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Personal Finance From a Biblical Perspective

How to Invest Money and Combat Debt

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[The following is a featured post discussing the idea of investing a small amount of money in order to pay off debt. This is something that I have done with mixed results so far.]

In days gone by, it was commonly believed that the specter of debt could only be overcome by reducing expenditure and committing to a frugal lifestyle. While this remains solid advice, however, it is not necessarily the most productive method in an age of technological advancement and advanced money making opportunities.

Although it may sound a little unorthodox, the prevailing contemporary theory requires individuals to invest capital in pursuit of greater returns. This money can then be used to repay debts more effectively, without forcing households to struggle against a back-drop of austerity and long-term uncertainty.

Debt Investing

How to Speculate and Accumulate: 3 Ways to Spend More and Generate Additional Income

With this in mind, how exactly can modern-day speculation inspire you to boost your income and stave off debt? Consider the following:

Embrace the Financial Markets

While access to the open financial markets was once exclusive to professional traders and large commercial institutions, the development of sophisticated online trading platforms and educational resources have removed many of the pre-existing barriers to entry. As a result of this, numerous markets are now within reach of independent traders with minimal dollars.

This has exposed everyday citizens to a diverse range of financial products and derivatives, from trading forex and currencies to exchanging carbon credits. While you will needs patience and knowledge to succeed, there is ample opportunity to build wealth through this method.

Understand how to Create a Stream of Passive Income

Passive income is a term used to describe capital can be generated without the completion of a direct action or the sale of a commodity. It allows you to speculate and accrue wealth that is entirely separate to what you earn through traditional working methods, which in turn can be used to clear a significant amount of your total debt.

There are several options of this type to suit alternative risk appetites, with the latest high yield checking accounts providing a low-risk avenue for growth and real estate investments available to those with more income and a desire to achieve greater returns.

Do not Underestimate the Rewards of Hard-work

While it may sound old-fashioned and overly simplistic, hard work remains one of the most effective methods of boosting your income and combating personal debt. This does not necessarily mean that you have to work for 12 hours a day in a number of physically demanding jobs, however, as those of you with a viable industry skill can use it to work from home and freelance in your spare time.

Website developers, content writers and software developers remain in constant demand in the current economy, and this has created opportunity for proactive individuals to market themselves as an independent contractor.

As a general rule, speculating to accumulate does require a certain degree of disposable income in order to generate any sort of return. This can be minimal, however, so as long as you are willing to commit this sum in the pursuit of reducing your debt then you can achieve outstanding results over time.

Which Debt Should You Pay Off First? It’s NOT What You Think

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Nearly everyone on the web and in the financial press is telling us to get out of debt. Get out so you can save more, so you can retire early, so you can improve your credit score, so you can just get out of debt. But what if you have several debts—credit cards, a car loan, an installment loan (or two), a student loan and a mortgage. Which debt should you pay off first? Or does it even matter?

I think it does, in fact, I think it matters a whole lot. Some loans are just more…dangerous…than other loans, and need to be paid off sooner. This is especially true if you’re struggling financially. You should make a priority to pay off the loans that have the greatest potential to cause you the greatest problems in the event you can’t pay them any longer.

What Debt Pay First

Which Debt To Pay First?

Here’s my attempt at establishing that priority, and the reasons why for each. Feel free to disagree!

1. Car Loans

Most people start paying off debt with their credit cards, but I disagree. A car loan is a secured loan, which means that if you stop making the payments for any reason the car will be repossessed by the lender. If you hit on hard times and can’t pay your bills, the last thing you need to have happen is to have your car taken away.

You need your car to commute to your job, to run your business and to live your life. If it’s gone, you’re ability to pay your other debts will be gone with it.

Maybe this is just my thinking, but a car loan is really the most “strategic debt” that you have. A debt chain reaction will be set off if you lose your car, one that you may not be able to recover from any time soon. Get your car free and clear as soon as you can, then you’ll have time to deal with other debts.

