This guest post was provided by Kyle Chezum, a content specialist at Lender411 – a firm that helps homebuyers compare mortgage rates, find local lenders, and locate the best mortgage packages available.

I’m 22 years old – and I’m buying a house. This may come as a surprising feat to some of you. According to a study released by the National Association of Home Builders, the average first-time home buyer is roughly 33 years old. When I buy my house, I will be the exception in that study.

The “Debt-bed”
As part of a company that specializes in matching homebuyers with mortgages, I see deals made around me every day. We’re able to do a stellar job pairing borrowers with lenders but I find myself concernedly hoping that I don’t spend the next 30 to 40 years of my life burdened with a mortgage.

Debt isn’t just a financial impediment – it carries a strong psychological aspect as well. It can brood over you and contribute to your fears of what lies in the future. It can kill passion and excitement.

• If you’re stuck in debt, you’re stuck in a job – you have to keep making those payments every month.
• If you’re stuck in a job, you’re most likely stuck wherever you live – you can’t quite and move across the nation, or relocate to Europe, or drop everything to make a wild attempt at becoming a rockstar.
• If you’re stuck wherever you live, that’s where you’ll wither away. Simple as that.

I know this sounds morbid, but in my opinion, this is what the future looks like under the shadow of debt. “Opinion” is the operative word here. Some people don’t mind debt. Most of the clients we work with each day do not mind it too much, or they wouldn’t be working with us. That’s fine. But I guess I’m kind of a rebel.

A Rigorous Plan
I’m buying a house. But not with a mortgage – not if I can help it. My goal is set on making a 75% down payment on the day that I purchase my home. Sounds impossible?

Here’s how I plan to save for this down payment:

1. I went to my bank a while back and set up a dedicated savings account. I told myself that as soon as any money entered that account, it was never coming back out. This savings account is my house fund.
2. I get two paychecks each month. Of those, the first goes immediately into my savings account. The second is used to pay for rent, utilities, and other significant bills.
3. I start each month with $100 in my checking account – no more than that. I make this $100 last all month. It covers groceries, gas, and other daily expenses.

And that’s it. It works for me. But, everyone has a different situation. I don’t seriously believe that the $100-per-month plan will work for everyone, though if you want to try it, go ahead – I think you’ll be astonished to find what you consider to be necessities.

The following tips are more broadly applicable:

• Budget. If you don’t have a budget, make one. There are a number of simple tools online that allow you to do this. One of the best is Mint.com. Take a few months and just keep track of your expenses – nothing more. See where your money goes. There are probably a few things you can cut out.
• Don’t use credit as income. Avoid credit cards, payday advances, auto loans, and any other short-term debt, if you can. It will always cost you more to use a credit card than it will to use cash. Avoid other extraneous debt.
• Drive a clunker. Forget about buying a brand new car. Get something older, something that runs well but doesn’t have the high price tag associated with that “new car smell”. A mid-90s Toyota sedan, for example, still has tens years of life in it and, depending on the exact car, will only run you a few thousand dollars.
• Don’t do the “luxury vacation” thing. Please don’t. Don’t go on a cruise or on a week-long adventure in Costa Rica. These kinds of trips are beyond expensive. Go on vacation every year when your home is paid off and you’re living debt free. Skip it for now, and those day will be here that much sooner.
• Start saving right now. This is the most important part. You’ll never be ready to save money – just do it.

Say It, Do It
Ultimately, your financial goals and life dreams will serve as driving propellants. Again, if you don’t mind debt, that’s fine. In order to be more financially effective in life, some of you will leverage your assets to some extent. I get that.

What bothers me most, though, is the psychological side. I don’t like debt. Plain and simple. Every month, when I deposit that paycheck into my savings, I tell myself, “I’m buying a house”. Because that’s what I’m doing.

I’m buying a house. Right here, right now – bit by bit. It’s a philosophy, in a way. A constant lifestyle. Movie tickets, dinners out and weekends at Disney World fade into the background. These things aren’t important yet. For now, I’ll work on buying that house.

