starting out.

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When I first read that Erin Burt was leaving Kiplinger, I was sad. Then I was happy again when I read that she was leaving to spend more time with her family.

Erin Burt was an editor at Kiplinger, where she had a column called Starting Out. In this column she gave great financial advice for people in their 20s and 30s. I read her weekly articles almost religiously.

I am in my mid-twenties now, and have made my fair share of financial mistakes. In honor of the “Starting Out” tradition, I hope to share some of the lessons and tips that I have learned along the way. Below are five important things that helped me out in becoming (credit card) debt free.

It sounds kind of preachy, but these quick tips really helped me with my addiction to credit.

Credit Card Debt

Who among us doesn’t have credit card debt? Credit card debt is probably one of the ugliest debts you can have. If you’re not careful, it can spiral out of control.

Although I am carrying a balance as of right now, it is a manageable one that I plan to eradicate by year’s end. But at one point, I had thousands of dollars spread across multiple accounts.

At times it can seem hopeless, because you don’t even know how you accrued so much debt, much less how to begin the repayment process. With a little willpower and determination, I was able to get through it. And if you’re struggling with it, so can you.

1. First off, STOP charging on your credit cards. Forget those measly 2% cash back rewards that you get for using credit. What’s 2% when your APR is 15.99%?

I used to buy so much useless crap. On credit. It’s so easy to swipe that card, or to type those 16 numbers into any store’s secure online checkout . You have to resist. Ask yourself, “Do I really need this?” Chances are you probably don’t. Start using debit or cash.

2. Don’t default on monthly payments, even if it means paying just the bare minimum. It hurts your credit score and the fees will increase your debt.

If you are currently defaulting on your payments, start paying the bare minimum. A late payment or nonpayment can result in a world of hurt for you. It raises a red flag on your account to the credit card and creditors, and can add massive amounts of penalties for you.

Thankfully, I have never missed a payment, but I have received plenty of overdraft fees. And those piss me off. It’s like you’re just handing over money to the man. Don’t let the man take your money.

3. Some people say that you should start attacking your highest interest rate card first. I agree. But you can also start paying off your lowest balance first.

If you have a lot of debt, and don’t know where to begin, start with your smallest debt. I remember one of my accounts was significantly lower than the rest of my accounts, so I just paid that one off. When I saw that I had killed one debt, albeit a small one, it boosted my confidence. One little victory, but it was just the boost I needed to really strap down and kill the rest of my debts.

4. Be wary of balance transfers, they can give you a false sense of financial security. Do the math first, since there are balance transfer fees, that might end up costing more your old APR.

Balance transfers can be a good way of consolidating your debts, but there are also a lot of fees associated with them. Most transfers have a flat rate fee, and then another fee which charges you based on the amount of money you want to transfer. Make sure it makes fiscal sense to transfer or not.

5. Once you start clearing some of your debt, you might get the urge to close out the accounts. Keep them open, because you want to retain your history of credit. Closing accounts will also affect your credit utilization ratio.

One thing that creditors look at is the credit-utilization ratio. If you have a $1,000 credit limit, and you’re carrying a balance of $900, you are using 90% of your available credit. You want to try to lower this number to less than 50%. And then eventually zero.

I think we all struggle with money or the lack thereof. If you do have bad credit, don’t fret. Like most things, you can turn it around, it will just take time. But you have to stop the bleeding first. Do whatever it takes to stop using your credit card. Freeze it. Leave it at home. Cut it up.

It’s really scary when you realize what kind of hold credit has on you. It still is a constant struggle for me, don’t get me wrong. And Black Friday is looming around the corner. Suc.

73 great debt elimination and minimalization tips.

The main thing about these tips are that, well, they are just tips.  If something doesn’t work for you, then don’t do it.  Life is too short to clip coupons to save .50 cents here and there; but if you enjoy doing it, then do it.  Spend money on the important things, instead of materialistic goods that are meant only to impress the Jones’.

