You Need an Emergency Fund. Now.

All too often than not life has a sense of irony. Or at the very least kicking you when you are already down for the count, just to make sure you're getting the full experience. As the recent economic downturn has taught us, everything fiscal is linked on an intimate level to everything else. A poor housing market will drag down the retail industry, which drags down the manufacturing industry, which raises prices on consumer goods, which feeds back to the retail industry and so forth.

As such you should be prepared for the worst case scenario. In turbulent times a relatively insignificant problem with your finances can spiral out of control, leaving you in a situation wherein you have to take on more debt than is healthy. Take the current situation for example. The folks losing their homes right now fall into two categories. Those who planned for the worst, but clearly didn't have a realistic image of a worse case scenario and those who did not (or were unable).

Regardless of which category these people fall under, it's a pretty terrible time for them. But straying away from predatory lenders aside, they had the opportunity to prepare for the crisis back when times were good. All they had to do was squirrel away some of their income.

An emergency fund is apart from any other. A vacation fund is drained every year, likely. A retirement fund is only touched (hopefully) in preparation for your golden years. A college fund is emptied during several years after high school. You don't touch an emergency fund. It remains unmolested until the worst case scenario happens.

Whether that's a death of a spouse, the loss of a job or some other disaster is immaterial. It's there for you in your time of need and not your time of want. A lot of people skirt around the issue, claiming that it's easier to live off of credit cards or small loans until everything is back on track. Which is true, in part. A credit card can stave off the power going out or the car being repossessed.

What it can also do is enslave you for a number of years if used improperly. Suddenly that $150 spent on your Visa to keep your heat on for another two weeks balloons into $300 as it becomes increasingly interest laden. Now add groceries, rent, car payments, insurance, the phone bill and the power bill. If your financial situation does not improve you're on the fast track to bankruptcy. A single month of living purely on credit can take a really long time to pay off, depending on the interest rate involved.

An emergency fund is not only always there for you (unlike credit, which may dry up due to inactivity, poor management or poor economy), but it works for you. If dwelling within a savings account at your local bank or credit union it'll earn you interest instead of the other way around. So suddenly your $1,000 worst case scenario cash becomes $1,100 and so on.

A lot of people suggest somewhere between 3 - 6 months of income packed away for an adequate emergency fund. I think this number is just about right, especially considering the most common need is due to sudden job loss. A job, especially in a poor market can take a long time to find. And even then you might need to take a cut in pay to keep food on the table.

But I like to take it a couple of steps further than that. People are fickle and emergencies come in many varieties. The car needs a costly repair, you have an accident while uninsured, your dog needs surgery because he ate a particularly unhealthy diet of sneaker and Christmas tree ornament. So in any given year there are bound to be a couple of fully justified reasons to dip into the emergency money.

I like to suggest several savings accounts that you regularly contribute to until they've reached a predetermined ceiling and all together they should equal roughly 3 - 6 months of your current income, matched if your income raises.

• Job: A savings account established in the event of your company going under, being laid off of you being fired. This should arguably be the biggest fund at your disposal due to the fact that loss of primary income shuts down the flow of money.
  
  Also keep in mind certain factors such as your industry. If you're employed in a volatile niche such as real estate you're going to need a bigger fund because hard times will likely be longer. If you're employed in an industry that has a great demand for workers, such as nursing you can afford to redirect some of your money elsewhere.
  
  
• Car / House: While these can of course be divided if needed, they go hand in hand. This account should be roped off for the harder times involving your home and car. While insurance typically handles most things, some states don't require insurance. And some insurance plans only cover a tiny fraction of possible scenarios.
  
  Imagine your car's muffler rusts out due to inattention. Or you find yourself driving over a couple of cases worth of broken beer bottles leaving a party. Or maybe your roof develops a pretty steady leak and needs repair (and mold mitigation.)
  
  
• Pet: The hardest thing a pet owner has to do is put down their companion because they can't afford to have a costly, live saving surgery performed. Think of how many hours of enjoyment and love your dog, cat, ferret or bird has given you over its life time. Now imagine how gut wrenching it'd have to be to put it down because your credit has dried up and you don't have the means to help it.
  
