Decide what’s more important

This starts with taking a hard look at how you spend your money. Everyone has their thing: coffee at Starbucks, eating at Olive Garden, etc. You have to think about what you can do without.

Cutting out the expensive coffee and making your own can save you about $4 of coffee a day. That’s $28 a week or $1,456 a year. You can also save just as much by bringing your own lunch to work instead of eating out at expensive restaurants.

Downgrade where you can

This requires a bit more of a sacrifice. But when you’re knee-deep in debt, a bit can go a long way. Downgrading where you can, like having one car and one house, can save you much money.

For example, a car loan can cost you about $450 a month. By getting rid of that car, you can save up to $5,400 a year. And if you include insurance and gasoline expenses, you can save as much as $2,140. Imagine how much you could save if you got rid of both your cars and just commuted instead.

No money, no problem

We can’t help ourselves when it comes to urges. Sometimes we just want to get things because we simply like them. That’s alright. But sometimes, the things we want are just way too expensive. The best way to deal with this is to remember: if you don’t have enough money to get something you want, then you don’t need it.

This can be hard sometimes if you have a credit card because credit cards can get you things you can’t afford. What you can do is to leave your credit card at home and use it only for emergencies.

Best isn’t always better

When it comes to items, you don’t always have to have the best of the best. Yes, the latest iPhone looks cool. But surely, you can do without something that costs $200. You can invest in a simpler, cheaper phone. It might not have the cool apps of an iPhone but at least you can still use it to make calls.

When getting rid of debt, discipline and good judgment are what you need. With a bit of sacrifice, you can easily get rid of debt. In the end, you’ll realize, life is even better when things are much simpler.

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An Example: Blood is thicker than water

The wife’s family needed to borrow $16,000 to keep her parents in their house and her brother and sister in their apartment. The family had promised to pay the couple back $500 each month. After four years, they haven’t paid a single cent. The husband is now thinking about taking legal action.

The husband doesn’t want to cause any problems with his wife, but going to court is definitely not the answer. This situation can lead to hurt feelings, a damaged relationship and maybe even financial ruin. And that’s the last thing you need when dealing with family or friends.

What to do

From the creditor’s perspective, the best thing to do in a situation like that is to approach the borrower and ask what’s wrong. After all, there might be a perfectly good reason why they’re not paying. A display of concern is often a good way to introduce a sensitive subject.

The answer might make things better, but it can also make things worse. You should first look for a solution that doesn’t involve the courts, unless you feel that it really has to be done.

From the debtor’s point of view, if you are borrowing money from a friend or family member, you should pay them back – no excuses. One such person who needed to borrow money from a friend went as far as making a spreadsheet detailing how much he would pay his friend back each month just to show that he was serious about it. Never borrow more than you can repay.

Other alternatives

Make the transaction as objective as possible. Writing up a contract, for example, will protect both parties.

Another alternative is for the borrower to have collateral. This will not only motivate the borrower to pay up, but also easily solve any debt problems, should they arise.

The bottom line

Even with all the possible safeguards, loaning or borrowing money from family or friends is never a good idea. But if you really need to, be sure that you can pay them back.

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For one, paying on time helps keep your credit score up, but wiping out your entire balance or closing too many accounts at once doesn’t.

But how does one calculate a score?

Well, one major factor in calculating your credit score is through the credit utilization ratio. The credit utilization ratio is the total amount of credit someone uses in a month, compared to the amount of available credit they have.
But the credit utilization ratio is often calculated from the total on the statement date, not the due date. So even if you pay balances in full every month, a card issuer may report a balance. And that can hurt your credit score.

Thankfully, here are five ways you can improve your credit rating.

#1 – Pay bills before statement date

First, it is important to know that how much you owe is 30 percent of your score and that the utilization ratio is a large part of that.

The balance as of your last statement date is the balance that will report to the bureaus. So if you pay most of the bill before the statement date, you can lower your utilization rate. And that can translate to a higher credit score.

Now even if you charge a balance every month but pay it off, some lenders don’t use the balance on your statement date when they report to the bureaus. Instead, they select another day and report the card balance on that date instead.

The only way to know when the balance gets reported is to ask your lender.

#2 – Make multiple payments

Another way to lower the balance on your statement date is to make regular payments throughout the month.

For example, if you use your card throughout the week for everyday expenses and pay it off every Friday, you will cut the amount of credit you are using. If you follow this method, find out first how your card issuer handles multiple monthly payments. Your card could place a limit on the number of times you can pay in a month.

Always remember: the lower the balance on your credit report, the better.

#3 – Ask for a ‘good-will deletion’

If you only have one or two bad marks on your credit record, you may be able to remove them by asking for a “good-will deletion.”

