One of the worse financial fears we have is getting a call from a collection agency especially when we really owe the money. The second worse? To get a call from a collection agency when you know you have no debt or you know that you are not past due with any of your current creditors.
Somehow, that one little phone call can make you feel as if you have lost all control, especially after working long and hard to reach some semblance of financial freedom. That call from a collection agency can be just as frightening now as it was then and throw you off balance.
Questions flood your mind and you start to sweat. You wonder if there is some old debt haunting you. You mentally check your current creditors to make sure you have not missed a payment. Then, you wonder what the heck is going on and "who are you people trying to ruin my life!" That’s just the first five seconds!
But take a deep breath. It is recommended you get educated now because with identity theft running rampant and bogus collection agencies trying to collect whatever they can, you need to prepare yourself.
Collection Agency may be legit but the debt is not yours - Mistakes can be made. We are, after all, human. However, as scripture states, "...so be shrewd as serpents and innocent as doves." Matthew 10:16.
- Don’t panic – they already have your number but the rest of their information may not be correct
- Don’t get mad. Let them say their peace so that you can find out what they have to say and then you can let them know the truth and share it with them
- Do be informed. Know that you as a consumer have rights. If this information is indeed incorrect and the creditor refuses to acknowledge that, let them know you will follow up with a complaint to the FTC and CFPB, as long as you are certain it really is not yours.
Collection Agency might not be legit or they are trying to collect on old (very old) debt. This is when you really need to protect yourself. This type of collection call is trying to get you to agree to pay the debt and maybe, get you on the hook to pay off debt that has passed the statute of limitations (link for Florida residents) or you may have even paid it off already.
- Don't say anything that indicates the debt is yours. Make them prove it.
- Do some research of your own. Pull a free credit report to determine if the debt has been reported to the credit bureaus. It is also a good time to check your report for errors if you done so already. Get a Credit Report Review Session with a Certified Credit Counselor to help you read your report and develop a plan of action to improve your credit report.
- Do force them to verify the debt. In most cases: "You should send the debt collector a written request for verification of the debt within 30 days after receiving the validation notice. The debt collector will then be required to provide verification of the debt to you before recommencing collection activity. You may also wish to contact your bank (if you believe you paid it already) for copies of old bank statements or contact the creditor to determine whether any payments were applied to the debt in question." (from Ask Doctor Debt).
The key point to remember in either situation is that you do have some power over the situation. You do not have to be bullied and you should have a civilized conversation with the collection agent. Get as informed as possible. If you'd like to review your credit report, follow up with Family Life Resources, Inc. to complete a review session with a Counselor. The session will help you review your goals and set up a plan of action to improve your credit report and take away some of the fear of dealing with a collection call.
You've begun to realize your finances are not what they should be. Actually, you've known it for awhile but you were just too ashamed to admit it, even to yourself. And, you're certainly NOT going to tell anyone!
Living in financial shame means we believe we have made too many "stupid" mistakes with our money and have fallen short in managing our finances. We begin to believe we cannot climb out of the financial mess we have made for ourselves. We begin to believe this is our life. Worst of all, we believe we are alone.
Most of us are understanding when we hear of others having financial difficulty but we tend to be harder on ourselves. We recognize we are in a tough economy and people lose jobs. It is understandable that someone would have financial problems when there is sickness and death. However, when those things happen to us AND adversely affect our finances, we suddenly feel shame and want to hide our circumstances by trying to live as if everything is OK which, of course, only escalates our financial situation.
When bad things happen, it is not the time to go into hiding and pretend everything is ok. It is a time to get into your financial battle stance and begin fighting for yourself and your family. You need to alter your financial lifestyle and come up with financial solutions instead. So, here are some steps to eliminate financial shame; grab it by the ear and kick it out of your house forever!
GET ACTIVE - Shame can very easily turn into depression. The best way to overcome both is to get busy. Take the time to start asking questions about finances. How do you make a budget? What are my priorities in spending? Who do I or don’t I pay? Make yourself study! Get on the internet, go the library or meet with a specialist in finances to help you answer your questions.
