Archive for September 26th, 2009

Christian Debt Elimination–Ten Places to Find Money Without Changing Your Lifestyle

September 26th, 2009

You’ve made the decision to live debt free. You’re convinced that as a Christian, debt should not be a part of your life. But, there’s one problem, you’re living paycheck to paycheck. You don’t have any extra money to get rid of the debt.  Here are ten places to find money to use to eliminate your debt.

  1. Reduce the interest rate on your mortgage.  On a $100,000, 30-year mortgage, reducing your interest rate by just 1% (from 8% to 7%) would save you $68.46 per month.
  2. Consolidate high interest credit cards and finance loans into a second mortgage.  You can free up a significant amount of money each month by consolidating debt; and you have the added bonus of possibly being able to write off the interest paid on this second mortgage.  This option is not for everyone.  Read Four Reason to Consolidate Debt With a Second Mortgage to see when debt consolidation is the right choice for you.
  3. Maximize your IRS deductions.  90% of Americans receive a tax refunds.  By failing to take the correct number of deductions, you’re providing an interest-free loan to the federal government.  By receiving that money in each paycheck, you’ll put the money back into your budget to be used to pay off your debt.
  4. Raise the deductibles on your automobile and homeowner’s insurance.  This won’t save you a ton of money, but even the little things add up.  Before doing this, make sure you have a cash reserve built up to cover the cost of the deductible amount.  Read Five Quick Ways to Build a Cash Reserve to see ways to build your cash reserve.
  5. Switch from whole life insurance to term life insurance.  Whole life insurance is always more expensive than a term life policy because of the savings component and additional fees associated with them.  Read Why Term Life Insurance is Better than Whole Life Insurance to learn why term life is better than whole life insurance.  [Caution:  Never cancel a life insurance policy before you have a new policy in place.]
  6. Cancel credit life insurance.  Credit life pays off the debt owed on car loans and mortgages in the event you die before the loan is paid off.  Credit life is a decreasing value life insurance policy.  With every payment you make on the loan, the value of the policy goes down, but the premium never goes down.  It is the most expensive form of life insurance you can get because you don’t have to qualify for it.  If you have a term life policy in place with the proper amount of coverage, you never need credit life.
  7. Temporarily stop your 401K contributions.  While you’re eliminating debt, stop the contributions and apply that money toward your debt.
  8. If you own a small business (even if its home-based) have a tax review done.  60% of people overpay the IRS due to incorrect tax preparation.  There are companies that will review your previous tax returns free of charge and charge you only if they are able to get you a tax refund.  Getting a lump sum like this can give you a great jump start to your debt elimination.
  9. Change banks.  If you’re paying for your checking account, it’s time to find a new bank.  Free checking is quite common, so you shouldn’t have any problem finding a bank that offers free checking.
  10. Search unclaimedfunds.org for money that belongs to you.  Not every state is included on this site, so do a search for your state’s treasure hunt or unclaimed funds site.  Use this “found” money to accelerate your debt payments.

Once you’ve freed up money to apply toward your debt payments, you need a plan to get out of debt as quickly as possible.  Get your free debt elimination plan here.

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Five Quick Ways to Build a Cash Reserve

September 26th, 2009

Having a cash reserve is critical to your financial success.  A cash reserve keeps you from relying on credit cards when you have an emergency and going back into or further into debt.  Remember, the goal is to not only get out of debt but to also stay out of debt.  Initially, I would aim at saving up $2,000.  So here are 5 ways to build this reserve quickly:

  1. Sell something you don’t need.
  2. Switch your cash value life insurance policy to a term life policy.  Move the cash you get back into your emergency account.
  3. Find one area in your daily spending (i.e., vending machine purchases, having coffee out, etc.) that you can stop temporarily and save that money in your cash reserve fund.
  4. Temporarily stop your retirement contributions and that money redirected by direct deposit into your cash reserve account instead.
  5. If you receive a tax refund each year, increase your federal tax deductions at work and bring home more each pay period.  Use the extra to build a cash reserve first.  [Warning:  Be sure you don't raise the deductions to a point that you will owe at the end of the year.]

