Search Results for “debt-burnout/budget4”

Debt Burnout

You’ve got a budget. You’ve got a debt repayment plan. You’ve been paying off your debt. You’ve even paid off a few of your smaller debts. Now you’re staring down the barrel of your big debts: your mortgage, a $30,000 credit card, maybe a car payment. You’re looking at months of payments with no quick wins; no more watching your debts die every few months. You’re in the middle of a very long slog.

All of the easy milestones have been reached and the next one is a year or more away. This is when debt repayment gets hard. How can you avoid getting burnt out doing the same thing, month after month, with no major visible progress?

1. Keep your eye on the prize. Try focusing on the end result, while ignoring the time it takes to get there. Do you have a reward planned for when you pay off your debt? If not, consider that to be your new shining goal-post. My wife and I plan on taking an Alaskan cruise when our debt is repaid.

2. Ignore the prize. If #1 doesn’t work for you, try focusing on just the current month’s progress. How much did you pay off this month? Was it more than last month?

3. Make micro-goals. Try breaking the long slog into bite-sized pieces. How fast can you pay off the next $1000? How many months will it take to pay off that TV you bought last year? Sometimes, meeting a smaller goal can make the whole works feel like it’s going by faster.

4. Take a snowball vacation. For just one month, take every dollar you would normally apply to your debt–except your required payments–and have some fun with it. Take a weekend trip, have a fancy dinner, or pick up that video game system you’ve been eying. Something. Anything to take your mind off of your repayment plan for a while. Be careful not to make this a habit or you will never get out of debt.

5. Start a blog to share your pain.

A debt snowball is a long, intense process. If you’re not careful, you can burn out and let the whole thing collapse. How do you avoid burnout?

Money Problems – Day 7: Paying Off Debt

Finance

Today, I am continuing the series, Money Problems: 30 Days to Perfect Finances. The series will consist of 30 things you can do in one setting to perfect your finances. It’s not a system to magically make your debt disappear. Instead, it is a path to understanding where you are, where you want to be, and–most importantly–how to bridge the gap.

I’m not running the series in 30 consecutive days. That’s not my schedule. Also, I think that talking about the same thing for 30 days straight will bore both of us. Instead, it will run roughly once a week. To make sure you don’t miss a post, please take a moment to subscribe, either by email or rss.

On this, Day 7, we’re going to talk about paying off debt.

Until you pay off your debts, you are living with an anchor around your neck, keeping you from doing the things you love. Take a look at the amount you are paying to your debt-holders each month. How could you better use that money, now? A vacation, private school for your kids, a reliable car?

If you’ve got a ton of debt, the real cost is in missed opportunities. For example, with my son’s vision therapy being poorly covered by our insurance plan, we are planning a much smaller vacation this summer–a “staycation”–instead of a trip to the Black Hills. If we didn’t have a debt payment to worry about, we’d have a much larger savings and would have been able to absorb the cost without canceling other plans. The way it is, our poor planning and reliance on debt over the last 10 years have cost us the opportunity to go somewhere new.

The only way to regain the ability to take advantage of future opportunities is to get out of debt, which tends to be an intimidating thought. When we started on our journey out of debt, we were buried 6 figures deep, with a credit card balance that matched our mortgage. It looked like an impossible obstacle, but we’ve been making it happen. The secret is to make a plan and stick with it. Pick some kind of plan, and follow it until you are done. Don’t give up and don’t get discouraged.

What kind of plan should you pick? That’s a personal choice. What motivates you? Do you want to see quick progress or do you like seeing the effects of efficient, long-term planning? These are the most common options:

Debt Snowball

Popularized by Dave Ramsey, this is the plan with the greatest emotional effect. It’s bad math, but that doesn’t matter, if the people using it are motivated to keep at it long enough to get out of debt.

To prepare your debt snowball, take all of your debts–no matter how small–and arrange them in order of balance. Ignore the interest rate. You’re going to pay the minimum payment on each of your debts, except for the smallest balance. That one will get every spare cent you can throw at it. When the smallest debt is paid off, that payment and every spare cent you were throwing at it(your “snowball”) will go to the next smallest debt. As the smallest debts are paid off, your snowball will grow and each subsequent debt will be paid off faster that you will initially think possible. You will build up a momentum that will shrink your debts quickly.

This is the plan I am using.

Debt Avalanche

A debt avalanche is the most efficient repayment plan. It is the plan that will, in the long-term, involve paying the least amount of interest. It’s a good thing. The downside is that it may not come with the “easy wins” that you get with the debt snowball. It is the best math; you’ll get out of debt fastest using this plan, but it’s not the most emotionally motivating.

