Title: FAP927: Personal finance guide, part 2

" Your personal finance guide part chew on this -- financially podcast episode 927."

" Financially podcasters publication of the student. Didn't he stop by the web site. -- actually podcast dot com and leave comments on blogs and subscribe. ITunes into music by Charlie flew the biggest hard drive up."

" Good Friday September 25 2009. My name is Christopher -- thank you for tuning into the financially podcaster is that we talked about last week. This week will be part two of our personal finance Skype which actually got the end Nemo for the week which is now the poor student's guide to debt relief. And last would be talked about budgeting and some key financial concepts of this week. Let's get rolling with some debt reduction approaches. So last week we talked about at paring back your expenses and mandatory and discretionary expenses and things hopefully by you know cutting back spending. And I deal be adding some more intent you've been able to get your finances in order enough so that day you can make all the minimum payments on bills now let's get. Down into up paying down the jet that you have already -- the day you've already encouraged. There are two general schools of thought on repaying debt that is the least cost method and the snowball method. Raleigh speaking least cost means that you make all you minimum payments on your debts every month then. You look at all your debts and figure out which debt. Has the highest interest rate let's start putting additional money as much you can afford beyond the minimum payment towards that debt until it's paid off. Now this method has the advantage -- in the big picture because you've paid off your highest interest rate debts first you paid the least amount of interest overall. Remember with like we talked about last week. Interest is effectively rants you -- syllables is money when you -- it's up you moving out of the highest replaces first. While still making your payments and all the other debts that's the idea behind the least cost method. Now this method has the disadvantage of not being terribly motivating particularly if your highest cost that is also want the largest wants to see -- chipping away every month and not really making a lot of progress at first. That's why we come to the second approach made popular by a personal finance says public speaker. Dave Ramsey called the snowball approach rather than pay the highest interest rate debt allfirst. His suggestion is that you pay off debts completely in -- of the smallest to largest debts to get the psychological momentum. And being enabling tear it shred bills and credit cards as he retired at. -- the snowball method also has the added advantage of helping simplify your finances faster because spoke. Obviously you have fewer bills to pay each month until you've retired on their -- Logically though of course. The snowball approach also means that you have the disadvantage. Of paying more in the long run in total interest paid -- debts so. Which is the right approach well. C battle depends on you. It depends on you your personality. And what's going to motivate you to stay on track in terms of making your payments and being financially disciplined. For some people. Knowing that they're getting out of that -- high rants debt first is the most motivating essentially yeah they know they pay themselves back to their futures -- back as fast as possible. For other people. Being able to throw away that account mile shred that card being able to you like those old bills on fire district. Is the most motivating thing so whichever method you choose the least cost a snowball. Make sure it's the one that's gonna inspire you the most keep going to keep working on the -- and you debts because. That trick with any kind of debt repayment. Is not so much which method to use its that you stick to it it's you do it consistently. Now let's talk a bit about how you make these payments. When it comes to repaying debt especially -- like credit card debt. You'd be surprised to really surprised just how much of the difference a little bit of extra money each month can make if you could squeeze it out -- the eke it out it is worth doing. Let's take a look at the -- scenarios to illustrate this impacts. Let's assume for example you have the average credit card debt. Of up graduating college senior 4138. Dollars now let's assume that you have the average credit card rate for students. Of a fifteen point 33%. It's obviously you know you your -- it'll very. Based on those numbers year minimum monthly payment which is 4% of principal would start out at 165. Dollars a month. On that schedule he will take you about 31 months or two and a half years to pay off your credit card. And after all said and done you'll paid an extra 900 dollars in interest so over two and a half the issue basically lost 900 dollars. If you could afford to just five dollars more a month basically two cups of coffee. Your credit card would be paid off an extra month and a half early you save about forty dollars interest now would that be worth -- patent. Out of -- want to too mean on the street you know enough a year to Andy in effigy is and said -- like forty dollars or free I'd say yes. -- by just adding five dollars a month to your monthly payment you were in effect giving yourself. Forty dollars for free down the road. There's attached to this of course in the catches that. If you don't. If you're not specific on when you pay your bills companies will pay themselves my first which means they will play any Texas monthly payment. To the interest that you -- them and not to the actual debt that you did not an actual money you bought unless you specify on a checker electronic payment these exact words. Extra payment to principal only write that down and beat them decked out wall what do you need to do extra payment to principal only. Most financial solutions most reputable financials institutions most reputable banks will honor. This on your monthly payments if you may not normally have earlier payment -- but the vast majority of companies. -- frankly especially in these times they want their money