TAKE IT STEP BY STEP - Every overwhelming situation demands we take a step back so that we can perhaps see our problems from a "birds eye view." When we are so close to a problem, it is hard to see what is going on or if there are even any solutions to resolve the problem. It is hard to deal with it especially if we are emotionally overwhelmed by it. So, take a step back, look at it from other angles and then, with some possible solutions in mind, follow through on them step by step.
OPEN UP - Share your situation with others you know you can trust. Whether it is your best friend, your pastor or a Certified Credit Counselor, just talking with someone will help you gain a better perspective of your situation. It may not be easy to open up at first but, you will definitely feel better and less alone if you do.
Debt takes time to alleviate. So does healing from some of the life situations that may have catapulted you into a financial crisis. Unfortunately, life usually doesn't slow down or clean up easily. Our lives are not TV shows that get better in 30 minutes to an hour. Most likely, no one will be dropping by with a check to pay your bills. And the lottery? Probably not a winner. Therefore, we have to take our financial healing as it comes which, is generally a slow progress from a high negative balance to less of a negative balance to (hopefully) a positive cash flow.
Financial crisis happens to almost everyone. Shame and self recrimination will not solve your problems. Taking control, setting goals and doing your best to meet those financial goals will. Get help! Contact Family Life Resources, Inc. for more information. They can help you develop a "plan of action" you can get behind...not hide behind!
Will the year 2013 be a better year for you than 2012? For many, personal finances will continue to be the "elephant" in the room. More people borrowed money from their retirement fund last year to make ends meet. For some they have been laid off and needed the extra money just to get by. For others, they fell behind on mortgages or needed the money for college tuition. What ever the reason, the cost of borrowing from your retirement is high and unless you have a way to replace the loan, you may find your lifestyle in your golden years less appealing then expected. Unfortunately, this trend is continuing in 2013.
Here are four reasons NOT to borrow money from your retirement fund:
1. Borrowing money to make ends meet while you still have income is avoiding reality.
If your income is not enough to meet monthly expenses then you need to look at your cost of living and make adjustments. Keeping up a lifestyle and hoping additional income will become available down the road cannot be sustained.
2. Those that encourage you to borrow from retirement may make money off your decision.
Be careful about advice you receive. Remember each family is different and what worked out well for others may not be in your best interest. Also understand there is a cost to borrow your own money. Your taxes may increase due to the increase in income, there may be a penalty for cashing out your retirement or you may need to pay someone a commission depending on the type of retirement plan you have.
3. There may be penalty or hidden costs to borrow from yourself.
When you make an investment into a retirement plan such as a IRA or 401(k), the money is not taxed until you withdraw it. When you add the 10% penalty for withdrawing the money early, you have not only lost some of the money you were hoping to have BUT have also lost out on the possible investment money you could have earned if you had left that money in the account. In some cases, you also have to pay the money back through a monthly payment plan. Can you add that expense to your budget without difficulty?
4. Making up is hard to do.
To make up the loss of investment income and replenish the account, you will need to increase your savings in the future. You are gambling that the future will be better then your past. In today's economy, that is a huge gamble.
Sometimes borrowing money from your retirement fund is necessary. So, what is the alternative if borrowing from yourself is not the answer? Start by identifying the reason you need to borrow.
Meeting with a professional certified credit counselor can help you determine the best action for your needs. We at Family Life Resources, Inc. can help you assess the issue and create a plan of action to determine your next steps. We encourage you to build a budget of your current lifestyle so you understand where you are at financially at this time.
FREE EDUCATIONAL COURSE ON BUDGETING!!!
CLICK HERE and fill out our form to download a free educational course on budgeting that will help answer your questions and provide a budget template for your use. This course is FREE....so take advantage of this information to help you have a better financial year in 2013.
Impulsive spending can play havoc with your budget and place you over your own personal "financial cliff." "Kicking the can down the road" doesn’t work well for the government and it will not work well for your personal finances either. Americans are bombarded daily by advertising that entice consumers to “indulge” themselves with the newest and hottest item. We are sold on the idea that owning this new item will make us happy and bring us contentment. Forget about having a budget! Forget about the real cost of the purchase! That is what plastic is for, to spread the cost over several months or years. Don’t balance your check book because niether you or the bank will make a mistake! And the newest trend? Don’t carry cash because using a debit card is so much easier.
