Ideal financial solutions

When it comes to eliminating debt and managing cash flow, the Power Payment principle works whether you are paying one extra payment per year or following a comprehensive cash flow management program.  Although the results will vary, the principle remains the same: The more money that is paid directly to principal, the more powerful is the effect of lowering the total amount of interest you’ll pay. 

A few common examples of mortgage power payments are biweekly and bimonthly payments.  Of the two, the benefits of biweekly payments far exceed the benefits of bimonthly or semimonthly payments.  With biweekly payments, you pay half of the monthly mortgage payment every 2 weeks and with bimonthly payments you pay half of the monthly payment twice per month (on the 1st and 15th for example) rather than the full balance once a month.  A biweekly payment is comparable to 13 monthly payments a year, which will result in accelerated payoff of your mortgage and lower overall interest costs.  For example, the biweekly mortgage payment program can pay off a $200,000 30-year fixed loan at 7% interest in approximately 24 years, which is 75 months sooner than a standard payment plan, resulting in an interest savings of $68,925. 

To set up a true biweekly or simple interest biweekly payment schedule, you must:

• Have a lender that will immediately credit each 1/2 monthly payment upon receipt.
• The lender must calculate interest for two-week intervals and apply the biweekly payments, less the interest, to reduce the total principal owed every two weeks.

There are several different methods for determining the most effective application of power payments, although the principle remains unchanged.  It is essential to reduce the total principal owed in order to decrease the total interest to be paid and accelerate the reduction of debt.  The first step is to identify where you will find the necessary cash resources to be used for power payments, which often requires significant planning and will undoubtedly require considerable sacrifice.  One of the first places to start is in the creation of a family budget to help identify how much money you have and where it is going.  Reviewing your spending habits will help you re-prioritize your spending and show you how to create a tremendous amount of extra cash resources.

There are several methods or theories about the most effective debt elimination process.  Most financial experts advocate the application of power payments, or additional payments directly to your principle, as the most effective way to rapidly eliminate debt.  Many of these experts would also recommend that you begin a roll up program by eliminating the debt that carries the highest interest rate first.  Others recommend applying any extra cash resources to the debt with the lowest balance or to a debt you simply want to pay off early, like money loaned by a friend or family member. 

Whatever debt elimination program you choose to follow, once you have selected your preferred roll up method, continue with your program until you have completely eliminated all non tax-deductible debt.  For example, when your first debt is paid off, apply the monthly payment amount that you were making to the next creditor on your list.  Or in other words, use the additional payment from the retired debt as an additional power payment to be applied towards the next debt in the roll up process.  Regardless of the roll up method you chose to follow, it is critical that every precaution be taken to ensure that the roll up process is meticulously followed and tracked.

Money Saving Tips

Create additional cash flow by eliminating any debts that have large payments.  For example, you might have a 2002 mustang that has a balance of $1,250 and a payment of $440.  With some simple math, you will quickly see that it makes financial sense to accelerate the payoff of this debt, even though it has a relatively low interest rate of say 6.8%.  If you take the balance of $1,250 and divide it by the $440 payment, you see that it takes less than three months to retire this debt, with NO additional power payments.  In other words, you get a large amount of margin, the $440 payment, in a relatively short amount of time.  And, if you apply any additional power payments, you can reduce this number considerably, creating this margin in even less than three months.

You should also look for debts with low balances. Generally speaking, debts that have lower balances can be eliminated quickly and any additional power payments make a substantial difference.

This deals more with personal debts or debts that are owed to friends or family members.  When creating your personal roll up plan, you can always adjust or accelerate the payoff of any debts owed to friends or family members that you want to pay off as soon as possible.  Remember, this is your plan and you should custom tailor it to meet your specific needs.

Achieving financial freedom requires a road map that must be followed to reach the final destination, and your goals are the signposts that will show you the way.  Without goals, long-lasting changes are hard to make in life.  Here are some suggestions designed to help you begin the goal setting process and start your path to ultimate wealth. 

