September 11th, 2008 — Banking, Money, Personal Finance, credit cards
The whole process of saving money is usually associated with pinching pennies until they scream for mercy, living on food from dented cans and basically giving up everything for a future goal. While this will indeed help you put more money away, saving does not need to mean hardship. We rounded up some of the easiest and painless ways that you can start saving money right now, without feeling the pinch.
1. Transfer high interest balances.
One of the easiest ways to save a lot of money over time is to transfer any high interest credit card debt that you may have to a card with a better rate. Watch out for introductory rate changes, and remember that in some cases, this technique may hurt your overall credit rating until you get the balance paid down. This is best for those that have the ability to make payments on time and have credit card debt that is less than $7500.
2. Create an emergency fund in your own checking account.
Write yourself a check for a few hundred dollars, deduct it, but don’t cash it. Do this every month and you’ll be shocked at how much you’ve managed to sock away. This works on the basic principle of out of sight, out of mind, and can be very effective. However, you’ve got to be disciplined enough not to cash that check or add the money back in. Keep doing this for a few months and you’ll have saved up quite a lot.
3. Don’t forget your rebates.
A rebate usually pulls us in and convinces us to buy a product, but thousands fail to actually go through the process of getting that rebate. Take a little time to send that in and put the money aside. With a little smart shopping, this can add up into a nice little savings account and you’re not out anything but a stamp and a few minutes of time.
4. Start out small.
One really great trick to try for those that don’t have a lot of wiggle room in their accounts is to put aside the equivalent of one hour of pay each week. It may not sound like a lot, but over time this will add up. It’s also small enough that you’re really not going to miss that money much. If possible, have your bank do this automatically so there is less temptation to blow your entire paycheck.
5. Save your change.
Waitresses fund vacations every year on pennies, so why can’t you. Every time you get home, immediately empty your pockets and put the change in a jar. You will be absolutely amazed at how much you can save without even thinking about it using this method. It is common to find a few thousand in there at the end of the year.
These five easy methods will help you form good savings habits now, which can lead to saving even more money ten years from now.
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August 5th, 2008 — Budget, Debt, Goal, Investing, Money, Personal Finance, bad debt, credit cards, good debt
Credit card debt is a global problem that has led many to the poorhouse. However, with smart management, credit card debt can actually be a good thing. Let’s look at how to have smart credit card debt that will help your finances instead of hurt it. The premise may be a little odd to some people, but there is a way that you can use your credit cards to improve your credit rating and start investing in your future.
First, it is important to realize that credit cards are not free money – this is a problem that affects many when they get their cards for the first time. They run out and run up the balance until they are completely maxed out. The secondary problem with this is that many of these same people will make only the minimum payments on those cards. Suddenly, they are in way over their heads and it could take decades to pay off that debt, depending on how much it is.
Now, let’s take a look at how to use credit cards in the smart way:
1. Never max out your card.
Set a limit for yourself and don’t use the card limit as a guide. (How A Credit Card Limit Is Determined.) You should never have a credit card balance that is greater than three months of your current salary. Less is definitely more when it comes to credit cards. Strive to have a balance of less than $100 on most of your cards. Put aside a special card for emergencies and keep a bare minimum of debt on that card to keep it open.
2. Make monthly payments higher than the minimum amount.
This is an easy way to eat away at your debt and keep your credit rating high. Making regular payments is the best way to achieve a good credit rating, but making higher payments will also help. You should also putting a charge cap on your cards, and try to never spend more than you will be paying for the payment each month.
So many of us use our credit cards for frivolous items that will only lessen in value. If you took that same amount of money and used it to invest, you would actually start seeing a return. Suddenly, your credit cards are working for you and you’ve created a secondary income stream that can reduce your reliance on your paycheck. However, you should start small with your investments and make sure that the risks are as low as possible to avoid having this plan backfire.
4. Take advantage of low interest rates.
Look for credit cards that have a very low introductory rate and then a permanent rate that is fixed and low. These cards are much more beneficial. You need to also make sure that you make those monthly payments on time, since many cards do have an interest penalty if you are late. The lower the interest rate is, the lower your total amount of debt will be. Be sure to check out these credit card reviews at Credit Karma.