For example, you paid late this month, but you’ve always paid on time. When this happens, you can ask your lender (starting with customer service, and then go up the ladder if it doesn’t work the first time around) for a “good-will deletion” and he or she can remove that from your record.

Do note that this only works for those who usually have a good credit history.

#4 – Pay for deletion

If you have an account that’s gone into collection, sometimes collectors will agree to remove the debt from your credit report if you agree to pay it off.

But first, get a letter on company letterhead that states that the collector will remove the debt from all three major credit-reporting agencies before you agree to pay for anything.

#5 – Protect yourself in a short sale

After a short sale, the mortgage lender will normally report to credit bureaus that the home loan was settled for less than the full amount. This will be shown as “balance owed” on the credit report.

This will definitely damage your credit score. But you can lessen the damage slightly by arranging with the lender not to report a balance owed.

The best time to do this is before or during the short sale process.

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From ’06 to ’09, the credit score was sliding. At the end of 2010, the national average was 747.10 (based on a scale of 501 to 990).

So how is the national credit score stabilizing? We look at the top 10 cities with the highest credit scores.

Sioux Falls, South Dakota

Once an agriculture-based economy, Sioux Falls, with a credit score of 773.44, is now more diverse. Financial services, health care and retail are now important sectors. Its biggest employers include Avera Health, Citigroup, Sanford Health and Wells Fargo.

Real estate is significantly lower than the national average, as is the cost of living, which is 12.6% lower than the national average. Sales tax is 5.9%. There is no state income or corporate tax.

Fargo, North Dakota

Fargo’s economy, which used to be mainly agricultural, now includes education, health care, food processing, manufacturing, retail and technology. That is why its credit score is 773.85. Fargo is also a college town, the home of North Dakota State University. Its biggest employers are Blue Cross/Blue Shield, Microsoft, Sanford Health and Swanson Health Products.

Real estate is lower than average and cost of living is 10% lower than average. Sales tax is 6% and income tax is 5.54%.

Harrisburg, Pennsylvania

Harrisburg comes in at number eight with a credit score of 775.59. Harrisburg’s economy includes health care, services and technology. Largest employers are Hershey, Penn State and Tyco Electronics.

Household income is lower than average but so is real estate (less than half the national average). Cost of living is 19% below average. Sales tax is just 6% and income tax is 3.57%.

Seattle, Washington

Seattle has a huge industry-based economy with companies like Boeing, Amazon, Microsoft and, of course, Starbucks. It’s also made a name for itself with technology start-ups. So there’s no wonder it’s credit score is 775.66, seventh on the list.

Seattle has the highest real estate price and cost of living (43% higher than average) among all the cities on this list. Although unemployment is above 9%, average household income is much higher at $57,390. There’s no state income tax and sales tax is 8.9%.

Lincoln, Nebraska

Lincoln’s credit score is 776.16. It’s a college town, the home of University of Nebraska-Lincoln. It also has a diverse economy including banking, medical, technology and services. The city’s largest employer is BryanLGH Medical Center, as well as restaurants like Amigos, DaVinci’s, Runza and Valentino’s, all of which started there.

Real estate is low and cost of living is below 17%. Household income is below the average though. Sales tax is 7%, income tax is 6.84%.

Boston, Massachusetts

Boston’s economy is mostly education. The city holds more than 100 universities including Boston College, Harvard, MIT and UMass. Banking, financial service and publishing are also big here. The city is also home to Gillette, New Balance and Liberty Mutual. Boston’s credit score is 777.79.

Household income is just shy of the national average while real estate is double. Cost of living is also high (63% above average). Sales tax is 5% and income tax is 5.3%.

San Francisco, California

With a credit score of 779.26, San Francisco is fourth on the list. San Francisco’s tourism industry is the biggest contributor to its economy. It’s financial and tech industries add to the economy with companies like Craigslist, Twitter and Wells Fargo.

Income is higher here than average. Home prices are three times higher than average and cost of living is double. Sales tax is 8.5% and income tax is 9.3%.

Minneapolis, Minnesota

Minneapolis comes third on this list with a credit score of 784.12. Formerly a flour milling and timber town, its economy has diversified and now includes health care, finance, retail and transportation. Ameriprise Financial, Target and US Bancorp are based here as well as the Mall of America, which has helped with the city’s tourism.

Home prices are cheap, but income is lower than average. Cost of living is 3.7% higher than average. Sales tax is 7.15% and income tax is 7.85%.

Madison, Wisconsin

A big college town, Madison has the second-highest credit score with 785.30. Madison is home to the University of Wisconsin at Madison. Education is one of its biggest industries, with 50% of its population having a college degree. The largest employers include Spectrum Brands, Alliant Energy, American Girl and Oscar Mayer.