  
• Health: Hopefully you have insurance, but even if you do there are many costs involved. Co-pays, tests, studies and medication will wind up costing you a lot if they come out of left field and are unaccounted for in your weekly budget.
  
  Using the logic that you're young and thus won't need very much medical care doesn't carry much weight. Especially if you find yourself falling on a patch of ice and breaking your ankle or getting into a car accident.
  
  While it's impossible to save up enough to cover every medical emergency, a couple of thousand dollars will more than cover the co-pay you may have to pay if you need an emergency room visit and a barrage of x-rays.
  

Not only will different accounts help you keep yourself organized, but it'll also prevent you from dipping into your emergency fund more than you need to. If you're not used to dipping into the pet fund (which you hopefully won't be) you'll be less likely to access it in less than critical times. Any the good thing is if a really terrible disaster is there and you need to use your best judgment, you can still liquidate any account for any need.

Your fund should also remain available at a moment's notice and should not be tied to anything volatile. It shouldn't be invested in the stock market or stuck in a 6 month CD. A regular savings account is more than adequate for most people.

Not only will it be there for you when you need it most to lend you some flexibility, it'll give you peace of mind when you don't. Which is crucial, especially in dark economic times.

Avoid Getting Ripped Off: Buying High Ticket Items

I married my long time love interest on August 2nd. We've been through a lot together and in a lot of ways we're already like an old couple. While we just got married we had been living together for years and before that we were in a relationship pretty much since early 2000. The word marriage wasn't so much important to us as the benefits of being married. We're both very nonreligious people, but the legal system is designed to protect those who share a union. Since she is now a federal employee and receives significantly better health coverage than yesteryears and I'm technically an independent contractor it was the only logical decision. So we had a tiny super cheap wedding.

The one thing that we decided to spend an appreciable amount of money on were our wedding rings. Being a salesman in a former life and having dealt first hand with a number of overly pushy commission based retailers, we weren't exactly looking forward to shopping. Picking them out, yes. We loved that part. But we loathed dealing with the phony in your face sales sharks who simply saw dollar signs.

We went into the situation with a mindset that we were not going to be ripped off. Believe it or not, we actually drew up a list beforehand to help us in our shopping excursion. These tips should work for any high ticket item, be it a computer, car or wedding ring.

• Don't deal with sales people (at first): Yes, they're there to help you. But they also have their own bills to pay and their own agenda. Any advice they give you might be tainted with their own best interests in mind instead of yours. So research the field you're looking to buy into. Utilize the internet to narrow your selection and needs down to a general price range that you find acceptable.
  
  
• Command respect: Don't let them do all of the talking. When you are finally ready to engage a sales person, do just that. Engage them in conversation. Ask intelligent questions as to the nature of the product you're thinking about buying. Make them explain themselves if they're not entirely clear. If you appear docile and meek you might just find yourself in the hands of something who thinks you're an easy paycheck.
  
  
• Dress right: And by this I do not mean "dress for success." If you look like you're capable of dropping a lot of dough, you're likely going to give the sales clerk that image as a first impression.
  
  So leave your expensive inherited gold watch, Coach purse, fancy leather jacket and other assorted bling at home. If you have one, put your wedding ring in your pocket. These are all things sales people immediately key in on.
  
  Dress decent, but over all pretty casual. Like you were going to a movie with a couple of friends.
  
  
• Bring a partner: Whether you bring your significant other or a friend, two heads are better than one. You'll have someone not directly invested in the purchase to bounce logical ideas off of. You'll also have someone to remain an outsider in case you start to be drawn into a sale that you may regret later.
  
  
• Don't talk to your partner (too much): Whether you're shopping with your boyfriend, wife or best friend don't talk to them too much while the sales associate is hovering around you. Make sure you're both crystal clear on this subject. The last thing you want is your wife saying "You should get it, you know you want it." in front of an already pushy commission shark. You'll find yourself pressured from two sides, instead of just one.
  
  Instead politely excuse yourselves to discuss the issue at a nice distance.
  
