The Debt Free Advocate

What is a budget and Do I Need One to get Out of Debt? Step # 10

john@professionallypersonalized.com (John) — Mon, 09 Nov 2009 00:33:00 +0000

Having a budget definitely helped me get out of debt. I was able to figure how much I could spend each month, what I could pay towards my credit card debt, and what I could save. Without a budget you are setting yourself up for failure.

STEP # 10

A budget shows how much you spend your money on a daily, weekly, and monthly basis. It breaks down to what you can spend on any given day. So again, Do you need a budget? The answer to that question is a whole heatedly, YES! If you don't have a budget written down and having it all in your head doesn't count, you will jeopardize your chance to ever get out of debt.

The first thing you need to do to start a budget is determine how much you have to spend. The total limit you have to allocate can feel overwhelming. It's up to you to determine what you spend for groceries, pay the minimum or a little more on your credit cards, and what's left over for entertainment. Write down your monthly debt payments as well as your total expenses for utilities, etc. Then subtract that from your income. What is left over is what you have for savings and entertainment. This was the hardest point for me. It's kind of like we like chocolate, but broccoli is better for us. Paying off your debt and having fun on what's left over sucks, but it has to be done. Building your emergency fund should come before entertainment too. I am not saying you shouldn't have some fun, but having too much fun is probably how you got in debt to begin with.

If you need help in developing a budget for getting out of debt visit Quicken.com for some more tips and also check out their Simple Money Management Program.

Bank of America Does It's Part With 125,000 Home Affordable Trial Modifications

john@professionallypersonalized.com (John) — Sun, 08 Nov 2009 17:07:00 +0000

More and more people are falling behind on their mortgage payments and foreclosure continue to happen left and right, but some people have actually been helped.

Bank of America announced that it has surpassed its previously stated milestone of helping at least 125,000 financially distressed homeowners begin trial modifications through the federal government's Home Affordable Modification Program (HAMP) by November 1.

The company has initiated nearly one in five HAMP trial modifications industry wide since the program's launch in late April. Since beginning its HAMP outreach efforts, the bank's homeowner ship retention division has contacted nearly 600,000 potentially eligible homeowners to ascertain their interest in HAMP and has extended more than 200,000 offers of trial modifications under the program.

"Bank of America associates are working tirelessly to keep as many customers in their homes as possible, and we have established clear momentum in providing trial modifications under HAMP," said Jack Schakett, Credit Loss Mitigation Strategies executive. "We are helping our customers complete trial modifications successfully, convert to permanent modified loans under the program and get back on the path to successful, sustainable homeownership."

Schackett noted that the bank began driving significant gain in trial modification starts in August. On that basis, the conversion of customers into permanent modifications under the program is expected to begin sowing substantial progress in November, which will be reflected in December program reporting.

In addition to its active participation in HAMP, Bank of America was among the first lenders to offer refinancing under the Home Affordable Refinance Program (HARP). To date, Bank of America has provided HARP refinancing to approximately 95,000 homeowners. That is the most customers any bank, representing nearly 30 percent of the industry total.

Have you had your mortgage modified? Or did your bank turn you down for a modification?

Bank of America Helps Consumers Learn About Credit Counseling

john@professionallypersonalized.com (John) — Sat, 07 Nov 2009 17:01:00 +0000

Every day,consumers are bombarded with information on managing debt, often from sources with varying reputations, including us. This can leave financially strapped consumers confused and unsure of how to start gaining control of their own debt and financial state. Bank of America is helping consumers in these positions by providing though leadership and clear solutions to help them better manage their financial lives.

"Debt settlement agencies are flooding the media with misleading information and in turn, causing confusion for financially struggling customers looking for a lifeline," said Colleen Benjamin, Global Card Services Recovery and Risk Operations Executive for Bank of America. Benjamin is leading debt management work across the industry for the National Foundation for Credit Counseling (NFCC) to help combat misconceptions caused by these agencies.

Since March, Benjamin has been chairing a 40-person work group for the NFCC. The committee members consist of major bank issuers, VISA, MasterCard, American Bankers Association, non-profit agencies and consumer protection advocacy groups. The NFCC promotes financially responsible behavior and builds capacity for its members to deliver the highest quality financial education and counseling services.

Benjamin's work group in particular has three main areas of focus:

- Legislative efforts: There are no Federal regulations for debt settlement industry,

- Product and solution work: Investigating how issuers can support non-profit agencies in their work to help consumers with low or no cost products.

- Consumer awareness and communications: Providing education and awareness of options.

"It can be very confusing for a consumer in choosing between debt settlement vs. credit counseling and who to turn to when you're scared, over extended financially and in desperate need of help." We are working to eliminate and broad reaching, deceptive marketing, practices of many in debt settlement industry and to educate customers about their options," said Benjamin.

Debt settlement firms take their fees up front, typically 15% to 20% of consumer's debt. And even in the best case scenario, where debt is reduced or eliminated, their programs can significantly and negatively impact a consumer's credit score. In the worst case scenario, the firm takes the fee and does nothing to help the consumer. Sometimes, a consumer will eventually find a non-profit credit counseling agency, but is often to far behind point to be helped.

"It is important for customers who are struggling financially to understand all available options and the potential consequences of working with a for non-profit settlement company," said Benjamin. "Customers who start working with debt settlement companies are five times more likely to charge-off one year later than customers working with a non-profit credit counseling agency. The win for everyone with credit counseling is evident."

