Paying down debt is easier if you use science to guide your decisions. Image: Flickr / Moneyblognewz / CC-BY

If you are working to pay down credit card debt, you have a lot of choices to make. Depending on how many cards you have and the amount of credit card debt, maximizing your money can be tough. Science has shown that the decisions most people make to pay down credit card debt should be re-thought.

The science of how to pay down credit card debt

In an effort to pay down credit card debt, studies have found that most people do not make the best financial choice. If given the option, most people pay down the credit card debt they can “get rid of” first, even if it has the lowest interest rate. This is because closing a loan or credit card makes it feel like you are making more progress, even if it gets you out of debt slower. Instead, the card with the highest interest should be paid off first.

Understanding credit card debt interest

The interest on credit cards should be the first consideration if you’re working on paying down debt. Cards and loans with the highest interest cost you the most money. The annual percentage rate is what the credit card company is charging you just for the privilege of owing money. The highest interest rate costs you the most money and compounds the fastest. Even if you have a small loan that you could pay off, it is smarter to put money toward the highest interest debt.

Basic steps to pay down credit card debt

Now that you know which credit card debt you should pay down first, how do you go about it?

1. List all your debts. Order them by interest (APR) and start paying on the highest interest ones first.
2. If you don’t have one, create a basic household budget to find out how much you can spend to pay down credit card debt.
3. Pay more than the minimum amount. Minimum payments keep you in debt – paying extra means paying it off.
4. Find extra money to pay down your debt. Try recycling or finding a part-time job.
5. Don’t raid your savings. While it may seem like an easy answer – borrow from your 401k or house – leaving yourself some breathing room for unexpected expenses is important, lest you end up having to use your credit cards and end up in debt all over again.

Source

Marketplace

Creating Multiple Income Streams Online

Just about everyone knows about selling items on eBay or Craigslist, and while both can be very lucrative ventures, these work-at-home ideas have been done to death and won’t be listed here. However, the following are a few very realistic suggestions for how to make money online:

Flipping web sites

If you are skilled at making web sites, turn that talent into fast cash by creating web sites on various niche topics and selling them for profit. Take the time to learn how to research profitable keywords and how to create SEO (search engine optimized) copy, or contract someone to do both, and you can easily create a new income stream to help pay down debt.

Sell Domains

Buy popular domain names and sell them for profit. Again, this will take a little knowledge about researching popular keywords, as well as a little luck in creating domain names that people will actually want to pay you for, but this can also be one of the more profitable ways to make money online.

Sell Ad Space on your web site, Facebook or blog

If you have a web site, a Facebook account or a blog, consider featuring non-intrusive advertisements to create additional income for yourself. To make even more money, invest time in learning how to increase your blog’s traffic and, thus, increase the value of your blog to merchants who may want to advertise to your audience. There are tons of websites and information products related to this income stream.

Affiliate Marketing

To increase overall sales, companies and individual entrepreneurs will pay a percentage of profits on sales originating from a third-party blog or web site. By researching Internet marketing, most find that a lot of information on how to get started in affiliate marketing can be gathered for free or at a very low cost online.

Sell on Facebook’s Marketplace

Most people have a Facebook account, but few know about the ways in which they can turn their participation in Facebook’s community into profit. The next time you’re in need of fast cash, mosey on over to the Facebook Marketplace and consider posting items or services for sale there. Similar to Craigslist, this is also a good place to save money when looking for everyday items or even for specialty items, such as textbooks or electronic equipment.

Become a Virtual Assistant

With more and more work being performed online, people are finding that outsourcing things like clerical tasks, web research and a variety of other services is actually beneficial to their bottom line. Instead of paying for additional office space to house an assistant, equipment costs, insurance costs and full-time pay, savvy entrepreneurs are realizing that contemporary technology makes it more cost-effective to hire a virtual assistant. By providing services like these, a VA is able to operate her own business from home with nothing more than a computer, an Internet connection and a telephone.

Each of these ideas, as well as the suggestions that will be featured in part two of this series, can be started on a shoestring budget. Anyone interested in pursuing one of more of these can easily find all of the information that they need right at their fingertips with a simple Internet search. With so many ways to make money online, there is no excuse for anyone not to have multiple income streams.

Saving habits have changed

Studies are showing that the economic downturn changed consumers’ savings habits. The hefty unemployment rate and the lack of credit options worked together to create a difficult situation for consumers. Adding to that problem were the mortgage issues and the suspension of corporate 401k matches. Combined, all these things caused Americans to have to tap into savings and that move left them with diminished nest eggs for the future.

The result of a decline in savings

The decline in savings is set to make some serious changes in the future of Americans. First of all, without a nest egg squared away, many people are already accepting the need to postpone retirement. No longer are workers looking to exit the workforce in their mid-60s. In today’s world, they are looking for a much longer work-life that extends well into their 70s. A growing number of Americans say they will continue in the workforce for as long as they are able.

