9 Essential Steps for Financial Survival

You can set yourself up for success with your money by employing these 9 simple steps for financial survival. Plus get 5 quick tips for lessening expenses!Managing your money well doesn’t have to be a complicated process, and you don’t have to earn a degree in finance to learn how to be financially savvy.

It is absolutely possible to live a comfortable, financially fit lifestyle, and it’s a worthwhile endeavor for obvious reasons.

There are several essential tools that financially successful people employ, and if you want to get ahead with your finances and live well, you need to implement the following steps for financial survival.

1. Spend Less Than You Earn

The most obvious rule of thumb when it comes to surviving financially is to spend less money than you earn. It sounds simple, and it is, because it’s the only way to save money and to live within or below your means.

If you’re charging your expenses on credit cards that you can’t pay off at the end of the month, then you’re spending more than you earn to sustain a lifestyle you can’t afford.

If you have to charge it, then you can’t afford it, period. Cut up your credit cards or freeze them in blocks of ice, if that’s what it takes.

[bctt tweet=”If you have no choice but to charge something, you can’t afford it.”]

Spending less than you earn might be a difficult step to take, but it’s crucial if you want to take control of your finances and save some money.

2. Track Your Spending

In order to spend less than you earn, you first have to know how much you’re spending each month, which means that you have to track your spending.

It may seem daunting initially, but it doesn’t have to be difficult. There are many ways you can do this.

You can pay everything via a debit or checking account for an easy way to track expenses. If you prefer cash, you may have to write every charge down on paper (or record it on your phone or computer), or save all the receipts to sort later.

There are online resources to help you as well, like the free website Mint.com.

The way you choose to track your spending isn’t important. Just take charge and actually do it. You won’t have any idea how much you’re spending unless you track it first.

3. Hold Yourself Accountable

Once you can see clearly on paper (or screen) how you’re spending your money and what you’re spending it on, hold yourself accountable and don’t make excuses for your purchases.

Be honest with yourself about how much you spend on everything, whether it’s cigarettes, bar tabs, clothing, shoes, your Starbucks habit, or your inexplicable dedication to collecting beanie babies or cat posters. (You know you’re out there!)

Whatever it is, acknowledge it. We all have our weaknesses!

4. Make a Budget

From there, make a budget. It doesn’t have to be a fancy budget, and you don’t have to be a whiz at Excel to do it. You don’t even need a computer to do it.

Many first time budgeters appreciate an all-cash budget to start with. The all-cash method is easy because once the money’s gone, it’s gone.

If you overspend in one area, you have to pull the cash from another area, so there’s really no way you can fudge this kind of budget.

It’s fool proof (and beginner proof!).

5. Make Adjustments

This is where it might get tough because you may have to make some spending cuts. You might have to give up an expensive hobby or a financed toy that you pay out the wazoo for, mainly to keep tucked away in your garage. (A motorcycle, an old convertible, a boat — I’ve been there.)

Adjust your lifestyle if you must in order to get your spending under control so you can gain some breathing room and start saving some money.

The goal is to rid yourself completely of consumer debt if you have any, and never step foot into it again.Once your debts are paid off, you can focus on socking away all of that extra money (which is way more fun than paying off debt!).

6. Spend Less or Earn More

If you find out you are spending too much, you have two clear options: spend less or earn more.

I enjoy my free time, so I always tend to think the better option is to simply spend less, but if you really think you can’t make any further cuts, consider other ways to make additional money.

Side hustles are hugely popular these days, and it can be fun to try to turn a hobby into a money-generating business if you’re able.

You could consider freelancing in your field to earn extra money, opening an Etsy shop, or picking up weekend work such as babysitting, mending clothing, or mowing lawns.

There’s no shame in creating an extra income stream for yourself. Creating a side hustle you enjoy could be more exciting for you than simply taking on a second job.

7. Live Below Your Means

The only way to live a comfortable financial life and save money on the side is to live below your means.

Many people don’t live within their means (since it’s the American way to live off of credit), but that kind of lifestyle will catch up to them eventually.

If you aren’t living below your means, then you aren’t saving any money, and that’s a great way to set yourself up for financial ruin, such as bankruptcy.

