My Two Dollars

Don’t Let Debt Dictate Your Life.

How many of you are carrying around debt that dictates how you live your life? I am sure there are many out there, for sure. I was one of them too – in my twenties and very early thirties I had about $25,000 in credit card debt to my name. I had no choice but to live where I was living, drive what I was driving, and stay at a job I absolutely hated – all because I owed so much money to the credit cards. Had an emergency come up I would have been absolutely screwed…and a few years ago I swore I would stop all that nonsense. I paid off the debt, moved to a town I wanted to live in, and quit the job I hated to strike out on my own. I have never looked back and I don’t plan on doing so anytime soon if I can help it. But the only way I could even attempt it is by not carrying around any consumer debt (other than my car payment, which I hope to get rid of this year as well) and not falling back into the debt trap. One of the major keys to living the type of life you want to lead is to not owe money. I am not too concerned with auto loans or mortgages, as most of the time the bigger ticket items do require you to borrow some money. (Last time I checked, no one I know bought their $300,000 house in cash.) If you are hanging on by a thread with a pile of debt to pay off, you are letting debt dictate your life – and that’s no way to live.

Do you have to make decisions in life based on how much debt you have?

Are you not able to do the things you want to do because you owe so much money to other entities?

Are you feeling smothered by that cloud of debt hanging over your head?

Do you not even know what you spent the money on?

Getting out of debt should be one of your top priorities. Period. Being hindered in life by owing money on a credit card isn’t a healthy way to live, as it can potentially stop you from living how you want to live. So, what are you going to do about it? Need some tips for getting out of debt? My 6 part series “Start Digging Out Of Credit Card Debt” is available right here to help get you started:

Start Digging Out Of Credit Card Debt Part 1

Start Digging Out Of Credit Card Debt Part 2

Start Digging Out Of Credit Card Debt Part 3

Start Digging Out Of Credit Card Debt Part 4

Start Digging Out Of Credit Card Debt Part 5

Start Digging Out Of Credit Card Debt Part 6

Start today and start now. Even if it’s only $10 more a month to your credit cards, do it. I cannot emphasize this enough. The weight and burden that will be lifted once you are out of debt will blow your mind. Don’t put it off, and don’t pay the minimums. Get. Out. Of. Debt. Today.

Don’t let it dictate your life; make sure YOU dictate your life.

debt

By David

Open A Chase Checking Account, Get $125.

I am definitely not in the market to open yet another bank account, but it it tempting to get the free $125. I have taken up banks on offers like this in the past, but since I finally got everything switched over and working to Schwab (including ALL my direct deposits), I won’t be doing this one – but you might want to. Chase is offering up $125 to open a new checking account and set up a direct deposit to said account. Not a lot of work for $125! Here are some details of the offer:

Open a Chase Checking account by May 14, 2010, set up direct deposit, then they will give you $125. You can apply online now at the Chase site with a $25 minimum deposit to open the account. Also, there are no monthly fees with direct deposit or 5 debit card purchases.

Coupon Code: 3703923263487870

Of course, where I bank at Schwab has no fees, no minimums, free ATM use anywhere, etc – but no free $125.

🙂

banking

By David

Overview Of The Health Care Reform Bill.

Personally, I am happy that something was finally done about health care in this country. It’s about time we start doing something for people rather than corporations, no? While it’s not perfect, it’s a start – and I will take what I can at this point. As someone who does not have, and cannot get health insurance due to a pre-existing condition, this means a lot as long as the prices we are asked to pay are fair for everyone. The New York Times has a good run down of what this bill will mean for those with and without health insurance, and I wanted to point it out to anyone who had not seen it yet. A few highlights:

For Those Without Insurance

More lower-income individuals under the age of 65 would be covered by Medicaid, the federal health insurance plan for the poor. Under the new rules, households with income up to 133 percent of the federal poverty level, or about $29,327 for a family of four, would be eligible.

Most other uninsured people would be required to buy insurance through one of the new state-run insurance exchanges. People with incomes of more than 133 percent of the poverty level but less than 400 percent (that’s $29,327 to $88,200 for a family of four) would be eligible for premium subsidies through the exchanges.

Premiums would also be capped at a percentage of income, ranging from 3 percent of income to as much as 9.5 percent. Moreover, people of any age who cannot find a plan that costs less than 8 percent of their income would be allowed to buy a catastrophic policy otherwise intended for people under age 30.

