In God We Trust

Teaching You How to Get OUT of Debt and Live Debt-Free

Archive for the ‘Recordkeeping’ Category

Feb
10

Sometimes it takes a few hits to your backside to get your attention. It did mine, that’s for sure.

The Setting

The other month, I signed up for a credit card from somebody – for the purpose of saving 15% or getting Free Shipping or some other some-such benefit. Gotta save where you can, right? Seems like the charge was $10 bucks or so.

The bill arrived in due time, and I put it in my Bill Place. (Keeping your bills all in one place sure makes the bill-paying process so much easier.) Somehow, that month, I got a bit pre-occupied, and didn’t sit down with my bills on schedule, and let it slip a week or so – probably more on the “or so” side…

The Hit

To my dismay, the Due Date for the new card was a few days earlier than my Bill-paying session… Arrrrrrgggghhhhhhhh!!!!!!

I sent the check anyway.

The next month – you knew this was coming – I got a new bill that included a $39 Late Fee charge. Thirty-Nine Bucks! And, a $1.50 Minimum Service Charge Fee…

Oh yeah! I’m the Financial Wizard, I am…

The Lesson

So, the lesson is two-fold.

1. Don’t sign up for credit cards just to “earn” some sort of Reward.

2. Pay Your Bills On Time.

Rewards

If you have and use a credit card, it seems reasonable that there should be some Rewards for using it – right? I mean points to use for travel or gifts, cash back, lower interest rate on other accounts with the same outfit.. Things like that.

That way, whenever you use the card, you are being a Good Steward and getting double-duty from it.

The trouble is that these rewards will become a primary decision point between using the card or cash. They will also tend to cause you to spend a bit more on something than you should. “It isn’t on sale – BUT! I’m getting points…!”

Ignore the points when you go to use your cards. Think, “Can I pay for this?”

Paying Bills On Time

The major lesson is that paying bills late costs plenty. Well, you already know that, I’m sure. But how to get out of the whirlpool of increasing debt – THAT’s the question…

Obviously, paying your bills on time will eliminate those horrendous Late Fees. So, paying bills with a system makes it easier to avoid these fees.

The Envelope System

One of the ways to pay on time is to handle the bill once. Open it when it arrives. Write the check for whatever payment you have planned for that account. Put it in the envelope, stamp it, and put the “Mail Date” in a corner of the envelope. File the envelope in a convenient place. Enter the amounts in your budget tracker.

Every day, look at your bills and put the envelopes due that day in the mail… Done.

Two troubles with this method. First, You are constantly reviewing your bills. I guess this is actually a benefit early in getting control. But, it can be stressful.

Second, you really don’t have as much control of your finances as you think. You can’t take the time to review your budget and progress every day that a bill arrives. You might have something else planned, so you put off handling the bill – Ooops. Late again…

The Pay When Paid System

I preferred this system when I was working. I got paid twice a month with one company, and every 2 weeks with another. I made it my habit to sit down with the bills a couple of days after payday and paid upcoming bills.

The advantage here is that I’m only dealing with my finances a couple times a month. I can concentrate on the task at hand. It is a planned activity. I can also get all my due bills off at once.

Who cares if they have my money for a few days longer than they could? The benefit to me would be fractions of pennies, while the benefit of having it gone is that it is PAID on time.

The Automatic Payment System

I’m finally a convert to online banking. It took me plenty of time to get used to it. But, now it is the best thing since MP3 Players…

On all my credit cards, I have arranged the monthly bill to be paid in full and on time. This takes that bill out of my hands – sure, If I need to, however, I can modify how they handle This month as my finances dictate. So, though it is an automatic withdrawal from my bank account, I am still in charge.

And, I avoid those stupid Late Fees.

Conclusion

Late Fees cost Americans Billions. These Billions go to the banks and financial institutions – as they should. However, by avoiding them, Consumers can better choose to spend those dollars in ways that benefit the family, not the banks.

Pay On Time…

Mar
7
Factors contributing to someone's credit score...
Image via Wikipedia

I am not a proponent of paying a lot of attention to my FICO Scores or Credit Reports. Since our goal is for you to get Out of Debt and to live Debt-free, spending too much time fretting over scores seems unproductive.

That said, they are a great tool to use for status checks.

There are 3 companies whose only business is to compile and report on the credit history of consumers. The 3 are Experian, Equifax, and TransUnion. They rely on a credit granter to send them regular reports on total balance, minimum payments, if late and by how much, and total credit available. They then compile this info and send it to member merchants if you should need credit from them.

Congress Did a Good Thing

The House Financial Services committee meets. ...
Image via Wikipedia

Yes, I can admit that the US Congress isn’t totally inept. A couple of years ago, they forced open the secret world of Credit Reports, and gave us all a peek at our own records.

Credit Granters, or merchants, could always pay a fee to any of the 3 Credit Reporting agencies and get your various credit history results so they could decide whether and how much credit to grant you. In order for you to get a peek, you had to pay a fee, too. One exception – if you got turned down for credit, you could request a free report.

I used to review those reports, and they were a pain to read. It took a special concentration to get the rhythm of the entries and what they meant. And they used to cost a pretty penny. And corrections??? What a pain.

So, to help consumers have it easier to make corrections in the notoriously erroneous reports, Congress made each of the reporting agencies provide consumers one free report each year. But, you have to ask for it.