Real estate is cheap, though income is lower than average. The cost of living is nearly 1% above average. Sales tax is 5.5% and income tax is 6.75%.

Green Bay, Wisconsin

With a credit score of 786.06, Green Bay holds the highest credit score. Green Bay’s economy includes manufacturing, health care and education. It’s also home to the University of Wisconsin at Green Bay and the NFL champions the Green Bay Packers.

Although the household income is lower than average, the cost of living and the cost of homes are way lower than their respective national averages. Sales tax is 5.5% and income tax is 6.75%.

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What’s on the minds of most veterans these days is looking for ways to make ends meet. Some might even already be struggling with debt. But managing debt doesn’t have to be difficult or complex. Here are some ways veterans can manage debt.

Apply for streamline mortgage

Veterans with mortgages financed through a VA loan may qualify for the VA Streamline Mortgage Loan. It is also referred to as an interest rate reduction refinancing loan. The difference between this loan and other refinancing loans that are on the market is that other loan companies may be able to offer a great interest rate, but it could be temporary. As soon as the market turns around, that rate could skyrocket, which becomes a burden. The VA streamline mortgage, however, maintains a permanent, low rate.

In April, the interest rates dropped to a record low 4.25%, which means you could save anywhere from $425 to as much as $2,550, depending on the amount your loan is for. With that amount you can set aside some, if not all of it to pay your debt.

Also, if you have any equity in your home, you could use that to pay off high-interest credit cards or even car loans. Consolidating debt is a great way to get ahead on bills and stop paying your hard-earned money to high revolving interest.

Shop around for insurance

Another way you could save money is to shop around for car insurance by getting rid of unused protection so you can reduce your monthly premiums. While you’re at it, shop for cheaper health insurance and homeowners insurance as well.

Take advantage of other benefits

Did you know that having a monitored home security alarm in your home could save you 20% on your homeowner’s insurance costs?

Since an insurance company insures risks, they may reduce the amount of premium Veterans pay for coverage when the risk is lowered on a home.

The alarm systems are free, as well as the upgrades for older alarm systems. And the home alarm fee is reimbursable. Moreover, by applying, you also protect your family and your assets. If you want to know more about how a security alarm can save you money, speak to the representative of the insurance company you want to be insured with.

Budget

Lastly, there really is no better way to save money than by budgeting. Look at what seems to be costing a lot of money that perhaps you could live without (e.g. daily spending). Set a reasonable budget and limit yourself to those set amounts. In the end, it’ll be all worth it.

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But if that statistic isn’t bad enough, residents in some cities owe much more than the national average. Here are the top five cities with the worst credit card debt statistics:

San Antonio – Residents in this city average around $5,177 worth of credit card debt. That is 20% more than the national average. Although San Antonio has a low unemployment rate, Jeanie Wyatt, chief executive of South Texas Money Management suggests that many of the workers in the city are mid- to low-wage earners. And statistically speaking, she stated that “lower-income individuals tend to have a higher percentage of credit card debt.”  

Jacksonville, Fla. – Aside from a whopping $5,115 worth of credit card debt, Jacksonville residents are also burdened with credit scores that are lower than the national average. David Jones, president of the Association of Independent Consumer Credit Counseling Agencies, puts the blame mostly on the mortgage crisis and the high unemployment rates in the area.

Atlanta – Residents in this area have an average credit card debt of $4,960. According to experts, Atlanta was one of the hardest hit cities from the mortgage crisis and corporate lay-offs.

Honolulu – Ranked eighth overall last year, the debt situation in this city climbed to number 4 with an average of $4,939. However, these stats are misleading. Unlike the other cities in the list, Honolulu residents have a higher credit score than the national average. Hence, most people in this area are granted higher credit limits, which could explain the high credit card debt average. The good news is that Honolulu residents are mindful of the way they use their credit.

Dallas – Residents in Dallas have credit card debt 15% higher than the national average – totaling $4,936. They also have one of the lowest VantageScores nationwide. The vice president for public education at Experian Maxine Sweet explains: “when you have consumers who are in crisis with foreclosures and employment — that has to be driving up their credit card debt.”

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The Department of Labor’s Unemployment Insurance gives assistance to eligible workers who have lost their jobs through no fault of their own. These benefits are temporary. They are granted to those who meet State and Federal requirements.

Why Do I Need This?

If you lost your job during the recession and it wasn’t your fault, unemployment benefits can help you get back on your feet.

Registering with the State Employment Service

People who use unemployment insurance may be required to register with the State Employment Service. It can refer you to job openings in your area or to other states if you are willing to relocate.

