insuranceclub's Blog

Humans are funny creatures. We don't always do what's best for us , instead, we do what feels best, and try to blank out any reasons why it might not be the best thing to do. Maybe that's why there are so many people who have both savings and debts.

It's a Matter of Psychology.

Yes, it feels better to save. Saving feels like building a foundation for your future, while paying off debt feels like throwing your money down a hole. That money is for the kids' education, or for improving your house, or whatever else , and it's in an account earning a good rate of interest. What could be wrong with that? Lots, if you have debts.

Don't Be Fooled.

There are almost no savings accounts that offer interest rates as high as the ones credit cards charge. Here's a question: if you have $10,000 in a savings account earning 5% per year and $5,000 on a credit card at an interest rate of 20% per year, how much money do you have? After just five years, the answer is effectively $0 , your debt would have grown to around $12,500, the same amount that your savings are now worth.

You might not believe it now, but it really is much better to pay off your debt. If you used half your savings to pay off that debt, you'd be in such a better position that it's really amazing. You avoid five years of compound interest on the debt, but you still get to keep $5,000 in your savings account, earning interest , after five years, that's about $6,380.

If you'd still rather keep your savings intact instead of using them to pay off your debts, ask yourself this simple question: is your pride worth $6,380 of your family's money?

Think of Your Financial Health.

When you have enough money to pay off your debt, there's absolutely no reason to keep it. Debt is for people who don't have the money, and need to borrow it. Debt costs money, and savings make money , you want as much of your finances as possible to be savings, not debts. If your savings account and credit card are with the same bank, then you're effectively paying for the privilege of borrowing your own money from them. Why would you do that?

There are other benefits to paying off your debt with savings. You'll be less stressed about your debts, and your credit report will show that you were able to pay everything back , getting you a much better interest rate if you ever need to go into debt again.

I know it can be hard. You just have to remember that any money you've "saved' hasn't really been saved at all. It is money you should have been spending instead of making purchases with a credit card. Yes, it feels much worse to spend money thinking that you're spending away your future , but always remember that when you use a credit card to spend that same money, you're spending away your future, plus interest. Anyway, if you've got the debt, then those savings have already been spent , stop denying it to yourself.

By: Gregg Hall

A change in lifestyle plays an important part in the elimination of debt. A person who is an excessive spender should adopt an attitude of spending less. There is no need spending money and buying something that you cannot pay for. It is always better to note down all the expenses you face in a month and the income you generate. Then if your expenses are greater than income, it sure means you have to limit on expenses! Once you lower your expenses, you will end up with more money to pay for your debt.

The best approach to adopt to eliminate credit card debt is to have your excessive debt discounted. Sometimes, credit card companies accept about 50% or less as payments for the debt if they are convinced that you are heading towards bankruptcy. So write a letter to the credit card company explaining your situation and how you intend to pay off the credit card debt. Including the point that you plan to file for bankruptcy, and intend to settle with willing creditors will compel them to agree with you, lest they be left with nothing!

When paying yourself out of debt, it is always better to pay the high-interest credit cards first. This means that if you have three credit cards, you could pay the minimum for the two cards with lower interest rate. If you allot $300 per month for paying credit card dues, you could pay $60 for two cards as minimum payment. You then pay $180 for the remaining high interest card. Then once one of the lower interest credit card debts gets covered, you pay only $60 to the remaining of the two and $240 to the high interest credit card. This way, you can pay off credit card debt quickly.

Switching to a credit card with a lower interest rate is a great way of eliminating credit card debt. There are many low interest credit cards in the market nowadays; some also offer introductory 0% interest for your first twelve months. Once you open an account in such a credit card company, you have to switch your balance to this 0% bank account. There will be no interest incurred in this account, and so the money you used to pay for interest could be used to pay the actual debt you have with the credit card company. These regular payments will help reduce your debt faster.

There is no point in only making minimum payments to your credit card payments. You have to pay part of the principle, and not only the interest when paying monthly installments. The more of the principle you pay, the lesser your interest turns out to be. You will feel the difference when you see your reduced credit card bills.

If all these fail, you can always turn to a credit card debt consolidation loan. Here you take a debt consolidation loan that will cover all your credit card loans. The credit card debt consolidation loan is usually of a lower interest rate, and can be paid over a longer period. The consolidator will first assess your financial position, and approach your creditors to negotiate for lowered interest rates, and a longer period to repay the loan.

