It is important to be able to do your best to reduce your overall debt load, without the need to go bankrupt. If your situation is that severe that you are actually considering bankruptcy then my suggestion would be to contact each of your creditors and ask for a reduction in the interest rate. Now of course this strategy works only with some companies and it depends on the jurisdiction you live in and even what country you live in. The thing is when you contact each company you need to speak to a manager or executive who is in a position of authority to grant your request. The only purpose of this strategy is to lower the amount of interest coming off each payment or being charged to your account so that when you do pay your monthly payment more goes to the principal therefore the debt gets paid out faster.

What do you do if you don’t get a positive response when calling your credit card company?

You always have options, some good some not so great. We have taken some time to review this very concern that alot of you may be faced with. We came up with three powerful strategies to get you out of debt and financially free you from the grip your debt has on you. The one thing all of these plans have in common are they work and each strategy gets your debt paid down quickly.

Before we go into the first plan, understand that anything you can do to avoid bankruptcy is definitely the better option as long as it remains legal and morale. To put a plan together and make it work takes huge comittment and perserverance, as well as will-power, and self-control.

The first strategy is known as the snowball method. In this method you list out all of your debts in order of their current balance. Next you make the minimum payment on all of these bills except for one – the lowest balance. On this particular account pay as much as you can afford to pay so you can get this one paid off as quickly as possible. Once this is paid in full, take the payment you were making on that debt and apply it as an additional payment to your next lowest balance. Then once this account is paid in full take the payment you were applying to this one and pay as an additional payment on the next lowest balance. Continue this strategy until all of your debts are paid out. Now this plan is not the best one for raising your credit score, but if you are in financial trouble it is still the better alternative than completely giving up. As each debt is eliminated it will give you a huge psychological boost that will give you even more incentive to agressively attack your debts.

Strategy 2 – In this particular method you concentrate your efforts on the account with the highest interest. What you need to do is list all of your debts as you did before but this time order them by interest rate being charged. Pay the minimum payment on all of your balances with the exception of the higher interest account. On this one pay as much as you can afford to pay extra and once this one is paid in full, take the payment you were paying here and apply it to the next highest interest account. Any additional income you get should be paid directly to this strategy. This plan can be a help to improving your credit score, but it could take a bit longer to pay off all debts than the snowball method.

Strategy 3 – The one downside to the two methods we just mentioned is you have to pay more than the minimum on one of your debts. If you are already on a tight budget, this can make it harder to come up with extra money. This third method is perfect for any of you who find yourselves in this situation. You still pay the minimum balance each month, however instead of paying your bill once a month, you pay half of the minimum every two weeks. By doing this it will help to lower the average daily balance, which is used to calculate your interest each period for some companies. Over the course of a year you will be making the equivalent of 13 monthly payments. This technique works best for those who pay their credit cards online, as it is very easy to select the payment date you wish.

Of all the strategies we have reviewed, which is the best one for you? Excellent question, that depends on you and your situation of which only you know best. However, any plan is better than no plan. It can be easy to get discouraged, but having a plan to pay off debt gives you control over your financial health.

In part 1 of 2 we discussed the strategy on how you should review all the expenditures for the month for you and your family. This was step one in the process of creating a budget, so if you need to quickly review that particular article before moving on please take a minute to do so now. In step 1 it is often the case you will see major areas of spending which you never realized were even there. I mentioned before that I had to take a look at my expenses a few years back and to my surprise I found a $400 leak in my finances which I had no clue was even an issue. Once I found this leak I could have stopped there and not continued the process however I continued on and found another $150 of overspending for the month. What ever you do, don’t stop going through this exercise when you find one thing, finish the process and you will be amazed at what you find. It could mean a savings of a few thousand dollars for the year. My total savings for the year was $6,600 – that is huge!

While you are tracking expenses, you also need to track any money which is coming into the family unit. Make sure you include everything – employment related income and bonuses, dividends, earned interest and any other sources of income. Once you have this information the next step is easy really, all you have to do is add up your expenses for the month and subtract that number from the total income you have coming into the family unit. This is where the real eye opener is.

