Debt Relief Lowdown

Making sense of the dollar

Debt is a mounting problem that threatens to overwhelm the United States. Today, more than ever before, our problems with debt have taken an extremely serious turn and unless something is done soon, we’ll become a big nation of debtors. I know this sounds more like a doomsday prophecy but all you need to do is look at the figures that stare at us from every corner – mortgage debt, payday loans debt heating loans debt, credit card debt… the list is endless. And so, it would seem, is our capacity to fall deeper and deeper into a debt hole. But there is one redeeming feature – one thing that may help us turn around and change for the better.

Recognizing the need to start young, many counselors and financial educators are now offering courses on personal finance and responsibility to high school students. This helps prepare them for the rigors and realities of life as adults. These students need the knowledge and capability to manage their money and the sooner they gain this ability, the better. Kennebecjournal.mainetoday.com reports:

"Everyday spending decisions, especially credit-based ones, will do far more harm to our financial future than any investment decision you will likely ever make," said Paul Richard, executive director at the San Diego-based Institute for Consumer Financial Education.

Read more: Dollars and sense

Budgeting tips to get you cruising out of debt

Debt is bad and can ruin your life, but being in debt is not the end of the road. There is home and a few simple tricks can help get you back on track sooner than you think. Cavejunctionnews.com reports:

An organized and well-planned budget can help you in keeping control over your monthly expenses. Write down each and every financial transaction you do each month this will help you in staying on the track. It will give you the real picture of your finances and thus you can make the decision accordingly.

Read more: Debt Management Tips To Bring Your Life Back On The Right Track

Debt management tips

Have you ever thought why it is so easy for us to fall into a debt trap? Simple. There is a lot of money to go around. Easy credit available all round the clock everywhere is allowing people to take money from multiple creditors. The result? It begins with a difficulty to repay the creditors, then slowly you enter into a loop – borrow money from one creditor to repay the other creditors. And finally, there’s bankruptcy.

The picture need not be so bleak. If you are finding it difficult to repay your debts, try debt management. Simply put, debt management is a process, which allows you to slowly reduce and eventually eliminate all your outstanding debts. For this, your assets need to be carefully managed and there has to be regular and proper dealing with your creditors. Cavejunctionnews.com reports:

Focus on clearing the debts first: your main focus should be on clearing your debts. Make efforts to reduce the debts in a manner that is most convenient to you without sacrificing too much of the regular expenditures.

Read more: Debt Management Keeping A Check On Your Finances

When it comes to unending debts, Congress leads by example

According to a recent report, Treasury Secretary Tony Snow has requested Congress to raise the $8.18 trillion National Debt ceiling to almost $9 trillion. The government will be close to default on its obligations if the proposed $781 billion in extra borrowing does not come through. And is this something new? Of course not, Congress is in the habit of raising the Debt Ceiling to ensure that they are home and dry at all times.

Just imagine if the average American could emulate Congress – raise our debt ceilings so we could borrow more! So, if you have a house worth $200,000 and you keep borrowing against this equity until you owe the full amount of the market value of your home. How do you propose to repay all your loans and get your house back? And the same goes for your savings and your retirement funds as well. What I’m trying to drive at here is that we as a nation don’t know how to keep a tab on our expenses. Be it the government or the individual, we still have to learn how to tighten our purse strings and unless we do that, there is going to be no respite from loans and their interests. Opinioneditorials.com reports:

I am reminded of an old Tennessee Ernie Ford song to 1950s mining communities, ‘16 Tons.’ It could apply to our government --- “The Feds spend trillions and what do we get, another year older and deeper in debt.”

Read more: Raising the Debt Ceiling --- America, Deeper, Deeper in Debt

Help your kids become smart money managers

Money management doesn’t come easy for grown ups like us so it will be even more difficult for a child to understand the importance of using money correctly. While there is no hard and fast rules that will help you teach your little one the basics of money management, there are a few simple rules that you can follow to help your child imbibe these golden rules.

One of the first things you need to do is teach your child to handle an allowance. Most of us think we’ve done our duty by giving our children their weekly allowance. That is only the first part, of the game. You have to help them monitor how they spend the money so they know if they are spending over their limits. Once they are a little older, open a bank account for them. Insist that they put away a little money regularly. Initially, it may be difficult to convince them, but once they see their money growing in the bank, they will be more amenable to the idea.

