Borrowing Money

Why are we borrowing money? Is it for materialism, for the appearance of prosperity, OR for basic needs, or for the purpose of growing wealth to enable others?

Bank Fees

Banking and fees go together. There are ways to reduce the charges you pay on a regular basis. First, make sure all of the accounts you have open are absolutely necessary. Consolidating multiple checking or savings account could add up to monthly savings of $20 or more.

Also, make sure you understand what and how you are being charged. Some accounts advertise as being free, but in order to have the monthly charges waived, you may need to fulfill some conditions including but not limited to a minimum balance, not exceeding a set number of transactions per month and/or having a set number of direct deposits or automated bills associated with that account.

Transaction fees can also add up quickly. Remember, if you withdraw money from an ATM instead of your bank, the average $3.00 fee is charged both by the cash machine AND by your bank. Likewise, most banks include a surcharge on email money transfers. Keep an eye on your account and make sure you know how much these conveniences are costing you.

$20,000 Rolex

Financial advisers call it "the problem of the $20,000 Rolex." If a 25-year-old spends $20,000 on a watch or on a big night out at a nightclub, that money is either depreciating or gone. "But if they invested in a five percent, Triple A insured, tax-free municipal bond for a period of 30 years," money manager Seymour says, "that $20,000 would be worth $86,000 at that tax-free rate of return. And needless to say, they buy more than one $20,000 Rolex."

You Have the Options even with too Much Debt

Credit cards, medical bills, personal loans and raising interest rates do not make a good financial mix. Common mistakes you may want to avoid:

1. Beware of just paying the minimum payments on your debts. This will results in your overall debt actually growing and your problems will only become worse.
2. Beware of relying on friends and family as it could damage relationships with the most important people in your life.
3. Beware of unscrupulous credit counselors that demand cash upfront or high fees for help they promise, but don't deliver.
4. Avoid taking out a new high-interest loan to pay off lower interest rate loans. It may be easier to just have one payment but it will actually increase the amount you have to pay back.
5. Declaring bankruptcy when debt settlement may work for you...

If you feel like you're in over your head with personal debt, you're not alone. The first advice of experts in the field is to be sure you don't make your situation worse by making common mistakes.

Debt Management

Paying off Debt

Step 1: Make a Pledge
To begin, you should make a pledge to yourself that over the next three days, you will:

* Plan on taking four very easy steps to increase your chances of having a secure financial future.
* Promise yourself today - right now, this minute - that you won't be surprised by financial windfalls or pitfalls in the future because you're going to plan accordingly.

Don't get too pumped up now, we're not talking about giving up your daily Starbucks here. This is going to be a lifelong process, but it's important that we get started sooner rather than later. There is no exact date for this "financial pilgrimage", so no work will be missed, no concerts will be passed up and no after-work sports leagues will be canceled. Relax. The advice below will require that you make one stop at a local store and possibly visit a couple websites.

Step 2: House Keeping
a. Get a file system and get the folders to go with it. They are pretty cheap at your local office supply store. A simple file cabinet (plastic or otherwise) and some simple file folders are all that's needed here.

b. Get your most recent credit card statements, phone bills (if you pay online, print a copy), insurance information, your user names and passwords to websites, etc. Make sure to get basically everything that you could look for later but usually can't find right away when you need it - like the receipt for that wedding gift you have to return or your eBay password you can never remember. Now file all these statements, bills and receipts into the filing system you just bought. It generally helps to have the most recent document to the front of the file, but how you choose to file will depend on your personal style.

Make sure to keep adding to these folders as new bills and statements come in. Your goal here is to keep these files organized and up to date so you can always find what you're looking for when you actually need it.

Step 3: Set up an Emergency Fund
No one eagerly anticipates negative, unexpected events. But guess what? They're going to happen. It's just a fact of life. Money magazine says that 78% of us will have a major negative event happen in any given 10-year period of time. This beginning emergency fund will keep life's little Murphies from turning into new debt while you work off the old debt.

Step 4: Start Paying your Debt
The principle is to stop everything except minimum payments and focus on one thing at a time. Otherwise, nothing gets accomplished because all your effort is diluted. List your debts in order with the smallest payoff or balance first. Do not be concerned with interest rates or terms unless two debts have similar payoffs, then list the higher interest rate debt first. Paying the little debts off first gives you quick feedback, and you are more likely to stay with the plan. Continue

Step 5: Set up 6 - 9 Month Emergency Fund
Ask yourself, "Self, what would it take for you to live for 6 to 9 months if you lost your income?" Your answer to that question is how much you should save. Remember, this stash of money is not an investment; it is insurance you're paying to yourself, a buffer between you and life. Continue

Step 6: Paying off Mortgage and other long term loans

Step 7: Investment and Saving

Most importantly, remember one last thing. Your economy is up to you. If you are out of debt and have money in the bank, then the media can talk up a storm about a recession, but you won't feel it. When you have a plan, live on less than you make and save money, you are not in trouble. If you have a paid-for house, who cares if foreclosure rates are up? You are all right. If you have no credit card debt and the plastic companies decide to raise interest rates to 50%, how much will you care? NOT ONE BIT! Take care of your personal money situation, and everything else will take care of itself.

Keeping up with the Joneses

Personal spending on credit is at record levels. The average American household, has $6,000 to $15,000 in credit card debt alone (according to various statistics - who knows which to believe?) Keep in mind that this is not including mortgage debt - only consumer spending. The banks, and their investors, are getting rich by lending us money to fulfill our spending desires.

Have we been living beyond our means?

Payday Loans

This expense may be the most dangerous of the all for your pocket book. These highly unregulated lenders do provide a valuable service – if you need cash now, you can get it for a fee and a promise to repay the amount once payday comes around. However, the industry standard in annualized interest is between 200 and 500%.

These lenders are able to avoid usury laws by calling their interest charges “service fees” which are not regulated the same way in many places. In fact, payday services have been outlawed or severely restricted in 13 states according to bankrate.com. (Hold too tightly to this rescue line and you'll soon be drowning in debt.

Cash Advances

You know that getting a cash advance from your credit card is a bad idea, but we'll all been in an unforeseen situation where you need cash fast. So what does this convenience end up costing you? According to CardWeb.com, the fees ten years ago were on average 2% of the amount advanced with a $2 minimum and a $10 maximum fee. Unfortunately, today that number has gone up to 3% with a minimum ranging from $5-$15 with no maximum fees. Add these fees to the transactions fees you might be paying and you'll be shocked to see the total amount that disappears from your wallet each month on convenience fees alone.