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September 28th, 2009:

Breaking the Debt Spiral of Credit Cards

If you’re struggling to pay credit card debts, you’re probably feeling that you should never have started using credit cards, and that you’re somehow a bad person for getting over your head in debt. You’re not a bad person, and credit cards themselves are not bad.

One of the first things you’re going to have to do, in order to get out of your debt spiral and get your life back on track, is to understand that you are not a horrible person. It’s important that you understand this, so you can get out of your depression and despair enough to move forward and start getting yourself out from under all of this debt.

Almost everyone uses a credit card these days. No one intends to get in trouble. You, like everyone else, just allowed things to literally spiral out of control. Whether your credit card problems were caused by impulse spending, an emergency or a decrease in income, what caused it doesn’t matter.

At this point, you need to start looking forward and identify some ways that you can break out of the pattern of behavior you’re in.

Diagnosing the problem is the first step. Can you pay all your bills, even if it’s a struggle? Are you paying only the minimum on credit cards? Are you paying off credit cards with other credit cards? You need to understand how serious the problem really is, before you can know what to do about it.

If you’re able to pay all of your bills, but it’s a struggle, you may qualify for debt consolidation, or some credit counselors may be willing to help. Others will not speak to you until you’re a month behind on at least one payment. If you’re behind on your credit cards, cancel the accounts, cut up the cards, and seek credit counseling if possible.

Whether you work with a credit counselor or not, your first goal is to cancel all your accounts so that you don’t incur new debt. The next step is to make a plan for paying your creditors, and send them a letter explaining what you will be paying until the debt is cleared.

Many debt reduction experts suggest putting 20% of your income toward your debts, giving each creditor a proportional payment. When you pay one off, you add that money to the other payments.

While creditors will not like being told that they’ll receive an amount less than the minimum on your statement, many will not take you to court, as long as you do what you agree to do. They may put this on your credit record, but at this point, your credit record is not a big problem. The goal here is to get out of a growing mound of credit card debt and begin to get your life back on track.

The important thing to understand, in trying to get out from under crippling debt, is that you have to take care of yourself and your family, too. You can’t live on nothing. You need to create a plan that gives a portion of your income to your creditors, because you do owe the debt. But make sure you’re taking care of your own needs first, because your health and your family come first.

Breaking Out of the Debt Spiral of Credit Cards

If you’re struggling to pay credit card debts, you’re probably feeling that you should never have started using credit cards, and that you’re somehow a bad person for getting over your head in debt. You’re not a bad person, and credit cards themselves are not bad.
One of the first things you’re going to have to do, in order to get out of your debt spiral and get your life back on track, is to understand that you are not a horrible person. It’s important that you understand this, so you can get out of your depression and despair enough to move forward and start getting yourself out from under all of this debt.
Almost everyone uses a credit card these days. No one intends to get in trouble. You, like everyone else, just allowed things to literally spiral out of control. Whether your credit card problems were caused by impulse spending, an emergency or a decrease in income, what caused it doesn’t matter.
At this point, you need to start looking forward and identify some ways that you can break out of the pattern of behavior you’re in.
Diagnosing the problem is the first step. Can you pay all your bills, even if it’s a struggle? Are you paying only the minimum on credit cards? Are you paying off credit cards with other credit cards? You need to understand how serious the problem really is, before you can know what to do about it.
If you’re able to pay all of your bills, but it’s a struggle, you may qualify for debt consolidation, or some credit counselors may be willing to help. Others will not speak to you until you’re a month behind on at least one payment. If you’re behind on your credit cards, cancel the accounts, cut up the cards, and seek credit counseling if possible.
Whether you work with a credit counselor or not, your first goal is to cancel all your accounts so that you don’t incur new debt. The next step is to make a plan for paying your creditors, and send them a letter explaining what you will be paying until the debt is cleared.
Many debt reduction experts suggest putting 20% of your income toward your debts, giving each creditor a proportional payment. When you pay one off, you add that money to the other payments.
While creditors will not like being told that they’ll receive an amount less than the minimum on your statement, many will not take you to court, as long as you do what you agree to do. They may put this on your credit record, but at this point, your credit record is not a big problem. The goal here is to get out of a growing mound of credit card debt and begin to get your life back on track.
The important thing to understand, in trying to get out from under crippling debt, is that you have to take care of yourself and your family, too. You can’t live on nothing. You need to create a plan that gives a portion of your income to your creditors, because you do owe the debt. But make sure you’re taking care of your own needs first, because your health and your family come first.

Read the blog http://www.zero-out-my-debt.com for the latest tips and information on debt reduction and how to get out of debt.
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BJB: A Rule To Rule Your Debts

It is essential that you get in control of your finances from an early stage – but does that mean not having any debt? When is it right to take out a new loan?

Quite often when I speak to people in debt I find that they didn’t know what they should or shouldn’t borrow money for. They could benefit from this simple but very powerful rule for their personal finances. It allows them to plan, feel in control and not resent their debts. Quite often it is the feeling of not being in control that gets people down.

This nice simple rule has worked for me for years and helps to decide what you can and cannot afford, when it is right to borrow and when it is not.

It draws from my economics background and my professional accountancy training – but despite that it’s very simple!

Accountants talk about things such as “amortisation” and “useful economic lives”. This means that if you buy an asset such as a building or piece of equipment the cost gets spread over several years – over its “useful economic life”.

Economists have a different language (you may have noticed!) and they talk about ‘utility’ – ie the satisfaction you get from consuming a particular product or service.

