Does this Sound like You? There are 100 shopping Days left until Christmas and your Credit Card Balance is Higher now then it was in the beginning of the year. You may have thought of using your Home and getting a debt consolidation loan, A Debt Consolidation Loan without a solid Long Term financial plan is a recipe for Disaster. A One way ticket to Credit Card Purgatory
The Debt Consolidation Loan
Most credit cards require a Minimum Monthly payment of 3% to 5% of the Outstanding Balance. On a 10,000 Balance that is $300 to $500 Monthly. On a $20,000 Balance that is $600 - $1,000 Monthly. The Interest on your Credit card payments would not be Tax Deductible,
If you Refinance your House and Consolidate your Bills even at an interest rate of 6% you would only pay $60 a Month for $10,000 or $120 a Month for $20,000 (For many Homeowners this would be tax deductible)Your Monthly Savings will be between $240 and $880 a Month. The Key to a Good Financial plan is to use this extra $240 to $880 a Month to build a Failsafe, your Economic life Preserver. (If you don't own a Home and still have fairly decent credit you might be able to get a signature loan from your bank or credit union.)
If you currently have a mortgage paymet based on an interest rate of 3% or Higher you may want to look at refinancing your House using a Loan where the payments are fixed for 5 Years based on a 1.95% interest rate. On a 200,000 Loan this can often mean an additional $400 a month or more in savings.
Let's Assume you save $700 a Month with a Combination of the above 2 Methods.
1 - Emergency Savings
You would want to keep at least 2 Months worth of Bills (3 Months would be Better) in a Savings or Money Market Account. Bills would include Rent or Mortgage, Utilities, Medicine, Food and insurance Premiums. You need to make this account a Priority. Place at least $300 a Month into this account until you have reached your Goal of 2 Months Worth of Bills or $5,000 whichever is Higher. After you Reach Your Goal Continue to place $50 - $100 in this Account until you have reached Double your Goal. (4 Months worth of Bills or $10,000 whichever is higher) Once you have reached Double your goal you no longer need to place money in this account.
Some People will just Borrow an Extra $5,000 and place it directly in there Emergency Account.
2 - The Debit Card
After you have established your Emergency Savings you will want to establish a Debit Card Account. Open a Bank account and get a Debit Card. Deposit $100 or More Monthly into this account until your balance reaches $1500. Now If you have an Emergency car Repair, Home Repair, Dr Bill or any other type of unexpected expense use your Debit card rather then a Credit card. Your goal should be to maintain this account at $1,500 to $3,000
3 - The Credit Card
Most people don't need to rip up all there credit cards they just need to manage them better. Cancel all but 1 or 2 of your credit card accounts. Credit Cards are an Important Part of life, An unexpected car repair or Dr. Bill can be handled very easily with a credit card (If you don't have enough money in your debit card account). With the exception of an Emergency never charge more in any month then you can Pay in full when the bill comes. Pay off all new Charges in full within a week of getting the Bill.
4 - insurance Needs
Insurance needs would be things like Life insurance, Health Insurance and Long Term Care Insurance. Contact an Insurance professional to discuss your needs. If you don't have any Life or health insurance
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