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counselorDo you think credit counseling is the key to get yourself out of debt?

There are a lot of things that you can do to help your quest of becoming debt free. All of them will require you to change your ways as your debts evidently show that you are doing something wrong in your finances. It is important for you to determine the best debt solution that will get you out of debt because there is no one formula to debt freedom. You have to make sure that your financial situation is appropriate for that specific debt relief program. Some people have gotten deeper into debt because they chose the wrong solution for their credit problems. Try not to make the same mistake so you can reach your dream of becoming free from debt.

When it comes to credit counseling, it is an effective way for you to get out of that debt pit that you are in. But you have to make sure that your debt and finances  have the right qualifications to help you solve your credit troubles. According to USA.gov a credit counseling agency will help you negotiate with your creditors so you will be allowed to make lower payments. Then, they will help you send those payments over to the creditors based on the money that you will send them.

But beyond that definition, you need to ask yourself a couple of questions to determine if this is the right debt relief path that you should follow. There are two sets of questions that needs to be asked. One is to yourself while the other set of queries should be answered by the credit counselor.

3 questions to ask yourself before finding a credit counseling agency

Let us begin with the questions that you need to be asking yourself. There are many credit counseling benefits – that is true. But only if you have the right debt types or financial capabilities to complete your payment program.

Given that, what questions should you be asking yourself before you finally opt for credit counseling?

Is it possible for you to do this on your own?

In all honesty, this debt solution is something that the average consumer can do. It is still a difficult task to accomplish, but it is not rocket science. The trick is to have the negotiation skills that will make the creditor agree to change your payment terms. You are not negotiating for a debt reduction – which in essence is actually harder. You are only asking for your payment terms to be revised so you can afford your monthly payments. In most cases, what happens is you propose a longer payment period so you can stretch your contributions thin. That should make the monthly debt payment burden more bearable.

For some people, they may have the negotiation skills but if they do not have the time or the discipline to accomplish this, then hiring a credit counselor is usually the best option for them. Ask yourself if you can negotiate and commit to the payment program that you and the creditor will agree with. That is how you can decide if you can do this on your own.

Is this your best option?

The next question to ask is if this is your best option. Remember that you have other options before you like debt consolidation loan, balance transfer, debt settlement and bankruptcy. You need to determine if this is the best option by looking at your capabilities to pay off your debt. Unlike debt relief options like debt settlement or bankruptcy, there is no debt reduction in this debt solution. You will end up paying for everything that you owe. It is possible for the credit counselor to help you negotiate a lower interest rate – but that is never a guarantee. So make sure that you are capable of paying off your whole debt – even if it is for a longer payment term.

How will your credit score be affected?

You need to ask yourself – how will this debt solution affect my credit score. The good news is, credit counseling hardly has any effect on your score. That is because you will still pay your debts in full in the long run. And since you will be negotiating the payment terms, the creditor will not report you for late payments or default even if you pay lower than what you used to. At least, as long as the amount you are paying is according to what you agreed on in the debt management plan. Some creditors will report that you are currently going through a credit counseling program. That could affect any new credit that you are applying for. But if you finish the program without any problems, then it might not affect your score at all.

5 questions to ask the credit counselor

If the answers to the questions above are in favor of you using credit counseling, then you can go ahead and look for the credit counseling agency that you will use. These questions will help you stay away from debt relief scams, that unfortunately, are still out there waiting for desperate consumers who are burdened with debt.

Here are the 5 questions you need to ask the credit counseling agency that you will get in touch with.

Can you get the information for free?

If it is your best debt solution, then you need to ask if you can get the information for free from the credit counseling agency. According to the Federal Trade Commission website, FTC.gov, a reputable and legitimate credit counseling agency should have no problems sending you information about the company and their services for free. You do not have to provide any information before this is given. If they insist, then you may want to reconsider if this agency is sincerely after your debt freedom or are they only concerned about profiting from your credit problems.

Can you afford to pay according to the debt management plan?

