Everything you Need to Know About Debt Settlement

  • Get Out of Debt

The debt relief industry is vast and varied, with options for consolidation, refinancing, and even forgiveness. All these options provide an escape route, the light at the end of a very dark tunnel. One of the most effective is debt settlement, but this option isn’t for everyone and if you’re not careful it can make your difficult financial situation even worse.

If you have mounting credit card debt and other unsecured debt, there’s a good chance you’ve come across debt settlement before. But what is it, how can it help you, what are the fees involved, and what do you need to know before you begin?

How the Debt Settlement Process Works

The goal of debt settlement is to “settle” your debts for less than their current balance. It works on credit card debt and personal loans but is effective at clearing all unsecured debts.

The process typically begins with a consultation, something that most debt settlement companies provide free of charge. If you’re a good fit for the program, they’ll discuss the terms with you and invite you to make regular payments to a secure third-party account.

A debt specialist will then contact your creditors and negotiate a reduced settlement on your debts. They’ll use the account to pay those settlements and will only take their fee (based on a percentage of the original debt or the settled amount) once this process has been finalized.

In many cases, accounts are settled with debt collectors and not the original creditor, as debt settlement works best for borrowers who have multiple missed payments, collections, and other issues. This is when debt settlement is most effective because there is a very real risk that the debt will never be repaid.

Why Would Creditors Settle?

If you’re new to debt settlement, all this might seem a little strange. Why would a creditor agree to settle a debt for a lump-sum payment that’s 40% to 90% of the original balance? Why would a settlement offer of just a few thousand be accepted on a credit card debt of $15,000 or $20,000?

To understand this, you need to see things from the creditor’s perspective. If a borrower misses several payments, the lender will try to create a payment plan or negotiate a deal. If that fails, the debt is sold to a collection agency, often for just a few cents on the dollar.

Collection agencies may pay as little as $500 for a debt of $10,000, which means they have a very large profit margin. If a debt specialist calls the creditor and offers $5,000 for a debt they’ll soon be forced to sell for $500, they’ll be happy to agree. Likewise, if they contact a collection agency offering a few thousand dollars for a debt they recently bought for a few hundred, why would they say no?

In that sense, a debt settlement program is somewhat of a win-win—you clear the debt, your creditors recover more money, and the settlement company gets paid. However, it’s not always that straightforward as we’ll soon discover.

How Long Does It Take to Settle your Debts?

Debt settlement companies don’t work quickly, because creditors aren’t interested in IOUs and debtors need time to cover the settlement fees. If you have recently come into a lot of money and can put that towards the debt settlement program, this process could be completed in just a few months. You could even do it yourself. However, if you’re steadily accumulating that money by tightening your belt and skipping monthly payments, it can take up to 4 years.

Debt Settlement vs Debt Consolidation and Debt Management 

The only real similarity between a debt settlement plan and a debt management plan is that they can both help you escape your debts. A debt management program is often conducted by a nonprofit agency and works by consolidating your debt, canceling all but one emergency credit card, and swapping multiple payments and fees for a single payment.

A debt consolidation loan works in much the same way, but without the requirement that you cancel multiple cards and accounts. Both debt consolidation and debt management decrease your monthly payments and interest but prolong the length of your loan, which means you pay less per month but more over the term.

Debt settlement, on the other hand, focuses on settling your debts quickly and cheaply. You will need to find more money in the short-term, but it will save you much more in the long-term.

The way that these programs impact your credit score is also vastly different. Debt management and consolidation have a minimal effect, while debt settlement can feel like a financial cluster bomb has just landed in your report.

How Debt Settlement Affects Your Credit

All forms of debt relief will impact your credit score in one way or another, but this impact varies, from the relatively gentle impact of debt consolidation to the catastrophic one of bankruptcy. Unfortunately, while it does have its positives and can be a great way to quickly repay what you owe, debt settlement can also have a hugely negative effect on your credit score.

What Happens to Your Credit Score when you Settle a Debt?

All settled debts will show as “Settled” on your credit report. This has less of an impact on your score as an “Unpaid” status but is not as positive as a “Paid in Full”. There is a logic behind this: Creditors prefer applicants who make all payments and repay the full balance over those missing payments and trying to settle.

FICO and VantageScore, the two leading credit scoring systems, have not released details concerning how much a settled status will impact your score. However, they have created hypothetical situations and suggested that it can reduce an individual’s score by between 50 and 150 points depending on how high it was to begin with.

How It Improves your Credit Score

Debt settlement won’t improve your score in the short-term. In fact, it may take years before your score begins to improve. If you have multiple derogatory marks and no money saved, the settlement process could take 4 or 5 years and, in that time, you’ll struggle to maintain a respectable score. Once all accounts have been settled, you may need to wait a few years before you can build towards a Very Good or Exceptional score.

However, the good news is that you won’t have all those debts, penalty fees, and high-interest rates to worry about. You will also see a slight improvement once those accounts clear and this will get better with each passing year as they age.

The bad news is that you may struggle for a few years and will need to carefully rebuild your credit after that. The good news is that you’ll have more money in your pocket, fewer debts to worry about, and all the time you need to rebuild.

How Long Does It Stay on your Credit Report?

A settled account will remain on your credit report for 7 years from the date that the account first became delinquent. This 7-year rule applies to most derogatory marks, apart from bankruptcy, which can remain for up to 10 years.

Debt Settlement Options

Still not sure if debt settlement is for you or if you should opt for a simpler method like debt consolidation instead? Keep the following in mind:

When is Debt Settlement the Best Choice for Debt Relief?

Debt settlement is more effective for borrowers who have defaulted on numerous debts and have a lot of missed payments and collections. If these have been active for several years, even better—your credit score will be low, your credit report will be a mess, and you’ll be in prime position for debt settlement.

Not only will the debt specialist have an easier time negotiating reduced settlements, but you’ll see less of an impact on your credit score. It also works really well for individuals with lots of credit card debt and personal loan debt.

It’s worth noting, however, that if your debts are over 4 years old they may have passed their statute of limitations, in which case you’re no longer responsible for them. Check your state laws to discover the statute of limitations on unsecured debt and better understand your options.

When is Debt Settlement the Wrong Option?

If you have a couple of large debts on a relatively clean account and you’re just looking to save some money, debt settlement is not for you. If your credit score is above 700 then you’re in prime position if you ever want a home loan, mortgage, or low-interest credit card. By intentionally missing payments and seeking to settle accounts, you could see your score drop below 500 in a few months and this will seriously impact your financial health.

The idea of offering your creditors a massively reduced lump sum to settle an account is very appealing. However, it should only be considered as a last resort by consumers who have more debt than they can handle and are being refused options like debt consolidation, debt management, and refinancing.   