But what has this got to do with debts and loans?

Well my simple rule comes from both of these concepts combined.

The result is what I call the rule of “Benefit-Justified Borrowing”!

Of course being an economist at heart, I shorten this to the “BJB” rule.

So what does it mean? Quite simply this: only borrow money to fund something that will continue to give you some satisfaction or benefit over the life of the loan that is funding it.

In other words borrowing should only be justified by the benefits that will flow to you in the future from what you have purchased.

Think of it like this – you are buying a reservoir of satisfaction, benefit or enjoyment that will last for several years and this is the reason that you can justify a loan to fund it. To the economist you are deferring your consumption and you are deferring the funding of it. A perfect match!

That’s all a bit abstract – so let’s look at some examples:

Buying a house – it’s unlikely that you can pay cash for it – so you have a mortgage. This fits the BJB rule because you will derive benefit from living in the house over the life of the debt.

Furniture – let’s say that a piece of furniture will last you for 10 years and you fund it by a loan. Again this fits the BJB rule very well. The next question is how long the loan term should be. You could choose to have a loan over any period up to 10 years, although in reality you would probably want it to be less than 10 years – as it would be sensible to take into account what the furniture might be worth in the future. If it was likely to be worth nothing after 5 years then this would be the sensible maximum term of the loan.

Vacations – this is a great example. Many people go on vacation and thoroughly enjoy it but then have expensive credit card debts for months afterwards. This is where the resentment can kick in – you get to a point where you are desperate for the next vacation but can’t afford it as you are still paying off the last one! This is depressing – and cancels out the original enjoyment!

If you follow my BJB rule you will never fund a vacation with debt because when you are paying off the debt you are no longer getting any satisfaction or benefit from the purchase you have made – the vacation is over.

This is where good old-fashioned discipline comes in – save up first for things that do not have a future benefit.

Imagine you have followed the BJB rule. You are going on vacation, knowing that it is all paid for, with cash in your pocket in accordance with the budget you have set. You can go away with a clear conscience to enjoy a relaxing break – and then when you come back there is no debt hanging over you to pay off!

The last example is your usual day to day living costs. You will hopefully realise that this would not meet the BJB rule! It should never be funded by debt. If you are building up long term debt to fund your day to day food and living costs then you urgently need to address this issue and should seek some help and advice without delay.

So does this rule mean never use a credit card? Not at all – short-term loans can have their place – but it does mean only use it when you understand how you will pay off the debt.

So like all good rules the BJB rule has this one exception. Occasionally it is necessary to use short-term debt such as a credit card to get over temporary and short-term cash-flow difficulties. Life rarely goes according to plan and you may just be a month away from having completed your savings plan.

A good example is back to the vacation – clearly it would be ridiculous to cancel it because you were short of savings by one month! Using a credit card means that you don’t have to have saved up every last penny before packing your cases.

However using a credit card should be in the context of a solid plan to pay off your debt within a couple of months of your vacation. You have already mentally spent that money for the next month or two.

Clearly this exception to the rule is about a small shift in timing and is quite different from building up medium to long-term debt that is not benefit-justified!

So from now on follow the “Harper BJB rule” and match the debt to your enjoyment and you shouldn’t resent a debt again!

Copyright (c) 2006 SimplifyLoans.com

Learn How A Personal Debt Consolidation Loan Can Do For Your Financial Situation

It’s all too much. You’re so deep in debt you don’t know what to do about it. Have you considered a personal debt consolidation loan? No matter how bad things seem, as long as you have a job, you can consolidate your debts and reduce your monthly expenses. If you are trying to juggle a number of credit card payments every month plus other personal or consumer debt, you’ll certainly understand how stressful a large debt burden can be. A personal debt consolidation loan could provide you with a reasonable solution to a whole lot of trouble.
Apart from the very real personal difficulty of high debt cost, a very real challenge faced by people struggling under its burden is sheer embarrassment. You need help, but you don’t know who you can trust. You certainly don’t want your private business discussed over other people’s dinner tables. This fear can leave you in limbo; needing to take action but too afraid to do it. A personal debt consolidation loan could be your personal door to financial freedom – and no-one needs to know.
Having said that, however, if you could relax your guard a little and allow yourself to trust someone (let’s say, a financial or debt counselor) you might be able to get some much needed help to improve your circumstances. A good debt counselor could help you find the best personal debt consolidation loan to suit your individual circumstances. Additionally, once the much needed rescue operation has been finalized, he or she can help you create an effective short term budget and long term financial plan that will support you in improving your financial position over the long haul.
It must be said, however, that a personal debt consolidation loan should not be considered in isolation. If you consolidate debt but do not cancel your credit cards once their balances are paid out, you are asking for trouble. Be strong, and cancel your credit cards to avoid future problems and just make sure that your budget includes savings for emergencies. You might just have to become very creative in how you find money when the credit card option is not available to you. But hey, in the long run you’ll be the winner!
A personal debt consolidation loan will be able to help you improve your financial circumstances if you are burdened by multiple debt payments, but only if you are prepared to do the required personal work on yourself. You did not become embroiled in the sticky tentacles of debt as an unwilling victim of fate. No matter what the catalyst, you made decisions that created your current circumstances. Unless you are willing to admit your own part in your financial meltdown, how do you expect to change your future? This means that unless you are willing to admit your mistakes and change the way you deal with things, you are probably going to repeat the same mistakes in the future.
You can solve your immediate debt burden with a personal debt consolidation loan, but in the long run you will have to change your financial behavior if you want a better life.

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