All of the above thinking can easily lead to impulsive spending. This past Christmas season might be an excellent example for many people; no plan and therefore, no money left. Not only are we made to feel guilty about what we should be spending on friends and relatives, but we also get into impulsive spending on buying for ourselves. It is estimated that over 60 % of people spend at least $140.00 on “non-gift items” they will use for themselves. Look at the line of people waiting on Black Friday for those TV and laptop specials. Not many of those were going to be gifted to family and friends.
So we are faced with a challenge. We bought for others and we bought for ourselves. The impulse monster found our Achilles heel. Now what to do? Here are five tips to bring balance back to your financial life:
Don’t Panic! Now is not the time to feel guilty. Guilt rebounds back on you over time until you either reason the guilt away or just not care anymore. Guilt is not productive and will not help you move forward with your financial goals.
Set realistic financial goals. You may not be able to pay back all of the debt you accumulated this year but you can commit to not adding to the debt.
Look for ways to earn extra money to apply to your debt. Garage sales and trade listings by sites like Craig’s List, Ebay, Oodle and Adpage can help you sell unwanted items. I have a friend who finds items for other people. They pay him a 10% finders’ fee to pay for his time and talent. Commit to apply all extra money you earn towards the debt.
The number one behavior that contributes to impulse buying is not having a written budget. You need to know what your lifestyle is costing you in real money….each month. Once you have this knowledge than you can make informed decisions on future spending.
This last tip is a big one. Take responsibility for your finances. Only you can change the financial situation you are in for 2013. It isn’t because you are not being paid what you are worth. It isn’t because everything costs too much. It isn’t because life has not been unfair to you. It is because your past decisions have placed you where you are today. Don’t be a victim of yourself. Get knowledge, be prepared, and make sound financial decisions.
You can stop yourself from going over your own financial cliff. If you want some helpful financial knowledge, go to our website at FLRMinistry.com to find financial tools to help you set a budget and understand how to handle your finances. All of our educational tools are free.
Today, I prayed.
I was leaving Kmart (again), after using my gift cards (not credit!), and met a woman named Barbara. As she approached me, I felt the same "Oh no" feeling. So many thoughts and feelings go through me at the same time. Is this person safe? I know she has a story but, is it true? I want to run away because I don't want to face the fact that this person could just as easily be ME but for the grace of God.
Then I remembered. I need to pray for her regardless of what I was feeling. I needed to pray for her whether her story was true or not. I needed to pray for her because I needed to pray for her!
I literally watched myself stand up straighter, shoulders back and took a deep breath as Barbara approached me and told me her story. Apparently she had several surgeries, she is living in a hotel with her two teenage daughters and just needed some financial help. I still couldn't tell if what she said was true or not but, I do know my heart broke for her and it turns out it really didn't matter if her story was true or not. What mattered was that she needed prayer.
So, to battle my fears, I sorta of pretended I was at work (Family Life Resources, Inc.). One of our specialties is that we take the time to hear a person's story and then, if permitted, we can pray for them. So, after hearing her story and giving her some money, I asked her if I could pray for her. She said "Yes! I believe in God and what He can do!" So, feeling compelled by her story and mine, I prayed for her. And, I prayed hard! I was reaching for God not only for her but for myself. I had to believe she (and I) really did matter in our little world in the Kmart parking lot. I do not know where the words came from but they came. I did not know what she did while I prayed because I closed my eyes and presented the two of us to the Father because our lives depended on it. If others were watching, pointing, wandering, well, I did not see them and for a moment, I lost self-consciousness and did not care. I felt so...strong. I know, funny word to use but it is true. I just knew God was listening. I just knew He would do something with this women's life. She had no choice now and neither did I. God was going to move!