THINK OF YOUR GOALS AS A DIRECTION, NOT AS AN ENDPOINT 
In a world of constant change, the old rule-of-thumb that goals should not change once they are set could not be more wrong.  Pick a point on the horizon as your goal, and walk towards it. The success comes, not all-at-once when you reach your final destination, but rather in tiny amounts with each step you take in that direction.

MAKE YOUR GOAL SPECIFIC
Goals must be specific in order to be effective.  A comfortable retirement is an important and worthwhile goal, but it may be a little too broad.  Instead, your plan of action could include monthly payments into an investment account.  This plan has a much greater chance of success.  Once you have selected a goal write it out, this makes it more tangible and concrete.

MAKE YOUR GOALS CHALLENGING
In order for goals to be effective, they must be challenging.  Your goals should make you reach and extend your current abilities and skills.  But remember, setting a goal that is out of reach or impossible to achieve will only cause frustration, anger and self-doubt.  Be sure your goals are challenging but also achievable. 

MAKE A DETAILED PLAN OF ACTION
Create a detailed step-by-step plan of action for each part of your goal.  One of the main reasons many fail to achieve their goals is a lack of understanding what needs to be done.

MEASURE YOUR PROGRESS
If you wish to run a marathon, don't set running 26 miles as your only goal.  Break it up into 2-5 mile increments and keep a daily tally of how far you have run.  Measuring your progress keeps your motivation peaking during the lifecycle of your goal.

REWARD YOURSELF
Set a reward for each accomplishment.  Whether you accomplished a small step or your entire goal, celebrate and enjoy your success.  You've worked hard and you deserve it. Go to a movie with your family, take a short vacation, or do anything else that makes you happy.

CONSTANTLY RE-EVALUATE
Constantly re-evaluate. Once a month, ask yourself, "Am I still pursuing the right thing?" and "How can I improve my approach?"  However, don't allow your tolerance for change to allow you to give up on something prematurely.  All that's required to know the difference between "giving up" and abandoning an obsolete plan is a bit of simple introspection and self-honesty.  Ask yourself the straight question, "Do I still want this?" and you'll come up with the right answer.

A growing number of Americans are beginning to wonder how they will ever earn enough money to both stop debt and begin saving for retirement.  Many people panic and think bankruptcy is the only solution that will solve their current cash flow problems, when in fact there are sometimes other choices that are much easier. 

First, if you are experiencing cash flow difficulties, stop, take a deep breath and say these words; “everything is going to be OK!”  Remember you live in America and they don’t put you in jail for not paying your bills.  The biggest problem for most people is the unwarranted fear and panic that comes with financial problems.  If you can put the fear aside there are some very simple solutions to help eliminate debt and achieve financial freedom.

This strategy is mainly for those with only a few assets, such as vehicles and motorized toys, or no assets at all.  The key to this strategy is, if you don’t have assets, then you don’t have to worry about people trying to take something away from you.  If you have lots of assets, then this particular technique may not be right for you.  And as always, I suggest that you consult an attorney and get professional help to ensure that you protect your assets.    

The good news is if you don’t have any substantial assets or cash flow, and you are not a W-4 employee, then there really isn’t much to worry about.  The hidden truth is, if you just stop paying your unsecured debts, or secured debts with NO equity, there really isn’t much your creditors can do to you.  Sure they may call to harass you and they may make threats, but all you have to do to stop the calls is get an unlisted number.  Bottom line, there is no easy way for them to get anything from you unless they can prove that you have substantial cash flow or assets.

What if they file a law suit?  The simple answer is to let them, because it is there right.  The good news is in most cases they need to sue you in the county where you live and this means hiring an attorney, which is expensive.  If they file a law suit I would recommend that you appear in court and represent yourself if need be.  Explain to the judge that you are unemployed and you don’t even have enough money to file for bankruptcy.  Bottom line, if you have no assets and you are not a W-4 employee there is nothing anyone can take from you.