For Those With Insurance

People who receive coverage through large employers would be unlikely to see any drastic changes, nor should premiums or coverage be affected. But almost everyone would benefit from new regulations, like the ban on pre-existing conditions that would apply to all policies come 2014.

One of the biggest changes involves the Medicare prescription drug program. Its unpopular “doughnut hole” “” a big, expensive gap in coverage that affects millions “” would be eliminated by 2020. Starting immediately, consumers who hit the gap would receive a $250 rebate. In 2011, they would receive a 50 percent discount on brand name drugs.

Again, it’s not perfect… at all. But it’s a start to help us catch up to every other industrialized nation on earth by making health care at least accessible to every citizen. Costs need to be controlled and insurance companies still need to be monitored for abuse – but the fact that myself and others in my situation can now finally have access to health insurance? Well, that’s quite a good start to a process that will take years to iron the kinks out of. Given time and if done right, I think this could be good for most everyone eventually. Let’s hope.

insurance

By David

What’s Next With The Credit CARD Act?

On February 22, 2010, the new Credit CARD (Credit Card Accountability, Responsibility, and Disclosure) Act of 2009 went into effect, which essentially provides more transparency and disallows credit card companies from raising interest rates on outstanding balances without due cause. With the new regulations, credit card companies are only allowed to raise interest rates if they give customers 45 days’ notice of the increase, and they must give customers the opportunity to reject the changes. While this certainly is good news, there are a few potential drawbacks and some unanswered questions.

Credit card companies, feeling the impact of the Credit CARD Act, are experimenting with new ways to increase their bottom line. First, many credit card companies are tacking on a charge for customers who don’t use their card frequently enough. This “inactivity fee” is one of many new and creative ways credit card companies are trying to lessen the impact of the Credit CARD Act. As the Credit CARD Act exists now, there is no stopping a credit card issuer from adding an annual fee or reducing credit limits. Same goes for interest rates, while issuers are required to give a 45 days’ notice, there is no national cap on how high those rates can go.

So where do we go from here? It surely means consumers are going to need to monitor their credit card statements more closely and use the cards as to avoid the “inactivity fees,” right? Well”¦not so fast. Luckily, the Federal Reserve Board caught a wind of what the credit card companies were considering and decided to propose a rule to amend the Truth in Lending Act (which is what the Credit CARD Act is a part of) to prevent unfair consumer practices. The Board’s amendment seeks to do the following:

Prevent credit card companies from charging inactivity fees.
Require credit card companies to state the reasons for rate increases.
Prevent credit card issuers from charging excessive punitive fees that exceed the dollar amount associated with the consumer’s payment. For instance, charging a $50 late fee for making a $30 payment late would not be allowed. Under the proposed amendment, the late fee would be a maximum of $30.
Prohibit companies from charging multiple penalty fees at the same time. For example, charging other fees in addition to a late fee due to one late payment. Under the amendment, the customer would only be charged a late fee.

While what the Board is proposing is certainly a step forward, there are still two omissions ““ annual fees and credit limits. Prohibiting excessive penalty fees and requiring credit card companies to state an explanation behind rate increases is a good start, but it still does not address the issue of annual fees, reducing credit limits, or in some cases, just closing accounts. With that being said, the credit card companies, despite the regulations, will still try to find new ways to maintain profitability.

Here are some steps to avoid penalties by credit card issuers:

Keep credit cards active. It is a known fact that using credit cards frequently not only builds credit, but keeps the credit card companies happy, because they make money whenever someone uses the card. This could prevent interest rate increases and additions of annual fees.
Choose cards carefully. Just because credit card companies are getting creative with their fee structure, does not mean that you can’t be creative as well. There are still numerous cards offering rewards programs, such as cash-back rewards and other perks, as well as cards that have no annual fee. Be selective when choosing a credit card. Sometimes a credit card with a lower credit limit but no annual fee would be better than a credit card that offers cash-back rewards and has a higher interest rate.
Pay on time. Credit card companies are now becoming a lot stricter with their requirements. You’ll need good credit to get the best credit cards with the most attractive benefits ““ so monitor your budget closely and pay your debts on time!

The Federal Reserve Board hopes its provisions can go into effect by August 22, 2010, a full six months after the original Credit CARD Act went into effect. It remains to be seen what the full impact of the Credit CARD Act will be. The amendment put forth by the Federal Reserve Board does not address all of the concerns consumers have, but it is another good step in the right direction. By using common sense and maintaining good habits, problems with credit cards issuers can be avoided.