2. Other Secured Loans

These loans could be debts taken to buy furniture, household appliances or to replace major components of your home, like a furnace or central air conditioner. And like a car loan, they’re secured and that’s why you want to pay them off ahead of unsecured debts. If you fail to make your payments for any reason, the lender will be able to take the collateral from you.

That may not be a problem if the collateral is furniture or a boat—you can live without those. But if it’s your computer that you use for business, or your air conditioner in the summer time, life will get ugly in a hurry.

These are worthy of being paid off right behind your car loan.

3. Student Loans

This is a sticky subject. Because they tend to be large and generally carry low interest rates, most people prefer to leave them alone and take every one of the ten, 15 or 20 years they have to pay them. But that’s not always the best course of action.

Though we may not think of it this way, it is a reality that student loans are unsecured debt. Even though they’re typically the size of car loans or even larger, there’s no asset beneath them that can be sold to pay them off if you get into financial trouble. Worse, they can’t be discharged in bankruptcy. In fact, except under certain very limited circumstances, you can’t settle them with the lenders in the way you might be able to with credit cards. For that reason, paying off your student loans deserves a higher priority than for credit cards.

4. Credit Cards

This is everyone’s favorite payoff! And why not? Credit cards are really annoying, at least when it comes time to pay them! But at the same time they’re aren’t as threatening as any of the above loans if you can’t pay them.

Sure, credit card lenders have remedies they can pursue against you, like nuking your credit, torturing you with collection calls, charging default interest rates and implementing judgments and garnishments. But they can’t take away your livelihood or kick you out of your home—that lowers them in the pay off hierarchy.

Usually, you can also settle your credit card accounts for less than what you owe, and there are even agencies—some of them non-profits—who will help you arrange this. In addition, though lenders can seek legal remedies against you, they often avoid going too far lest they push you into bankruptcy protection. Credit card lenders don’t do very well when that happens.

The popular “debt snowball” method really is the best if you have multiple credit cards. Pay off the smallest one first, then work your way up to the bigger ones. Each little one you pay frees up more money to pay off the bigger ones.

5. Mortgages

The reason for putting mortgages in last place? It’s typically your biggest debt and it will take many years to pay it off early. Also, even when you start paying it off, your mortgage won’t go away any time soon. Your house payment will remain fixed until the mortgage is completely paid off, as in zero balance. Since that will take many years to accomplish, the mortgage should be a low priority.

[Is it better to rent or own a home? <–What do you think?]

A couple of other things to consider in connection with a mortgage, one being that the payment is paying for something tangible—the use of your home. You’d have a rent payment if you didn’t own your home, so it’s not like the mortgage payment is something extra or extravagant. There’s also the tax benefit of having a mortgage. Since you get a break on your income taxes as a result of having your mortgage, paying it off should be less urgent than paying off debt that has no tax advantage.

Finally, if you plan on selling your home in the foreseeable future, there’s probably no point in working to pay down the mortgage. It will be paid off when you sell the house.

Is this debt pay off priority a bit unconventional? Probably. But when it comes to personal finance, I think it’s always worth looking at things from outside the box.

What to you think the priority should be when it comes to paying off debt?

photo credit: Freedigitalphotos.net

A Lawyer Is Forced To Become A Stripper To Make Ends Meet: How Far Would You Go?

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It’s been said that desperate times calls for desperate measures, and that can definitely been seen when we face financial problems. I’ve had between 15 and 20 jobs in my life – usually working 2 jobs at any given time. Since I dropped out of college (shhh…don’t tell anyone) at the age of 18, and didn’t have any trades under my belt, I was forced to take whatever jobs came along in order to pay the bills.

I’ve done door-to-door sales (twice), delivered auto parts in my own car (without being reimbursed up to the  standard mileage rate), and I’ve even scrubbed toilets (and other things) in a hotel overnight!

For much of my adult life I’ve been broke, stuck trying to pay off debt (even to the point of trying debt consolidation), and unable to do anything about it because of a lack of education and opportunity. However, I have never been forced into a job or position that has made me feel a lack of dignity.