The Federal Trade Commission (FTC) and Attorneys General from several states are conducting ongoing investigations into the deceptive practices of this industry. The HFCC work group has met with legislators to bring to their attention predatory marketing practices and other concerns. The work group provided the FTC with the top 10 debt settlement companies, misleading information from their websites and the number of Better Business Bureau complaints. Also, provided were copies of several debt settlement contracts--including on contract that charged a consumer $8,000 in fees.

Next steps for the work group include using public service announcements to further educate consumers on the differences between debt settlement and non-profit credit counseling. They will also conduct focus groups with consumers to better understand why they chose a for-profit debt settlement company.

Have you contacted a credit counseling agency? Were they able to help? Did they charge excessive fees and not really do anything?

Related Articles:
I Have A Repayment Plan Set Up With The National Foundation for Credit Counseling And I still Can't Afford The Payments. What Do I Do?

john@professionallypersonalized.com (John) — Sat, 07 Nov 2009 16:38:00 +0000

The Debt Free Advocate/Financial Elite is designed to provide accurate and authoratative information with regard to the subject matter covered. It is written with the understanding that the authors are not engaged in rendering legal, accounting, or other professional advice. If legal advice or other expert financial assistance is required, the services of a competent professional person should be sought.

How Do I Begin to Get Out of Debt? Step #9

john@professionallypersonalized.com (John) — Fri, 06 Nov 2009 07:02:00 +0000

Back when I was $60,000 in debt I thought I was never going to pay all that debt off. I didn't know where to begin and would wake up in the middle of the night with panic attacks. But I calmed down and made a plan and set goals.

Step #9

When you are up to your neck in bills getting out of debt my seem like an impossible task. You have taken out loans of easy money and your income was probably in line with your expenses. But with banks lowering limits and raising interest rates the payments are getting harder and harder to make.

The first thing you need to do to get out of debt is stop charging your purchases and don't apply for anymore credit accounts. If you don't feel you can resist the temptation to use your credit card, freeze them in a block of ice, put them in safe deposit box, or just cut them up. I promise you will be OK with out them. Like they say at Nike, "Just do it."

Stop Foreclosure: Rent Your Own Home

john@professionallypersonalized.com (John) — Fri, 06 Nov 2009 04:26:00 +0000

We have suggested many ways to avoid foreclosure from: getting a second or third job, renting out a room, or just renting out your home and letting someone else pay the mortgage. CNNMoney.com reported today that Fannie Mae was giving troubled borrowers another way to avoid foreclosure. On Thursday Fannie Mae said it will allow eligible homeowners to rent their own homes.

"This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities," said Jay Ryan, vice president of Fannie Mae, a mortgage-guarantee firm under federal government control.

Homeowners must show they can afford market rent, but that payment cannot be more than 31% of the borrower's pre-tax income. Leases may be up to 12 months, with the possibility of renewal or month-to-month extensions. If property is sold, the new owner picks up the lease.

Tenants of homeowners may also be eligible for leases.

I think this is a fantastic idea. Now is not the time to let your credit get tarnished. Especially, having a foreclosure hit your credit score. I know it seems like everybody is short selling and walking away from their homes, but do the right thing consumers-stay in your home and find a way to pay the mortgage. If you can't afford the mortgage maybe you can afford the rent. You need to live somewhere, it might as well be your own home.

Do you think this a good idea? Will this help stop foreclosures or are we doomed to be in this real estate fiasco forever?

Is There Any Such Thing as Good Debt When it Comes to Getting of Debt? Step #8

john@professionallypersonalized.com (John) — Thu, 05 Nov 2009 05:30:00 +0000

In Step #2 we discussed the difference between good and bad debt. Back when I was in debt $60,000 I thought all debt was bad. I just didn't want to see another credit card bill ever again. But there is actually good debt such as a mortgage for a home or student loan so that you can earn a degree to hopefully make more money.

Step #8

So some debts or good, but what other types of debt are considered good or preferred debt? There are basically two types debt: the unsecured and the secured. Unsecured debts are debts that are not backed by any type of collateral. Since there are no strings tied to the unsecured loans, by strings I mean no assets, they are a bigger risk for lenders and therefore they charge a higher rate of interest for them. Personal loans and credit cards are examples of unsecured debt.

On the flip side, secured debts are backed by collateral, which is less risky for lenders. In turn they charge a lower rate of interest for a loan. Home mortgages and car loans are the most common secured debts.

Unsecured debts also generally have a variable interest rate. When I was neck high in debt, lenders were raising my rates and making things more difficult for me. To me it is illogical for banks to do that unless borrowers are not paying their bills on time, but I had always paid mine on time. The new credit card reform act will help put an end to that beginning December 1, 2009.

Have lenders been jacking up your interest rates for no reason before the new law goes into effect? Lets hear from you.

Credit Card Reform Gets Put Into High Gear to Help People get Out of Debt

john@professionallypersonalized.com (John) — Thu, 05 Nov 2009 05:08:00 +0000

Something we have anticipated for a while has happened as the House passed a bill Wednesday to move up the effective date for credit card reform from Feb 22, 2010 to December 1, 2009. Just as credit card companies were beginning to sock it to consumers at the last minute.

According to CNNmoney.com, President Obama signed a into law the credit card reform act last May. The reforms were scheduled to be released in 3 installments over the course of 12 months.

