Beating Broke

Personal Finance from the Broke Perspective

Are Good Deals Putting You in Debt?

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We all love a good deal, right?  There’s nothing better than paying $2.40 for a pair of kids’ shorts that retail for $16 or paying $0.25 for Christmas wrapping paper at an after Christmas sale when it would cost you $2 or more to buy it new.

After all, buying things on clearance is what savvy shoppers do, right?  This is an excellent strategy for being frugal with your money, right?

Well, yes. . .and no. Are those good deals putting you in debt? Ask yourself these questions and decide if you really need that good deal.

Do You Buy More Than You Need?

Good Deals DebtWhen something is on clearance 80% off, it’s tempting to buy alot. . .more than you need.  After all, why buy one sweater at $5.00 on clearance when you could buy 8 for the cost of what just one would cost retail?  Besides, you’re not paying any more than it would cost to buy a $40 sweater brand new, and you’re getting 8.  What a deal!

But do you NEED 8 sweaters?  Will some of them languish in the back of your closet, with the tags still on, until you decide to purge your closet and give them away or try to sell them at a garage sale?

Can You Afford It?

Sometimes, you need to pass up good deals.  If you can’t afford the deal and put it on credit card, are you really saving money?  By the time you figure in the interest you’ll pay, that clearance sweater may end up costing you nearly as much as it would cost retail, or, if you pay only the minimum payment on your cards, even more!

Some people have gone in debt in pursuit of good deals.  Kristine Rogers, who was featured in Money magazine, explains that she went in debt buying children’s clothes on clearance: “Gymboree held a clearance sale in which every item was priced at $7.99. ‘I grabbed clothes my daughter didn’t need.  I bought four of the same coat in different colors.’  By the end of the day, Rogers’ compulsion had cost her $800.”  Rogers developed a full blown shopping addiction in the pursuit of sales and ended up with $50,000 in credit card debt!  Sure, she got good deals, but in the end, after interest, she likely paid much more than she would have if she’d bought the items at retail.

Are You Tying Up Current Cash Flow?

Assuming you don’t go into debt to buy good deals, you may still be tying up your cash flow.  If you spend $40 on 8 sweaters that you buy in May but won’t wear until November, you’re tying up cash flow.  If you don’t wear some of those sweaters at all, you’ve wasted money despite the good deal.

Be More with Less explains, “If you buy wrapping paper on December 26th and stock up on sale items year round, you are spending more than you would if you just bought what you needed.  Don’t be fooled by the cashier that tells you, ‘you just saved $22.00’ when you just spent $300.”

What do you think?  Is it worthwhile to pursue good deals, or can it be a slippery slope to overspending and debt?

Do you buy items on clearance?  Do you always use all of the items, or do you accidentally buy too much?

The Habits of People With No Debt

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When you’re battling debt and credit issues, you might take comfort in knowing you’re not the only one to experience this situation. For that matter, you might speak with friends who have endured something similar to get their advice and encouragement. When you’re dealing with financial disaster, listening to another person’s credit story can motivate you to work toward recovery. But what if you don’t know anyone who’s gone through a similar experience?

Fortunately, you don’t need a direct connect. Thanks to the Internet, finding a testimonial video that relates to your current situation is much easier than you think. Whether you’re dealing with a low credit score, debt, unemployment, or another financial problem, the stories you read online are educational and a practical resource for improving financial matters. Vicki’s credit story featured on Creditrepair.com is an excellent place to start if you need encouragement and motivation. Maybe you’ve been in a similar situation and need helpful suggestions.

A lot of good can come from watching or reading another person’s testimonial. Your credit matters and it takes a plan of attack to overcome financial hurdles. At the end of the day, you want to avoid repeating history. You can learn a lot from people who’ve risen above financial problems like Vicki. If you want to get out of debt and avoid future problems, it pays to familiarize yourself with the habits of people who don’t have debt.

They don’t have egos

Some people get into credit card debt because they want to have the best and newest of every item. Whether it’s an electronic gadget, a car, or a house, some people have to keep up with the Joneses at all cost, even if it means getting into deep debt.

They exercise patience

People with no debt are patient. They might have access to a credit card or a nice savings account, which gives them the option of buying whatever they want. But they also understand the importance of saving up for purchases and buying when the price is right.

They pay with cash

Using a credit card can build your credit history and it can provide emergency funds when you’re short on cash. But for the most part, people who avoid debt believe cash is king. They would much rather save up and purchase an item outright than get into debt and deal with monthly payments for years to come. It might take them longer to purchase an item, but at least they can sleep soundly knowing they don’t have a huge payment hanging over their heads.

They check interest rates

Since most of us aren’t rich, we have to get a loan to buy a house, car, or pay for other important things. Getting a loan isn’t bad in itself, but people without debt make sure they’re able to pay off their balances as soon as possible. They only finance what they need, and they shop around and compare interest rates to keep their monthly payments manageable. Comparison shopping can be time consuming and prolong getting a loan, but it’s much better to get a loan you can afford than realizing down the road that your payments are too much for your budget.

They avoid expenses that bleed them dry

Some people get into debt because they shop uncontrollably. Others get into debt because their income isn’t enough to support their lifestyle. Every expense adds up. If you’re buying coffee every day on your way to work, or if you’re going out to lunch every day with your coworkers, you might be spending hundreds unnecessarily every month. Additionally, household services like cable, housekeeping, and lawn care can eat into your budget and leave you in the red every month. If you don’t have enough income to pay important expenses, you might pull out a credit card to close the gap. Evaluate your budget to assess what you’re spending, and make adjustments that can create more disposable income and help you avoid future debt.

