We have quite a few old sayings, proverbs and adages that we’ve all been saying and hearing for years (if not centuries). After a while we stop really hearing them, though, and start to take their meaning for granted. But most wisdom is timeless – and smart money advice is worth hearing in any century.

Just about everyone has debt, but have you ever wondered if you have the right amount? 

Here are two quick ways to answer the question: Do I have too much debt?

A new survey released by the FDIC, reveals that more Americans are turning to high-interest, short-term loans in lieu of traditional banking.

Whether you’ve already quit, or you’re simply considering it, nixing credit cards can be a difficult process.

Perhaps you’ve developed a strong dependence on credit and feel as though you need it to survive, or maybe you simply feel as though your credit card is a safety net and it will be there to catch you when you fall. Regardless of your level of dependence, getting hooked on credit can be a dangerous habit that’s hard to break when it hasn’t been used responsibly.

The following are a few tips to help you kick the plastic habit:

• Shelve your credit cards. If you still have open credit card accounts, consider carrying cash or your debit card for daily use instead. Leave credit cards at home and only carry one when you plan to use it for a larger purcha
  se or something that you have already reserved for your credit card.
• Tighten your budget. Create a real budget and include even the smallest expenses. Maybe filling up at the station or picking up a few things at the grocery store were once expenses that would previously go unnoticed, but with today's high gas and food prices, even smaller-ticket items add up.
• Cut back on non-essentials. The easiest way to free up extra cash is to know the difference between needs and wants, and make a conscious effort to do without those things that you don’t need such as eating out, vacationing, and shopping for discretionary items such as furniture and electronics. You may even consider getting rid of cable. With programs such as Hulu and Netflix, it's much easier to cut the cables and maintain access to your favorite shows — and you'll save a nice chunk of change!
• Create a plan to pay down debt. Sometimes it’s easier to break a habit when you have a goal you are trying to accomplish. Make a commitment to pay down a portion of your debt within a certain timeframe, and make sure to get your family involved in working towards a shared goal — you can help keep each other accountable.
• Build an emergency fund. One of the biggest credit temptations will come in a time of crisis. This is why it's imperative that you have emergency savings on hand. Many consumers lack an emergency savings fund because they've been focused on putting extra funds toward debt. While this is not a bad thing, remember that feeding your own piggy bank will help you rely less on credit when a financial disaster does strike. If you aren't prepared, you could end up back in the same place you started.

Finally, if your financial obligations become overwhelming, don't be afraid to seek help! MMI has counselors available 24 hours a day, seven days a week to help assess your situation and offer the best options for needs.

With credit card use on the rise, it's important to understand your billing statements.

Desperate times often call for desperate measures, but sometimes those tactics can leave you worse off than where you began. This can be the case with people struggling to find money to pay off holiday purchases.

When we’re desperate, we often resort to solutions that actually increase the problem. In fact, it is common for an increased number of consumers to turn payday loans, pawn shops and rent-to-own options during the holidays. With limited available cash or a restricted access to credit, many Americans may turn to lending sources they wouldn’t consider during other times of the year.

Following are three areas you might want to avoid:

Payday Loans - On the surface, getting the cash you need may seem worth it at any cost. But it’s that cost that can become financially back-breaking. To obtain a payday loan, you write a post-dated check for the amount of the loan plus any fees the lender tacks on. You then receive the amount of money you initially needed to borrow, promising to pay back that amount plus the fees. The term of the typical payday loan is one to two weeks, at which point the lender cashes your post-dated check. Most payday lenders will charge a certain dollar amount per $100 borrowed. For example, they may charge $15 for every $100 you borrow. Thus, if you needed $300 for two weeks until your next paycheck came in; your post-dated check would be for $345. What’s $45 when you desperately need $300? Here’s the catch…that $45 represents an Annual Percentage Rate of 390 percent. You wouldn’t dream of taking out any other type of loan with triple-digit interest. And, if this isn’t bad enough, many consumers cannot repay the loan at term, and end up rolling it over, thus adding on more fees and interest.