back so as long as you specified. Any excess payment -- principal you'll be paying yourself back faster. Now. Let's talk about it's the toughest part of debt reduction. Because it requires more than a -- just not rule changes your life. It requires a lifestyle change and that means that debt reduction practices are often very hard to stick with -- at least the beginning. It's all too easy to slip back into familiar habits even when those habits are financially harmful so how do you fix the -- assault -- again. Let's take another cue from the weight loss and fitness world. Team up with the body of several buddies to I was a -- trust. And work together to reinforce each other's progress mile -- checked regularly ideally some days you don't to a rumor or apartment not at a coffee shop we're gonna be tempted spend money. About your progress. Help each other identifying new and effective ways to save and spend -- earn more and support each other. When times get tough and not -- financially support just in having -- talked to about. This particular bill this particular situation to be really helpful. Set individual financial goals together like you I will have this credit card paid off by December with no new additional -- and when you reach a goal. Grab your friends and -- and celebrate and obviously financially modestly. And do the same thing for your friends from the achieve their financial goals. So let's talk about the last option. As a very last resort if you just flat out cannot meet your obligations you've tried everything you've moved back to parents -- just got so much debt that he is snow while Adobe. Bankruptcy is an option. You probably -- consult a qualified attorney about filing for personal bankruptcy and it has some serious consequences on a personal finances not something you do casually but it should be an option few to consider if things just are not working out of you know financial plastics which is not proving. Now a couple points on bankruptcy when your filing bankruptcy days. It may result some of your debts but it's highly unlikely any student loans you have will be discharged because the weight loss -- changed 2005 so you will not get out of student loan debts. Certainly secondly bankruptcy should be something you consult a qualified lawyer about. There are plenty of doing yourself -- I've seen them all in the Leo bookstores and online stuff but. At best those are limited utility at worst they'll do more harm than good because if you don't file a bankruptcy properly. The your creditors it's gonna run all over yourself. Many bankruptcy lawyers have payment plans and other methods help you make their services available to you and a lot of them will do. In its initial consultation -- to see if they can help you are not so it's worth at least consulting them. One really important note before we wrap up this is especially important when it comes to debt reduction. There are a lot of debt reduction scams online tons and tons and tons of them some of them look really legitimate some of them look really -- on. Virtually all of the debt reduction schemes online. Will not help you manage your debts -- easily and some can do tremendous harm to your credit score and financial reputation and do nothing forward. When you couple examples there's one company outlined the promises to take over the management of your debts. They make only the minimum payments but charge you -- 20% premium for effectively doing nothing more than you know changing which address the -- it mailed to see you think everything that's fine you're paying more. And you not getting anything other than someone else who just cut checks for you. Another company says they can stop booklet is overnight again they change the mailing address and contact information on all your bills to them. Then they don't pay any of them forced you into default which wipes out whatever credit in reputation you have left -- and try to haggle with the dentist to get the -- reduced. They fail more often they succeed in the in the end elite you know only with you know most or all of your debts but actually -- with a ton of feeds to. On top of the fees that you've already paid that it's up. Generally speaking the only two achievement ways out of debt. Are paying them off or declaring bankruptcy in a court of law though ideally with a qualified attorney. Anything else and the other advertised service promises instant relief for overnight results. Is almost certainly a scam it's just gonna take your money and not do anything in return now the cliche here is true. If it sounds too good to be to it it almost certainly is too good to be too so don't fault of those things. If you see one looks really peeling Kugel at you know who -- at this the tip for anything financial. Google it with the words scam -- SEC -- it is to debt reduction plan 2000 old school that school instead reduction plan 2000 and the words scam what in the union -- quick. And see how many people are reporting it is a scam if it comes up clean check with the Better Business Bureau. SF but I guarantee almost nine and epicenter of the New London. Instant credit repair programs out there. Will come up the which scam -- and how a bunch of complaints because nothing is instant a lot of the stuff we talked about this guide yes you can pay other people to do. But you can do yourself to. -- That's gonna do it for this episode of financially podcasts that's manager for reviewing the poor student's guide to debt relief this is actually available as a PDF I'm not putting in the show notes at financially podcast dot com. You can download the e-book and share with friends can give to -- and do whatever you want with it has lost -- of trying to make money on it but it is available for free. Grab a copy of grab the the PDF version and keep handy give to couple friends see what they think. Thanks for tuning into this week's financial podcast next week we will be back with our regular format will be a day early because I ought to be traveling. On business on Friday so. Will have the financial pockets on Thursday of next exit tune in for that. Thanks -- listening and I'll talk to next week take --"