  
• Be wary of expiring offers: Be careful associates informing you that "this bracelet is the last one we have.." or that "this sale is for this afternoon only." It's a common tactic to introduce time limits on things. It encourages impulse buys. Which is not what you want to do with a high ticket item. Take advantage of them, but don't do so simply because of the fact.
  
  
• Don't be scared to walk away: Arguably the most powerful tool in your arsenal. Competition breeds low prices. We all know that a monopoly (the economic situation, not the board game) is a bad thing. Regardless of the item, you can probably find it elsewhere cheaper. The only thing that differs is the effort put into the search.
  
  So if a sales person is pressuring you to make a decision before you've had time to logically think out the pros and the cons of the price, politely thank them and go catch a cup of coffee. The sales associate will know you're capable of walking out on an offer and you'll have time to logically think out the situation on your own terms. If you decide to go back both parties will be aware of just how far the other is capable of going.
  

This is not a catch all, but instead a general outline with a couple of things that can keep you protected. So long as you remain smart and don't allow yourself to be manipulated you'll be able to get your high ticket item at a fair price well within your budget.

Arming yourself: A federal job

When you boil personal finance down to the bare bones there are two very obvious ways to increase your over all wealth. The first and most obvious is to spend less than what you earn. This can easily be achieved by simply installing some self restraint in your shopping habits and developing some sort of budget, even if it is rough. A lot of people focus on this aspect as it will bring the most amount of success in the shortest amount of time. Which is great. But what if you've already done that and your bank account is still hemorrhaging like nobody's business?

If the first option fails you can always fall back to the second bare bones option. It is simply to increase the amount you earn annually. Whether it be a second (or third) job, a raise or a brand new primary occupation.

Admittedly this is the most difficult part, especially with the economy in the shape it's in. Everything from retail to real estate is feeling the pinch of the almighty dollar's decreasing value. Sure, people are definitely hiring. But they're being a lot pickier about the over saturated market. A lot of other people are looking for jobs too, whether they have a sub prime mortgage or they're irresponsible college kids coming entering the work force with American Express on their backs.

But you can get a cup of water, even in the driest well. You just have to wade through the mud to get to it. You just have to remain persistant and ruthless in the pursuit of a new occupation should you decide to get one.

Let's examine the missus, shall we? She's in her mid twenties and has a dual major in education and accounting. Currently she is employed at a full time job that pays her a little over $12 an hour. We've been looking to get her a better paying position in a field she'd appreciate for nearly half a year now. We've gone through three reams of resume paper, countless stamps, 25 Sunday papers and she's wasted most of her vacation days to attend interviews for everything from entry level positions with small businesses to senior analysts with the state government.

She even put her time in with two staffing agencies. Professional job hunters who red penned her resume to make it the best it could possibly be. Either she was outright rejected or lured along with the hope of a new position with second or third interviews. But nothing really materialized in a price bracket that would be worth moving to.

Needless to say it was an exhausting, depressing experience for the both of us. But one evening while she was toiling away at her second job slicing pizzas one of her former college professors stopped in for a piece of pie. They got to chatting. The missus asked for a letter of recommendation. The professor said she'd be glad to provide one, but had she heard of working for the federal government?

At this point we had been applying for state jobs as well as to the private sector. We figured it just another resource. So I burned some time and did a little bit of searching. I found everything from $8 an hour grunt jobs working at cafeterias to $100,000 annual jobs controlling entire departments. We found a couple of jobs that fit her experience and education and applied.

The most painful experience out of it was the waiting. She waited a whole month for an interview. Then another whole month to hear if she got the job or not as they checked her record for any smudges. Then another full week to call and ask if it'd be possible for her to start in three weeks time.

The US federal government, as you would imagine is a bureaucratic mess. But she was finally accepted. She will be receiving a $15,000 more at this new job versus her old one. She will also receive superior health, vision and dental benefits. And since it's a public sector job she's essentially tenured after a year's time. There is also a clear and easy pay grade system, so she can calculate exactly how much she'll be making in two years time.

While I'm not exactly sure how well other federal institutions treat their employees, if you're looking for a new job anyway, it's definitely worth a shot. Especially if you have an education or a good amount of private sector experience under your belt.