How to Find Legitimate Debt Settlement Companies

All debt settlement companies are required to abide by strict rules and regulations. For example, they can’t legally charge you until all debts have been settled. However, the way these companies operate can vary greatly from one company to the next so don’t sign-up with the first one you find and do a little research before you commit:

  1. Look for Accreditations: The best companies are listed on the Better Business Bureau and have accreditations from organizations such as the IAPDA and AFCC. 
  2. Read Reviews: If a company persistently fails to meet expectations then their customers will let their frustrations be known. A few bad reviews are common—you can’t please everyone. But it’s bad news when bad reviews start to outnumber good ones.
  3. Fees: Ask them how much they charge and how much they can save you. Be wary of any company that guarantees to settle your debts for a specific sum—this is not a promise that a legitimate company will make.
  4. Check Settlement Amounts: Look for proof of average settlements and compare this information across multiple companies, focusing on success stories that are genuine and similar to yours as opposed to cherry-picked, generic testimonials.
  5. Be Wary of Pressure Selling: Take advantage of their free consultation, but hang-up if they begin pressure selling and are clearly not interested in providing genuinely helpful advice.

Pros and Cons of Debt Settlement

Not sure if debt settlement is right for you? Take a look at these pros and cons to better understand the positives and negatives.

How Can you Benefit from Debt Settlement?

There are some huge downsides to debt settlement and we’ll get to those shortly, but for the most part, this is a very effective way for millions of Americans to clear debt.

You’ll Pay Much Less

If you meet monthly payments on a credit card debt of $10,000, you could pay upwards of $15,000 over the lifetime of that debt, assuming there are no major penalties or fees. If you get a debt consolidation loan, that may increase to $20,000 or more, depending on the size, length, and interest rate, while a balance transfer could add just a few hundred onto the original balance.

With a credit card debt settlement program, however, it could be reduced to $5,000 or less and even when you add the company’s fees you’ll still save several thousand on the original balance. Besides bankruptcy, there is no other debt relief program that can have that kind of impact and that’s what makes debt settlement so unique.

Free Consultation

Debt settlement companies generally provide a free consultation in the first instance and if you work with a genuine, legitimate company, they won’t pressure sell and will always seek to provide you with genuinely helpful advice. If you’re in the dark with regards to debt and debt relief, this can be a huge help.

You’ll get a Clean Slate

Once your debts have been settled and the impact on your credit report has lessened, you’ll have a clean slate on which you can rebuild your credit. Debt settlement may be destructive, but the same could be said for an account that has masses of debt, missed payments, and collections, and at least debt settlement provides a solution and an escape.

What are the Negative Effects?

The best debt settlement companies will warn you about the potential downsides and advise you against them. But some companies will gloss over these issues and focus only on the positives, so make sure you keep all of the following in mind:

Reduced Credit Score and Late Fees

Debt settlement works best when you have multiple missed payments and collections on your account. If you don’t have any of these but have substantial debts, debt settlement companies may recommend that you stop making payments and start putting that money towards your settlements instead.

This will accelerate the settlement process and make the specialist’s job easier, but it will also trigger a catalog of derogatory marks on your credit report as all that information will be passed to the credit bureaus. Your score will also take a hit every time an account is settled, although this has less of an impact the lower your score is, and its impact will reduce over time.

Risk of Lawsuits

Creditors don’t hang onto debts for long and often sell them after just a few months. Collection agencies will hassle the borrower after purchasing the debt, but they’ll give up eventually if they can’t get what they want.

However, if you owe a lot or come up against a persistent collector or creditor, they may take legal action. They can get a judgment against you that turns all that unsecured debt into secured debt and can lead to asset seizures and wage garnishing. 

It’s a Long Process

Debt settlement can drag on for several years and you may struggle to maintain a respectable credit score in that time. 

This can make it difficult for you to get a new loan or credit card and will pretty much rule out the possibility of acquiring a home loan or car loan. If you settle numerous accounts then you may struggle to get a large loan for years to come, but every month that passes reduces the impact that a settled account has on your score and within a few years it will be negligible.

Summary: A Viable Option for Some

Debt settlement companies like National Debt Relief help to clear billions in consumer debt every single year. This forgiven debt gives collectors and creditors a little more money than they would otherwise have; it gives borrowers the escape they’re desperate for and it helps to fund an industry built on good intentions. 

That doesn’t mean it’s perfect—there are scam debt settlement companies out there and there are also companies that just don’t care enough to get the best results. It’s also not for everyone and, in some cases, it can do more harm than good. But for millions of consumers struggling with vast quantities of debt and derogatory marks, it could be the only way to avoid the threat of bankruptcy and get back into the black.

Source: pocketyourdollars.com

Interest Rates vs. Balances: Which Do You Pay Off First?

If you are trying to get out of debt, there is a lot of discussion as to how you should pay off your debts.  Some experts say it should be paid off by the lowest balance and others say the higher interest rate?  While there is not a “right” way to do it, I will share what we did to get out of debt and the reasons why.

how should I pay off my debt

how should I pay off my debt

First of all, let’s talk about credit cards and why it is not good to carry a balance.  When you owe on your credit cards, your interest keeps compounding and that increases the amount you owe. Here is an analogy for you:

If you have a large fire going and dump a cup of water on it, you will do nothing.  You might make the flames go down for a minute, but they will return.  At this point, you need to figure out a way to really tackle it and get it under control.

However, if you dump a bucket of water on that same fire, you may not put it out completely.  But, you will probably make it smaller.  If you throw two or three more buckets it, you can actually extinguish it.

The same is true with credit card debts.  When you make small, minimum payments you are throwing cups of water on a fire.  However, if you send in a larger amount, you can actually pay it off much more quickly.  But of course, you can’t send in larger amounts to everyone at once, so you have to prioritize.

WHICH DEBT TO PAY OFF FIRST

There is a lot of discussion about paying down higher interest rate cards first or those with a lowered balance first. There is no right or wrong answer, as it will be different each time you talk to another expert.

Both options are listed below.  Read through them carefully to determine which is the right one for you.

FOCUS ON THE HIGHEST INTEREST RATE

Many financial experts will recommend that you list your debts in order of the interest rate, from high to low.  Then, focus on paying on the one at the top of your list first.  They recommend this method as the one with the highest rate is the one which usually will cause you the most financial stress.

Your monthly payment is around 4 – 5% of the balance  That means if you pay the minimum payment, 95% of what you pay is strictly paying interest.

For instance, if your rate on a $1,000 loan is 15% and you pay $40 each month, it will take you 5 1/2 yrs to pay it in full! OUCH!   During that time, you will have paid out more than $360 in interest alone – double OUCH!!  That makes your $1,000 purchase now $1360 (and chances are what you bought has not appreciated in value).

Start by making larger payments on the loan with the highest rate.  Continue making the minimum payments on your other debts.  Once you get the first debt paid in full, roll the amount you were paying on that card to the one with the next highest rate.

The only downside to this method is that it may take you a long time to pay the balance in full.  That might lead you to get discouraged – but don’t let it! If you find that you feel this way, perhaps you should consider paying the lowest balance first, which we explain next.

FOCUS ON THE CARD WITH THE LOWEST BALANCE

We followed this method when paying off off our debts. It was the right answer for us and countless others.  The reason it can work better is realizing faster progress.

To begin, list your debts by the least amount owed down to the greatest.  Toss any additional funds you can at the bill with the lowest balance.  Continue making your regular minimum payments to the other debts on the list.  As you get this each debt paid off, roll those payments to the next one and continue until all debt is eliminated.

You may end up accruing more in interest, but you might be better off psychologically.  When you can see that you are making progress, you will be more likely to continue and not be as quick to quit otherwise.

