Archive for the ‘Goal’ Category

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Cutting the Digital Services Bill

Friday, April 10th, 2009

At DebtGoal we’ve stuck to our story — recurring expenses in one’s budget are some of the most attractive to cut when trying to free up cash for debt reduction payments. The usual suspects: housing, gym memberships, and magazine and newspaper subscriptions are all worthy candidates for the chopping block. But another high-yield area – digital services – may contain the savings potential to solve a budgetary crisis.

Here’s a list of some of tips for trimming these bills each month:

  • Some personal finance columns suggest getting rid of a dedicated fax line in the home. Go further. get rid of all landlines and focus on a single, no-frills cell phone for most telephony needs. If you need to make expensive phone calls off of your plan, use an Internet-based service that makes “computer to computer” calls at little or no cost.
  • Get rid of your cable TV service. This sounds drastic, but many of the most highly rated TV programs are now available for free on the Internet.
  • Unplug your digital media appliances (TV, DVD player, stereo, etc.) when not using them. This will save a little on your energy bill since small amounts of electricity are consumed when equipment is placed on stand by. The “off” position for a lot of modern plug-ins is not truly off.
  • Use the credit card interest rate reduction strategy. Call your providers and ask for rates to be lowered. Ask to have rates reduced back to a promotional level (provided they make sense in the long run — i.e., they do not jump to sky-high levels after a few months of discounts). Research cheaper service alternatives and mention those as clear alternatives to your current situation. Of course, switch providers if it makes financial sense.
  • Bundled packages. Choose a package from the same provider including the cell phone, cable TV, and Internet access.
  • Inquire about discounts for any of the organizations you belong to: a Church, AAA, alumni associations, professional and service groups, and even through the company you work for. Ask over the phone about the organizations they do provide discounts for: you may be an inactive member that still qualifies for the rate cut. Maybe you can even band together with coworkers, friends, housemates, or family to land a group deal.
  • Most importantly, understand your digital services to be discretionary costs. In the tightest of financial crunches, these are still items that could be cut. From personal experience, I’ve gone without cable TV before, and it turned out to be a blessing in disguise: you naturally look for other entertainment, and I ended up getting outdoors more often, spending even more quality time with friends and family, reading, exercising, and generally leading a healthier lifestyle.
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 Goal, Saving, Spending | 3 Comments »

Blog Carnivals in Review

Friday, April 10th, 2009

Recent blog carnivals have covered a wide breadth of topics on debt and other personal finance topics. Some of the more interesting this week include:

Money Hacks Carnival

Solid Planning Tips and Tricks Carnival

Carnival of Twenty-Something Finances

Festival of Frugality

Carnival of Personal Development

Carnival of Wealth, Money, and Life

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 Credit Card, Credit cards, Debt Management, DebtGoal, Goal, Lending Industy, Marriage, Paying Down Debt, Press, Saving, Spending, credit report, credit score, mortgage, stress | No Comments »

Young and in Debt: The Federal Reserve Analysis

Friday, March 13th, 2009

The New York Times reviewed The Federal Reserve compilation of data on consumers in the United States based on how leveraged they were. The striking conclusion is that in general, the younger the head of household, the higher their ratio of sums of debt to sums of assets.  This trend in the data had a degree of consistency: the older the age group, the lower the ratio.

While comparatively unburdened by mortgage debt (as a group), the debt ratios are staggering for a group that has weaker total monthly income than older age groups, as well as lower job security.

This underscores the urgency for young adults to get serious about debt management — and financial planning for that matter. A fundamental reevaluation of spending needs to be made, as well as a new strategy to save more of the money that they bring in each month. If unemployed, emphasis on widening the job search, upgrading skills, and retooling resumes is critical.

Young, broke, and unemployed or debt-ridden? Here’s a list of things that you can do in one day to get back on the right foot.

