Debt Is An Ugly Word (How To Get Out Of It Quickly)! Part 2
In part 1 we discussed the different ways people can borrow money, in part 2 we will discuss how to reduce the debt the hardship has brought you. Once you are in a better place financially you will want to start focusing on your debt.
Family and Friends – This is a sticky situation. Some family and even a few friends will not want you to pay them back the money you borrowed. Even if they do not want you to pay them back it is advisable to do so anyway. If you ever have a need again in the future to borrow money they will be more likely to do so if you paid back the original loan.
Personal Loan – There is not too much you can do here. These types of vehicles are usually fixed and have a defined payment over a specified period of time.
Retirement Plan – When discussing the withdrawal with your tax advisor you should also discuss if you will need to repay the money to the plan or not. I am not a big fan of taking this money in the first place what good is it for retirement if you have to live on the streets today. If possible and the laws allow you to repay it, by all means do so if possible. Get that money back into its tax deferred or tax free plan.
Home Equity Line Of Credit and Credit Card Debt – I bunched both of these together on purpose. There is a specific payback method that we will review here. This makes it easy to put these two together.
Let’s say you have been using these two instruments to get you through your hardships. You have not only maxed out your credit cards but you also added debt to your Home Equity Line Of Credit. There are a few steps to take to work out a proper repayment plan. This type of plan has been time tested and is proven to work. It is the fastest repayment plan I have ever seen.
Sit down with your spouse and plan on spending an hour or two on this. You want your spouse with you because this plan will affect the both of you. Start working through these steps:
1- Although you may have already done this when you were going through the financial hardship you should do this exercise again. Discuss if there are any things you can cut out of your budget or are there any things you can cut back on. If you do come up with some dollars that you can cut back on write the total number that you came up with down and put it on the side for now.
2- Have all current credit card statements and any Home Equity Line Of Credit statement out for review.
3- List all of the HELOC and credit card debt out in dollar amount order. List the dollar amounts from the lowest first to the highest dollar amount. For example you have three credit cards that have balances of $975, $28,320, and $23,187. You also have a HELOC total debt of $78,950. List the lowest debt first ($975, $23,187, $28320, $78,950)
4- What you are going to do is pay the minimum amount on all debts you have listed on the paper. This holds true for all of them except the lowest payment you have. You will take any extra money you have for the month (including the extra money you put away in step number one above) and you will send all of the extra dollars you have to the lowest balance credit card. So let’s say your monthly payment on that $975 credit card debt is $60.00, you found an additional $40.00 per month that you were able to cut back on, you would then send $100.00 to the credit card that has the lowest balance. You will keep doing this until the lowest balance credit card is paid off.
5- Now you have an additional $100.00 to apply to the next lowest credit card balance you have. You will keep doing this until all of your debt is gone. Once you get started it is a snowball effect. The start is slow but the plan will start picking up steam and eventually it will get going very quickly.
Getting in debt can take full and total control of a family’s finances. Make sure to do what you can to get the money to pay it down.
Strategy Based Profits TIP: - Do what you can to cut expenses, start paying sown the debt and watch the debt start to snowball away.
Robert J. Roy
Money Man
Debt Is An Ugly Word (How To Get Out Of It Quickly)! Part 1
Most people are not fortunate enough to go through life without running into some form of financial troubles. For some people they lose their jobs for others they have a medical condition that sets in and in some cases there is a death in the family. All of these things and many others could cause some form of financial hardship on an individual or family.
When this happens there are limited choices of how to keep a roof over your family’s head and food on the table. You do what you can but the bills tend to pile up and you can’t seem to get your head above the water. First let’s discuss the places you might be able to get your hands on the finances you will need to work through the hard times.
Family and Friends – I didn’t say you would like the choices but you must consider your family and possibly a friend or two to help you through these trying times.
Personal Loan – If you have good credit you may be able to get the money from the bank or other financial institution.
Retirement Plan – You may be eligible to use the money that is in your retirement plans for personal hardship. Check with your tax advisor on the rules for these.
Home Equity Line Of Credit – This is also known as a HELOC. Although this is a choice keep in mind that your debt will now have equity behind it. What I am referring to is that the bank has an asset to hold against your debt (your home). This one should be a last resort.
Credit Card – Credit cards are the vehicle that many individuals and families wind up using to help get them through the rough patches. There is no wonder that as a country we are in so much trouble with this type of debt.
In Part #2 we will discuss how to reduce the debt that the hardship has brought you.
Children And Savings (The Top 3 Strategies For Teaching Kids About Saving Money)
Historically parents have not done a good job on teaching their children about money or saving money. Parents send their children to school and they feel that the school and the teachers in the school will teach the kids about money. WRONG, that couldn’t be further from the truth.
I am asked over and over again when is a good time to get started? How early should I start teaching my children about saving? Many parents believe that they should wait until he child is a little older (teenagers) before they teach them about money and savings.
I teach parents to start teaching their children around the age of three or four. Yes, you heard me right, start teaching them around three or four. You are not going to beat them over the head about savings but you should start teaching them about money.
Here are three of the top strategies for teaching kids about saving money:
1) What Is Money And How Does It Work – Start teaching your children early. Don’t wait on this, this is a critical step. Teach your children what real money is worth, use coins and bills in the educational process. Explain how much each coin is worth. Show them one and five dollar bills, teach them how to read each bill.
2) Set Up A Savings Plan – Historically parents use various methods for savings. Although some are better than others the important thing is that you are doing something. There are three methods that you can use, here they are:
A) The Piggy Bank – When using a piggy bank allow your children to put the money in the bank themselves. What you are doing is you are getting them used to putting their money in the bank. Psychologically you are getting them used to savings because they are placing the money in the bank themselves.
B) A Savings Account – Placing the money in a savings account is a great way to save money for your children. It is not a good way for your children to learn about saving money for themselves. I am not against putting money into a savings account but what I am in favor of is to have your children go to the bank with you and let them hand their money to the teller. This gets them used to making deposits at an early age.
C) A Jar System – Using clear plastic containers to save money in is a wonderful idea. If your child is saving for a particular item that they want to buy, let’s say there is a new doll that they want, you would have a clear jar for them to put the money in. The visualization of the money in the jar is a very powerful motivator to get them to want to save more.
3) Allowance – Take a few chores around the house or in your business and give it a dollar amount that it is worth. You could also do this with tasks for your business, your kids could file, do data entry, etc. This next part is an important psychological step, when you pay them, don’t call it allowance, instead call it commission. Get them used to getting paid for what they do.
Teaching your children about money and savings is a very important process that parents should teach their children. Start them off young and you will engrain your kids with this wonderful lesson.
Strategy Based Profits TIP: - Teach them young and remember it is a never ending process!
Robert J. Roy
Money Man