This is a guest post by Kathryn Katz, a Certified Personal Finance Counselor who works for Consolidated Credit Counseling Services. The non-profit credit counseling agency specializes in debt consolidation and helps consumers that are in financial distress.

credit

By David

Tax Savings, Part 1 Of 4: Why You NEED To Contribute To Your 401(k).

This is a guest post from My Financial Objectives. Catch the rest of his four part series at his site!

People are hesitant to start contributing to their 401(k) for many reasons; the current state of the economy, a feeling of youth, the notion that retirement is a long way off, other bills to pay, etc. Whatever the excuse, the benefits a 401(k) offer should make one’s decision to contribute a much greater priority.

This is the first of four posts outlining the four biggest reasons as to why it is so important to contribute to your 401(k). The four main reasons are:

Tax Advantages
Employer Contributions
Compounding Interest
Others

The tax savings associated with a 401(k) may be more influential than many people realize, probably because many people may not realize that you save on money on taxes not once, not twice, but three times (a ladyyy”¦). When you make the decision to contribute to your 401(k) you will receive a tax break during the initial contribution, while your money is growing, and when you finally take you money out (sort of).

The FIRST tax savings you receive with a 401(k) is known as pretax savings. People often refer to this as “paying yourself first” and in this case even BEFORE you pay the government (and THAT’S a good feeling). Every dollar that you contribute to your 401(k) is an extra dollar that is not included in your income for the purposes of calculating you federal income tax (the upfront tax advantage).

Example: If you’re salary is $40,000 in 2010 and contribute $2,000 to your 401(k), you’re taxed as if you had earned only $38,000 for the year. Assuming you are in the 25% tax bracket means that you just saved $500, the 25% of that $2000 you would otherwise have had to pay in taxes.

Assuming we are in the 25% tax bracket, it would actually cost us $2,500 (an extra $500) to save $2,000 outside of the 401(k). Why? Because in order to save $2,000 AFTER TAXES, means that $2,000 has ALREADY been taxed according to the 25% tax bracket, resulting in $500 straight to Uncle Sam. If you put that money into a 401(k), the entire $2000 will go into savings. What makes more sense to you, save $2000 and get a tax cut with your 401(k), or save $2,000 after taxes and pay an extra $500 to the government? I think the choice is clear, a BLT is an excellent choice for lunch and maximizing your 401(k) contributing is a much more effective way to save for retirement.

The SECOND way that you receive a tax advantage with your 401(k) is that it will continue to grow tax deferred. This means that you will not pay any taxes on the interest, dividends, or capital gains within your 401(k). This is an incredibly powerful incentive which actually leads into my second post about compounding interest which I will be posting soon. The benefits of compounding interest and a tax deferred growth can turn an ordinary investment into retirement savings that you can live off of for 30 years.

Example: Assume you save $2000 in a savings account, not your 401(k). Now assume you earn 7.5% interest per year on this savings account (good year huh!?), but because of taxes, you have to pay 15% per year on that growth! Suddenly that 7.5% looks more like 6.38%, resulting in a total gain of only $127.6 instead of $150. I realize that is a small difference, but imagine the difference if we were talking about $200,000 instead of $2,000. In that case it’s a difference of $2,240 in one year!

The THIRD tax advantage associated with your 401(k) is that when you retire and start to withdraw money from your 401(k) that income will likely be subject to a lower tax rate (probably). The caveat to this is if you actually are in a higher tax bracket when you retire than you are during your working years. If that happens to you, I want to know what you did to accumulate that much wealth. In addition, this notion assumes that we will still be using the same graduated income tax system, which, considering we have had it for the past 100 years or so, I’d say is a pretty good chance. If you were to retire today, those lower tax rates would be 10% and 15%. Essentially you just changed your tax rate from 25% to less than 15% on some of that money! I’ll take that!!

I hope this has been helpful, and will convince any of you who have not started to contribute to your 401(k) to do so. Also keep in mind that if you though that this was convincing, there are still THREE MORE sections of additional benefits associated with a 401(k). I have intentionally kept this short, simple and to the point. One thing that turns me off when I am reading about a difficult subject, or trying to show a friend/coworker convincing information, is long drawn out incredibly in-depth articles. Hopefully this information will help many people realize how valuable a 401(k) really is, Now if you have not done so already, please, start your 401(k) contribution!

investments