Debt Reduction – The 3 Most Aggressive Ways to Reduce Your Monthly Payment Today!

Unsecured debts (especially credit card debt) got you down? Yes, it’s true, the winding tunnel of debt seems to get deeper and deeper due to late fees, high interest rates, and assorted penalties (the credit card companies are great at coming up with new ones all the time!) On the one hand you are bombarded by the credit card industry’s direct mail marketing machine sucking you in even deeper with new card offers and on the other hand they crush you with fees.

How do we get out of this debt situation?

Well, of course there’s the obvious answers like save more, stop buying Starbucks every day, cut up your credit cards, etc. Sure, that’s all well and good but it may still take you 10+ years of living frugally to pay off what you owe. I don’t know about you but 10 years is a long time. What are the more drastic methods people use to speed up the process?

1. Refinance

Own a home? Then continue reading (if not jump down to point number 2 below.) The cleanest and easiest way to replace high interest rate debt with more manageable low interest rate debt (thus a lower payment) is to refinance your home and use the equity to pay off your credit card debt. This is not a big secret but it must be discussed anyway.

2. Debt Management Programs

You’ve seen the TV ads for the “non-profit debt consolidation and credit counseling services” right?Well, these services are able to combine all your unsecured debts into 1 monthly payment with a lower interest rate and fee structure. They do much more than just collect your money and redistribute it. Most good debt management companies also offer a great amount of ongoing support and financial education so you stay out of debt once they help to get you there.

Think of this service a giant helping hand that eases the pain of your debt, reduces the collection calls, and provides you with assistance as you need it to pay down your debt in about half the time that you’d realistically be able to do it on your own. Also your credit is typically restored in the process.

3. Debt Settlement Programs

Now for the most drastic option: debt settlement. Of course, as with everything in life, the fastest way to reduce your monthly payment is also most radical choice. Why? Because debt settlement is a process in which you stop paying your bills to your creditors. Instead you make monthly payments into a trust account and once the money accumulates to a certain point, your debt settlement company will negotiate with your creditors. So for instance, if you owe $15,000 on a credit card they may approach that company once you have $7000 in your trust account and offer it as a final payment for the entire outstanding amount of $15,000. This means you do not have to pay the remaining $8000 you owe.
This is great but it has its risks and drawbacks. Namely, your credit score will be damaged throughout this process and the amount you save depends on the quality of your settlement company. You need a reputable and reliable debt settlement company with good relationships with the major creditors. However, for many people, the quickest path to debt freedom is worth the price you have to pay.

Frugal Budget – How to Develop It

If you have a good frugal budget, you will be able to successfully manage your money. The following will help you to get some ideas.

1. Figure out how much your expenses are every month.

You should list every expense that you have every month including money spent on entertainment like going out to eat and hobbies, and also any credit card or other debt payments you make on a monthly basis. There are forms you can find to help you do this.

2. Figure out how much money you have coming in every month.

Figure out your monthly income including returns from investments or other sources of income, as well as your job.

3. See how your earnings compare to your expenses.

You need to see how your current budget is working so take your earnings and subtract your expenses. The amount left is what you have after you pay all your bills.

4. Make your budget a frugal budget.

If you have more expenses than you do income, you should adjust your expenses until you have a little money left over at the end of the month.

5. Make sure your frugal budget includes money to pay down debts.

If you are paying off debts by making minimum payments, you need to build up some extra in your frugal budget to pay more towards your debts every month. That may mean cutting some things out of your frugal budget to get the extra money to put towards debts.

6. Make sure you are saving money.

You also need to include savings in your frugal budget. Everyone should have an emergency fund. You may also want to save for retirement or for a vacation in the future. It is a good idea to write your goals down and then work towards saving for those goals. If you have debt, though, you should work on reducing that prior to saving for other things.

7. Use this new budget to manage your money.

As soon as you get your new frugal budget all ready, you should start following it and see how it works out. As you implement your frugal budget, you may need to make small changes.

What Does Your Job Cost You?

When we think about working, we generally focus on the hours we work per week and the total paycheck. While it’s true that getting the most pay for your hard work is critical, there are other aspects to consider when thinking about the value of your job.

While employment brings you income, but it costs you as well. If you are on track with living a simpler, healthier, greener lifestyle, you need to consider all drains on your budget including this one.

Here are 5 ways your job may be costing you:

1. Commute expenses.

A. How much gas are you when you travel to work? Figure out your average gas mileage:

1) The day before your work week begins, fill your car with gas and jot down the mileage reading on your odometer.

