When you’re struggling with debt and looking for profession help, you have
four options: credit counseling, debt negotiation, debt management, or debt
consolidation. While credit counseling and debt consolidation are both pretty
straightforward services, many people have trouble understanding the difference
between debt negotiation and debt management. This article compares the two
services, and it will help you to determine which service is right for you.
First, ask yourself these questions:

Does My Problem Stem From An Inability To Afford My Debt Payments?

If you answered yes to this question, debt negotiation is probably the choice
for you. Debt negotiation services call your creditors on your behalf and
negotiate lower payments. You keep control of sending out your payments each
month, but your debt negotiation company will negotiate payments with your
creditors that you can afford. Additionally, if your reasons for being unable to
afford your debt payments stem from a circumstance that is not beyond your
control, credit counseling is usually available.

Does My Problem Stem From An Inability To Both Afford and Manage My Debt
Payments?

If you answered yes to this question, then you’re probably in need of the
services of a debt management company. In addition to negotiating lower payments
with your creditors, debt management companies will distribute your payments to
your creditors on your behalf. You simply send them one combined monthly
payment. If you have trouble remembering to pay your bills on time every month,
your credit will greatly benefit from the services of a company that ensures
timely payments.

Debt management differs from debt consolidation in that debt consolidation is a
loan that consolidates all of your debts, and debt management is just a service
that calculates the balance of all of your payments and combines them for you.
With debt management, you still hold all of your original credit accounts.

The most important part of seeking professional debt services is getting
counseling in order to prevent future debt problems. Any professional debt
service should also provide counseling in order to teach you how to stay out of
debt once their services have ceased. Debt services are not meant to be a way
for you to escape your financial responsibilities; rather, they are a way for
you to educate yourself on responsible handling of your credit and debt.

Unless people make a personal budget for themselves they will never be successful in their journey towards financial freedom. A budget is like the training wheels on a bike and works as a finance tool that helps keep people on the right path. For most it is necessary to keep a personal budget for their entire life but for others a budget is not needed after they get a feel for how their money is being spent and where it is going. Setting up a budget is the simplest and most basic building block in a persons quest for financial freedom. I can almost guarantee that you will not be successful on your journey toward financial peace without setting up your own budget.

Usually when people hear the dreaded B word (budget) they often run for the hills and they often try to avoid a financial adviser that suggests that they make a budget. People are often very scared of the work involved in making a personal budget but I am here to tell you that it is not really that bad. Resistance in establishing a budget often happens because people see a budget as some type of trap that restricts their freedom and forces them to change the way they live. The truth about budgeting is often quite the opposite. Usually those that do not set up a budget are the ones that have a ton of credit card debt and are restricted by the large debt payments they are required to make each month.

When you setup a personal budget you are simply setting up a plan to spend your money with intent as opposed to spending it aimlessly. The idea is to plan everything out so that you do not end up spending more money than you make. A personal budget usually seems restrictive at first but once you follow it for a few months it will help you to move away from your reliance on credit cards and it will actually give you more freedom.

Once you establish your budget you should expect it to take 3-5 months to get things right. In the beginning it is likely that you will make mistakes in your budget and forget about expenses. After 3-5 months you should be able to work through this and your budget should be almost a mirror image of your actual spending.

After establishing an accurate budget the next step is to stick to the plan. Most people tend to fail here. Anybody can write out a budget plan but the hard part is actually sticking to this budget each and every month. If you can stick to your budget I promise that you will be more financially free.

I hope that you now understand the importance of establishing a personal budget for yourself. Without it you cannot begin to pay off your debts and save money because you have no way to track and properly allocate your income.

My suggestion is that you do yourself a favor and grab a note pad and a pen and start working on your own personal budget. It is simple and completely freedom.

You can use the Money program to create a budget. By using Money for budgeting purposes, you can compare your actual spending to your budgeted spending. You use Money’s Budget Planner tool to set up a budget.

1. Display the Budget Planner window.

Click the Planner link, and choose Budget Planner. Money then displays the Budget Planner window.