The credit card company usually obliges to this as they prefer a small payment against no payment! Instead of you paying all the credit card companies their monthly payments, you just have to make a single payment to the debt consolidation company. It is up to them to disperse the money to your creditors. With this, you rid the hassles of facing your creditors every month.

By: Darnell Scott

Copyright 2006 Tony Mase

Recently, a friend of mine who, like many, is easily confused when it comes to financial matters, asked me to take a look at her monthly statement for a credit card she's been trying hard to pay off, but feels like she isn't getting anywhere.

I gladly took a look at her credit card statement and the very first thing I noticed, which almost floored me, is the interest rate she's paying

29.99%!

That's right

29.99%

Wow!

I don't know where I've been (obviously not looking at credit card statements :-)), but I thought this was illegal.

Her credit card balance is $5,141.06.

If she doesn't charge anything else on this credit card, which she hasn't been, and if she continues to make the minimum required monthly payment, as she has been, based on the way her bank calculates her minimum required monthly payment

It'll take her 339 months to pay off her current credit card balance of $5,141.06 and she'll pay a total of $12,345.65 in interest.

In other words

If she continues doing what she's been doing

It'll take her 28.25 years and cost her $17,486.71 to pay off her $5,141.06 credit card balance.

No wonder she feels like she isn't getting anywhere

She really isn't!

So

What should she do?

Well

There are a number of things she could do.

However

One of the simplest things she could do would be to continue making the same minimum required monthly payment she'll be making this month, every month from now on.

Why?

Simple

Because she's already in the habit of making a monthly payment of at least this much on her credit card.

You see

Most banks and credit card companies figure the minimum required monthly payment based on a percentage of the credit card balance due or a specific fixed dollar amount, whichever amount is higher.

Therefore

Generally, the minimum required monthly payment goes down as the credit card balance owed goes down until the minimum required monthly payment gets down to the minimum required dollar amount.

In her case

Her bank's minimum required monthly payment is 3.5% of her credit card balance or $10.00, whichever amount is higher.

This month her minimum required monthly payment is $184.93 of which $134.87 is interest, with only $50.06 applied to the balance.

If she were to do absolutely nothing else but make this $184.93 payment *every* month from now on

She'd pay off this credit card in 49 months instead of 339 months and she'd pay $3,749.46 in interest instead of $12,345.65 in interest, saving $8,596.19 in interest charges!

Big difference, isn't it?

Now

If she really wants to go for it

She could increase the amount of her "new" self-imposed minimum required monthly payment.

For example

If she were to start paying an additional $15.07 a month for a total of $200.00 a month

She'd pay off this credit card in 42 months instead of 339 months and she'd pay $3,191.78 in interest instead of $12,345.65 in interest, saving $9,153.87 in interest charges.

If she were to start paying an additional $40.07 a month for a total of $225.00 a month

She'd pay off this credit card in 35 months instead of 339 months and she'd pay $2,574.37 in interest instead of $12,345.65 in interest, saving $9,771.28 in interest charges.

If she were to start paying an additional $65.07 a month for a total of $250.00 a month

She'd pay off this credit card in 30 months instead of 339 months and she'd pay $2,165.81 in interest instead of $12,345.65 in interest, saving $10,179.84 in interest charges.

If she were to start paying an additional $90.07 a month for a total of $275.00 a month

She'd pay off this credit card in 26 months instead of 339 months and she'd pay $1,874.29 in interest instead of $12,345.65 in interest, saving $10,471.36 in interest charges.

If she were to start paying an additional $115.07 a month for a total of $300.00 a month

She'd pay off this credit card in 23 months instead of 339 months and she'd pay $1,654.79 in interest instead of $12,345.65 in interest, saving $10,690.86 in interest charges.

And so on.

Now

If she really, *really* wants to go for it

She could double the amount of her "new" self-imposed minimum required monthly payment.

If she were to start paying $369.86 a month instead of $184.93 a month

She'd pay off this credit card in 18 months instead of 339 months and she'd pay $1,254.35 in interest instead of $12,345.65 in interest, saving $11,091.30 in interest charges.

Huge difference, isn't it?

As I said above, there are a number of things she could do, but this is one of the simplest and it's something she can start doing right *now* to begin eliminating her credit card debt

And

So can you! :-)

If all you do is stop charging on your credit card and continue making the same minimum required monthly payment you'll be making on your credit card this month, every month from now on, you'll make significant progress towards totally eliminating your credit card debt once and for all.

