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Struggling With Debt? Most People Do, Learn Why

Rather than only taking on new debt for emergencies, home purchases or essentials, debt has become a socially acceptable way to finance a life we cannot afford. Maybe we tell ourselves that as long as our debt is below a certain percentage, we’re doing alright.  Or maybe we took on debt to buy something nice, meaning to pay it off immediately…only to still be paying a ridiculous interest rate months or years later.

Here in America this problem is depressingly common.  What’s interesting is that this problem with debt is becoming a global epidemic, even in traditionally conservative cultures. In recent years the consumer credit market in Asia has exploded.  Ironically, as political and religious freedom spreads around the world we increasingly become slaves to debt and other self-inflicted oppression.

One of the major keys to reducing and controlling debt is understating it. The below set of articles from the Open University take a look at debt and the characteristics of borrowing in the UK.  The similarities revealed between UK and American debt are striking, but more importantly the perspective and revelations are incredibly valuable in understanding why.

Introduction
Exploration of Debt

Cost of Debt

Debt and Household Finances

The Process of Borrowing

Conclusion
References

Posted By Mays Financial

Over 80 Useful Personal Finance Calculators

Check out our collection of calculators cover all types of personal finance topics like debt payments and payoff, mortgage, income, investment projection and valuation, etc. Calculators are provided courtesy of CalculatorPro.com.

Posted By Mays Financial

My Take on Affording College

News flash: College is expensive.  Aside from a home, it’ll likely be the most expensive investment we make.  Though its expensive, it doesn’t have to be unaffordable…  But to afford college, we may have to make some compromises and use a combination of tactics.  Again, if you’re wealthy, have a full ride scholarship or some other uncommon means of paying for college…this article isn’t for you.   But if you’re wondering if you can afford college like I did…read on.

My Story

I think it’s important to share my college story so you know where I’m coming from.  We all have different experiences, goals and opinions on value.

I was a solid high school student (3.5 GPA) but due to our financial situation I did not have any big college plans.  I knew I’d stay local, live at home and begin at a community college because it was more affordable than a state college.

I began at the junior (community) college about 30 minutes from my home for the summer session which started two weeks after I graduated high school.  After a year (the following fall) I transferred to my state college, about 45 minutes from my home.  I transferred after only a year because I took most of my ‘two years’ of prerequisite classes within that year.

At my state college this is how tuition worked:  There were two rates, a part-time rate and a full-time rate.  If you crossed the full-time student threshold, you paid the same rate no matter how many classes (credits) you took.I completely took advantage of this and took as many classes as possible.  In fact, I did the math and it made more sense for me to cut back on work and take more classes since I could shorten the years I spent at college and wasn’t making much anyway.    This allowed me to earn my Bachelor’s degree the following Winter semester.   Admittedly, I could have finished that fall, but I took that summer off to work full-time, make some money and have some fun.  Even so, I finished my Bachelor’s degree in just two and a half years with honors (3.6 GPA).

As a warning, I did major in Psychology.  If I had majored in Physics, Mathematics, Engineering, etc. it would have likely taken me longer to graduate, though some of the research based classes in my major were intense and relatively time-consuming.  I had to take less classes those semesters.

The result is that my entire Bachelor’s degree education took less that two and a half-year and cost well under $10,000.  This was in California between 2003 and 2006 before the major tuition hikes.

Even now (as of 2011) this strategy is still viable and will likely always be.  I just looked at the tuition for my junior (community) college and it’s around $35 per unit, so a little over $100 per class.  Assuming you take your two years of classes (60 credits) at the junior college, you’re paying a little over $2,000 in tuition for half of your Bachelor’s degree (or full Associate’s degree).  Add in the cost of books, parking passes and any other fees and it’s still reasonable if you’re able to live at home.

That said, if y parents were wealthy and could afford to send me to a private school, spend a year studying abroad, and go right into grad school, would I?  Hell yeah I would.  But that wasn’t the case so i went the affordable route and went back to grad school later on.

My Take on Affording College

I look at college much like I look at weddings.  You can blow a lot of money on it and be saddled with debt for a good part of your life or you can decide what’s really important to you and make some compromises.

Some people may feel they need to get away for that ‘college experience’ and to really have fun.  If your parents suck, then maybe you do need to get away.  Mine were great though so I didn’t mind staying at home.  If you feel like you need to go to a big college to really have fun, then maybe you’re just not a fun person.  There are great friends everywhere, not just in a frat or sorority.  If you think you need an expensive education to break into ‘that field’ or get ‘that job’ whatever it may be, maybe you do.  But if  you’re talented enough to have the job, maybe you don’t.  While you’re paying those tens of thousands of dollars at that expensive school, just remember that some of your esteemed professors are state college educated.  Talent and dedication will get you where you need to go.