Simon’s Note: Kyle’s plan is one of apparent extremes. I understand the reluctance to take on debt since interest charges are quite scary. He is doing what he feels is the correct path for him. What he can do may seem impossible to replicate but it isn’t to say that it is unachievable. This is one way to approach a goal. To each their own.

(Photo credit: bendeming)

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This is a guest post by Kris Bickell. Kris is the owner of Debt-Tips.com, a site developed to share the lessons he learned about getting out of debt. Check out his debt reduction calculator and other tips that will help you pay off your credit card debt.

To start off, I’ll admit it, I’m no kid. So don’t think I’m blaming my parents for any money troubles I’ve had over the years. But if they had taught me these three lessons, then maybe life would have been a little easier.

Of course, there’s no guarantee I would have listened to any advice from my parents, but that’s another story.

A friend of mine used to say “too bad credit cards don’t come with instructions…”

What I Wish I Learned About Credit Cards
While most people know how credit cards work, I don’t think they truly understand the incredible impact they can have if you don’t know how to use them properly.

So for those of you who are new to adult life, or if you’ve had money problems and are starting over, or if you’re just stuck in debt and looking for some help digging out of a big financial hole, maybe these lessons can help you out a bit. I know they would have helped me.

So, here are the 3 lessons my parents never taught me about credit cards:

1. Credit cards are way too easy to get. I got my first one while still in college – American Express. Right on the front it says “Member since 1986″ (I told you I wasn’t a kid any more). By the way, what a great marketing tool because who wants to get rid of a credit card with a status symbol like that!

   Sounds cool, right? Actually it was a big mistake. I was a financial “newbie” way back then – with no job, no career, and no way to pay back what I charged on the card. Of course, with AMEX you must pay the entire balance each month, so that part wasn’t so bad. But what was crazy was the message that “Hey, getting credit cards is so easy you can get them even if you don’t have any income!”

   And then over the years you get a few more. Start buying things you really can’t afford. Then start making partial payments. And then you start paying high interest fees each month, so the debt builds up higher even when you don’t charge anything!

   See, these things shouldn’t be so easy to get. Wish my parents had warned me!!! Oh well, on to lesson #2:

2. Credit card companies won’t warn you – or stop you – or help you – when you’re getting in way too deep! I always figured that since I was such a valuable customer that the banks would want to do whatever it takes to keep me.

   Way off base on that thinking! Sure, as long as I kept paying, they would keep me around. But as soon as you’re late on a payment — ZING! — your interest rate goes way up. And if you need to skip a month, well, forget that idea. And if you get to the point of needing real help… then they tell you to call someone else, of course. Or have your card frozen. And you get hammered with late fees, over-the-limit fees, and before you know it your debt is growing by leaps and bounds!

   I know, it’s my fault for getting into financial trouble, not theirs. And the rules are in the terms & conditions. But I was just asking for a little warning, or a little help.

   And I was forced to learn the hard way that I was all alone and it was way too late. My bad, now on to lesson #3:

3. Credit cards should really be used like debit cards. To be paid off in full every month. And you should ignore the credit limit, and instead pay attention to the amount in your checking or savings account.

   Sounds a little idealistic for many people, I know. And not realistic when you get stuck with a huge medical bill or car repair bill, and need help paying it.

   But in the long run, if you don’t use your credit card like a debit card, and you charge more than you can afford, chances are pretty good you’ll get stuck in the good old “debt trap”, where the balance, and fees, and payments all keep going up and up and up …

   And more importantly, you figure out just how hard it is to get out! Just like the banks want (see Lesson #2).

So there you have it. If only my parents had taught me these lessons, I would have done like any teenager and listened very carefully to their words of wisdom, followed their advice every step along the way, and never would have had to deal with debt.

Well, OK, to be honest I probably wouldn’t have listened to most of what they had to say. But when the money issues started, at least I would have heard their words of advice buzzing somewhere in the back of my mind. And avoided some of the worst money issues I dealt with.

Hopefully, you’ll learn a tip or two from these lessons and avoid some of your own credit card disasters!