The debt management plan contains your proposed payment terms – usually a lower monthly contribution that is distributed over a longer period. While you will be involved in creating this, it is still bound for the approval of the creditor. But even if that is true, make sure that you do not agree on a plan that you cannot afford. If you end up being unable to pay your debts, you might have the whole agreement terminated, and you do not want that to happen.

What is their procedure in paying off creditors?

In this debt relief program, the credit counselor will be responsible for sending your payments to your creditors. Make sure that their payment methods will not jeopardize the billing cycle of your credit accounts. The debt management plan that you will create should consider the actual schedules of your debts – unless this is part of what the credit counselor will negotiate with the creditors. It is possible to move your payment date after all – you just have to ask the creditor. Just like with the payments, if you miss the schedule that you agreed with the creditor, it will affect the debt management plan.

What fees do you have to pay?

In most cases, you should only pay a maximum of $50 a month for the service that you will get from the credit counselor. Some charge a certain percentage – just make sure that it is no more than 20% of the monthly payment that you are making. Otherwise, you should go and look for another agency to work with.

Who maintain full control over the account?

Even if the credit counselor is the one sending your money towards the creditors, you need to clarify that you will maintain full control of your account. After all, it is still your money. You should be free to get money from it if you want to. Of course, you have to consider the effects that it will have on your debt management plan.

In case you want a list of trusted credit counseling agencies, you may want to look at the accredited list in Justice.gov. This can be a great way to start your search for a legitimate company to work with.

couple discussing over documentsPaying off debt is a must for anyone who wants to improve their lives. Until you free yourself from overwhelming amounts of debt, you will always be held back by the money that you are wasting – paying for your credit obligations and the interest rates associated with it. Debt has a devastating effect to your future so you may want to consider tackling this financial problem before you make any other plans.

According to the latest household debt and credit development report published on NewYorkFed.org, the consumer debt increased by $129 billion in the first quarter of 2014. By the end of March 2014, the debt is now at $11.65 trillion. The biggest part of this debt still comes from mortgages at $8.17 trillion – which increased by $116 billion from the last quarter of 2013. There was also a considerable net increase in the mortgage balance of $233 billion. Next to this, student loans increased by $31 billion. Now, it has a total amount of $1.11 trillion. On a positive note, credit card debt and auto loans decreased to $2.9 trillion and $85 billion respectively. Not only that, the delinquency rate improved during the first quarter of this year. This shows that consumers may be borrowing a lot of money but they are also paying their dues on time.

However, you cannot erase the threat that comes with having a lot of debts. The total amount of credit is still rising. Even if consumers are paying on time, the fact that the balance is increasing and not decreasing puts us in a dangerous position. Soon, the balance might overtake us and make us unable to pay off our debts.

4 non-financial improvements after you get rid of your debt

Of course, we all know that paying off debt is not as easy as it sounds. But it is a necessary thing to do. According to an article from Bankrate.com debt does not only ruin your credit score and finances, it also affects your psyche negatively. It casts a shadow over a lot of areas in your life – your ambitions, confidence and even your relationships. The article even goes on to say that debt can suck out the happiness that you usually get from spending. At least, this is probably true if you are buying stuff using credit.

If you decide to pay your credit balance down, you will get a lot of benefits in your life. The great thing about it is, the benefits go beyond your finances.

In case you want some motivation to paying off debt, you should consider these 4 non-financial benefits to a debt-free life.