A few days ago I came across a story on MSNBC about a lawyer who was forced to become a topless dancer in order to make ends meet. I was fascinated to find out how she ended up in this position, and what, if anything, she could have done to change things. Here is a part of her story:

When Carla graduated 10 years ago, she thought her law degree would be a permanent ticket to a high-paying job.  But instead of selling her mind, Carla is selling her body. After student loans, debt, a layoff and unemployment battered her bank account, she now finds herself in an almost unbelievable position – dancing in a topless bar.

“Did I ever think I’d be taking my top off for rent money? No. I was in my mid-30s and had never danced before,” said Carla, who asked that we use her stage name and withhold her identity and some personal details. “As a little girl, I never thought to myself, ‘I just want to grow up and be a stripper,’ or, ‘All I ever wanted to do in life is climb in the lap of sweaty stranger and take my top off.’

“But, with our economy the way it is, especially in smaller cities … you strip or you starve,” she said.

The first thing that I was reminded of by reading this story is that it is very unwise to judge people based on their external circumstances. I’m sure that when many people see her “working”, or hear of what she does for a living, they immediately get a number of [probably wrong] ideas about her. I know that I would be shocked to meet a exotic dancer with a law degree!

I am sure that many of us have been in desperate financial positions – or we may still be in them now. How far would you be willing to go if you lost your job and had no income? Before you answer that, consider how Carla went from respectable work to doing something that causes shame:

After graduation, she worked for nine years putting her degree to use, but she had entered the crowded legal profession at the wrong time. When she was laid off in 2009, she couldn’t find work.

“At first, I worked as a waitress, and a cashier in gas station,” she said.

As her prospects grew dim, she went back to school to earn a master’s degree, hoping to bolster her credentials. But her financial aid came in lower than expected, her credit was battered and she struggled to find part-time work in her new town to keep her afloat.

I’m sure that many of you can imagine going through this type of downward progression. She first got a couple of low-paying jobs, and then tried to go back to school. When that didn’t work out as she planned, she tried to find another low-paying job – but wasn’t able to find anything:

“I went around to see if could get a job as cocktail waitress, but there was not a single retail or waitress job.  No one was hiring, except for the topless places,” she said.  “It was an act of desperation.”

She started out serving drinks as a waitress, but moved quickly to dancing “because that’s where the money is, and that’s what I needed.”

This wasn’t someone who just took the “easy” way out; this is someone who tried many options before ending up where she is now. The article didn’t say if she tried other options than what is listed, such as becoming a part of the contingent workforce, applying for social welfare programs, or even living with friends. In order to choose a “profession” as demeaning and as looked down upon as stripping, I would hope that she looked into these other measures first.

I am not sure what her situation looked like before she was laid off, but here are a couple of things that you can do to help soften the blow if/when this happens to you.

How To Prepare For Financial Hardships

  • Have a Large Emergency Fund – Try to have between 9 months and a year of living expenses in a high-yield savings account.
  • Pay off Debt – It is much easier to adjust your living expenses than debt payments.
  • Have a Financial Contingency Plan – Whether it’s an old profession or side job, have a way to earn money that’s not connected to your current full time job. Also know what expenses you can easily cut and what services you can do without (it may be wise to just cut them now and build up your emergency fund, pay off debt, or save for retirement)!
  • Have a Support System – Know who you can count on in an emergency. You may need to consider taking loans from family or staying with loved ones; it’s good to know ahead of time, who you can rely upon.
  • Consider What You Can Sell – This doesn’t mean that you should start holding garage sales tomorrow, but it is important to have a discussion with your family members and decide what items can go if you fall upon hard times. It will be much easier to make this plan now, rather than when you are all under the stress of a financial hardship!

How Far Would You Go?

Looking at her situation made me wonder how far many of us would go in order to make ends meet. What would be the first steps you would take if you lost your job and ran through your savings?

Would you go back to school and live off of student loans until you graduate? Would you sell most of your possessions and live with a friend or family member?

Of course, I am not considering anything illegal or immoral, because that wouldn’t be appropriate for this discussion. However, I would like to hear from you on this issue.