What seems to be changing as the years go by is less Americans are focusing on saving and more are focusing on getting by. Experts attribute the change in focus to the credit lending crash of the recession. Prior to the recession, many people relied on credit for emergency bills and monthly expenses. Lenders extended unwarranted credit to sub-prime borrowers and handed out millions in funds to consumers who had little ability to realistically repay the money. When the recession began, lenders quickly shifted their priorities to mitigate loss, rather than extend more credit. That mitigation meant increasing interest rates to unmanageable levels, cutting limits and tacking on fees. Lenders were focused on maximizing their income due to the huge number of defaulted loans. Increasing the cost of credit only caused more consumers to fall into trouble.

Consumers focus on debt

Saving cash now is a priority, but many Americans are just getting back on their feet financially after suffering huge losses as a result of the recession. Surveys are showing that most money is still going to paying down debt. Consumers see the problems debt can create and are suffering through heightened interest rates. They understand the cost of credit and are trying to get rid of it as quickly as possible.

Retirement in the future

Experts say that retirement savings, including Social Security benefits and pensions, should add up to 80% of pre-retirement income. They tell customers that making that 80% goal is not difficult. In general, most consumers can meet the goal with a strict rule to save 7-10% of their monthly payday cash now. Though budgets are stretched, most Americans can reasonably find the money to save. Most savings goals for retirement can be reached if people understand how to manage time and budgeting.

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Consumers are Encouraged to Continue Saving

In the past, economists encouraged consumers to maintain cash reserves of two to three months of monthly expenses. Then the economic downturn happened and people who had the recommended three-month’s worth of savings went through it quickly. Millions of people were laid off and realized just how small an amount that really was to fall back on.

Now that the recession is over, more and more groups are cropping up and encouraging Americans to once again start saving. In case of disaster, or continued economic stressors, people need to have the funds to maintain their bills. One of the biggest problems with this past recession was that in addition to economic hardships, jobs were eliminated in mass numbers. Even the most qualified consumers were unable to find jobs immediately and spent months, even years, searching for employment.

“America Saves Week”

The “America Saves Week” is one event that is proving how important it is for people to save their cash. Fortunately, a record number of people are listening. A recent Gallup poll showed that 62% of Americans say they enjoy saving now more than they enjoy spending. In 2006, that number was only 50%. Americans also realize that their newfound saving plans are quickly becoming the “new normal.” Families that cut back during the recession are continuing their frugality and hoping to increase savings and pay down debt.

Debt post recession

Americans realize that debt is bad. Though for many years debt has been thought of as a convenient tool, borrowers are now realizing that it comes with a price. Currently, it isn’t uncommon for credit card companies to charge hefty fees, along with double-digit interest rates for the cost of extending credit. And if a consumer’s credit score is low, expect both to increase considerably. Because of the changing face of credit, finding money now is crucial to keeping up with bills. Consumers know that they need to shore up their nest eggs if they are to pay for bills and forgo all the issues credit brings.

Changes in Managing Finances

The way Americans are handing debt is also changing. They are trying to pay down debt, and they are also trying to manage finances wisely. For example, the Gallup poll also showed that more and more people are trying to round up their mortgage payments in an effort to pay off the loan sooner. For example, on a $200,000 loan, at 6% interest for 30 years, the payment is about $1,240. Rounding up to a $1,300 payment monthly shaves about $24,000 off the total loan. Americans are jumping on the “rounding up” bandwagon and using it to their advantage.

Focusing on the financial future

In the end, saving is a big responsibility for every consumer to take on. With people stressed financially, it can be difficult to initiate a new budget. For consumers who are determined to find money now though, it can pay off in the future. Paying down debt and then managing money wisely can save long-term funds for any wise American.

Consumers looking for fast cash should use their tax refund wisely. When consumers get a tax refund they are receiving a government repayment made up of the principal of a year-long loan. Interest isn’t included in the payment and a lot of consumers are paying too much during the year. The way to manage this is to adjust withholding at times when a situation changes, i.e. a home purchase, sale, marriage, etc. Taxpayers who end up getting a good tax return should be wise with the extra money and carefully put the funds to good use.

Using a refund to pay down debt

By far the most important thing to do with a tax refund is to pay down debt. Since the recession forced people into hefty debt, a record number of people have been overcome with large interest rates. The accumulating debt needs to be paid down if anyone is to get out from under financial stress. Using a tax refund to pay down debt can be a good idea. That doesn’t just include credit card debt, but also can mean paying down a mortgage, car loan or student loan. For example, paying one double mortgage payment a year can shave the loan’s lifespan by two years.