Pawn Shops – People can do several things at pawn shops. They can borrow money by putting up something of value as collateral, they can sell their merchandise outright, or they can buy the merchandise that is for sale at the shop. There are bargains at pawn shops, but only for those buying the merchandise, not for the sellers. Typically, the person pawning the merchandise receives a sum of money (usually nowhere near the true value of the item) which he or she agrees to repay with interest. If the loan is repaid by the end of the term, the merchandise is returned to the owner. If the loan is not repaid, the consumer can renew the loan, or the merchandise is forfeited. What’s the problem? Again, it’s the interest and fees, with APRs typically in the triple-digit range once everything is added in. Further, some studies show that only 60 percent of pawners end up reclaiming their merchandise, thus they have essentially sold an item for cents on the dollar, something they wouldn’t otherwise do.

Rent-to-Own – Everyone wants nice things, and if friends and family are coming over to watch the New Year's Day bowl games, you may be tempted to spruce up your home. A quick trip to the furniture or electronics store could confirm that a new living room set or flat panel TV is out of your price range. Then you notice an ad for similar items with affordable monthly payments. It seems too good to be true, and it is. The problem once again lies in the interest and fees. For instance, if you bought a $200 item and agreed to make weekly payments of $15 for 78 weeks (basically one and one-half years), you’d end up paying $1,170 for that $200 item at an APR of 388 percent. Adding insult to injury, it is likely that you could have purchased the same item at a traditional store for a fraction of the overall cost.

People wonder why anyone would agree to the terms imposed by payday loan companies, pawn shops, and rent-to-own businesses. The answer is that consumers who utilize such concerns typically do not qualify for loans from banks or credit unions, and would not be approved for in-store lines of credit. Nonetheless, people need to understand that even though there is always a cost to credit, when that cost becomes unreasonable, the consumer is better off considering other options or doing without.

This content was provided by the National Foundation for Credit Counseling (NFCC) . Money Management International is a member of the NFCC.

 

My advice is to save up your money and then go buy what you need.

Cash for Clunkers, or the $1 billion government funded program officially named Car Allowance Rebate System (CARS), looks to be getting an extension. Congress is planning to invest an additional $2 billion into the program in the form of government stimulus rebates of up to $4,500 per clunker. The first phase of the program was wildly successful wiping out the initial $1 billion investment more than four months ahead of schedule. The success of this program will do a lot for the auto industry, but ask yourself – what will it do for your bottom line.

Buying a new, more gas efficient car, means less money for gas, but more money for monthly car payment and insurance. People who own clunkers are more than likely not locked into a car loan. Going from zero monthly payments to paying more than $300 a month on average, could make a huge impact on your family’s budget.

When shopping for a car, using the Cash for Clunkers incentive, the same fundamentals of buying still apply. The key is to do your homework:

Determine what you can afford. Review your spending plan and determine how much you can allocate each month for the car payment, gas, insurance, registration and maintenance.

Get the best deal. Shop around for the best offers. With new car sales at a 27 year low, car dealerships are offering amazing rebates and incentives. In addition to the government rebate on fuel efficient cars, you may also qualify for thousands of dollars in dealer incentives.

Consider new vs. used. Carefully weigh your options and consider the loan terms on a new car vs. a used car. According to Bankrate.com, the average used car rate is 7.5 percent and the average on a new car is 2.9 percent, which means you could save more over time on a new car.

Finally, shop around for the best rate. Credit unions and smaller finance companies may offer better loan terms than larger lenders.

What you should know about the Cash for Clunkers program:

• The purchased vehicles, which must be new (2008, 2009, 2010 models).
• The vehicle can not cost more than $45,000.
• Motorcycles are not part of the trade-in or sales process.
• Your clunker has to be in driveable condition.
• You must have a clear title to present to the dealer; no liens.
• The person on the title of the clunker has to be the same person who is buying the new car.

 

A new program from the Department of Education aims to make student loan repayment more manageable for people whose loan size is out of proportion with their income and family size. The Income Based Repayment (IBR) Plan reduces monthly student loan payment amounts by lengthening loan terms for people who qualify. This program works for both old and new federal loans for any type of education; however, it is not for everyone. For example, not everyone will qualify (to see if you are eligible for the new plan, use the IBR calculator*) and it is important to understand that lengthening the loan terms could cost you more in interest over the long run. In addition, there are some types of loans, such as federal loans parents take out to pay for their child’s education, that are not eligible. While the IBR Plan may provide welcome relief to qualifying borrowers struggling to make high monthly payments, many future students may be dismayed by the thought of paying for their education 25 years after graduation. If this is a situation you and your college-bound child would like to avoid, there is good news. Opportunities for funding your child’s education are diverse as the career paths they afford.