When I finished, I opened my eyes and she was crying. She thanked me. We hugged. We both knew something was different. We talked a few minutes longer then, I watched her wander off wiping her eyes. She walked towards someone else. I smiled. Although I would have loved to see a car pull up (maybe Oprah or Steve Harvey?) and offer her a job, medical coverage, a house, a car, something, I knew that this was her life right now. I understand that. She would still have a hard time but I have to continue to believe with her and for her that her life was now going to change. Not just because I prayed but because I know that when I (we) pray, God listens and He is so willing to move on the behalf of all of us. For Barbara, it will soon be an improved life whatever that means for her as that is between her and God. I know that for me, I was made a little stronger and a little bolder. I am a little more satisfied with life. I know too, that my relationship with God is still as adventurous as ever!
Follow up to - My Christmas Letter - Remember to Pray
In my last blog, 5 Financial Actions to Take Now That The Elections Are Over, I discussed guidelines for securing your finances by managing your money. As I stated, those guidelines have been used for decades as tried and true ways to manage your money and to prepare for crisis situations when they come. However, there is a different culture today that does not seem to value the traditional models. Actions like balancing your checkbook, carrying cash to pay for items, and saving for the future are things of the past. Today’s families bank online and depend on the honesty of the bank to keep track of their balances. Many prefer to carry debit and credit cards verses carrying cash. The consumer mentality makes it difficult to encourage people to save for the future. Various reasons are cited and include:
- Life is too busy;
- I don’t really care to manage my money;
- It’s someone else’s responsibility to let me know if there is a problem with my account.
When a financial crisis occurs, most are not even aware of what or where to locate the problem in the budget. They don’t know what the cost of their lifestyle is and only want to make sure they can continue the pattern and consume what they want, not always what they need. How can we, as credit counselors, help people have a secure financial life? I am not sure we can but, we can try. It will take motivation to make changes. What that motivation will be I am not quite sure; I just hope people will take that needed step. With that said, here are some suggestions for managing finances to avoid, or at least soften the blow, of a personal financial crisis:
- Stay out of credit card debt. The number of bankruptcies increased between 2007 and 2010. They leveled off starting in 2011 as well as in 2012. They helped to wipe out thousands of dollars of credit card debt. If you filed bankruptcy, staying out of credit card debt will put you in a better position should your financial situation change
- When consumer confidence is up, big ticket items become popular. Take a deep breath before spending money on new cars, ipads and TV’s. Again, you are keeping your obligations within reasonable range should you financial situation change.
- If you decide to live with someone, keep your finances separate. Don’t go into debt together for a car or home. Don’t co-sign for your significant other (or any member of your family). Keep separate bank accounts. Separate the expenses so you are on equal ground of who is paying which account. You don’t want to be stuck with a debt should your friend decide to moved on.
- If you have a job, try to keep it. When the economy is good, jobs are plentiful and you can improve your financial situation by moving up in different companies. Company culture is very different today. The longer you are out of work, the harder it is to get a job. Even if it is just a part time job or beneath your skill level, don’t quit just to find a new job. Look while you are still employed.
- If you own a home, maintain it the best you can depending on your financial situation. Keeping the outside clean, painted and the lawn mowed will help you keep what value you have in the home. Paint the inside every three to five years. Fix tears in the flooring, seal the windows, and clean the gutters. All of these actions costs little compared to the resale value you will have once the housing market rebounds.
Let’s get ready for the New Year and new resolutions. Should you wish to discuss your financial situation with a professional counselor, contact Family Life Resources, Inc. for an appointment. Review your credit report, your budget and get ready to improve you financial situation. Our Counselors are very motivating and can give your the financial tools you need to get on the right financial track. Visit our website at www.FLRMinistry.com. You can "Like" us on Facebook and "follow us" on Twitter.
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You or someone you know probably have adult children living with them. A combination of college graduates unable to find permanent employment, couples now separated by divorce and not being able to live on one paycheck or adult children unemployed for several months and no longer having the financial resources to fully support themselves have created a culture of long term financial support from parents. Parents in their 50’s and 60’s now place their own retirements at risk in order to financially help adult children. So how can parents “help” without losing their sanity (or their finances!)? Here are five tips that may help:
- Make sure that the adult children help around the house. They are not a sixteen year old child. They need to be a major part of your family with responsibilities to help the family function (especially if you are working and they are not). This could include doing the cooking each night, doing the laundry, and helping with the cleaning. Parents I have interviewed say they feel they have been “invaded” by their children. The adult children need to respect the parents space by keeping their space tidy.
