How To Eliminate Credit Card Debt

How do you eat an elephant?  One bite at a time!  Well, that’s the same way you eliminate credit card debt, one bill at a time.  I know many people differ on the methods to lower your revolving debt, and here’s another one.  However, this one is tried and true and it has helped many of my clients eliminate their credit card debt.  More importantly, it’s how I eliminated my credit card debt many years ago.

So, let’s get right down to it.  Pull out every credit card statement that you have and line them up from the lowest balance to the highest balance.  Most people are paying a few extra dollars every month on each card, by paying over and above the minimum required payments.  STOP IMMEDIATELY!  Start with the card that has the lowest balance, regardless of the interest rate (again, a controversial method) and apply all of the extra money you were paying above the minimum on the other cards to this card.  Keep paying the minimum payments on all of your other credit cards, as you don’t want to lower your credit score with delinquencies.  Continue this program until you have paid the card in full.  Proceed to the next card with lowest balance and add whatever you were paying to the previous card to this card until it is paid in full.  Again, continue this process until you are free of credit card debt. 

I know most people want to pay off the credit cards with the highest interest rates and that is also a very smart way to pay down debt*.  However, in my experience with clients and their debt, the psychological victory that one feels after they have eliminated a bill forever, far outweighs the feeling of simply saving money on interest.  You are already in a bad situation and you’ve probably been in debt for a while now.  Although it makes sense to attack the higher rate cards first, doing what makes sense is not how you found yourself in this situation.  I know when I had eight plus credit cards to pay monthly; it certainly wasn’t using good sense that got me there.  Just try this method and you will eliminate your credit card debt and see your confidence increase with every bill that you pay off.  Remember, “one bite at a time!”

*Tip: with similar balances always start with the highest interest rate card.

Just Say NO to 30 Year Mortgages

The 30-year mortgage should’ve gone out of style thirty years ago! 

I know this is a very controversial opinion, but these are the topics I promised you we would talk about.  You’re probably thinking, why would she want people to have higher mortgage payments?  “I wouldn’t.”   With almost twenty years in the lending industry the one thing I’ve learned about the American people is that we’ve lost sight of the American Dream.  A dream built on home ownership, not on home mortgageship.  The operative word is OWNERSHIP. 

Let us examine this closely:  Most adults cannot afford to buy their first home until they are in their thirties and more and more that is becoming early forties.  If it takes thirty years to pay off your home, you’re in sixties or even seventies by the time you are free of mortgage debt.  What would life look like if the standard mortgage was only fifteen years?  Now that same thirty year old first time home buyer owns their home by the time they reach forty five.  Imagine at age forty five actually OWNING your home.  What kind of college education could you provide your children if you didn’t have to worry about mortgage payments?  What kind of business could you start if you weren’t working to keep a roof over your head?  A lot of things could be different if you owned your home in fifteen years.  In less than ten years, you would have an enormous amount of equity (real equity) based on principal reduction not price escalation. [see chart below]

I know you’re thinking, how could anyone afford to buy their home in fifteen years, the payments would be twice as high.  This is not true; the difference in a fifteen and thirty year mortgage is not twice the amount.  In addition, most lenders will offer lower rates if you lower your term on your mortgage, why?  Because they will be paid off sooner thus limiting the risk associated with your loan.  Check out this comparison table for a standard $100,000 mortgage at 5%:

	Amount	Payment	Int. Rate	Total of Payments	Balance in 10yrs
15 Year	100,000	790.79	5.00%	142,342	41,905
30 Year	100,000	536.82	5.00%	193,256	81,342
Difference		$253.97		$50,914	$39,437

Don't worry if you have a thirty year mortgage and you don’t want to incur the costs associated with refinancing your term to fifteen years.  You can call your bank and they can amortize your existing loan for reduced term and tell you how much more you would have to pay monthly to reach your goal.

What are the drawbacks to doing a fifteen year mortgage?  I would venture to say there are none that don’t already exists with your standard mortgage.  But here are the concerns that I normally hear from clients:

Q.  What if I lose my job? 

A.  If you lose your job, you’ll be struggling to pay either note.  The difference is, you may have the equity to refinance and borrow money if needed.

