Every year, getting out of debt ranks in one of the Top 10 New Year’s resolutions.

In the uncertain, and difficult, economic situation we have experience in the last two years, it will certainly be there again for 2010.

Poor spending and saving habits can be tough to break, but their correction is vital if you are to eliminate things like credit card debt and home equity loans. Many people who have, as a result of unemployment caused by the financial crisis, had to rely heavily on these, but 2010 is the year to make the decision to stop, and to take massive action to turn things around.

Here are some quick things that you can do to get out of debt in the New Year:

1. Set your goal: Give it power by writing it down and displaying it somewhere obvious, like on your refrigerator door.

2. Be honest: Acknowledge your debt

3. Identify your dream: buy a home, have retirement funds, pay for your children’s education

4. Share: Empower your family to be part of the cost-saving process

5. Get help: Consulting a qualified financial adviser should not be considered an expense. It is an investment. There may be free debt counsellors who can give you some initial advice, but a professional is needed for long term planning.

6. If you are behind in payments call your creditors. Negotiate a payment plan. The worst thing you can do is pretend that the problem doesn’t exist. If your payments fall behind, your creditors will assume the worst, if they have not heard from you

7. Cut back spending to essentials, food, essential clothing, shelter and transport. Remove snack foods and drinks from your life for now, and don’t eat out. Terminate your cable TV contract if you can, you WILL survive without it.

8. If you purchase lottery tickets, stop. If you smoke, stop. If you buy cappuccino every day, stop.

9. If you are able to walk to work by leaving home 30 minutes earlier, do it (good for your pocket and waistline).

10. Have your wages paid directly into your bank account, and only take out what you need as you need it. Have your mortgage and utilities automatically deducted from your account.

11. Find ways to make more money, either with a second job, or taking an inventory of your possessions and selling some. If you haven’t worn that dress/suit for 2 years, you probably won’t again, sell it online or via a garage sale. Uncluttering your life is very therapeutic.

It is so easy to make getting out of debt your New Year’s resolution and breaking the task up into small, bite-sized pieces, will make it one you can keep.

Getting Out Of Debt as a New Year’s Resolution is a post from: Smart Money Mindset.com

In the lead up to Christmas we are always bombarded with sales messages. “Save 50% here!”, “Buy one get one free!”. These offers come to us with the promise of “saving” us money. Are you really saving money? Probably not!

It’s often the case that we end up spending, not saving as a result of these messages.

The reason is the Big “Saving Money” Scam – we are fooled (including fooling ourselves) into believing we are saving money by taking advantages of these offers. The reason is that we don’t realise there are actually three different ways to save money.

The Three Ways to Save Money

1) Wants-Driven Saving
2) Needs-Driven Saving
3) Cash Saving

1) Wants-Driven Saving

Ever seen a special offer that really grabbed your attention?! One like “60% off this plasma TV but only while stocks last!” “75% off this leather sofa – only for the next two weeks!”. You might already have a perfectly good TV and sofa but you don’t want to miss out on such a good deal right?

The fact is that the sales price is often just the real price or acceptable price to the retailer. For example have you have you ever heard of a sofa store where there isn’t a sale on?!

The sale price is often the price they need to make a decent profit. The law may have required them to sell that item at “full-price” for a time in some of their stores, but in reality they are happy with the sale price.

The reason this is important is because we are talking about “Wants-Driven Saving”. This is a saving on an item you are tempted to WANT but don’t really NEED. And what compels you to buy is the false idea that you are saving money in the future by buying the item.

Are You Realling Saving?
In actual fact you’re not saving money, you’re spending money – right now! Managing your money well relies on thinking about cash flow – this is a cash outflow from your monthly budget – not a cash inflow. This is a false or fake kind of saving, which will lead you to actually increase spending and most likely increase debt.

You are also being subjected to a sales trick called “creating scarcity”. The seller creates the sense that there is competition with others and that you may miss out on this wonderful deal since “the offer runs out soon!” or “all the items might sell!”

