5 Mistakes You Make When Managing Your Debt

Good afternoon. Today, since we're all on holiday, and the typhoon Maring is bringing a lot of rain in Metro Manila, I thought of surfing the net. And I found this article from FoxBusiness by Allison Martin (Credit.com) on managing our debt. I would like to post it here for us to study and hopefully apply some of it's recommendations so that debts can be erased soon.

Not all debt is created equal. With that being said, there is no one-size-fits-all approach to managing your debt and avoiding excessive interest, fees and other penalties that could result if not handled properly.

Here are five mistakes consumers commonly make with their debt (and ways to avoid them).

1. Depleting Your Emergency Fund

If you have a substantial amount of cash in your savings account, allocating a vast majority of it to get out of debt may seem like the wise thing to do. However, the problem with this approach is that it fails to get to the root of the problem. The ultimate goal should be to get out of debt and stay out of debt, and not simply write a fat check to serve as a temporary patch. It is more sensible to jump-start your management efforts and cut costs elsewhere in your spending plan because emptying out your emergency fund can mean even greater debt if an emergency arises and you do not have an adequate amount of cash on-hand to cover the costs.

2. Having No Plan of Action

Taking a lax approach to your debt is a recipe for disaster. You may eventually achieve your goal, but the process may be lengthy and tedious. Just imagine a college student who randomly takes courses that appeal to them without ever looking at their transcript to see what’s needed to graduate.

Save yourself the headache and devise a detailed debt repayment plan that incorporates your financial goals.

3. Getting Caught in the Minimum-Payment Trap

Making the minimum payment each month may give you more flexibility in your budget, but you more than likely will never get out of debt. In most instances, particularly if the outstanding balance is high, the minimum payment may only cover interest (or not much more), leaving you with an untouched principal balance.

Instead of making this mistake, allocate as much money as possible toward your monthly payment, even if the amount is way more than the minimum, to ensure that your payment efforts are not in vain.

4. Robbing Peter to Pay Paul

Advancing cash from one debt source to another solely for the purpose of making your monthly payments may cause you to end up in a bigger financial crunch than you initially bargained for. If your financial situation is dire and you‘re robbing Peter to pay Paul just to make timely payments, reach out to the creditors and request that they grant you some sort of temporary relief until you are able to sort things out.

In addition, refrain from using any sort of financing to pay for purchases unless it is absolutely necessary.

5. Ignoring Statements and Credit Reports

Both your statements and credit reports paint a picture of where you stand in terms of your debt obligations. Ignoring these documents can be very costly and time-consuming down the road if inaccuracies exist because errors that are not promptly reported may be more difficult to dispute.

To avoid these issues, immediately review your statements each month when they arrive to verify their accuracy. If discrepancies exist, report them as soon as possible to the creditor so that the issue can be resolved before the inaccurate information is reported to the three credit bureaus. Also, review your credit report at least once every four months for mistakes – you can get them for free once a year through AnnualCreditReport.com. You can also monitor your credit once a month for free using the Credit Report Card.

Personally, I have applied Item # 2 and # 3 in dealing with my credit card debt. So far, I am now almost out of the rut and setting myself debt-free.

What's your plan?

To your debt-free life,
Jimmy

Read more: http://www.foxbusiness.com/personal-finance/2013/08/20/5-mistakes-make-when-managing-your-debt/#ixzz2caIWfRCz
Photo credit: http://money.howstuffworks.com/personal-finance/debt-management/debt3.htm

Doing The Right Thing

I am happy with what I am doing. As I often say, sometimes we fail in managing our finance because we fail to monitor our expenses.

The starting point in budgeting our financial resources is to find out how and where your money is going. I am doing an experiment on my finances. To find out if I am within my set budget, I am taking note of all my financial transaction and recording them in a simple Excel file.

I am excited to see how it goes. So far so good, meaning, I am faithful and consistent with my recording.

See you on my next report.