Taken from Zen Habits:

1. Don’t get into debt. Use cash for all your purchases and don’t take on any debt except home and auto.
2. Spend less than you earn.
3. When debt is closed out, put 60% in savings and enjoy the remain 40%.
4. Take stock of all your liabilities, so you know exactly how much you owe to the world. Put them in a spreadsheet, with monthly payments, interest amounts, balances, and a running grand total of all your balances. Update it monthly as you pay off debt, and watch the overall amount go down slowly. It’s very motivational.
5. Have only one credit card with a low limit, and only one loan with monthly payment not exceeding 25% of income.
6. Build up an emergency fund first. If you come into extra money (tax returns, etc.), use it to build an emergency fund and pay off debt after that.
7. Cut up your credit cards.
8. Speak to a credit counseling service to help work out a plan: your “must pay” outgoings, arrange with creditors to freeze interest and accept a revised monthly payment. Warning: a reader informed me that using a credit counselor will show up on your credit report and adversely affects your FICO score — not as bad as a bankruptcy, but it is coded, and lenders can see it.  Only exercise this option if you’re really in dire straits.
9. Stop using credit cards to make it to the next paycheck. Stop getting further into debt.
10. Don’t overpay your debts — leave enough so you have enough for regular expenses too.
11. Avoid eating out. Cook your own meals, except on very special occasions.
12. For entertainment, visit friends and be creative on how to entertain yourselves and your family without spending a dime.
13. Don’t pay off your credit card balance from the emergency account. Don’t touch the emergency account at all — it doesn’t exist!
14. Look for expenses coming up in the future and plan for them, so you don’t have to go into debt when they come up.
15. Make a budget – Purpose every dollar (including some buffer).
16. Snowball the debt – Pay minimums on everything, attack the smallest balance with all the extra cash you can assemble, then move on to the next one.
17. Be on the same page as your spouse or partner. Competing interests are suicide.
18. Recognize your spending tendencies (and your family’s) and place limits on them. Develop good habits instead.
19. Read Dave Ramsey. Read “Your Money or Your Life”.
20. Keep trying and don’t give up. Make a commitment, and if you aren’t getting out of debt slowly but surely, revisit that commitment. Change is difficult and it takes drastic change in mindset and behaviors to get out of debt. Anyone can do it – as long as you really want to do it.
21. Stop spending! You have to really, truly want to do this. Otherwise, you’ll put yourself on a financial diet and then crash and burn and find yourself justifying why you deserve to spend so much money on a new iPhone when you have a perfectly good phone and $20,000 in debt.
22. Praise yourself for every small accomplishment. But, don’t praise yourself by spending frivolously.
23. Find the tools that work for you and stick to them. If the tools aren’t working, find new tools. There are plenty of tools and ideas out there – for free.
24. Change yourself. If you have a spouse or partner that is contributing to the debt, it can be a big challenge to get them to change. Focus first on changing your behaviors and attitude.
25. Be realistic. If you started accumulating debt three or four years ago, realize that it will probably take you more then three or four years to get out of debt and stay out of debt.
26. Create a realistic budget. Put as much money as you can towards paying down debt and having an emergency fund, but allow for a little bit of. Only the truly dedicated can live with no social/recreational activities for the amount of time it takes to become debt-free.
27. Eliminate. Take a hard look at what’s truly necessary, and be willing to make compromises. Cable TV, satellite radio, and lunches in the office cafeteria are not necessities. If you have a hard time letting go of these things, run your numbers through a debt calculator twice – once with your current budget, and once with additional money currently paying for niceties. You’ll be amazed at how much of a difference those few extra dollars make.
28. Get creative. If there’s something you think you don’t have time to do more frugally, find a way around it. For example, cooking at home is much cheaper than eating out. If you don’t have time to cook, try investing in a crock pot.
29. Be patient. Debt reduction is a long, slow process. Depending on the method you use, you may see no significant progress at first, but it will happen.
30. Stop borrowing money – no matter what! This means no more credit cards, no more car loans, no more cash advances, no more home equity lines, etc. If you can’t afford to buy something with CASH you have now, then YOU CAN’T AFFORD TO BUY IT.
31. Save up the money and buy it with cash. By the time you’ve saved up the money, it’s very likely you will have realized you don’t even need the item you were thinking about buying anyway. This happens all the time.
32. Track your expenses in a software program like Quicken. Categorize your expenses and report out how much you spent in each category so you can easily spot your problem areas (eating out, clothes, gas), then target those for reduction. Always know exactly how much money you have in your checking account.
33. Maximize your 401K contribution. Every time you get a raise, increase your contribution by 1-2% because you won’t miss the extra money if you don’t ever see it.
34. Pay yourself 10% first. Put this into an account that is hard to touch. A money market account can earn good interest. Make sure it is a chore to get the money out (you have to drive to the bank), so you will only tap it consciously and for major expenses.
35. Make a plan … ANY plan. You’re better off with a mediocre plan than no plan at all. When in doubt, the “snowball method” is simple and works well.
36. Leave yourself some “wiggle” room. Life throws some unexpected expenses your way, so include some slack in your plan for these little setbacks.
37. Have a long range vision. Keep your eyes focused on where you will be five (or ten, or fifteen) years from now, because getting out of debt takes time.
38. Turn off your television, and discard catalogs and other advertisements immediately (but not coupons!). Do this, and your urge to buy stuff you don’t need will plummet.
39. Move into a smaller place. Forcing you to get rid of a lot of stuff that you’re probably still in debt for will show you just how little any of it matters.