These purchases give us a momentary thrill, they make us feel good for a little while. And we quieten the little voice in our head saying “you’ve just spent money idiot!” by justifying it as “future savings” when nothing could be further from the truth.

The sad fact is that millions of people drive themselves into financial difficultly doing exactly this – all the while thinking they are being “financially smart”.

2) Needs-Driven Saving

Needs-Driven savings remarkably enough are savings based on items you NEED, not WANT. These are savings on items you would have bought ANYWAY, even if there was no discount or offer. For example this could be a two for one offer on groceries or a discount voucher for petrol.

These are real savings as you are reducing the amount of cash flowing out of your pocket – cash that would have flowed out anyway.

One of the best money saving tips is to focus on Needs-Driven Savings when you are being bombarded with savings offers. Filter through them and find the right ones.

For example my girlfriend was recently offered a card that gave 50% off at a lot of London restaurants, for a price of course. Now if we dined out a lot, and felt this was something that fitted under one of our needs, then the card might have been worth it. However interestingly enough the 50% discount didn’t apply on Fridays and Saturdays at most places, the days we were most likely to go out. And also we were able to get 50% off vouchers for most of our favourite restaurants anyway for free elsewhere – so for us that fell under Wants-Driven Saving and we didn’t get the card.

So Needs-Driven Saving does mean you save money. Now what to do with that cash you didn’t spend? Funny you should ask…

3) Cash Saving

This is what I would call really saving money. Taking money from your paycheck and putting it into a savings account. Why – because the cash is still there. It hasn’t been spent. It is earning interest. You have actually saved money which is now building on itself.

Part of cash saving can also includes paying down debt. This is because you immediately reduce your cash outflows when paying off debt. See my previous post A Guaranteed Profit On Your Money? It’s Possible!

So if you take the cash from Needs-Driven Saving and pay off debt, you not only save that cash, but also get a guaranteed return on it. Now doesn’t that all sound better than option 1 above?

The Challenge with Saving

The challenge for us is the balance between the three, particularly with Needs- versus Wants-Driven savings. For example what would you call saving money on expensive Christmas presents? Did you NEED to buy expensive presents in the first place? No-one’s immune to this by the way, myself I’m partially prone to spending on gadgets like the iPhone!

The answer is, as always, “it depends”.

It depends on your personal circumstances. If you are knee-deep in debt (usually because of Wants-Driven Spending!) then you will need to restrict yourself to spending on only the things you need, look for savings there, and focus on paying off debt. If you have more flexibility then spending on things you want isn’t necessarily a bad thing – so long as you don’t kid yourself into thinking you’re actually saving money… and so long as you are cutting unnecessary expenditure elsewhere.

Think about the last few times you were tempted by an “once-in-a-lifetime savings” offer? Did you really save money?

The Big “Saving Money” Scam is a post from: Smart Money Mindset.com

Learn how in only a 5 minute phonecall you could save double digit amounts on your credit card interest rate!

Credit card companies are keen to keep you as their customer – no matter how they may act. You are worth a lot of money to your card company and have a lot more power than you realise in your relationship with them. Use this fact, and the call scripts below, to your advantage to lower interest rates on your credit cards by simply asking them. You can save thousands using this method.

Credit cards and how they make money

Credit card companies make money from their customers in a variety of different ways. Apart from the interest rate they also make money from late payment fees, cash withdrawal or credit card cheque fees, or even from companies that want to put leaflets in your monthly statement letter.

However people aren’t aware that credit card companies also make money by you simply using the card, as retailers are charged a fee by the companies providing the card machines in their stores, and part of that goes to your credit card company. So credit card companies are very interested in keeping you as a customer – remember this in your call!

You must understand how call centers work

The majority of your interaction with your credit card company will be over the phone, and so will this negotiation, so you need to know how call centers work. I worked in a call center for over a year on various campaigns as they are called, on both inbound and outbound calls. My job was to monitor and train call center staff on making sales calls and dealing with customer cancellations – i.e. stopping them.