If you have to pay off some debt to gain some breathing room in your budget for savings, work on doing it now rather than later. Then, work on that budget and stick to it no matter what.

[bctt tweet=”Need a crash course in financial survival? Follow these 9 simple steps to secure your future.”]

8. Start an Emergency Fund

An important step to setting yourself up for financial survival is to create an emergency fund if you don’t already have one.

The amount you need in your emergency fund is dependent on what makes you comfortable and what you can afford to set aside. The general rule of thumb is always 3 to 6 months of living expenses.

It’s also a wise idea to keep this fund completely separate from your other checking and savings accounts. It needs to be harder to get to so you aren’t tempted to spend it on things that aren’t really emergencies.

What constitutes an emergency? You need a clear definition of what counts as an actual financial emergency, especially if you share your expenses with a spouse.

A sale at your favorite store does not count as an emergency, but the hot water heater going out in your home probably does, as does a job loss.

If you do have to empty out your emergency fund for any reason, make replenishing it a priority as soon as you’re able.

9. Determine Your Bare Bones Budget

In the event of a job loss, it can also be practical to determine your bare bones budget.

As its name implies, a bare bones budget is the minimum amount of money you can get by on per month. You may even want to base your emergency fund off this amount (multiplied by 3 to 6 months).

Start by taking your regular budget and removing all unnecessary expenses. Expenses that should remain are mortgage/rent, utilities, grocery bills, debt repayment, etc.

Cable bills, clothing expenses, dining out, and entertainment need to be put on hold until your financial situation is back on track.

Quick Tips to Survive a Financial Rough Spot

What happens if you’ve done none of this and you’re in a tight spot now? Here are a few tips to get you started.

Just Say No to Credit Cards

Do your best not to charge anything on a credit card if you’re in a financial emergency, unless you can afford to pay it off in full at the end of the month.

It will be so much easier to get back on track in the near future if you aren’t funding your life with credit cards today. Avoid it at all costs.

Don’t Borrow From Your Retirement Accounts

Anytime you withdraw money from your retirement account, you’re hurting your future self and setting yourself up for some major tax penalties now.

A withdrawal from tax advantaged accounts typically means you’ll not only pay taxes on it today, but you’ll also pay a 10% early withdrawal penalty. It’s not worth it.

Get Creative with Your Grocery Bill

Get as creative as you can with your grocery bills, and try not to buy unnecessary items if you can (soda, sugary snacks, chips, processed cereal, and general junk food). It maybe be cheap, but it adds up and you can live without it.

Shop the far recesses of your pantry and freezer to use up items you’ve had for a while. It may result in some interesting meal options, but creative dinners like this will help you save a ton on groceries. Just remember, it’s only short term!

[bctt tweet=”In a financial bind right now? Here’s 5 super quick tips on how to reduce your #expenses!”]

No Eating Out or Shopping

Absolutely no eating out or shopping, as in none, period.

Eating out always costs more than making your own meals at home, so cut this expense if you’re experiencing a financial rough spot.

The same goes for shopping. You probably have enough clothing in your closet to last you years, so there’s no excuse to buy any clothing right now.

Stay at Home

Last but not least, if you’re currently in a financial bind, simply stay home (unless you’re searching for a job).

It’s the easiest thing you can do to save money, and it will help you from being tempted to spend money on entertainment and food if you are out and about.

Staying home will also greatly reduce the gas bill for your car. (Just avoid that online shopping temptation.)

Whether you’re in a current financial emergency, or simply trying to prepare for a future financial crunch, sometimes it’s not always going to be easy to save money.

During those tough times, remind yourself why you’re doing it. Put a note in your wallet and one on your refrigerator if you have to.

Remember, you’re trying to help yourself by giving yourself a better financial future, and that is absolutely worth it.

What do you do to prepare for a financial emergency or give yourself a secure financial future? 

This article by Robin McDaniel first appeared on Everything Finance and was distributed by the Personal Finance Syndication Network.

The First Credit Card With an On/Off Switch

Have you ever misplaced your credit card, but weren’t sure if it was truly lost or stolen? When this happens, you may want to cancel your card, but then you know that you will have a lot of inconvenient problems to deal with. On the other hand, you might continue to look for the card, by which time a thief could be going on a spending spree with it.

