Debt Consolidation Loans » financial tips

Why You Shouldn’t Delay Debt Repayment Until Inflation Hits

Staff Writer — Fri, 24 Sep 2010 18:08:40 +0000

The common belief is that inflation benefits consumers in debt because it devalues the dollars being repaid. The borrower, now the debtor, was able to spend the lender’s money at full value but repays is at decreased value due to inflation. If this logic is followed, the higher inflation rises, the better things are for borrowers. However, this is not necessarily the truth.

If the debtor holds any debt with an adjustable interest rate, the repayment will most likely increase with inflation. In addition, if the debtor’s income does not increase at a pace to match the inflation rate, the problem may worsen. Inflation causes the monthly living expenses of the debtor to increase by the inflation rate. If the individual has not received a pay raise, the amount of available discretionary income decreases. In addition, that discretionary income will purchase less than what it did when inflation was lower.

The debt repayment may represent a lower percentage of monthly living expenses during a period of inflation. However, this serves as little solace when discretionary spending power decreases. The only way debtors benefit from a consumer perspective is when their income increases to keep pace with inflation.

Some consumers may even carry the “inflation good” situation so far as to take on more debt during inflationary periods. They do not stop to consider the decrease in their discretionary spending power that could occur. If the individual does not receive a pay increase, he or she may slip even further into debt.

Those who have debts with adjustable rates of interest should be proactive and pay off their debts before inflation hits. Individuals with large amounts of debt should consolidate their outstanding bills into a low-interest rate loans. Anyone in debt should take steps to pay it off prior to an inflationary period to increase their discretionary income.

How Deflation Is Making Debt Worse

Staff Writer — Mon, 20 Sep 2010 20:45:46 +0000

Everyone knows that inflation is generally bad. However, what about deflation? A decline in prices should be good, shouldn’t it? The answer, unfortunately, is no. Deflation is the result of a reduction in the money or credit supply or decreased personal, investment, or government spending. It can result in increased unemployment, declining profits, and increasing loan defaults.

The situation faced by many debtors becomes worse during deflationary times. Falling prices worsen their position because the real burden of their debts is increased. When debt burden rises, debtors reduce their spending. This can actually perpetuate a depressed economy, forcing it into a recession.

During deflationary periods, it is not just prices that fall. Wages experience a decline as well and when coupled with mass unemployment, this means that individuals accept lower wages rather than facing unemployment. Someone with outstanding debt may now be making even less money than before, which can worsen his or her financial situation.

Value is stripped from debtors during periods of deflation. The purchasing power of their debt increases by the amount of deflation. For example, a debtor who repaid a $100,000 debt in a period of ten percent deflation provides a creditor with purchasing power, or value, of $110,000. The debtor is repaying the debt with deflated money that holds ten percent more value than the money that was borrowed.

This difference between value and price is not something that the average debtor considers when paying off debts. The debtor does not even recognize what is happening. The largest debtor in the world, the U.S. government, dislikes deflation because it enriches the creditors, in this case American citizens. Even worse, from the government’s perspective, it robs the government of value. Just like inflation, deflation is harmful to an economy based on debt. Inflation chases money out of an economy, leading to deflation, and the vicious circle continues.

The Best Ways to Get Out of Debt

Shaun Connell — Fri, 21 Aug 2009 18:31:26 +0000

The best way to get out of debt is to stop making new debt. Creating new debt while paying off old debt is like digging a hole and trying to fill it at the same time. The first step to not creating more debt is to create a budget. Not a “how I spend my money” budget like everyone tells you to do but a “how I must spend my money” budget like you should do.

See all those old bank statements you have lying around? Throw them away. The money is gone. Let it go. That is the past. Now you’re moving forward and being smart with your money.

The first step to your “musts” budget is finding all your bills for the current month whether you’ve paid them already or not. If you don’t pay your bills bad things happen. So itemize them in a list with the minimum amount that is owed this month ordered by the day of the month they are due.

Split them into two periods: the 1st through the 14th and the 15th through the end of the month. Add up the total bills you owe each period. If you are paying at lot more in one period than the other see if you can adjust when you pay the bills to balance it out more.

Now you know exactly how much you “must” spend each month and when all the money is going to be taken out of your bank account. The second step is to figure out how much you are paid in the two bill periods.

