Most young people who are just starting out are facing an uphill battle against debt. Credit cards, student loans and car payments are just a few of the items that young people are facing nowadays.
Credit cards are the number one cause of debt for people age 18-30. It starts in college with card number one, which then progresses into five or six credit cards to buy new clothes and beer. The average college student graduates with an average of $4500 in credit card debt. This situation is multiplied by higher interest rates on those college cards.
Credit card companies, the smart people that they are, lesson the restrictions on college students getting credit cards in exchange for charging a higher interest rate on those cards. One of the first things young people can do is try to find lower interest credit cards. Sites, such as http://creditbus.com, allow users to search for and apply for low interest credit cards. By obtaining a lower rate, card holders can get more principle paid off sooner.
One other young debtors can find relief is to set budgets. Card holders need to find out how much they can afford to put towards their credit card debt, and then such sites as CNN's debt reduction planner (http:// cgi.money.cnn.com/tools/ ) can help them distribute the money to the cards in such a way as to reduce the debt as fast as possible.
About the Author
Matthew Crist runs a debt reduction blog. You can find more at http://creditbang.com.
Saturday, October 20, 2007
Your Debt Checklist
A Debt Checklist is the only sensible way to organize and control your finances. Most people aren't actually aware quite how much debt they possess - in fact, a recent survey found that almost 75% of UK adults were up to �5000 out when asked to estimate their non-mortgage debt. They weren't much better when asked to produce a cashflow statement showing how their hard earned cash was being spent each month!
A Debt Checklist is a plan you can use to get a grip on your finances, and will allow you to understand in black and white, where savings can be made, and how debt can be tackled most effectively.
Obviously, you will have a savings account. If you DON'T, go open one now. Choose a large, reputable bank or loan company so you won't have any problems getting access to your funds when you need them.
Secondly, you need to cut back on your credit card spending. Credit card companies do everything they can to encourage you to spend, and even more to try and cajole you into only paying off the minimum each month, making credit cards the MOST expensive way to borrow money you are ever likely to come across. If you find yourself paying for 'small' items with a credit card, you are asking for trouble. Not only will you be that annoying person in the front of the grocery queue at Walmart paying by card, but you will also rapidly lose ANY idea of what you have spent, and where. Debit cards are SLIGHTLY better than credit cards for these small purchases, but not much - you will still face a terrible temptation to spend more (up to 50% more than paying by cash, if recent surveys are to be believed!)
You MUST pay more than the minimum payment each month - if you don't your debts will be around for a LONG time! It can take over 20 years to pay off a measly $1,000 credit card bill if you simply pay the 2% minimum each month. At the end of this, the interest payments you have made will FAR exceed the original debt! And that, of course, is how credit card companies afford those swanky downtown offices.
If you have dependents, you need insurance. It may seem like an extra cost right now, but believe me, it is 'Murphy's Law' - if you don't have it, you will need it imminently! Auto insurance, Mortgage Payment Protection, house insurance and life insurance are a basic set you need. This point is related to pensions, too. Start as early as you can. If you don't have a pension plan now, start it immediately. The tax advantages just can't be missed. And the earlier you start, the sooner compounding has a chance to work it's magic. And compounding is the secret that will determine if you have a comfortable retirement, or live in a shack, eating beans. And don't try and kid yourself you won't make it to old age - bet you will, and bet you will be surprised how expensive everything is in 30 years!
Read up on money, and money topics. If you understand how cash works, the chances of getting into serious debt decrease dramatically. I'm not saying you have to read the Wall St Times, but an understaning of interest rates and compounding won't hurt.
That's about it for now - Get saving!
About the Author
Dave is a freelancer who contributes to www.NoDebtEver.com the free get out of debt fast site.
A Debt Checklist is a plan you can use to get a grip on your finances, and will allow you to understand in black and white, where savings can be made, and how debt can be tackled most effectively.
Obviously, you will have a savings account. If you DON'T, go open one now. Choose a large, reputable bank or loan company so you won't have any problems getting access to your funds when you need them.
Secondly, you need to cut back on your credit card spending. Credit card companies do everything they can to encourage you to spend, and even more to try and cajole you into only paying off the minimum each month, making credit cards the MOST expensive way to borrow money you are ever likely to come across. If you find yourself paying for 'small' items with a credit card, you are asking for trouble. Not only will you be that annoying person in the front of the grocery queue at Walmart paying by card, but you will also rapidly lose ANY idea of what you have spent, and where. Debit cards are SLIGHTLY better than credit cards for these small purchases, but not much - you will still face a terrible temptation to spend more (up to 50% more than paying by cash, if recent surveys are to be believed!)
You MUST pay more than the minimum payment each month - if you don't your debts will be around for a LONG time! It can take over 20 years to pay off a measly $1,000 credit card bill if you simply pay the 2% minimum each month. At the end of this, the interest payments you have made will FAR exceed the original debt! And that, of course, is how credit card companies afford those swanky downtown offices.
If you have dependents, you need insurance. It may seem like an extra cost right now, but believe me, it is 'Murphy's Law' - if you don't have it, you will need it imminently! Auto insurance, Mortgage Payment Protection, house insurance and life insurance are a basic set you need. This point is related to pensions, too. Start as early as you can. If you don't have a pension plan now, start it immediately. The tax advantages just can't be missed. And the earlier you start, the sooner compounding has a chance to work it's magic. And compounding is the secret that will determine if you have a comfortable retirement, or live in a shack, eating beans. And don't try and kid yourself you won't make it to old age - bet you will, and bet you will be surprised how expensive everything is in 30 years!