What things would you do before you would be willing to swallow your pride and take a “demeaning” job, move back in with your parents/kids, or give up certain luxuries that you foolishly consider to be needs?

photo by Pat Shannahan for msnbc.com

The Article Was Featured In The Following Carnival(s):

The Best Of Money Carnival #122

Totally Money Blog Carnival Celebrity Roast Edition

Yakezie Carnival – Examples of Selflessly Helping Others Throughout History – September 25th, 2011 Edition

Financial Tips For Living With Friends Or Relatives

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Living with friends or living with relatives can be a great help, when you run info financial trouble (especially when you are trying to pay off debt). However, if certain financial details aren’t agreed upon in the beginning, you can run into an extremely stressful situation, which may threaten to ruin the relationship.

Here are three major financial concerns, which should be addressed before you consider living with friends to be a viable option. These items should be important to both the one in need, as well as the one extending the help.

How Long Will You Need To Stay?

The first thing that needs to be worked out is how long you plan to live with your friends or relatives. Whether it’s for a few weeks or six months, you should be able to give them an estimate on how long you will need to stay with them.

Think about it…if your “host” thinks that you are only staying for a couple of months in order to save up for, and find an apartment, they will handle things in a certain way. However, if you actually plan to say there until you go back to school to finish a degree – and you’re only a sophomore – then that might change things a tiny bit!

Living With Friends Calendar
photo by Renjith Krishnan

 

If you need to stay for a year while you finish a degree or training program, or even if you are just trying to stabilize yourself while you get out of debt, state that from the beginning so that there will be no misunderstandings down the road.

Of course, you can’t always be sure of what will happen in the future, but, it is still extremely important that you both be on the same page with this.

If you feel that you will need to stay longer than you originally estimated, make that known as soon as possible. Just be sure that you are always keeping your host in the loop whenever your situation changes.

How To Split Up The Bills When Living With Friends

This is probably the most important conversation that you can have with your future host (because they are probably wondering, how will this affect my finances). There are a couple of reasons why this is so important:

First, if you simply pay what you think is a fair amount, then it can lead to negative perceptions and resentment. If you pay too little, it can make your host feel as though you are simply taking advantage of them, and that you really do not appreciate their help!

For the entire time that you are living with friends, they may resent every time you spend money – no matter how little it is. If you are throwing them $300/month, and then go out and buy an iPad 2 or Kindle, they may have a serious problem with that!

However, if you sit down with them and agree on a fair amount for you to pay, then they may not mind as much when you go out and buy a new laptop (although, that may not be wise if you are there because you are in financial distress and trying to pay off debt)!

The second reason why you need to come to an agreement about who pays what is because your presence will increase the household bills! You are sucking up all of their electricity, heat, cooking gas, water, and other utilities, and you need to be mindful of that!

You should sit down with your host and decide how you want to break up the living expenses before you move in. You may decide to pay for all of the utilities, while your host pays the rent/mortgage entirely. Another option would be to simply pay them a certain amount for rent each month.

Of course, you can decide on a myriad of combinations – you pay gas/electric and buy food, while they pay cable and rent, for instance – but the point is to avoid having any misunderstandings or bad feelings at some point in the future! It would be a good idea to write out an agreement with these details included – simply for clarity.

Discuss Your Financial Plans

I think this one can be optional, depending on the relationship. When living with friends or relatives, it may be extremely helpful for you to discuss your financial plans with your host. If you need to funnel all of your extra money into student loan repayments, or any other category, be sure to make that clear – especially when discussing how to split up the bills.

This can help to avoid any misunderstandings or resentment toward how you handle your money while living there. Also, if they are going to allow you to stay in their home for free, it would be great to show them that your plans include paying them back once you get on your feet!

Remember that communication is key in situations like this! Living with friends or even living with relatives can cause a lot of unspoken problems and tension, and you need to do everything in your power to prevent this from happening!

photo by AR Mclin

Reader Questions

  1. Have you ever had to live with relatives or friends due to a bad financial situation?
  2. Have you ever had to take someone in as a result of bankruptcy or debt (or any other misfortune)?
  3. If you were to be on either side of this arrangement, what other financial issues would you discuss?