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Six Reasons to Get Life Insurance

September 26th, 2009

To determine if you need life insurance consider these factors:

  1. Marital status:  Do you have a spouse who depends on your income?
  2. Dependents:  How many dependents do you have that are counting on you for support?
  3. Debts:  Do you have any debts that will need to be paid off upon your death?
  4. Parents:  Do your parents rely on your financial support?
  5. Taxable estate:  Will your heirs need cash to pay your estate taxes?  Life insurance proceeds can be used to fulfill this obligation.
  6. Charity:  Do you want to leave money to a charity, church, or other non-profit?  Proceeds from a life insurance policy are a great way to do so.

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Four Reasons to Consolidate Debt With a Second Mortgage

September 26th, 2009

Consolidating debt is not always the right thing for everyone.  If you haven't decided that your purpose for doing this is to ultimately get out of debt, don't consolidate.  You cannot borrow your way out of debt.  Using a debt consolidation loan needs to be part of a bigger plan for eliminating debt.  That being said, here are four reasons for consolidating debt with a second mortgage:

  1. The first reason to consolidate debt with a second mortgage is to reduce the interest you're paying on higher interest rate consumer credit cards.

  2. Another reason to consolidate debt with a second mortgage is to lower the amount of the monthly payments you're currently paying on consumer debts.

  3. The third reason is to pay off your debt faster.  If you're paying a lower interest rate loan you will be able to pay off your debt much faster.

  4. The final reason to consolidate debt with a second mortgage is to make managing your debt easier.  If you have one payment to make, it makes it a lot less likely that you will forget to make a payment or make a payment late and incur a late fee.

If you're consolidating debt with a second mortgage please be aware that you're turning unsecured debts into secured debt, collateralized by your home.  It's not a step to be taken lightly but it does have many benefits.

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Why Term Life Insurance is Better than Whole Life Insurance

September 26th, 2009

Life insurance exists as a product to create a false estate for an individual.  Think about it, early in your career you haven’t amassed any wealthy yet; but, if you were to pass your spouse and children would be financially devastated by the loss of your income.  So you get a life insurance policy to offset that loss.  (Read Six Reasons to Get Life Insurance to find out if you even need life insurance.)  But as you get older, you build a significant portfolio and no longer need life insurance.

For the average person, life insurance was never intended to last your whole life as it does with a whole life policy.  By looking at the purpose of life insurance alone, you get a glimpse into the first reason term life insurance is better than whole life insurance.  Term life fulfills its purpose and then it ends.  You will no longer be paying the expense of life insurance as long as you have been diligent to save and invested wisely during the term of that insurance policy.

The second big reason term life is better is because it meets your need and costs a lot less.  Let’s look at how whole life insurance works in general.  The insurable portion of a whole life policy is term life insurance; but on top of paying for that insurance, you’re building cash value in an investment portion of the policy.  On the surface it doesn’t look too bad.  It actually sounds good.  But in reality it’s not good for at least 5 reasons:

  1. The cash (that’s your money) cannot be taken from the policy unless you borrow it and pay it back with interest.
  2. Upon your death, the insurance company keeps your cash.  This is great for the insurance company because they’ve just offset their risk by the amount fo cash accumulated in the policy.  It’s not so great for your family because if you had been saving that money outside the policy, they would have the life insurance proceeds plus the cash.
  3. The investment portion of the policy grows at a very low rate of return.  On average, with whole life policies the yield is 2.6% per year.
  4. Whole life policies are often sold as a retirement savings vehicle.  However, the investment portion does not qualify as an IRA, so you lose any possible tax deductions you would be entitled to.
  5. For the first 3 years of the policy you’re not building any savings.  The extra money you’re paying is going towards expenses associated with owning the policy.  (I believe that this is why 70% of all life insurance policies sold are cash value policies–an insurance agent makes a lot more money selling whole life insurance than he does selling term life.)

The bottom line is that term life insurance is better for the consumer (you) than whole life because it serves your needs, not the needs of the insurance company and its agents.

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