Paying down debts in this method allows for short-term, attainable goals and that can make all of the difference.

EITHER WAY IS THE RIGHT WAY

Whichever way you decide to tackle those credit cards, it is good that you are doing just that.  While there is no such thing as good debt, credit card debt is the worst debt.  One day you will be able to live a debt free life — and it will be the most amazing feeling in the world!

If you are just getting started trying to get out of debt, catch up with our other steps shared previously on our How To Get Out Of Debt Page.

pay off debts by balance first

pay off debts by balance first

Source: pennypinchinmom.com

My Secret Tricks To Help You Spend Less and Save More

Trying to spend less and save more money?  These are the tricks I have used and the best part of all is that they really work!

Learn how to spend less and save more money as we teach you how to budget and get out of debt

Learn how to spend less and save more money as we teach you how to budget and get out of debt

It is simple to make a resolution, but the trick is finding ways to actually keep it and make it happen. This week, we will share our tips on how to make the top five resolutions work for you.  We will even share tips to make any change in your lifestyle actually work well (in case your idea is not listed here).

The number 5 resolution was: Spend Less, Save More.  This sounds like a simple concept. You just want to watch your spending, right?  In theory, yes.  But, how do you actually make this happen?  When it comes to finances, there is much more than just finding a deal at the store.  Here are things you need to do in order to ensure you spend less and save more in 2016.

Tips to reaching your Financial Resolutions in the New Year! These are SO smart!!

Tips to reaching your Financial Resolutions in the New Year! These are SO smart!!

Set a goal.  Why do you want to save more?  Do you want to get out of debt?  Do you want to increase your retirement savings?  Perhaps you want to go on a trip at the end of the year.  Whatever the reason, you need to write it down.  Say that with me  – Write. It. Down. Then, place that goal where you will see it every single day.

When you put your financial goals in writing, it makes them real. You can see where you are going as it is right in front of you. It might be on your bathroom mirror in the morning to remind you why you are going to work today.  It might be a photo clipped in your wallet to remind you of the trip before you decide to go and get that latte.

Tips to reaching your Financial Resolutions in the New Year! These are SO smart!!

Tips to reaching your Financial Resolutions in the New Year! These are SO smart!!

Create and follow a budget.  If you plan a road trip to a new destination, you’d use a map, right?  The same idea is true when it comes to a financial plan.  You have to know how you are going to reach your financial goals.

The first thing you must do is create a budget.  We’ve got an easy post you can follow  – Budget Beginnings.  This will help anyone who is new to setting up a budget know where to start.

Tips to reaching your Financial Resolutions in the New Year! These are SO smart!!

Tips to reaching your Financial Resolutions in the New Year! These are SO smart!!

Set small milestones. Now that you know how you are going to reach the goals you have set, you need to celebrate the small victories.  Break your goal up into smaller sections so you can see that you are making progress.

For instance, if your goal is to save $5,000 for a trip, break that savings into time frames.  Make your goal to save $1,000 in 3 months.  Then, when you reach that goal, celebrate it. I don’t mean go out and blow money. Just revel in the fact that YOU DID IT! You are proving to yourself that you can do it. That will motivate you to move on and maybe increase your goal to $1,500 over the next three months.

Tips to reaching your Financial Resolutions in the New Year! These are SO smart!!

Tips to reaching your Financial Resolutions in the New Year! These are SO smart!!

Automate as much as possible. It is simple to decide that you don’t want to save as much out of this week’s paycheck because you want to go out to dinner at that new expensive restaurant.  It might also be tempting to not put that $75 into savings so you can get that adorable new handbag you saw that the store.  This is why you should automate as much as possible.

If you set up to make automatic payments or even transfers to your savings or investment accounts, you can’t spend the money on anything else.  It just simply is not available (well, you could try, but you may risk overdrawing your account).

Take a look at your financial institutions and find a way that you can set up direct deposits, transfers or automatic bill payments.  That way, you won’t be tempted to stray from your goal.

Tips to reaching your Financial Resolutions in the New Year! These are SO smart!!

Tips to reaching your Financial Resolutions in the New Year! These are SO smart!!

Check in often.  Builders don’t grab plans to a home, look at them once and then never again.  Walls would not line up, the rooms might end up too small and it, quite frankly, just would not work.  The same is true with your finances.

Sit down at least once a month and check in. If you have a spouse or partner, it is even more important to do this.  You need to always check to make sure you are on track.  Expenses might change.  Income may also fluctuate.  Have regular meetings to go over your budget and check the path of your goals and make any changes as necessary.

These are the first things you should do to get yourself onto the path of financial independence.

Source: pennypinchinmom.com

10 Free Activities For Couples Paying off Debt

This post may contain affiliate links. Please read my disclosure for more information.

When my fiance told me he wanted to pay off his student loan debt as fast as possible, my short answer was “NO.”

The little voice inside my head kept reminding me of all the things I’d miss out on if I couldn’t spend money.

It’s not that I didn’t want to pay off my student loans. In grad school, my plan was to have them paid off before I turned 30. But somewhere along the way the compounding interest and dinners out with friends paralyzed me into thinking it simply couldn’t be done.

So when I [finally] got on board with this crazy idea that we’d pay for our wedding in cash and pay off both our loans (and a car loan I’d picked up along the way) I was terrified I’d be a friendless hermit by the end of it.

How to Pay Off Debt Without Becoming a Hermit

But it didn’t take long to see that there’s a lot more to living than tacos, coffee, and vacations. I didn’t stop spending altogether (at least all the time) I became more selective with my spending.

And being selective with my spending means I no longer waste my time on things I only kind of like and I value the things I really do enjoy so much more.

So in order to do more of the things I love that do cost money, we trade in activities like movies, theme parks, and weekend getaways for free activities. Here are some of my personal favorites that you might like too.

  1. The Library

The library is a treasure trove of fun. It’s grown from novels and encyclopedias to include eBooks, DIY books, CDs, movies, and so much more than I could’ve imagined as a kid.

I’ve discovered amazing recipes, learned macramé, and my husband, who doesn’t love reading, has even gotten in on it recently. And it’s free. You don’t even have to search high and low for what you want.

Search the library database from the comfort from your home and request a hold on any item, they’ll deliver it to the library of your choice and alert you when it’s there. Easy peasy!

It’s also an alternative to coffee shops for getting work done. There are quiet spaces and even room rentals available.

  1. Social Running Groups

We love the running group we’re a part of. You can find them at most running stores or groups and events on Facebook. For us, there’s at least one on any given side of town and usually every night of the week.

Most do a 5K(ish) run that starts and ends at a store or bar. Trust me when I say all levels of runners/ walkers/ joggers participate. And since the pack disperses pretty early on it’s easy to cut your run short and not be noticed (not like I ever do that ;))

Trav and I don’t always run together, but sometimes we do, other times I’ll run with a friend or by myself. Everyone meets back up at the end and hangs out. Some groups have raffles or free beer at the end.

  1. Yelp Events

You know about Yelp right? It’s a website/ app that you can find new places to eat, drink, and play. Each city has a Community Ambassador that hosts Yelp events, they are awesome and make for a great free night out.