Considering Bankruptcy To Pay Off Your Debt? Here Are Some Other Options

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The topics of debt and bankruptcy are often highly debated issues, with “experts” on both ends of the spectrum. Some will tell you that if you ever have a small amount of trouble paying off debt, then bankruptcy is your answer! On the other hand, there are some who say that bankruptcy is equivalent to theft and should never be allowed.

As with most things, the answer lies somewhere in between. However, there are plenty of things that one can do before choosing to file for bankruptcy…

Cut Out All Unnecessary Expenses

If you are contemplating bankruptcy, the first thing that you need to do is evaluate your expenses. I have talked to many people over the years who are thinking about filing for bankruptcy, while at the same time enjoying many of the luxuries of life.

If you are in such a desperate situation that you are willing to turn your back on the agreements that you have made in the past, then you should first be willing to strip all of the extras out of your life.

To have a $200/month cable bill, $350/month dining out, paying tons of money for your kids to learn every instrument and sport known to man, and new(ish) cars for everyone in the household, and then claim to be too broke to make minimum payments is a joke!

Cut your budget down to the bare essentials and then attack your debt with everything that you have. This method takes sacrifice, but it will also help you to see what is really important in your life.

Sell Your Assets

If you are in a situation where your debts are growing, and it seems like you have no way out, take a financial inventory. When you want to know how to pay off debt fast, you need to look at all avenues!

Check to see if there are any accounts which you can liquidate – you may want to include your emergency fund in that analysis as well. Also, if you own property or other things of value, you may consider selling them in order to pay off a huge chunk of debt at one time.

It may be hard to sell your home or other treasured possessions, but this may provide the shot in the arm that your debt repayment plan desperately needs. Of course, if your asset is serving as collateral for a loan, you have to see how much you will get after paying off this obligation.

Earn More Money

This is another weapon in your debt repayment arsenal, which is often overlooked. You can first try to earn more money on your current job. Ask for a raise, or try to work overtime. If those options don’t work, then it may be time to search for a higher paying job!

Also, try to use your skills, hobbies, and passions to make money. You can sell the things that you design (I know several people who make good money by designing and selling jewelry), give lessons, or even start a website/blog devoted to your passions!

Talk to Your Creditors

In many cases your creditors would rather get some of the money that you owe them, rather than nothing! Therefore, they are usually willing to work out an agreement with you in order to get your debt paid. This normally happens in one of two ways.

Debt Settlement

This is an option where your creditors agree to accept a reduced amount – this can sometimes be 50% or less of the original amount due. If there is no chance that, given your current financial situation, that you can pay off the full amount that is due, this may be a viable option for both parties, then debt and bankruptcy will be a thing of the past.

Hardship Program

Many creditors have some sort of “hardship program”, which they offer to consumers who are facing financial difficulties. If, based on your overall financial situation, you can pay off your debt – but you just need a temporary break – your creditor may choose to lower your minimum payments and/or your interest rate for a certain amount of time.

For installment loans, sometimes the bank will take a few of the payments that are currently due (or due over the next few months), and add them to the end of the loan period. If you are behind on your payments at the time, this will allow you to be current in their system. Sometimes, they will actually structure these payments so that you are given a couple of months of breathing room.

These temporary hardship programs – if offered by each creditor – may be enough to allow you to take control of your finances and avoid bankruptcy.

Bankruptcy As A Last Resort

After considering and trying all of these methods, you may still be in a position where it is impossible to pay off your debts. Many times this is due to the debt that remains after a series of medical emergencies, or even when an irresponsible spouse leaves their partner with hundreds of thousands of dollars in debt! In these cases, bankruptcy may be the only way to have a normal life.

Unfortunately, it is impossible to make general statements on an issue this important and complex. Therefore, you must consider your specific financial situation with an expert before making any decisions.

photo by digitalart

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