• USA federal job portal
• Australian federal job portal
• Canadian federal job portal
  

Sure. It'll probably be a longer process to score one of these jobs versus something straight out of the employment section of the newspaper. But with the potential to get something with such great benefits? It's definitely worth it.

Arming yourself: Buying or leasing?

At the present there are two ways for you to obtain a car outside of a shady newspaper advertisement with some residential address or a "for sale" sign in someone's passenger side window. You can either intend to buy the car outright either with cash or some sort of financing agreement or combination there of, or you always have the option to lease an automobile.

When you outright buy a brand new car you sign a great deal of paperwork and either fork over a certified check for the full amount of the car, or you provide a relatively small down payment and arrange for some sort of financing agreement with a major lender. Leasing is a whole other matter that has it's pros and cons. Is it right for your financial situation? And what is leasing, anyway?

When a car leaves the lot, it loses value. It may be a brand new car with a grand total of zero miles on the odometer. And even though it's essentially the same car a mile down the road, minus your butt imprints on the driver side seat, it's essentially used. It cannot be sold again as a new car. It undergoes something called depreciation. No matter what you do, no matter how well you take care of the car, you cannot reverse the process.

When you lease a car, you're not paying for the value of the car. Nor do you ever actually own the automobile outright. You're essentially paying the depreciation value plus a small interest charge so someone else can resell the car when you're done with it without incurring some sort of financial loss. When your lease is up, you turn in the car to the company you're leasing it from and shop for a brand new one to replace it.

Both buying (with and without financing) and leasing have definite advantages over one another, advantages that you should certainly take into consideration before arranging to replace your transportation. The over all monthly payments may be relatively small compared to the over all value, but a car is likely the second largest purchase after a home that most people will ever make in their financial life time. It can make or break most people, so it's important to figure our what decision is best for you.

Let's examine some of the advantages and disadvantages.

Buying Advantages:

• When you're done with your monthly payments, that's it. You completely own the car. You no longer have to worry about paying it every month. And chances are the car still runs pretty well with all things considered.
  
  
• Since you own the car outright you can either save the monthly payments, forward it to your other debts, or purchase another car should you somehow find the need. This is a great option when a teenager reaches legal driving age, you can provide them with the 5 year old family car that's been paid off while you find something a bit sportier. Since most kids can't concentrate too much on a job, they'll only have to worry about their insurance payments and maintenance.
  

Buying Disadvantages:

• Lenders will occasionally rake you over the coals with really crummy interest rates and fees, especially if your credit is a little less than stellar.
  
  
• While the car should still be in more or less in working order when your loan is completely paid off, it'll still need more effort to keep it running than a brand new one.
  
  
• If you loan is paid off, it's likely that your warranty (both dealer and manufacturer) have expired. So if something goes wrong, it's almost always going to be out of your pocket.
  

Leasing Advantages:

• You always have a brand new car at all times.
  
  
• You have the freedom to switch it up at will. With leasing it's fairly easy to turn in your Mercury Sable for a BMW roadster, should you suddenly find yourself with the means to support such a drain on your checking account.
  
  
• You'll typically pay less on the same car on your monthly payments to lease versus to own.
  
  

Leasing Disadvantages:

• You'll never own the car.
  
  
• The language, terms and conditions used in lease contracts differs significantly from company to company. You will have to be extra vigilant whenever you sign the dotted line.
  
  
• You'll have to pay attention and make sure you don't violate those terms. Typically leasing a car involves mileage restrictions, accident penalties, and a whole load of really special, neat stuff.
  
  
• You'll always have to pay something
  

Of course when your lease is up you'll have the option to purchase the car you've been using, should you find yourself in a situation wherein you've fallen in love with that beautiful Mustang. Sometimes the purchase price is half the sticker price, sometimes more and occasionally less. In the end, the two kind of even out and become mutually good decisions if gone into with the proper knowledge and know how.

Regardless, you should always examine your current situation and foreseeable future to see what's right for you. But there is always another option. You don't have to buy a car, and you don't have to lease. You can do either or a combination thereof, as always it is your decision.

