Is It Better to Repay Debts or to Save First?

Once you finish college, get a stable job, find a place to live and start earning enough money a question inevitably comes up: “Should I start paying off my debts with the money that is left over every month or should I start saving up and then pay my debt once I have a substantial amount on my account?”. The short answer is that you should try and pay off as much of your debt before you start saving money. The long answer will include the “why” as well as the “what” you should do.
Repay Debts

Increasing debts

You see, it is all in the percentages that keep building up the amount of money you either have on your account or you owe. For instance, the money you have in the bank will have a very lowinterest rate, around 1%, while the interest rates on your debt can be anywhere between 5% and 21%, maybe even higher. So in the best case scenario, your debt is going to get bigger for about 4-5% every month, so when you get enough to finally pay off the original debt, the amount that you actually have to pay then will be much greater.

Profit for the bank

Another thing about banks is that yes, they are quite much into business and therefore aim for as huge profits as possible. And the major portion of profits for banks comes from your savings. The amount of money that you save with your bank is used to lend cash to other people or borrowers. The difference at which the bank borrows money from you and the borrowing rate it charges on other customers is their actual profit margin. In simpler words, it will always cost more to borrow money from the bank that what you would save.

Pay off your most expensive debts

Be sure you keep your credit cards after you have  paid them off in full, you will have a relatively good credit rating if you occasionally buy something with them and then pay it off quickly afterward. You can also get an interest free deal on a card and pay it off before the interest free period runs out. This will help you in case something unexpected comes up and you have used up all your savings.

Use your savings

If you have some money in your account right now, you should consider using as much of it as you can part with to pay off those debts with the highest interest rate first of all.  Therefore, you should take a look at your current debts, and mark the ones that cost you the most every year and focus on repaying them with the money you have saved – just leave enough money for your basic needs so you won’t have to take out another loan down the road.
There is something you should be aware of when trying to pay off your debt using your savings – not all debts can be cleared away efficiently using this method. For instance, certain types of mortgages will have actual penalties for paying before the set date. The best solution, in this case, is to take a part of your savings and put it into a different account that is specifically designated for the purpose of paying off the mortgage. The interest will keep building up and when the right time comes you can then use it to pay the debt. Be sure you are well informed about all the circumstances regarding your debt and read everything carefully before you sign.

Exceptions to the ‘paying-off-your-debts’ rule:

There are but very few occasions that can serve as an exception to this rule of paying off debts using your savings.  For example-

  • You can rule out the need to pay off your debts when the debts are cheaper than your savings. this basically means that if you feel that the cost of paying those debts are much higher than what you currently have in your savings account, then there is no point.
  • Penalty exception: if you already have debts that are incurring a stipulated amount of penalty on you, such as mortgages and other exclusive loans, you can consider not paying them until the penalty amounts have reduced. You can leave the cash in your savings account until the penalty is small enough.
  • Interest-free debt exception: This is specifically for those individuals who have constantly managed to pay off their debts so that they eventually become interest-free through prepayments. In such cases, if the interest rate on your debt is lower than the amount your saved cash earns after all tax deductions, you can easily earn from your savings and keep the debts as well.

Conclusion

The best is to make concerted efforts into paying your debts as quickly as possible. The sooner you pay off your debts, the happier and effortlessly you will be while managing your personal finances in the future. The advantages of paying off your debt first should be pretty obvious now – you will want to avoid letting the interest rate blow up and paying as much as you can right now.

What are Pros and Cons of debt consolidation?

It is true that someone who has many debts to pay is always distressed and even buried in depression, if he is going through financial crisis. Car loans, home loans, education loans, credit card loans and so on are basic necessities of a middle class man in this world running at the pace of light. But when all these climb on your head like termite after consuming your pockets, it becomes very hard to cope with the hassle circumstances. Debt consolidation, in that situation, comes up as a sigh of relief. But when anything is related to our money and financial management, it is very important to count on each advantage and disadvantage of it.

debt consolidation

Debt consolidation has its own pros and cons which you should explore before going for it.

Pros

Debt consolidation means to club all your debts and loans into one, which reduces interest rates that is a great thing to trim extra pay offs. All you have to fret about is one-time payment. One very important and aiding advantage of debt consolidation is that you stop getting calls and notices from banks and collection agents. When there is no one to trouble you by calling everyday asking for money, your psychological health becomes positive and this makes you constructive in your thoughts and production at your work. Debt Consolidation Company purchases your worries from the collection agents and pays off credit reporting companies.

