Ltj2010's Personal Finance Blog

By thinking that consolidating your debts into a single payment is going to change your life you might want to stop and think about some things first.

Here is an example

Credit Card #1 $100/month

Credit Card #2 $70/month

Loan $250/month

So you have a total of 3 payments equaling $420 a month. With consolidation what happens is you would take out a new loan and pay each of those debts off. Leaving you with one payment of lets say $350. Sounds like a good deal right? Wrong!! You never changed your behavior and you started using those credit cards again. OOPS now you have a $350 loan payment plus 2 more credit card payments of $100 a month. Now your paying out more money each month that you were in the first place.

Now debt consolidation doesn't seem like such a good idea does it? If your not going to change your spending habits then consolidation isn't going to help you one bit.

Change your behavior. Quit using credit. And stop the cycle of debt.

With today being the 4th of July nothing reminds me more of this holiday than burgers on the grill and fireworks. As a kid I remember how it was. I started thinking about fireworks as soon as the snow melted in March. I have seen that pretty much all of the fireworks stands around my town accept credit cards. Seriously?? How stupid is that? Your putting something onto your credit card at 18% interest that goes up in smoke. LITERALLY.

You need to stop and ask yourself before you go out an buy a bunch of fireworks on credit. Do I really want to pay interest on something that is gone in a few seconds? I don't think so.

The best way to stay safe this 4th of July is to use cash to pay for your fireworks, it will hurt a lot less next month.

Using envelopes to keep track of your spending each month is a great way to not overspend. The concept is simple just keep your money in envelopes for things like groceries, gas, clothes etc.

I'm going to use food as an example. Lets use a family of 4 spending $600 a month on food. What you do at the beginning of the month is take $600 out of your checking account and put that money into the envelope. That money is to be used for food only. And once that money is gone its gone. If you spend it all in 2 weeks there is no taking more money from somewhere else to add to the food unless you go back and re-figure your budget.

If you are paid every 2 weeks you can fund your envelope twice a month. Even if you are paid every week you could do $150 a week into the envelope. Whatever is easiest for you as long as your not going over your budgeted amount.

Food is one of the hardest categories to estimate how much you spend. So the first few months I would over fund it. Keep track of all you spend and over the next few months it will start to become natural.

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I suppose this is a question a lot of people ask themselves at the end of the month. Where did my money go? It happens all the time. Money comes in and money goes out, but where does it go?

This is where a good budget comes in handy. By writing everything down that you spend you can see exactly where all your money is going. When we started doing a budget it felt like we got a raise. We had categories for everything and it kept us from going to the ATM and taking $20 here and there. During the month it can add up to a lot of money that is wasted on stuff you can't even remember.

A budget might sound like a scary thing but all a budget does is tells your money where do go, instead of wondering where it went. Also using an envelope system for you cash purchases each month is a great way to stay on track.
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Its time to cut up your credit cards. This is one of the most crucial steps to getting yourself out of debt. There is no better time than now to rid yourself of credit cards. What has your credit card ever done for you?

I never felt so good like I did when I finally destroyed those credit cards. Just saying your going to stop using your credit cards is not good enough. You need to cut them up and be done forever.

When two people become married the money becomes both of theirs. There is no more "His Money" or " Her Money" Its "Our Money". There is no hiding money from your spouse or spending money without first discussing it together. I have known couples who each have their own separate checking accounts. That seems really weird to me.

My wife and I do not spend even $1 without letting the other person know what we are doing. Not taking the time to do a budget together and discussing the finances is a good way to bankrupt your bank account and marriage.

The number 1 cause of divorce today is money fights and money problems. Don't become a statistic. Do something about it today and start working with your spouse on the finances. It will pay off in the long run.

You have seen them on tv many times before. "Let us settle your debt for pennies on the dollar" They advertise being able to settle for 60% off of what you owe. Sounds like a great idea doesn't it? I went through this disaster first hand and want to prevent anybody else going through it.

First thing you need to ask yourself is. Are you behind on your credit card bills? If you answered no, then be prepared to get behind. Because the first thing they are going to tell you to do is to stop paying your bills and to not communicate with your creditors.

But of course they are not going to do this for free. What they do usually is they have you make monthly payments to them. I believe we paid somewhere around $200+ a month. The first 3 months of payments go right into the pocket of this company. Then after that they get half of your monthly payment and the other half goes into an account to "save up" money to pay when a credit card will settle with you.

A credit card company will not settle with you unless your usually 3-6 months behind on your bills. When you are so far behind the credit card company will make you an offer to settle your debt. In the meantime while we were "saving up" with this company to settle our debts, I was sued by 2 different credit cards. That is about enough to scare you to death. I immediately quit using this company and worked out the debts myself

Why would you purposely stop paying on debts that were not behind in the first place to wreck your credit and fill your life with harassing phone calls from credit card companies?

Work through your debts yourself. Don't look for a magic pill to solve all your financial problems because it will only lead to grief.

Cosigning would rank up there in my top 5 of stupid things to do. First off why do you think banks ask for a co-signer? Its because they know your not going to pay and that you pose too much of a credit risk. So if you are asked by a friend or family member to cosign a on a loan, you better be ready to pay for it.