For most of you it can be very painful to realize that you may be losing money every month. You need to keep in mind the goal isn’t to create a painful experience – the goal of budgeting is to make sure you never spend more money than you earn – you need to live within your means.

At this point your research has come to a close and now it is time to put your budget together. As you go through the process of resolving your debt you will use your budget to reveal where you may have extra money to put towards your debt, while at the same time ensuring you are not digging further in the hole. List your income for the month and start allocating expenses. By categorizing and labeling your expenses this will help you to know where the money should be going. If you love working with spreadsheets, why not create a budget in your favorite spreadsheet program. Of course if your not computer savvy then just use the old fashion pencil and paper.

Now that you are at a point to see what your financial picture looks like most of you may find you have more expenses than income. There will always be a handful of you who have more income than expenses. This is the better picture to have, and now you need to decide where your budget surplus is best suited but that is a lesson for another day. For those of you who have no budget surplus as your expenses are higher than your income, you need double check your figures and don’t be discouraged. You have a challenging road ahead. Even if you aren’t able to pay extra toward your debts right now, staying on a budget will eventually help you to have a surplus when other bills get paid out, you can then take that particular payment and put it as extra on another debt.

Now that you are successfully on a budget, you can appreciate how money and budgeting are new tools. With these new tools at hand, you can be sure you are now in control of your financial future instead of the other way around. Everyone of you are different therefore you need to be realistic for your circumstances and needs, rather than living by statistical data and percentages. After creating a budget you will soon feel great about the finances in your life.

When it comes to buying a big ticket item $200 or more, we often purchase these items on credit, only because we normally don’t have alot of cash on hand to buy these items. Financial institutions have made it easy for you to buy things you normally would have to wait to save the cash for. However as much as the financial companies are there to give you the credit when you qualify, you are the only one who really knows if you can afford the extra payments. Getting into debt is often the result of bad habits which we carry on until we have no choice but to take a step back and restructure our financial habits. One such way of restructuring your finances is by creating a budget.

You may be wondering why should you make a budget and how is that going to help you get out of debt? Well the first thing is if you are at a point where you need to set up a budget then you are probably feeling the stress of your financial spending therefore by having a budget will put financial picture into perspective very quickly. Now there is one very important thing to understand regarding a budget, it takes some serious committment and self control in order for your budget to be a success, as well you need to be realistic in the budgeting process.

Contrary to what most of you may believe and I am saying this as a result of the feedback I have received to date, budgeting is not that hard to set up. It does take time, especially when for the first timers, but like anything else it gets easier with practice and becomes second nature after a bit of time. It can be an exciting process but it can also be very frustrating as you are taking a real picture of your financial health. Like any health checkup there is the risk of bad news – basically put a serious reality check.

One of the main things you need to understand is budgeting is nothing more than writing down what you have for payments, bills, charity etc – basically all of your expenditures for the month and then writing down how much real income you have coming into your household each month.

The first step requires a bit of detective work, but it is well worth it in the long run. Take a piece of paper and write down all the expenditures you have every month. One of the best ways to do this is gather up your bank statements, receipts, your checkbook register and even bill stubs if you keep them. One thing that worked great for me when I was trying to find out why I had little money left every month a few years back is making sure I had a receipt for every thing I spent my money on. When it wasn’t possible to get a receipt I would write down in a notebook I carried with me, the date, the amount spent, where I spent it and why. (sometimes the why is self explanatory)

To properly complete the first step with accuracy you really should take the first month to go through the exercise of gathering receipts and notes on how you spend your money. If you are doing this as a family, it is important to not pass judgement on anyone during this setup period – basically it is business as usual. More than anything you need to have an accurate accounting of how much money is going out so to play with the numbers is only cheating yourself. Remember this budget process takes committment, self control but it also means you have to be honest with your family and yourself. Cheating yourself also means your cheating your family!

In our next message we are going to be discussing the second step to budgeting, for now think about what we have gone over today and we look forward to seeing you in part 2 on creating a budget.

In Part 1 of 2 we discussed the first three questions in this two part series. Let’s take a minute to review these 3 questions which are part of the plan for you to analyze if you can pay off debt now or within a specific time period.

