Sorry for the long hiatus from posting - I've been working on finals, graduating from BYU, and moving back home to Alaska. But I'm finished with school and ready to put time into some good posts!
Just a thought for today - As I've just finished college, here's a little insight on financing an education.
Education loans are relatively easy to come across, but if at all possible, I encourage students to get by the best they can without them. Live frugally and within your means - college is probably the easiest time in your life to live cheaply.
Remember these two points:
1. When you graduate from college and start making some real money (hopefully!), just think how wonderful it would be to NOT OWE YOUR PAYCHECK to anyone! When money comes in, you get to decide what you do with it!
2. When you're in school, remember that if you live NOW like most people WON'T, later you'll live like most people CAN'T.
Showing posts with label Debt. Show all posts
Showing posts with label Debt. Show all posts
27.4.10
8.4.10
Eliminating Debt: Step 2
So now that you have quit diving further into debt by using a strict cash-only budget, it's time to start paying off the debt. And since it's highly unlikely that you'll be able to pay it all off in the first month, step 2 is to prioritize.
How to Prioritize Debt:
Start by making a list of all your creditors, your balance, and the interest rate they are charging you. Example:
Bank of America Visa: $3750; 22.1%
Ford Credit: $8,400; 8%
Gap Credit Card: $475; 18.9%
Dr. Smith: $800; 10%
Then, rank each creditor by interest rate. Set aside a specific amount each month that will go toward debt reduction. With this amount, starting paying off your debts in order of interest rate (in this example, pay off Bank of America first, then Gap, then Dr. Smith, the Ford). The purpose behind this prioritizing is to get rid of the debt that is most expensive to you first. So, in the case of your Bank of America debt, each dollar in your balance is costing you 22.1 cents per year, whereas Ford is only charging you 8 cents a year on a dollar. Get rid of the credit card debt first! (Note: Keep paying your monthly minimum to ALL your debtors as you go through this process to avoid default) Once you pay off one debt, move to the next.
How to Prioritize Debt:
Start by making a list of all your creditors, your balance, and the interest rate they are charging you. Example:
Bank of America Visa: $3750; 22.1%
Ford Credit: $8,400; 8%
Gap Credit Card: $475; 18.9%
Dr. Smith: $800; 10%
Then, rank each creditor by interest rate. Set aside a specific amount each month that will go toward debt reduction. With this amount, starting paying off your debts in order of interest rate (in this example, pay off Bank of America first, then Gap, then Dr. Smith, the Ford). The purpose behind this prioritizing is to get rid of the debt that is most expensive to you first. So, in the case of your Bank of America debt, each dollar in your balance is costing you 22.1 cents per year, whereas Ford is only charging you 8 cents a year on a dollar. Get rid of the credit card debt first! (Note: Keep paying your monthly minimum to ALL your debtors as you go through this process to avoid default) Once you pay off one debt, move to the next.
28.3.10
Eliminating Debt: Step 1
So you are in debt. And want out.
If you have decided that you want to make a big leap and get out of debt - good for you! I promise, that decision will be one of the most liberating decisions you will ever make!
Now, I've said before that the process of getting out of debt is usually miserable, but I promise you won't regret it. Ever.
Step One: Stop the bad habits.
Sound easy? You'd be surprised how challenging it can be.
It is absolutely imperative that you stop digging a deeper hole of more debt. Probably the biggest problem with most families is credit cards. If your debt on your credit card (I mean the balance, not the minimum payment) keeps growing and is never being paid off, CUT UP YOUR CARDS! Or at least cut up all but your oldest card. Then, go to a strictly cash budget. Even if you don't have enough money right now to pay off any of the debt on your card, at least you are not going deeper and deeper.
A system that works well for a cash budget is called the Envelope Method. It will help you get on the right path to spending less than you make, which is key to getting and staying out of debt.
1. Create an envelope for each category of spending (house payment, groceries, etc.).
2. When you get paid, get all cash for your check.
3. Divide the cash between the envelopes.
4. Use only the cash that is in each envelope for your expenses. When an envelope is empty, you're done spending any money in that category for the month. Any extras goes directly to paying off debt - No shifting cash between envelopes!
See this article in LDS Living Magazine for a new cash management system called Mvelope. (I haven't had any personal experience with this program, but I have heard good things about it.)
If you have decided that you want to make a big leap and get out of debt - good for you! I promise, that decision will be one of the most liberating decisions you will ever make!
Now, I've said before that the process of getting out of debt is usually miserable, but I promise you won't regret it. Ever.
Step One: Stop the bad habits.
Sound easy? You'd be surprised how challenging it can be.
It is absolutely imperative that you stop digging a deeper hole of more debt. Probably the biggest problem with most families is credit cards. If your debt on your credit card (I mean the balance, not the minimum payment) keeps growing and is never being paid off, CUT UP YOUR CARDS! Or at least cut up all but your oldest card. Then, go to a strictly cash budget. Even if you don't have enough money right now to pay off any of the debt on your card, at least you are not going deeper and deeper.