Carolyn Maloney (D-N.Y.), one of the co-sponsors of the bill, said credit card companies "brought this on themselves" by taking advantage of the time between when the reform act was signed and when it was scheduled to go into effect.

"Congress can lock in a ban on interest rate hikes on existing balances and the tricks that have kept far too many consumers trapped in a never ending cycle of debt," she said.

What do you think? Should credit card companies need to have restrictions on the fees they charge? Who is to blame for credit card debt? The credit card companies or consumers?

More People Feeling Hopeless About Getting Out of Debt Leads to an Increase in Bankruptcy

john@professionallypersonalized.com (John) — Thu, 05 Nov 2009 04:25:00 +0000

After we just talked about the turmoil of deciding to file bankruptcy or not CNNMoney.com reports personal bankruptcies are up 9%.

Number of Americans filing for bankruptcy continues to climb and the total number of bankruptcies is expected to hit the 1.4 million mark by the end of 2009. The highest number in 4 years.

The American Bankruptcy Institute reported that the 9% increase in consumer bankruptcy filings in October and the 7% jump in business related cases shows the continued stress of the U.S. economy.

Bankruptcies are up 28% from the same time last year.

What do you think? Is the economy to blame for the bankruptcies or are people just taking the easy way out? Is there a whole new keeping up the Jones' going on? Everyone else is doing it. Why shouldn't I?

Is Bankruptcy a Good Way to get Out of Debt? Step #7

john@professionallypersonalized.com (John) — Wed, 04 Nov 2009 06:08:00 +0000

I had kept my massive debt load a secret for years. I knew it was wrong and I was embarassed to let anyone know. It wasn't until I was getting divorced that I began share my secret. While confiding my debt to a close friend of mine I learned I was not the only one who had a secret. My friend was in debt too. In fact even more than me. I was in debt $60,000 and he was in debt $100,000.

We both felt overwhelmed by the debt and were equally embarassed at our sisituations. Between my debt and my pending divorce I had contemplated suicide, but learning I was not alone helped me get passed that.

But when it came to our debt we felt hopeless. At one we both thought of bankruptcy as an option. It was kind of like if you jump I'll jump too. In the end we both decided against it. Feeling it was not right to do that to our creditors because we had mismanaged or finances. In the end we both became debt free.

Step #7

If you are not wanting to or able do what it takes to get out of debt and your financial situation seems too hopeless, than sadly bankruptcy may be a way out. Before you file for bankruptcy, be sure to consider the consequences not only for yourself, but for your spouse, family members, and friends. No matter what you have heard, bankruptcy is not a simple solution. Here is why:

1. Your credit will be severly damaged for seven to ten years.

2. You will be required to pay higher interest rates on loans. If you are even able to get a loan these days after filing bankruptcy.

Filing bankruptcy is actually filing a pettition under the federal bankruptcy law. You are much better filing through your attorney rather than doing it yourself. Although, you are certainly able to do so. You and your attorney will draw up a petition listing your assets and liabilities. You submit the petition to a U.S. District Court judge. If the judge accepts your petition, he or she may have some of your assets sold by the court to pay your creditors. The court will then wipe out most of or all of your debts accept:

1. Alimony and child support.

2. Most state and federal taxes.

3. Most federal student loans.

4. Any debt not listed on your bankruptcy petition.

You can learn more about bankruptcy at bankruptcyinfo.com.

Have you thought about filing bankruptcy? Did you go through with it?

Credit Card vs. Debit Cards When Getting Out of Debt

john@professionallypersonalized.com (John) — Tue, 03 Nov 2009 04:51:00 +0000

More and more people are beginning to use their debit cards more than their credit cards. With credit card companies socking it to consumers at the last minute before the new CARD Act goes into action in February 2010. I read a recent article today on CNNMoney.com about the downside of debit cards. This is what they had to say:

1. Security

If your credit card is stolen you are not responsible for unauthorized charges over $50. But when your debit card is stolen you have to report any charges you didn't make within in two days to get the same protection. Curtis Arnold of cardratings.com says card issuers have different policies so make sure you read the fine print.

2. Your Credit Score

If you trying to build your credit score, your debit card won't help. Debit cards have absolutely no impact on your score. Since debit cards pull directly from your checking account there is no credit.

3. Debit don'ts

If you are going to purchase a big ticket item use your credit card rather than your debit card. Credit cards offer better protection.

But let's look at the pro's when getting out of debt.

1. Convenience

Having a debit card is a lot easier than carrying a wad of cash or running to the ATM.

2. No qualifications

Since debit cards are not credit scrore driven you don't have to have a great score to qualify for one.

3. Keeps you from spending money you don't have.

Using your debit card keeps from adding to you credit card balances. When you use your credit card you tend to forget what you spend until you get your statement. With your debit card you can only spend what's in your checking account.

So if you are trying to pay off your credit cards and haven't switched to your debit card it's time to start.

Let's hear from you. Do you use your credit card more and your credit card less?

Does Being in Debt Have a Connection With Weight Gain? Step #5.1

john@professionallypersonalized.com (John) — Sun, 01 Nov 2009 20:35:00 +0000

Has being in debt caused an expansion of your waste line rather than your wallet? In writing the steps I used to pay off my $60,000 of debt it was interesting to a look back. In Step #5 I reflected on getting your financial life in order, which included the physical and emotional aspects of your life as well.