40. Find your purpose. Is it your children, to start your art business, work from home, free money so that you can give? Finding motivation beyond the money drives our passion. Otherwise our drive is limited. This passion will lead us find out the ‘right’ things to do like stop borrowing, creating budget, etc. Take a look at the things you value deeply and view that framework to judge your actions buy.
41. Examine your expenses and eliminate the unnecessary. Thing about gym memberships you’re not using, cable TV, Netflix, other types of subscriptions and see which are least necessary.
42. Got a raise coming up? Bookmark it. Pretend it didn’t even happen, and funnel all of the new money into the debt relief.
43. Focus on the debt and getting out of it. Not focusing and humming along on credit is what gets people in trouble every time.
44. Change how you think of money. Calculate how much money you make (net) per hour. Do this regardless of whether you are a business owner, salaried or hourly employee. Now apply the time factor to any purchase you make. For example, is that 32″ flat screen television you’re thinking of purchasing worth 10, 20 or 30 hours of your time. Once the dollar amount was removed from the equation and the time factor applied, spending habits can change overnight.
45. High interest. Pay off the cards with the highest interest first.
46. Balance transfers. By transferring balances on credit cards, you can consistently pay an average of 4%. One thing to look out for is transfer fees: make sure that the fee isn’t greater than the interest you would save.
47. Optimize small long-term advantages instead of large short-term payments — for example, go for the difference between 8% and 6% on a note, or cancel satellite TV and save/invest/pay debt with the difference.
48. Educate yourself on your alternatives. Sometimes we spend a lot on things because we assume there are no alternatives. Is cooking at home as bad as you think? What about ten-year-old cars? Roommates? Cheaper parts of town? Thrift stores? Libraries? Bicycling? Wearing a sweater and fuzzy slippers inside in the winter so you can turn down the heat? Ask questions, do some experimenting, do some research. Find your biggest expenditures and do some brainstorming and some googling.
49. Think about your goals. The author of The Tightwad Gazette was willing to work harder to save on food, clothing, and entertainment so she could spend more on housing, have more kids, and let one parent stay home with the kids. Quit spending money on stuff you don’t care about.
50. Pay attention to whether you’re buying stuff just because of societal norms or parental expectations or keeping up with the Joneses. Hang around people who are the way you want to be so that peer pressure can be used for good instead of evil!
51. Pay more than the minimum.
52. Make it a habit. You’ll be very happy when you have some extra spending/saving money after your payments stop.
53. Think about wealth rather than debt. If you think “I’m going to get out of debt” you will keep thinking about debt. If you think “My financial situation will contribute to my overall wealth,” that thought can keep you going.
54. Extra cash. When you make extra money from overtime or bonuses, use it to pay debt.
55. Debt slavery. Realize that (almost any) debt = slavery. If you don’t mind debt, why get out of it?
56. Read personal finance books, publications, blogs. Self-development blogs like this Zen Habits are also great.
57. Think positive. Telling yourself “no” stinks, choosing to not go on vacation stinks, looking around and feeling like everyone else has more money than you stinks, even if you make a good chunk’o’change. Instead think about how each month you owe $1 less is a good month.
58. Pay off your smallest debt first to get the momentum going. Some people go by the rule to pay the highest interest ones off first, but others like the rush from paying a card off completely and closing it. It’s a great motivation to continue.
59. Be willing to make sacrifices. Remember, you own things. They do not own you. We had to sell one of our cars and get a “beater” but this was the best move we could have made. It was so empowering not to have a car note hanging over our heads.
60. Put a note in your wallet with this text: “DO I REALLY REALLY NEED THIS?”
61. See yourself as completely debt free. FREEDOM! What is that gonna feel like. Imagine it.
62. Use supermarket fliers and plan menus for the week, clip coupons, and put the amount of money you save from coupons each week into a savings account.
63. When you make your budget, be honest. Make sure you budget for gifts, entertainment and whatever other things we all spend too much money on and don’t like admitting.
64. Find free or low cost entertainment. Check the local newspaper, or look online and see what upcoming events are going on. Many towns have free concerts in local parks, the local libraries often have fee arts and crafts classes, get a state tourist guide and see what’s going on in your area, and be a tourist in your own town.
65. Be creative. Learn to paint or refinish hand me down furniture, or sew curtains and pillows. I have been reading DIY blogs and gotten some really great ideas for my home.
66. Start a garden. Grow tomatoes, peas, beans, and herbs in pots if you don’t have a yard.
67. Make more money. Sometimes you can only stretch your current income so far. But how can you start an online business, without spending a lot of money? And without your own product? By selling other people’s products – as an affiliate.
68. Educate. Above all else, teach your children early so they don’t make the same mistakes as us!
69. Create a balance sheet and update it every month. List your assets on one side and your liabilities on the other. Assets should only include things you can easily sell and there approximate value. Liabilities should include all of the money you owe others. If your starting value is negative your goal should be to make that number smaller every month. If your number is positive your goal should be to make that number larger every month. The real value of this exercise though is it puts you in the habit of checking your financial situation every month which will reinforce habits that are increasing your wealth and hopefully allow you to catch and stop habits that are decreasing your wealth.
70. Credit documentary. Watch the PBS documentary about credit card companies. Get mad, really mad and start hating the credit industry. They are enabling you to do some terrible things to yourself. Cut up your cards and pledge to never use them again. It is a form of slavery.
71. And another. Another movie that looks critically about credit cards is MaxedOut.
72. Oprah. Great advice on Oprah’s Debt Diet along with great forms to help you find out where you are and plot a course out.
73. Read the book: How to Get Out of Debt, Stay out of Debt and Live Prosperously by Jerrold Mundis. Once you’ve read it, read it again.