But now, one credit card offers customers a third option when they want to temporarily disable their account without declaring their card lost or stolen. The Discover card now has an option called Freeze it that allows cardholders to suspend their card when it is misplaced.

How Freeze it works

Cardholders can now go to the Discover website or mobile app and place a freeze on their account, or by calling Discover. This triggers a freeze on new transactions including cash advances and balance transfers, but does not affect any telephone, Internet or automatically scheduled bill payments. This feature is available on all versions of the Discover it card, all of which have no annual fee.

Without this feature, cardholders who choose to cancel their credit cards won’t be able to make any online or telephone transactions, as their account will be completely frozen, not just their physical credit card. In addition, they will have to wait until a new card can be printed and physically delivered to them. Also, those who have set up automatic bill payments will have to contact each biller, cancel the payment, and provide them with a new card number.

Other Possible Uses for Freeze it

While Discover is promoting this feature as a way to combat potential fraud without reporting a card lost or stolen, it is conceivable that cardholders could use this feature in other ways. For example, some credit card users have taken to actually freezing their credit cards in blocks of ice in order to help control overspending, rein in their debt and boost their credit (you can see how your credit card spending is affecting your credit scores for free on Credit.com). Freezing their account in this manner could be a more practical alternative, yet the impracticality of melting a large ice block is part of the attraction of the original method.

Using Freeze it might also be a way for a primary cardholder to temporarily cut off their authorized cardholders. Let’s say that you have made one of your family members an authorized cardholder, but you wish to temporarily rescind those charging privileges. Freeze it would accomplish that goal, however the cardholder would still be able to make online and telephone transactions, while you as the primary account holder would also be unable use your card in person.

Other Ways to Avoid Reporting Cards Lost or Stolen

As mobile wallet providers gain traction among credit card users, we could see a time when loss or theft of physical credit cards become rare. This will result in both more convenience for cardholders and fewer expenses for credit card issuers, who must print and mail out new cards, often using an overnight delivery service. Furthermore, the addition of EMV smart chips has increased the cost to manufacture new credit cards from around 10 cents each to more than a dollar.

Finally, cardholders must also be aware that they are always protected from fraudulent charges by the Fair Credit Billing Act, which limits their liability to a maximum of $50. In practice, nearly all credit card issuers waive this limit by offering zero liability policies.

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

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This article originally appeared on Credit.com.

This article by Jason Steele was distributed by the Personal Finance Syndication Network.

The One Graph That Explains Why a Good FICO Score Matters for Homebuyers

When it comes to buying a home, there’s a lot more to the process than just finding an affordable home for sale and having enough money for a down payment. Most people need loans to finance such a large purchase, but even as the housing market has rebounded from the foreclosure crisis and low property values of 2010, mortgages remain very difficult to acquire. A report from the Urban Institute, a Washington-based economic-policy research group, concludes that 1.25 million more mortgages could have been made in 2013 on the basis of conservative lending standards practiced in 2001, years before the housing bubble began to inflate.

Whether or not a lender approves a borrower for a mortgage depends on several factors, like income and outstanding debt, but looking at the credit scores of mortgage borrowers during the last several years shows just how tight the market has been post-recession. Here’s how it breaks down.


The Urban Institute estimates that the stringent credit score standards for mortgage origination resulted in 4 million mortgages that could have been made (but weren’t) between 2009 and 2013. From 2001 to 2013, consumers with a FICO credit score higher than 720 made up an increasingly large portion of borrowers, from 44% of loans in 2001 to 62% in 2013. Consumers with scores lower than 660 made up 11% of borrowers in 2013, but they represented 28% of home loans in 2001.

The study authors note that their calculations do not account for a potential decline in sales because consumers may not see homeownership as attractive as it had been before the crisis.

“Even so, it is inconceivable that a decline in demand could explain a 76% drop in borrowers with FICO scores below 660, but only a 9% drop in borrowers with scores above 720,” the report says.

On top of that, the authors found that tightened credit standards disproportionately affected Hispanic and African-American consumers. In comparison to loan originations made in 2001, new mortgages among white borrowers declined 31% by the 2009-2013 period, 38% for Hispanic borrowers and 50% for African-American borrowers. Loans to Asian families increased by 8%.