By: Tony Mase

If you're in a really bad situation, and you just can't even make your minimum payments this month, don't worry. You can negotiate your debts, and pay back much less than you owe , as long as they get their debt plus interest in the end, no-one is expecting you to pay the full amount when you just can't afford to.

Settling your debts takes a lot of time, and many people find it intimidating. If you do it right, though, you'll be surprised at how kind your creditors (that is, the people you owe money to) can be.

Close My Account.

It might feel bad, but if you can't afford to pay that credit card, you'll have to close the account , that means you can't borrow any more money with that card. To close the account, you'll have to negotiate something called a "payment plan'.

A payment plan turns your credit card debt into a plain old loan. The company might take as much as 50% off the amount that you need to pay back. It might seem strange, but they're happy you're paying at all , there are plenty of people who just don't pay and have to be chased, costing their creditors time and money. They'd rather hear from you if you're having trouble, so don't bury your head in the sand.

It's in your creditors' best interest to take whatever you can offer them, within reason. Their alternatives are lengthy court proceedings, or paying collection agencies to come round and intimidate you. They know that your offer will probably be the only offer you make before you do something more extreme that could result in them never getting any money back.

Do It in a Letter.

Phoning companies to ask to negotiate your debts isn't a good idea , it's too easy to get flustered and say the wrong thing. They're professional negotiators, and you're not. You need the advantage of having time to think, which is why you should always negotiate with them by post. Getting it in writing also means that you can hold them to what they say later on. Here's a sample letter:

"Dear Sir or Madam,

I regret to inform you that I can no longer afford to make my minimum payments of $100 per month on my credit card account with you (account number 111-222-333). I would like to request the closure of my account, followed by the settlement of the debt on a monthly payment plan. Please advise what kind of terms I could expect from such a plan.

Yours faithfully "

The Damage to Your Credit Report.

You will rarely be able to negotiate over your debts without doing some damage to your credit report. If you're willing to pay a bigger percentage of the debt, though, you might be able to persuade the creditor to say that it was paid off to their satisfaction, instead of recording that they accepted less than they wanted. It's up to you just how much you feel your credit report is worth , if you're planning on getting a big loan anytime soon, this could be something to consider.

By: Gregg Hall

In all the technical discussion you hear about credit card debt, the best ways to manage it and pay it off and all the rest, one thing goes largely ignored. Credit card debt is extremely stressful, and can have a very negative effect on your life, if you let it. It's as bad as an addiction, always hanging over you, bringing you down, making it hard to life your life the way you want to. In this article, we'll take a look at how you can recognize debt stress, and what you can do about it.

The Symptoms of Debt Stress.

There are an awful lot of symptoms that can be caused by stress. Some of the most common ones are: headaches, not being able to sleep, feeling depressed and irritable, and being forgetful and unable to concentrate on what you're doing. If you're not sure whether your symptoms are related to stress or something else, you should go and see a doctor.

Who Gets It?

Almost everyone who has debts is stressed about them. Debt is blamed for millions of days off work every year, and is one of the leading causes of suicide , it seems like most times you read about someone who has committed suicide, their name is followed by "who owed [a very large amount] in debts". Students and graduates are especially vulnerable, as debt is growing amongst them faster than in any other group.

The average adult owes many thousands in debts , and since that's the average, it means that many people must owe much more. Never forget that you're not alone, and there's always someone worse off than you.

How to Deal With It.

Stress caused by debts is often considered to be embarrassing, or shameful. People with lots of debts don't want to talk about it, even with their family, for fear of upsetting people or looking like a failure. It is very important, though, that you do talk about your problems, as keeping it all inside yourself will make you much, much more stressed. It is especially important that you talk to your partner , they are the number one person who can support you.

The best thing to do then is to find two people: one who can advise you, and one who can be a counselor. That means a professional who knows what they're doing in financial matters, as well as a psychologist or psychiatrist, or some other kind of counselor. Don't let stigmas put you off , this is about your health.

The next thing to do is to have a good think about how you got that debt to begin with. See if you can find old credit card statements. What did you spend the money on? You need to sit down, work out a budget, cut unnecessary expenses and try to free up as much money as you can to pay back debts. Even if it'll be a long time before you get everything paid off, knowing that your debt is gradually going downwards can be an excellent cure for debt stress.

By: Gregg Hall