Personal Finance Advice

Plenty of personal financial experts tell customers to chop up their credit cards - sometimes with a big, dramatic flourish - but the problem is that merely chopping up your credit cards doesn’t magically make the problem disappear.  It doesn’t matter if you snip up your plastic with scissors or if you send you cards through an industrial shredder.  There is much more to solving your debt problem than cutting up your credit cards.

Cutting up your credit cards can help you in a few ways.  Not only do you lose access to the account, there is also the psychological impact that the act can have.  If you can build up enough anger toward your credit cards that you destroy them then maybe you can make the decision to stop piling more debt onto the credit cards.  It can be incredibly powerful to make the bold statement of cutting up your cards because you’re saying that you’re through with them.

On the other hand, your newfound initiative shouldn’t stop there.  Simply cutting up your cards is only the beginning.  There are other steps you need to take to make sure that this step actually winds up helping you.

1.  Pay off the balance.  Although you’ll find that it is much easier to pay off your credit card account if you aren’t piling more debt on the account, you may have to make a concerted effort to actually get the whole thing paid off.  Don’t chop up your card and then let the balance linger…use your new resolve as a catalyst to pay the balance off completely.

2.  Close the account.  Closing the account before you pay off the balance can be bad for your credit score, but if you need to close the account before paying it off because you fear you’ll start using the account again, then do it.  The point is to get the account paid off and closed.  Whatever method you have to use in order to make that happen, you should do so.

3.  Don’t get any more cards.  You chop up your cards, pay off the balance, and close the accounts.  Your next step certainly shouldn’t be to go out and get some new credit cards because you will more than likely fall back into the same patterns that got you into financial trouble to begin with.  This should be the beginning of a change to your personal finances instead of an opening to more issues.

This is certainly not to say that everyone should chop up all their credit cards and never get any other credit cards forever.  On the other hand, people who have gotten to the point to where they need to cut up all their cards really shouldn’t start eyeing more credit for a while.

In most cases, I usually urge people to save money wherever they can.  If you’re buying groceries, take some coupons along.  If you’re buying a washing machine, haggle with the salesperson for a discount.  On the other hand, there is one instance where searching for the cheapest deal may not be the very best route to take: Insurance.

By definition, insurance is designed to pay for covered events.  For example, auto insurance covers the policy owner in the event of an accident or theft.  Homeowners insurance covers the policy owner in the event of a natural disaster.  Health insurance covers the policy owner when medical attention is needed.

Is this really something you want to scrimp on?

It’s easy to bargain shop for insurance when all is well.  When the car is running well, the house is still standing, and you’re in good health it may start to feel like you’re wasting your money each month on insurance payments.  After all, if you have never had to make a claim then you might look at all the money you have sent your insurance company over the years and start to get a little annoyed.  Keep in mind, however, that you’re making your payments just in case.  In other words, you’re saving yourself from financial disaster by making the payments right now.  If your home was to fall to the ground right now chances are your insurance company would wind up paying out much more money than you have ever sent them in premiums.

Don’t stop making insurance payments because you decide they are a waste of your money.  By the same token, you shouldn’t buy the cheapest insurance possible in an effort to save money because the cheapest insurance is pretty close to no insurance at all.

There is a big difference between buying the cheapest insurance possible and finding the least expensive adequate insurance coverage.  When you simply buy the cheapest insurance then you are risking having inadequate coverage.  Some people have purchased policies from the cheapest insurance companies they can find only to discover that when the time came to make a claim they were either not covered for the loss or - worse yet - they discover that the so-called insurance company had closed up and left town.

By all means, do some comparison shopping when looking to purchase insurance.  When you’re conducting your comparisons, however, don’t look only toward the dollar amount you’ll pay each month for the policy.  Examine the coverage offered through the company to make sure the policy is adequate for your needs.  Make sure the deductible isn’t so high that you wouldn’t be able to afford it.  Also make sure that you use a reputable company with high ratings so you know the company will actually be around when you have to make a claim.

After you have found a few companies that fit all these descriptions, only then should you start comparing the costs among the companies to find out which policy costs the least amount of money.

You should consider adequate insurance coverage to be just another facet of your personal financial health.  Without insurance coverage you’re asking for trouble.

If you’re trying to stretch out your money as much as possible in an attempt to get your personal finances in order then you should keep in mind that one of the very best ways to keep more money in your hands is to avoid paying full price for anything you buy.

This pertains not only to large purchases, but to smaller, everyday purchases too. Don’t buy groceries without taking along an envelope of coupons.  Don’t fill up your gas tank unless you’re sure that you are at the gas station offering the lowest gas prices in the area.  Don’t buy an outfit if you know that within a couple of weeks the outfit will be sitting in the clearance rack.  In other words, try to save money wherever you can.

It may seem like a waste of time to clip coupons or do price comparisons, but there are some good reasons for you to get into this habit:

1.  You’ll save money.  Most people will agree that having more money would make their personal finances fall into place a little better.  Whether you need more money to pay off your bills or to bulk up your savings account, saving money on all your purchases is a great way to keep more of your money in your control.

2.  You will get into the practice of looking for the best deal with everything.   It quickly becomes a habit to figure out how to save money on the things you buy, and if you can get into this frame of mind then there is a good chance that’s you’ll start looking for the best deal on everything else.  Think about it: If you spend a great deal of time planning your grocery shopping excursions to where you get the best deal, what are the odds that you’ll throw caution to the wind when it comes time to make a major purchase? 

3.  You may curb your impulsive buying.  If you make an effort to save money with every purchase you make then you may be less likely to spend money when you don’t need to.  After all, if you haggle for a discount on a car repair then you may feel a little silly going out and spending $5 on a cup of fancy coffee.  If you can make every purchase a researched decision then you’ll probably find that you do a lot less shopping overall.

When you really think about it, why shouldn’t you try to save some money? Even if you aren’t trying to pay off debt or build up your savings account, the fact remains that you work for the money you have.  Don’t you think that you should do as best as you can to make sure the money is stretched as far as it can be stretched?