From the time a got married(for the first time) until my divorce I had gone from 185 pounds to 240 pounds. Not only had my weight gone up, but my debt had grown right along with it.

I had made my getting back in shape a priority right along side paying off my debt. As my waste line went down so did my debt. Just as I budgeted to pay down the debt I budgeted to reduce what I was eating as well. Interestingly, when I paid off the last remaining bill from my $60,000 of debt I weighed 190. Almost the same amount of weight as when my debt began to stock pile.

Now I am not saying if you lose weight your debt will magically dissapear, but I think getting all aspects of your life in order does help.

Also, while looking back I decided to look at my current situation. I have gained weight. I weighed 236 pounds this morning. This isn't debt related weight gain, but maybe the loss in value of my homes and the reduction in value of my stock portfolio has lead to the gain.

It's time to for me to get back in shape. Home values and the stock market are beginning to come back. They will return to where they once were sooner or later. When that will happen is unknown, but things will come back. They always do.

I think Dr. Mehmet C. Oz is great. I am dusting off my copy of "You on a Diet", and I am going to begin my diet today. In the book Dr. Oz comments on looking at a person's waste line. If their waste line has grown, their stress level probably has as well.

If your waste line has expanded just as much as your debt you may want to pick up a copy of "You on a Diet" , and maybe start another chapter in your life. Maybe even another book entitled, "Your Debt on Diet ", discussing your debt free life.

Why Do I have to Pay More Interest Just Because I am in Debt? Step #6

john@professionallypersonalized.com (John) — Sat, 31 Oct 2009 20:17:00 +0000

When I began putting my financial life back in order part of that descision included buying a home. I had given up my house to my ex-wife in my divorce and having to rent an apartment just killed. For me owning a home is much better than renting.

Although, my debt debt was bursting at the seems at $60,000 I was still maintaining a credit score of 680. I bought my self a small condo that was actually cheaper than the rent on my apartment. This had happened before the crazy loans that came out, but I was so releaved to be able to qualify for a normal conventional loan. But with today's strict loan requirements it may not be as easy.

Step #6

If have accumulated an excessive amount of debt you can very likely be denied a loan. Or you could be paying a higher interest rate. The deciding factor is you credit score. Your credit worthiness is based on your payment history, income, potential debt, and the number of years you have been employed. The best score is 850 and the lowest score you can have is 300. There are many ways you can obtain your credit score. When I first pulled my credit score for the first time I used myfico.com. It was easy to use and they give a detailed explanation of each item on credit report. There is small fee, but it's worth it if you are a novice at credit reports.

Why Do People Fail to Ever Get Out of Debt? Step #5

john@professionallypersonalized.com (John) — Sat, 31 Oct 2009 07:26:00 +0000

When I began my path of getting out of debt I decided to get my life in order. Not only getting my financial life together, but the physical, emotional, mental part of my life. People who stay in debt fail to get their finances and life in order.

Step #5

One of the things you need to get your financial life in order is a budget. The word "budget" often puts people in panic mode. Having to cut back or pull in the reins on their spending scares people to death. They would rather stress over debt than have to curtail their expenses. Many people don't want to start a budget because the don't want to face reality. They don't want to know exactly how bad off they are financially. Also, people are often raised by undisciplined parents who did not live a financially conscious lifestyle. They don't even know how to start a budget. It's scary for them. For many it delivers the harsh reality they just don't make enough money to make ends meat. Having a budget means they have to stop their overspending and that they can't have the things that they think they just can't live without. People who stay in debt are just not willing to cut back and would prefer to remain in debt for the rest of their lives. I chose to get out of debt and therefore I did. Start planning your budget now and start living a debt free life. You can do so at personalbudgeting.com.

Birds of Feather Flock Together When it Comes to Getting in to Debt and Getting Out of Debt. Step #4

john@professionallypersonalized.com (John) — Fri, 30 Oct 2009 06:22:00 +0000

When I got into all of my debt I knew it was wrong and really I didn't like getting in debt at all. I acually wanted to stop the financial bleeding, but personal reasons with my ex-wife were a main part of the problem. Then again was I addicted to the debt or was I addicted to the things money(or debt)allowed me to buy or do.

STEP #4

People who are in debt are addicted to something, whether it be overspending, material things, or the misery being in debt brings. The inappropriate use of credit cards is usually the main reason people have major debt problems. When your checkbook balance is low and your wallet is empty you just want to move on to the credit cards. Once you move over to the credit cards you can just start overspending. Why is this? The main reason is you usually don't even know what your spending or spent until you get your credit card statement. You know that you open that envelope and say, "Wow! I spent that much?", and of course you do it again next month. Don't you?

It requires constant planning and monitoring to maintain good credit management. Look at your current credit situation. Do you know how much you put on your credit cards each month? Do you know the total amount of payments you make to all of your creditors each month? Do you have enough income to pay all of your creditors each month? Your total debt should not exceed ten percent of your income. Do you have an emergency fund for financial emergencies like job loss or sudden illness? Eight months of income is recommended to have in your emergency savings account.

If your entire credit picture is not entirely laid out in your mind, it's time to start getting things straight in your head and figure out where you are going with your finances. Living beyond your means and overspending are a sign of lack of awareness, self control, and commitment. They only lead to excessive debt. Use the debt calculator at CNNMoney.com to see exactly when you will be debt free.