Millions of Americans are still feeling the impact of the economic downturn on their credit scores, because negative information like foreclosure, bankruptcy and collection accounts remain on credit reports for several years. Rebuilding the credit and assets necessary to buy a home takes time, particularly in such a tight lending climate, but by regularly checking your credit — which you can do for free on Credit.com — and focusing on things like keeping debt levels low and making loan payments on time, you can start making your way toward a better credit standing.

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This article originally appeared on Credit.com.

This article by Christine DiGangi was distributed by the Personal Finance Syndication Network.

How a Church Tried to Evict a Woman From Her Home

One doesn’t usually think of a church as the sort of organization that would work to kick a woman out of her home, but that’s what happened to a woman in Springfield, N.J. Donna Maxwell has lived in a trailer there for 28 years, but she hasn’t paid the taxes on it in a few years, so there’s a tax lien against the property.

Here’s where the church comes in: FS Properties 194, a company created by Fountain of Life Christian Church of Florence, N.J., bought Maxwell’s lien as part of its investment strategy, according to the Times of Trenton. Fountain of Life foreclosed on the property, on which Maxwell owes more than $50,000 in back taxes (the annual tax on her property is about $2,400), and sent Maxwell a notice that the county sheriff would arrive at her home to remove her from the property on April 22. Maxwell told the Times of Trenton the church is working with her on a plan to help her stay, and she believes she will not be evicted on that date.

One of the church’s companies, Mercer SME Inc., was the subject of a class-action lawsuit brought by homeowners alleging Fountain of Life bought tax sale certificates and sold them to what the lawsuit called “shell companies” (a term the church disputes) like Mercer SME to disguise the church’s involvement, the Times of Trenton reported. SME Mercer pleaded guilty to violating anti-trust law, and it settled the class action suit for $250,000.

The church reportedly stopped buying tax liens and tax sale certificates as part of its investment portfolio in 2012, and in a March 1 letter to its congregation obtained by the Times of Trenton, the church apologized and said it should never have been involved in such practices.

“Several years ago, the Fountain of Life Church began the process of divesting itself from its tax lien portfolio,” Steve Spadaro, a member of the church’s Board of Elders, said in a statement to the Times of Trenton.

The frequent buying and selling of debt can make the issue very confusing for a consumer. Whenever a person or company claims you have a debt, ask for verification of that debt in writing — that’s one of your many consumer rights in the debt collection process. Things like collection accounts, tax liens and judgments have a seriously negative impact on your credit standing for many years, so while they may be confusing and difficult to address, it’s important that you don’t ignore them. You can get a free credit report summary at Credit.com to see if any of these negative items are affecting your credit. You can also get free annual credit reports under federal law at AnnualCreditReport.com.

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This article originally appeared on Credit.com.

This article by Christine DiGangi was distributed by the Personal Finance Syndication Network.

The Airlines With the Most Passenger Complaints

If you feel like airline service is slipping, that’s because it is. In fact, it has slipped back to levels not seen since the recession, according to a new “Airline Quality Rating” report out this week. The rating considers four factors most important to travelers: on-time performance, involuntary bumping, mishandled baggage and complaints. Only Virgin America, Alaska and Hawaiian upped their game last year, according to the study, while all other major airlines offered worse service.

University professors Brent Bowen (Embry-Riddle) and Dean Headley (Wichita State) have conducted the research using Department of Transportation data for 25 years, and found that performance levels have sunk back to where they were in 2009, during the Great Recession.

“The Airline Quality Rating industry score for 2014 shows an industry that declined in overall performance quality over the previous year. As an industry, performance in 2014 was worse than the previous four years,” the authors say. “Of the 11,364 complaints registered with DOT regarding all U.S. domestic carriers, 62.7% were for either flight problems, customer service problems, or baggage problems.” Overall, complaints skyrocketed 22% in 2014.

So which airline attracted the most complaints? To adjust for airline size, the authors published a rate of complaints per 100,000 passengers. The industry average was 1.38 for 2014. At the “top” of the list is Frontier and United. Alaska and Southwest attracted the fewest complaints. These stats aren’t a fluke: Alaska also had the fewest complaints per 100,000 in 2013, while Frontier and United had the most last year, too.