  • No stress. At least, you will not have a stressful relationship with your money. Debt brings forth all types of stress in your life that could lead to more serious health problems. If you do not have debt, you do not have to worry about payments that include high interest rates. People who do not have debts are considerably looking a lot better than when they have debts. By reducing the stress in your life, you can lead a healthy lifestyle that will lead you to financial success. That is because you are lowering your chances of getting illnesses that will require you to spend high health care expenses.
  • Secure family ties. Another benefit that you will get from paying off debt is family security. Believe it or not, a lot of marriages failed because of financial issues. After the Great Recession, it was obvious that the main financial issue of families involved debts. By eliminating the stress that debt brings into the household you are actually removing the same stress that could drive you all apart. You do not have to succumb to the blame game. Not only that, you can build your financial cushion so that your family will not have to suffer in case an emergency happens.
  • Better future. Once you have finished paying off debt balances, you will now be in a better position to build up your wealth. You can start saving more or investing so you can finally pursue your dreams. Debt holds you back because it gets you to waste money on interest. Now, you can grab opportunities that will allow you to improve your financial resources so your family can benefit from it in the future.
  • Allows you to be generous. Lastly, being free from debt allows you to become generous in your own way. Now that you do not have to allocate money to pay off debts, you can use some of that freed money to donate to those who are less fortunate than you. That alone will give you so much happiness and fulfillment that cannot be felt with the presence of debt.

An article published on Learnvest.com tells a story of this young woman who freed herself from $30,000 worth of debts. These were mostly credit card debts. When she was forced to face the truth about her financial problems, she decided that paying off debt should be her priority. She changed a lot about her life and habits. After being debt free, she realized she changed so much that she was not totally honest about what she really needed. She can now say no to a lot of her usual expenses and she did not feel deprived at all. She learned that delayed gratification is actually more rewarding in the end. Now that she got rid of her debts, she started saving and has quite an amount in her account. It made her feel good about herself and her future.

You see, the non-financial benefits of paying off debt is actually a lot more satisfying in the end. The lesson you will learn will not only make you wiser, it will also help you avoid a lot of the mistakes that you did in the past.

How debt elimination can help you grow your wealth

But even if the non-financial benefits are better, that does not mean you can underestimate the financial benefits of living a debt free life. To add to your motivation to pay off your credit obligations, here are a couple of things that you will enjoy financially if yo get out of debt.

  • You get to save more. The interest rate of debt is much higher than your savings. So if your extra money goes to paying off debt, then you know that you are actually saving a lot more than you think.
  • You are able to invest. One of the two factors that will help you accumulate financial wealth fast is investing. We have discussed previously that investing is one way for you to use the extra money that is freed by your debt payments. This is one of the direct ways that you can grow your money so it can start earning for you.
  • You are free to pursue opportunities. Not only can you invest, you now have the resources to pursue opportunities. For instance, you can now afford to travel – as long as you budget it properly. That is one way to help you relax and really enjoy your money.
  • You can now choose to use your money wisely. Lastly, after paying off debt, your money is not longer obligated to be sent to your creditors and lenders. You can choose where you want to use it without feeling guilty. You can not act on your fantasies and make your dreams into a reality.

Many investors are faced with a challenging dilemma of whether they should pay off some of their debts with excess cash or whether they should invest this cash further to see whether they can accumulate greater wealth. Paying off too much debt can reduce, if you pay off too much debt and reduce your power to influence a situation to achieve a particular outcome and may see them with not enough assets to retire. On the other hand if you do not reduce debt you could end up losing everything. Therefore when deciding whether to reduce debt or invest it is important to consider all investment options with the risks involved and your current cash flow situation.


Investment Options

With regards to the numbers the decision you make should be on the after tax cost of borrowing compared with the after tax return on investing. Therefore if you are in the 35% tax bracket and you currently have a 30 year mortgage with a 6% interest rate, you’re actual after tax debt is 4% as you are able to deduct mortgage interest from federal taxes.

Those holding a variety of investments in their portfolio that includes equities and fixed income, they could find that after tax return on the money that they have invested is greater than their after tax cost of debt. If you have a mortgage with a low interest rate and you choose to invest in riskier stocks, investing is the better option. Entrepreneurs may choose to invest in their business rather than reduce debt however those coming to retirement age with a more conservative investment profile may find this reversed.