Do You Have a Serious Debt Problem? Step #3 to Get Out of Debt.

john@professionallypersonalized.com (John) — Thu, 29 Oct 2009 06:42:00 +0000

In Step #2 we have discerned between Good (Credit) and Bad (Debt). Why is debt bad? Well, it isn't always. Having a mortgage loan can be good. Normally, homes are an apreciating asset. Student loans can be good debt too. The more you know the more you make yourself an appreciating asset.

Step #3

Lets see if we can discern if you have a serious debt problem. Do you often panic about your debt? People with serious debt problems often panic and try to quickly solve a problem that has been with them for years. They will usually pay off the wrong kind of debt without taking a look at their complete financial picture. Most short time fixes won't make their debt problems disappear. To see if you have a serious debt problem look out the list below. If you can relate to at least three of these, you may have a serious debt problem.

1. You are always juggling payments or holding off paying one creditor to pay another.

2. You borrower or take cash advances to pay your creddit card debt.

3. You are consistently receiving past due notices on your accounts.

4. Charging more each month than you make in debt payments and have balances on several credit cards.

5. Always running out of money before payday and use your credit cards to tide you over.

6. Charging things like groceries or gas to survive.

7. Paying only the bare minimums on your credit cards or other debts.

8. You are not able to save anything for a rainy day.

9. Trying to find ways to get more credit because you are about to be maxed out on your other cards.

When I was in debt $60,000 eight years ago I could agree with each one of these statements. I knew I had a problem and immediatley after my divorce started working on stopping these toxic behavours. If you can answer yes to at leastthree of these it's time for you start working on your new life...your debt free life.

What Is Debt, How Does it Affect My Credit, and How Do I Start Working Towards Being Debt Free? Step #2 to Get Out of Debt

john@professionallypersonalized.com (John) — Wed, 28 Oct 2009 05:44:00 +0000

In Step #1 we explained you would never be debt free until you admitted you had a problem with debt and that you realize what the cause of your problem was.

Back in 2000, I was in debt $60,000. Mainly do to me and my first wife's over spending and living beyond our means. This had partially lead to our ultimate divorce. After my divorce I had set down and began a plan to get out of the hole. During Step 1 I had decided, which I already knew, was we had spent more than we made. We went out to dinner every weekend and went on trips and vacations that really we couldn't afford without putting them on a credit card. Once my divorce was final and realizing the root of the problem, I had stopped going out dinner on a regular basis and no longer went on vacations I couldn't afford. Almost immediately charging things on my credit cards had stopped and I began to release myself from my financial prison and set a course for financial freedom.

Step #2

So what is debt? Debt is the amount of money you owe, that needs to be repaid usually with interest and within a specific amount of time. It is money you spend today with the intent to pay with money you earn in the future. What is credit? Credit is the complete opposite of debt. It is the potential to borrow money to buy something like a car or even a home. When you use your credit, you create debt. When you pay of debt, you create credit. The main component of a healthy financial life is having balance between credit and debt.

To most debt is considered a bad thing while credit is considered good. But people do get confused about the two. I have known people who had every credit card they could get their hands on and couldn't wait to brag and show them off. Those same people though, at one time or another, had run their cards up to excessive amounts to end up in their own financial prison. The ultimately had a serious debt problem.

Why am I in Debt and Not Debt Free? Step # 1 to Get Out of Debt

john@professionallypersonalized.com (John) — Tue, 27 Oct 2009 06:13:00 +0000

Spending more than you make is most likely the cause. Excessive spending, keeping up with the Jones', being a spend thrift or whatever you want to call it is as addictive as alcohol or drugs. Just like a drug addiction, debt can interfere with every aspect of your life including: your job choices, interest rates you pay, your insurance rates and can damage relationships with those who are the closest to you. With the unemployment rate being the highest it has been in years Americans owe more now than ever before.

So, what do you do first?

Step #1

Assess your current financial situation. Take a look at your debt and your current spending habits. Do you have a budget that is written down and you follow every month? Do you know how much you are spending in each category (i.e utilities, food, shelter, clothing, transportation)? Just like Alcoholics Anonymous the first step is admitting you have a problem. You can't solve any of your debt problems until you understand how you got to be in debt in the first place. If you don't know how it happened to begin with history is destined to repeat itself.

Do you remember a time when you were able to live on only your salary without having to borrow money? When did your debt start to get out of hand. Did you lose your job? Did you buy that car you had to have, but couldn't afford? Did the credit card company double or triple your interest rate on your card? Did you go on a spending binge? Or maybe it was a little of each of those things. Whatever the reason was you need to start where it began before you can go forward to start your debt free life.

How Did This Economic Crisis Start? Will We Ever be Debt Free Again?

john@professionallypersonalized.com (John) — Mon, 26 Oct 2009 04:05:00 +0000

We have looked at how this current economic crisis began before and as we like to say, "All this has happened before and all this will happen again." We looked at the creation of the Federal Reserve and how it has caused economic havoc many times over.

By now most people have the knowledge that the current financial crisis began in 2007 because a large number of homeowners began to fall behind on mortgage payments that they couldn't afford. But, how did a relative small number of people not making their mortgage payments bring about a global economic meltdown?

