My Debt Relief Plan

Twelve Secrets To Reduce Your Debt And Stop Living From Paycheck To Paycheck

Eighty percent of Americans are broke before their next paycheck is deposited in the bank! Easy credit and large credit limits from credit card companies has allowed Americans to purchase a life of stress, anxiety and guilt. Of course, this is only half of the equation. The other half is…

Overspending. The age-old and foolish tradition of keeping up with the Jones is being replaced with a greater foolishness - keeping ahead of the Jones. Some people must have the very best of everything or some simply must have “everything”.

These unrestrained desires lead to a condition called oniomania. People that suffer from oniomania are referred to as “shop-aholics”. Shopping and spending money temporarily suspends negative feelings the shop-aholic is having. The long-term consequences of unbearable debt, guilt and stress are never brought to mind until it is too late.

This overspending also leads to an out-of-control clutter condition. Closets overflow into living spaces. Living spaces fill-up until the home is no longer a calm and inviting place. This leads to a vicious circle. The additional stress and anxiety caused by a cluttered and dirty home leads to more shopping to relieve the anxiety and stress.

Symptoms: Like all addictions, oniomania, has common symptoms:

• Shopping or spending money because of being disappointed, angry or scared
• Shopping/spending habits are causing emotional distress or chaos in your life
• Getting into arguments with others about your shopping/spending
• Feeling lost without your credit cards
• Buying items with credit cards that you probably would not buy with cash
• When dining out with friends or business associates, you almost always insist on picking up the tab–whether you can actually afford to, or not
• Spending money causes a “rush” and anxiety at the same time
• Shopping and spending money feels like you are doing something forbidden or reckless in your otherwise careful life
• Feeling guilty, ashamed, embarrassed or confused after shopping or spending money
• Many purchases are never used. The price tag/sticker is still attached.
• Lying to others about what you bought or how much you spent
• Thinking about money - how much I have, how much I owe, how much I want to have
• Spending a lot of time juggling accounts and bills to accommodate spending

The one symptom that all addictions share is industrial strength denial. In order to overcome the denial a brutal self-assessment of their behavior and the reasons underlying those feelings is required.

Twelve things to do to reduce your debt and have money left at the end of the week:

1. Do not carry credit cards/checkbooks around with you.
2. Make a shopping list and only buy what is on the list.
3. Keep only a limited amount of cash on you - for essentials.
4. Destroy all credit cards except for one for emergency use only
5. Don’t window shop - ‘lead us not into temptation!’ Or, only after the store is closed.-J
6. Avoid discount warehouses and big box stores. Have a certain amount of cash to spend if you do go to one. Many big box stores include groceries. It’s hard to avoid going since we need to eat. Do this: Write-out your grocery list and do NOT deviate from the list. Do NOT wander into the general merchandise areas of the store.
7. Stay away from catalogs, TV Shopping Channels and Internet stores.
8. Don’t play games or try to justify purchases.
9. Try to avoid advertisements (magazines, newspapers, fliers, etc.), where possible.
10. Plan other activities when you would normally go recreational shopping. Take a walk, do some gardening or exercise, call a friend and chat.
11. Talk it over with someone else. The “Buddy System” works for compulsive spenders the same as it does for other addictions.
12. Start a blog. When you feel the urge to shop/spend, start blogging about how you are feeling. Include those feelings of regret, anxiety and depression that come after the shopping spree. There are free internet blogging sites and you can use an anonymous screen/web name. Nobody ever needs to know who you are if you want to keep your identity a secret.

Kelli Wilkinson is a freelance writer and decluttering expert. You can learn more about controlling spending and decluttering at Kelli’s website.

Add comment December 5th, 2007

The Double Whammy of Debt

It is important to realize how debt affects your net worth. The classic Net Worth formula is:

Net Worth = Assets - Liabilities

Liabilities are your debts. These debts reduce your net worth; especially “bad debt”. Good debt is used to purchase assets that increase in value, while bad debt is used on assets that decrease in value.

Although we have here classified debt as “good” and “bad”, all debt immediately decreases your net worth. And, you are also responsible for paying interest, which reduces the amount that you could be saving! This is a double whammy!

So, debt should not be used if at all possible. A home loan is the only debt that you will probably NEED to have. An education would also be an asset that would increase in value; however, debt should still be avoided if possible. In extreme circumstances, debt should only be used to purchase assets that will increase in value. The person, that pays good old cash for a car, education, furniture, electronics, and other items; will up with more peace of mind and usually more money in the bank.

Your credit cards and other debt should not be used to purchase groceries, gas, TVs, or other consumer goods.

However, in today’s world credit cards are so readily attainable and so convenient to use, it can be extremely easy to let your debts get out of control.

The Cause of Debt

In the days of our parents or grandparents, credit cards were rarely if ever used. Now the use of credit cards for basic items such as food and utilities is commonplace. Some other reasons that may be causing the high credit cards bills of America:

• Loss of a job
  
• Divorce
  
• Excessive medical bills
  
• Compulsive spending
  
• Lack of financial knowledge
  
• Lack of budgeting and planning
  

Nearly all debt problems fall into these categories. Unfortunately, most debt problems are caused by the last 3 and not the first 3.

The Solution of Debt

The first solution to debt is to stop accumulating more of it! Stop using your credit cards and start paying with cash or a debit card. This will allow you to stop the bleeding of money and begin to heal the debt wounds that you may have. Here are a few tips to eliminating your credit card spending:

• Pay cash
  
• Keep a written record of any credit card spending and pay it off before the end of the month.
  
• Limit the number of credit cards that you have (this will also improve your credit score).
  
• Don’t accept credit cards offers at retail stores just because of a discount or low introductory rate.
  
• Don’t cash checks that you receive in the mail (from banks or other institutions).

Most importantly, start a budget…and stick to it! Frequently review how much you are spending and make sure not to buy anything on credit. Credit cards not only make you spend more (because of interest) on everything you purchase; it also prevents you from investing that money elsewhere.

For example, let’s take a look at Joe and Tammy. Both Joe and Tammy purchased the exact same TV for $1,500. However, Tammy had saved up for the purchase and paid cash, while Joe bought it the first time he saw it and used the store credit card he was offered at 22% annual interest rate. At $50 a month, it took Joe 4 years to pay for his TV.

While Tammy paid $1,500 for her TV, Joe paid a total of $2,200 ($1,500 plus interest over 4 years). So, Joe not only paid $700 more for his TV than Tammy, he also lost the opportunity to invest the $700 that he would have saved had he planned ahead.

Unfortunately, impulsive buyers do this over and over again and they end up paying thousands and thousands of dollars more for the same items that their neighbors saved up and bought.

For a continuation of this article, and a more detailed look at how to get out of debt and improve your credit, please see the resources below.

Take the 30 day Financial Challenge at Keyblast.com! This article is a small portion of the 30-day financial challenge. To access lots of free information, tools, and to see what the challenge is all about, visit Keyblast.com.

Spencer has a BA in Finance, an MBA, and is currently a Commercial Banker advising Business owners on Business and Personal financial issues.

Add comment December 5th, 2007