Simon’s Note: With the new Credit CARD Act legislation, credit cards are much less accessible by young adults under 21 years of age. But afterwards, it is still easy get credit cards and fall into tremendous debt.

(Photo credit: fromcolettewithlove)

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Even with the best intentions, there always seems to be a bump on the road towards financial freedom. You want to save up for this but you also have to pay for that.

Can’t really catch a break can you?

So you and I both have financial goals that we want to accomplish. For me, I’ve been saving up to make Roth IRA contributions. But, I also have to pay off my student loan debt along with some credit card debt. My mind says that focusing on one goal at a time would be easier to stay motivated – since it would serve as a quick psychological win as well.

It turns out that giving my all towards a single goal just won’t work. That’s why so many personal finance experts advise on splitting discretionary income between savings and paying down debt. We must seek to balance the need for a fallback and the need to pay our dues.

Why Not Save, Exclusively
Putting 100% of your spendable income into a savings account will mean that you are paying the minimum towards your debt while the interest rate in your savings account won’t be able to match the interest on your debt. So, it is actually taking a step backwards because you’d be watching that scary interest start to rack up.

• Debt is will literally cause nightmares. It is the intangible “thing” breathing down your neck. It is the reason for worry, anxiety, and the feeling of never being able to get ahead.
• The detrimental mathematical fact is that debt grows bigger with time, which results in a hopelessly downward spiral. You are handing over money (minimum payment) but somehow, the balance continues to grow.

Why Not Reduce Debt, Wholeheartedly
Holding the status of debt-free puts you at the apex among personal finance aficionados. No wonder everyone strives to release themselves of the strangleholds of debt. Once it is achieved, the road to riches is much less bumpy. Obsession with debt repayment is a good thing but don’t dismiss the possibility of putting oneself into even more debt.

• The lack of an emergency fund or some sort or cash safety net is very much like going skydiving over mountains with no backup parachute – there is no room for error. But sadly, we are human and stuff happens (c’est la vie). An emergency fund of cash is easily accessible when spontaneous events occur without having to put yourself into more debt.

Split Between Savings and Debt
Sure, you may reach your financial goals later than you expected but going 50/50 will be a safe, yet productive, approach.

Once a substantial emergency fund of cash is built, it is time to let that debt-free obsession go into overdrive. Chase the psychological wins with your preferred method of debt reduction. Keep in mind to invest in a retirement plan such as a 401k and/or a Roth IRA.

So, the outline would look something like this:

1. 50% towards savings and 50% towards debt
2. Emergency fund established
3. 10% towards retirement and 90% towards debt
4. Debt-free status achieved
5. 20% towards retirement and 80% whatever the hell you want
6. Stay away from credit card debt

There is no perfect ratio. Shift a little extra towards saving or debt as you please but you must tackle both with reasonable force. Fifty-fifty is just a good place to start.

(Photo credit: nerovivo)

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After calculating his interest costs for the month of January, @MattJabs exclaimed in a recent tweet of how he was paying $40.13 per day towards interest on debt that he currently owes. Talk about a hole in your wallet!

His post made me grab the calculator to do the same thing he did. Although I only have to pay interest on my school loans (credit card is at 0% introductory rate), I wanted to see how much money I was leaking thanks to interest.

Since my parents bought out one of my student loans, I used the figures from my January student loan statement. On about $8,800 of college debt, I paid only $39.18 per month towards interest – which equates to $1.26 of interest per day. I am fortunate to be looking at such small numbers but I’d still like to keep that money instead of giving it away. With about $40, it could go towards a nice automated savings plans (or a treat such as a Netflix subscription or more text messages for my iPhone).

The Frightening Cost of Debt
Interest is an unnecessary expense and it creates deadly spiral – it buys time and smaller debt payments but it is time and small payments that actually puts us deeper into debt. The more money one can put towards the principal, the less one will be paying in interest.

Take out your own calculator and find out how much money you lose on interest per day. You don’t have to be a stickler and count for every penny. Just add up the interest that you are paying for all your debts and divide it by 30. This will give you a rough idea of how interest is killing you.