I’ll be honest with you, I never understood why people choose to go to expensive colleges away from home then complain about the excessive debt they’ll be paying off for the next decade or longer…especially when their major is in a low-income field.  Great you have a degree in 16th Century Bodices and Sleeves Design from Harvard and it’ll take you until the 25th century to pay it off, what now?   Some folks choose expensive schools knowing that they’ll incur a large debt, but it’s worth it to them.  If they make that connection and accept the outcomes then great.

The most important thing to take away from this is that college can be affordable, but you may have to make some compromises just like anywhere in life.  Be realistic

Posted By Mays Financial

Using Multiple Credit Cards? Stop Throwing Money Away

If you use multiple credit cards you’re throwing money away.  Why?  Well, let’s talk about it.

First of all, why do you use multiple credit cards?  Let’s list some of the most common reasons:

  • Simple cash back reward cards are boring
  • Different kinds of rewards (airline miles, store loyalty card, gas card, etc.)
  • Different types of cards (Visa, MasterCard, Discover, etc.) Only if you travel
  • Higher credit limit because you think you might (or already did) max out your other card(s)
  • Build your credit score
  • Stagger your bill payments
  • Transfer balances back and forth to make the companies compete with lower rates
  • Backup credit card
  • Attractive introductory rates

Now let’s talk about them.

Simple cash back rewards cards are boring

This one is first to make a point.  Cash back cards are boring, but they’re simple and you get the most out of them.  Good cash back cards give you your cash back automatically on an annual basis or some other predefined interval.

Ever go to spend your points and get stuck between two options: 1) choosing something you want/need and 2) spending all of your points without leaving any left.  Well, is there anything else that we need or could use more than extra money?  That’s what we get with cash back cards.

I recommend cash back cards over any other rewards program.  Cash back card, like many other cards, are often tiered.  This means that the more money you spend on the card, the higher your rewards rate gets and the more money you get back for each dollar you spend.

Cash back cards offer the only rewards that gain interest.  Your rewards are plan cash…cash that earns interest, be invested, and grow.

Cash rewards can’t be lost or taken away like points or miles.  Companies change their rewards programs from time to time and when they do your points or miles can expire.  Cash doesn’t do that.

Did I mention I love cash back cards?  In fact, I use my cash back card for everything from gum to cars, that’s right…cars.  I bought both of our vehicles on a credit card.  I never carry a balance and paid the balance in full the next week, but I earned a ton of cash back.  Think about it.  If you’re not doing it you’re throwing money away.

Back to the topic that cash back cards are boring, you know what’s the most boring?  Being broke.  Keep more money in your pocket by using a cash back card.

Different kinds of rewards (airline miles, store loyalty card, gas card, etc.)

Most ‘special’ reward programs are gimmicks.  Very few are actually worth using unless you do over 80% of your shopping at that place.  If you get a good cash back card your rewards rates will often beat these programs if you use the same card for everything.

Additionally, when you use these special rewards cards you often have more anxiety choosing what to spend your points on and still end up with a reward that’s less useful than you hoped.

Different types of cards (Visa, MasterCard, Discover, etc.)

I don’t really buy this (no pun intended).  Unless you travel, chances are you’ll only ever need one type of card.

MasterCard has always worked for me.  I think I’ve used my American Express once…and that was when I first got it…and I only got it because my bank offered it and it looked cool.

Higher credit limit because you think you might (or already did) max out your other card(s)

Well, if you’re maxing out your credit cards you have bigger problems to worry about.  Maxing out your cards is shooting yourself in the foot and should only be done in an emergency or under dire circumstances.  Either way, If this is you there are probably more relevant articles you should read…

Build your credit score

You can do just as good, or better, with one card.  If this is your goal I recommend purchasing everything with your card and paying it off before the bill comes due.  I probably pay my card balance in full once a week out of habit.  It gives me reason to check in on things.  Paying your bill early ensures that you’ll never pay it late…make success a habit.

Stagger your bill payments

This might be a temporary reason while you’re becoming financially stable, but it should be your goal to pay your balance in full each month.  If you’re doing it right, this isn’t necessary.

Transfer balances back and forth to make the companies compete with lower rates

Make the companies compete for your business before you join them or make them compete when choosing which card to stick with.  It’s never worth signing up for multiple cards just to do this.  As mentioned above, make it your goal not to carry a balance unless necessary.

Backup credit card

This makes sense for emergencies, but make sure your backup card has no annual fees or other silly terms.