Read up on money, and money topics. If you understand how cash works, the chances of getting into serious debt decrease dramatically. I'm not saying you have to read the Wall St Times, but an understaning of interest rates and compounding won't hurt.
That's about it for now - Get saving!
About the Author
Dave is a freelancer who contributes to www.NoDebtEver.com the free get out of debt fast site.
Your Debt To Income Ratio
To stay out of debt, you must spend less money than you earn. Implementing this financial plan is often more difficult than it would seem. Your debt to income ratio is an important part of your overall credit history. If you spend more money than you earn, your debt to income ratio will be high, making it hard to finance a home or make major purchases. There are two basic factors are used in calculating your debt to income ratio - your net worth and your total debt. There are standard guidelines used in the credit industry to determine if your debt to income ratio is too high. The standard may be a bit low due to the fact that many have an acceptable debt to income ratio but still struggle to pay monthly expenses.
Your total net worth includes your monthly net pay, overtime and bonuses, and any other annual income. Your total debt includes your mortgage, other loan payments or revolving accounts, car payment, credit cards, and any child support you pay. If you divide you total monthly debt payments by your monthly income, you have your debt to income ratio. In the eyes of a creditor, if your debt to income ratio is lower than 36% you are in good financial shape. However, your personal situation, your unique expenses, and your number of dependants will determine how much debt you can reasonably pay each month. If your debt to income ratio is less than 30 percent, you are in excellent financial condition; 30-36% - you will have no trouble with lenders, but should work to bring this number down to 30 or less; 36-40% - you will most likely be able to get a loan, but you may have trouble meeting your monthly obligations; 40 percent or higher - you will need to evaluate your finances and work towards eliminating debts.
Your credit card debt plays a major role in determining your debt to income ratio. The amount you owe on your credit cards has a direct bearing on your credit score. If your debt exceeds your income, your credit score will drop. Many factors go into determining your credit score, all of which are indicators of your overall financial health. Lowering credit card debt is one of the best ways to improve your credit score and your debt to income ratio. The average American has over $8000 in credit card debt. If you are paying the minimum payments each month, this still takes a big bite out of your income. Even if your credit history is excellent, with very few or no late payments, if you have too much debt, you could be denied a loan.
Take control of your credit score by lowering your credit card debt or eliminating it all together. Your credit score will rise and you will lower your debt to income ratio. If you plan to apply for a loan, purchase a new home, or want to buy a new car, you must make sure your level of debt does not exceed more than 36% of your income. In addition, if you have several credit cards with very low or zero balances, you would benefit by closing those accounts and transferring any outstanding balances to a credit card with a low interest rate. Some lenders will calculate your debt to income ratio based on the amount of credit that is available to you. If you have several dependants, you may want to lower your debt to income ratio to around 20% to ensure that you can pay your monthly debt comfortably.
About the Author
This article has been provided courtesy of Creditor Web. Creditor Web offers great credit card articles (http://www.creditorweb.com/creditcards/articles/) available for reprint and other tools to help you search and compare credit card offers (http://www.creditorweb.com/).
Your total net worth includes your monthly net pay, overtime and bonuses, and any other annual income. Your total debt includes your mortgage, other loan payments or revolving accounts, car payment, credit cards, and any child support you pay. If you divide you total monthly debt payments by your monthly income, you have your debt to income ratio. In the eyes of a creditor, if your debt to income ratio is lower than 36% you are in good financial shape. However, your personal situation, your unique expenses, and your number of dependants will determine how much debt you can reasonably pay each month. If your debt to income ratio is less than 30 percent, you are in excellent financial condition; 30-36% - you will have no trouble with lenders, but should work to bring this number down to 30 or less; 36-40% - you will most likely be able to get a loan, but you may have trouble meeting your monthly obligations; 40 percent or higher - you will need to evaluate your finances and work towards eliminating debts.
Your credit card debt plays a major role in determining your debt to income ratio. The amount you owe on your credit cards has a direct bearing on your credit score. If your debt exceeds your income, your credit score will drop. Many factors go into determining your credit score, all of which are indicators of your overall financial health. Lowering credit card debt is one of the best ways to improve your credit score and your debt to income ratio. The average American has over $8000 in credit card debt. If you are paying the minimum payments each month, this still takes a big bite out of your income. Even if your credit history is excellent, with very few or no late payments, if you have too much debt, you could be denied a loan.
Take control of your credit score by lowering your credit card debt or eliminating it all together. Your credit score will rise and you will lower your debt to income ratio. If you plan to apply for a loan, purchase a new home, or want to buy a new car, you must make sure your level of debt does not exceed more than 36% of your income. In addition, if you have several credit cards with very low or zero balances, you would benefit by closing those accounts and transferring any outstanding balances to a credit card with a low interest rate. Some lenders will calculate your debt to income ratio based on the amount of credit that is available to you. If you have several dependants, you may want to lower your debt to income ratio to around 20% to ensure that you can pay your monthly debt comfortably.
About the Author
This article has been provided courtesy of Creditor Web. Creditor Web offers great credit card articles (http://www.creditorweb.com/creditcards/articles/) available for reprint and other tools to help you search and compare credit card offers (http://www.creditorweb.com/).
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