How to Do a Debt Snowball

Debt can be a very stressful and even suffocating circumstance. Many people have no idea how to even go about tackling their debt; and consequently, their debt continues to grow and compound until either John debtor does something about it or it crushes him. The best way to reduce your debt is through a debt snowball, and I am going to show you how.

Debt Snowball Explained

The reason for doing a debt snowball is that if you were to pay the minimum balance on all your debts you would end up paying an inordinate sum of money to each creditor; everyone knows this. Some people, however, try to pay $50 above the minimum payment on each debt. While this will get you out of debt faster than paying the minimum, this too is ineffective. The debt snowball method takes that extra $50 dollars for each debt, combines it, and throws it at one debt at a time. This way, you pay off that one account fast, and you can now add the minimum payment from that account to the snowball, making it larger and better able to pay off the next account. The idea is that with each account the amount grows larger like a snowball rolling down a hill.

Determine the Type of Snowball

There are two commonly-used methods for doing a debt snowball: smallest balance, highest interest. By choosing the smallest balance, you are choosing to take the weakest debt, in essence, and attack it. After paying off this debt you can then add the minimum payment from this debt to the snowball, making the snowball larger to attack the next smallest balance.
If you choose to pattern your snowball according to highest interest debts, then you are choosing to take out the most detrimental debt first (i.e. the one that creates the most compound interest against you). Both methods are effective, and whether one or the other is better depends on the individual. I recommend that you go to www.download.com and download a free program called “The Debt Reduction Calculator for Excel 1.0,” which will allow you to see both scenarios and determine which is best for you, and you can even print off a payment schedule.

Determine Snowball Amount

The next step will be to determine the snowball amount. This amount is the disposable income you have left over in your budget after you have accounted for all other payments. Many people will try to live frugally during the time of their debt snowball. This will definitely increase the speed by which you pay things off; but if you’re one of those people who cherishes a lavish lifestyle, you can still get out of debt without living on macaroni and cheese. Remember, your snowball will grow as you pay off each account. The key is to have your money accounted for on paper and stick to the snowball plan. If you’re unaccustomed to budgeting, this will be a good opportunity for you to learn a new skill

Pay off Debts One at a Time

The great thing about a debt snowball plan is that it gives you understanding, a light at the tunnel as it were, of how you can actually get out of debt. My wife and I have used this method successfully to pay off our two cars and our credit cards. The best part is that with each debt you pay off, it will get easier to tackle the remaining debts, and you will feel a comforting sense of possibility towards your remaining debt.

Is there a Way to Get a Free Credit Report

Reader Question

There are a million sites that claim to offer a free credit report, but they are just trying to sell on a service. Is there anywhere where you can actually get a free credit report?

Yes. There absolutely is. All three credit bureaus, by law, have to give you one free copy per year. They have created a site called annualcreditreport.com. If you go to this site, you can get a free copy from the three bureaus.

Outside of this website, which I think is what you were looking for, federal law allows you to get a free credit report under other circumstances such as after you have been denied credit or if you are unemployed. If you are interested in these "other" circumstances, you can find them in the Fair Credit Reporting Act or in my book.

Understanding the Credit Crisis

If you want to understand the basics of what caused the credit crisis that we are now experiencing, watch this video:

There are, as I see it, two overarching causes of the credit crisis: 1) greed and 2) well-intentioned but misguided liberal lobbyists.

Greed

Greed sufficiently describes the actions of the thousands of mortgage brokers and the bankers who became so eager to push mortgages through that they would either fraudulently fill out the mortgage application or persist on more deals being underwritten.

Liberal Lobbyists

The liberal lobbyists are well-intentioned because they believe that they are doing a great thing by advocating that everyone should have a right to own a house, but they are misguided because the fact of the matter is not everyone is qualified to own a house. These persons should rent. To force the issue causes a false market that will inevitably crash, causing everyone who is qualified to pay for the non-qualified.