The Most Complaints per 100,000 Passengers

  1. Frontier 3.91
  2. United 2.71
  3. American 2.12
  4. Envoy 1.59
  5. JetBlue 1.17
  6. Virgin America 1.14
  7. ExpressJet 1.01
  8. Hawaiian 0.89
  9. SkyWest 0.84
  10. Delta 0.72
  11. Southwest 0.53
  12. Alaska 0.42

Frontier didn’t immediately respond to a request for comment.

“I’m not surprised by the latest results,” said consumer travel advocate Chris Elliot, who operates Elliot.org. “Airline passengers are fond of referring to the industry’s customer service record as a race to the bottom. These numbers leave little doubt that the race is far from over.”

The results also reveal a backslide from improvements that airlines had made since the recession, Elliot said.

“These numbers suggest that the uptick in customer service was only temporary,” Elliot said. “The study is a big disappointment, both for airline passengers, and also for me personally. I had really hoped the industry had begun to turn a corner.”

Airline tickets can come with big price tags, which can be especially rage-inducing if you’re bumped or experience customer service issues. You can eliminate some of the cost by using airline rewards credit cards to earn free flights, free checked bags and even upgrades (here are a few of the best airline miles credit cards on the market). But be sure you don’t spend your way into debt just to score a freebie — rewards cards are best used by cardholders who pay their balances in full every month.

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This article originally appeared on Credit.com.

This article by Bob Sullivan was distributed by the Personal Finance Syndication Network.

Are Credit Union Credit Cards Better?

There are so many kinds of credit cards, it can be hard to sort through them and determine the pros and cons of the kinds of plastic you have (or want to have) in your wallet. Chances are the institution you use to manage your finances has some sort of credit card offering, but that doesn’t mean you’re limited to their products. It’s always a good idea to shop around for the best deal you can get, whether you’re looking for a new credit card, an auto loan, a mortgage or anything else.

If you’re weighing credit card options from a large bank or a credit union, there’s not really a difference, as far as product function goes — applying for a credit card results in a hard inquiry on your credit report (which causes a minor, temporary hit to your credit score), and your balances and payment history on the card will be reported to the major credit reporting agencies. The fundamentals are the same, so you’ll only want to spend a small portion of your credit limit before paying it down (keeping your balance at less than 30% of your limit is a good benchmark), and you should always make payments on time, even if you’re not paying in full.

The difference between a credit card from a credit union and one from a retailer or bank is often the interest rate, according to Jason Steele, a frequent contributor to Credit.com on credit card issues.

“Credit unions can have lower rates and fees in some cases,” Steele said via email.

Based on Informa Research Services data pulled on April 14, platinum credit cards from credit unions have an average APR of 8.87%, compared to the 10.36% average APR of platinum cards issued by banks. The Credit Union National Association provided Credit.com those figures.

“On a $10,000 balance, for example, a consumer would save $150 per year for having a card at a credit union,” said Mike Schenk, vice president of Economics and Statistics at CUNA.

Average annual fees and maximum late fees were also lower than the averages from bank-issued credit cards.

The biggest obstacle most consumers face in getting a credit union credit card is that you have to be a member of that credit union, which requires you to meet certain qualifications laid out by that union. Schenk said many of these cooperatives have eased their restrictions for membership in the past 30 years.

If you’re the type of credit card user who carries a balance or occasionally uses cards to finance big purchases, looking at cards from a credit union may offer you the best options for saving money. At the same time, if you’re looking at rewards, you need to compare more than just interest rates and fees. It really depends what you’re looking for in a credit product. (You can get a sense of what a good credit card looks like by checking out the winners of our Best Credit Cards in America series.)

“I think the main thing is if you’re in the market for a credit card, do a little shopping,” Schenk said, “[and] include a credit union in those shopping plans.”

Opening up a credit account isn’t a decision to make without doing a bit of research first. When applying for new credit, you should make sure your credit is in good shape to maximize your chances for approval. While lenders may use different credit scoring models, reviewing a single score over time will give you an idea of how your behaviors affect your credit standing and roughly where you fall in the spectrum of credit-worthiness. You can see two of your credit scores for free every month on Credit.com.

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This article originally appeared on Credit.com.

This article by Christine DiGangi was distributed by the Personal Finance Syndication Network.