Attractive introductory rates

If you’re going to pay off your credit card balance before the introductory period expires it might be worth it, but 99% of the time it’s not worth applying for a new card just for the introductory rate.  That’s like marrying someone just for the first kiss.

Of course, there are always exceptions

There are two primary exceptions:

  • Separate cards for personal and business purposes.
  • International Travel

Let’s talk about them.

Separate cards for personal and business purposes

It makes sense (and might even be a required for some companies) to use different credit cards for business and personal expenses.  If you work for a large company you can sometimes use your personal (via reimbursement), but if you’re self-employed it’s highly recommended you use a separate business card to avoid co-mingling personal and business funds .

International Travel

If you travel the world it’s always a good idea to carry a travel card.  ‘Nuff said.

Settling on a card

When you decide on a card, make sure you want to use it long-term.  Make sure it has a low-interest rate, no annual fee, a rewards program you like and other terms you can live with.

Make this your primary card. Make it a goal to eventually pay your balance in full every month.  This way you get free flexibility in payments and cash rewards.  How’s that for a change?  Using the credit card companies instead of them using you.

Posted By Mays Financial

Wedding Cost: Alternatives to an Expensive Day

Why the title?  Because that’s what a wedding is…a very expensive DAY.  Yeah, yeah I know memories last for ever, but so does debt…and it grows with interest until you pay it off.  You may have dreamed about an expensive wedding forever but instead start dreaming about an enjoyable retirement, being debt free, having nice stuff without being secretly broke and staying married.  How’s that for a dream?  Unfortunately it’s a dream that never comes true for most people.  Do you want to be most people?  Read on for some alternatives to an expensive wedding day.  That’s right, day.  Expensive and day should never be in the same sentence…you know, just like fun and taxes.

Instead of having an expensive wedding you could…

Decrease Your Chances of Divorce

Financial stress contributes to marital problems.  In fact, financial issues are one of the top five contributors to divorce and the top contributor according to some surveys.  That’s right, when you have an expensive wedding you’re increasing your chances of getting a divorce.  Spend $30,000 on a wedding only to divorce a year or so later.  Crazy, right?  I’ve seen it, I’m sure you have too.  You can fantasize that your perfect love is unbreakable but marriage is challenging and collection agencies do not accept ‘love’ as a form of payment.  Marriage is wonderful, but it takes work.  Why make it more difficult that it already is?

Pay Down Your Debt

Not only would you pay down your debt, but you could be saving tens of thousands of dollars in the long run based on how much you owe, your interest rate and whether you only make the minimum payments each month.  How great would it feel living debt free?  It feels awesome.

Get an Incredible Ring

Yes, an outrageously expensive ring is silly but its way less silly than an outrageously expensive wedding.  At least you can sell the ring later if times were difficult.  We bought an incredible ring for my wife and she continuously gets compliments.  It’s a constant reminder to her and it will always be there.  We bought my wife’s ring custom from a very well-respected jeweler and it appraised for nearly twice as much as we paid for it when we took out an insurance policy on it.  The ring is an asset, meaning if you find yourself in dire straits you can always sell the diamonds since they appreciate…which is more than you can say for an expensive wedding.  For some people an expensive wedding is an ego thing, well here’s an ego booster that lasts forever.  Become wealthy later in life?  Sell the ring (for possibly more) and upgrade.  Why?  Because you can.
To the fellas: Guys, that ring is still paying dividends years later for me…one of the best decisions I’ve ever made. Every time she gets a compliment it’s like I bought her flowers or chocolate or something.

Have a Party

Let’s face it, beer and pizza is cheap…and a lot more fun than some weddings.  Maybe instead of throwing a party you want to invite a few friends or family on  relatively cheap cruise to combine the wedding party and honeymoon.  If you pick the right cruise it’s a constant party.  You can get creative, but there are plenty of ways to celebrate with friends and family without breaking the bank.  Twister anyone?  C’mon grandma, your hip is just fine…

Give Your Family a Head Start

Whether you decide to use the money as a down payment on a house, to decorate your new home or pursue an advanced degree and progress in your career it’ll give your family ahead start in life.  New families always struggle.  Whether you’re trying to break into the middle class or simply land a job, there are plenty of worthwhile things that could be paid for instead of a wedding.  Make a list of ideas and rank it, you might be surprised at what you find.  Whatever you and you family end up deciding, I wish you the best.

Posted By Mays Financial

Confused About Money? Too Much Information? Here’s a Solution

Do you have a hard time keeping up with your finances?  Many of us do.  This contributes to missed payments, overdraft and bad credit scores.  This means thousands of dollars in extra fees and interest.  That’s money that you could be using.  When we don’t know what’s going on with our finances we’re throwing money away and risking significant financial trouble like bankruptcy and foreclosure.  Let’s talk about some ways to simplify your finances and get back in control.