Even if it is just a few bucks per day, it is quite scary to see that you are losing money on a daily basis because of your debt.

A Great Way to Motivate
Now just think this to yourself:

I work hard every day to put food on the table for me and my family. But, every afternoon on the way home, a thief robs me of $40 cash from my wallet.

Matt watches $40 vanish every day because of his debt. Watching money disappear like that serves as fuel for his anger and hatred towards debt – which ends up being a great reason to rid of that debt even faster.

Wouldn’t you be mad if you became a victim of a magazine scam or fitness club scam that takes $40 from your checking account every month for no reason? Is $40 per month in interest any different?

(Photo credit: Thirteen Of Clubs)

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As part of my 2010 financial goals, removing at least half of my higher interest student loan was second on the list. Last week, my mom questioned me about how I was doing regarding student loan repayment. I let her know that I was paying the minimum amount on the loan at the lower interest rate while paying as much as possible on the high interest loan.

My mom consulted my father and decided that it was pointless to have me pay $400+ in interest this year when they have the funds to pay it off. But, of course, I’m not getting away scot-free here. Essentially, they will be buying my student loan and I have to pay them back.

What started out as a 10-year loan at 6.441% APR will be an interest-free loan with an indefinite duration. How great are my parents?

Many may think though:

Hey! This guy is just another deadbeat like many of the other college grads who says they’ll pay their parents back when they borrow money. Then they end up being 40 years old and still haven’t given a dime back.

None of my plans have changed though. Without a doubt, I do not expect owing money to my parents for more than the next few years. My goal is still to pay off at least half of the balance that I will owe my parents. This is definitely going to reduce the amount of stress and worries that I have on my ability to pay off these loans – while at the same time saving money.

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In the minds of most young college students, the word “credit” usually accompanies the word “card”. Debt, credit reports, and credit scores certainly do not have priority over getting A’s and surviving college life. But, credit will be a significant part of everyone’s life after college so it is crucial for a college student to pay attention to their credit.

Since I believe that I have great credit for a 22-year-old college graduate, how I got it may be a good example for those entering and those already in college. Last year, my FICO score was 728, which isn’t bad, and a recent checkup on my credit report showed that my credit was squeaky clean. So, with a recent credit limit increase on my one and only credit card, my score should be the even higher.

Here is a quick overview of my credit relationships since college:

• Freshmen Year. Despite the bombardment of credit card marketers, I didn’t fall victim to their aggressive tactics and free T-shirts. Based on my FAFSA, I qualified for a $2,625 subsidized Stafford loan and took it – opening my first line of credit.
• Sophomore Year. Nothing much changed here. Again, my FAFSA qualified me for a $3,500 subsidized Stafford loan and took it.
• Junior Year. This year, I started Realm of Prosperity and learned a little more about credit so I did not take any loans. I was able to afford tuition because I received a $3,000 federal grant for good grades. But, I did get my first credit card. It was a student card with a $3,000 credit limit and received a $1,000 credit limit increase every 6 months.
• Senior Year. Because I changed majors, I was ineligible for a $4,000 grant so I took out a $2,852 subsidized Stafford loan. By graduation, I had $9,297 in debt and a credit card with a limit of $7,000.

Sticking To The Basics

1. Always paying my balance in full was my goal with a credit card. The sole purpose of my credit card was to receive cashback while paying for my living expenses. Do not listen to anyone who says carrying a balance is good for your credit. Develop good repayment habits early.
2. Take out loans only in the amount that you need. I was naïve during freshmen year when I received a school refund and thought it was free money but it was actually the extra money from the loan after covering tuition. Afterwards, I took the time to calculate how much I’d need to borrow instead of just accepting the total amount offered.
3. Stick with federal loans as much as possible. The terms on private school loans are subpar compared to the advantages of federal loans. Here is some great advice for college students to help reduce their financial burden.

A Changing Future in Credit
With the upcoming credit legislations, those under the age of 21 will have need a co-signer or proof of income before they are issued credit cards. When I signed up for a student credit card, all they needed was proof that I was a college student.

