Due to overwhelming demand from readers of this site, I'm pleased to announce this new page focused on select guest posts on topics that I deem interesting.
Please note that the content from these external contributors will not necessarily reflect the views of this site. In most cases, I will add my personal commentary (noted as Savvy Money Commentary) to provide some context and added perspective but will leave the posts largely unchanged from their original submissions.
Guest Post #1: Debt Settlements
Savvy Money Commentary:
The topic of debt is certainly a very relevant and timely one given the state of our economy today and the massive de-leveraging that is taking place today with both individuals and businesses.
At an individual level, I would offer the following perspectives and advice:
1. Don't carry too much debt. Whether it's college students who have too much on their credit card, or wealthy high net worth individuals over-leveraged on purchases of luxury homes or boats (I know some of both), the advice of "don't buy anything you can't afford" is clearly applicable. Of course, this advice is much easier given than followed, so a practical rule of thumb here is to give yourself a "margin" of about 20%. This means that in whatever area of your finances where there are relevant debt ratios, e.g. Debt to Income ratio of 35% for home buying as an example, I would advocate a debt load that is 20% less than the maximum amount.
2. The converse of this is don't carry too little debt. Clearly, this is not a perspective that is in vogue or applicable to many people today, but it is also important to think of debt as a tool to help build wealth. So look for opportunities like the ultra low interest rates we have today to use debt to your personal advantage to fund investments that could potentially generate greater returns!
3. Beware of the every growing numbers of scammers today offering supposed help with mortgage adjustments or debt consolidation/debt settlement. This is not to say that there are not legitimate services to help you in this area but the key is to make sure you are educated on the basic facts and know what the true "cost" is to you of these types of services.
Given this, note a few points of advice offered below by this guest post:
The Pros and Cons of Debt Settlements
Debt settlement is an approach to reducing one's outstanding debt amount through negotiation with the creditor or collection agency. However, not all creditors and collection agencies will agree to settle a debt.
Also important to note is that only debts amounting to $10,000 or more can be settled. People with debt amount lower than $10,000 are not likely to be able to settle their debts.
So if this is applicable to you, before opting for debt settlement, you should know the following 10 pros and cons of debt settlement.
Pros of Debt Settlement
1. Debt amount lowered – Debt settlement lowers the outstanding debt amount by 40-60%. Thus, making it much easier for you to pay off the debt.
2. Debt-free in less time – You can become debt-free much earlier if debt is settled. As the debt amount is lowered you can pay off the debt generally within 2-3 years.
3. Avoid bankruptcy – In case of your inability to pay the high debt amount you can settle the debt to avoid filing for bankruptcy which can lower your credit score by 200-350 points.
4. Account status “Paid” – Your account status will get reported as “Paid as settled” on paying off the settled debt amount. Also, sometimes creditors agree to delete the negatives (“Pay for delete” or PFD) along with a debt settlement agreement (though not a must).
Cons of Debt Settlement
1. Credit score is damaged – Debt settlement lowers your outstanding debt amount and thus it becomes much easier to pay off the dent. However, you should know that debt settlement will hurt your credit score as you will have to miss payments before you can settle your debts.
2. Forgiven debt taxable – In debt settlement, a part of your debt is forgiven but this forgiven part is taxable. As you need not pay the forgiven debt amount to the creditor or collection agency this is considered as your income. Thus, you are required to pay tax on this income in the same year, and that means ultimately you will have to come up with extra cash.
3. Only unsecured debts are settled – You won’t be able to settle your secured debts like student loan, auto loan or mortgages. Only unsecured debts like credit cards can be settled.
4. Collection calls do not stop – Even if you settle the debts, or get enrolled in a debt settlement program the collection calls do not stop.
5. Late fees continue to accrue – Debt settlement cannot put a stop to the late fees getting added onto your accounts.
6. Debt settlement companies charge fees – In case you take help from a debt settlement company to settle your debts; they charge you a monthly fee.
Guest Post #2: Eliminate Waste!
Savvy Money Commentary:
My personal belief is that good "bottom-line" management is as important as "top-line" management. To put it more simply, most people are consumed with making more money than watching their expenses and saving what they've already earned. I personally know of many people that make high six figure salaries but have nearly no savings and many other "regular" folks who make average incomes who are your "millionaires next door". The difference, the former is a wastrel who spends more than they make - yes, this can happen regardless of how much you earn. And the latter follows good basic financial management principles.
Bottom line? This post provides some basic yet useful and practical advice for watching your dollars and cents!
Are You Wasting Money These Four Ways?
One of the most difficult things in money management is to stop wasting money. When you waste money, it goes directly into someone else's bank account -- instead of working for you. Unfortunately, we can become complacent about where our money is going and we tend to forget to make sure it is being used efficiently. Here are four ways that many of us waste money:
1. Paying Others to Do What We Can Do for Ourselves
Many of us choose to pay for convenience, and often that means paying others to do things for us -- even though we can do them for ourselves. This might include mowing the lawn, making minor repairs and even getting a coffee every morning. Think about the things you spend money on, and ask yourself whether you could do it for less. While it is nice to go out for a coffee now and then, you could save a little bit each week by making your own pot regularly.
Some things, though, you should pay others to do. It you don't have the expertise for a tricky job, you could make a mistake that could cost even more when a professional fixes it. Be realistic about what you can do, and if you can do it, take care of it yourself.
2. Failure to Plan Ahead
One of the ways that we waste money is through a failure to plan ahead. One of the most common examples deals with meal planning. How many of us have no idea what to make for dinner, and then end up rushing to get take out or buy pre-cooked food from the store on the way home? With some meal planning, you can shop with a list, and prepare meals ahead of time. Crock pots, 30-minute meals and other options can help you manage mealtime inexpensively.
Planning ahead works for other expenses, too. You can save money when you plan properly for vacations, when you think ahead to extracurricular activities your child will be involved with, and when you consider what you will need for retirement savings. Planning ahead can save you money that you can then use to meet your own financial goals.
Be honest. How often do you read that magazine? Are you really using all those premium cable channels? We recently realized that, thanks to streaming on Netflix, there is no reason to have the "unlimited" movie plan. We cut our monthly Netflix bill in half by switching to one DVD a month and using the streaming. We also save $100 a month now that we have cut out some of the junk we weren't watching on the satellite, along with canceling two magazine subscriptions. Evaluate your habits, and determine whether or not your subscriptions make sense to you. Look for creative ways to get your TV (Hulu, digital antenna for local channels) and read your favorite publications (online).
Fees are everywhere these days. Bank account fees are becoming more common, and "convenience fees" are charged for many online and phone purchases. But perhaps the most insidious of fees are those related to credit cards. Interest fees for those who carry balances are quite high, and offer no real benefit to you. Do your best to pay down your debt quickly, and make your payments on time to avoid fees. You can also reduce what you pay in bank service and ATM fees by shopping around and choosing a new bank or credit union.
There is no reason to continue wasting your money. Evaluate your spending, make some changes, and put that money to work for you.
Guest Author Miranda Marquit writes for a number of personal finances sites about topics including budgeting, saving, and beginning investing. You can find her personal finance blog here.