Add up all the income you make from the 1st through the 14th and from the 15th through the end of the month. Subtract the amount you must pay from the amount of money you make in each period. If it turns out you make more than is needed to pay the bills each period you are not broke. You are wasting money.

Now, all you have to do is make it through each day without spending money you don’t need to be spending. Take at least some of the extra money and make extra payments on debts Pretty soon your debts will be paid off and you’ll have even more extra money each month.

All because you stopped creating new debt and maybe even found some bills that you could do without or reduce. Like cell phone contracts and overpriced cable service.

Once you stop adding new debt you can move on and focus on paying off your debt consolidation loan, your credit card debt and work towards getting out of debt completely.

5 Tips for Getting Out of Debt

Shaun Connell — Fri, 21 Aug 2009 15:34:14 +0000

Americans are feeling the credit crunch and that sinking, pitiful feeling of being in debt. But worry not. Here are five easy and quintessential tips that average, hard-working Americans apply that can energize your financial confidence and get out of debt.

1) Credit Crunching

Very simply, tear up those credit cards that don’t give you any discounts. The more you get rid of the better, for the less likely you will use them. Finally, if you’re debt comes from accumulated credit because of interest rates, your best bet is to pay each card monthly by setting aside a savings for that card.

Some cards average interest rates of 21%, which can take quite a toll on your expenses if you do not watch out. So take an overall look at your credit debt and figure out a plan of action for each card, write it down, and carry it out monthly with patience and fortitude, and soon those debts will be a memory.

2) For Big Debts

If you are paying multiple huge debts, refinance a loan with your home as collateral and pay off all the individual debts with that loan. Now all of your debt is portioned into one controlled debt and entity, making it easier to pay off. Of course, be wary of interest rates on loans; anything over 10% will compound your problems and will only trade a small debt for a larger one.

3) Living Expenses

Some expenses such as car notes, groceries, utilities, and other such debt-inducers are easy to fortify if you are willing to make some sacrifices. The reason most people stay in debt, in fact, is because they refuse to change the things that are hurting them financially.

So very simply, if that car note is too much and you can do without it, go ahead and use public transportation, then sell that car for a fair price.

4) Debt Helpers

On T.V. many adds are posted for companies that help get rid of debt. If you’re bold and at your wits ends, go ahead and use these companies. But for safety, call the Better Business Bureau and understand their practices before you apply for a debt consolidation loan, for example.

5) Bankruptcy

A final debt terminator is to file bankruptcy with your attorney or a local attorney of your choosing. Although most Americans cringe at the thought of this, it really can decrease your likelihood of incurring more interest-based debt, and removes the previous debt.

Top Tips for Saving Some Money

Shaun Connell — Fri, 21 Aug 2009 15:30:15 +0000

Money always seems to the topic of a lot of discussions lately. How can I make some money, what is the fastest way to make money, and how can save the money that I do have. It seems like it is incredibly easy to spend money no matter how much we didn’t want to. Money really does seem to be like one of the hardest things to earn and then burnt through like it was nothing.

When it comes to saving money, we all think that if we spend a little less here and not go an a vacation this year we are going to save a lot, but in reality we probably are not. There are more things that people can do to help them save money, you just have to know how and where to look.

The first thing that a person may want to do is take the time to look over their finances and see where there money is going. You may be able to cut back on things such as your utilities. Gas, electricity, phones(s) and other things that really can take quite a chunk of your paycheck. By taking the time to look over them and eliminate things that you really do not need like the extra HBO channels then you can save quite a pretty penny on the monthly expenses.

When it comes to shopping for groceries and other personal items, take the time and shop around and compare what stores are offering. One store may be offering an item way cheaper than another. You may even want to try clipping coupons as they can save a person on the average up to $50 off their weekly grocery shopping bill. You may want to consider buying some items in bulk.

Stores such as Sam’s offer many items that can be bought for great prices in bundles of two or more. You can store the items until you get ready to use them and many vegetables keep pretty well for a couple of months along with freezer items. Make sure that when you go to a grocery store, you only buy what you wrote down you needed. You may realize you are buying way to much of certain items and that you can cut back on them.

There are many ways for people to save money. By sitting down and exploring all possibilities you never know what you can achieve. Saving money should be easy, not hard. Looking at every possible solution to saving money could help you save up to hundreds of dollars each month.