Those who aren’t required to register with the State Employment Office may still ask for their assistance.

Do I Qualify for Unemployment Benefits?

Each State runs their own unemployment insurance programs, following Federal guidelines. Specific requirements may be different for each State. The general guidelines are as follows:

•             You must meet the State requirements for wages earned or time worked during an established period. In most States, this is usually the first four out of the last five completed calendar quarters before you filed your claim.

•             It must be proven that you are unemployed through no fault of your own under State law. You should also meet other State eligibility requirements.

How do I Apply?

Filing for an Unemployment Insurance claim may be done online or through the phone. Should you qualify, it might take up to three weeks before you receive your first unemployment check. It’s important to file a claim immediately after you are laid off.

You will need the following:

•             Social Security Number

•             Alien Registration Card, if you’re not a US citizen

•             Mailing address, including zip code

•             Phone number

•             Names, addresses and dates of employment of all your past employers for the last two years

For more information, please click on this link to be taken to the proper directory.

Recently, American Express announced its new digital payment platform, called Serve. This puts the third-largest payment network in the forefront of electronic wallets, along with other payment networks such as Visa and PayPal. MasterCard and Citigroup are also planning to join this trend. There are reports that they will join forces with Google for a similar smartphone payment service.

The Good

An e-wallet gives consumers a new payment option. Normally, customers need to confirm their credentials, such as credit card numbers and mailing addresses, when purchasing online.

But with an e-wallet (such as AmEx’s Serve), you can buy online without submitting payment credentials. E-wallet users can also send and receive money. All this can be done through their iPhone or Android smart phones.

MasterCard’s proposed e-wallet service has other planned options, such as direct payments using iPhone or Android smartphone. This can be done through contactless card readers. Waving your phone to buy something is now possible.

Finally, you can easily access information online with a computer or a smartphone. No more trips to the bank or the ATM to check your balance.

The Bad

Credentials are used for credit card protection purposes. And though smart phones are traceable and can be protected by passwords, they can still be stolen.

Unfortunately, an e-wallet can also make it easier to buy on a whim. You need self-control, unless you want to end up with more debt than you can handle.

The Lowdown

The e-wallet definitely provides a new way for consumers to buy items without pulling out their wallets for their credit cards.

This is good for banks, since they can provide their customers with more spending incentives. However, this can be a problem for compulsive spenders.

Sign up at the box on the right for more financial options you can use.

SOURCES: http://news.consumerreports.org/money/2011/03/american-express-serve-electronic-online-mobile-payments-paypal-google-smartphones.html, http://www.bloomberg.com/news/2011-03-28/amex-pushing-expansion-challenges-visa-paypal-with-e-wallets.html, http://www.businesswire.com/news/home/20110328005791/en/American-Express-Announces-ServeSM-Generation-Digital-Payment, http://online.wsj.com/article/SB10001424052748703576204576226722412152678.html, http://news.cnet.com/8301-13506_3-20047792-17.html

These days, it’s not a surprise if you feel that you may have to prepare for a round of credit card or home loan debt relief or modification. Whether or not you’re using the services of a credit counseling agency or you’re simply doing it on your own with sheer willpower, the issue here is that you should think about all possible solutions beyond the idea of simply tightening your house budget’s belt.

So, before any contact by you or your debt counselor is done with your creditors, here are some options you should discuss with your debt counselor, your family and loved ones.

Here are some ways to get some well-deserved relief from debt.

Work out an installment agreement. Many times, the best way to get rid of debt is to simply own up and say, “I don’t have the money right now.” Rescheduling your payments is usually preferable to you declaring bankruptcy and not paying anything. Just remember though, your credit rating will surely take a hit.

Partial payment or an Offer in Compromise can also leave you in the clear. In some cases, you can successfully negotiate for a partial payment. This means that part of the debt is forgiven, and as long as you diligently pay what’s left, you will be free of debt the moment the last deposit is given in. The difference in both is that an OiC is set in stone until the debt is paid, while a partial payment is regularly reviewed.

Go for “broke.” The final card you can play really is by declaring bankruptcy. However, you should be ready to accept that fact that once you do this, your credit rating will be down the tubes for the next few years. It’s not a pretty solution, but at least you’ll be able to walk away with a relatively cleanable slate.

LINKS

Pointers for mortgage debt relief: http://www.irs.gov/newsroom/article/0,,id=205004,00.html

Taxes and your cancelled debt: http://www.irs.gov/app/vita/content/36/36_02_005.jsp?level=advanced

Credit card debt cancellation: http://www.irs.gov/app/vita/content/36/36_04_005.jsp?level=advanced

Sign up on the box at the right for more options you can use for debt relief and modification.