- Parents are not the on call baby sitter. Adult children have a life of their own and parents need to respect that. The same is true for you. Adult children do not need to expect parents to baby sit on demand. Although unexpected things happen, it does not mean that parents must act as the main transporter of grandchildren to activities, rides home from practice or nursing them when they are sick. This is not to say agreements cannot be made that are fair to you and helpful to them.
- Encourage adult children to find employment even if it is not in their “field of interest.” They need to be contributing financially to the family in some way if possible. This is not a time for adult children to set around trying to find themselves. They can do that by expanding their mind as they work even in menial jobs.
- Define in specific terms how you will provide financial help to them. Take into consideration the free rent, utilities and food when determining how much financial help you will give. Often times, adult children expect that kind of help and do not give it the value it should have. You may also decide to help with car insurance, school supplies for grandchildren and maybe gas for the car if they are job hunting. It is not advisable to give money for clothing, eating out, or recreation. Give them a motive to find employment. If you pay for everything, why should they work?
- If possible, try to set a time limit that you will provide financial assistance. Set a time line where goals should be completed. Whether it is job hunting or finishing school, a time line will help each party know what needs to be done. If they are job hunting, then follow up with them on how many interviews they have had and suggest any networking tips you find. Don’t leave them on their own to locate employment. It can be very discouraging but that is part of the learning. Keep pushing them to do their best.
Don’t let their problems become your problem. They need to be active in solving their own issues whether it is how to find money for gasoline or how to pay the car insurance. You are not their “bank”. To do so puts your financial future at risk and you do not want to become a burden on them in later years. They may not be able to help you financially so it is up to you to put your needs first. That sounds hard, but these are ADULT children and may not even realize the financial strain of helping them has placed on you.
If you would like counseling assistance in this area, contact Family Life Resources, Inc. Visit our website to find our programs and educational material. We will be glad to meet with you and develop a plan so your adult children can get the help they need and you will have action steps defined for everyone involved.
Recently, I spoke with a client who stated, "You are an answer to my prayers! I have been asking God to help me with my finances and this (information) will be a great help! Thank you!"
Wouldn't that make you feel good too? It is a wonderful thing to be able to help others. It is a very wonderful thing to be that part of someone's life who has been calling out to God for help and to see it come to pass.
When moments like this happen, it reminds me to stop looking so hard at the big picture and the overwhelming (financial) circumstances all around us. Instead, I simply need to look at the snapshots of our daily lives and the positive effect we can have on each other. We can all be a part of helping others succeed not only financially but also spiritually.
We all wish to be out of debt. We all want financial peace. Unfortunately, it may take time. But, maybe not so unfortunate if we think of it on a spiritual level. Looking at the following scriptures we know our sufferings can teach us much:
Romans 5:3 - Not only so, but we also rejoice in our sufferings, because we know that suffering produces perseverance; perseverance, character; and character, hope.
2 Peter 1:5-7 - For this very reason, make every effort to add to your faith goodness; and to goodness, knowledge; and to knowledge, self-control; and to self-control, perseverance; and to perseverance, godliness; and to godliness, brotherly kindness; and to brotherly kindness, love.
I hear so many stories of financial difficulty but, instead of being depressed by them, I am actually encouraged by the people. Keep in mind, most people are suffering from more than one crisis. By the time I am called, losses are usually in two's and three's. Most have lost a home and a job. Some have lost a job and are diagnosed with a health issue and lost a loved one. The list of crisis goes on and on. However, I am always amazed at the courage the majority of individuals have, their endurance and their willingness to persevere. Many people could have given up hope in these last years of economic decline on top of everyday sorrows but they have remained hopeful and faithful to God.