Q.  The payment is too high. 

A.  Then you are buying too much house.

Q.  I don’t want to keep this house forever. 

A. Great, you can sell this one sooner, since you will be paying the balance down faster.

No more excuses!  Think outside of the box and go and get your piece of the American Dream.   Make HOME OWNERSHIP a part of your future goals.

New Year, New You - Tips for Saving This Year!

Soooo… What are you going to do different this year, than you did last year?  If you’re like the majority of people, every year you make resolutions that you never resolve, right?  Join me by yelling at the top of your lungs, NOT THIS YEAR!  This year will be different, this year, you will achieve your financial goals!  But the question is HOW?  How do you go about achieving your financial goals, this year?  You start by actually setting some goals, then you write them down, then you actually revisit them daily, weekly and monthly…  As we all know the age old adage, “that which gets measured, gets done."

How do you go about setting financial savings goals?  I’m going to share some of the tips that I’ve personally used to set my saving goals, as well as, tips that my clients and friends have shared with me throughout the years.  I’ve narrowed these down to the “Big 3” which is a theme you will find throughout all of my blogs.

1. Define the Goal
2. Make it Realistic
3. Execute

What is your actual GOAL?  And no, it can’t be “I just want to save money."  How much money do you want to save, where in your budget will you cut the costs?  Why do you need to save this amount of money?  These are the questions you have to ask yourself.  The best way to start is by taking some quiet time and sitting down with all, yes I said ALL of your year-end statements.  You need to have all of your credit card statements, bank statements and any other year end statements which evidence your spending habits for the previous year.  This way you can come up the best opportunities to save money.  Because, if you don’t know where you’ve been, then you don’t know where you’re going (or you may end up in the same place).

Make it REALISTIC.  One of the biggest pitfalls in goal setting, is planning goals that you’ll never be able to achieve.  The most common new years resolutions from my clients and friends; I’m going to lose weight and/or save more money.  Both which are great goals, but the question is, how much weight and how much money.  This is typically where the breakdown occurs.  Here are some examples:  If you’ve never saved more than $1,000 a year, why is your goal $10,000.  If you have a salary of $60,000 per year and your housing payment is $36,000 per year, it is probably not realistic to think you can save $20,000.  You still have to eat, buy gas, pay utilities, incidentals, etc.  So to keep this real simple (KISS), start by using a realistic number.  Find the places you can trim your budget, limit your eating out, unnecessary cable channels, limit monthly subscriptions, cancel memberships for clubs, groups, etc if you find that you don’t use them regularly.  Go to the library instead of buying books for leisure reading (how often do you actually re-read a book).  Buy cheaper coffee, or better yet, learn to make coffee to your liking at home.  If you don’t cook (like me) then saying you’re going to stop eating out is probably not realistic.  To avoid setting yourself up for failure, design yourself a eating out budget.  Try setting a per-meal price point and stick to it.  Take home your left-overs.  A great rule of thumb is to try and save 10% of what you bring home after all taxes and deductions, also known as your net income.  But to get started work on 5%, if 10% is already a 100% increase in your normal savings plan.  Heck, start with $100 a month, whatever it takes to get started. 

Lastly, EXECUTE!  Quit putting off until tomorrow what you can start today.  Start by opening an interest bearing account specifically for your savings and I recommend that you don’t link the account to your daily account nor have an ATM card.  I would even go so far as to suggest a completely different financial institution.  The reason for the separation is to curb your temptations.  How hard is it to lose weight if you have a refrigerator full of ice cream and cabinet full of cookies, pretty hard huh?  It’s the same with your money.  It’s too easy to go to the ATM machine and pull out that extra $100 from your savings when you’re going out.  So don’t temp yourself.  Use some forced discipline, by denying yourself easy access to your money.  The harder it is to get to your money, the more time you have to think about if you really want to dip into that fund.  Take baby steps, and don’t over save.  Yes I said DON’T OVER SAVE!  Over saving occurs when you save more money than you can afford to live without.  Of course, you want to start building that nest egg, but do it realistically.  The savings pot is to be treated as if it doesn’t exist.  Therefore your goal is to save incremental amounts of money that will build over time and don’t touch those funds!  Good Luck and Happy New You!