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Hello and welcome to DrFrugal.com. If you've ever had the unfortunate experience of trying to find information online that has anything to do with money, you know most sites are worthless because they're trying to pawn something. Not here--there's nothing to buy. I've tried my best to only include pragmatic, realistic informtion to help you lead a simpler life by taking care of your personal finances.
As much as anyone from financial advisors to friends will tell you their method of managing and paying off debt, there really is no right answer.
Think of it like a math problem from school, and how some teachers would dock you points for getting the right answer but the way you got there (the infamous showing your work) wasn't how you were taught to do it by said teacher.
At the end of the day, as an adult who is trying to manage debt and budget properly, the most important element of credit cards and unsecured debt is paying it down and eventually off. How you get there really doesn't have the proverbial right answer.
But there are, in fact, some strategies that are universally lauded as being fairly spot on for how to manage debt. Of course, budgeting will always reign supreme as far as debt is concerned because the two go hand in hand.
Those who aren't afraid to tackle debt, and that simply means writing it out to see the big picture, know that their budgeting and going without and managing expenses versus your income, so that you can focus on paying more than the minimum payments, is key.
The best method of debt control and paying it off starts with the reverse pyramid effect. You start with the balance that is the one with the highest interest rate, and then you begin paying on that first, over and above the minimum. As far as the other debt is concerned, you pay the minimum on that until that first balance is paid off, then move on to the next highest interest rate in terms of credit.
Another way of looking at debt is focusing on smaller balances with high to medium interest rates and paying them off first with the most money leftover after you budget. This allows you to see progress being made, which goes a long way to help that feeling you have that you'll never see the light at the end of the tunnel. For some, they can't continue to pay and not see any results, so this method of debt repayment shows that there is hope.
No matter which path you take, know this: the budget has to run parallel with your debt repayment goals. You can't have a budget that is even, meaning your expenses are covered just barely by your income. That simply means you're allowing yourself to make nothing more than minimum payments on your credit, even though you're missing out on how to maximize your repayment plan altogether.
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What's the first thing that comes to your mind when you talk about borrowing money·
For starters, you're probably start to think about the idea of asking a friend or family member for money more so than actually borrowing in the traditional sense, such as a car, home or another purchase that requires you to ask a bank or financial institution or lender.
Borrowing money can be a good thing, as in the case of the aforementioned examples, when you have transportation needs or want to invest in a house. Most of us don't have $30,000 lying around for a car or another few hundred thousand for that home.
So, borrowing always is the necessary choice.
But sometimes, borrowing can be bad and extremely ill advised.
Most of that centers on two major points: unsecured borrowing and borrowing for something that wouldn't be deemed a necessity.
As for the former, unsecured borrowing means you have nothing as far as collateral for the loan (i.e. you can't tie it back to something like a car or home). This mostly is credit card debt, but borrowing in this fashion is even more atrocious if you are using that borrowed money for day to day expenses or paying bills. That is more of a red flag that you need to budget differently or rethink how you're spending.
Besides never borrowing money to pay bills, you might want to consider against borrowing for something like a wedding or to go on vacation, which fits into the latter representation of borrowing when you really don't need to.
Weddings are often a place where young couples begin their foray into debt rather quickly with nuptials that cost in upward of $40,000 or $50,000, a large number and one that isn't going to be easy to pay back. That sort of debt seems more fitting for a down payment on a house or putting it in a savings account for just such an emergency. Even using that kind of cash would be better served as student loan debt in order to go back to school, get a Masters degree or something of that ilk versus having one day, albeit an important one, responsible for that lump sum of money counting against you and your new spouse so quickly after you get married.
Vacations are another unsecured pratfall for the majority of people, mostly because you argue that you can either afford it or you need it, so going into debt or borrowing money to go on a trip is justify the stress relief it provides. That can't be argued but when you come home that first payment or credit card bill is going to find you at some point, so the stress factor is a moot one.
Borrowing money often can't be avoided but can be prevented as far as doing it too much and without the right reason behind the move.
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Have you ever seen a slick television commercial or online ad and felt as though you were missing out on something really great, a product or service perhaps· How about that glossy magazine or newspaper ad (yes, they still exist), one that makes you feel like whatever is in print is a must have·
Everyone has answered affirmatively to those questions as far as buying something and not so much wondering why but more about how this product or service was suddenly so important that you ended up spending money that you could have been saving.
The key to spending money is quite simple: save it instead.
That is much easier said than done when you have savvy, sophisticated retailers doing everything in their power to entice you to spend your money, even if you realize that what is being offered really isn't worth it.
Retailers aren't above making you believe that what you want is the same as a need, even though we know inherently that the latter is more about shelter, food, water and transportation just to name a few and that latest and greatest wardrobe or that fine dining restaurant wouldn't fall in that same realm.
Now, that isn't to say that some online promotional codes or coupons aren't without their merit, along with the subsequent action as well in the form of spending. If you're starting a brand new job and need clothes that look the part, you'd be hard pressed not to be interested in free shipping or saving $50 when you spend and buy $125 worth of clothing.
That makes sense because at that very moment those clothes are a need.
What retailers do, however, is with their words and photos create this illusion that you can't live without this product and if you don't buy it soon, for example, you may never see it again or be offered it again at this amazing low price (think infomercials more than anything else).
Restaurants, for instance, will offer discounts on meals but for a "limited time" only, suggesting that buying and spending is a now or never proposition.
Smart consumers realize that those same tactics, while impressive and enticing, are just that: smoke and mirrors mostly. They are just giving you the feeling that you have to own this, that and the other, when in actuality it would be nice but not necessary.
Saving money comes at the expense of not spending when you don't need to, and those sitting on an impressive emergency fund know that they've passed on a few so called big deals to make one with themselves: to save money first and foremost.
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As much as auction sites and second hand shops have changed the way we buy, you can't argue that the word "used" carries with it quite the stigma for some consumers.
They don't view it as it should be: a way to save money by still having the things you want and clamor for but at a reduce cost.
Instead, "used" often refers, for some, to a product or service of a lesser quality, when in actuality nothing could be further from the truth.
In reality, those who have learned to save money have also become accustomed to buying used or at least giving that option first thought before they turn to brand new as a result.
The easiest way to save through buying used is with your vehicle. Used cars have such a marked down price that you'd be foolish to go brand new. A $40,000 brand new vehicle even after only a year or two might be half as much as that original sticker price. Used cars also come with competent warranties and any good, honest car salesmen knows that he or she make their commission more so on used than new, anyway.
The only selling point of a new car is that it's, well, new, and advertising and marketing make it hard for you to pass up that shiny, albeit over priced, new car smell and all the bells and whistles that go with it, even though used is nearly as good.
Technology also is a much needed spot where we need to think used versus new. Take a tablet or cell phone for example; when the newer version comes out, last year's model (or even one from a few years ago) drops drastically in price. So it might not run your favorite casino game or you can't update to the latest software, in the case of the tablet for instance, but you can still stream videos, send emails and surf online.
Think about what your needs truly are when it comes to gadgets of that ilk and determine if you really need the absolute newest version. And just because a new model comes out doesn't mean you have to have it.
Finally, if you're still buying clothes brand new, you might want to consider just how much you can save with a few hand me downs or something you'd find in a consignment shop. Granted, they're not off the rack per say but someone with a keen fashion sense on a budget could easily pull off the look they want, minus the heft price tag.
Buying used isn't what it once was. The term no longer means devoid of quality, rather the appearance of a product that is perfectly fine, even if the packaging has already been peeled back.
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