To set this one up, you’ll take all of your bills–again–and line them up, but this time, you’ll do it strictly by interest rate. You’re going to make every minimum payment, then you’ll focus on paying the bill with the highest interest rate, first, with every available penny.

DOLP

This is the plan promoted by David Bach. It stands for Done On Last Payment. With this plan, you’ll pay the minimum payment on each debt, except for bill that is scheduled to be paid off first. You calculate this by dividing the balance of each debt by the minimum payment. This gives you an estimate of the number of months it will take to pay off each debt.

This system is less efficient than the debt avalanche–by strict math–but is better than the snowball. It give you “quick wins” faster than the snowball, but will cost a bit more than the avalanche. It’s a compromise between the two, blending the emotional satisfaction of the snowball with the better math of the avalanche.

Snowflaking

For each of these plans, you can give them a little steroid injection by snowflaking. Snowflaking is the art of making some extra cash, and throwing it straight at your debt. If you hold a yard sale, use the proceeds to make an extra debt payment. Sell some movies at the pawn shop? Make an extra car payment. Every little payment you make means fewer dollars wasted on interest.

Paying interest means you are paying for everything you buy…again. Do whatever it takes to make debt go away, and you will find yourself able to take advantage of more opportunities and spend more time doing the things you want to do. Life will be less stressful and rainbows will follow you through your day. Unicorns will guard your home and leprechauns will chase away evil-doers. The sun will always shine and stoplights will never show red. Getting out of debt is powerful stuff.

Your task today is to pick a debt plan, and get on it. Whichever plan works best for you is the right one. Organize your bills, pick one to focus on, and go to it.

Assuming you are in debt, how are you paying it off?

Debt Options

Finance

Debtor's Prison Historic Marker — Image by jimmywayne via Flickr

When you’re buried in debt, bankruptcy can seem like the only option. When you get make ends meet, no matter how hard you pull on them. When bill collectors interrupt every dinner. When you have to choose between food and rent. When there is always more month than money. Do you have another choice?

Yes, you do.

Before you rush to file bankruptcy, take the time to understand your options.

Debt Settlement

Debt settlement is when you quit paying your bills and start sending the money to settlement company. The settlement company does…nothing. Really. They take your money and drop it into investments or interest-bearing accounts. You don’t get the interest, they do. Eventually, when your creditors are howling, the settlement company offers to make a settlement on the account. If the creditor accepts pennies on the dollar to kill your debt, the settlement company pays them. If not, they get to howl louder and make you more miserable.

While this process is playing itself out over years, your credit is taking a beating. You are doing nothing to dig yourself out of the hole you’ve dug. Finally, when your creditors are so desperate that they accept the settlement offer, you get a huge additional hit to your credit. “SETTLED IN FULL” is not a good status to have on your credit report.

Debt settlement companies do nothing you can’t do for yourself, and doing it for yourself at least lets you keep the interest your money is earning.

Debt Consolidation

Consolidating your debt comes in two varieties, a debt consolidation loan and a debt management plan.

A debt management plan is when you send one large payment to a debt consolidation company, and they pay your creditors for you each month. The company will usually attempt to contact your creditors and negotiate your interest rate and payments to try to get you into a situation that precludes bankruptcy and will keep your creditors happy. In the simplest terms, this is a debt payment consolidation.

A debt consolidation loan is generally done by taking out a line of credit against your home or other collateral and using that money to pay off all of your bills. Then you make the payments to the bank, to pay off your line of credit. The problem is that, if you can’t make the individual payments, can you make the payment to the line of credit? If you can’t, you risk losing your house.

Repayment

This option is my personal favorite. It involves taking responsibility for your decisions, cutting out the unnecessary expenses in your life, and paying your bills. There are a few popular plans for accomplishing this, including Dave Ramsey‘s debt snowball. The most important thing to remember are 1) debt it bad so stop using it; and 2) pay off as much as you can afford to each month. It isn’t as sexy as making all of your debt disappear, but it’s still a good option.

Bankruptcy

Let’s see. You borrow money on the promise to pay it all back. After you borrow too much, you renege on your agreement. You admit your word means nothing and you get all of your debt cancelled, forcing your creditors to raise the interest rates for all of the responsible debtors out there, as a way to balance the risk of those who will never pay. In exchange you doom yourself to lousy credit for the next 10 years. In extreme circumstances, bankruptcy may be the only option, but, I’m not a fan.

As you can see, there are almost always better options than bankruptcy. Please, before you take that leap, look into the other choices.

This is a sponsored post written to provide some insight into the world of bankruptcy and debt consolidation.