The first 3 questions we discussed were:

1 – Are you paying just the minimal payments on your debts?
2 – Do you throw your financial statements out because you are afraid to look at them?
3 – Are your total monthly debt payments more than 20% of your gross income?

Those first 3 questions are great questions to help you determine part of your financial health. The next 3 questions will help you to complete the analysis so you can determine what plan of action needs to be taken.

Here is your number 4 question:

4 – Have you had to skip payments and/or have you been late with your debt payments?

It is no surprise or secret that you should always pay your bills on time, however when you get into financial trouble it is very tough to do this. There are times when there are more bills than money so you find yourself deciding who to pay by way of priority. As the late great Jim Rohn said – there is too much month at the end of the money. In times like this, credit card payments tend to be less of a priority as other important bills have to come first such as:

- Buying Food
- Paying your rent or mortgage for shelter
- Buying Medicine
- The need for clothing

To add more stress to your situation credit card companies impose late fees and in some cases increase the interest rate to offset the risk. All of these extra fees make it so much harder to dig out of your financial challenge.

5 – How many credit cards do you have?

There was a study completed a few years back where it was determined homes with more than 1 credit card were averaging debt on these cards in excess of $8000. The average person had ownership to 7 cards. While the number of cards per person hasn’t changed it is now estimated the average credit card debt per household is $15,000. WOW! That is more than double in 4 years – Unbelievable. More of you are using credit cards as a means to survive in your daily living. How long can you expect this to realistically last?

6 – Do you use one credit card to make the payment on another card?

If this is a strategy you are using your financial troubles are just beginning. Yes you have technically made a payment, however, you are actually paying more as a result of the interest. By paying on card with another card you are increaing your debt rapidly. You have probably heard the saying “Robbing Peter to pay Paul” – well trust me when I say this – after some time Peter will run out of money therefore Paul will have to stand on his own. Not to mention Peter will get upset with Paul after some time.

By analyzing your current financial state you will get a pretty good idea of how much work you have to do to get financially healthy. The questions we reviewed in the this two part series should give you a better understanding of the warning signs. Now you can work on your plan to pay off debt but keep this in mind – “If you think you are headed for or are in financial trouble, admitting you have a challenge is the first step to Fixing Your Financial Health.”

Have you ever felt as though you are teetering on the edge of a bad credit situation. You know the feeling where one more financial problem will be the demise of your financial health. However you are not sure because you are still able to pay all or most of your bills close to the due date. To help ward off financial disaster you start putting a plan together to determine if you have the ability to pay off debt.

Of course you start to second guess yourself as maybe you are living paycheck to paycheck. Another thought that may creep in is you feel you deserve what you are going through as you were the one to sign up for this debt in the first place.

What you need to do is see if your financial situation is healthy. We have come up with 6 questions which should help you to analyze your financial health and determine what action steps you need to take next:

1. Are you paying just the minimal payments on your debts? 

   By paying the minimal payments you are keeping your credit reputation in good standing and the wolves out of the house but they can’t be held at bay for long using this strategy.Credit card companies make most of their money from you when you only make minimum payments. By doing this it can take years and years to pay out these type of debts and in some cases thousands of dollars. The extra money these companies are making in interest and finance charges could be extra dollars in your pocket instead.

2. Do you throw your financial statements out because you are afraid to look at them? 

   If I asked you what you received in the mail today no doubt majority of you would say “more bills”. Most of you occasionally get a sense of anxiety when you see new bills arrive. There are times when you know your credit card balances are getting out of hand and you feel better if you just simply ignore it. The thing is completely avoiding the problem is a sure sign of trouble ahead. Simply hoping your debt problems just go away is a recipe for financial disaster, but you are already aware of this which is why your debt-related stress is increasing.

3. Are your total monthly debt payments more than 20% of your gross income? 

   Gross income is the money you earn before deductions. This number is just a guideline, for some of you it may be too high while for others it could be too low. What it does is give you an idea of how you compare to the average. In fact according to a recent post on MSN News people are in more debt than they have ever been. One of the stats mentioned showed 43% of households spend more money than they make. Now that is a huge percent!

For today’s message we are going to stop at these first 3 questions so we don’t overwhelm you with a ton of information all at once. In part 2, we will be discussing the final 3 questions you need to analyze before coming up with a plan to pay off debt. See you in part 2.

