Personal Finance Advice

Credit counseling agencies can be a great help when your debt has gotten out of control, but if you don’t choose the right agency then you may find yourself in worse financial trouble than you were in to begin with.  If you need to consult with a credit counseling service then make sure that you go with an agency that has a solid reputation and does not have a long list of complaints filed with the Better Business Bureau or other complaint agencies.

How do you know when it is actually time to go ahead and make an appointment with a credit counselor? There are a few signs that should point you toward a credit counseling agency:

You have a significant amount of unsecured debt.  Most credit counseling agencies have a minimum amount of debt they are willing to work with.  If you don’t have much debt, but instead just have a hard time managing it, you might not be eligible for a credit counseling program.

You have already made a serious attempt at dealing with your debt.  A credit counseling program is usually a last resort before contemplating bankruptcy.  Enrolling in a credit counseling program may harm your credit score, so signing up for a program like this should come only after you have made the true attempt to negotiate with your creditors to no avail.

You’re struggling to make your payments.  Don’t enroll in a credit counseling service as a way to save some money in interest charges.  You should have a bona fide problem with meeting your payments every month before you decide to utilize a credit counseling service as a means to make your monthly payments.

You’re ready for a change.  Credit counseling services are about more than renegotiating your debt with lenders; it’s about changing the way you view debt and how you manage your money.  If you aren’t ready to make a change to the way you handle your money, and you don’t consider a debt repayment plan as a wakeup call, then your enrollment might prove ineffective.

Some credit counseling agencies offer budgeting classes and other programs that can help you without enrolling you into a debt repayment program.  If you are struggling with meeting your debt payments every month, consider enrolling in a debt repayment plan through a credit counseling agency only after you have tried to fix the problem yourself.

Never enroll in a program that you don’t thoroughly understand because you might wind up signing up for something that gets you into deeper financial trouble in the long run.

What would you do if your wallet was lost or stolen? Although a lost wallet is a hassle, as long as you have taken the proper precautions it won’t be a disaster. If you only carry what you absolutely need then a lost wallet will only merit a couple phone calls to close some accounts and a trip to get a new ID card.  If, on the other hand, you carry absolutely everything that you can cram into your wallet then losing your wallet can cause a lot more problems, some of which that will be devastating to your personal finances.

Don’t carry these things in your wallet unless you absolutely need to:

PIN:  You should memorize your personal identification number instead of writing it down.  If you have a little note in your wallet with your PIN, especially if it is attached to your debit card, you’ve just given someone else everything they need to know to know in order to pull money from your bank account.  Don’t try to mask your PIN number by hiding it on a note in your wallet and trying to disguise the PIN as something else; professional thieves will know what to look for and will automatically understand that it’s your PIN.

Social Security Card:  Your Social Security card should be locked up somewhere securely in your house so you can access it when you need to prove that you can work within the United States or for whatever other reason you need it for.  Don’t carry it around in your card unless you need to, because it is all someone needs to steal your identity.

Spare key:  Some people like to stick a spare house key within the folds of a wallet in case they lose their main keys.  The problem with this is if your wallet gets lost then the person who finds the wallet has your key and probably has your home address from your driver’s license.  Do you really want to give a stranger full access to your home?  

All your credit cards: There is really no reason to carry every one of your credit cards, especially if you have several cards in your name.  Imagine losing a wallet containing seven or eight credit cards and the chaos that may occur if someone gets to your cards before you can call all the lenders.  Only carry the cards you need and leave the rest at home.

Important documents: Some high schools and colleges give mini-copies of degrees to graduates, suitable for carrying in a wallet.  You may also be able to get a copy of your birth certificate in a wallet size.  Don’t carry these documents in your wallet.  If you lose your wallet then an identity thief will have a field day with your documents, and there really is no reason why these documents should be in your wallet anyways.

A good rule of thumb is to not carry anything in your wallet that you would want someone else to get their hands on.  Not only can a lost wallet cause financial problems, but if you fill your wallet with naughty pictures or other things that you would not like made public then you are just asking for trouble.

Interest-only loans can be a little tricky.  If you’re offered a loan with these terms from a lender it may seem like a really great idea: make only interest payments monthly and pay down the principal balance when you can.  If you have a sporadic income, such as self-employment or a seasonal job where you work strictly on commission, this type of loan may be the best way you can pay your loan without having to pay too much each and every month.

Like all personal finance products, however, there is a chance for real problems with this type of loan. 

Here is how an interest-only loan works: You obtain a loan or line of credit that charges interest every month on the principal balance.  The amount of interest charges you pay every month depends on what the interest rate is and the amount of the principal balance, but the lower your principal balance the less you will pay in interest charges every month.

When you send in your monthly payment you are only required to pay the monthly interest charges, and this is usually a small amount compared to what you would pay if you were making a full payment on the interest and principal of the loan.  When you make the minimum payment you’re only paying the interest, not the principal, so this means that the principal balance stays the same and does not go down.  In other words, if you borrow $10,000 on an interest-only loan and then only pay the minimum payments for a year, you still owe $10,000 after that year.  That can be a pretty horrifying concept if you didn’t realize that this is how the loan works.

The best way to handle an interest-only loan is to make a commitment to making principal payments each and every month.  If you don’t do this then there will come a time when the amortization of the loan expires - also called the “balloon” - where the entire balance of the loan comes due, so unless you can refinance the loan you’re obligated to pay it off in full. 

If you have an interest-only loan because of sporadic income, try to balance out your principal payments as well as you can.  If you’re unable to make a principal payment one month because of low income, double up on the months when you have substantial income. 

Make sure you understand the terms of a loan before you sign any papers, otherwise you may wind up with a loan product that you don’t fully understand and that can get you into some financial trouble.