A system that works well for a cash budget is called the Envelope Method. It will help you get on the right path to spending less than you make, which is key to getting and staying out of debt.
1. Create an envelope for each category of spending (house payment, groceries, etc.).
2. When you get paid, get all cash for your check.
3. Divide the cash between the envelopes.
4. Use only the cash that is in each envelope for your expenses. When an envelope is empty, you're done spending any money in that category for the month. Any extras goes directly to paying off debt - No shifting cash between envelopes!
See this article in LDS Living Magazine for a new cash management system called Mvelope. (I haven't had any personal experience with this program, but I have heard good things about it.)
18.3.10
Good Debt v. Bad Debt
I study Business Finance at BYU. Just like a business entity, before taking on debt your family should decide whether that debt is good or bad.
President Hinckley counseled to ONLY go into debt, if necessary, for two things: (1) a modest home, (2) education. I believe his counsel is not just a "nice idea;" it is a commandment from the Lord for our temporal salvation.
Good debt--Businesses usually try to have at least a little bit of debt as good "leverage". The idea behind leveraging up is that they are taking on projects that will eventually help them grow their revenues, and not that they take on debt to buy fancy desks or office art. The same idea should go for your personal financial life.
Pretty much the only good debt for personal finances is education. Why? Because (usually) with more education, you are able to get a better job, get paid better, etc. Education is one of the most important investments you will ever make, and not just in a monetary sense. Try to get by as much as you can without it, but if you do need some education debt, be sure to have a sound plan to pay it off quickly to avoid the interest costs and get it off your "books".
Your home might also be good debt. For most people, buying a home outright is somewhat impractical. So long as you have a home that is modest for your needs, your debt is probably fine. Keep in mind that bigger houses require more energy, more repairs, more maintenance, etc. So if you go take on extra debt in order to buy a bigger house, remember that you will also have those added expenses in addition to a higher mortgage and/or interest payments.
Bad debt - Wow. I could go on and on about this one. The list is long: car loans, furniture loans, credit card debt, etc. Pretty much all consumer debt is something to avoid like the plague. If you let yourself get into too deep into it, the process to get out is miserable. Best advice: avoid it in the first place.
Car Loans - Discouraged by financial planners because they rapidly lose value. So not only are you losing cash by paying a ton of interest with your car payment, but your personal net value (total assets minus total liabilities) is decreasing quickly as the car loses value. Be cautious. When shopping for a car, ALWAYS distinguish between WANTS and NEEDS.
Credit Card debt - Big no no. Wherever possible, pay off your credit card balance in full every month. Interest rates are high because credit card companies know that it their cards make it really easy for consumers to get what they want, when they want it. It helps me to just pretend that my credit card is like a checking account and I can only spend the money that I really have in my bank account. Exercise self control.
If you are already in debt, stay tuned and I'll give tips on how to get out.
President Hinckley counseled to ONLY go into debt, if necessary, for two things: (1) a modest home, (2) education. I believe his counsel is not just a "nice idea;" it is a commandment from the Lord for our temporal salvation.
Good debt--Businesses usually try to have at least a little bit of debt as good "leverage". The idea behind leveraging up is that they are taking on projects that will eventually help them grow their revenues, and not that they take on debt to buy fancy desks or office art. The same idea should go for your personal financial life.
Pretty much the only good debt for personal finances is education. Why? Because (usually) with more education, you are able to get a better job, get paid better, etc. Education is one of the most important investments you will ever make, and not just in a monetary sense. Try to get by as much as you can without it, but if you do need some education debt, be sure to have a sound plan to pay it off quickly to avoid the interest costs and get it off your "books".
Your home might also be good debt. For most people, buying a home outright is somewhat impractical. So long as you have a home that is modest for your needs, your debt is probably fine. Keep in mind that bigger houses require more energy, more repairs, more maintenance, etc. So if you go take on extra debt in order to buy a bigger house, remember that you will also have those added expenses in addition to a higher mortgage and/or interest payments.
Bad debt - Wow. I could go on and on about this one. The list is long: car loans, furniture loans, credit card debt, etc. Pretty much all consumer debt is something to avoid like the plague. If you let yourself get into too deep into it, the process to get out is miserable. Best advice: avoid it in the first place.
Car Loans - Discouraged by financial planners because they rapidly lose value. So not only are you losing cash by paying a ton of interest with your car payment, but your personal net value (total assets minus total liabilities) is decreasing quickly as the car loses value. Be cautious. When shopping for a car, ALWAYS distinguish between WANTS and NEEDS.
Credit Card debt - Big no no. Wherever possible, pay off your credit card balance in full every month. Interest rates are high because credit card companies know that it their cards make it really easy for consumers to get what they want, when they want it. It helps me to just pretend that my credit card is like a checking account and I can only spend the money that I really have in my bank account. Exercise self control.
If you are already in debt, stay tuned and I'll give tips on how to get out.
Subscribe to:
Posts (Atom)