Remember you can always file bankruptcy if that is the last choice.  The worse part of falling behind on your bills is the fear that someone can come do something to you or take something away from you.  If you fall into the category above, then you really don’t have much to worry about.  Relax, take a deep breath and remember everything is going to be alright…

One of the quickest and easiest ways to find additional cash flow is by challenging the interest rates you are being charged, especially on any high interest consumer debt.  Negotiating lower interest rates reduces your monthly payments, creating additional cash flow and interest savings.  Interest rate negotiation deals primarily with credit card debt, or revolving debt accounts, and would not pertain to secured debts such as mortgages or automobiles, as they are secured by a physical asset.  By renegotiating your interest rates, you are challenging the interest that you are charged based on your credit score or financial standing, oftentimes resulting in a reduction of rates and payments. 

How to renegotiate your interest rates

1. To begin the negotiation process, you will want to compare the rate offered by your credit card provider with the lowest rates offered by all major credit card providers, which can be found at www.bankrate.com.  You should have this number available before continuing.
2. Contact the ‘customer service’ number found on the back of your credit card or monthly statement, and explain that you would like to discuss the interest rate on your credit account.
3. Upon being connected to the appropriate department, ask for the specific rate on your account and why you are being charged that rate.  You will probably be told that your rate is correct and cannot be lowered at this time.
4. If you are told that your rate cannot be lowered, try using one of the following responses.
    

• One, explain that you have been solicited several credit card companies and that they are offering rates much lower than the rate you are paying.  Don’t be confrontational but clearly explain that you have better options based on the interest rate that you are being charged, and that you will have to transfer your balance unless you get a competitive rate.  A quick word of caution, you better be prepared to transfer your balances in the event that your current credit card provider rejects your request.
   
• Two, in the event that your high rate is due to late payments or over limit charges, explain that you are currently participating in a comprehensive cash flow management plan and that you have automated all of your monthly payments.  You may need to arrange a time to re-evaluate your interest rates after you have had some time to establish a good payment history.  Be sure to set a date and don’t miss a payment.
   

Once offered a reduced interest rate, compare it with the lowest rate posted by your provider at www.bankrate.com.  Upon referencing the lowest possible rate, you will most likely be told that the rate offered is the lowest rate the representative is authorized to offer, and it may very well be true.  Upon hearing this, politely request to speak with their supervisor as there are usually several layers of management, each with specific authorization abilities to help create barriers between management and potentially upset clients.

Over the past several years, many American families have been forced to answer the question of what to do in a cash flow crunch, when you just don’t have enough money to cover the bills and keep food on the table.  According to the Mortgage Bankers Association, an average of 250,000 new families enter into foreclosure every three months, with most of these families receiving little to no training on the correct steps to be followed when experiencing a cash crunch or even considering bankruptcy.

The first thing to remember when you notice a shortage in funds, get laid off at work or experience a health crisis, and you just don’t have enough money to cover everything…is DON’T PANIC!  Our founding fathers made sure that debt cannot lead to incarceration, so relax and know that you cannot go to jail for failure to pay your bills.  Staying calm is one of the biggest challenges faced when experiencing a financial hardship, so count to ten, take a few deep breaths and know that everything will be just fine.

Losing your job or experiencing a major crisis usually requires a much different approach than running a little short for the month or needing some extra cash for an unseen expense.  When you experience a life changing event and you know that you may not have the cash flow to cover all of your expenses for quite some time, the very first step is to identify which bills must be paid and which can wait until you solve the current hardship situation.

Deciding which bill to pay comes down to two things, do you have equity in the debt and is the debt secured by a physical asset.  Home ownership is usually one of the first assets to be considered as it is both secured and has most likely built up at least some equity.  If you have you have an emergency savings fund, enough income to cover the mortgage payment or at least $20,000 or more in equity, then saving your home is likely the best first step.  Next, make a list of all the debts that are either secured or have built up equity, which usually consists of autos, boats, furniture or other recreation vehicles.

Unsecured debts such as credit cards, signature loans and other lines of credit are the last debts to be considered when experiencing a financial hardship.  Unsecured creditors will hire attorneys, send threatening letters, call your work and family, and do just about anything to get your attention.  The truth is, they have no tangible asset attached to the debt and can do nothing but file with a judgment and wait. 

Again, pay the debts that have equity or are secured by an asset.  The rest of your unsecured debts can wait until you decide on your best course of action.