Who Pays

The most painful lesson of this credit crisis is that regardless of who is responsible for the crisis, we all suffer. Because we all suffer, we must be vigilant to ensure that we don't repeat our mistake. I'm not suggesting that we impose governmental regulations on banks. What we should have done is recognize during the Clinton administration that by forcing banks to give subprime mortgages we were sowing a credit crisis. Instead of allowing greedy banks to be bailed out, we should allow them to fail. In short, the government played a huge role in either initiating the problem or not allowing the guilty to reap what they had sowed.

ehealthinsurance Saved Me $100/month

Whenever I find a company that provides an exceptional service or product, I don’t mind advertising for them. In the last month, like most of us, I’ve been trying to cut expenses where I can. I decided to start looking into different companies for health insurance because I felt like I was paying too much. It didn’t take me long to get frustrated because everyone wants you to submit your information, and they will have a sales representative call you to go through the entire sales spiel before they’ll give you a quote.

So, I was pleasantly surprised when I went to the website for ehealthinsurance and found that after inputting very basic information—date of birth, state of residency, etc., they were able to pull up quotes from every major company that offers health insurance in my state. There is no sales process, no “you’ll be contacted soon,” they just gave me the quotes and all the details for each policy. I was able to browse each policy and found one that offers identical coverage as I had for $100 less each month. So, I recommend that everyone check out their site and see if you can save some money as well. Here is the link:

eHealthInsurance

What the Bible Says About Personal Finance

The Bible is a well-known spiritual guide, but how many of us have looked through its teachings with regard to personal finance? What does it say? Here’s a list of scriptures from the Bible that, if followed, will help you grow your personal wealth.

Keep a Budget

Proverbs 27:23: "Be diligent to know the state of your flocks, and attend to your herds."

When you fail to keep a budget, your income has a way of disappearing. You must be diligent in keeping track of your incomes and expenditures. Plan your expenses with your spouse. Do it as soon as you receive your paycheck. Make sure every dollar is accounted for and that no dollar is spent on an unplanned expenditure. Yes, it takes a lot of effort. Yes, you might fail one time or many times, but you need to keep at it until you master this principle. Anyone who can effectively keep a budget will slowly and surely get wealthy, even if he/she doesn’t have a glamorous, high-income-earning job.

Save Money, Be Prepared

Proverbs 21:20: "In the house of the wise are stores of choice food and oil, but a foolish man devours all he has."

The vast majority of Americans live maxed out, paycheck to paycheck, not able to afford to stop working for a moment. We can’t stop working even for a moment because we have bills and interest accumulating. The above scripture tells us what he already know: such behavior is foolish. Don’t spend every dime you make. If you’re not putting money away, you’re not getting ahead; you’re creating for yourself a very tough situation which will almost inevitably lead to a long life of labor followed by financial ruin when you can no longer work.

Be Conservative with Large Purchases

Proverbs 24:27: “Prepare thy work without, and make it fit for thyself in the field; and afterwards build thine house.”

Many people all over the world have lost their homes and ruined themselves financially because they did not follow this advice. Ask yourself: how safe is my income? Will it decrease during a time of recession? If so, how much? After you’ve asked yourself these questions, only then should you decide to buy a home, and you should make sure that you can sustain your mortgage payment when your income is at its lowest. Don’t be the person who buys a larger house than he/she can afford because you’ll work overtime to increase your income. You’ll slave away for your house until something happens to lower your income, in which case, you’ll lose the house.

Get Out of Debt:

Proverbs 22:7: "The rich rules over the poor, and the borrower is servant to the lender."

Romans 13:8 "Owe no one anything except to love one another, for he who loves another has fulfilled the law."

When it comes to staying out of debt, perhaps the best example is ironically a church. The LDS church operates with zero debt, and while so many entities have been devastated in this current recession, the LDS church remains nearly unaffected. Having no debt, it matters not to the church when credit tightens, and the example of LDS church shows why this so important. To be financially free and independent, we must free ourselves from debtor’s obligation. I personally think that becoming debt free should be the central focus of every family seeking to become wealthy. That being said, I would also like to state that I understand that debt is necessary at times in our lives. To buy a home or to get an education are two worthy endeavors that for most will require debt, but those who do get in debt to get a house or to grow their education and training should focus intensively on paying down that debt in the shortest amount of time possible. Debt is bondage. Use it wisely for worthy purposes; otherwise, avoid it. Be debt free and you will be independent of anyone or any market condition; you will truly be free.

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Should You be Refinancing?