We’ve been to many and have been thoroughly impressed. The ones we’ve been to have included free food from local restaurants, free (alcoholic) drinks, and lots of free Yelp swag. One even gave us an hour of unlimited gameplay at an arcade, so fun!

You have to be diligent in checking for these official Yelp events, they always fill up. When you find one RSVP on the event page then wait for a confirmation email. There are no +1’s so everyone has to RSVP and get confirmation individually to attend together.

  1. Pantry (Dinner) Party

The dinner party is an oldie but a goodie. You may have to buy some groceries for this one or you can use it as an excuse to clear out the pantry and fridge.

A side dish that goes with nothing? Vegetable about to go bad? Anything [almost] freezer burned?

Get some friends together and it’s sure to be a food match made in conglomerate heaven. And you get the bonus of spending time with good friends or building relationships with new ones!

  1. Bike Ride

Self-explanatory. We love a good bike ride. We live right off a trail and it’s another great exercise activity to do with your significant other, friends, or just by yourself.

And if you want to meet new people, many cities have biking clubs on most days of the week and ranging in speed/experience.

  1. Home Improvement Class

If you own a home or are thinking about purchasing one, this is a great one. Home Depot offers free workshops on everything from installing light fixtures and tile to water conservation hacks and a DIY dog feeder.

Even if you don’t own a home these are great tricks to have up your sleeve for when that time comes.

And it’s empowering to know that if something breaks I can fix it or if he’s at work I can install it. There’s something to be said for the confidence (and frustration) completing a home improvement project can bring.

  1. Events in the Park

We live in a city that loves to be outside and that means tons of free events, orchestra nights, movies on a big screen, fireworks, and parades to name a few. We love bringing a blanket, some chairs, and a picnic for the evening.

The trick is getting there early to find free parking and bringing your own food to avoid the temptation of all the vendors.

This is also a great activity to do in groups because a lot of these things only happen once or twice a year and everyone attends, so why not go together!? Find your city’s event calendar or downtown blog to find out what’s available.

  1. Volunteer

We volunteer at our church and at a foster group home in our area. Volunteering is an amazing way to see your partner interact with others, to grow in boldness (hi introverts) and get to do something for free that helps others and makes you feel good.

I love Habitat For Humanity (make use out of those home improvement classes!) and Big Brothers, Big Sisters (there’s a Big Couple option that’s really fun.) There are options for all time commitments.

And it’s not limited to humanitarian groups. You can volunteer at events like music and food festivals for a couple hours then enjoy those events for free!

  1. Find Water

As a couple who lives 15 minutes from the beach, it’s a wonderful place to relax and feel like you’re somewhere else for a few hours. Trav can play Frisbee with his friends while I nap under the umbrella (I’m dreaming of it right now!)

You may not be close to a beach but you’re probably near some body of water (even if it’s frozen over right now.)

Bring your own drinks and food for the day and it’s a free vacation! You may have to do some extra searching beforehand to find free parking but it’s totally worth it. Don’t forget to reapply sunscreen! Even in winter!

  1. Pokemon Go

And last but not least, the phenomenon that really inspired this post several years ago, Pokemon Go. Can you believe people are stil playing this game!?

Seriously though, it’s amazing to me how addictive this game is and the fact that it’s totally free. Trav and I have been in a head to head battle to see who can catch the best Pokemon, who can level up faster, and walking/running like crazy to hatch those eggs!

Bonus: your group run can double as a Pokemon adventure. I’ve hatched many an egg that way.

And I think a little competition in any relationship is a good thing, just know when to comfort your brokenhearted husband when you catch the Pikachu first. Love it or hate it this is a fun game to play together.

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10 free activities for couples paying off debt

” data-medium-file=”https://i0.wp.com/www.modernfrugality.com/wp-content/uploads/2016/08/10freeactivities.png?fit=200%2C300&ssl=1″ data-large-file=”https://i0.wp.com/www.modernfrugality.com/wp-content/uploads/2016/08/10freeactivities.png?fit=400%2C600&ssl=1″ loading=”lazy” data-pin-description=”Are you tired of feeling like you have to stay at home 24/7 while paying off debt? Here are 10 free activities to do with your partner while paying off debt. #debtpayofftips #debtpayoff #howtogetoutofdebt #freecouplesactivities #freedatenightideas #frugaldatenight” data-pin-title=”Free Activities to Live a Little While Paying Off Debt” class=”aligncenter size-large wp-image-2601 jetpack-lazy-image” src=”http://www.hanovermortgages.com/wp-content/uploads/2021/03/10-free-activities-for-couples-paying-off-debt.png” alt=”These 10 free activities for couples paying off debt are great! #payoffdebt #frugalfun” width=”400″ height=”600″ data-recalc-dims=”1″ data-lazy-srcset=”http://www.hanovermortgages.com/wp-content/uploads/2021/03/10-free-activities-for-couples-paying-off-debt.png 400w, https://i0.wp.com/www.modernfrugality.com/wp-content/uploads/2016/08/10freeactivities.png?resize=200%2C300&ssl=1 200w, https://i0.wp.com/www.modernfrugality.com/wp-content/uploads/2016/08/10freeactivities.png?w=735&ssl=1 735w” data-lazy-sizes=”(max-width: 400px) 100vw, 400px” srcset=”data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7″>

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10 free activities for couples paying off debt

” data-medium-file=”https://i0.wp.com/www.modernfrugality.com/wp-content/uploads/2016/08/10freeactivities.png?fit=200%2C300&ssl=1″ data-large-file=”https://i0.wp.com/www.modernfrugality.com/wp-content/uploads/2016/08/10freeactivities.png?fit=400%2C600&ssl=1″ loading=”lazy” data-pin-description=”Are you tired of feeling like you have to stay at home 24/7 while paying off debt? Here are 10 free activities to do with your partner while paying off debt. #debtpayofftips #debtpayoff #howtogetoutofdebt #freecouplesactivities #freedatenightideas #frugaldatenight” data-pin-title=”Free Activities to Live a Little While Paying Off Debt” class=”aligncenter size-large wp-image-2601″ src=”http://www.hanovermortgages.com/wp-content/uploads/2021/03/10-free-activities-for-couples-paying-off-debt.png” alt=”These 10 free activities for couples paying off debt are great! #payoffdebt #frugalfun” width=”400″ height=”600″ srcset=”http://www.hanovermortgages.com/wp-content/uploads/2021/03/10-free-activities-for-couples-paying-off-debt.png 400w, https://i0.wp.com/www.modernfrugality.com/wp-content/uploads/2016/08/10freeactivities.png?resize=200%2C300&ssl=1 200w, https://i0.wp.com/www.modernfrugality.com/wp-content/uploads/2016/08/10freeactivities.png?w=735&ssl=1 735w” sizes=”(max-width: 400px) 100vw, 400px” data-recalc-dims=”1″>

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Are you tired of feeling like you have to stay at home 24/7 while paying off debt? Here are 10 free activities to do with your partner while paying off debt. #debtpayofftips #debtpayoff #howtogetoutofdebt #freecouplesactivities #freedatenightideas #frugaldatenight