Risk Tolerance 

When you are determining risk, it is important to consider the following:

  • Age
  • Income
  • Earning potential
  • Time horizon
  • Tax situation
  • Any other criteria that’s unique to you

If you are young and able to make any money you lose you are considered to have a high disposable income with regards to your lifestyle and you possibly also have a higher risk tolerance and able to invest more aggressively rather than paying off debt. However if you have concerns such as high healthcare costs you may also opt to not reduce debt.

You may decide though rather than investing your excess cash you will keep greater cash balances and fixed income investments. The longer you have until you stop working the greater the return that you could enjoy by investing rather than reducing debt this is because historically equities return 10% more pretax over a period of time.

The other component of risk tolerance is whether you are willing to assume the risk. For the aggressive investors they will prefer to invest rather than reduce debt. However if you are the opposite and cannot bear the thought of losing money through investments or having any type of debt you are best to reduce debt. This is a strategy though that can backfire whilst most investors think that reducing debt is the most conservative thing to do, pay off the debt but not eliminating it can have the reverse effect. The best example of this could be an investor who aggressively pays off his mortgage to a very low level is left with very little cash reserves if he then loses his job he will still need to make regular mortgage payments.

Cash and Debt 

It is advised by financial advisors that working individuals should aim to have at least 6 months worth of expenses to hand in case of emergency. It is also suggested that they have a monthly debt-to-income ratio of no more than 33% of pretax income. Once you have secured these then you can look to investing or reducing debt, as you will have that cushion should something unexpected appear.

The first thing you should do is to pay off any credit card debt as this type of debt is likely to carry an interest rate that is higher than most investment earnings. Reducing the debt will save on the amount of interest that you have to pay.

It is worth remembering though some debt such as a mortgage is not a bad debt. If you have a good credit rating the after tax return on your investments will probably be higher than your after tax cost of debt on your mortgage. You also need to take into account the tax advantages that are available on retirement investing, and given the fact that many employers match a portion of the employee contributions it makes sense to invest rather than reduce debt.


Knowing whether to reduce debt or invest will be dependent not only on the economic environment, but also on the state of your finances.  The best way to tackle this is to have reasonable financial goals and to evaluate the investment options along with the risk tolerance and your current cash flow.

college expenses chartCollege education should not be a problem for most people. However, thanks to the high college expenses, a lot of kids are doubting if they can really afford a higher education. An article published on NPR.org mentioned how President Obama believes that young people want to go to college but the costs are holding them back. The President made this statement during his speech at the Coral Reef Senior High School.

The truth is, some student get really supportive parents who took the initiative to save early for their child’s education. These are the lucky kids who do not have to worry too much about the cost of college. But not all students are lucky. Some parents just do not have the financial resources to save for college. It was not like they do not want to help. It is just that their income is not enough to accommodate extra savings for their children’s savings.

So what can both student and parents do to help their kids go afford the high college expenses even without savings?

What to discuss to your child about college costs

Well first things first, parents should sit down and discuss financial matters with their kids. But what exactly should you be discussing with your kid?

Where to go to school.

Begin by discussing where the student wants to go to. This can be your starting point. What do they want to take up and what school is the best for them to get the education they need. You can get information on that school so you will know the college expenses that you need to prepare for. If the school is expensive, you need to talk to your child about other options. You have Ivy League schools that are the top priority but a lot of state colleges give great education too. Even community colleges can be an option for students who do not have much money to pay for higher education. You need to discuss these options with your child. You can even get your education online if you want to.

What can you afford to pay.

You need to be realistic about where they can get their education. While student loans may be an option for them to afford any educational institution, it is just not practical. If you have another option, then that is what you should teach your child to pursue. According to an article published on NYTimes.com, the average tuition fee of private colleges is at $12,460 for 2013. For in state students in a public colleges, the rate is at $3,120. Going to Ivy League schools can be a dream but it is not always the best option. Besides, not everyone who graduated from these schools got a great life ahead. If you cannot help your child to pay for college, be honest about it. Some parents sacrifice their retirement just so their kids can go to school. While that is admirable, it is not the only way you can help your child get an education. You can both find a way to get your kid through college without compromising both of your futures.