My opinion, as well as others such as, Michael Moore's, as seen in his documentary "Capitalism: A Love Story", the answer is GREED. Way too many people were interested in how to make a quick buck than making good financial decisions. "If you choose the quick and easy path you will become an agent of evil", as Obi-wan Kenobi once warned Luke Skywalker. Mortgage lenders began to stop verifying if borrowers actually qualified to buy a home. Loan were virtually being given to anyone who applied. Wall Street bankers and hedge fund brokers juiced up lenders to give out loans so they in turn could make tons of money off them with a new round of creative investing schemes. While most borrowers were too confused or too clueless to understand the types of mortgages they were getting into, others knew exactly what they were doing and didn't care they were buying homes they couldn't afford. So there was so much good old fashioned greed to go around.

It wasn't always this way. And in a very short amount of time people quickly forgot how things once were. In the not so distance past when you wanted a mortgage you went to the bank with your last two years tax returns, your last two paystubs to verify your employment, and your last three months bank statements to verify that you had savings that would allow you to put 20% down as a down payment. The lender would than review your finances making sure you had enough income to cover your mortgage payment comfortably, including property tax and homeowners insurance, and you weren't overwhelmed with other debt. You had two choices for a mortgage: a fifteen year fixed or a thirty year fixed mortgage. You wouldn't have to worry what your payment was going to be five years down the road. There were adjustable rate mortgages, but in rare circumstances. You either had an FHA or conventional fixed rate loan. If you were approved for the mortgage both you and lender new what your payments were going to be and chances were, as long as you didn't become unemployed or something, you were going to be able to make the payments. If the lender didn't feel you were going to be able to make the payment for the next thirty years or until you sold the home you were denied the loan. It was as easy as that. This protected the bank and it protected the borrower from foreclosure.

Things began to change between bankers and borrowers in the 1980's when Fannie Mae and Freddie Mac came into the picture. Fannie Mac was created in 1938 and Freddie Mac followed many years later in 1970. Both were government sponsored enterprises, known as (GSEs), they were not full fledged government agencies, but they had the impression of being government backed. Both of the GSE's had the mandate to increase the amount of money available for mortgages. They would do this by buying mortgages from lenders so the lenders could lend out more money. Fannie and Freddie would package mortgages that they had in their portfolios, as well as they would guarantee mortgages that Wall Street could package and sell to investors. This process promoted homebuying by allowing the lenders to have more money to lend to homebuyers, which in turn allowed more people to buy homes.

As this went on it became more likely that the original lender would not hold the mortgage, but would instead sell the loan packaged all nice and neat to Fannie or Freddie, or their cousin Ginnie Mae, and Wall Street. Mortgage securities were new income products that were backed by solid mortgages. lenders were still careful to make loans only to qualifying borrowers. The problem with all this began when Wall Street and greedy lenders began cooking up a horrific scheme, almost like a giant pyramid scheme, which turned into a ticking time bomb that the Federal Reserve helped put in place.

Remember the Technology stock boom in the late 90's? Well, when the tech stock bubble burst in early 2000, than Federal Reserve chairman Alan Greenspan attempted to keep the economy from slipping into what could have been a recession of the type we are experiencing now, by slashing the Federal Funds Rate. From 2000 to 2004 the funds rate fell from 6% to 1%. Currently it is at 0%. With rates being so low, Wall Street began to introduce an investment that appeared to be safe and offered higher yields than normal bank CDs and money market accounts were offering at the time. The so called brilliant minds of the financial sector had set their sights on mortgage backed securities. Not only were they packaging loans from qualified borrowers they decided to take on mortgages from not so qualified borrowers. Loans known as subprime mortgages were made to borrowers with what I would consider to be bad credit.

But this was only the first stage of their financial coup. Wall Street started churning out what is known as Credit Default Swaps or (CDS) tied mortgages. The CDS were insurance that promised investors who invested in mortgage backed securities that they would get paid even if your mortgage went into default. Wall Street was also able to take a huge gamble on mortgages using CDS.

But wait, the worst is yet to come. With their giant pyramid scheme in place, the only thing that Wall Street needed to get around was how to increase the amount of subprime borrowers. This is when the number of unconventional mortgages, like interest only, pay option ARM's, and 1 year ARM's with low initial payments increased. These loans were insane and had grown from 2% of the mortgage loans available in 2003 to 20% in 2005. When I was a loan officer back then, I remember thinking these borrowers should not be getting loans and we were going to have a big problem one day. The applicants qualified so there was nothing I could do. All these borrowers basically had to do to qualify was have a heartbeat. No tax returns or paystubs to prove your income. Even better, if you didn't have the money for a down payment it was no problem. We would just give you a loan for the down payment.

We pushed these loans left and right and the mortgage companies didn't care about these risky loans. Why? Because it wasn't their problem if the borrower didn't make their house payment. How can this be? The loans would be sold off to investors and the investors didn't care because the guaranteed they would be paid because of the Credit Default Swaps.

Lenders couldn't do the loans fast enough. We were doing some loans from start to finish in one day. Twenty-four little hours. Borrowers were also encouraged to take out the biggest loans possible. Everyone dived in to get a piece of the pie. Driving home values through the roof.

But in late 2006, cracks began to show in the foundations. Borrowers with Adjustable Rate Mortgages (ARMs) began to see their first rate increase and increased mortgage payments. Many were shocked to receive their new house payment that was beyond what they could afford to pay. Most people had thought if this happened that they would be able to refinance, but guess what. The Federal Reserve raised the Federal Funds Rate, which was 5% by mid 2006. What do you know? The good Old Federal Reserve as usual. New loans would now be higher than what they were now. Now to pour more salt on the wound, real estate prices began to stagnate and with no down payments on the homes borrowers had no equity. So, with no equity no matter what the interest was, borrowers didn't qualify for a refinance.