2) Get the accurate distance of your drive, not your estimate but the mileage from your odometer. Jot down the mileage when you leave home and the mileage when you park in the lot then subtract them. Or use your vacation mileage counter, if you have one.

3) When the tank is low, fill the tank again. Note down the number of gallons you’ve used and the miles you’ve driven.

4) Divide the miles by the number of gallons. For example, if you have driven 355 miles and used 10 gallons of gas, you would divide 355 by 10. Your miles per gallon would be 35.5.

5) Take your distance to work from #3, multiply by 2 to get the to-and-from amount. Then multiply by the number of days you work per month. For example, if you drive 5 miles to work, then your to-and-from distance is 10 miles per day. If you work 20 days per month, you drive a total of 200 miles per month.

6) Multiply the miles per month by your gas mileage. In this case 200 miles times 35.5 miles per gallon equals 5.63 gallons per month.

7) With gas at $2.00 per gallon, your total gas allowance for your job is $11.26 per month.

B. Do you own your car because of this job? If so, add your car payments, insurance, and maintenance costs per month. Even stops at the car wash should be included. The average older car costs about $1200 per year in repairs, so add $100 per month for repairs as well, if your car is more than 5 years old.

2. Does your closet contain clothes you consider your work clothes? If so, how much does it cost to maintain your wardrobe. For example, bank tellers and clerks at upscale clothing stores are expected to look classy on a very un-classy paycheck. How much is your work wardrobe worth? And how much does it take to maintain it?

3. Do you pay for daycare or after-school care? Be sure to add those expenses to your list along with special food, diapers, or other materials these services require.

4. What about the fatigue factor? Do you stop for fast food or call out for pizza because you are so tired you can’t face the kitchen routine? Mark those charges on your kitchen calendar (Ordered Pizza, $25) and add them up at the end of the month. Add 75% of the total to your monthly work expense list since you would still pay about 25% of the cost when you cook a meal.

Once you have your 4 amounts, think about how you could cut costs in each category. By shopping for consignment items? Paying a student for after-school care instead of a childcare service? Trading in for a more fuel-efficient car?

Don’t rule out the possibility of finding a job closer to home or a job with flexible hours so you could avoid childcare expenses. Working at home eliminates the car, wardrobe, and childcare altogether. Even at a greatly reduced income, you may still come out ahead. Is that an option for you?

No matter how large your paycheck seems, what really matters is how much you get to keep.

How Much Are You Really Paying For With Your Monthly Mortgage Payments?

If you’re like most homeowners, you have a mortgage that is paid in terms of a monthly plan. You know that you can afford to pay the monthly fees and you think that they’re quite reasonable; what you likely don’t know is the total amount you really end up paying after you finished making the monthly payments for your mortgage.

As an example, assume that you bought a house and the initial principal for the mortgage you took on is $250,000.00 payable for 30 years. It is given a fixed interest rate of 7.5 per cent annually and monthly payments of $1,750.00, after doing some simple math you find that you will end up paying almost $630,000.00 for your home. If you look at it the amount you will pay for the interest alone is bigger than the initial principal amount; almost one and a half times that in fact. This is a lighter scenario; if you do not act quickly you could end up paying up to 4 times the original price.

And to add a little more gravity to this already daunting reality, during the first few years of your mortgage most of your monthly payments is just to pay off the interest; a minute portion of the payment will actually go to paying your actual debt. In average, it takes about 24 years in a typical 30 year mortgage so that more than half of the monthly fee goes toward paying for the property.

It can be quite depressing if you think about it. but fortunately there is a way to take away years from your mortgage payment, actually reduce your debt, and save you money in interest.

Opting for an automated bi-weekly plan in paying for the mortgage is not only practical it is actually re-inventing the homeownership landscape. Instead of monthly payments the lender will automatically draft from your checking or savings account every 2 weeks. This translates to roughly 12 monthly payments plus an additional month that directly goes into paying off your debt.

Under this plan, when you make the same $250,000.00 loan as before you only end up paying less interest; almost 30 per cent less. And the original 30 years until your home is truly yours debt-free will be reduced to just 23 years.

This plan is definitely more practical than the monthly payment schemes, but most people wouldn’t even consider this because of the higher monthly expense. But if you look at it from a different angle you will actually be spending a lot less money in the long run. With a little discipline and living a bit more frugally then you will be able to pay for you mortgage quite easily.

Make your life a whole lot easier by taking control of your mortgage, and put the huge amount of money you will save to other uses.