Why should we simplify our finances?

Research tells us that as the amount and complexity of information increases, we’re less likely to take action and make decisions.  This means that unless we simply our finances and make them easier to understand we’ll continue to fall behind, miss opportunities and throw money away.

Research also tells us that falling behind, missing opportunities and throwing money away are the best ways to stay broke…  Let’s get started.

What kind of information should we have frequent and easy access to?

There’s a lot of financial information that we need to keep up with, here are some examples:

  • Cash flow (money in vs. money out)
  • Account balances (savings, checking, etc.)
  • Credit card balances
  • Other debt balances (mortgage, car loan, etc.)
  • Bill payments & due dates

Without this information we’re driving blind, wasting time and losing money.  That works for the credit card companies who want you in debt for the rest of your life, but don’t you want to be debt free and financially independent someday?  Having access to this information will allow us to make better decisions and move towards financial independence.

What can we do with this information?

With this information we can do a lot of things to make financial progress and take advantage of opportunities.  Here are a few examples:

  • Prioritize debt to pay it off faster and save money in interest.
  • Invest idle cash for better returns.
  • Ensure account balances stay positive to avoid overdraft and other unnecessary fees.
  • Setup automatic bill pay to avoid missed payments.
  • Track cash flow (money in and money out) to find any unauthorized purchases or transactions.
  • Compare interest rates to save money.
  • Decide whether to refinance your mortgage or consolidate debt.

You’ve convinced me, how do I make it happen?

Our main goal is to be able to view all of our financial information in one place in a simple and easy to understand format.  There are two primary ways to do this:

1. Use financial dashboard/aggregation software.

2. Consolidate your finances at as few financial institutions as possible.

Because it’s not always possible to completely combine our finances, we’ll often use both strategies.

Using a financial dashboard/aggregation software

This is the simplest method using free software like Mint.com.  In addition to Mint there are other free and paid solutions, though I’m not too familiar with them.  Personally, I recommend using Mint.com since it’s free, easy to use and has a free phone app so you can reach your information from anywhere.  We’ll use Mint in this example.

At Mint.com you’ll register and create a free account.  After making an account, you will link Mint to your financial institutions.  This allows Mint to display information from all of your financial accounts in one place.

Mint uses top-level security and is read-only software.  This means it cannot make any transactions, it can only view information.  This is good because you don’t have to worry about anyone trying to make transactions through Mint.

Once setup, you’ll be able to get updated snapshots of your financial situation, stay informed and make better decisions with your money.  Imagine the ability to view all of your bank accounts at one time on a single computer screen, that’s what Mint.com gives you.

Consolidating your finances

This is the most time intensive option, but has potentially more benefits down the road.  This option is not possible for everyone depending on their situation.

The goal here is to transfer your accounts to the fewest institutions as possible.  For example, you’d transfer your savings, checking, credit card accounts and other accounts to one bank.  For insurance you’d try to combine your life insurance and property insurance at one company (hopefully getting a discount in the process).  For investments, you’d try to combine your investment and retirement accounts at the same company.

Having more of your financial information in one place makes transfers and other business much more convenient.  You’ll also typically receive better customer service because the representative can see your other accounts, offer suggestions and offer quicker solutions to problems.

In terms of having all information in one place, this isn’t as effective as Mint because most people can’t combine all aspects of their financial life.  This means that you likely won’t have all you data on one screen yet unless you use Mint, but by having your accounts in few locations you’ll have  more control and an easier time making things happen.

Choosing which institution to stick with

If you belong to multiple institutions, you may have some trouble deciding which to transfer your accounts to.  You should stick with whatever institutions gives you the most useful benefits, charges the lowest fees, has the best customer service, etc.

If you’re eligible, I highly recommend USAA (they’re not available for everyone).  We use USAA for banking, investing, insurance…everything.  What I’m getting at is that you should choose a bank that you love.

Consolidating your finances isn’t always possible and may not make sense to do it right away for many reasons, but it’s something to consider in the future.  Do thorough research before making any changes to make sure you’ve planned well and don’t end up worse off than you started.

Here’s to a simpler finances and a brighter future

At the very least use Mint.com or something like it to gain a complete understanding of your financial life.  That information alone is worth tens of thousands of dollars down the road.  Whether it saves you money in fees and interest, prevents you from overdrawn accounts or simply saves you time, you owe it to yourself and your family to simplify your finances.

By immersing yourself in your financial data you’ll become more aware of your habits, find opportunities and take bigger steps towards improving your financial situation.  As you see your account balances grow and debt levels sink you’ll gain more confidence and progress even faster.