This doesn’t mean students can’t build credit. A secured credit card, which is a basically a credit card backed by readily available funds, is a great option to start building credit. All that is needed are some student loans and a small revolving line of credit with no violations of any kind.

Responsible use of a credit card in college is a sure-fire way to come out of college with a good credit history.

Any other recent graduates or even current students care to share your credit scores along with what lines of credit you used to achieve that score? Everyone has a different financial scenario in college and the more insight we get, the more future students will benefit. Even those with bad credit can help warn against the mistakes a student might make in college to ruin their credit.

(Photo credit: inkynobaka)

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Ever played a game where you have to level up and get more stuff and finally be the one with the highest rank, level or score? If you have, then you can understand how unnecessary such a feat can be. It seems as if everyone has been fretting over a few points on the credit scores they receive from different credit bureaus. Each credit bureau has different records of a person’s credit history and therefore, yields different credit scores. With credit taking control of our lives, this is a reminder not to go nuts over it.

• A Slight Difference of Scores Doesn’t Make A Difference
  There is practically no difference between a FICO score of 750 and 800. Both scores are great scores and they both warrant low interest rates but going from a score of 750 to 800 takes quite a while. The prominent concern of most people is the drop in their credit score from closing a credit card account. It is conventional wisdom that says you shouldn’t cancel a credit card if it has a long credit history and a substantial line of credit. But, if this card was a reason for racking up a large amount of debt, it would be financially healthier to remove it.

• Credit Means Nothing If You Don’t Need It
  Have you ever wondered what Bill Gates’ credit score was? It may be common to think that the wealthiest people in the U.S. also have the highest credit score. But, for a guy who has billions, he probably doesn’t need a line of credit. Therefore, his credit score is not necessarily the highest and it is possible to get a credit score higher than Bill Gates (but he most likely doesn’t even care what his credit score is).

• High Credit Score Isn’t Everything
  While a high credit score will come in handy when applying for major loans, it is not a 100% guarantee that you will get the loan. A credit score is based on credit history but current financial situations have an effect too. So, if I had a FICO score of 800 from paying off my mortgage and student loans over a long time and I recently became unemployed, I am not the best candidate for a loan since I don’t have income to repay it.

Yes, 95+% of the nation will need credit at some point but it is futile to worry about a credit score when it won’t matter in the near future. This is to advise those who purchase credit scores on a regular basis even thought they don’t need to. If there is any concern of credit fraud, spread out the 3 free annual credit reports over a year and use them to check for it.

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Almost 3 weeks ago, I was offered an interview for a position that would support my applications for dental school. It was a coincidence that the interview was on my birthday and I had hoped it would provide some luck for this birthday boy. And certainly enough, I got the job!

As my first full-time job coming out of college, I was fully devoted to it. Since the position would be an essential stepping stone towards my dream career, I’m not going to disappoint my boss and, most importantly, myself.

Honestly, the first few days of work were quite an overload on my body and mind. I was expected to learn everything from the previous employee in about one and a half days. I’ve always thought of myself as a quick learner so it wasn’t so bad. Also, 12-hours workdays were quite overwhelming. I return home ready to crash the bed. With the many responsibilities put on me, I believe I’ve become a valuable part of the office.

Everything has gotten to be routine for me at work and that makes it much easier. My boss has expressed much content with my performance and the great part is that I’m learning a lot. A boss that is easy to talk to and is willing to teach is very hard to come by nowadays. After 3 weeks, I am now helping to train others.

Ups

• Learning a lot.
• Stable source of income.
• Adds to my dental school applications.
• Flexibility in work hours.

Downs

• Less time for family and friends (especially after long days).
• Deprived attention for the blog.

Now that I’m somewhat acclimated to work, I should be able to make the most of the time that I do have. With income, I also should be saving for a large payment towards my college debt (first payment in December), which I expect to deviate from the set repayment plan.

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This method of debt reduction is not some extravagant new idea nor is it miracle work. It employs the same tactics that businesses use to make you more likely to spend money.

