Category Archives: Debt

Illogical Debt

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The following is a post by staff writer Crystal at Budgeting in the Fun Stuff. Her blog covers living expenses, saving for your future, and the fun stuff along the way.

There is supposedly good debt like home loans, bad debt like credit cards, and then there is debt that just truly baffles me. This article at Yahoo! Finance covers several stories of crazy debt:

1) One lady ran up about $30,000 in calls to a telephone psychic. She ended up having to declare bankruptcy.

This one makes me cringe the worst since it feels the most wasteful to me. I can imagine the woman becoming enamored with the idea of actually hearing true fortunes of the future, but spending into bankruptcy for it sounds more like an addiction.

2) Another woman ended up with $11,000 in debt by buying men drinks at bars to get their attention.

I know this may sound bad, but even as a slightly chubby woman, I think a low cut blouse would work better for me than buying every good looking dude a drink. This just made me sad because the woman didn’t have enough self-confidence to pick up men in a cheaper way…

3) One couple threw themselves into bankruptcy through random acts of kindness. They wanted to help homeless men and women, but charged hotel stays and food to the point that they lost their home and car.

If you have to spend yourself into problems, this seems like the nicest way to do it. I don’t think that becoming homeless will actually help the homeless in the long run, but this was the sweetest story of debt that I’ve heard lately.

4) One woman had lost control and was spending thousands of dollars on wigs to the detriment of her actual living expenses.

I know a new hairstyle makes me feel good, but I do hope my friends would let me know if I start going too far. Thousands of dollars a year on wigs when you actually have a full head of hair seems like yet another addiction to me.

5) One poor widow ended up putting a $30,000 basement remodel on credit cards after using all of the insurance money to buy the new house.

I cannot guess how I’d react if Mr. BFS passes away before me, but I do hope I don’t do something out of character like this. I know I spend more when I’m stressed on convenience items to make life a tiny bit easier, but I’ve never been so traumatized that I started buying nesting items. This will remind me to seek counseling if life ever throws me a huge curve ball…

My most illogical purchases happen after I research a specific item for weeks or more.

I’ll finally settle on my choice and buy one but I’ll still have the urge to keep searching and buying for a month after that. For example, when I decided to start carrying a purse, I went purse crazy and ended up with 3 expensive bags in 2 months simply because I could not get the purse idea out of my head. I try to control urges like that now by disallowing myself to buy a second whatever for at least 30 days after I buy the first one. That usually works like a charm.

What’s the craziest thing you ever bought? Have you ever ran up illogical debt?

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Secured or Unsecured Loan? Now THAT is the Question!

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This article was written by Andreas Nicolaides, a loans and money expert from MoneySupermarket.com.

When talking about personal finance and in particular loans, we are often met with difficult decisions that can take us a long time to make. Taking out a loan is a big decision that shouldn’t be taken lightly, you should always take into account all of the options available to you. When faced with dealing with loans, you may have to make the decision of taking a secured or unsecured loan, here I will try and detail the difference.

Make sure you compare unsecured loans and secured loans before making a final decision on which is the best loan option for you, this decision could have a big impact on your financial future.

What is a secured loan?

If a loan is stated as secured, this means that it is secured against one of your assets, in other words it’s secured against something you own. A secured loan can be the most conventional way of financing a large sum of money; however, if you fail to repay the loan the lender could take possession of the asset you secured the loan against. This could be a home or a car, and they could then sell off the asset in order to recover the funds that they have lost.

Advantages of a secured loan

  • Secured loans are a great way to obtain money at an affordable rate.
  • You are normally able to borrow more than you would be able to with an unsecured loan, offering you greater flexibility.
  • You are able to spread out the repayments over a longer period of time than an unsecured loan, making the money easier to pay back.
  • Secured loans are easier to get approved for if you have a bad credit history, as the lender has a sort of collateral against you, although, borrowing if you have bad credit may result in your interest being very high.

Disadvantages of a secured loan

  • Taking out a secured loan may result in you being in debt for a long time.
  • Failure to meet your secured loan payments could result in your losing your asset you secured the loan against, this could mean loosing your home.
  • If you don’t have a substantial asset to secure your loan against, for example a car or a home, you may not be eligible for one.

What is an unsecured loan?

If a loan is unsecured then you do not have to secure any assets against the amount to be repaid. Unsecured loans at good rates are becoming harder to come by; this is mainly due to the current economic climate. As there is a greater risk for the lenders when lending you money in an unsecured way, the repayment period is normally shorter, and the interest payments are normally higher.