What you’ll find with call center staff is that they will have differing levels of authority to take actions depending on their experience and grade. So whilst one might not be able to change anything on your account, others will be able to make significant changes. The call center staff will also be under instructions to NOT lose customers – remember you are worth money to the card company and they will avoid losing you as far as possible.

The Negotiation and Call Script

For this I want to use some key negotiation principles. Firstly make it fun – negotiation is a game remember? So have fun on the call and smile (the person on the other end of the phone will be able to tell). Secondly use powerful open questions, and no questions with a yes/no answer. When asking questions put the pressure on the other person to come up with a solution – make it their problem.

So call your credit card company and follow these instructions:

After the introduction and security checks the call should go as follows:

Call center: “So how may I help you?”
You: “Could you tell me the APR on my credit card please?”
Call center: “It’s XX% sir”
You: “Please reduce that for me”

At this point the call center may be a bit lost, but will likely ask why you want the rate reduced or will say it’s not possible. In response do not say things like “Are you sure?” or “Why can’t you reduce it?” as these offer an easy way out to end the call there and then. Instead tell them that you are a good customer, have been paying your card on time and would like the rate reduced please. After your explaination use the line “So, please reduce the rate for me”. The use of the word “So” is important as it implies everything that been said before it is true and justifies what is said after.

If they refuse again use the argument that you have been offered better rates elsewhere, but you don’t want the inconvenience of moving credit card companies. Use the “So…” line again. A lot of companies have a three “No” rule which means around the third “No” from either person, a different approach has to be used.

If the call center representative says they are not authorised to lower the APR then ask to speak to someone who is, and repeat the above script.

You are most likely to be successful if you also bank with the card company, have a good history of making payments on time on the card, have regular use of the card, have a good credit score, or any combination of those.

What if they say no?

So what happens if you are unsuccessful? Just try again. Yes, it’s that simple. You will most likely get through to another advisor, and hopefully one with greater authority to change your rate. If they say “I notice you called earlier today/this week” just answer “yes” and stay silent. What if you called earlier? It doesn’t change anything about this call, although they will hope it puts you off asking them to reduce the rate again.

It’s worth trying this!

Changing your credit card APR can make a huge difference to you, especially if you are in the process of paying off your debts. For example if you have a balance of $1,000, and minimum payments of 2% of your balance per month, a change of APR from 20% to 15% could reduce the actual amount of interest you pay in cash by up to 56%! (I’ve made some nice spreadsheets that do all the calculations for me in case you’re wondering!). So it’s well worth trying it out!

Tell me how you get on

Please do try this out and tell me how you get on. I would love to hear from people who have tried the above technique and got their rates down – and try it on multiple cards if you have more than one. If you don’t mind send me the figures on your balance, the minimum payment per month, and the old and new APR so I can work out the impact it will have on your finances. Email these to info@smartmoneymindset.com.

Good luck and remember the customer is always right!

Reduce the APR on Your Credit Card in 5 Minutes! is a post from: Smart Money Mindset.com

If someone offers you a guaranteed profit or return on your money what should you do? Yes, that’s right, RUN!!

You see in personal finance there are very few things that offer a guaranteed return, in fact I know of only one. (if you know any more please do tell me!). However that doesn’t stop people using phrases like:

• “You definitely get your money back and more!”
• “The stock market always goes up in the long-run”
• “Your money is safe”

When in reality nothing could be further from the truth. The explanation of a guaranteed return by saying “the stock market always goes up in the long-run” is probably the worst, if you don’t believe me ask someone who has spent the last 10 years making pension payments invested into the stock market and after management fees and the timing of his investments has less than he put in!

However there is one place you CAN get a guaranteed return, and that’s in making early debt repayments.

You see finance companies use the power of compounding against you (sign up for my Free Dangers of Debt Report on the right for more information), by charging you interest on interest on credit cards, loans and mortgages.