If you need a cosigner for a loan then you do not really need a loan anyway. But if you follow what I write you shouldn't be borrowing money in the first place.

I have a friend who cosigned on a student loan for his girlfriend and to make a long story short. They are now broke up and guess what?? She isn't paying on the student loan so he is now stuck paying for someone else's education and no longer seeing the girl. Doesn't sound like a good deal to me.

I'm will but it as simple as possible. Cosigning is stupid. If you cosign you are stupid. Unless you like to pay other peoples bills, Don't cosign.

Get it? Got it? Good

I have heard many people say "If I could just win the lottery everything will be ok" I'm just going to say that your NOT going to win the lottery. The lottery is a tax on people that can't do math. Haven't you ever seen the kind of people playing the lottery? Yeah I have too. You are more likely to be struck by lightning 5 times and live than you are to win the lottery.

Go stand on your roof with a metal rod in lightning storm and see if you can get struck 5 times and live. If by some miracle you live, go buy a ticket and you might win (probably won't though)

Heres a better idea. Save your money and do something useful with it. You will have a much better return on investment if you just save and invest it.

It might seem like a good idea you just need some money to help buy a new car or need money for school. So you decide to head to the bank of Mom and Dad. This is a recipe for disaster. You might think "But its my mom, nothing bad will happen if I borrow money from her".

That is where you are wrong. Remember that 'The borrower is slave to the lender'. No matter what you think will happen its going to create tension between the borrower and the lender.

I learned this the hard way. By borrowing money to pay off credit cards. Later on I learned its just a lot easier to do things for yourself. When you go over to their house there is always a weird tension in the air. All you can think about is getting that family loan paid off. I am so glad that it is done. We have learned it the hard way but it has taught us a lot so I can relay this message onto others.

Why to people cling to their credit score like its the most valuable thing in the world? A credit score actually helps keep the bank in business. To keep a high credit score you need to borrow money, borrow it often and pay it back. What is the point? People need to stop worshiping their credit scores.

Lets look at what makes up a credit score.

35%- How you pay your bills

30%-Amount you owe and available credit

15%-Length of Credit History

10% Mix of Credit (credit cards, loans, ect)

10%-New credit applications

But what if I want to buy a house, Don't I need a good credit score? No you don't. Banks can actually give you a mortgage loan by doing what is called manual underwriting. This is where they actually look at you as a person (if you paid rent on time, job history, ect) And not just look at your Credit Score.

If you stop borrowing money your credit score is slowly going to go down, eventually it will be zero. But does that really matter? Not if you promise to never borrow money again. And yes its true that car insurance companies are using your credit score to determine your yearly premium. But I would rather pay a little more on my insurance than keep borrowing a bunch of money just to keep a worthless credit score high.

Some call it entertainment, some call it gambling. I call it just plain stupid. I just can't seem to wrap my head around what is so entertaining about losing money? I see absolutely no point in it.

But I just want to be able to go relax and have some fun with my friends, So whats wrong with that? I'm sure there are a lot better things to do than waste your money on this meaningless pastime.

Somebody has to be a winner right? Yeah and that someone is the casino. Why do you think they have multi billion dollar facilities? Its not because they pay you out a bunch of money.

What is really sad is the elderly person that brings his social security check to the casino hoping to win it big. And walks home with nothing. Its nothing more than legalized robbery.

Your desperate for money and don't have enough to make it until next week. Should you get a payday loan? Absolutely not!! Payday loans are one of the worst financial products on the market. Lets take a look at exactly how these rip-offs work.

Lets say you want to borrow $500. What is going to happen is your going to write them a postdated check or agree to a authorized withdrawl for $575. In return you would get $500 cash and after 2 weeks they would cash your check for $575. But that is rarely what happens. A typical borrower will not have enough money to cover the check so they will "flip" or "rollover" their loan for another 2 weeks. On average a borrower will flip their loan 8 times before paying it off. In this example that is an APR of 390%. Doesn't sound like such a good deal anymore does it?

High interest payday loans are illegal in 15 states including Washington DC, US Virgin islands and Puerto Rico. That just goes to show you that these loan companies are praying on poor people and need to be shut down everywhere.

This blog stresses the point of having an emergency fund which would keep you out of the payday lenders office.

Do car payments have to be a way of life? I don't think so. But for many people having a car payment seems normal to them, just something that everybody has right? Wrong. The average car payment in America today is $464 over 72 months. And the average price of a new car is $26,000. And after only 4 years your car has lost almost 70% of its value.

So lets do an example, You buy a $26,000 car at 10% interest over 72 months. And after 4 years your cars value has dropped about 70% and its worth about $7800 but you are still going to owe over $10,000. If you keep the car until its completely paid off your going to have paid almost $35,000 for a car that is now worth less than $8000.

A car payment is the largest item people buy that goes down in value. And its the second largest payment people have besides their house.

Let's say you took the average car payment of $464 and saved it in a savings account for 10 months. You would have $4640, don't you think you could buy a decent car to get you around for that much? Yeah I thought so.

Stay out of the vicious circle of car payments and do not worry about what other people think about your car.