determine how quickly you can pay off your current debt, but also to get a realistic grasp of how much it’s actually going to cost you to borrow.
Interest can work for you, too. If you have a checking or savings account that earns interest, the money you have deposited in it is growing. However, before you start putting money into a savings account earning 4 percent interest, be sure you are not maintaining a balance on a credit card at 16 percent interest. You are actually losing money by not paying off the credit card first. Only after eliminating debt should you put your money into a savings account, with the exception of allowing a small amount to be saved in case of emergencies.
Good Debt versus Bad Debt
Are their good reasons to go into debt? Certainly! If you are investing in something that will increase in value, like a home, a business, or even student loans, that is good debt. If you take out a home equity loan to pay off a higher-interest credit card, that’s a good debt because your home equity loan will generally have a lower rate and will be tax-deductible. However, be careful you don’t spend your home’s equity on bad debt like a vacation, new furniture, or other items that will not increase or retain value. Most consumer debt, i.e., credit cards, is bad debt. A good rule to live by is “if you can’t afford to pay off your credit card at the end of the month, you can’t afford to make a purchase.”
It’s important to know your credit score. Your credit score will dictate how much borrowing money will cost you. Each of the three main credit bureaus offers free reports each year. To get a free report, go to the website set up in accordance with the Fair and Accurate Credit Transactions Act (FACT Act) ( www.annualcreditreport.com ).
Cars
Automobiles are another area where people make poor financial decisions. You should consider how much car you really can afford. You should also consider that over the first year of ownership, some cars depreciate at a rate as high as 35 percent. You can find the value of a car at websites like Kelley Blue Book ( www.kbb.com ) or Edmunds ( www.edmunds.com ).
Weigh the pros and cons of new car ownership; is a new car warranty worth the cost of depreciation? Can you find a used car that is still within the original manufacturer’s warranty, yet because it’s used, it will depreciate at a slower rate? How much money can you put down on the car, and how much will you have to borrow? What will the cost (interest) on the loan be? When you combine interest and depreciation, will your car be the value you thought it was?
What is the depreciation on a used car?
According to Safecarguide.com , the yearly rate of depreciation on a used car is anywhere from 7 percent to 12 percent. More specific information depends on the model and make of the car, as well as the mileage.
Creating a Budget
The first step to getting out of debt is to see where you spend your money. If you find you have more bills than money at the end of the month but don’t understand where it all went, a budget is an essential step. However, a budget will do you absolutely no good if you create it and file it away. You need to make daily entries into your budget until you have better control of your finances.
The first step in creating your budget is to pull together all of your financial information. This includes paycheck stubs, bank statements, bills, and any other expense or income. Sort these into several piles: income, weekly expense, monthly expense, quarterly expense, and annual expense. The weekly expenses might be things like gasoline for your car, the costof baby-sitting, or grocery shopping. A monthly expense might be a utility bill or credit card payment. A quarterly expense might be your garbage or water bill. And an annual expense might be your property taxes or vehicle registration.
First, create a list for income. In one column place the source of income; in the next column place
Interest can work for you, too. If you have a checking or savings account that earns interest, the money you have deposited in it is growing. However, before you start putting money into a savings account earning 4 percent interest, be sure you are not maintaining a balance on a credit card at 16 percent interest. You are actually losing money by not paying off the credit card first. Only after eliminating debt should you put your money into a savings account, with the exception of allowing a small amount to be saved in case of emergencies.
Good Debt versus Bad Debt
Are their good reasons to go into debt? Certainly! If you are investing in something that will increase in value, like a home, a business, or even student loans, that is good debt. If you take out a home equity loan to pay off a higher-interest credit card, that’s a good debt because your home equity loan will generally have a lower rate and will be tax-deductible. However, be careful you don’t spend your home’s equity on bad debt like a vacation, new furniture, or other items that will not increase or retain value. Most consumer debt, i.e., credit cards, is bad debt. A good rule to live by is “if you can’t afford to pay off your credit card at the end of the month, you can’t afford to make a purchase.”
It’s important to know your credit score. Your credit score will dictate how much borrowing money will cost you. Each of the three main credit bureaus offers free reports each year. To get a free report, go to the website set up in accordance with the Fair and Accurate Credit Transactions Act (FACT Act) ( www.annualcreditreport.com ).
Cars
Automobiles are another area where people make poor financial decisions. You should consider how much car you really can afford. You should also consider that over the first year of ownership, some cars depreciate at a rate as high as 35 percent. You can find the value of a car at websites like Kelley Blue Book ( www.kbb.com ) or Edmunds ( www.edmunds.com ).
Weigh the pros and cons of new car ownership; is a new car warranty worth the cost of depreciation? Can you find a used car that is still within the original manufacturer’s warranty, yet because it’s used, it will depreciate at a slower rate? How much money can you put down on the car, and how much will you have to borrow? What will the cost (interest) on the loan be? When you combine interest and depreciation, will your car be the value you thought it was?
What is the depreciation on a used car?
According to Safecarguide.com , the yearly rate of depreciation on a used car is anywhere from 7 percent to 12 percent. More specific information depends on the model and make of the car, as well as the mileage.
Creating a Budget
The first step to getting out of debt is to see where you spend your money. If you find you have more bills than money at the end of the month but don’t understand where it all went, a budget is an essential step. However, a budget will do you absolutely no good if you create it and file it away. You need to make daily entries into your budget until you have better control of your finances.
The first step in creating your budget is to pull together all of your financial information. This includes paycheck stubs, bank statements, bills, and any other expense or income. Sort these into several piles: income, weekly expense, monthly expense, quarterly expense, and annual expense. The weekly expenses might be things like gasoline for your car, the costof baby-sitting, or grocery shopping. A monthly expense might be a utility bill or credit card payment. A quarterly expense might be your garbage or water bill. And an annual expense might be your property taxes or vehicle registration.
First, create a list for income. In one column place the source of income; in the next column place
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