-Private scholarships. There are thousands of private scholarships awarded every year that fall outside of the university’s domain. Private scholarships are not limited to students with perfect grades and packed resumes. Artistic talent, creative writing skills, lineage, interest in a particular field of study or being a member of an underrepresented group can all help you secure a private scholarship. However deadlines can be as early as July, more than a full-year before the student plans to enter college.

-Section 529 plans. Section 529 plans are state-sponsored college savings programs. The two major types are Prepaid Tuition Plans, which lock in current tuition rates, and State College Savings Plans, which offer more flexible investing options. Both are useful ways for families to save for their children's college education.

-College controlled aid. Your individual college may be able to offer a short-term installment plan that splits your tuition into equal monthly payments. Many schools also offer their own merit scholarships.

-Military Aid. The U.S. Armed Forces offer several programs to provide students with money for school. The most well known is the Montgomery G.I. Bill that provides a cash education incentive to encourage you to join and serve a tour of duty.

Finally, don’t forget to enlist the student’s help; money earned from a part-time job can cover incidentals, such as books. Keep an open line of communication with your child; unfortunately, they might not be learning about personal finance at college. *If you've already accumulated student loan debt, but do not qualify for the new program, check out a previous post titled How to repay your student loans.

For many years, I had a secret identity. I was “Susan” of the MMI’s “Ask Susan” advice column. The truth of how this came about is far less exciting than it seems—I inherited the column from someone named Susan. After answering more than 30,000 questions, I “retired’ from the column. Today, the column is called The Advice Team and questions are answered by some of the most qualified people in the industry. Thankfully, I still get to fill in when one of them goes on vacation because I really love talking (or in this case, typing) with people one-on-one. During my most recent stint as a substitute, I noticed that several people were worried about how their personal relationships are being negatively impacted by money. In case you are struggling with the topic of friends and finance, following are a few of the questions I received and answered.

Dear Advice Team: I let my friend and his wife borrow $2,500 more than a year ago. They are making payments as agreed, but I can't help to get annoyed when I see them spending money frivolously. They even went on a trip recently—I can’t even afford to do that! What can I do about this situation? -Steve, Minnesota

Steve: While you may not agree with all of their spending decisions, at least they are keeping their promise to pay you back. I believe that when you lend someone money, it is important not to assume a position of power. Being too authoritative could damage your friendship.

•••

Dear Advice Team: In October, I loaned my friend of 12 years $4,000. I wrote her a personal check for the amount of the loan. She verbally agreed to pay me back all of her income tax refund. Well, she got her income tax and spent it all, without notifying me. I called her and she said that she would pay me $100/week until balance was paid. That was three weeks ago and I haven't heard from her. I am a single parent and trying to go to school. She knows I need it. What can I do? -Cheryl, Phoenix

David: I am sorry you are dealing with this delicate issue. Since your friend has not kept her end of the bargain, it is past time that you begin treating the loan like you would any other business matter. Discuss the terms of the agreement and put the details in writing. Be sure to list both parties involved, the interest rate, due dates, payment amounts, and penalty for late or missed payments. Document the date and time of any letters or phone calls, and be sure to make note of all the responses to your attempts. Your records may be necessary if you plan to take the matter to court, or if you plan to write the debt off as non-business bad debt on your next tax return.

•••

Dear Advice Team: I recently co-signed for a car loan for a friend. This "friend" has duped me and she won't pay. My question is: how can I get my name removed from the loan? I don't want to pay for a car for her. Her name is on the title and she has a car free of charge! I have learned my lesson; I just want to know what can be done—before my credit is ruined. -Mark, Tennessee

Mark: Helping someone obtain their goals can be very rewarding; however, far too many friendships end when money is involved. Unfortunately, there is no simple way to “remove” your name from a cosigned loan. In order for the primary borrower to assume total responsibly for the debt, she would have to apply for a new loan and qualify on her own. (I am assuming that this is not possible or you wouldn’t have been asked to cosign in the first place.) Talk to your friend about selling the car and repaying the loan. Seek mediation if necessary. If this is not possible, you might consider protecting your credit rating by making the payments to the creditor yourself and then collecting from her. Because the stakes are so high, I recommend that you seek legal advice to understand your rights and responsibilities.

•••

If you have a question for the Advice Team, please don’t hesitate to ask!