Financial Advice: Part 8: Debt

part 1: creating a budget
part 2: living with a budget
part 3: fine tuning a budget
part 4: major purchases
part 5: investments and savings
part 6: retirement
part 7: wills and trusts

Debt
==

- most debt is caused by 3 mistakes

1. Making the wrong long-term commitment

- buying big ticket items; houses, cars
* buying too much house too soon

- don't apply for a mortgage until you can afford to make a 20% down payment
- make sure that your monthly housing costs take up no more than 38% of your net spendable income

* don't buy a new car

- if you can't afford to pay cash for the car you want, find a car you can afford
- buy used

2. Trusting an incomplete budget

- be extremely thorough when planning a budget
- prepare for the unexpected
- auto repairs, home maintenance, medical expenses, spur-of-the-moment shopping sprees
- emergencies

3. Buying when you shouldn't

- does not mean waiting for a "factory discout"
- wait for seasonal sales
- don't impulse buy
- budget it first

- getting out of debt

1. stop borrowing

- bank loans
- personal loans
- auto financing
- payment plans
- get rid of credit cards
- take action now, don't wait

2. Talk to an expert

- talk to a trusted financial counselor
- look around church
- ask your pastor
* working with your counselor

- tell your financial counselor everything about your finances
- don't try to make your financial situation look better than it is by keeping information to yourself or hiding certain expenses or debts
- be open to suggestions and new ways of looking at your finances and your daily living expenses
- don't be offended if your counselor says things that seem critical of your past financial dealings or decisions
- ask as many questions as it takes to help you understand the strategies your counselor suggests
- don't expect miracles
- don't expect legal loopholes

3. Set up a budget

- make a list of all monthly expenses
- prioritize your loans and financial responsibilities
- create a budget, setting aside enough of your monthlyl income to cover your expenses and start paying off your debt
- budget works only if you commit yourself to it
- don't skip a payment
- vow to pay double the next month

4. Develop new spending habits

- never spend money on anything that's not in your budget without first thinking about it for 48 hours
- always question yourself before you buy anything

- why do i want this
- why do i really want this
- how much use will i get out of it
- is this the best price i can get for it
- considering my financial situation, is it a good idea for me to buy this

- Staying debt free

1. identify your danger areas

- think about temptations, spending habits, attitude toward money and possessions that got you in trouble in the first place
- write down your expenses and put them in a place where you'll see them often
- accountability

2. enjoy your freedom

- compare the pressure of living in debt to debt-free living

3. master your plastic

- credit cards allow debt to creep back in
- set strict guidelines about what you will and won't use the plastic for

- never use credit card to buy what's not in your monthly budget
- always pay the entire credit card bill each month
- if you can't pay the entire bill, cut the card and kill the account