Arming yourself: Take a page from the credit collectors book

Any heavily indebted situation comes with the rather ugly baggage of dealing with credit collectors. While it's always best to pay everything off immediately and in full there are times when life simply doesn't work that way. You don't always have unlimited money at your disposal. It's quite possible that occasionally in your journey out of debt you'll hit a snag and find yourself out of ammo early in the month and find yourself forced to miss a payment or two.

Whether it's because you were sick the previous week and missed work, or you had to buy a new water heater the end product is the same. You missing a payment and someone noticing. If you ever find yourself depressed, thinking no one cares, try missing two payments to American Express. You'll quickly find they're very "concerned."

The day after your missed payment was due certain mechanisms begin to go to work in the background. While they vary slightly from corporation to corporation, they essentially boil down to:

• Grace period: Creditors know the mail isn't perfect. So they'll likely stay quiet the first couple of days after your missed payment, hoping that it's just unprocessed or will arrive shortly.
  
  
• Internal Investigation: Your account is flagged in a computer as being late. An auditor will review your file at a glance and determines whether or not it's worth sending you to collections. If you've been a loyal client in terms of making your payments on time, they'll likely extend your grace period. If you are consistently late or regularly blow off payments all together, you'll be moved to the next step immediately.
  
  
• Internal Collections: Your account is referred to employees within the company who specialize in collections. These people may be altogether unsavory folks, or polite representatives. They're likely of the same nationality as you (i.e. you haven't been referred to an outsourced person, yet). Most of the time they're just giving you a courtesy call, reminding you that payment was due.
  
  
• External Collections: This is where most people begin getting worried and angry, where the stress builds up. If you miss several payments, your creditor may hire a third party vendor to collect your owed money. While you still owe your creditor the money, they don't want to waste their time and energy on you any longer. These are the folk hired by your creditors to get the money train moving again.
  
  I've found that it's nigh impossible to find a third party collector that isn't almost entirely outsourced. The vast majority seem to employ vast quantities of Indians. But some employ nationalities you wouldn't think would be good outsourcing candidates. Like Ireland, Mexico, and Canada.
  
  Which is not to say that Indians and the Irish are bad people, but occasionally the vendor will invest in bad quality land lines and speak with an accent. This makes the process very difficult.
  
  
• Selling of your debt / Litigation: The last step. It goes no further than this. This is where your creditor writes you off as a total deadbeat. Depending on the amount you owe they'll do one of two things.
  
  The most likely is selling your debt to another corporation. They'll essentially sell your payment to another corporation for a part of your amount due. So if you owe $2,000, the other creditor will buy the right to collect that sum in full for something like $1,000.
  
  The second (and more painful) option at your creditors disposal is the litigation process. If you owe a lot, they may be within their rights to hire a semi local lawyer to drag you to court. Your original creditor still handles your account, but they really want their money. Enough to hire a $200 an hour lawyer. It's more of a scare tactic than anything, but there's a very real danger of being taken to court. As it marks your last chance to resolve the issue, this is where you should play along if you've let it get this far.

Whether it's internal, external or selling of your debt the people you speak with on the phone are going to use some specific pieces of language to obtain what they want. Their goal is to make you trust them so you'll get the money moving again. Or if that doesn't work, intimidate the hell out of you so you're too terrified of what might happen to keep withholding payments.

If you owe money, your best option, under every circumstance is to pay it back. No matter what step in the process you're in. It doesn't matter. Even if they're the minimums. Even if it's less than the minimums.

Do whatever you can that you can handle. Why? Because if you ever do make it to the litigation process the judge will see that you're at least making an effort. He'll be a lot more partial to your situation if he sees you can't pay it all, instead of you just not wanting to pay.

As such, all my advice below this point assume you're doing just that. These are some favorite tactics I've picked up in my journeys. They don't represent a full list, but rather the most obvious and common.

• "Oh, believe me [obvious statement]" "Oh, trust me, [obvious statement]": This is the most transparent ploy it's almost laughable. This is where they attempt to build a rapport with you by showing you that yes, indeed, they are an intelligent and trust worthy person. Because they know stuff! But in my experience it just fails and makes them look like amature con-men. Why? Because the facts are so obvious.
  