” data-medium-file=”https://i1.wp.com/www.modernfrugality.com/wp-content/uploads/2019/02/MF-10-Free-Activities-for-Couples-Paying-off-Debt-to-Avoid-Boredom.jpg?fit=156%2C300&ssl=1″ data-large-file=”https://i1.wp.com/www.modernfrugality.com/wp-content/uploads/2019/02/MF-10-Free-Activities-for-Couples-Paying-off-Debt-to-Avoid-Boredom.jpg?fit=311%2C600&ssl=1″ loading=”lazy” width=”311″ height=”600″ data-pin-title=”Free Activities to Live a Little While Paying Off Debt” data-pin-description=”Are you tired of feeling like you have to stay at home 24/7 while paying off debt? Here are 10 free activities to do with your partner while paying off debt. #debtpayofftips #debtpayoff #howtogetoutofdebt #freecouplesactivities #freedatenightideas #frugaldatenight” src=”http://www.hanovermortgages.com/wp-content/uploads/2021/03/10-free-activities-for-couples-paying-off-debt.jpg” alt class=”wp-image-4453″ srcset=”http://www.hanovermortgages.com/wp-content/uploads/2021/03/10-free-activities-for-couples-paying-off-debt.jpg 311w, https://i1.wp.com/www.modernfrugality.com/wp-content/uploads/2019/02/MF-10-Free-Activities-for-Couples-Paying-off-Debt-to-Avoid-Boredom.jpg?resize=156%2C300&ssl=1 156w, https://i1.wp.com/www.modernfrugality.com/wp-content/uploads/2019/02/MF-10-Free-Activities-for-Couples-Paying-off-Debt-to-Avoid-Boredom.jpg?w=700&ssl=1 700w” sizes=”(max-width: 311px) 100vw, 311px” data-recalc-dims=”1″>

Jen Smith is a personal finance expert, founder of Modern Frugality and co-host of the Frugal Friends Podcast. Her work has been featured in the Wall Street Journal, Lifehacker, Money Magazine, U.S. News and World Report, Business Insider, and more. She’s passionate about helping people gain control of their spending.

Source: modernfrugality.com

A Guide to Using the Debt Snowball Method

  • Get Out of Debt

Debt snowball is a debt repayment strategy that can help you to pay off debt, improve your credit score, and make you feel better about your finances. It’s one of the most effective debt payoff strategies and has helped millions of Americans to escape mounting credit card, student loan, and personal loan debt.

In this guide, we’ll look at the basics, presenting you with a debt snowball calculator and some essential information so you can use this method for yourself when paying off debt.

What is the Debt Snowball Method?

Debt snowball is a payoff strategy designed to boost your confidence, reduce your debts, and improve your credit report. The idea is simple: Continue meeting your current monthly payment obligations and put all extra money you have towards the smallest debt. Unlike the debt avalanche method, which focuses on the debt with the highest interest rate, the goal is to focus on the smallest debt, whether that be a car loan, credit card, or student loan.

There are some obvious flaws with this strategy, but there are also some surprising advantages, both of which we’ll discuss below.

How the Debt-Snowball Method Helps You Repay Your Loans

Payoff strategies like debt snowball work by increasing your interaction with your debt, encouraging you to increase your monthly payments, thus reducing the loan term and the total interest.

The reason debt escalates so quickly is that your monthly payment only covers a small percentage of your total balance and most of this is interest. If we use credit cards as an example, the average monthly payment is around 2%. With an APR of 18% on a balance of $10,000, you’re paying $1,800 a year or $150 a month. This means your first month’s balance is $10,150, which in turn means that your monthly payment of around $200 (2%) reduces your balance by just $50. The same happens again the next month, with the interest now calculated against the remaining balance of $9,950.

Every additional payment you make once that 2% has been paid, reduces the principal/balance further. If you pay just $50 more in that first month, you’re repaying twice as much of the principal and next month’s balance will be $9,900. This strategy not only increases the rate at which you pay off the loan, but because the balance is much smaller, the interest payments are also smaller, which means you spend less.

Debt Snowball Calculator

You can use a debt snowball calculator to help you pay off debt, but you don’t need one. A debt snowball calculator will simply tell you how long it takes to clear your debt and which debt is the smallest, but the latter is easy to calculator yourself and the former may do more harm than good.

Simply gather information on all of your debts and then zero-in on the one with the smallest balance. You don’t need to worry about the interest rate or monthly payment—it’s all about the balance. As an example, your list of debts from smallest to largest may look like this:

Type of Debt

Interest 

Minimum Monthly Payment

Balance

Credit Card 1

20%

$50

$2,000

Credit Card 2

20%

$200

$10,000

Credit Card 3

16%

$240

$12,000

Car Loan

5%

$400

$20,000

In this example, the first $2,000 debt won’t take very long to clear. And once it does, you have one less debt to worry about; one less monthly payment to make. You can then focus on the next smallest debt and keep repaying them until you’re 100% debt-free.

Keeping Accounts Open

The goal is this strategy is to clear accounts, improve your FICO Score and ensure you remain on-course for complete financial freedom. It’s tempting, therefore, to close accounts as soon as they clear and place a big green tick next to them in your mind. However, doing this could seriously reduce your credit score and undo all your hard work, at least in the short-term.

This is all down to something known as credit utilization, which accounts for close to a third of your FICO Score calculation. Lenders want to know that you’re not credit-hungry and won’t use every cent of credit that’s offered to you. It displays a level of irresponsibility and a lack of control and it’s a major concern. To account for this, the credit utilization aspect of your score compares all your available credit (such as the credit limit on a credit card) to all your used credit (such as the debt on that card). The higher the percentage of used credit is, the more of a negative impact it will have on your total score.

Every time you clear an account, you reduce this ratio by decreasing your debt, but if you then close that account, you’re also reducing your credit.

How to Get the Money You Need

Debt snowball is designed to be simple and easy to implement, but it also relies on you finding additional cash every month to increase your minimum payments. No extra cash means you won’t pay off debt early and this strategy will be a bust.

So, how can you hope to find this extra money?

  • Sell What You Don’t Need: Most American households accumulate huge amounts of junk over time, from old tech and furniture to clothes, media, ornaments, and more. If it’s gathering dust and doesn’t have a sentimental or collectible value, you don’t need it and can sell it.
  • Budget: The average household wastes thousands of dollars a year on food (40% of the average grocery shop ends up in the garbage) lottery tickets, cigarettes, and other luxury expenses. If you want to save your way to an easier life then you need to budget.
  • Ask for a Raise/Promotion: You won’t get it if you don’t ask. If you’ve been at your place of employment for a long time and believe you deserve it, then put your case forward and see how it goes.
  • Get a Part-Time Job: Have a few extra hours on an evening or a weekend? Look for part-time work that won’t be too taxing and will still allow you to relax and enjoy life. Every cent you earn takes you one step closer to clearing your debts.
  • Become Part of the Gig Economy: Freelancing has created endless opportunities for writers, designers, artists, coders, and anyone with some time on their hands and a little skill. Check freelancing portals and put those skills to good use generating extra cash.
  • Cash in Savings and Investments: It’s important to have a rainy-day fund, but there’s no point clinging onto it if you’re standing in the middle of a downpour. The same goes for investments earning a few bucks a year. You’ll spend more on interest payments than you’ll ever make through dividends and savings.