And then come the miracles! That is, they receive little snapshot moments in their lives that help propel them forward. Snapshots that remind me and those around them of how good God is. They tell me stories of how they have been provided for when they least expected it. They have seen empty cupboards unexpectedly filled. The job they have been waiting for finally comes through and it is better than they had ever hoped. Or, an inner faith and strength comes through, that they didn't even know they had and, they just simply continue to trust that God is faithful and that He will continue to guide and show them the way.
As a Certified Credit Counselor, I have learned that solving financial difficulties isn't just about budgets, credit cards and cash envelopes. Although these are important factors in a setting goals towards resolving financial issues, certainly faith and trust in God is primary. And for those that are struggling spiritually, I can offer them HOPE.
In closing, here are my seemingly very simple suggestions towards reaching spiritual financial peace:
- Go to God first and PRAY - the minute you begin asking why or what to do, turn the question to God and ask for His guidance. His answers can come in many forms so keep a look out!
- Seek His wisdom - Find out where you went wrong, where you went right and how to move forward in your situation. Ask for advice from other who are trusted. Review God's word and let Him reveal His wisdom on how to handle your situation, financial or otherwise.
- Trust in the fact that He will indeed lead you and guide you towards real financial peace and that all will be well as you find the "peace that surpasses all understanding - Phil 4:7"
One more scripture for the road...Numbers 6:24-26 - May the Lord bless you and keep you; the Lord make his face shine on you and be gracious to you; the Lord turn his face toward you and give you peace.
Images Credit: FreeDigitalPhotos.net http://www.freedigitalphotos.net
You can take five families that make five thousand dollars a month and they will each spend that money differently. In many cases, those spending patterns were a decision made without much thought of how those monthly payments will affect the family three years from now. Coupled with that, the average American family spends about 15% more then they earn. It is no wonder the downturn in the economy has devastated so many families. They just did not have the financial resources to handle any unplanned financial crisis.
So, how can you stop being a victim of your own financial decisions? By paying attention to your finances. A good place to start is by understand and develop your "Spending Categories." Each of us only has so much money to live on and, whether you have a mortgage or rent, make car payments or ride the bus, buy groceries or eat out, everyone has certain categories in which they will spend money.
Remember, we are speaking of net spendable income; that is, your actual take home pay. If you have money taken from your paycheck each pay period to cover say, your car payment, be sure to add those expenses to its proper category. Let's look at some of those categories and consider what the guidelines suggest and compare them to your current financial categories:
- HOUSING - How much are you spending in this category? Is it 38%, 50% or even higher? Generally speaking Americans spend about 38% of their income on housing. This includes taxes, utilities (cable, internet, electric, gas and telephone) as well as house or renters insurance and maintenance.
- TRANSPORTATION - Usually, you can plan on spending around 15% of your income on transportation. Owning an automobile requires more than just putting gas in every week. Regular maintenance and repair should be taken into consideration. You should include oil changes, tires, and batteries as just a few of the upfront expenses found in this category. If your driving record has a blemish, even car insurance can take up a large potion of your paycheck. Do you pay to park or take toll roads? These fees should be included in the transportation category as well.
- FOOD - This is another category that requires a major potion of your income, around 12%. This not only includes money spent at the grocery store but also money for lunch, and snacks. My friend would stop every day for a frozen drink at the gas station. It was only a dollar a day but that ended up costing $30.00 a month. She often had her children with her so she bought candy for them. For those of us who love Starbucks, we can easily spend $30.00 a week. Those little items can add up and blow your grocery budget (and the rest of the budget as well).
- MEDICAL INSURANCE - Until we get sick or suffer some sort of injury, we tend to put this category aside. Medical insurance, for some can be an expensive item. Most spend about 5% of their income on medical expenses. However, others, such as my friend spend $1500.00 a month out of pocket for medical insurance. So, it really depends on your needs, family size and if there is an illness to be concerned about. For those with ongoing medical issues, you will need to adjust this category to a higher percentage.
- CLOTHING - Clothing is an area most people do not keep track of throughout the year. One can expect spending around 5% of your income on clothing, but that could change depending on the age and number of your children, expected dress for work and region of the country where you live. Colder climates require heavier more expensive clothing than that required by the Sunshine State.
