value for you.

Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

Related Topics

10 Big-Ticket Clutter Items to Sell for Instant Cash

Tackling Clutter To Improve Your Health

Being a Home Office Warrior Makes Clutter Control Essential

Learn More

Visit our website – DebtGoal.com

Learn about the DebtGoal management tool

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Posted in Debt Management, Paying Down Debt, stress | View Comments

Major Expenses When in Debt: Housing

Wednesday, January 28th, 2009

Once one has made the decisive choice to get out of debt moving forward, a major expense that each must consider is housing.

Home Ownership

Home ownership is oftentimes trumpeted as a must when in reality, it is not. In fact, one can strategize their finances, including the creation of a solid retirement account, without ever owning a home. This requires careful planning, and retirement account contributions are key.

Benefits to Renting

For most who are in debt, renting beats buying and can even make more sense than continuing to own a home. Some of the reasons include:

  • Cost of maintenance. Typical rental agreements do not require that tenants bear maintenance costs of the property
  • Flexibility to move/relocate. Many of those that struggle with debt also have job insecurity. Even if someone in debt does not have job insecurity, home ownership creates a major financial disincentive to relocate to another area for work. In the current economic environment, having less disincentives to relocate for any opportunity to find work (if unemployed) or to take a better job (if employed) can be a major aid to one’s cash flow, not to mention career trajectory.
  • Simplified debt reduction plan. Especially in comparison to adjustable rate mortgages, paying rent means planning for a fixed amount to pay in rent from month to month. This reduces cost of living uncertainties and increase the chances of forming and executing a plan to quickly eliminate outstanding debt.
  • No property taxes to pay. Some areas of the country have high property taxes. As a tenant, you will not be responsible to pay these.
  • No homeowner’s insurance to pay. Although renters can purchase tenant’s insurance, this is less than the cost of homeowner’s insurance.
  • No local government special assessments to pay. In the current economy, special assessments on property can appear more frequently. Avoid these by renting instead of owning.
  • Corollary effects. Home owners typically accumulate more possessions than renters, which can add to to your disincentives to relocate in order to improve your cash flow.
Though some of the highest risks for homeowners exist when the value of homes are about to decline, and home values have already declined in many markets dramatically, the current and continuing recession increases the uncertainty of income, stemming in part from job risk. For many, this translates directly into cash flow problems that undermine the value of buying and owning a home, even when conditions seem optimal. For those in debt, the chance to reduce financial risk by renting is more important than starting to build equity in a home through a mortgage. It is critical to look at some of the key elements of one’s financial picture: cash flow, existing debt, and budget, and carefully evaluate the housing options accordingly.
  
Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

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Major Expenses When in Debt: Autos

Tuesday, January 27th, 2009
Some areas of expense can be complex and confusing to deal with when one struggles with financial situations like outstanding debt. For example, having access to a car can be essential for getting to work and thus securing income. But handling these major expenses is simplified and made less stressful with organization and a basic plan. Here are some sound tips when strategizing on auto ownership. 
 

 
Tips for Autos
  • Skip buying a new auto. While there are benefits to buying a new vehicle, it is not the most cost-effective approach for obtaining reliable transportation to and from work.
  • Chat with a mechanic. Mechanics can share a wealth of advice regarding which types and model years of cars to consider buying, as well as how many miles on a vehicle to tolerate when making the purchase. They oftentimes know which model years are the best and what mechanical weaknesses particular cars and trucks have.
  • Use their recommendations to do Internet research for the best vehicles. Because of outstanding debt, finding a car should essentially be an optimization of three variables: (1) purchase price; (2) fuel economy; and (3) future cost of ownership including maintenance. Styling, luxurious amenities, and brand image should not be primary considerations.
  • Consider alternatives to auto ownership. Things you can do to get to work include: carpool, ride a bicycle (and quitting your gym membership in the process), and taking public transit (buses, subway, trains, and light rail). The goal is simple: get to work in a cost-effective way. Depending on metropolitan area, there may even be pre-tax vouchers available for commute expenses. Check with your human resources manager and take advantage of these opportunities to save money. Many of these options are great in urban areas since the total cost of ownership, parking, and maintenance of any vehicle is high.

Worried about being able to conveniently get around? If you opt to not have a car, you can still grocery shop, get away on the weekends, and have the occasional road trip. Use Zipcars or taxis for grocery shopping; get a cheap rental car with all travelers sharing the cost; use the cars of friends or family when needing to travel far; and pick up copies of all of the various transit schedules (buses, trains, etc.) and keep them handy.

Raj Patel writes for DebtGoal.com, a do-it-yourself system for getting out of debt and lowering your interest costs.  DebtGoal.com incorporates all of the techniques discussed in this post and can help users understand and get visibility to and manage their debt finances.

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Posted in Debt Management, Saving | View Comments

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