On April 3, 2009, Fannie Mae sent out a press release that refinancing volume reached $77 billion in March—the company’s largest refinance month since 2003. Now is a great time to refinance; perhaps you should look into refinancing your home as well.

Why Everyone is Refinancing

The main catalyst for all this refinancing is the mortgage rate. As I publish this, Lending Tree, one of the most popular refinance companies, lists the current Prime Mortgage Rate is 4.78% on a 30-year fixed mortgage on a single-family, primary residence. Dropping from a 6-7% interest rate to 5% will save hundreds each month and thousands over the life of the loan.

Help If You’re Upside Down

Typically, there is no refinance help for someone that is upside down in their loan. HOwever, Fannie Mae has a current initiative called the “Home Affordable Refinance” initiative that allows home owners to refinance up to 105% of the home value. This allows a small window for people who are upside down in their current mortgage.

When is Refinancing a Good Idea

Just because interest rates are great, it doesn’t necessarily mean that refinancing is a good idea. One of the major setbacks will be the closing costs. Expect 2-3% of the home value to be charged in closing costs. While this is negotiable, most firms aren’t going to cut much off. One possible way to avoid closing costs is to refinance with your current mortgage company. Many times they can waive part or all of these fees.

Calculate the Break-Even Point

So, assuming that you have a $150,000 home and you are considering a refinance loan, you have to expect roughly $4,500 in closing costs. Decide how much money you’ll save at the lower interest rate and how long it will take to recoup the closing costs with the money you save each month. This will give you a good idea of whether you should go ahead with the loan or not.

For instance, in the current scenario, if the homeowner will be saving $200 dollars per month, the break-even point would be 23 months. Next, you'll need to consider how long you'll be staying in the house. If it's only one more year, this scenario doesn't make much sense. However, if you'll be retiring in this home, then you need to jump on this opportunity because rates simply won't go much lower.

If this is the right time for you, then contact your lender soon to begin the process. If you'll be looking for a new lender, I recommend Lending Tree, and I'm providing a link below. With one application, they show you four different offers, allowing you to compare the banks' offers and choose the best option for you.

Four Ways To Save Money

With a worldwide economic recession in our laps, many of us are looking for ways to save money. You may be surprised to know that there are some cuts you can make around the house that don’t require a whole lot of effort. Here are four easy tips that will save you a little money each month.

Renegotiate Subscriptions

If you are paying each month for subscription services such as alarm systems, phone service, Satellite TV, or Cable, then you can probably save some significant cash by renegotiating your service. Most of these types of services have a high profit margin and the companies would rather make less than lose you. Just tell them that you’re not sure you can afford to pay the monthly payment and are thinking of canceling and watch them slash prices.

Disconnect Electric Devices When Not in Use

You have probably heard that Electronic devices continue to suck energy after you’ve turned them off, if they are plugged in. You can save a lot of money by unplugging your electronic devices when you are not using them. This does require some effort, but the easiest way to do this is to use power strips, so you can unplug multiple devices with one plug. It might sound like a hassle, but doing it will cut down your power bill substantially. The Organization for Economic Cooperation and Development estimates that standby power accounts for 3-4 percent of residential electricity use. The average American household uses 920 kwh per month. That means the average American household could shave off nearly 40 kwh per month by disconnecting devices when not in use.

Saving money doesn’t always require large sacrifices; you can save a substantial amount by implementing a few of these simple ideas.

Get Generic Prescriptions and Food

If you haven’t started using generic drugs, you need to start right away. You’ll get the exact same drug for a fraction of the cost. According to the National Association of Chain Drug Stores, in 2006 the average retail price of a generic prescription drug purchase was $32.23, while brand-name drugs went for an average of $111.02. The same idea can be applied to food. Don’t be afraid to buy the off-brand item in your local grocery store. Much of the time, they are produced and packaged at the same site and just receive different labels. Because off-brand companies typically do not advertise, their costs of production are cheaper.