Advantages of an unsecured loan

  • Taking an unsecured loan means you avoid the risk of loosing your asset.
  • You don’t need to have any substantial assets in order for you to be eligible for one.
  • Borrowing smaller amounts for a shorter repayment period can see an unsecured loan being the right choice for you.
  • Unsecured loans can be tailored to meet the financial needs of the borrower.

Disadvantages of an unsecured loan

  • Unsecured loans come with shorter repayment plans than secured loans.
  • Interest rates are normally higher on unsecured loans as the risk is greater for the lender.
  • The amount you can borrow is usually less than it would be with a secured loan.
  • Lending criteria tends to be tougher than with a secured loan.
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Mailbag: 5 Steps To Get Out Of Debt

Written by in Debt, Mailbag
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I received this email from “Alan,” a 24 year old who was just hired after being unemployed for 8 months after graduating college.

I am in $15,000 of credit card debt and got a job that pays $60,000/year. I was living with friends without really paying rent and now that I’m moving out into the real world, I have no idea what to expect once I get there. I have to pay for rent, utilities, food, and car payments, I’m not sure how much I should set aside for debt, retirement, and savings. How should I allocate my funds?

Alan seems to be in a fairly similar position to me, although his credit card debt is likely accruing interest at a faster pace than my student loan is. I would recommend 5 steps to get started building savings and tackling the debt.

1. Track Expenses

Go right now and sign up at Mint.com. It’s hard to predict exactly how much you’ll spend on lunch with co-workers, fun, and other expenses. Don’t worry about creating a budget just yet, but be responsible with your purchases. Keep in mind that you’re in debt and are trying to get out.

2. Build $2,000 Emergency Fund

After paying the minimums on your credit card, throw everything else into an emergency fund. Some people suggest that $1,000 is enough to get started, but the truth is that $1,000 may not cover what you need. If something happened to your car or if your job doesn’t work out for some reason, this is what you’ll have to rely on. $2,000 should provide you enough of a cushion at the beginning, and after you have that much, keep contributing a small amount each month to give yourself more to fall back on. Every few months, check back on this emergency financial file and keep adding because as you work more, you’ll have higher expenses and will need a bigger cushion.

3. Build A Budget

Once you have an emergency fund, it’s time to see how much you can afford to throw at the debt. Use Mint to build a budget based on your expenses in the first 2 or 3 months, and cut out what you can. Stick to your budget and you’ll see the debt decrease.

4. Aggressively Pay Off Debt

Anything you have left over after expenses and what you put into the emergency fund, write a check to the credit card company. This number will fluctuate depending your living situation and city you live in, but more you pay now, the less you’ll pay overall. Imagine the feeling of being debt free!

5. Work Hard

While focusing on getting out of debt is great, keep in mind that it will be a slow process. Over time, the mound of debt you have will decrease slowly and surely, but it shouldn’t be all you think about. Focus on your job. Improve yourself, work hard, and get noticed. If the debt is gone but you don’t have a job, then you’ll be right back to where you started. The best thing you can do is to do you job well. Having that job will be much more valuable than the emergency fund.

For now, I am going to suggest passing on the retirement savings because the interest rates on your credit cards are likely higher than the rate of return you’d get in your retirement account. Once you have the debt taken care of, you can start pouring all that money you were using to pa off the debt and instead use it to build a healthy emergency savings account and retirement fund.

What other steps should Alan be taking to get out of debt?

If you have a question you’d like answered, please don’t hesitate to contact me!

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From $24,000 In Debt To Positive Net Worth In 1 Year

Written by in Debt, Student Loans
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As a personal finance blogger, I definitely talk the talk. I write about saving up some emergency savings, spending wisely, and contributing to your retirement, even at a young age.

Well, this week marks my 1 year anniversary since I entered the real world and started working. I’ve tracked all my expenses with in my personal budget and I started off my career with $24,000 in student loans and only about $1,000 in savings.

Want to know how far I’ve come? I’m going to break down the past year in a few ways and let you decide if I can walk the walk, too.

Amount Saved in Emergency Savings: $5,000

Amount Paid to Student Loans: $4,900

Amount Invested in Retirement: $9,710

Net Income Last 12 Months (income-expenses): $23,000

% of Income Contributed Toward Net Worth (emergency, retirement, student loans, other savings): 47.5%

Pretty cool, right? I just wish I had been able to break that 50% mark!

The biggest news of all of this is that I officially have a positive net worth! I was pretty surprised to log into Mint recently and see that my cash and investments were greater than my debts. Pretty cool, right?

My take is that if I, a normal person who graduated from college and entered the working world, can get out of $24,000 in debt in just 12 months, anyone can. I didn’t live too much like a college student (it’s been a little cramped, but remember when I got an iPhone?), and setting goals and reaching them has actually been motivating and dare I say fun!

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