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July 22nd, 2008 — Debt, Money, Personal Finance, bad debt, credit cards
The average American is currently carrying at least some form of debt, even if it is small. We live in a society where overspending is common and credit card debt has become a right of passage. In many cases, you need to be in debt in order to start building your credit history. Without this, it is hard to get a house or even a car. But the question is – how much debt is too much?
When you are first starting out, you may have a lot of student loans and this further compounds the problem. Ideally, the average person should limit their debt to three times their currently monthly salary. However, this may not be possible in many situations. There are some things that we cannot help but go into debt for, such as a car or school, but there are certain kinds of debt that you can avoid.
The key is figuring out the difference between good debt and bad debt. Good debt is hard to have too much of in most cases, especially if you are putting it to work for you. Bad debt is very easy to rack up, and can be hard to pay off. This should be the smallest part of your debts. So, what is good debt and what is bad debt?
Good debt is money that you spend on something that will give you some sort of return. For example, your student loans are good debt, since they were used to further your education and help you earn a larger salary. A car loan straddles the fence, but it is a necessity, so for the sake of argument, we’ll put this in the good debt column. A home loan is also a good debt as long as you do not overbuy.
Bad debt is debt that does nothing but cost you money. Credit card debt is the best example of this, especially when your cards are used to purchase non essentials. You can look at bad debt as something that will never have any sort of return. A $400 shirt may look nice, but it’s never going to do anything but cost you more money, ie: dry cleaning. In fact, there’s a huge risk that it will even end up being ruined and all that money will go out the door.
It is also important to remove emotional attachment from the concept of bad debt. It is easy to say, but I love that shirt and I wear it all the time. The bottom line is, it is doing nothing for your bottom line, and as such, it is bad debt.
Good debt also includes what is known as leveraged debt. This is a type of debt that you use to create another income stream. Examples of this include investments or dividends that are constantly paying you back. This kind of debt is very good indeed and will only serve to enrich you. While you should never get in over your head with any kind of debt, good debt is a lot easier to handle.
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June 12th, 2008 — Bankruptcy, Debt, Personal Finance, Stocks, credit score
This really sounds like the ultimate oxymoron, but one of the best ways to get out of debt is to go a little bit further in. What’s that? First, to help this make more sense, let’s clarify – if you need to get out of bad debt, going into good debt will help you pay off those credit cards and make more money. It’s important to understand that there is a huge difference between good debt and bad debt. Going into good debt has some risks, but when managed correctly, you can end up making enough money to quit your job, pay off your bills and save for retirement.
Let’s take a look at one example of how going into good debt can get you out of bad debt. For this example, let’s say that we have a person who has $10,000 in credit card debt. They’re overextended with too many cards and paying way too much interest. It’s getting harder and harder to make those monthly minimum payments and it seems as though it will take decades to get out of this mess.
Instead of declaring bankruptcy and just giving up, let’s say that this person goes and gets a loan for $2000. Since their credit is still pretty much intact, this isn’t an issue. They take than $2000 and invest it into ten shares of a stock that sold for $200 a piece. Within the first month, the price of that stock triples. They now have $6000 and it’s only been one month. They take $2000 out of that amount to pay off the loan, and are left with $4000.
Over the next month, the stock once again goes up. That $4000 is now $8000. The person cashes out the stock, pays down their credit cards and is left with a manageable $2000 in debt. Why not pay it all off? The secret to great credit is leaving some debt that you continue to make payments on – this builds up your credit score. In two months, the person was able to go from $10000 in debt to paying off all but a small portion of it.
Compare that to getting a consolidation loan. In two months, the person would not have made a dent in what they owed. If the stock market isn’t your thing however, there are many other ways that you can use good debt as leverage to create multiple streams of income. Whether you deposit it in a high interest bank, buy a CD or purchase a rental property, a leveraged loan can help you get out of debt much faster than a consolidation loan.
The key is picking the right opportunities and managing your money. Once you’ve paid down your bad debt, keep using good debt to create more income streams. This is the secret that thousands of millionaires use every year to keep bringing in tons of cash and it will work the same for you.
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