What the kid should shoulder in terms of costs.

Lastly, you may want to discuss how your child can help pay for their own education. Even if you can share in paying for the college expenses of your child, you still have to discuss how they can help boost their finances. Check the options that they have in terms of jobs. They can get a part time job in retail or in restaurants. Some students get jobs in the universities and colleges that they go to. It helps lower their tuition fees. Discuss how much money they should target to earn.

Once you have discussed all three of these, that is the only time that you can determine if there is a need for your child to borrow student loans. Some people feel that it makes college education worthless but that really depends on the borrower. You can have your child borrow money – as long as they know how to manage it well. It is your responsibility to instill in them the right habits and behaviors that will get them through college without compromising their future.

Important habits to help your child manage college finances

The habits that you will be teaching your child for their college expenses is something that they will carry with them until they get older. So it is a great idea to help them become better financial managers at an early age. You need to encourage them to handle their money wisely regardless if you are supporting them financially or not. That way, they will feel responsible about every expense that they will make.

Here are a couple of habits that you should encourage your child to have.

  • Budgeting. First of all, you need to teach them how to budget. They should learn how to create a budget plan and how to revise that as their college expenses change every now and then. If they suddenly have bigger expenses for the coming month because of school expenses, then they should learn how to adjust their budget plan to ensure that their money can cover all the important expenses.
  • Smart Spending. Another habit that you should teach them is about smart spending. Even if they suddenly get a bigger pay in their part time job, they should not be too quick to increase their expenses. Instead, they should try to allocate that towards any student loans that they have taken. Or it can go to their savings.
  • Savings. Speaking of savings, you should teach your child how to save up for an emergency. Although you can send them money, there may come a time when that money will not reach them in time. They should have their own stack of funds that they can immediately access when they need to. That should help tide them over until your financial support can reach them. Make sure you teach them how to save up for the expenses for the next term. Anything can happen so they should learn how to prepare for any event that can face.
  • Earning Money. Lastly, you need to discuss with them how to earn money while in school. According to an article on TulsaCC.edu about the Federal Work Study, it is revealed that students usually only need 20 hours per week to be academically successful in school. We have 168 hours a week. That gives them 148 hours for other activities. Assuming that the student needs to sleep at least 9 hours a day, that is 63 hours less to 85 hours. For eating, chores, and other activities for their well being let us give 6 hours a day for that – which leaves a free time of 43 hours. Even if the student allots 20 hours for entertainment and relaxation, there is still 23 hours left. What better way to use that than to work. There is an option for Federal Work Study that can help students earn extra money to help get themselves through college.

Regardless if you can support your child’s college expenses or not, you may want to discuss all these options to them. At the very least, you can offer them your guidance. In the end, that may even be more valuable than any financial support that you can send them.

increase savingsIncreasing your savings is not the easiest task in the world. You will find that spending is easier than reaching your saving goals. This is probably why a lot of people are having a tough time boosting their funds in the bank.

But despite the difficulty, there are instances in our lives that we are required to save. For instance, if you wish to buy a home you need to save up for a down payment. According to an article published on MoneyTalksNews.com, approximately 1 out of 8 Americans are expected to have a six figure income in order to qualify for a home loan. At least, this is true based on the median price of homes for sale in the country. Obviously, this puts a lot of Americans at a disadvantage. In most cases, the median income in states is lower than the minimum income requirement for median priced houses.

However, the article explained that in order to make the minimum income requirement lower, homebuyers should do one thing – pay a bigger down payment. The bigger the down payment that you will provide, the lower home loan you have to borrow. That means the minimum income that you need to have can be lower too.

Unless you are waiting for some inheritance or big bonus, the only way for you to get this money is to save up for it. Since this down payment is a somewhat huge amount, you need to put some effort into increasing your savings. Otherwise, it will take you forever to finish completing your saving goals.

3 reminders when you feel discouraged about your savings

Having a saving goal is one thing. Reaching it is another. You may want to keep yourself from feeling discouraged because it will make you lose the motivation to increase your savings.

