Friday, March 31, 2006

1st Step

Today, my weekly post is going to address the first step to become debt free. It is important to point out, that while I am typing this,I am also learning. The big thing of course, is changing our spending habits. Changing those habbits, can be the hardest thing, because we must stop using credit, but if you are like me (and most of you are), you are over extended and using credit cards to make it by. Obviously that is a losing battle, not to mention we are paying more for everything we put on credit, then we would if we would just pay cash. How do I figure? Well you are paying interest on top of what the retail cost is. For example you might as well add about $5,000 to the cost of your car, if you use credit to pay for it. With credit cards, if you pay the minimum payment on your credit cards, then you are likely paying for each item three times. Can you see how, it is better to pay cash? In the long run if we wait and pay cash, we will come out ahead of that person that has the "give it to me now," mentality and thus uses credit to get the items, just so they can impress their friends and family. Anyway more on that, in a latter post.

The first step is making the commitment to do it. First cut up all your credit cards, except one. Take this one credit card and put it in a metal can full of water and put it in the freezer. Why a metel can? Because metal can't be microwaved. In this way, you are forced to wait for it to thaw out, before using it. This is a period of cooling off for you. Often times, by the time the ice thaws, you will have changed your mind about using your credit card.

So let me ask, do you really want to get out of debt? Are you sure? Are you willing to discipline yourself in whatever ways might be necessary to achieve that goal? If you can answer yes to these questions, then let's get started. Check back weekly, for my weekly posts on becoming debt free and hopefully encouragement to stay debt free forever.

Saturday, March 25, 2006

Forget The Consolidation Loan Scams

Consolidation means paying existing debts with the help of a new loan with lower monthly payment and having longer repayment period. Consolidation loans help people to pay off their existing debts. Debt consolidation loans are helpful to pay-off credit cards, medical expenses, student loans and many others.

It is never, let me say that again, NEVER, a good idea to borrow to pay off other debt. Instead one must change their habits. That is stop being a spender and become a saver. Saving is the key. However, first a person must reduce their debt as soon as possible. When one debt is paid off, apply those funds to the next debt and then the next and so forth. Doing so will reduce your debt faster. Once you are debt free, and that means car and home loans as well as credit cards. (John Cummuta calls this the debt accelerator and Dave Ramsey calls it the debt snowball. No matter what you call it, it just makes since.) Put all the money you had been putting toward your debts into savings. Then never use credit again. If you can't pay cash, then you don't need whatever it is at that time.