Debt Snowball vs Debt Stacking

There are several strategies for paying off debt, but the most common are debt snowball and debt avalanche, also known as debt stacking. The debt avalanche method focuses on the debt with the highest interest rate and then works its way down. The principal is the same as the debt snowball method in that you keep meeting your minimum payments and use all extra money to focus on a single debt, but the debt you focus on changes.

You can read our guide to Debt Snowball vs Debt Avalanche to learn more about how these two compare. We also have a complete guide to the Debt Avalanche Method.

When is Debt Snowball the Best Option?

The debt snowball method works well when you have multiple debts of similar interest rates and monthly payments. It also works very well if your costliest debts (in terms of interest) have the smallest balances. 

But it’s not all about the size of your debt as this strategy is also very good at boosting your confidence and motivating you. People get stuck in a cycle of debt because they focus on the short-term instead of the long-term. They don’t think, “This $10,000 balance will cost me over $5,000 in total interest” they just think, “This $10,000 debt is only costing me $200 a month.”

If you find yourself rooted in this mindset, then debt snowball might be right for you because it focuses on a long-term goal while also providing you with short-time success. You will see the results happen right in front of your eyes and this could spur you on to continue. This is important, because without that motivation boost and without those visible results, you may start using your additional income to spend on luxuries and not to clear your debts.

When is Debt Snowball the Worst Option?

As discussed under out Debt Snowball Calculator section above, this strategy can ignore high-interest debts in favor of debt with small balances. If your debt is mainly credit card or loan based, this shouldn’t be a major problem. However, if you have a credit card with a massive balance and interest rate, as well as a few small loans and installment plans, it could be.

In this case, you’re allowing your credit card balance to go unchecked while you focus on small interest loans. You will still pay off debt in the long-run, but it will cost you much more than if you were to focus on that credit card debt in the first place.

If your minimum payments are at their biggest with debts that won’t be touched for months or years, maybe it’s not the right strategy for you.

Summary: Is the Debt Snowball Strategy Right For you?

The problem with debt is that we tend to focus on the smaller picture. If we have debts of $30,000 costing $500 a month and generating over $20,000 in total interest, logic dictates that a sudden windfall of $30,000 should be used to clear those debts. It would save $500 a month and $20,000 over the term.

However, the vast majority of debtors would sooner put that money towards a car, home or vacation, seeing the cost of the debt as $500 a month and not $20,000 over several years.

The debt snowball method may not make much financial sense over the long-term, but the same can be said for loans, interest, debt consolidation and everything else that we willingly subject ourselves to. The point is that it creates small, achievable milestones; it makes the impossible possible, and that’s why it still serves a purpose when compared to the avalanche strategy.

Source: pocketyourdollars.com

Get Out Of Debt: Net Worth and Debt Pay Down Forms

I am proud of many things I’ve done in my lifetime (with my kids and husband topping the list).  Another thing I’ve done is paid down more than $37,000 in debt and fully funded our 6-month emergency fund.   Not having debts looming over our heads has afforded us many more opportunities — the best of which is just freedom from debt!

how to figure your net worth

how to figure your net worth

Like so many others, my husband and I were not as savvy with our finances as should have been.  As a result, we had quite a bit of debt and often, we would find ourselves living paycheck to paycheck.  In November 2007, we found the answer to our problems.  We read Dave Ramsey’s Total Money Makeover.

It might sound cliche, but it really was life changing for us.  For the first time in both of our adult lives, our financial life was more secure.  Not only that, my husband and I have grown closer and our marriage is stronger as a result (which was a benefit neither of us ever expected, but are so grateful for).

If you find yourself wandering down the same path of financial mayhem and are ready to commit to making a change, then you will want to read further to learn how you can get out of debt! Are you ready?  Because there is no time like right now to get started on working your way out of debt.

Of course, we can’t just jump in and start to pay off those bills.  There are some steps you should take in order to get a true picture of your finances.  Trust me when I say that I KNOW this will be difficult.  However, you will need to do this in order to fully commit to getting out of debt.

WHAT TO DO WHEN YOU WANT TO GET OUT OF DEBT

NET WORTH

The first thing you must do in order to get out of debt is to determine your Net Worth.  This provides you with an overview of your assets and liabilities and gives you an overall picture of what you ….well….are worth (financially only, of course).  If, when you prepare yours you find you are in the red – or have a negative net worth — remember that is is OK!!!  This is part of the journey to financial independence.

The way you can determine your net worth is to add up all of your assets and then subtract your liabilities.  You can just do this on notebook paper or in a spreadsheet.  You can get your own Net Worth Form by clicking on the image below.

If, when you prepare yours you find you are in the red (or have a negative net worth), that is OK.  This is part of the journey to financial independence.  You are working to turn this around and end up with a positive net worth!

DEBT PAYDOWN FORM

At this time, you will prepare another form as well.  This one is entitled The Debt Pay Down.  This one should be simple as it will stem from the liabilities you will record on your Net Worth Worksheet. Get a debt paydown form by clicking on the image below.

Find all of your debts. List the one you owe the least amount to first.  Include the balance due as well as the minimum required monthly payments.  Continue to do this and list all of your debts in this same order.  The method my husband and I used meant to pay down lowest balances first and not consider interest rates.  However, you can list your debts in that manner instead (read more about paying down balances or interest rates first).

That is the very FIRST step in getting out of debt!  The next thing you’ll do is create a budget!  You can then continue with the other steps on how to get out of debt as listed here.

Source: pennypinchinmom.com

Can You Go To Jail If You Don’t Pay A Debt?

Being in debt is never fun. You carry a weight on your shoulders, and are bound by the obligations that you must fulfill. It stinks, but at least there are some protections for people who aren’t able to pay, and rules that govern how debts can be collected. In the past, debtors were not given as much leeway. In fact they were treated quite harshly. They were often sent to debtor’s prison:

During Europe’s Middle Ages, debtors, both men and women, were locked up together in a single large cell, until their families paid their debt. Debt prisoners often died of disease contracted from other debt prisoners. Conditions included starvation and abuse from other prisoners. If the father of a family was imprisoned for debt, the family business often suffered while the mother and children fell into poverty. Unable to pay the debt, the father often remained in debtors’ prison for many years. Some debt prisoners were released to become serfs or indentured servants (debt bondage) until they paid off their debt in labor.

Debtor’s prisons continued to be used in the United States and United Kingdom into the 1800s, at which time both countries outlawed the practice of putting people in jail for their debts.  It was outlawed in the United States in 1833, and abolished in the UK in 1869.

You might be surprised to find out, however, that some countries to this day still use the practice.  Debtors in the United Arab Emirates, including Dubai, can be imprisoned for failing to pay their debts.

You Can Go To Jail For Your Debt – Even Today

While many people think being imprisoned for your debt in the U.S. is a thing of the past, they aren’t completely correct.

I was reading my local paper in Minnesota this past week when I discovered a series of articles talking about people who have been sent to jail for their debts.  While they have technically been sent to jail in many of these cases because they missed a court date related to their debt, or because they missed a court mandated debt payment, the fact remains that they were incarcerated in part because they have debt.

