Part 19 (1/2)

Your e, especially if it's at a favorable fixed rate, is the one debt you can relax about It comes far down the priority list You don't need to pay it off early until you have your other financial goals achieved, especially retire a relatively low interest rate If you can take a e-interest deduction on your income taxes, your interest rate is effectively even lower

I'e off early Just have retires, and other essential financial goals well under way first

Should I Use a Hoood news is you can get a lower interest rate by using the stored value in your house to pay debt But this debt swap can be dangerous for a couple of reasons

First, youYou're justyour debtThat's because you haven't addressed the funda -ter into that question Either your incoh

Second, you're lish, that means if you don't pay your credit card bill, the bank can't do e your credit score If you don't pay a home-equity loan, on the other hand, the bank can take your house I think losing your house is a bigger deal

So, if there's any chance you won't be able to pay, keep the debt on credit cards If you discovered the reason you're in debt and have per to a lower interest rate with a home equity loan will probably saveWorthwhile?

Credit counseling can be a good idea or a bad one But it's a ht think

Often, you will pay ht be trashed in the process Though these agencies ht be technically nonprofits, it doesn't itietting bad advice In fact, one thing to look for is the free education and advice an agency is willing to provide It s don'tfor bankruptcy, you're required to get it But you should know that hiring a credit counselor is an i decision, so you should treat it like you're hiring a contractor to renovate your kitchen Thatmultiple credit counselors

First, deterood candidate Often a credit-counseling agency doesn't do anything you couldn't do for yourself Evaluate all of your options before entering credit counseling, including developing a better spending and savings plan, and negotiating with creditors by yourself

Enlisting a credit counselor will be noted on your credit report It will daood interest rates because future creditors will see a notation that you are in credit counseling However, credit counseling doesn't directly affect your three-digit credit score Of course,have already badly dinged up their creditworthiness, so an additional bad mark is only incre credit cards for daily living expenses, and you've considered tapping your home equity or retirement plan to pay debts because you don't knohat else to do, you

If you decide to go through with credit counseling, beware of an agency that says it can eliminate your debt quickly and erase your bad credit history The agency is not reputable The saoes for debt-settlement companies, which are not really credit counselors Many advise you to stop paying your bills and become a true deadbeat, in hopes you can settle your debts for less than the amount owed This tactic can work for soht types of creditors, but it can be expensive, and results are not guaranteed You could end up owing more than before you started Even if successful, you'll have a ruined credit score and probably owe taxes on the an up with a credit counseling agency, find out how itabout how the fee-structure works Reasonable onetie If total fees are measured in hundreds or even thousands of dollars, you're in the wrong ballpark

Many agencies will try to get you on a debt ency to ith creditors on your behalf It often can get lower interest rates on soet et extra fees waived You pay the agency regular lump su to the repayenerally for unsecured debts, such as credit card debt, not auto loans and encies et paid by creditors, such as banks that issue credit cards That establishes a dicey relationshi+p about whom the counselor works for-you or the banks If counselors are paid on co you up with a DMP, look elsewhere for help If a counselor is pushi+ng a debtyour financial picture, you ency

A counselor's affiliation with industry groups, such as the National Foundation for Credit Counseling, found at nfccorg, raises your chances of dealing with a good counselor Many NFCCService, or CCCS Another certifying group is the association for Independent Consu

PART III Spending Smart Tomorrow

Chapter 7

How to Save Money

As I talked about in Chapter 2, ”First Things First,” goals give you direction and can provide peace of mind They even have application in daily life With all theour wants, a set of goals helps us to say no They re purchase right in front of us

Even when you have written savings goals, it takes a lot of willpower to consciously stash away money each month We hu for future needs and wants goes against our nature

That's why saving toward goals must be automatic

It could be an automatic 401(k) deduction from your paycheck to fund retire account that adds to your ”snorkeling in Bahamas fund”

You put money toward priorities first, and then you're free to spend what's left on daily living In that way, having goals is freeing You don't have to be constantly wondering if you're doing all the right savings things and feeling guilty about indulging in sht have heard this called ”Pay yourself first” because you stash awayeverybody else It's also an alternative to a full-fledged household budget By saving first, you create an artificial environment of money scarcity in the household It erects boundaries to our spending Specifically, it cuts down on the cash we have around, so we don't spend as much It's based on the idea that we'll spend all that's available to us unless there's a darned good reason not to This is why increasing your retirement contribution is relatively painless It's true, you'll have less money to spend each week, but you unconsciously adjust your spending accordingly Unless it's a huge jus, you won't even notice the difference

Auto

Erecting these artificial boundaries for et very used to abundance and ”unlimited” Do you remember e used to pay for a certain number of hours each month for Internet access? Now, most Internet access is unli-distance phone calls Today,distance

For decades, gasoline seemed unlimited because no matter how allon Of course, it only seerew and prices fluctuated wildly

Diamonds aren't rare, and aren't intrinsically valuable They only cost a lot because diamond companies restrict the supply and constantly advertise that diamonds are special And soe proposals Producers of diamonds create an artificial environ with your household finances

Of course, the big problem with the artificial scarcity plan is the availability of credit Whether credit cards or a home-equity line of credit, that ability to borrow money easily removes the scarcity boundaries you artificially set up It3 percent interest but exceed your boundaries by spending on credit cards and pay 18 or 29 percent interest So, to use the artificial scarcity plan, you must not borrowon a diet and throwing away all the cookies and potato chips, creating a scarcity of junk food in the kitchen The only thing to eat is healthful stuff, so you do But such a diet plan is dooularly stop by the convenience store for donuts and Doritos, in effect sidestepping the scarcity boundaries you artificially set up (In case you got lost with that analogy, credit cards are the convenience-store Doritos) In the end, paying yourself first is voluntary self-deception, like setting your clock ahead 10 minutes so you won't be late If you are coreat