2. Use the Budget Planner Wizard.

The Budget Planner Wizard steps you through a very thorough process for creating a budget based on your exact income, your long-term savings plans and goals, the possibility of occasional extraordinary expenses, your contractual debt payments for car loans and mortgages, and your anticipated expenses. To step through this planning process, click hyperlinks in the Budget Planner window. Read the instructions inside the windows and, when prompted, provide data by filling in fields. After you finish with the Budget Planner Wizard, you have a complete and very detailed budget.

How do I create a personal financial plan?

Money supplies a Lifetime Planner tool that in effect creates a personal financial plan for you. The Lifetime Planner is a wizard that collects and then analyzes a large volume of personal financial data concerning you and your family, your current financial situation, and your future financial aspirations. The Lifetime Planner starts with a video. Just as with the Budget Planner, read the instructions inside the windows and, when prompted, provide data by filling in fields.

Personal financial planning sounds complex, but it consists of three basic tasks: First, you need to make sure that you manage your day-to-day finances in a way that keeps your financial affairs simple and hassle free. (If you use the Money program to keep your checkbook and other financial records, you are already doing this.)

Second, personal financial planning means identifying and then prudently preparing for long-term financial objectives, such as a comfortable retirement, sending a child to college, or making a major purchase, such as a house. You can spend an enormous amount of time planning for these sorts of major events, but you don’t have to because the planning process isn’t all that difficult. In most cases, you can figure out what you need to do to retire quite easily. Numerous books have been written on the subject.

The same is true of other financial objectives-if you take advantage of well known and popularly discussed tools, it is typically not that difficult to prepare.

The third element of personal financial planning is the mitigation of financial risks where possible. This is perhaps the least understood and most overlooked task of personal financial planning. In a nutshell, you need to make sure that a personal tragedy, such as loss of life of a breadwinner or a serious illness, doesn’t become a financial tragedy.

Obviously, you can’t prevent personal tragedies. Parents die, children get terrible illnesses, and catastrophic events, sometimes forces of nature, destroy property and wreak havoc on people’s lives. However, in all of these cases, you can usually buy insurance that lets you share the cost of these financial disasters with large groups of other people. Then if you happen to become the next unfortunate victim, you will at least receive a claim payment that minimizes or eliminates the financial costs.

How do I plan for a child’s college expenses?

The goal is to save enough money in the years before a child goes off to college to pay for four or five years of tuition.

The first step is to make an estimate about what the child’s college expenses will total. Every year, major U.S. news magazines, such as US News and World Report, provide comprehensive lists of college cost information. Obtain one of these magazines and estimate what college will cost when your son or daughter attends.

After you determine the cost, you then calculate the amount you need to save. The tricky part of saving for college is that you often can’t use investment choices that deliver high real rates of return. In fact, it’s common that you will be saving for college using investment choices that don’t deliver a positive after-tax real rate of return. What this means, unfortunately, is that in many cases you can produce a fairly accurate estimate of how much you need to save for college simply by looking at the total cost of college and dividing this amount by the number of months between now and the time your child attends.

NOTE If you are beginning to save money while your child is still an infant, you may feel comfortable investing in the stock market, which will return a positive after- tax real rate of return.

Do you own a credit card – or rather several credit cards? Do you use it regularly, even for small purchases? Do you pay just the minimum each month? Do you know exactly how much you owe and at what interest rate? If you’ve answered ‘yes’ to the first three questions and ‘no’ to the final question, then you definitely need to start going over those statements. Chances are, your bills are piling up and you’ll soon be in real trouble.

Most people opt for credit cards instead of cash because it is more convenient. But users should be responsible; otherwise these can become a big liability.

Take steps to reduce your debt now and to eventually eliminate it before it gets out of control. These 6 Smart Ways can help you get started:

1) Everything should be in black and white.

Record the total amount of your debt – including the interest and minimum payment each month. This will give you a more realistic view of how much you really owe. But paying just the minimum will get you nowhere. So you should aim to pay for more than that if you want a good head start.

