Credit Card Purgatory - A 7 Step Comprehensive Plan to Get and Stay out of Credit Card Hell
Does this Sound like You? There are
100 shopping Days left until Christmas and your Credit
Card Balance is Higher now then it was in the beginning
of the year. You may have thought of using your home
and getting a debt consolidation loan, A Debt Consolidation
Loan without a solid Long Term financial plan is a
Recipe for Disaster. A One way ticket to Credit Card
Purgatory
The Debt Consolidation Loan
Most credit cards require a Minimum
Monthly payment of 3% to 5% of the Outstanding Balance.
On a 10,000 Balance that is $300 to $500 Monthly.
On a $20,000 Balance that is $600 - $1,000 Monthly.
The Interest on your Credit card payments would not
be Tax Deductible,
If you Refinance your House and Consolidate
your Bills even at an interest rate of 6% you would
only pay $60 a Month for $10,000 or $120 a Month for
$20,000 (For many homeowners this would be tax deductible)Your
Monthly Savings will be between $240 and $880 a Month.
The Key to a Good Financial plan is to use this extra
$240 to $880 a Month to build a Failsafe, your Economic
Life Preserver. (If you don't own a home and still
have fairly decent credit you might be able to get
a signature loan from your bank or credit union.)
If you currently have a mortgage paymet
based on an interest rate of 3% or Higher you may
want to look at refinancing your House using a Loan
where the payments are fixed for 5 Years based on
a 1.95% interest rate. On a 200,000 Loan this can
often mean an additional $400 a month or more in savings.
Let's Assume you save $700 a Month with
a Combination of the above 2 Methods.
1 - Emergency Savings
You would want to keep at least 2 Months
worth of Bills (3 Months would be Better) in a Savings
or Money Market Account. Bills would include Rent
or Mortgage, Utilities, Medicine, Food and Insurance
Premiums. You need to make this account a Priority.
Place at least $300 a Month into this account until
you have reached your Goal of 2 Months Worth of Bills
or $5,000 whichever is Higher. After you Reach Your
Goal Continue to place $50 - $100 in this Account
until you have reached Double your Goal. (4 Months
worth of Bills or $10,000 whichever is higher) Once
you have reached Double your Goal you no longer need
to place money in this account.
Some People will just Borrow an Extra
$5,000 and place it directly in there Emergency Account.
2 - The Debit Card
After you have established your Emergency
Savings you will want to establish a Debit Card Account.
Open a Bank account and get a Debit Card. Deposit
$100 or More Monthly into this account until your
balance reaches $1500. Now If you have an Emergency
car Repair, Home Repair, Dr Bill or any other type
of unexpected expense use your Debit card rather then
a Credit card. Your Goal should be to maintain this
account at $1,500 to $3,000
3 - The Credit Card
Most people don't need to rip up all
there credit cards they just need to manage them better.
Cancel all but 1 or 2 of your credit card accounts.
Credit Cards are an Important Part of Life, An unexpected
car repair or Dr. Bill can be handled very easily
with a credit card (If you don't have enough money
in your debit card account). With the exception of
an Emergency never charge more in any month then you
can Pay in full when the bill comes. Pay off all new
Charges in full within a week of getting the Bill.
4 - Insurance Needs
Insurance needs would be things like
Life insurance, Health Insurance and Long Term Care
Insurance. Contact an Insurance professional to discuss
your needs. If you don't have any Life or health insurance
look into low cost options like term Life and Discount
health care until you have extra funds to go for the
higher cost options (After your emergency account
is established) Life insurance can often be combined
with retirement planning see step 5.
5 - Retirement Savings
Use at least half your savings from
your bill consolation loan to fund an IRA for you
and your Spouse. Speak with your Accountant to see
your IRA Funding Limits. In 2005 people who qualify
could place up to $4,000 a Year into an IRA or Roth
IRA. People over 50 who qualify can place up to $4,500
in an IRA or Roth IRA. For more information and phase
out rules you can view the IRS publication here http://www.irs.gov/publications/p590/.
If you don't qualify for an IRA or you already have
it funded look into other options like Universal Life
and annuities.
6 - Some Girls (or Guys) Just Need
to Have Fun
Everyone Needs and Enjoys to have a
good time. Don't get so hung up on getting that emergency
fund or building a retirement nest egg that you don't
have fun. Budget something fun a few times monthly.
Movies, Bowling, The Zoo a trip to the water park,
a Nice dinner whatever it is. Even if it is only $10
or $20 a Month in the beginning when things are tight.
You can always add $50 a month for a vacation fund
later.
7 - The Budget Review
Once or twice a year review your budget.
See how your Emergency and Retirement funds are doing.
Look over your credit cards and make sure you are
paying those bills in full.
If your situation changes for better
or worse. You would want to do a review. Things that
may trigger a review. A Salary increase or Decrease.
An Added Expense like a Car Payment. A Major change
to an expense, Much higher Gas Bill or Mortgage. Car
Payment is Paid in Full. A child starting college
or private school.
By combining a Bill Consolidation loan
with the above 7 Step Financial plan you are taking
the required actions to help insure you won't find
yourself in credit card Hell Again.
About The Author:
Mike Makler has been Marketing Online Since 2001 When
he Built an Organization of over 100,000 Members
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