According to Statista.com, the personal savings rate of Americans, as of June 2014, is only at 5.4%. And in 2013, the American households who were able to save s only 53% of the population. Although the country is exhibiting signs of economic recovery, we all need to save to make our personal financial future more secure. In case something happens, you will not be as financially distressed as you will be if you do not have any savings at all.

But of course, you need to address the problem of a possible discouragement in the midst of your saving goal. Increasing your savings mean you have to make some sacrifices in your life. After all, increasing your extra money for savings would mean cutting back on expenses or spending more time at work. These sacrifices can affect your motivation to meet your saving target. If things get too tough, you might find yourself giving up altogether. And we all know giving up on your savings is not an option. Otherwise, you can say goodbye to that new home or embrace a lifelong servitude to debt.

In case you are in the midst of a saving goal and you feel discouragement creeping up on you, here are a couple of things that you may want to tell yourself.

Saving takes time.

First of all, saving really takes time. This is why consumers are always advised to start saving now. Regardless if you can only save a small amount, it does not matter. The important thing is to start on the habit of saving because that will accumulate into a big amount in the future. And when you look at your savings and you see only a small amount there, do not feel discouraged too. If you are only putting in a small amount, increasing your savings will naturally be slow going too.

Saving requires effort.

Another reminder that you need to tell yourself is that saving really requires effort. Even if you are earning a big amount, you will need to change something about your life if saving does not come naturally for you. It will either be your spending or your work effort. That is a given. You need to exert some time to boost your savings. It will not just happen unless you plan and execute it. The compulsion to spend is just too great that you will find yourself battling with yourself time and again. You have to get used to it until such time that you develop the right amount of self control.

Saving has future rewards.

Lastly, you have to focus on the fact that your savings have future rewards. You will not feel it now but you will reap it in the future. It may be that new home, a car, or your early retirement. These will only be felt in the future so you need to develop some patience. The earliest reward that you will probably feel is the satisfaction and security – knowing that everyday or every deposit that you make towards your savings will bring you one step closer to your goal.

Focus on these three reminders whenever you feel like giving up on your saving goal. These should give you the motivation to continue increasing your savings.

Tips to boost your savings

In case you want to speed up your savings so you can reach your goal faster, there are a couple of things that you need to do. After all, seeing how fast your savings are growing will give you that motivation to keep on putting money into your account. This motivation, once you have secured it in your mind will keep discouragement at bay and will not hinder you from your financial targets.

An article published on AllThingsFrugal.com mentioned that one of the reasons why some people fail at saving is because they feel they do not have enough. In truth, you will never feel like you have enough to save unless you decide on a specific amount to put aside. This is the most common excuse to not save. But just as we mentioned previously, a small amount is enough – as long as you are saving.

Here are a couple of tips to help you increase your savings.

  • Set a saving goal. When you are trying to improve something in your life, make sure that you set specific goals. A vague goal will not encourage you to complete it. But if you have a specific timeline and an amount on your list, your chances of reaching your goal will be more likely to happen.
  • Cut back on your expenses. If you want a fast option to increasing your savings, you may want to lower  your monthly expenses and put away the freed amount in your account. Technically, this is money that you already have. It is usually easier to pull back than to push forward anyway. So if the need to save more is immediate, this is an option that you may want to prioritize.
  • Earn more money. While the previous is the faster option to boost your savings, it is also limited. That is why you need to follow it up with earning more money – especially when the amount you need is significant.
  • Treat your savings like a bill. Lastly, you may want to treat your savings like a bill so you will never miss out on a contribution. A lot of people spend their money first and whatever is left will be put into their savings. In most cases, nothing is left at the end of the month. But if you treat your savings like a bill, you should be able to reach your saving goal soon enough.

Follow these tips and you will realize how increasing your savings is not really that complicate. As long as you are committed to the task at hand, it should all fall into place and you will soon have the amount that you need.