When 2007 arrived, there were even more people who couldn't afford their house payments. They couldn't refinance and they could not sell their homes since property values fell. This was the nail in the coffin as the bottom began to fall out from this giant financial scheme. A catch twenty-two that we are still suffering from. The foreclosure rate started to rise. With the increase in foreclosures came the increased drop in home values. This has continued on and on and continues to happen today.

So what actually happened? Lenders were making loans to borrowers who couldn't afford to pay them back. Wall Street egged on lenders and borrowers, telling them it was alright because the Credit Default Swaps were a golden parachute.

There is even more to all this, but this is it in a nut shell. Everybody drank the Kool-Aid. Wall Street pushed the lenders, the lenders and real estate agents pushed the borrowers, and borrowers egos were stuffed to the gills living in these huge homes they couldn't afford.

Others knew as I did, we had trouble brewing. I was often called the "judger" and I couldn't say who should by a home and who shouldn't, which is true. Lenders can't be discriminating. But it didn't take a rocket scientist to know what is wrong and what is right. And this whole thing wasn't right. But it may just take a rocket scientist to get us out. Or some good old common sense, which we lacked when we got into this mess in first place.

How Do I Develop a Spend-Less Plan to be Debt Free?

john@professionallypersonalized.com (John) — Sun, 25 Oct 2009 18:10:00 +0000

After you start looking at your expenses for the last three months and have begun to make the cut backs, do it again. Here are some additional cut back tips.

1. Identify what are necessary expenses and what are luxury expenses. What are your needs and what are your wants. You do need groceries, but does everyone in the family need a cell phone or do you need the expensive cable package?

2. After reviewing your bank and credit card statements, do you see any patterns in your spending? Review you miscellanous spending. There is always something you can cut back on.

3. Prioritize your budget. List your expenses from the most to least important. Then assess what you can cut back on.

How Do I Determine What I Can Cut Back on so I Can Be Debt Free?

john@professionallypersonalized.com (John) — Sun, 25 Oct 2009 05:23:00 +0000

Begin tracking your expenses for the last three months.

1. Go back and look at your bank statements.

2.If you primarily use your debit card, rather than cash, all your expenses (food, gas, entertainment, ext)should be fairly easy to figure out.

3.Go through your credit card statements too and check the charges you made. Don't forget the interest.

4. Review how much money you made.

So how much money did you make? Do you make enough to cover all of your expenses? Did you spend more than you made? If you spent less than you made, what did you do with the extra money? Doing this should help you determine where you can start cutting back if you are spending more than you make.

Now, what do you want to do? Do you want to start working towards a debt free life style? Things don't happen over night, but you need to start setting specific goals. When determining your goals be sure to have a completion date set for each one of them. So, if you are going to reduce your spending by $10 a day and start putting that money towards your credit cards so you can pay them off, what steps are you going to take to make that happen and how soon will you start. If you are living above your means you may have to take painful step in order to make things happen. You must start to figure out how to live within your means before you can get your finances under control and start living a debt free life style.

What Can I Do to Reduce My Expenses and in Turn be Debt Free?

john@professionallypersonalized.com (John) — Sun, 25 Oct 2009 04:51:00 +0000

For most, cutting expenses is much easier than raising their income to get out of debt. Think of any expense you have and most likely there is a way to reduce it. Everything from: cable, gas, or groceries. Here is list of ideas to help you get started reducing your expenses.

Housing and Utilities

-Choose higher deductibles on your homeowners or renters insurance.

-Turn your thermostat down in the winter and up in the summer. Electric companies suggest 78 degrees in the summer and 68 degrees in the winter.

-Drop premium channels from your television and telephone service.

Transportation

-Increase the deductibles on your auto insurance policy.

-Start carpooling to work and use public transportation.

Food
-Pack a lunch to work and eliminate eating at fast food restaurants.

-Use weekly grocery add coupons and check to see what is on sale. Prepare a meal plan accordingly.

Clothing

Check out consignment and thrift stores for gently used items.

Don't buy onto the latest fashions. Stick to classic styles. Know what looks good on you and try combining outfits to expand your wardrobe.

Will My Standard of Living Prevent Me From Getting Out of Debt?

john@professionallypersonalized.com (John) — Sat, 24 Oct 2009 20:17:00 +0000

There two main reasons most people fail to get out of debt.

1. The don't have the personal commitment it takes to make it happen.

2. The don't get their excessive spending habits under control to fit a standard of living that they cannot afford.

People who stay in debt usually continue to write checks and make charges on their credit cards without any thought of how they are going to pay for it. They generally become obsessed with doing whatever it takes to maintain their perceived high standard of living with out the thought of the long term consequences of their actions. Most people would rather not think about the long term. Once you get used to your short-term standard of living, you will get caught up in a vicious circle. Your short-term debt gets bigger and bigger, and their long-term financial needs get farther and farther way.

If this sounds like you. You need to start looking at the long term.

Are Banks Full of Crap About Not Raising Credit Card Interest Rates?

john@professionallypersonalized.com (John) — Mon, 19 Oct 2009 02:14:00 +0000

The purpose of this blog entry is let you know that some of the terms of you reading this blog have been modified. These changes are not a reflection of how you managed to read The Debt Free Advocate or your credit score.