  They'll use lines like "Oh, believe me. I don't want your money for myself. I'm just doing my job." Or "Oh, trust me. This is your best option is to pay this debt."
  
  You know these things. They're hoping that you'll draw a mental connection between obvious, self evident facts and your designated representative.
  
  How do you turn the tables? Use the same language back. Tell them "Oh, believe me. I want to pay this debt off in full. Trust me, I really appreciate your efforts."
  
  When you do this you're essentially telling them that you can't bullshit a bullshitter. Pardon my language, but I think that's the most appropriate term.
  
  
• "You've made a commitment to [statement]": Whether it's "to pay this in full" or "that you'd]send payment by x day" the end result is the same. They're reminding you made a legal obligation or a personal promise that you've now broken, or are on the verge of breaking.
  
  Which is all well and good. But chances are if you're doing the best you can manage, that's the best you can manage. Remind them that yes, you apologize, but occasionally unexpected things come up. That you're doing the best you can possibly do given the circumstances.
  
  
• "Well, I did you this favor by [fact]": They're trying to tap into your underlying morality here. They're essentially saying that since they were gracious and good enough to cut you a little slack, that you should make up for it by doing whatever little thing they want you to do.
  
  A prime recent example is my American Express Green Card. Amex has forwarded my account to a third party collector. I still owe American Express the money, but they're paying a corporation with a generic name and Indian staffers to get me moving faster on payments.
  
  Which is impossible, because if I was capable of moving faster I would be. But that's besides the point.
  
  They somehow got a hold of my cell phone number. I use it heavily for work and I don't need a collector harassing me on the go, so I told them (not ask) not to call my cell phone (as they frequently were doing). It is everyone's right to refuse to be contacted via any telephone number. I informed them that they may only contact me by mail or by my home telephone.
  
  They apparently considered this a "favor" on their part. It wasn't. It was a legal obligation. Chances are if they've done you a "favor," it's something they're legally required to do. Treat it as such.
  
  
• "What do you want to do, then?": This is often used when the telephone conversation is nearing its end. It's a simple question. But a lot of people I've talked to always find it a difficult one to answer. I don't, simply because of the fact that I've planned my financial recovery extensively. I know what I want to do. Most often than not it involves staying the course.
  
  Answer honestly, but above all else never say "I don't know." You're putting yourself at a disadvantage. You're showing them that you're weak and can be potentially manipulated. If you really don't know what the best solution is, simply say "I need to talk to my significant other before making any financial obligations." Or "I need to consult my checkbook and budget." Because at that point you do.
  
  If you need to put the ball back into their court. If they're unhappy with your answers, ask them "Well, what would you like me to do?" If their answers are reasonable (and not the obvious "Pay this amount back in full, right now over the phone"), take it under consideration.
  
  
• Using the opposite sex: I'm often a very laid back, well composed guy. It takes a bit to make me lose my cool. But this genetic named, Indian staffed corporation employed by American Express always has difficulties with me. I'm always fairly polite, but I don't move an inch unless the missus and I have had a chance to discuss the issue jointly and their proposed action benefits us in some way. I'm a stubborn rock when it comes to that.
  
  Why? Because they're pushy and arrogant. Because they call on the cusp of illegality. Because they brazenly try to force the missus into decisions without consulting our budget or me. Telling her that "it's best we handle this right now without any further delay."
  
  It's not even my card. They were so difficult to deal with she had to essentially make me power of attorney so I could take that stress away from her. And the worst part of it all? We're paying above our monthly minimums consistently and on time. And they're aware of this.
  
  Because of my difficult relationship with them I am contacted without fail by females. These women all have Indian accents and cookie cutter, Americanized names like "Sarah Jones" and "Jane Smith" and "Sue Jones." Apparently it's a very common surname in India, Jones. Who'd of thought it?
  
  And the missus? All calls for her are from "John Smith" and "Peter Johnson" and "John Williams." I'm not sure what they're looking to accomplish. Maybe they feel I'll be more likely to "compromise" if I'm speaking with a woman. At the least less likely to tell her to screw off and stop harassing me because I'm doing nothing wrong.
  