It’s not a crime to owe money, and debtors’ prisons were abolished in the United States in the 19th century. But people are routinely being thrown in jail for failing to pay debts. In Minnesota, which has some of the most creditor-friendly laws in the country, the use of arrest warrants against debtors has jumped 60 percent over the past four years, with 845 cases in 2009, a Star Tribune analysis of state court data has found.

Not every warrant results in an arrest, but in Minnesota many debtors spend up to 48 hours in cells with criminals. Consumer attorneys say such arrests are increasing in many states, including Arkansas, Arizona and Washington, driven by a bad economy, high consumer debt and a growing industry that buys bad debts and employs every means available to collect.

Whether a debtor is locked up depends largely on where the person lives, because enforcement is inconsistent from state to state, and even county to county.

While you’re probably OK if you follow up on court dates, and make your court ordered payments, if you miss a payment or a court date you could be in trouble.

Haekyung Nielsen, 27, of Bloomington, said police showed up at her house on a civil warrant two weeks after she gave birth through Caesarean section. A debt buyer had sent her court papers for an old credit-card debt while she was in the hospital; Nielsen said she did not have time to respond.

Her baby boy, Tyler, lay in the crib as she begged the officer not to take her away.

“Thank God, the police had mercy and left me and my baby alone,” said Nielsen, who later paid the debt. “But to send someone to arrest me two weeks after a massive surgery that takes most women eight weeks to recover from was just unbelievable.”

While I’m all for personal responsibility, and for following through on your debt obligations, some of the tactics being used by these debt collecters, and being followed up on by the law enforcement officials do seem a bit draconian. In some senses it seems like the debt collectors (credit sharks in suits as Dave Ramsey calls them) have taken over.

“The law enforcement system has unwittingly become a tool of the debt collectors,” said Michael Kinkley, an attorney in Spokane, Wash., who has represented arrested debtors. “The debt collectors are abusing the system and intimidating people, and law enforcement is going along with it.”

How often are debtors arrested across the country? No one can say. No national statistics are kept, and the practice is largely unnoticed outside legal circles. “My suspicion is the debt collection industry does not want the world to know these arrests are happening, because the practice would be widely condemned,” said Robert Hobbs, deputy director of the National Consumer Law Center in Boston.

Now if people are able to pay their debts, and are instead choosing to ignore their obligations and not pay, that’s one thing. If, however, they aren’t able to pay because of medical issues or other problems, why would you put them in jail?

Bail Is Often The Same Amount As The Debt

One thing people are finding once they’ve been put in jail is that their bail payment is set at the exact same amount of their debt owed.  When they post bail their money goes directly to the debt collector.

Hennepin County automatically sets bail at the judgment amount or $2,500, whichever is less. This policy was adopted four years ago in response to the high volume of debtor default cases, say court officials.

Some judges say the practice distorts the purpose of bail, which is to make sure people show up in court.

“It’s certainly an efficient way to collect debts, but it’s also highly distasteful,” said Hennepin County District Judge Jack Nordby. “The amount of bail should have nothing to do with the amount of the debt.”

If friends or family post a debtor’s bail, they can expect to kiss the money goodbye, because it often ends up with creditors, who routinely ask judges for the bail payment.

This does seem to be a bit shady – basically the law enforcement and judicial systems are being used as an extension of the debt collection agencies.   I’m sure the debt collectors will abuse this system since they’ve never been known for their fair debt collection practices.

How To Stay Out Of Jail For Your Debt

So how can you ensure that you’ll never end up on the wrong side of a jail cell door – especially if you have debt?

  • Don’t avoid bill collectors or warrants.
  • Make sure to read any documents you get from bill collectors or the courts.
  • If you get a summons and complaint, you are being sued. You must show up in court.
  • Respond promptly to a summons either denying or admitting to the debt.
  • Show up for all court hearings.

So to stay out of jail, follow up on your debts, and if you are being sued or given a court date – show up!  If you don’t you could end up losing by default, and have a warrant sworn out for your arrest.

What do you think about the ways that debt collectors are now using the law enforcement and judicial system to collect debts for them?  Do you think it is right? Should debtors be afforded more protections, or are they getting what they deserve? Should new laws be passed? Tell us your thoughts in the comments.

Source: biblemoneymatters.com

My Simple Trick For Always Staying On Budget

No matter how much you make (or don’t), it is essential that you have a budget. It is your roadmap for your spending.  But, sticking to the budget? That’s something entirely different.  Fortunately, I’ve figured out a simple trick that you can use to help you always stay on budget!

Tricks to making a budget work

Tricks to making a budget work

My husband and I have a budget (just like many of you do – and if you don’t, you need to make a budget).  We also use cash for most of our spending.  Now it is down to a science and our budget always works.

However – that was not always the case.  There was a time when my cash budget didn’t work.

My husband and I had been looking back to our regular spending to determine how much to budget for our groceries.  We created our spending plan and figured out that we were spending around $550 a month.  So, for us, the logical thing was to reduce our spending, so why not lower groceries to $500 and just make it work? That should work – right?  Wrong.  At least not for us.

The problem was that while it appeared that dropping our spending by $50 to increase savings (which we wanted to get out of debt) was a smart move, it apparently wasn’t.

MY TRICK FOR STAYING ON BUDGET

We kept trying everything we could think of to keep us staying on budget.  I was clipping more coupons. Both of us changed our shopping habits (or so I thought).  However, it didn’t matter. I was coming up short every. Single. Month.

After some time, I decided that I had to make a change. But how?  What could we do? We had already tried to lower our spending but were spending more. Then I had an idea.

One month, I tried to challenge myself. I tried to increase our grocery budget from $250 per pay period to $350 per pay period. Then, as I shopped, I challenged myself to see if I could spend less.

Since our we were still in debt, I was trying to build up our emergency fund.  We were getting close to our goal, but I wanted to find a way to get there more quickly. Something crazy happened that month.  I spent less.  Not just $100 less, but $150 less.

Just like that, I was spending what I had budgeted — several months earlier!!!

It was crazy, and I could not believe I had done it.  Honestly, the first time it happened, I thought it was just a fluke, so I did it again.  And it worked.  I kept repeating this same process, and suddenly, I was spending less at the store AND having more money for savings.

My simple silly trick for always staying on budget is to over budget. I know, it sounds insane, but the thing is that it works.  At least for us.

We really only do this with our groceries category, as that is the one area where we always spend money. It is a given, and it is required for us to live.  I can’t really over budget for our electric and then challenge myself to use less, as I just don’t see the results in the same way.

However, when I have my cash envelope in front of me, it does.  When I pull out the cash I did not spend at the end of our two week period and see a stack of 20 dollar bills, it is thrilling.  That is money saved. It is in my hand, and I can see it.

WHY DOES IT WORK?

Honestly, it is psychological.  When you set strict limits on yourself, it can sometimes be overwhelming.  There is the fear of messing up.  One simple mistake can lead to quickly overspending.  That makes you feel like you’ve failed.  And, when you fail at something, you just want to quit and give up.

[clickToTweet tweet=”The reason your budget fails is due to your attitude. #money” quote=”The reason your budget fails is due to your attitude. #money” theme=”style2″].