If you opt for consolidate debt, it saves you from being declared bankrupt, how good this deal is, only a big debt holder knows. By devising a financial budget and with the help of consolidate debt, you can start to improve your reports and credit stores.

The best thing is you can start your financial management afresh where you can avoid all the wrong decisions you’ve made in past. There will be no one to give you frowns while you do this.

Cons

Once the funds are available, People often fail to manage their finance again causing themselves commit the same mistakes that they’ve done in past. It brings in more problems and accumulates more debts and financial obligations. Consolidation loans give you long timelines like 10 to 30 years to settle your one-time debt which however saves you from debts to pay on short tenures that too at high interest rates. For all this time, your assets or your property remains mortgaged tied to a home equity loan usually. This means your debt consolidation loan is given against the value of your assets which are kept mortgaged. If you fail to pay the consolidate debt, you end up losing your home and assets.

If you analyze deeply, you’ll get to know that in the end you will land paying more over several years than it had to be on short tenures. To burden you in the end, you’ll incur penalties like late fees or so.

So, before going to opt for a consolidate debt, you must be self-aware and calculative in your approach. Once you take a consolidate debt, you should manage your financial structure well in order to refrain these hassles circumstances again.

Save money and get out of debt – Think out of the box with 6 tips

It’s rather common to wish to get wealthier with every passing day. However, one of the major differences between all those who’re actually wealthy and those who’re not is pretty basic. It’s more like the wealthy are the people who essentially earn interest, whereas the rest are busy paying interest or perhaps even seeking debt relief. This is obvious as the more interest you keep accumulating against you, the higher are your chances of going down the debt whirlpool.

So, you must be wondering that wherein lies the key to financial bliss. Firstly, it’s rather important for you to realize that money is the most effective tool that can ideally help you reach your goals. True financial independence calls for you to make money begin working for you. Moreover, as soon as that happens, you’ll not only be able to get out of debt, but also build yourself a solid financial foundation for your future.

Tips to save money which you thought wouldn’t work

Basically, the trick doesn’t lie in saving money itself. It’s more about making those things work which you initially thought wouldn’t. Now, if you’re looking for ways to get out of debt, then it’s high time to take immediate action. Read on to find out how you can do so.

Be easy and focused: The very first thing that most don’t think can work is to be as easy and relaxed as possible regarding saving money. What’s actually important is the focus bit. Getting tensed and panicking unnecessarily won’t get you anywhere and neither will your finances benefit from it. You need to go about everything easily because the more you force yourself at something, the tougher it’ll get.

Simple steps make the difference: Believe it or not, but it’s the small and simple steps that can make a major difference to your financial situation. Hence, don’t ignore that 1 dollar. Put it aside for you never know what they can finally amount to be.

Set yourself time limits: Simply deciding that you’ll do something or take a certain step doesn’t really go a long way. You’ve got to put a time cap on all your decisions. Most don’t realize the worth of time especially as far as finances are concerned. For instance, you decide to clear your debt on a particular credit card. In that case, simply deciding doesn’t really go a long way because with increasing time that so-called payable credit card debt is going to take on unmanageable proportions. Set yourself a time limit and work towards paying off that particular debt by then.

Try and be organized: No matter how busy you’re, good finances always call for organization. If you don’t know what all your outstanding debts are in the first case, then there’s no point in looking for debt relief. Get all your papers in order and know how much you owe and to whom. Most importantly, you should also know things like what exactly is needed for your everyday life. Unless you’re accurate about these things, it’s more than expected that you’ll land up spending more than required.

Try being innovative with your house: There are so many things all around you that you might be overlooking. Get yourself working and have a close look all around and see where exactly you can save money. For instance, when it comes to your house, then you could try some measures like say weather stripping. It’s rather easy to install and it can make a great difference in helping to keep out drafts. You could also insulate outlets and light switches also. People often forget that these are sources of air leaks. Steps like these will prove friendly to your pocket.

Make money with unused stuff: It might seem weird, but it’s surely worth giving a thought. You must’ve ignored or in fact not even spared a thought to what that clutter you’ve got could do for your finances. There are loads of opportunities online which you could make use of by selling those old books instead of letting them turn yellow, you could sell off electronics stuff instead of letting them rust. Or easier still, you can sell them all off at your nearest thrift store.