1. Know your debt status. Identify all of your credit cards, savings accounts, and investment accounts. Bring together the mess of papers received in the mail into one big pile. Quickly sort through them into general categories for further organization. On one master page, write down any critical information about your outstanding debt amounts, lenders, and interest rates. Don’t be afraid to call lenders to fill in the blanks.

2. Set priorities and make a budget. After identifying your oustanding debt, set up a quick budget to handle your non-discretionary expenses: housing, food, and transportation. Use this as a base to determine if you can cover these costs from month to month. If not, look into getting more income, either through a refocused job search or contract work on the side, or by trimming further your monthly cost-of-living. Cut out all but a sliver of your discretionary amounts, applying those funds to aggressive debt reduction.

3. Clean your house. Getting organized and reducing stress, financial and otherwise, go hand-in-hand. Organize your life to stay on top of your personal finance bottom line.

4. Sell unnecessary stuff in your home. With debt to be repaid, now is the time to pile together all of the stuff in your home that you can do without. Keep the process systematized: use the Internet to figure out a fair price, label it, take photos of the items, and dump it on an online marketplace. Use the cash generated for debt reduction payments.

5. Apply for unemployment benefits. These benefits represent real monthly income that will slightly ease your budget constraints.

6. Call each of your credit card lenders and have them lower your interest rates.

7. Cut up the plastic. Get rid of the temptation to spend, but do not close the credit card account. Switch to a cash, checking, or debit card approach to getting the necessities.

These represent only a few of the ideas for a day dedicated to seizing control of your situation and starting to move in the right direction. Research has linked debt and stress, so take the time to disentangle your finances.

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 Credit Card, Credit cards, Debt Management, Goal | 1 Comment »

Create Your Own Debt Paydown Plan

Sunday, March 1st, 2009

Over 65% of people who set a goal to get out of debt never create a plan. They never set an amount that they will pay each month, set up a mechanism to track their success, or put a target date to be out of debt. It’s no surprise that the success rate for these people is low–without a detailed action plan, there’s simply nothing there.

In this article, we outline the process for managing a debt payment plan on your own.  If you decide that you’d like an online solution to walk you through this process and to help you stay on track, consider using DebtGoal.com.

Step1:  Set up the basics

  1. Quit spending on credit cards.  It’s clear that you can’t pay down your debt while continuing to spend on credit, so stop.  Shred or otherwise destroy your cards.  Share your techniques to quit spending and see how others fight the urge at the DebtGoal Quit Credit Card Spending Forum.
  2. Organize your finances for success.  Having the right structure can make progress much easier.

Step 2: Define your Monthly Commitment

Making only minimum payments on your debt is expensive as these minimums will decline over time, dramatically lengthening the time it takes to pay off your debt.  For this reason, the most effective debt payment plans start with a constant total monthly amount.

To determine how much you can pay each month, start with the sum of your minimum payments–this is the minimum of what you’ll have to pay and it will get you out of debt quicker than you think.  From there, look at your past 60 days worth of spending to determine if you can increase this amount.  Find an amount equal to or greater than the sum of your combined monthly payments that you can commit to paying each month.  I always feel that it’s best to start with a conservative amount and the increase it a few months later if you determine that you can.  This amount your Monthly Commitment.

Step 3:  Choose a debt payment technique

Once you have chosen a Monthly Commitment, chose one of 3 strategies for allocating this total amount to each of the debt accounts:

  1. Constant payments on each account: with this technique, the borrower pays a constant amount to each account each month until the debt is paid off.  This is the simplest mechanism to execute, but doesn’t optimize repayment by putting as much as possible to your highest-interest debt.
  2. “Snowball”:  with this technique, the user holds the Monthly Commitment constant, makes minimum payments on all accounts but the lowest-balance account and allocates as much as possible to this lowest-balance account until it is paid off.  After that account is paid off, the borrower shifts focus to the next lowest-balance account and continues to apply as much as possible to this account.
  3. “Debt stacking”:  this is the most efficient technique and is the one advocated by DebtGoal.com, as it can result in savings on interest costs of nearly 10% relative to the other techniques.  With this approach you hold your Monthly Commitment constant, but make minimum payments on all accounts but the highest-interest account (your Target account) which receives all excess payments to pay it off as quickly as possible.  After this Target account is paid off, shift your focus to the next-highest interest account, make it your Target, and apply as much as possible to this account while paying only minimums on all others.  Continue until all debt is paid off.