Beth’s Story: Should I Consider Bankruptcy?

For more than a decade I have used a fairly specific approach to help people find their way when struggling to keep up with their bills. I generally focus on six mainstream options to deal with debt, including filing for bankruptcy, debt consolidation loans and negotiations with creditors and debt collectors. Once I gather some basic facts about an individual’s income, expenses and debts, and rule out conventional wisdom approaches, I can usually narrow down the workable solutions to one or two realistic options.

I have conducted thousands of debt relief consultations by phone. And this past week, after receiving a fairly detailed reader question, I exchanged emails that I am sharing (with permission) in a four-part series about how you can self-assess your situation and determine the path to better managing, or even eliminating, your debts.

Here is the initial reader submission from Beth (not her real name):

Hi Michael. I’m desperate and need advice ASAP.

I got laid off in January 2012 and haven’t had a stable job since then. I’ve always made the minimum payments in time, and used my savings and help from family to keep up with the payments. I just got a temp job in February 2015.

Here are my debts:

Chase (2 cards) = $12,320 – min. pymt. $246 13% interest
Citi (2 cards) = $11,035 – min. pymt. $247 12% interest
BofA (1 card) = $7,180 – min. pymt. $144 14% interest

I called chase and they said I may qualify for BLP (balance liquidation plan) at 0% for 60 months min. payment $174, or settlement.

I have only 1k now but I’m making about $1,750/month after taxes. My current living expenses are around $1,100. Then I pay $246 to chase; $247 to Citi; and $144 BofA. I’m looking for a second job; this temp job is supposed to last for 4 months not sure if it will turn into a permanent. In a year or two I may be able to save some money or get money from family and try a settlement.

I can no longer make the min. payments, I need to get back on my feet, buy a car, get health insurance but the credit cards are killing me. I can’t make the min. payments next month so I’m trying to find a good solution before late payments/no payments kick in and the situation gets worse. THANK YOU SO MUCH IN ADVANCE

Here is my initial email response to Beth:

Okay. I want to compare some numbers and time frames for you.

Can you afford to pay $550 toward your credit cards each month based on today’s income and expenses? Now consider whether you can commit to that for 50 or so months. If you had job security, it would be easier to say yes, right? But with a temp job, the confidence just is not there.

I do not see your monthly payments working out with hardship payment, and balance liquidation plans. The monthly reduction available is not likely to go any lower than the $550, and maybe even closer to $580 a month.

Now look at negotiating and settling all three of your accounts. A fair estimate would be 40% of the totals, so roughly $12,000 to resolve them all. You can take two years saving that up at the rate of $500 a month. How long it takes to pay settlements that can be negotiated has always been a factor in my evaluation of workable solutions. And two years is at the end of where I would recommend settling debt. There are a host of reasons for the time frames I choose when negotiating settlements. I will focus on two:

  1. When you’re not paying your credit cards you are subjecting yourself to the recovery and collection policies of the banks. And banks may choose to sue in order to collect at some point. Debt buyers to whom the banks sell accounts could also sue you to collect. You have the risk of being sued at all stages of debt collection. The sooner you can save up money to settle each account one by one, the quicker you are able to eliminate the risks of being sued. You can settle when sued for collection, too, but that can complicate the rest of your strategy if you still have other remaining accounts to negotiate.
  2. After filing Chapter 7 bankruptcy, which can often allow you to eliminate all of the credit card debts for a total cost of $2,000 (often much less), in two years or so your credit could be in better shape, enough for you to be able consider financing a home. There are reasons to avoid or delay bankruptcy, but the impact Chapter 7 will have on your credit is not a good enough reason when compared to the time and cost it will take to negotiate and settle, or consolidate debt for a lower monthly payment.

So far, with the little information I have to go on, Chapter 7 bankruptcy may be the better option for you when it comes to affordability, risk, time and peace of mind. There are many other things I would want to weigh before choosing to file Chapter 7. Your age, health, industry you work in all can have an impact on the direction you decide to take to resolve your credit card bills.

If your employment were stable, the choice to continue paying for 50 to 60 months by consolidating your bills would be much easier to make. But taking that step now, when you have no idea whether you will be able to make your lower payments four months from now, could be throwing away money that could be used to pay settlements, or that would have completely paid for Chapter 7 bankruptcy.