Think about it.  If you change the way you look at your budget, it can be an instant change in your money attitude.  Don’t look at it as what you can’t spend money on  — but rather what you can.

When you allow yourself some wiggle room in the budget, you may find that you too spend less.  You are more motivated to make it work.  You see the success right there in front of you.

However, if there is a month when you do end up spending the entire amount you’ve budgeted for that line item – it is OK.  There is no stress because you’ve overspent.  Nope.  You’ve spent the amount you budgeted.  It just means no extra savings that month.

Once you can change your attitude and know how you handle money, you can change your budget.  That can change your spending and result in success in actually following — and sticking to — your monthly budget.

how to stick to a budget

how to stick to a budget

Source: pennypinchinmom.com

Personal Finance Interview with Tawra Kellam on Saving at the Grocery Store

Personal Finance Interview with Tawra Kellam on Saving at the Grocery Store

If you’re looking for easy ways to save money at the grocery store it seems personal finance bloggers and frugal living experts have a mantra about what not to buy:

“Soda, junk food, snacks and eating out,” says blogger Tawra Kellam of Living on a Dime. “I know I keep saying this and all the money-saving gurus say this but that’s because people just blow it off and don’t really realize how much they spend buying snacks and going out to eat.”

Tawra knows a thing or two about leaving a grocery store with only the necessities. She feeds her family of four on just $450 a month without using coupons.

We recently checked in her to get practical advice on everything from grocery shopping to talking to kids about money. Here’s what she had to say:

Hi, Tawra! Can you tell us about Living on a Dime? When and why did you start your site?

I started our site in 1999 after I wrote our cookbook “Not Just Beans” (now “Dining On A Dime”). I was on a couple of frugal living boards when I was on bed rest with my first pregnancy. I kept answering questions on how to save money on your grocery bill and giving out recipes on how to make pretty much anything homemade.

I decided to go ahead and write and self-publish a cookbook on how to save money on your grocery bill without using coupons or living on beans. That’s what the first name of the book was supposed to mean, but of course it was a bad name and no one got it so we later changed it.

We started the website to promote the book and then it later turned into helping people save money and get organized in all areas of their life.

Who should be reading it?

It’s mostly geared toward families. We have mostly moms in the 30- to 45-age range, but of course we have women of all ages but that’s our target group.

We’re in awe of the fact that you can feed your family of six spending just $450 a month on groceries without using coupons … have you always been such a savvy shopper?

I grew up with a single mom who had paid off all our debt ($35K including the house) on just $1,000 a month in five years. Then we became ill will Chronic Fatigue Syndrome and she raised two teens on $500 a month income. To me living frugally was just a way of life.

What’s the one thing everyone can do to trim his or her bill?

The one thing most people can do to trim their grocery bill is to cut the junk. I know you hear it all the time but the juice boxes, fruit snacks, chips, sodas really do add up to the tune of thousands of dollars a year. The problem is people say “this box of fruit snacks is “only” $2″ but that $2 plus all the other $2’s add up over a year. You can see here how just cutting out a few things (not all) could add up to saving almost $10,000 in one year! Yes, $10,000!

So many personal finance sites tout the use of coupons … so why don’t you use them?

Frankly, I find them annoying and to me it’s not worth the stress of trying make sure I remember them, have the right item with the coupon and figuring out a shopping trip based on the coupons that are going to be expiring or going when the things are on sale. Also, most of the times I would try to use them, the store would be out of the items from other couponers cleaning them out.

What’s your typical pre-grocery store trip routine? How do you prepare for your shopping trip?

We cook from the pantry. Meaning I keep certain items on hand all the time and just cook from what I have on hand. For us the pre-grocery shopping includes just writing down on the list what we need when we run out. I do keep track of meat on sale and stock up when it’s at its lowest. If I see roast for $3 a pound then I will buy five to six and put them in the freezer. Chicken at $1.99 a pound, I will buy 20 packages and freeze them. The just can just pull it out of the freezer when I need it. I don’t spend a lot of time planning meals. We have 10 meals for summer and 10 meals for winter that we eat most of the time and just add something new and now and then. Most people do eat the same things over and over so why make it more complicated then you need to.

What do you think are the most common misconceptions people have about saving money at the grocery store?

That it’s a lot of work to save money and you have to make everything from scratch to save. For me the biggest way we save is by not buying things on a regular basis that most families buy like soda, juice and snacks for the kids. I also keep it very simple. We eat mostly chicken, roast and hamburger. I make my 10 meals out of those on a regular basis and then add other things in now and then to mix it up a bit.

What do people do in the name of saving money that might not actually be saving them money?

Clipping coupons and buying things just because it’s on sale. Just because it’s a good deal, if you aren’t going to use it or eat it then you are just throwing money away. They also justify buying things like fruit snacks and juice boxes so they can “save money” by not eating out. Really it takes me about five minutes to make a sandwich, put some water and ice in a reusable bottle, throw some applesauce in a reusable container and a cookie and put it in a lunch box. You don’t need prepackaged (and expensive) fruit and snacks to make an inexpensive lunch. By the way, usually my lunches cost less than $1 for the entire thing.

You were able to pay off $20,000 in debt on a tight budget … why did you prioritize paying off your debt? What did you do to reach your goal?

For me we would never be financially stable until we were debt free. We still owe half on our house, but my other than that we are debt free. It is so freeing not arguing with your husband all the time about money and not worrying how you are going to pay your bills because you are paying for things that you used up or did a long a time ago. I’m not saying that we are perfect and don’t ever worry about bills but when we do have issues it’s with unexpected things like medical bills and not an everyday stress.

How do you enlist your whole family in managing your family finances?

For us it’s a lifestyle. The kids know that we try to save every way we can. All of them now are really good about saving and even help us save. A good example is our son had to pay for his own cell phone. He researched to find the best deal. When our cell phone died then he told us where to go to get the best deal on a no-contract phone and we saved at least half of what most people spend on their cell phones.

What advice do you have on talking to your kids about money?

I have three pieces of advice actually.

First, you have to set an example. If your kids see you out spending but you’re in debt and always talking about how you never have money they are not going to be any different.

Second, talk to you kids about money. Don’t hide your finances from them. Sit them down and show them when you pay the bills how much it costs for everything. If you are having money issues, tell them why and what you are doing to fix it.

And lastly, tell your kids “no.” My kids pay for their own cell phones, gas for the car for work and fun (we pay for it for school since they go to school 30 miles from home) and we don’t buy them a toy every time we go to the store. We also don’t pay for college or buy the newest name-brand clothes, shoes or gadgets for them. If they want things like their own computer, tablet, cell phone, expensive clothes or college then they pay for it themselves.

This teaches them that you can’t always have everything you want and how to manage money before they get out on their own. As for college they will work a lot harder for scholarships and getting better grades if they know it’s their dime on the line.

Jill Cooper and Tawra Kellam are frugal living experts and the authors of the “Dining On A Dime Cookbook”. “Dining On A Dime” will help you save money on groceries and get out of debt by cooking quick and simple homemade meals. For free tips & recipes visit www.LivingOnADime.com.

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Source: mint.intuit.com