Where the hell have I been?

Finance

For the last year or so, I haven’t been writing much, which feels weird. I used to write three timer per week. I’d write about saving money, investing, frugality, sometimes, relationships and parenting.

But that stopped. Why?

When I started this site, I was about $110,000 in debt, and just starting my journey out of it. A few months before, I was looking into bankruptcy, because I didn’t know how to get out of debt.

For years, the ways I saved money, cut corners, and earned extra money was fodder for this site. Everything I did was about saving money, earning money, and paying off debt.

Now? I’m about 2 months away from being completely debt-free. I paid my mortgage off last month, and have about $10,000 in credit card debt at the moment. I know, I paid that off backwards, but there are reasons. Reasons I’ll share another time.

4 years ago, I was essentially working 4 jobs. My day job, my gun training business, my internet marketing business, and my websites(including this one). I was working all of the time. It was necessary, but it’s a path to burnout. Then, I changed jobs a couple of times, nearly doubling my day job’s pay. My business partner got promoted out of a position that generated leads for one of our businesses, then had an accident that the other shared business on hold for a while.

Suddenly, I had free time and enough money coming in that I didn’t need to work all of the time. It was a crazy place to be after spending more than a decade pretending to be a workaholic just to keep my head above water. (Here’s a secret: I’m incredibly lazy. I’m just the busiest lazy man I know.) So I started pursuing hobbies.

Linda and I have been taking ballroom dancing lessons and are nearly to the point that competing is a real possibility.

I cleaned out my garage and assembled a decent wood shop, which is something I’ve wanted to do roughly forever.

I’ve been taking blacksmithing lessons with my teenage son.

I’ve been playing games with my kids, dating my wife, and simply enjoying my life.

This site?

Through all of that, I haven’t known what to write about.

“Dear audience, this month, I paid my bills, didn’t go on vacation, and bought a drill press.”

“Dear audience, my debt went down another $500 this month.”

“Dear audience, I didn’t buy a car I can’t afford this month. Again.”

Those aren’t good articles. Financially–while paying off debt is disturbingly exciting–my life is very repetitive. That’s the hardest part about paying off a lot of debt. It’s good, it’s necessary, it’s boring. My wins have been spaced out by several years lately, and I haven’t been creatively frugal. Screw frugal. If you can afford some conveniences and luxuries, frugal sucks.

Anything new happening in my world that would apply to this site would make it read like an accountant’s ledger book. $100,000 minus $1500 plus $10,000 minus $300, ad nauseum.

Instead of inflicting boring accountancy on you, I’ve been absent.

What next? Who knows. I enjoy writing. I enjoy writing here. I’ve started writing a novel.

What would you like to see here?

Debt Scams

Finance

When you are up to your eyeballs in debt, praying for a step-stool, sometimes life–more accurately, con-artists–try to trip you when you are vulnerable and look for a solution. They aren’t muggers on the street. They come at you wearing ties, invite you to a real office, with real furniture and a real nameplate on a real desk. They are a real company, but that doesn’t mean they aren’t trying to scam you out of the little money you have left to put towards your debt.

Yes, I am talking about debt management scams. These scams come in 4 main varieties.

Debt Settlement companies instruct you to stop paying your bills completely and send them the money instead to be placed in a settlement fund. When your creditors get desperate enough, they will be willing to settle for pennies on the dollar.

In theory, this can be a good strategy for some debtors. Unfortunately, it has some drawbacks, even if the company is legitimate. They tend to charge high fees as a percentage of your deposits. Some take another fee when a settlement is accepted. The entire time you are building your settlement fund, your credit rating is sinking, leaving you open to being sued or garnished. The bad companies take the fund and run, while even the good companies can’t guarantee your creditors will play ball.

Ultimately, they aren’t doing anything you can’t easily do yourself. If you want to go the settlement route, stop making your payments and funnel the money into a savings account that you will use to offer settlements from. It takes discipline, but there is no upside to paying someone else for the same function.

Debt Management plans are used when you owe more than you can afford to pay. These companies work with your creditors to adjust interest rates and minimum payments and they try to get some fees waived for you.

A good company will work with you and your creditors to make sure everyone is working together towards the goal of eliminating the debt. A bad company will tell you they are working with your creditors while ignoring any contact from the creditor. They’ll tell you the creditor isn’t willing to negotiate while never stepping up to the negotiation table. Another trick is to offer the creditor a set payment, with a “take it or leave it” clause. Any input from the creditor is interpreted as a refusal to participate. This, coupled with high fees paid by the debtor, make debt management firms a risky proposition. Most states require the firms to be licensed. Check to make sure they are before giving them any information.