Get Your Report

Don’t go to the reporting site. You’ll be able to get a report, but you’ll be enrolled for a fee in a program of frequent monitoring. You don’t need that.

Instead, go to AnnualCreditReports.com.

There, you enter your State, and then select which company’s report you want.

We recommend that you get one at a time, and get another one in about 4 months. That way, you will be able to track your status fairly regularly without cost.

Get one for each of you – there might be differences. Print them out.

Now What?

Once you get your report, take a few minutes to get the lay of the land. See what they are keeping track of. Look at the accounts they are tracking. Some are open, some closed, some negative, most positive (we hope).

If you note any glaring errors, you have the right to have them corrected. Each company has their own process. Be sure to initiate the process to get those errors corrected.

Otherwise, Staple the report together and file it away for comparison with the next one.

Conclusion

Go ahead and get your reports, and be sure they are correct. However, don’t obsess over them.

Pay attention to getting out of debt. The credit reports will eventually take care of themselves.

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Jan
2

It’s that time of year, again. Time to make Resolutions. No time to break them, but let’s make some good ones we can keep.

Organizing your Financial life is easier than you think. You don’t need fancy software or organizers (although having them is helpful), just some basic tools. In our counseling, disorganized financial lives are at the heart of our clients’ problems. They aren’t organized, so they don’t know where they stand, or where they are going.

Your 4 Organizing Tools are:

  1. Bill Place
  2. Checkbook Register
  3. List of Bills
  4. Financial Health Report

Bill Place

The FIRST organizing tool is a simple place to keep your bills. They can easily get lost with the associated late fees and hits to your Credit Scores. You need to designate a place where ALL your bills, and ONLY your bills go.

Every day, when your mail arrives, you take your bills and put them into your Bill Place. It’s also a good idea to sort your mail over a trashcan, too, so you can discard all those wonderful offers you get. (Trust me. They only want your money. Trash them.)

Your Bill Place can be an envelope, a drawer, a shelf… as long as it is exclusively devoted to your bills. Mt Bill Place for the past 20 years has been a plain manila file folder with “Bill Place” in big letters. I’ve taped up the edges and the seams, and it still holds all my bills. You can get started with a large envelope or folder.

Now that you have a Bill Place, go gather up every bill you can find. Get them from those drawers, shelves, cupboards, even the dirty laundry. (Yes, we’ve found them there.) Put them ALL into your Bill Place.

List of Bills

Now, you need a place to write down your bills so you can see them in the larger sense, instead of just one at a time. A cheap, spiral notebook is perfect. I get them every year during school supplies sales for less than a quarter. Any notebook will do for now.

Skip a couple of pages. (I’ll go into these pages in a later post.) Write today’s date at the top of the 3rd or 4th page.

I’d like you to sort your various bills into a few piles: Credit Cards and other debt, Utilities, and Misc. Open them all up. Find the latest one for each bill.

Write the Name of each Bill down the left side of the page.

For all your bills, write across the page for each one, the Total Due, this Month’s Minimum, this Month’s Interest and Penalties, the Due Date, and a Star if it is past due. You can find the Interest and Penalties as “Service Charge” or “Interest”. You’ll want to know the total amount your dis-organization,  credit cards and debt are costing you each month.

Now, you have a List of Bills you can use each time you sit down to pay your bills. You can use this to see your big picture, and make decisions about who to pay how much and when.

Scratch off the bills when paid.

Repeat each month.

Checkbook Register

You got one of these when you opened your checking account. It is that grid-looking thing that you are supposed to keep track of your checks and deposits. You probably do a lot of online banking, or use the ATM to check your balances periodically.

Without a running list of checks, withdrawals, charges, and deposits, you are bound to run into trouble sooner or later. Find it and get it out and put it back into action.

Start where you are now. Write down every check you write. Mark down every ATM cash withdrawal you make, every deposit you make, and, in an advanced move, every Credit Card charge you make. You don’t have to do the arithmetic each time you make an entry, but you should do it every few entries, at least.

With this running total, you will see another side of your financial life – your streams of cash-flow.

Financial Health Report

This is normally called a Net Worth Statement, but, for many, it could be a Net Worthless Statement instead.

What You Own

Use the next page in your list of bills to list all your assets at the top. By assets, I mean what you own. Your cash, bank accounts, savings, 401k’s, investments, house, cars – things worth something. I don’t mean your “stuff” because most of it isn’t worth nearly as much as you think it is. Leave off your clothing, furniture, collections, and other “stuff”.

Total it up.

What You Owe

Now, list all your debts. You can find that nymber from your List of Bills. Don’t bother to include utilities or any current bills like your last dentist visit.

Total all that up.

What’s Left

Now, subtract what you owe from what you own.

What’s left is what you leave to your kids if you die tonight… It is Your Net Worth, or a measure of your Financial Health. If it’s Negative, you are probably  in some trouble, and have some tough work ahead of you to get solvent. If it is positive, you aren’t necessarily in good shape, but you’re probably better off than you thought.

Do this Financial Health Report each month for a time to track how your financial life is progressing.

Next Steps

You are now well on your way to being Organized in your financial life. That is the first step. Your Next Strp is to set some financial goals and then make a Spending Plan for getting there.

See you next time.
John