Help them set goals and know how to achieve them. If your child wants to buy something, then let them set the timeframe within which they will save up the money to buy the item. Don’t try to be the loving parent and chip in. This attitude can be counterproductive. Lastly, teach your child to research on anything they find interesting before they put their money into it. This will teach them to be careful with their money and will help to make them smart consumers.

Never use your retirement accounts to pay off mortgage loans

You have an unbearable debt and don’t want to file for bankruptcy. But you also don’t want to approach a credit-counseling center because you know exactly how to repay your debt – withdraw the money in your individual retirement accounts (IRA) and pay off your loans. This would mean a dent in your retirement funds, but only a small one.

If you really think so, then the first thing you need to do is rush to a credit counselor, or somebody who’ll tell you that such an act would not only be self-defeating, it could make you lose some good money! The choice of using your IRA funds actually should not exist on your list of options to repay loans.

Imagine if you’ve deferred payment, then the taxes and penalties will be quite high. So, when you account for all these penalties and taxes, you may be forced to withdraw much more than you actually intended to.

And the biggest problem with trying to withdraw from your IRA is that you’ll lose your future tax-deferred returns. This means that if you withdraw something as paltry as $1,000, it could cost you over $10,000 in lost retirement income at a rate of 8% per annum or in other words, over 30-35 years, you would have lost nearly $1 million in future income! A better option would be to examine your accounts and find ways to trim unnecessary expenses.

Firstly, if your debt burden is too high, don’t try to sort out your financial affairs alone. You need professional help and quick. So quit dilly-dallying. But before you meet with your counselor, you could sit down and do some stock taking to know where exactly you’ve gone wrong in managing your money. Once you identify the problem areas, you’ve won half the battle. Now it is only a matter of time before you and your counselor chalk out a plan to ensure that you are back on track at the earliest possible.

Money management: Catching ‘em young

Money management is not an easy task for adults so by that rule, it should be even more difficult for children. Actually, the reverse is true. You will be surprised to know that children usually tend to follow the example set by their seniors. So if you teach them good money management and how to budget their weekly allowance then they will readily imbibe the practice.

But the trick is to practice what you preach. So if you want your little ones to learn how to be responsible with their money, you should begin being responsible with yours. You should show them that you value the money you earn and refuse to splurge it on unnecessary frivolities. This will teach them to be more careful with their allowance. Also, you could teach them to maintain a book with accounts of how they spend their money. At the end of the week or month, you could sit with them and figure out areas where they could cut costs. This may sound ridiculous, but in the end, it will teach them how to keep the money they earn.

Marines learn the fine art of budgeting

Young men and women who join the armed forces may not always be financially perceptive. So, while some people manage their pay well and invest it carefully, some of them live from payday to payday. According to experts, one of the ways they could stay out of debt is by spending less than they earn. Marines.mil reports:

Saving regularly, even a little at a time, will give you a cushion you can rely on when something unexpected happens. Your savings will give you more flexibility in life choices and a financial cushion that you may need if something goes wrong, says Jim Warren, President of Warren Financial Group in Kansas City, Mo and a Marine veteran.

Read more: Recruiters learn to budget on independent duty

3 steps to debt freedom

Debt, like most other things in life is easy to get into but extremely difficult to get out of. Most of the debt burden today comes from misuse and overuse of credit cards; so here are a few tips on how to use your credit card wisely so that you can avoid any heartache later. CNN.com reports:

For everyday spending, carry around a set amount of cash to use each week. You will find that you make better purchasing decisions when you actually have to fork over the green stuff and there's a preset limit on what you can spend -- when you run out of money, you stop.

Read more: A smart credit-card plan; the perfect paydown strategy; 11 moves to consider

Repaying your debt is painful but worthwhile

You are one of those people who have stared a huge debt hole in the face, but had the courage to fight your way through it instead of throwing in the towel and declaring bankruptcy. Very brave, but it is good to remember that this method does have its downsides.

Here’s a bitter fact: People who file for bankruptcy are able to get their credit scores back on track much faster than people who decide to pay their way through. How do they do it? Well, instead of paying old bills, they use their money to make down payments on homes or cars and get loans. This helps to rehabilitate their credit.

But if you decide to pay your way through, then you may notice that loan companies are still wary of you. You owe them a lot of money and they are scared that you may not repay all of it. After all, you still have the bankruptcy option open to you.

But this does not mean that you made the wrong decision — far from it. When you do it the hard way, the lessons remain for life. So, if you took years repaying your loan and had to go without a lot of things, all this will teach you the value of having a good credit score. It will serve as a life-long lesson for you and you may never fall into debt again. That should be payment enough and worth all the pain and tears.