The essence of how it works is that it builds the psychological momentum and confidence that many consumers lack when they are reluctant to repay their loans. This method of debt repayment mimics the process that a customer undergoes to buy a product often seen in an infomercial.

The common strategies are:

• Breaking into multiple payments. You always hear, “Get this for only 4 easy payments of $19.99″. They don’t want you to see what you are actually paying. The whole point is tricking you into not knowing how much you’ll end up spending. The total payment of $80 plus taxes and shipping will not show up anywhere in your bills.
• Create the illusion of a smaller amount through the use of many “9”s. Seeing a smaller first digit just makes the number look smaller. The difference between $20.01 and $19.99 may only be two pennies, but people feel much more comfortable with paying $19.99, psychologically.
• Create the illusion of a smaller amount through the use of fewer digits. This is very much like the tactic above. It works on the premise that fewer numbers means less money. Once again, it makes a customer feel that paying $999 a less overwhelming than $1,000.

The Infomercial Copycat

1. Take the balance of your current credit card statement and divide it by the maximum number of online payments per billing cycle that is allowed by your credit card company.
2. Round up to the nearest $10 if your statement balance is less than $400. Round up to the nearest $100 if your statement balance is $400 or more.
3. If your mini-payment is $100 or less, subtract $0.01 from that amount. If your mini-payment is more than $100, subtract $1 from that amount.
4. Divide the calendar month by the number of maximum payments per billing cycle. This gives you the days on which you will make the mini-payments.
5. Set up reminders and make the payments as scheduled.

Here is an example of how the Infomercial Copycat should look like:

Why It Works

Besides being a financial burden, debt also has a major psychological impact. The Infomercial Copycat changes nothing about your financial situation but it will do wonders for your morale. You will feel like debt has less of a strangle on you. When you do something and it doesn’t feel too bad after you do it, you are less afraid of it the next time. This is the drive and momentum that this method is trying to instill.

If you look once again at the image at the top of this article, it is more comforting to see your debt as four parts of $49.99 each than a whole $200. If you agree with the previous statement, then you should definitely give the Infomercial Copycat method of debt reduction a try. I know it will work because I use it!

I suggest everyone to use this method except for those who are truly unable to make the mini-payments as scheduled. Because it requires that you stick to the schedule and not miss a mini-payment after the first one. It is, without a doubt, a more tedious method of debt repayment but you will feel the relief when that bill is paid.

Also, the Infomercial Copycat method works in tandem with other popular debt reduction techniques such as the Debt Snowball and the Debt Avalanche.

So, no matter who you are, as long as you have credit card debt, you can give it a try. Let me know whether or not it has worked for you.

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In the financial world, the word “credit” is used to hide the word “debt”. If we replaced all financial terms that has the word “credit” with the word “debt”, we’ll probably find yourself less likely to utilize our “debt cards”.

When we are asked, “what is your credit?”, we usually answer with our FICO credit score or maybe “good” or “great”. We do not fully understand how our credit is calculated. Closing a credit card account can hurt your credit? It may not make total sense but we have no control over the terms that regulate the effects of what we do on our credit.

Swiping the plastic has been made too easy. We just don’t see the money flowing out. Logging into your bank account and seeing $1,000 is much less impacting than having $1,000 in cash in front of you. The same goes for using a credit card. We’d all be much more unwilling to part with ten $100 bills than just seeing $1,000 printed on a credit card receipt.

The credit card is a mere representation of a loan agreement. If every single time that we used a credit card, the cashier gave us a 5-page document to sign, how often do you think we’d borrow to pay for something? The creation of the credit card hides this from the consumers so they don’t feel the burden that they are taking responsibility for.

Got bad credit? Sorry. You can’t buy that home, can’t get that job, can’t rent that apartment, can’t buy that car and can’t get that lovely cell phone plan for your iPhone. But, guess what? You need credit to get more credit. Without it, you will not have the ability to enjoy many of the luxuries that life has to offer.

We have no choice but to abide by the system. Stepping outside to see how dangerous credit can be will hopefully discourage us from relying too much on it.

Photo credit: Andres Rueda

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