Reduce Temperature Setting on Your Hot Water Heater

Most of us have our water heaters dialed in at a scalding temperature, and we have to turn up the cold water to keep from burning ourselves. You may not have realized it before, but you are paying to keep that water heated 24 hours a day to a temperature that is hotter than you need. Turn it down and save yourself the money. Expect a 5% drop in energy consumption for your water heater for each 10 degrees you drop it. A lot of people have their water heaters set at 150 degrees or higher. Try it at 120. It won’t affect your shower, but it will affect your wallet.

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Any Negative Item Will Be Deleted After Seven Years, Right?

Wrong. While it is true that negative items should be deleted after seven years--ten years for bankruptcy--they very rarely are. Of all the complaints I get about credit errors, the most common is that the items in question are more than seven years old. In all honesty, the credit bureaus are not in the business of ensuring accuracy or making sure your items are deleted on time. It's been my experience that these items stay on there until you do something about them.

So, you either need to dispute them yourself or hire someone to do it for you. You can do it yourself. If you don't want to hassle with it, I recommend Lexington Law Firm


Don't think that these items will take care of themselves. You must take the necessary steps to protect your credit, and don't think that nothing can be done. 78% of Americans have errors on their credit reports, and thousands of errors are deleted everyday. Good Luck

Will My Collection Account be Deleted When I Pay It?

Many people think that to repair their credit, they just need to pay off whatever derogatory item is affecting their score. This is false. Your collection, charge-off, or late payment will not be deleted when paid or settled. Once the item is paid, it will stay as a collection, charge off, etc.; the credit bureaus will simply add a line that says it has been settled or paid. Your score will remain negatively affected, and now you will have to wait 7 years from your latest payment.

That being said, is it not wise to pay on a derogatory account? I always recommend that people pay their obligations. Once an item has been paid, it is much easier to remove. The reason for this is that the collection agency or creditor is no longer interested in verifying the information to the credit bureaus when disputed.

Three Ways to Add Good Credit

Piggyback

The best possible way to add good credit or establish credit if you have none is to piggyback on someone else’s credit. If you have a friend or relative whom you trust immensely to pay all their bills on time, you can ask them to request a credit card for you as a secondary card holder. By doing this, their credit card company will regularly report to the credit bureaus in your name. This gives the effect of you having been approved for a credit card, though you really didn’t have to do anything.

The one pitfall here is that if you’re friend does not pay their obligation on time, then their negative information will be reported in your name. The best way to avoid any complications is to be made a secondary holder on a credit card that is never used. On the flip side, don’t even allow your friend to give you the card. They can just cut it up or keep it. Either way, it will still be an effective method to build credit for you. Remember, you don’t have to use credit cards to build credit; you just have to have them.

Get a Secured Credit Card

The great thing about a secured credit card is that you don’t have to have credit to get it. You just need to be able to give the $200-$300 up front or whatever you want your spending limit to be. I recommend that you just take the minimum limit and do not use the card. Even though the company is not technically granting you credit—you are securing the spending limit with a savings account—they still report to the credit bureau the exact same way as any other credit card company, providing you with a great opportunity to build credit.

Seek Easy Credit

When it comes to obtaining a credit line, there are definitely some lines that are more easily obtained than others. If you don’t have excellent credit, don’t try to apply for an American Express card. What you can do is go to one of the following merchants:

· Jewelry Stores

· Furniture Stores

· Appliance Stores

· Credit Unions

· Clothing Stores

All of these institutions typically require a lower credit score to be approved. These are places that approve people easily but still report to the credit bureaus which makes them invaluable when it comes to establishing credit.

Things that Will Not Help You

I get so many people that tell me they should have good credit because they have paid their utility bill on time or their cell phone bill on time. Remember, utility companies, landlords, cell phone companies do not ever report positive information. They will only report to the credit bureaus if you fail to pay your obligations. In a word, the can only hurt, not help.

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What's in Your Credit Score?

Credit scores are compiled form five different categories. The five categories are as follows and weigh in by the following percentages into your credit score:











Payment History

In the payment history category, they are looking for how many accounts you have that are considered “paid as agreed.” Also, the types of accounts will be treated differently. Whether or not you have any late payments and to what degree they are late is looked at. How much is past due will factor into your score.