When you mentioned help from family members, what did you mean? Can you borrow money to pay for settlements? How soon would that be a possibility?

Why I Asked These Questions

The first thing I did was consider whether the credit card bills could continue to be paid based on a consistent income, and they can’t. And trying to consolidate debt in this situation, where finances are sinking, is often akin to shuffling deck chairs on the Titanic.

Roughly 70% of credit card debt consolidation repayment plans are not completed, according to a study by the National Consumer Law Center and Consumer Federation of America. That is not to say that many people fail. Many drop out because they are able to manage the rest of the way through repayment without help. But a large number of people drop out of these plans because they were not a good profile for success. And often because they convince themselves they can do something that mathematically just will not float.

In the next installment, you will see how Beth is beginning to focus on negotiating lower balance payoffs, while still considering other options, like 0% interest balance transfers that can become a trap. You will begin to see that negotiating lower payoffs with creditors, while not complicated, has a learning curve.

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This article originally appeared on Credit.com.

This article by Michael Bovee was distributed by the Personal Finance Syndication Network.

There’s No Such Thing As a Free House, Even When You Win the Foreclosure Battle

Some homeowners are emerging from the housing crisis with “free houses,” according to a recent article in the New York Times.

According to the article, some homeowners are seeing the foreclosure cases brought against them dismissed because lenders missed key deadlines or because the statute of limitations has expired (here’s a nifty guide on states’ statutes of limitations on debt collection). Commenters vociferously debated whether these homeowners should be congratulated for winning their battles against their lenders or vilified for shirking their financial responsibilities.

In truth, the chance that most homeowners who fight foreclosure will walk away owning their homes free and clear are slim. They are “similar to unicorns,” says consumer law attorney Troy Doucet who practices foreclosure defense. “Their sightings are incredibly – incredibly – rare.”

Attorney and CPA Jo Ann Koontz also warns that there is a lot of confusion around this issue. “People think having a foreclosure case thrown out or having the lien released means the debt has gone away,” she says. “That’s not always the case.”

Even when homeowners “win,” there may be complications.

The Tax Aftershock 

Canceled or forgiven debt can result in the issuance of a 1099-C to the homeowner — here’s a primer on how a 1099-C for canceled debt can increase your tax bill.

Under the current Tax Code, most canceled debt must be reported as income unless the borrower qualifies for an exclusion or exception. Taxpayers in this situation may qualify for the insolvency exclusion or the Mortgage Forgiveness Debt Relief Act exclusion, which will allow them to avoid taxes on all or part of this income. But if they don’t, they could find themselves with a big bill from the IRS.

“Anytime the debt is canceled a 1099-C is issued,” says Koontz, who noted that she and her colleagues have been getting panicked calls from taxpayers who thought they automatically could avoid taxes on canceled mortgage debt, but found out that wasn’t necessarily the case.

A Home in Limbo

The Times article warns that lenders may place liens on these homes so that when the property is eventually sold they will be paid from the proceeds. A lien on the home could remain indefinitely. Doucet explains:

The lien would remain on the property until the client had it removed, unless the bank agreed to voluntarily remove it. If the bank didn’t voluntarily remove the lien, the homeowner would almost certainly need to file a quiet title action to remove it. However, ‘free houses’ are so rare, I doubt any recorder’s office would allow the release of the mortgage short of a court order. Even if the recorder did have it removed, future title companies would likely be uncomfortable issuing title insurance without a court order.

Koontz agrees that just because the debt goes away that doesn’t automatically mean the lien does. Legally, she says, “If the debt is forgiven then the lien goes away.” But from a practical standpoint it may not be so simple. She says borrowers in this situation should ask the lender to file a release of lien or satisfaction, which will remove the lien from the property and the public record.

As far as credit reports go, defaulted mortgage loans may appear on consumer’s credit reports for seven years from the date they were charged off. You can get your free annual credit reports on AnnualCreditReport.com and you can get a free credit report summary every month on Credit.com.

If the lien remains, the homeowner is in some sense getting free “rent” rather than a free house. If the home’s value appreciates, the homeowner could sell the home, pay off the loan and still walk away with cash in his or her pocket. But if it remains underwater it’s a different story.