Step 4:  Create a system for executing your plan

This is where it all comes together and it can be difficult unless you have a good framework to keep you on track.

  1. Create a monthly spreadsheet to track your repayment.  We have included a DebtGoal worksheet to help you execute a Debt Stacking approach.
  2. Make your payments each month, making minimum payments on your minimum-payment accounts and applying any excess to your highest-interest Target account.
  3. Adjust your Monthly Commitment for credit card spending in prior months.  This is one of the keys to successful debt repayment: if you make payments but continue to charge, you will need a method to adjust for this or you progress will be slowed.  To adjust, take any credit card spending from previous months and add this amount to your Target account payment.

Step 5:  Advanced techniques

These techniques are not necessary for success, but can speed up your debt repayment.

  1. Lower interest costs by renegotiating credit card rates or refinancing your mortgage.  Studies show that over 50% of people who ask their card issuers for lower rates get their rates lowered by about one-third.  If you can lower your rates, be sure to keep your monthly commitment constant–your lower rates will allow even more of your Monthly Commitment to go toward your debt.
  2. Increase your Monthly Commitment:  evaluate and cut your expenses to increase the amount of your Monthly Commitment going forward
  3. Find one-time sources of cash:  consider applying savings to debt or raising money to apply to debt by selling little-used possessions.
  4. Create a separate checking account to pay your debts  Set up direct deposit from paychecks to put the right amount in each month and use this account to “pre-fund” your debt payments.  With this technique you won’t have to worry that you won’t have the money to make your debt payments.

This article covers the basics to creating a plan to pay off debt.  As with most things, there are several acceptable techniques and it’s important to find one that works for you.  Ultimately, the ideal technique for you is the one that makes sense and that you can follow. Above all, commit to a monthly payment that you can dedicate to debt payments each month and track your payments and your progress. Half the battle is just tracking your results-your behavior often follows.  As you start on this process, you’ll notice that it’s hard at first but that it grows easier over time.

If you find that tracking and executing your plan manually sounds difficult, try DebtGoal.com, an automated tool to help you create and execute a plan for getting out of debt.

Scott Crawford is CEO of 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 Stacking, DebtGoal, Goal, Paying Down Debt, snowball | 7 Comments »

The Cost of Disorganization

Sunday, February 22nd, 2009

Have you ever sat back to think about how well you manage your credit?  Do you ever miss a payment or go over your credit limit?  How much does this cost you?

Here are a few things to consider:

  1. Penalty fees:  For starters, paying late will cost you an average of $26-39.  Going over your limit will set you back $29.  Emergency phone payments will cost another $5-15.  All this together amounts to approximately $19B per year.  That’s about $75 for each family who carries a balance.
  2. Interest rates:  Miss a payment and your APR can jump from 15% to nearly 30%.  That could cost you an extra $9K in interest on $10K of credit card debt if you just pay minimum payments.
  3. Impact on your credit score:  35% of your credit score is determined by how well you make your payments.  Missing a few payments can drop your score by as much as 50 point, which can make a big difference in the interest rates that you are charged.  A 50 point difference in credit score can add .6% to you mortgage rate, resulting in $40K more in interest over the life of a $300K mortgage.

The costs of being disorganized are huge.  In addition to these clear out-of-pocket interest costs there is also the reality that if you are not organized with your debt it is difficult to understand if you’re making progress or not.  Without this type of feedback, you’ll spend longer in debt and pay much more in interest.

Scott Crawford is CEO of 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, DebtGoal, Goal, Paying Down Debt | 7 Comments »

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