- RECREATION - Eat out lately? Rent a video? Recreation is another area that is not closely tracked. You can expect to spend around 5% of your budget in this area but many families spend more. This category includes vacations, sports, hobbies, eating out and events. Children’s sports can be very expensive especially if it involves overnight stays in hotels etc. This is definitely an area to pay attention to.
- OTHER CATEGORIES TO CONSIDER - You should not be sending more then 5% on credit card debt. The best way to free up money is to pay down your debt. Gift giving is another category that is not tracked by most people and can have emotional ties. Christmas is just one holiday. There are anniversaries, birthdays and graduations gifts as well. A 5% budget for this category is in line with national averages. While this is listed last, it should come first. You should be saving at least 5% of your income for emergencies and another 5% for your retirement.
Let’s look at a family bringing home around $5000 a month. How do these categories break down?
||$1900.00 a month including taxes and insurance
||$750.00 a month including insurance ( putting money aside for car repairs)
||$600.00 a month
||$250.00 a month
||$250.00 a month
||$250.00 a month ( remember you are saving for a vacation)
||$250.00 a month
||$250.00 a month
||500.00 a month
How does your budget stand up to these guidelines? By not paying attention to these categories, you will affect your financial lifestyle in a negative way. For example, buying too much house, accumulating too much credit card debt or just simply paying overdraft fees and late fees all of the time can devastate a budget. Before you can manage your money you must know your current spending pattern.
Contact Family Life Resources, Inc. and speak to a Certified Credit Counselor to help you resolve financial difficulties.
How Much Is Too Much Debt?
Realistically we can expect to have some debt as part of our financial picture. The question is how do we know if we have too much debt? You cannot judge this just by the amount of debt alone. What can seem a manageable amount for one person may be too much debt for another.
While credit card debt is the usual culprit, any debt can spiral out of control. In the last few years, a once affordable home grew from a dream home to a nightmare due to mortgage payments increasing because of increased taxes, increased home insurance rates or it decreased in value due to the housing bubble that burst and left many with underwater mortgages.
The best way to gauge your debt is to look at your debt to income level. A debt to income ratio is determined by the combination of all of your debt compared to your income level. By calculating these figures, you can determine if you are headed down the road to financial stress. To calculate your debt to income level:
- First add up your total income. This includes income from your job, child support, benefits, pensions and any government assistance you might receive ( ex: food stamps) as well as any support money received from family and friends.
- Next, calculate your monthly obligations. This would include your car payment, mortgage payment ( including taxes and insurance), credit card payments, student loans payments, and any other monthly bills including utilities.
- Then, divide your monthly debt total by you monthly income total and multiply that number by 100 to calculate your debt to income ratio.
Now, use this guideline to help you gauge your current financial standing:
Your debt to income ratio is less than 35%. You are in great financial shape. You have money to set aside for emergencies and investments which can help you keep your debt to income level low.
Your debt to income level is between 35% and 45%. This is an acceptable amount of debt but a major purchase such as another car would put you over the edge. The more wiggle room you have the better off you are to offset any unexpected expenses.
Your debt to income level is between 45% and 50%. You are on the verge of financial distress. You have no wiggle room left and any financial crisis such as a major car repair can have devastating effects. Now is the time to address this issue and make sure you do not add to the debt load. Contact a Certified Credit Counselor to help you find resources to better manage your debt.
Your debt to income level is more then 50%. You are in a financial emergency. You can not continue to carry this debt load and have a secure financial future. You will need to look at major changes in how you manage your money that might include taking on a second job, selling your assets to pay down debt or perhaps you may need to file bankruptcy if you do not have the resources to increase income.
What does the debt to income level really mean? It is a gauge to how well you will be able to handle a financial crisis, plan for retirement and adjust to increases in cost of living expenses such as gasoline and food. In essence, it determines how financially healthy you are today and for the future. If your debt to income level is too high, take action now. Contact a Certified Credit Counselor and take the necessary steps to start on the road to financial recovery.