• Frivolous Spending

• Emergency Expenses

Let’s take a look at frivolous spending first. It is easier to say stop buying stuff you don’t need. There is often an underlying cause which needs to be addressed in these situations. As an example, you may have been part of a family who always got, most of the time, what they wanted and when they wanted it they were able to get it. You may find yourself doing the same when you are on your own.

Another example would be the complete opposite to this – you grew up in a family who didn’t have much, in fact you were always watching as your neighbors were able to buy special items and you vowed when you grew up you would never be in this position again. In fact you were going to have whatever you wanted, which is a normal response however some of you may have taken it too far and went overboard spending when you could not afford to.

Whichever situation best describes you (if any), the very first step you need to take is to promise yourself that you will only purchase the things which you need. Promise yourself and maybe even share this with a close friend, family, significant other so you will commit yourself to this important task.

The next thing you will need to do is address any underlying challenges you are being faced with.  Deep down, you know most of the purchases you make are superficial but the fact remains they make you feel great.

Ok, now we need to move on to the subject of emergency debt.

Are you able to predict or even prevent unexpected bad things from happening?

Your first reaction to that question is probably “Of course not”.  In fact, unless you have super-natural powers most of you are unable to predict, prevent these challenges that happen to us, however, you can reduce the amount of debt these situations will create.. the key is to have the means to handle these emergencies as they come up.

How is this possible?

One sure fired way to do this is to start an aggressive savings plan. By doing this you lessen the financial shock your budget will feel when an unexpected event comes up. You will often hear the financial experts recommend for you to put away 10% of your gross income and I would have to agree with this strategy.

The only thing you don’t hear them say is this strategy will not be easy. It takes discipline and commitment. Saving money can actually create you to feel a temporary financial pinch. The trick is to be consistent and soon enough it will be second nature to you.  It is like any change easy or challenging, after so many times it becomes a normal part of life.

A bit of discipline now makes it so much easier to enjoy life later. If by some stroke of luck you never are bothered by any of those major emergencies then you will appreciate having a nest egg later in your life.

One technique I have found takes very little upfront effort is taking coin change that you have on hand from breaking a bill and putting it into a sealed jar and only access it in an emergency.  I have personally used this technique to pay for my Christmas spending or if necessary car repairs.

In reality most of you go into debt as a result of emergency situations and frivolous spending. You never know what the future holds, therefore it is best to apply as many tips as you can get to fit your own situation.

There is only one thing you can do to minimize your debt and that is to only buy the things you have the cash on hand to buy right now. In fact, why not make this your new “daily” mantra.

“If I have to charge it – I can’t afford it”

Saying it to yourself is good however you need to do more, write it on a sticky note and attach it to any credit card that you have. Another idea is writing it on a sticky note and stick it to mirrors in your house. This way the message is constantly in your face – Pardon the pun.

It is unfortunate but it makes it very hard to give up the credit habit when most things in life require having a credit card. For example: Travel, reservations and account verification are a just a few. If you have no choice but to use your credit card for purchases most financial institutions give you a grace period of 20-25 days to payout the balance without incurring an interest charge. And remember – “If you have to charge it – You can’t afford it”.

Whether you have alot of debt or a little it is a great idea to pay out what you owe as quickly as possible. Paying out your financial obligations is not always related to how much money you earn. There are lots of you who may be fortunate enough to have high incomes and are still unable to clear out your debts – what really makes the difference is your money management skills.

Each of you will have varying reasons as to why you went into debt in the first place. Some of you have been frivolous with your spending, maybe you wanted to buy items such as a new outfit, a brand new car even though you have a good working car, a trip to a cozy resort, all of this to show the world you are doing better than your neighbors.

Then there is another group of you who have become in debt due to financial hardship such as:

• unexpected loss of work
• medical concerns
• unexpected events for which you have no control over

There are many strategies you can work with to get out of debt but wouldn’t it have been best to avoid debt in the first place. The good news is there are some excellent ways to prevent debt. In our next post Part 2 we will look at preventing debt based on the two different ways the debt was incurred. See you in Part 2.