Building an emergency fund

Tax refund money can also be used to build up an emergency fund. One thing consumers learned throughout the recession was that cash reserves are the only sure-fire thing to count on. Credit lenders closed their doors when the economic downturn was the most difficult. Consumers who thought they would keep one emergency credit card stored away were surprised when lenders closed the unused cards or at minimum, slashed limits.

The lesson to be learned was that liquid assets are crucial for every consumer to have. When it comes to a tax return, the money can be used to start a good financial reserve. This can guard against emergencies and disasters that need immediate cash. Experts suggest every consumer should have between three to six months worth of expenses saved up as emergency money.

Putting a tax refund towards a retirement savings

Fast cash from a tax refund can also be channeled towards retirement savings. Saving for retirement should be a priority for every consumer. With the dissolution of Social Security, more and more consumers are going to have to have their own retirement plan to sustain them. Experts caution that other priorities should not take precedence. Mark Zandi of Economy.com said, “Too many young parents prioritize their children’s education fund before their own retirement. The bottom line is – education can be funded through loans, grants, scholarships and part-time work. Retirement can’t.”

Fund an education account

On the other hand, if a consumer has their own retirement fund on track, using a tax refund for education may be a wise idea. It’s never too early to start saving for college and the cost is going to rise steadily over the next few decades. There are many savings plans available, including an ESA plan and 529 plans. Though there is the sacrifice of putting cash into the account now, it will save money in the long fun and a good education will be critical in years to come.

Tax refund money

Gone are the days when consumers viewed a tax refund as fast cash to spend frivolously. In today’s market, it’s crucial to manage money wisely. It’s especially crucial to manage money that comes to consumers in hefty amounts. As Zandi added, “Substantial amounts of money don’t come to consumers that often, so a tax refund is something everyone should be ready to take advantage of, and use in the most beneficial way possible.”

Need a tax refund loan? Apply HERE!

Learning to cook can help improve your credit score (photo: flickr.com)

Credit repair services are on the rise as people figure out ways to save money and build wealth so they can pay down debt.   Paying down debt is a key element of credit repair, and obviously, it takes money to pay down debt.

But do you realize that if you just stopped wasting money when you buy groceries, clean your house, or pay for auto insurance, you would have the money you need to pay off debts and get your credit report cleaned up?  Here are a few ways to free up cash so you can start paying off those past due debts.

Eat more healthfully

Most of the typical food budget is dedicated to convenience foods that you could make yourself for pennies on the dollar. Instead of buying prepared mixes and processed foods, invest in a good recipe book and learn to cook.  Not only will you eat better and have fun in the kitchen, you’ll save money that you can apply to your credit repair.

Do you always need to buy brand-name foods? If you buy less-expensive generic foods, you’ll get the same quality while saving on your food expenses every month.  If you exercise just a little restraint at the grocery store, you’ll actually eat better and save enough to pay off your credit cards years earlier than you would otherwise. Credit repair is only a matter of living and spending sensibly.  You’ll save money to pay off debts, and you may even find that you enjoy life more!

Use safer household cleansers

Commercial cleansers are big money wasters.  Many of them are just chemical versions of natural cleaners you can make on your own with everyday ingredients. By using essential oils, lemon juice, borax, and vinegar, you can create your own healthful cleansers and save money every month.

Be frugal about energy usage

Energy bills are big-ticket items in any budget, and utility rates are expected to get even worse in the near future. In the winter, make sure you cover all drafts in your house by using plastic on your windows and blocking cracks around your doors. Depending on how well insulated your house is, you may be able to save extra money by using an energy-efficient space heater and turning down the thermostat.

Reconsider comprehensive auto insurance

Comprehensive insurance – coverage for a full range of potential hazards rather than just accidents and theft — can be a waste of money when you’re trying to pay down your debts and improve your credit score. Of course, if you’re making payments on your car, your lender may require you to carry comprehensive insurance.  But if you own your car outright, think about carrying the minimum insurance required by law and save yourself the much higher premiums paid for comprehensive coverage.

Buy a used car

When you buy a new, you lose a huge portion of its value the minute you drive it off the lot. In today’s market, used cars are far from clunkers.  When you buy a newer used car from a dealer, it looks and feels like new, comes with warranties, and has all the new-car bugs worked out.  If you’re in the market for a car, buy a used one and apply the money you save to payment of your debts.  The savings you’ll get by buying used instead of new are so great that if you apply them to your debts, you’ll be well on your way to an improved credit score.

Get ahead of the game right now

Credit repair is not just for people with extra money lying around. If you cut down on expenses right now, where ever you can, you’ll find the extra $100 to $300 per month you need to pay down your debts, even in this economy.  Think how great it will feel to be out of debt and ahead of the game when economic climate finally improves!