The table below summarizes the changed terms. Please carefully review this entire Change in Terms Notice for complete information of all changes and retain this in your favorites for future reference.

Subject
Interest rate-your spread percentage is increasing.

Excessive reading fee-Excessive reading fees will no longer be assessed.

The New Terms include an increase to the FINANCE CHARGE rate that is charged on you reading this blog. The ANNUAL PERCENTAGE RATE(APR) is a variable rate based on your "Spread" plus the Prime Rate which was 3.25% as of October 1, 2009. However, the prime rate may change, which would affect your APR. The table below shows your new APR.

NEW APR

Spread 17.20%
Plus Prime as of October 1, 2009 3.25%
New APR 20.45
Daily Periodic Rate 0.05602%

-The minimum APR for reading this blog is 8.90%. The maximum APR is 27.00%
-Please refer to any recent posts for your current APR and any promotional rates that may apply.
-Any existing unread posts on this blog currently on a promotional rate stay in effect until the promotional rate expires.
-Except for these exclusions, the increases to the APR will apply to both new posts made on this blog as well as any existing unread posts. The new terms regarding APR increases become effective November 30, 2009, and will apply to all billing cycles beginning on or after that date, unless you follow the opt-out procedures and close your account as described below.

If you accept the new APR, no action is required.

If you want to opt-out and discontinue reading this blog: If you choose not to accept the changes above, you will have to notify us on before November 29, 2009, and stop reading this blog. If you opt-out of these changes, you may continue reading any unread posts under the current pricing terms of your subscription but you will have the ability to use the blog for further financial education.

Over Reading Fee elimination: In addition to the above changes, we want to inform you that, beginning February 22, 2010, we will no longer charge an Over Reading Fee if we allow your reading to exceed the limit.

After reading this post you are probably thinking what the heck is that all about or we are full of crap. But really the banks are full of crap.

Last week Bank of America announced that it will not increase interest rates on consumer credit card accounts between now and the effective date of the CARD Act, unless a customer's account falls past due. Also, variable rate credit card accounts may experience rate changes based on changes in the prime rate. But is that exactly true?

Starting in February 2010 the Card Act will put a stop to:

- Charging consumers to pay by phone

- Sudden surges in interest rates

The bill also makes changes to:

- Applying payments made over the minimum due to balances with the highest interest rates first.

- Information in tiny print must be made clearer.

- Let consumers know how long it would take to payoff a balance if they only pay the minimum payment.

Credit card companies have been raising fees and interest rates. From November 2008 to February 2009, rates increased from an average of 12.02% to 13.08%. Because of this people have not been able to make their payments on their credit cards and are walking away from the debt.

As we expected, with the new law going into effect, banks would start raising interest rates even to account holders who pay their accounts on time.

Our post was based on a copy of a letter our $190,323.79 in debt couple, Lois and Clark received from Wells Fargo. They also have received a similar letter from Bank of America, but they have been late on their Bank of America cards. So it is understandable that the rates would be going up on those cards. But the cards that they pay on time are going up as well. Even though the letter they received says the changes are not a reflection of how you have managed your account or your credit score.

So here it is folks. Watch for more letters like this coming your way as banks and credit card companies stick to you as much as they can before the CARD Act goes into effect. Until February 2010, all you can do is accept it and pay the higher rate or close your account.

How Do I Get Credit Card Companies and Debt Collectors to Stop Harassing Me? Part 2

john@professionallypersonalized.com (John) — Mon, 19 Oct 2009 02:11:00 +0000

"How do I get credit card companies and debt collectors to stop harassing me?", is one of the most searched topics here at The Debt Free Advocate. The excessive calls are down rate embarrassing at work and at home. In Part 1 we covered the federal Fair Debt Collection Practices Act. Here's a quick recap of what we learned:

-No matter how friendly and understanding the person on the phone sounds, they are doing their job and they just want to get money from you.

-If you end up working out a settlement with the collection agency, get everything in writing before paying.

-Do not share your other phone numbers or other ways the collection agency can reach you. The call will just increase and you can be embarrassed even more if someone else gets the call.

-Treat the call as business call. Do not get emotional or caught up in the situation.

-Tell collection agents not to call you if you do not wish to receive these calls.

-If you take calls be sure to keep a journal of all conversations.

-Negotiate lower payments and interest rates first before discussing a settlement.

Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) deals with credit reports and credit reporting agencies, such as Experian, Transunion, and Equifax. Consumers are entitled to receive a free copy of their credit report every year.

A credit report can also be requested within sixty days of the receipt of the denial of credit or unemployment. The FCRA also provides that if you find an error or incorrect information on your credit report, you can inform the reporting agency, and the agency must re investigate the matter at no charge to you. You must receive a response from the agency within thirty days. The information must be corrected or deleted if it is incorrect. (FCRA, Sec. 1681(i).)

Credit reporting agencies are required to include a record of all inquiries about received in the last six months on our credit report. They must also include a listing of all the people who have purchased your report within the last two years for employment purposes and within the last year for other reasons. (FCRA, Sec. 1681(g).)

Credit reporting agencies are not required to disclose your credit scores or credit risk rating. This is an internal evaluation the reporting agency makes about your creditworthiness. It is like a grade for your credit history, and is furnished to employers and creditors. many credit reporting agencies do release this information, but they are not required to do so by law. (FCRA, Sec. 1681(g).)

Check out the complete FCRA at http://ftc.gov/