  How to combat it? Simply be aware of the fact that's what's happening. Monitor your responses and make sure they're not altered because of a sultry/strong voice.
  
  
• Over the phone checks: I'll often get asked to "secure payment" over the phone. I'm regularly assured that they'll be electronic checks post dated to whatever day I'd like. Problem is, I'm not comfortable giving out my checking information over the phone to a company who has in the past been pushy and manipulative. Go figure.
  
  How to combat it if you're not comfortable either? If your amount due hasn't been sold to a third party simply ask them "So, if I sent my payment in full to [insert creditor] they'd shred the check?" They'll answer with "No, of course not." followed by a long winded rhetoric about how you're valued and respected. What they're looking to do is gather some information that they can give your creditor so they can get paid.
  
  So pay your creditor as much as you can, on time and directly. Whether this is over the phone with their official 1-800 number, online, or through paper checks it doesn't matter. Eventually they'll get the idea that their affiliate isn't doing anything and they'll instruct them to cease the harassment

No matter the amount, the type of debt owed, or the nature of the collector always keep in mind that each and every response, question and statement you make is being recorded and flagged appropriately. So be polite while retaining some strength and remain if only a little unaccommodating. So long as you're firm and intelligent in your dealings with credit collectors, you won't have to worry about them for very long.

Arming yourself: The Debt Snowball

Throughout my financial travels I've encountered a lot of advice. Most of it has been propagated by bloggers and financial planning portals, but a fair bit of it stems from financial self help books that I've borrowed, caught snippets of online or have been given.

The advice varies from fantastic to simply wretched. But I've never encountered something as controversial and interesting as the debt snowball. There are a lot of people who swear by it and state that it's saved their financial lives. But on the surface it appears to be a rather simple plan outlining how one is better off potentially paying lower interest rate credit card balances first instead of the other way around.

The opposite, more traditional method seems to be the most logical.

1. Order your debts in descending order from highest interest rate to lowest
2. Pay minimums on all debts, no matter how small the balance
   
3. Throw everything you can possibly manage at the highest interest rate until it's sleeping with the fishes
4. When the highest interest rate balance has been knocked out, focus on the next debt

It is after all what most good, nonprofit consumer credit counseling services do the second you walk into their lobby with a heavy stack of bills. So it stands to reason that it's the right thing to do. It'll save you more money over the long term.

But the debt snowball approach doesn't seem that logical at all.

1. Order your debts in descending order from lowest balance to highest.
2. Pay minimums on all your debts, no matter how high the interest
3. Throw everything you can possibly manage at the lowest balance until it's sleeping with the fishes
4. When the lowest balance has been knocked out, focus on the next debt

This is the point. Humans are not logical creatures the majority of the time, nor are we very patient. It's extremely difficult for someone to stay the course, especially if they see little or no progress immediately. Plans that require a lot of time to unfold and show results are typically plans that end up in the rubbish pail rather quickly.

The debt snowball takes this into account. It's main driving principle is that you're tired of all the collection calls, nasty letters and angry lenders. So you want results and you want results now. It uses this energy and directs it at your problem.

So instead of feeling like you're always on the defense, you feel like you're aggressively tackling your problems. You feel as if you're now in control of something, where as before you were merely muddling through.

Chances are you have one or two rather small balance credit card debts if you're in financial trouble with the big four (American Express, Discover, Visa and Mastercard). Mine has been a measly $200 department store credit card I obtained from Macy's two years ago to receive a discount on a sapphire bracelet.

The missus also has one in her name. A Lane Bryant card for a puny $330. Since these balances are so low, their minimums were $10 to $30 a month. It'd still take forever to pay them off.

If we employed the debt snowball method of paying off our balances, we could have seen two positive results immediately. There's no question that we could have paid off $530 in one swoop if we weren't directing every spare penny at our highest interest credit cards.

It would have given us some positive feedback to fuel our future efforts.

Beyond those two? The next lowest balance is a Bank One card for $1,368.86. That seems like a lot, but now that we've eliminated $530 of our debt we can direct all that Macy's and Lane Bryant energy at it. It'd be paid off within three months, maximum.

After that we'd have even more a month to attack our next highest balance. And so on.