Create a budget wherein debt payments are allotted a bigger chunk of your income. Is your debt bigger than your income? Then you may need to make sacrifices. Cut back on non-essential expenditures such as vacations or that new electronic gadget you’ve been eyeing for a while.

2) Pay with Cash as much as possible.

While you work on paying your current debt, the next sensible move is to stop using your credit card. This will help you focus on your goal without getting distracted by new card bills.

Always pay cash for your purchases leaving your credit card to take care of emergency payments. Also, using cash will give you a deeper appreciation for the value of your hard-earned money.

3) Talk to your Creditors.

When creditors come calling at your door, do not avoid them. Be forthcoming about your money problems. Let them know you intend to pay your debts but at a slower pace than originally agreed upon.

Lenders will want to help you and will usually suggest a new payment scheme to your benefit.

4) Live within your means.

Do not attempt to live a lifestyle you cannot afford. Take stock of what you really need and what are luxuries. Cut back on the latter and use the money you save to pay off your debt. And do not buy on impulse. Always think twice before spending. Do you really need it? Is it essential to your day to day living? If it’s not, then the only sensible thing you can do it to hold back.

Treat everything you buy as an investment. Self-control is the most reasonable yet hardest thing to exercise. But if you make it a habit, you’ll find that it gets easier to do every time.

5) Switch to a low-interest credit card.

If you must have a credit card, then choose one that offers a lower interest rate. Some card companies let you pay an annual fee in return for cutting your interest rate to almost half. Keep an eye for such offers.

Keep track of your future transactions. Keep well below your credit limit. As much as possible, pay your bills in full and on time. Not only will you avoid trouble but will also improve your credit standing with the card-issuing bank.

6) Start filling up that Savings Account.

Your savings is not a one-time bank deposit. Rather, it’s done regularly over a long period of time and usually in small amounts. Make sure you have enough in the bank to cover for sudden expenses. This means you won’t need to take out a loan when that rainy day comes.

Being financially independent is not only about having lots of money. It is also about being debt-free. It takes a lot of willpower coupled with action to reduce your debts. It’s easy to lose faith when you find that you are having a hard time. Discipline yourself. Stick with what you’ve started. Pretty soon, you’ll find yourself on the road to better financial health and you’ll never want to be in that sticky situation ever again.

Both debt settlement and debt consolidation can reduce and eliminate
your debt. But each will have different consequences on your credit score
and future financial options. Before choosing either option, educate
yourself on the pros and cons of each.

The Benefits Of Debt Settlement

Debt settlement means that part of your debt is immediately wiped out
by your creditor. You will find instant financial relief in your monthly
budget. And the rest of your debt payments are much more manageable.

You will also find that you can start rebuilding your credit from this
point on. Instead of juggling late payments, high debt loads, and other
factors, you can focus on managing your credit better.

The Downside Of Debt Settlement

There are a few downside to debt settlement. The biggest one is the
immediate affect on your credit score. Debt settlement is seen much like a
foreclosure; your score will be 500 or lower. And while you can improve
your score, for the next two years you will have to work with sub prime
lenders.

You will also have to deal with the tax implication of a write off. The
IRS sees debt settlement like receiving a cash gift or income.
Depending on where you live, you may also have to pay additional state taxes.

The Benefits Of Debt Consolidation

Debt consolidation can also help you get out of debt. With
consolidation, a company negotiates lower rates with your creditors. You make one
monthly payment to the debt consolidation company, and they handle
paying all your accounts.

They also deal with any paperwork hassles, canceling fees, and closing
accounts. Usually, you can be out of short term debt in five years or
less.

The Downside Of Debt Consolidation

Debt consolidation will have less of an impact on your credit score.
Most lenders will temporarily put a hold on extending you more credit
until they see you are making regular payments. You need to still monitor
your accounts to be sure the debt consolidation company is making on
time payments.

Picking The Right One

There is no perfect solution for getting out of debt. Debt settlement
can help you see an instant improvement in your finances, but at the
cost of your credit score. Debt consolidation simplifies the process with
minimum affect on your credit, however it does take time.