Keep in mind the tips discussed above and make use of the money that you make towards getting debt relief for yourself. Be alert and innovative and your finances are bound to get better with every passing day undoubtedly.

Consider Tax Refunds as Effective Means of Getting Out of Debt

Many financial advisers and entities go out of their way just to help people know how to use tax refunds for effective debt settlement. Indeed, tax refunds are money that you can use to settle your existing loans, credits, and other forms of debts.

However, the first thing that you must remember is that tax refunds are not money that just popped out of nowhere. They are money that you own; it’s cash of a certain amount that’s returned to you – mainly because you overpaid the government. Usually, the amount of refund that you might find in your check is in the vicinity of US$2,000 to US$2,500.

Here are tips and tricks on how to use tax refunds in solving your debt problem:

Avoid overpayment

First of all, make sure that you have no unusual deductions for the current year and hopefully in the future. If you have confirmed that this is so, you must change your withholdings in order to avoid doing overpayment. In the first place, you don’t want to give away your money and have anyone hold on to it for a year without the money earning some interest. It’s just an absurd thing to happen, don’t you think?

Make a correct adjustment

Calculate the adjustment in an easy manner, and this is by taking your tax refund amount and having it divided into 12. Adjust withholdings appropriately; which can be done through the help of your office’s payroll department. As this figure is adjusted, this can offer you a few hundred dollars of extra money a month that you can spend to pay off any of your existing debt; such as credit cards, car and student loans, among many others.

Now that proper adjustments are done for the future year, you can now focus on the right way of dealing with your tax refund that’s forthcoming.

Settle credit card debt

Most of us possess credit card debt. If you have one, settle it immediately. A $2,500 amount on credit card balance at 18% interest while doing minimum payments will require you 14 to 32 years to settle it completely. Others might want to use the refund however on financially rewarding endeavors other than reducing or even eliminating their debt.

What if you invest instead?

For instance, you might want to invest the money instead; insisting that you will just obtain the payment to your credit card debt from the returns that you will earn from your $2,500 investment. To be fair enough, let’s examine this route and find out if it is indeed a wiser way of using your tax refund.

This is actually a good investment if you will obtain the return that you need in order to fully pay your monthly credit card debt. However, for a $2,500 investment, you will need an investment scheme that will deliver 25 to 35% after-tax return for you to come up with the money to pay your debt.

However, if you use the tax refund to pay off the $2,500 debt on your credit card, and use the monthly payments that you waste on minimum payments and simply invest them during the same period of 14 to 32 years, such an investment will grow to a maximum of $175,000.

Now, it is a fact that most of us have more than $2,500 debt in credit cards. Apart from this, we also have to deal with student loans, car payment, and many others. Hence, as soon as you have made the right adjustment on the tax amount that’s withheld from your salary, use this amount to settle your most important debt. Pay off debt first before you even try to go to any financial ventures such as an investment.

And since, your tax return can’t do everything in terms of paying all your debts, it is advisable to seek professional advice – whether you obtain credit counsel or take advantage of a debt relief program. There are numerous debt management and relief options available, but the important thing is that you must act fast and promptly – to make things happen.

This guest post was provided by DebtSuccess.com, the debt management experts specializing in debt consolidation, debt relief, credit repair, tax debt, debt settlement and more.

What to Expect from Debt Consolidation

Debt has fallen on you like an avalanche. You don’t know where to start digging, and all you can think about is how much more debt you  have  in your way. You never thought you’d be in this mess, but here you are – buried. The good news is that there is a way out of the pile of bills with debt consolidation.
Debt consolidation has become a popular option for those looking to eliminate their debt problems as quickly and effortlessly as possible. With the number of companies sitting there to overlook your debts and offer counseling on paying them off, debt consolidation can be a tad tricky to understand at times. So while you’re looking at the stack of bills piling on your desk, are you wondering about how debt consolidation actually works?
Knowing what to expect when you choose debt consolidation will help you finally put an end to your financial madness.

What to Expect from Debt Consolidation

Making an Appointment

The first thing you should do is research the different debt consolidation companies available. One of the easiest ways to check the credibility of a company is by keeping your eyes out for their BBB or Better Business Bureau reviews. If the company has secured an A+ rating on BBB, then you can trust the company with your eyes closed.
Just like any other business, each debt consolidation company has its own fees for the work they will do to help you. While you may not want to go with the most inexpensive company,  getting a good rate is important in starting your road to financial freedom.