Have a blessed life ahead of you.
Jimmy

Budgeting For The Starters

I had a wonderful time with my eldest daughter, Rache, just before she left for a vacation in China. One of the things we talked about was how she will have money ready every time an opportunity to travel presents itself to her. She has realized that she must be serious in her finances from that time on. I am an advocate of having a family budget. I have been telling her to have a budget of her own so she can manage her finances well. I think that small talk we had will change the way she values her money. I have a guest post here about starting to make a budget. It's simple you can easily do it. I am proud of Rache. She will be a millionaire someday if not soon. Here's a guest post from Financially Poor:

Budgeting: For The Just Getting Started

So you have come to the realization that you need to control your finances. Well I’m here to help you get started. Starting a budget is somewhat easy but there are a few steps that can trip you up. What I’m going to do is walk you through the mine field so you can have a budget that you can call your own.

Starting out

What your first step needs to be is make a list of categories of bills that you have every month like rent or mortgage, phone bill, etc.  Here’s what mine looks like:

The reason to list those first is so when you decide how much goes into each category you can get the necessary bills out of the way first and know how much you have left over for the rest of the categories.

Next make a list of all of your monthly variable expenses like this:

If you want to make the categories more detailed go for it. You can make eating out into breakfast lunch and dinner if you want. Customize it to whatever works for you. Don’t worry about making it perfect the first time around though. Budgets tend to evolve over time so just make a first one that will get the ball rolling. The Spouse 1 and Spouse 2 is for fun money for each person FYI. Be sure when you put the two groups together that you add a line for savings between them.

Divvying Up Your Money

After you’re done making categories for your spending it’s time to find out your spending. This step is to find out how much money you spend in each category. There’s a few different ways to do this.

One way is to guesstimate how much you spend in each category. Your regularly monthly bills will be pretty accurate but your variable spending will probably be pretty off. With this method you’ll be adjusting your budget a lot and can be frustrating so I wouldn’t recommend it for most people.

The other way is to track your spending for a few months and fill in the categories with those amounts. If you have a debit card I would use that because then you can see your transactions online and it’s so much easier to keep track of. If you don’t have a card and you just use cash then think about getting a small note pad and writing your purchases down. This isn’t the most fun step but it is the most eye opening experience. When you actually see how much you spend a month you may be very surprised.

At the end of each month put all of your purchases in their different categories. This will give you an idea about how much you spend in each category. Now comes the meat and potatoes part. The point of a budget is to control your money instead of letting it control you. So this is where you decide how much you want to cut back on variable spending. I’d recommend you cut back slowly so that it’s not a big shock and turns you off. If you spent $300 on entertainment try to cut back to $250. If you cut back a lot you might get frustrated that you can’t stay within budget and could cause you to give up. so each month just cut back a little more and eventually you’ll figure out where a comfortable level is for that category.

Once you figured out your budget write it down on a piece of paper or put it in a spread sheet. I write down my budget in a notebook so I can carry it around wherever I want to and work on it. I have mine set up like this:

Another reason I write in a notebook is because I fill out, on the page after my budget, columns with the different variable spending categories and amount budgeted. Then through the month I write down the expenses as they occur in the correct category. This helps me save a lot of time.

That’s pretty much it. Not hard at all. Over time your budget will be customized to your situation. What you just created is a gateway to a better financial life.  This is a tool that’s going to help you get control over your finances.

How was your experience setting up your first budget?

I hope you have made one budget for yourself and your family. 

To your debt-free life,

Jimmy

A Doable New Year's Resolution

Maritess and I had a good talk with our eldest daughter over breakfast today. We had a very light discussion of what lies ahead of us this 2012.

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Topics covered many areas including finance. My eldest is a licensed Architect and works at Architecture Network, a well- known architectural firm in the country today. When asked what her goal for this year is, she readily included taking good care of her financial house, making sure it is in order this year.

I love to hear that kind of goal. I am proud of my daughter and I am sure she will succeed in that area of her life.

Like it or not, finances are one of the most talked about issues this 2012. Many are hoping to earn more, save more, invest more and become debt-free in order to gain financial stability.

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I suggested the following goals for my daughter this year:

1. Try to save more of her income, at least 20%.
2. Monitor her spending patterns for a month, to find out where her money goes.
3. Start creating an additional stream of income.

That was simple and short but doable. One of my goals this year include item # 3.

There will be many opportunities for earning more this year. Are you ready to grab them given the chance? I believe, we can do so if we have the financial resources as a result of controlling our spending habits and saving for the future.