However by making extra debt payments you can use the compounding effect in your favour, and then some! Take the following simple mortgage example:

• Mortgage: £200,000, 7% interest, 25 years, monthly payment, £1413.56

Over the course of the mortgage the following happens:

• Pay the bank: £424,067
• Pay off what you borrowed: £200,000
• Pay in interest: £224,067

Let’s say that more clearly, you will pay the bank over double what you borrowed! The majority of that being interest!

However make overpayments of just £300 a month and this happens:

• Mortgage paid off in 16.4 years
• Almost 9 years off the mortgage!
• Total future payments saved: £145,597

Yes, for £300 a month you get £145,597 back as your return. That’s a guaranteed return of 7% for those 16.4 years, the same 7% the bank was charging you.

Certainly looks more attractive than the interest you’re getting on your savings right?!

What guaranteed return could you get on your money using this method?

Let me know what you think below!

A Guaranteed Profit On Your Money? It’s Possible! is a post from: Smart Money Mindset.com

I’ve heard these phrases so many times:

“My house is an asset”
“I’m not worried about my mortgage – I have lots of equity in my property”
“I can always sell if I get into trouble”

And I used to think the same way. That it was ok if I had a large mortgage, so long as I had equity in the property I was safe. I was wrong.

These phrases are based on some common misconceptions:

1) House prices will always go up
Maybe in the very long-run, but in the short-term they can fall and fall rapidly

2) All other circumstances will remain unchanged
The time when you get into trouble is usually the time when other people are getting into trouble, as well as the economy. This means just when you need to sell one or more of the following will be occuring: job losses; restrictions in mortgage lending; falling house prices; buyers holding back from the market; people restricting spending; interest rate increases (we have been lucky on this one but think back to the last recession); price inflation.

3) That you will be able to sell your home
Even at a discount, if economic circumstances have changed you will find it very difficult to sell and sell in a quick timeframe. As recent events have shown buyers can dry up, and even those still around will struggle to get mortgages at the level they need.

4) That things won’t spiral out of control
As you fall behind in mortgage payments charges will increase rapidly putting you in a even more difficult position financially. You will find it difficult to remortgage as your financial circumstances have changed, and your credit rating will be falling rapidly!

Here is a common sequence for repossession:

1. You get into trouble financially (job loss; injury; business collapse; personal or family member illness; divorce etc. – you only need one of these to occur)
2. You realise that your biggest financial outgoing is your home (mortgage, property taxes, insurance, electricity, gas etc)
3. You realise that you have no option but to sell your home and within 6 months or you will be repossessed
4. You need to sell quickly so you put it on with multiple estate agents at a small discount, hoping to get a good price
5. Viewers come, they are fussy (it’s a buyer’s market), even if they make an offer they cannot get mortgages, and cannot complete in the timeframe necessary
6. You become increasingly desperate and drop the price further, and further…
7. You run out of time. (By the way you still have plenty of equity in the property)
8. The bank repossesses the property, you lose your home, the bank adds multiple charges, sells your home at a discount at auction, allocates the remaining debt to you for the next 6 years, your credit rating is shot.

What you must realise is that cash flow is more important than equity when dealing with property, especially the home you live in. Here’s why: you can survive negative equity if you have the cash flow to service your debts (think of all the people who managed to keep their homes during the last recession), however you without cash flow it doesn’t matter how much equity you have in your home, you will be repossessed if you can’t pay your debts.

Even the tiniest debt, if unpayable, gives the lender the right to repossess.

In these ciricumstances it’s often professional property investors who are actually able to purchase and in the timeframe required. So even if you do manage to sell, and your equity saves you, you pay a heavy price.

The follow example is a deal a friend did recently:
Market Value: £300,000
Mortgage: £140,000
Purchase Price: £200,000

Now a £140,000 of debt on a £300,000 property isn’t much is it? But it is if you cannot service the debt.

The lesson here? Don’t rely on your equity to get you out of trouble. Pay constant attention to the cash flow position you are personally in.

Why The Equity in Your Home Will NOT Save You is a post from: Smart Money Mindset.com