In the meantime, the homeowner will still incur costs, including homeowner’s insurance, taxes and maintenance. That still may be a bargain compared to rent in many cases, but it’s a far cry from walking away with a free and clear title to a property.

And it could be worse, Doucet warns. If the lien is determined to be valid, interest may continue to accrue, “eating away any equity on a compounded interest basis.” He warns that homeowners could also end up spending significant time and money trying to get the lien removed through litigation. Says Doucet: “Thus, that free house doesn’t really end up being free.”

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This article originally appeared on Credit.com.

This article by Gerri Detweiler was distributed by the Personal Finance Syndication Network.

The Real Savings of Making Coffee at Home

It’s almost as much of a savings cliche as checking out books at the library instead of buying them: Making coffee at home is a big money saver over going to Starbucks.

It seems like a no-brainer that making coffee at home is a lot less expensive than paying someone else to make it for you, whether that’s at Starbucks, Peet’s or your local doughnut shop. It’s an easy way to bash Starbucks — which I still visit too often while still making my morning coffee at home — by pointing out the obvious savings.

Pretty much anything you do at home is going to be a lot cheaper than going out for it. That includes meals, washing clothes and growing your own produce.

What I wanted to do, after talking up the savings of making coffee at home for years, is actually add up the costs and see if it’s really worth your time. If the savings isn’t too big, such as within a dime or so, you might as well save some time and go to Starbucks or wherever each day for your cup of coffee. Your time is worth money, but sometimes it’s worth it to pay someone else to do the service for you. That’s partly how restaurants stay in business.

Before I get into the costs of how I make coffee at home, here’s a video lesson from Matt Giovanisci of Roasty Coffee (which isn’t quite yet a live site, though you can sign up for updates) on my preferred method of using a French Press:

I should point out that I’m not getting paid by Roasty to promote it, but think it’s a great idea.

The costs

A French Press can cost $20 to $50. I’ve bought a few of the $20, 8-cup Recycled Coffee Press by Bodum. I say “a few” because while they’re dishwasher safe, they’re made of glass and shouldn’t go on the bottom rack. Put them up high in the dishwasher, where there’s less chance of breakage. Continue reading The Real Savings of Making Coffee at Home

What to Do With an Extra $1,000

Having an extra $1,000 in your bank account can seem like a small windfall that can easily be spent. A quick vacation, expanded wardrobe or a few fancy dinners out can deplete that extra $1,000 in a few months.

But long-term savings can turn that extra $1,000 into thousands more, protecting you in retirement, as an emergency fund or as a down payment on a car or house.

I’m focusing on this extra $1,000 figure because it’s roughly the amount I wrote about recently that could be saved by making coffee at home. The annual savings was $1,077.12, to be exact, for one person, and $2,154.24 per couple.

I asked financial experts, mostly financial planners, for their ideas on what to do with that extra $1,000 to $2,000 other than spend it.

Try automatic transfers

The trick, however, is to put aside that extra $1,000 or so saved each month by making coffee at home. As anyone who has tried to save money probably realizes, any savings from eliminating an expense can easily get lost in your checking account and be spent elsewhere. But automatically transferring $90 a month to a savings account or some other account will easily get you to that extra $1,000 annual total.

And $1,000 can be just the start. For a couple, saving $167 per month will add up to $2,000 in a year.

If you have a federal tax refund coming, you could put it all into savings and start earning money on it immediately. The average tax refund is around $2,500, according to the IRS.

What to do first

Each person’s financial situation differs, but there are some first steps to take with that extra $1,000-$2,000 before saving it, says Kate Holmes, a certified financial planner:

  • Pay off credit card debt first, and put the extra money you’re saving toward the principal.
  • Boost your 401(k) retirement plan savings if you’re not already taking full advantage of your 401(k) match. Then you won’t have that money in your take-home pay to tempt you as you pass coffee shops!
  • If you’re saving for a big trip or fun adventure, set up automatic transfers to savings each month to supercharge that account.
  • Look at each line item in your expenses and ask how much happiness it brings, Holmes says. You may find other areas to easily cut back, freeing up more money for your “maximum happiness” items.

Here are some ways to save that extra $1,000 or more: Continue reading What to Do With an Extra $1,000