Debt/Credit Counseling companies work with you to establish a budget and eliminate expenses; in effect, they are training you to be in control of your finances. They are often organized as a nonprofit, but not always.

Some–the sleazy ones–lie about what they are doing, or attempt to misconstrue what you are agreeing too. Be careful not to use your home as collateral to consolidate unsecured debt and don’t walk into a Chapter 13 bankruptcy without that being your intention. Both of those are common debt counseling scams. If the company isn’t able to provide all of the details of a transaction–company name, address, licensing information–or they aren’t willing to spend as much time as necessary explaining the details of the transaction, walk away. This is your life, you are in charge of it. Don’t let anyone bully or prod you into signing something you aren’t comfortable with.

Credit Repair is almost always a scam. There are ways to get correct bad information removed from your credit report. If the information is correct, those methods are illegal. There are two legal methods to repair your credit. First, stop generating bad credit. Make your payments on time and eventually, the bad items will fall off. Second, write letters disputing the actual incorrect items on your credit report. There are no quick fixes, and anybody telling you different is flirting with a jail sentence, possibly yours.

How do you avoid the scammers?

Be skeptical. If it looks to good to be true, it probably is. There is no such thing as a magic wand to fix your credit and make your debt disappear. Bankruptcy + 10 years of your life is the closest thing to magic credit repair in this world.
Only use a legitimate credit counselor. Verify them through the Better Business Bureau and the National Foundation for Credit Counseling (1-800-388-2227 or www.nfcc.org)
Check the license. Most states require credit and debt counselors to be licensed. If they’re not, run away and report them.
Read the find print. Don’t sign anything you don’t understand. Like every other piece of your financial life, own the transaction. Know what your are doing, or don’t do it.
Are they willing to work with you? If they’ve got a generic plan that doesn’t account for your specific situation, they are probably a con. At the very least, they are a worthless company and a waste of both time and money.
Are they willing to work with your creditors? If not, they won’t be accomplishing anything for you.
How much do they cost? Higher fees may not be an indicator of a scam, but call around and find out if they are in the right ballpark. Triple or quadruple the going rate is a sign of someone who will disappear late one night, with your hopes, dreams and savings in tow.
Above all else, trust your gut. If it doesn’t feel right, it probably isn’t. There is nothing a counselor can do that can’t wait a few days while you check them out.

There is no magic bullet to kill debt. You’re not fighting a werewolf, you’re fighting a lifetime of bad or unfortunate choices and circumstances. It’s important to keep a realistic outcome in mind.

Update: This post has been included in the Carnival of Debt Reduction.

The Luxury of Vacation

Finance, Parenting

This was a guest post I wrote last year to answer the question posed by the Yakezie blog swap, “Name a time you splurged and were glad you did.”

There are so many things that I’ve wanted to spend my money on, and quite a few that I have. Just this week, we went a little nuts when we found out that the owner of the game store near us was retiring and had his entire stock 40% off. Another time, we splurged long-term and bought smartphones, more than doubling our monthly cell phone bill.

This isn’t about those extravagances. This is about a time I splurged and was glad I did. Sure, I enjoy using my cell phone and I will definitely get a lot of use out of our new games, but they aren’t enough to make me really happy.

The splurge that makes me happiest is the vacation we took last year.

Vacations are clearly a luxury. Nonessential. Unnecessary. A splurge.

When we were just a year into our debt repayment, we realized that, not only is debt burnout a problem, but our kids’ childhoods weren’t conveniently pausing themselves while we cut every possible extra expense to get out of debt. No matter how we begged, they insisted on continuing to grow.

Nothing we will do will ever bring back their childhoods once they grow up or—more importantly—their childhood memories. They’ll only be children for eighteen years. That sounds like a long time, but that time flies by so quickly.

We decided it was necessary to reduce our debt repayment and start saving for family vacations.

Last summer, we spent a week in a city a few hours away. This was a week with no internet access, no playdates, no work, and no chores. We hit a number of museums, which went surprisingly well for our small children. Our kids got to climb high over a waterfall and hike miles through the forest. We spent time every day teaching them to swim and play games. Six months later, my two year old still talks about the scenic train ride and my eleven year old still plays poker with us.

We spent a week together, with no distractions and nothing to do but enjoy each other’s company. And we did. The week cost us several extra months of remaining in debt, but it was worth every cent. Memories like we made can’t be bought or faked and can, in fact, be treasured forever.

Search Results for: debt-burnout/budget4

Debt Snowball

Debt Avalanche

DOLP

Snowflaking

Debt Settlement

Debt Consolidation

Repayment

Bankruptcy