Consumer Voice - March 2007

Getting out of debt does not have to be the overwhelming, stressful task you may think it will be. Think of it as a treasure hunt. You will follow a map to your ultimate goal of becoming richer in many ways in the end. There are some very practical things you need to know about how to get out of debt, because the method you choose is going to depend on your current circumstances. Read the following descriptions to see where you fit.

You can develop your own debt reduction plan if you:

Pay all of your minimum payments plus some extra on your credit cards every month
Do not rely on using credit cards to pay for other expenses
Have some money saved, assets that can be sold that can be applied to debt or you are expecting a windfall in the next few months

Refer to a previous article we wrote on this subject.

You may need some help from a certified credit counselor if you:

Cannot pay your minimum payments without using credit for current expenses
Have no savings, assets you can sell, or you are not expecting a significant windfall or pay raise in the very near future
Are expecting an increase in another expense that is going to make you unable to make your minimum payments on your credit cards
AND/OR
You are receiving calls from creditors about past due payments and you cannot catch up

Contact Consumer Credit Counseling Service for free counseling:
Denver Metro
Northern Colorado and Southeast Wyoming
Colorado Springs & Pueblo

Debt settlement may be an option if you:

Have obtained a large lump sum of money that is not quite enough to pay off all of your debt

Note: Above is the only reason Consumers United Association (CUA) would recommend a member seek a settlement. A settlement means that you make an offer to your creditors to pay a certain lump sum to "settle" the debt. Typically, you would pay a percentage of the balance with an agreement with the creditor to not seek the balance from you in the future. CUA does not recommend using debt settlement firms that advertise that they will do this for you. They charge large fees and are frequently unsuccessful. Furthermore, any consumer can call his or her creditors to make a legitimate settlement offer when he or she has received a lump sum of money.

If your situation is more serious than those outlined, it may be necessary to contact an attorney about the possibility of bankruptcy.

More than half of Americans (52%) say that they currently cannot afford to save or are saving inadequately, according to a comprehensive survey by the Consumer Federation of America (CFA) and Wachovia.

The truth is, however, that most people can really afford to save some money and past generations of people did so in very difficult times. The way our grandparents and parents did it was simple: use cash for most purchases, set aside at least 10% of your income, and don't buy more house or car than you need. In our society today, these ideas have been lost.

Even if you are not able to start saving substantial amounts of money immediately, once you do start saving you will find yourself wanting to find more money to save. You may even dedicate 2008 to developing a plan that will have you putting much more money into savings in 2009. Here's how you could do that:

Take a look at your tax deductions. Are you paying extra out of your paycheck so that you can get a refund? It may be better to save it yourself if you tend to spend that tax refund on a big shopping spree instead of saving it each year.
Put the children on an allowance and put their allowance in their own savings account. If you do this, you will be able to tell them to go to the credit union or bank to make a withdrawal from their own money, rather than nickel and diming you. You will accomplish two goals at once that way.
Go shopping. What, you say? Yes we mean it. Take those gift cards you got for Christmas and go shopping for next year's Christmas presents during the sales now and throughout the rest of the year. By the time the holidays roll around in 2008, you will not be charging on your credit cards and paying interest on those purchases. Then in 2009, start putting what you would have paid in interest into savings instead.
Put $1, $5, $10 in savings each week. Start somewhere if you are not saving now. The more you save, the less you will charge.
Cut one major, not-so-necessary expense. For example, if the apartment you live in is twice a large as you really need, consider moving to a smaller one for a while. Or, if you are driving 50 miles back and forth to work and you think you could find a job closer to home - or move closer to work - do it. Sometimes, you can actually save money by trading in a car that is not fuel efficient for one that costs less in monthly payments and gets better gas mileage.
Get on direct deposit for your paycheck. When you do so, you keep yourself from taking more cash than you need from your check.
Look at all of your spending habits.

Check out other articles we have done about finding holes in your spending.

Saving today is not what it used to be with the constant tug-of-war between wants and needs. But do you remember your piggy bank when you were a child and how exciting it was to shake it and hear all the coins rattle around inside not to mention when you finally got to break it open and your money spilling out onto the table?

Now you're the parent and a financial role model. Teaching your child to save for a rainy day is a vital life- lesson. Plus, as your child gets older, good habits will develop with time and repetition and saving will help them build a strong and life-long financial foundation. However, with all the distractions of our commercial society getting your child interested in saving money is the challenge.

To inspire your child's savings enthusiasm consider these helpful ideas:

Chore Allowance. To help your child learn about paydays, create a chore list and post it on the refrigerator. Every two weeks when all the chores have been completed, give your child an allowance. If you pay them $5 for example, pay them in five $1 dollar bills and teach them to set aside at least a dollar for savings. Drive home the savings concept by explaining that if they save $5 a week at 6 percent interest compounded quarterly it will total about $266 after a year, $1,503 after five years, and $3,527 after 10 years!
Glass Jar Finances. An easy way to visually teach your child about saving is to set up three glass jars labeled Spending, Saving and Sharing. After your child gets their weekly allowance help them understand what each jar means and that it's not ALL about spending.
Rainy Day Rewards. To help define what "Saving for a Rainy Day" really means, allow your child a reward with a portion of their savings on an actual rainy day or agree to give them a monetary bonus that day if their savings jar has reached a noteworthy balance.
Open a Savings Account. Help your child open a youth savings account at your bank or credit union and as an extra incentive, offer to match whatever your child deposits to help their money grow faster and ignite their excitement for saving. Many financial institutions offer youth all sorts of fun incentives and programs for their accounts which can aid parents in teaching financial management skills.
Savings Bond. Buy a savings bond for your child at your bank or credit union. If you want to find out how much your bond is worth, download "Savings Bond Wizard" on your computer through www.treasurydirect.gov and share the program with your child to help them understand the power of saving.
Save While Shopping. Smart shopping is an easy but valuable lesson to teach children while they are young. One idea is to choose a basic item that they can buy with their own money. Teach them the difference between saving money and overspending by not buying the most expensive product on the shelf.
Money Diary. Encourage your child to keep a money diary for a month to track where their money goes. On one side of the page list "Income" and on the other list "Expenses". Be sure to date all of the entries and then sit down and recap the activity at the end of the month and pre-plan a reward if they complete the diary such as taking them to the zoo or to the movies.

Teaching your child to save for a rainy day can be fun for both you and your child. If you need some additional help, there are lots of informative books and online resources you can utilize for ideas and guides such as: www.themint.org; www.kids.gov; www.moonjar.com; and www.familyeducation.com as well as many others.

Benjamin Franklin once said, "An investment in knowledge always pays the best interest." So, whatever you do, make sure to take the time to educate your child about saving money to launch them into a healthy financial future. It's never too late, so start today!


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