financial blahblah.

2009 has been way better than expected so far for me. In terms of my finances, I couldn’t be happier; given the fact that I don’t have a job haha. I recently paid off all of my credit card debt, leaving me with only a small student loan with a low interest rate.

My emergency fund is currently at a 3 month buffer level, although I would like to double that to a 6 month cushion.

My monthly bills are ridiculously low, as I only have rent, health insurance, cell phone, gym, utilities, etc.  All of those bills are well below the average for most people.

There are a few trips that I have planned, and I have enough money for those as well. I was even able to minimalize my apartment even more, selling off the “excess” furniture/crap that I had.

I am getting close to the point where money is not a problem. I mean sure money is nice to have, but I am not driven by money anymore. I have enough to live comfortably (in my own right), and I can spend money when I damn well please.

Since I have been laid off, I have been evaluating my quarter-life goals and ambitions, at both the personal and professional levels. My mentor from my old job once told me, “When you get to my age, you can’t look forward to the weekend anymore. You have to look forward to every single day, or life will just pass you by.”

To me that means doing as much as possible, having as much fun as you can; and eventually finding a job that you do everyday with a smile, regardless of how much or little you make.

Back to reality. The problem I have is that every time I feel like I am in the clear, I start spending like crazy. My habits have changed tremendously in the past two years or so, so I am feeling quite confident that I won’t plummet into debt hell.

The key for me is to plan for my big purchases, instead of just charging it on plastic. My mentality used to be well, I get 3% cashback if I use my card; but what is 3% when your APR is 9.89%? Fuzzy math.

Yeah, just to show you that I am still frugal, I rewarded myself with a new wallet. Cheap, efficient, lightweight, durable, and free; since I already had one lying around.

goals for 2009.

One of my goals for 2009 is to be completely debt free, and as of now I am paying off all of my student loans in turbo mode.

A neat little thing I learned today was that if you sign up for the automatic monthly deduction, you can get your interest rate knocked down by .25%.  I know that doesn’t sound like much, but you can apply that extra money saved towards the principal amount and not have to worry about late penalties.