We're going to begin our implementation soon. We've researched the matter and we've both agreed we're the type of people who desperately need the positive reinforcement that a debt snowball will provide us with. Not only that, but it'll give us goals to strive for.

Our game plan is as follows:

1. Order our credit card debts from lowest to highest balance
2. Commit to monthly minimums on everything to prevent further stains on our credit report
   
3. Commit to our budget, including debt related agreements we've entered into
4. Pay off the smallest balance first before even thinking about the second smallest balance
5. Repeat until every last penny is paid for in full.
   

If we follow this model we'll have six of our eleven credit card debts knocked out by this time next year.

Versus three out of eleven if we follow the more traditional model.

So if you think the idea is a good plan for you, research the issue a bit more. If you think you're the type of person who'd benefit from this alternate model of paying off your debts, do so. Tell me how it works out for you.

Further reading:

• Wikipedia: The Debt-Snowball method
• Get Rich Slowly: In praise of the debt snowball
• Dave Ramsey: A great way to get our of debt
• What's The Cost: Debt Snowball Calculator
• The Simple Dollar: The Debt Snowball Concept
  

Have you employed this method in the past? Do you have some criticism about this solution? Say so in the comments and I'll link back to your blog in my next post!

Arming yourself: The car

This short series will likely consist of between 4 - 5 posts spread out over the course of several months. All will deal with ways to aggressively solve your money problems. Some of them are designed more for your mental well being than anything, which is admittedly a big part of the problem. But some of them will be a bit more practical, while others take a more "out of the box" approach.

If you're in the process of paying off your debts there is bound to be a point where you are capable and willing of switching into an aggressive mode to finally put those outstanding balances to rest. When you enter into this arena you're going to need a couple of tools of the trade to grease the wheels of economics.

Up until now you've managed your budget to varying degrees of success, you've cut your expenses back and you're monthly payments are starting to tip above the minimums. Now is the time to start bringing the hurt to those scary numbers.

A tool often over looked by those within financial crisis is the car. A car loan will likely be the second largest loan the average person will take out during their life time next to a home mortgage.

Both loans are typically secured debts, unsurprisingly. Simply put, a secured loan is one you enter into wherein some form of collateral is offered. This is to assure the lender that if you are unable to make successful payments, they have a shiny new toy they can resell to pay off your delinquency.

Because of this fact, the car and home mortgage are payments that likely take precedent over everything else in your life. For good reason, too. You don't want to lose your car or your home and you don't want that terribly ugly "repossessed" mark on your credit report.

But wouldn't it be nice to knock one of them out of the park? Paying off a $250,000+ home loan while you're in the hole is likely impossible. But car loans are a different story. It's substantially less than a home loan.

Depending on your model, credit score, interest rate and payment plan your monthly payments can average between 200 to 500 dollars every month. If you were able to reclaim that money, it's just like getting another job. You have an extra $6,000 a year to throw at your creditors.

So, do just that. If it's within your means and the remaining balance on your car isn't sky high, focus on it. Pay it off as soon as you can. When your monthly statement comes in, tack another $100 onto each check you cut. Even more if it's even remotely feasible.

And after it's paid off, drive it until the wheels fall off.

A lot of people are programmed to start shopping for a new car after their old one is paid off, or heaven forbid, before their old one has been completely paid off.

Sometimes this is necessary. Often it is not. Car loans are relatively short term, typically only 2 or 3 years. This is not the life time of an automobile. Chances are the dealer you trade it to is going to resell it to some poor guy after it's been cleaned and tuned up.

This is the point where people sigh and say: "But I won't have to worry about repairs on a new car.."

Which is a very valid point. But if you pay off your car completely and it is fully in your name, you don't have those ugly monthly payments any longer. You have less debts attached to your name, and thus your credit score increases.

So, as long as your repairs do not meet or exceed your previous monthly payments, you are saving money. You can then use that extra cash to pay off some of your other debts

Shelling out $500 to a repair shop may seem like a lot, but you're likely not going to be doing that every month. And since you have direct control of the vehicle, if for whatever reason it begins to cost more in maintenance that you're comfortable spending, you're completely free to trade it in for a new one.