Happy New Year and be happy saving, investing and getting out of debt.

To our debt-free life ahead of us,

Jimmy

Managing Our Resources Well

Last week, a couple came to me for advice. They are having a hard time making both ends meet. Since I am involved in sending workers abroad, the husband came to me for a possible opportunity to go and work abroad. If I were to choose, and since the husband has work here, the best option is to work here and stay together with his family.

I then focused on the issue of managing their financial resources well. I shared our experience about managing our financial resources. When my wife and I were newly married, we learned how to effectively manage the money we bring in. I believe this is the starting point of being a good steward of that which God has given us, and in particular, the money we earn.

I shared about planning and setting up a family budget. I believe that the simplest and most effective  budget system that I've known is the "envelope system". I discussed this with them and they promised to implement it for their family that day. I saw in them the determination to start the right way!

I am truly convince that when we learn how to be faithful and good stewards of our money, no matter how small, we will become wise. The wise shall inherit the earth.

Stay financially healthy,
Jimmy



P.S. I am recommending this budget system, which Maritess and I used when we got married.

Get out of Debt. All debt!

The Good book, the Bible, is right when it says that "the borrower is a slave to the lender" (Proverbs 22:7).
People in dire financial need usually resort to borrowing. If not checked, they become addicted to it. The only solution they see is to borrow from the lender. A piece of advice: shun borrowing like a plague!

For those who are in debt: get out of debt, all kinds of debt!
Here are five (5) strategies to free yourself from the lender:

1. Perform what David Ramsey calls "Plasictomy". Cutting your credit card and using cash only.

    There is no positive side to credit card use. I suggest you use Debit Card instead. It keeps you

    constantly aware of your financial condition and prevents you from buying impulsively and unnecessarily.

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2. Don't pay the "Minimum Amount" suggested by your credit card company
    Credit Card company are loan sharks! When you pay minimum amount you end up paying your
    debt in 32  years.

3. Pay credit card balance beginning with the one with the lowest balance. If you do, it feels like you're
    doing something to eliminate your debt. I did and I got rid of one credit card and it feels so good.

4. Negotiate. The credit card company is eager, so eager to have your business. In this regard, they are

    open to negotiating anything you put on the table like interest rates, annual membership fee, etc.

    I still have one credit card debt, which I am trying to manage and eliminate. Every year, I request my credit card company to reverse the annual membership fee they charge me

    and they gladly oblige. This year, I did the same and to my surprise, they told me that from this year on they will no longer bill me the annual membership fee. Just one of those fees you can deduct from your debt. It feels so good!

5. Talk to somebody, please. There's help. Share your burden with someone you can trust. Don't suffer alone about your debt situation.

To your debt-free life,
Jimmy

A COMING CHANGE IN YOUR INCOME

Lately, I have been discussing with my “friends” about the possibilities of adding new streams of income. The reason behind this is obviously the need for more money to pay off a lot of things, including mounting DEBTS.

Lately, I met someone who earns P60,000 a month just working at home! She works as a virtual assistant or VA to those of us that are techies. Her income is a lot better than many of those working in Makati offices. She will be moving to her own apartment. She is misunderstood by her family because she works in the evening. She does book reviews. Compared to those working as employees, her income is a lot higher and better! No traffic, no office politics, and no uniforms.

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My friends, some of whom are full time moms and employees, became interested when I told them about Jomar Hilario’s Manila VA Seminar. They are inspired by stories of people earning even if they stay home as Virtual Assistants. Jomar says, when you're at home, you'll rediscover your real joys, your family and your own time.

You can change and improve your finances by adding a new stream of income as a virtual assistant working on your free time or at home. Today you can make that choice! Join Jomar’s Manila VA Seminar this coming May 28, 2011.

To your debt-free life,

Jimmy

P.S. If you want a change in your income, one sure way is to sign up right away for the Manila VA Seminar. Limited seats, I understand. 

Discounted Fee: P 2,375/$ 53 pay on or before May 18,2011 

Normal Fee: P 2,675, pay on or before May 27,2011
Walk In Fee: Pay on Tue, May 28,2011 is P 2,975