Amounts Owed

In the amounts owed category, how much that is owing will factor into the score. The number of accounts with balances will factor into your score, so if you have a balance on all your accounts you will get a large point deduction. Conversely, if you have no balance on all of your accounts, you will get points added to your score. One other factor that is seriously considered is the proportion of credit lines used. Anytime your credit line exceeds 30% of the balance, your score will suffer, and more points will be deducted proportionate to the percentage of total credit line that you owe.

Length of Credit History

In this category, the credit calculators will look at how long your accounts have been open. Typically, this is looked at in terms of average length per account. The longer your average length per account, the better your score will be.

New Credit

In the new credit category, your score will be affected by the number of recently opened accounts that you have, the number of recent credit inquiries, and time since last credit inquiry. If you run out and apply for many accounts at once, your score will suffer as this would suggest that you are desperate for credit.

Types of Credit

This portion of your score is based on the number of or prevalence of any one type of account whether it be mortgage, installment loans, credit cards, retail accounts, etc.

If you want a cheap way to monitor your credit score, I recommend MyFico. They will monitor your score and send you both an email and text message whenever your score changes. They also have great tools for disputing credit mistakes and so on. You can click on the link below to go to their credit monitoring info page.

Monitor Your FICO® Score & Equifax Credit Report

What to Do If you Have Bad Credit

Unless you have no connection to the outside world, then I’m sure you are fully aware of the credit crisis we are experiencing in this country. This credit crisis essentially has happened because loans were granted to people that could not afford them. That being said, does that mean that if you have bad credit there is no way to get a loan or credit card? NO. You can still get loans. There are a lot of people that have bad credit that really can afford the loans for which they are applying, but they are paying for mistakes of their past or they recently went through a divorce, medical emergency, or some other life-altering condition that caused the bad credit. If you are one of these people, you need to get started repairing your credit. If you have the time to do it yourself, that’s great. If you don’t, then you may want to consider paying for credit repair service. I recommend Lexington Law; you can find a link on our site to them. I personally have used them, and I think they offer a very fair-priced and effective service.

Make Sure You Qualify

Now, as far as getting a loan with bad credit, there are two things that you need to do. First, you need to specifically ask companies whether or not they do loans for people with bad credit. Don’t waste your time and hurt your credit score more by getting rejected by multiple banks. Just ask them whether or not they do loans for people with bad credit and ask them what the qualifications are. I don’t ever apply for anything that I don’t already know I will be accepted for. I bring in my credit reports and scores from all three bureaus (look up my post on credit monitoring). I show the loan officer what I have, and let him determine whether or not I would be accepted before I give them the ok to run my credit and so forth. I think this is essential. It is also essential to be very forward with people if you have bad credit.

Be Forward

If you have bad credit, let any bank or mortgage broker know that up front. Tell them you have bad credit and ask them if they can deal with you. If they say yes, then you need to find out how they qualify applicants. For many people, they just go strictly off of your F.I.C.O. score and income. You want to talk to someone that will manually underwrite your loan. This means that they will be willing to hear your explanation of the bad credit and judge personally whether or not you can make the payments instead of just categorize you based on numbers.

Bad Credit and Credit Cards

The same rules apply concerning credit cards. Make sure that the card company has programs for people with bad credit, and decide whether or not you’ll be accepted for such a program before you apply. Remember, every time you allow your credit to be run, it will hurt your score. It may not decrease it much, but it will decrease it some; and the more inquiries you have, the more than tend to negatively impact your score. If you absolutely cannot get a card, then apply for a secured credit card. You will have to deposit money to secure your account, but the card will report to the bureaus the same way any other card company would do, allowing you to improve your credit and add a positive account history to your report.

Bad Credit and Your Terms

Remember, just because you can get a credit card or a loan with bad credit, don’t become complacent about improving or correcting your credit score. Do everything you can to have a solid score (680+), because your options and terms for credit will improve greatly if you have a good score. Don’t be a victim to lenders that prey on people with bad credit. I do real estate investing as a hobby, and I recently bailed out a homeowner that was paying 18% interest on his second mortgage. He couldn’t do it any longer, and he was going to lose the house because of it. Just because you might get accepted, this doesn’t mean you should go forward with it. Review the terms and be wise about what credit obligations you take on.

And Finally, you can always fix bad credit. Look at this post for information about disputing your bad credit history. If you don't have the time hire Lexington Law Firm