They plan for the unexpected

It’s much easier to spend money than to save it. People who don’t carry a lot of debt know the importance of planning for the unexpected. If you don’t have an emergency savings account, it only takes one unexpected expense to plunge you further into debt. Make saving a priority and aim to save 10% of your salary.

Getting ahead financially takes a lot of work, and it can be hard to improve your finances when you’re stuck in debt. Your situation might seem bleak today, but with an effective plan and determination, you can erase debt and dramatically improve your financial health.

Pay Off Your Debt for Good

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“There are two ways to enslave a nation. One is by the sword. The other is by debt.” There is an ongoing debate on the internet about whether or not that quote was first said by John Adams. Regardless, the quote is very powerful with its meaning. Debt is slavery. With debt you are controlled by the person in which you owe. If you don’t believe me, stop paying your monthly payments on your house, car, or other loans. The bank or other creditor will come along and seize that asset from you or other assets that have been used as collateral. Debt is very powerful and can take a massive financial and psychological toll on us. Paying off our debt can lead to previously unfathomed levels of financial freedom and happiness. I’ve started Young and Wealthy Living to help others realize this dream.

Today, we will observe multiple methods that can be used to pay off different types of debt faster by taking various steps.

Pay Off Your DebtThe Debt Portfolio

If you’re like most people, you have many different forms of debt. These could be a credit card balance, mortgage, student loans, car payments, or personal loans. If you are looking to make more than just your monthly payments on these loans, I commend you, this is the first step to finally becoming debt free. But you may be wondering, which loans should I put the extra payments toward? To answer this we will use the debt stacking method, as I strongly believe that this is the best way to attack debt. It’s very simple and straightforward. Put extra payments to the debt with the highest interest rate and pay the minimum payments on the rest of the debts. The reason this method works is that over time you will be able to accelerate how quickly all of your debt will be paid off since more and more of your payments will be going towards the principle instead of the interest. Using the debt stacking method you will pay less in total interest and you will have all of your debts paid off faster than if you just used the shotgun approach on your debt.

Student Loans

If you’re like me, you graduated with student loans consisting of private and federal loans. My student loans ranged from 3% interest to 6.8% interest. If you plan on taking the full ten years to pay off your student loans, you could be paying thousands of dollars in interest alone over this time period. If I had only been making the minimum payments on my loans I would have paid over $10,000 in interest alone. To help lower your monthly payments and literally save yourself potentially thousands of dollars in interest, you can consolidate all of your loans into one loan. Yes, you read that correctly. Not only does this give you only one loan to have to keep track of and remember to pay, but it would most likely lower your interest rate and save you money. A couple of good resources for this are Sofi and Earnest. You can also check with local credit unions as many of them offer this service as well. There are a couple things to note, however. First, many services will require that you be employed or have an offer of employment and some might require that you have an emergency fund setup. Continue to make the larger payments you had before consolidating and you will have your student loans paid off ahead of time!

Credit Cards

The average credit card debt for American adults with a credit card is $5,047 according to creditcards.com. Unfortunately, credit card debt is usually the most painful because it typically carries the highest interest rate of debts people are likely to have. It is not unlikely to see credit cards with an APR of 15% to 24%. If you are carrying a large balance on your credit card you can expect to pay thousands of dollars in interest before your card is paid off and have it take years to do. The key to lowering your payments on the credit card debt is to lower your interest rate. This will allow you to pay off that debt faster and potentially saving you thousands in interest payments.

The first method here if you have a high credit card balance and are struggling to make your payments is to transfer your balance to a new card that offers an introductory offer of 0% interest on balance transfers. A couple of great cards for this are the Chase Slate and Discover It cards. This introductory rate is only good for a period of time however, typically 12 to 21 months, before it increases to the typical 15% – 24%, so you should be paying as much as possible during this time as 100% of your payments would be going towards the principle. Again, there are a couple things to note here. Sometimes there is a fee to transfer a balance, oftentimes of 3% – 5% and you will need good to excellent credit to qualify for the best offers.

Another method you should try if you have not already: simply ask. Just call up the credit card company, be very polite, and explain to them that you would love to pay off your credit card debt but the current interest rate makes it very difficult for you to make extra payments. Then ask them if they could lower your interest rate for you. You may initially get a ‘no’ but it is very likely that you will need to go through several people in the company before you reach someone that has the authority to negotiate this. Just remember to be polite to the person on the other end of the phone and they will be willing to pass you along to someone who can help.

You may think the credit card company doesn’t care about you and if you can make your payments or not. But the truth is they absolutely want you to make your payments and have a payment plan you can afford. They would much rather work with you and have you pay off your debt than to sell your debt to a collections company for pennies on the dollar.

Of course, these are not the only methods you can use to decrease payments and pay debt off faster but we all have our favorites and those we believe to be the most effective. Recognize how debt has the ability to control you and make a plan to attack it and you will be well on your way to wiping out your debt and becoming debt free! Feel free to share your debt elimination plans and stories with me by emailing me at nic@youngandwealthyliving.com. Together we can conquer our debt and be on the path to financial freedom!