  • Start with finding a company of a good and strong reputation. Seek recommendations, read reviews, and research. For example, the National Foundation for Credit Counseling (NFCC) offers certification for counselors and sets certain requirement for member organization. Thus, seeking references from the NFCC will be a good way to start.

Once you find a suitable company, call them to  schedule an appointment. Be sure to ask  about the type of documents you’ll need to bring.

The First Appointment

Duringthe first appointment, your debt consolidation counselor will look at your income, expenses, and debt. He or she will then calculate all of your debts, and then determine the affordability of the amount that you will have to pay per month.t.
 To determine that exact figure, your counselor can look into finding a debt consolidation loan, and start calling creditors to discuss settlements.

Before Your Second Appointment

Between your first and second appointment, your counselor will be hard at work calling your creditors to negotiate a settlement. Many lenders will decrease the amount of money you owe them if you close your account and agree to pay the lower amount. This is where having a good counselor will benefit you. One that is experienced in negotiations and well known in the circuit of creditors will have a better chance  of getting your debt decreased significantly. Some people can see a decrease in debt up to 20%.
While you are at the stage where you are about to schedule a second appointment, to help you live a life that is completely debt-free, a certified credit counselor will calculate your total debts. All secured and unsecured loans are taken into account, which can help create an all-inclusive budget for you.
Once the final amount is settled or all debts, your counselor will go to work on finding you a loan that has the lowest interest rate. With a low-interest rate,  there are higher chances of you being able to afford the monthly payment.

Your Second Appointment and Beyond

At your second appointment, you’ll find out how much debt you’re responsible for, and the loan that your counselor has found for you. If you agree, you’ll fill out the necessary paperwork.
The next step is to determine how you will make the monthly payments on your debt consolidation loan. Your counselor will help you come up with a budget. You’ll use this budget to the best of your ability, and schedule subsequent appointments w to make necessary adjustments, if any. .

Paying fees

Certified professionals will charge you a certain amount of fee. You don’t want to settle with something that’s too inexpensive for you to digest, or go for a company that plans on burning a hole in your pocket. Make a comparison especially when it comes to getting a bang for your buck. You will find non-profit organizations as well, but you will still be expected to pay a minimal fee and some nominal charges to get your consolidation work started.

Final words

Once you manage to grab a hold  on your budget and payments, you will be free to deal with your personal fianances on your own. If you ever need assistance, your debt consolidation counselor is only a phone call away.

How to Choose Best Debt Consolidation Company in USA

I do think that there is no need to drive the nail home why you should try your best to get out of debt trap. There is a line of reasons which are really very good to go through and push you into some prompt actions. Several debt consolidation companies are working in the USA. Here is a list of tips finding the best among them.

How to Choose Best Debt Consolidation Company

Consider industry rating of the concerned company:

A good industry rating for a company is sort of identification mark that says it is a source to rely on. A reputed US credit consolidation company is expected to have a positive rating with the Better Business Bureau or BBB and industry organizations too. A good rank is a sort of piece of pride and so the companies never slip the chance of mentioning the affiliation on their websites. However, there is no harm in doing some additional research and go for verification of good rating as claimed by the lenders. This is ‘rule of thumb’ as to how to choose the best consolidation company in USA. If the company demands upfront charge and several complaints have been pasted against the company, it will be wise of you to move on to other lenders.

Lender’s statement:

The debt consolidation company often arranges for automated payment. It is both hassle-free and worry-free process of debt repayment. But that does not mean you will not ask for banking statement or do the same once in a blue moon. You must get a regular banking statement to know how the deducted money is working as well as the progress report of your balance after money transfer to your creditors’ account.

Is it an inexpensive choice:

The well-known companies are very transparent in their service though cost may be sometimes their down side. These companies always provide in-detail information including the fees for their services. No hidden fees and no effort to hoodwink the customers. They have good will in the market and they swear by ethical business practices. You need to check if the USA debt consolidation company is actually legitimate. Does it ask you to pay in advance?

If it is the case, then the company is operating in defiance of strict USA laws that prohibit the practice of demanding any sort of advance payment. One of the best tips regarding how to choose the best consolidation company is to get everything in writing.

Whether it is repayment terms or interest rate or your eligibility or other requirements, make sure to get everything enlisted in a paper so that there is no scope of denial on part of the lenders.