One of the traps that many people fall into when it comes to debt is not having any cash reserve or emergency fund set aside. If you have no money set aside for emergencies you’re going to be in trouble when life’s unexpected crisis happen. Your refrigerator may go out. Your car may break down unexpectedly. You may have an unexpected medical bills the insurance doesn’t cover. There hundreds of things that could possibly go wrong they could demand a large chunk of money right away. If you have no cash to pull from for these situations you will have to take out some type of loan. Obviously when you’re in a situation where you have to get a loan you’re at a disadvantage. You can’t negotiate good rates. Whenever you can’t walk away from a loan the lender as you pretty much at his/her mercy.

There are several different theories when it comes to how much reserve you should have. Many people suggested she should try to get to a point that you have six months living expenses in cash reserve. The idea is that if you lose your job this gives you a cushion of up to six months to find a new one. There is some value in that but it’s possible that that cash reserve should be separate from your emergency cash reserve. You want to make sure that you have a way to deal with things that are likely to break. It’s probably worth considering all the things that could possibly go wrong that would require the outlay of cash. Your cash reserve should be enough to cover a number of those things happening in a given month. For example you should probably know approximately how much it would cost to replace your furnace if it goes out. The furnaces and something that you can just decide not to use–you have to have it during the winter months. Your car is another thing. Your car was somehow destroyed in a way they insurance didn’t cover it do you have the necessary funds to buy another vehicle. You don’t necessarily need enough cash reserve to buy an expensive vehicle–just something to be okay to work. Major appliances are another area you should consider funding through a reserve emergency fund. If your refrigerator, washing machine, or dryer were to suddenly stop and require purchasing another one you want to make sure you’ve got enough way to cover that.

If you add up all your potential things that could break that would need to be replaced immediately trying to have cash reserve to cover all of those happening at once would be a good idea. Honestly for some people that is impractical. However setting up cash reserve to cover at least 50% of them breaking in a given month isn’t a bad idea either. Remember the more money you have set aside the more flexibility you have been making good decisions when an unexpected crisis arises. Also make sure that you don’t just take into account your appliances in major purchases. Health care is another major area where cash reserve used in emergency may come in handy. Obviously healthcare costs can vary greatly. It’s easy to rack up half $1 million in healthcare costs very quickly. You should have some time help insurance to cover most of this. However the deductible–the party responsible for–is something the insurance won’t cover so it would be wise to have cash reserve to cover the amount of the deductible if you need to pay out of your own pocket.

Now normally you want to keep your cash reserve in some type of fund where you can access it quickly. However when your cash reserve gets to a certain point you may want to consider investing at least part of it. You still want in a short-term investment that you can get to I can be in something that may take a little bit longer than coming out of an ATM area wanting you want to watch out for though is using your cash reserve as retirement investment. You don’t want to get into a situation where you’re going to have to pay large fees, penalties, or taxes in order to get at the money. This is the type of thing that’s likely to happen if you put the money into a traditional IRA. However a Roth IRA may not be a bad idea. You can take the money back out of a rock that you can originally put into it. So if you set aside $10,000 you can put into a Roth IRA and hope you never have to touch it. If you do have to take it out you can take out the entire amount you put in without any penalties. However you can’t take out any of the money that earned or any of the money it increased. This should work out perfectly if your cash reserve is enough to meet your needs because it means it will grow into tax advantaged way but still be available if you ever need to pull it back out.

Another potential benefit of having the cash reserve in a Roth IRA is what would happen if you became bankrupt. There certain types of accounts that cannot be touched during a bankruptcy. Some IRAs meet this criteria. If that’s the case then it can be a great way to protect your assets in case some huge unexpected expense forces you into bankruptcy–this would have to be an expense that was so great that you wouldn’t be able to pay it using your cash reserve. Such a situation is probably unlikely if you’re managing your money carefully. However on unexpected large lawsuit or other type of situation could push you over the edge.

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With all the talk of bailouts, I know a number of people are looking for government debt consolidation loans. These don’t really exist. The government is bailing out the number of people but not very many individuals. There isn’t really any type of government debt consolidation loans. Actually there is an exception to that. There is one type of government debt consolidation loan. It only applies to debt incurred going to school. The government debt consolidation loan program allows you to consolidate educational loans. This can be extremely advantageous if you have a lot of debt from going to school. The program will allow you to take a number of different educational loans and roll them into one single loan area and chances are you won’t be making payments to the government. The government will actually back your loan and help you get a very low interest rate through a lender. The lender likes this because your loan is now backed by the full goodwill and faith of the US government. So while the government sticks around they are going to get their money. On the other hand they may be less sure about whether or not you will continue to make payments.

This surety allows them to give you the lowest rate possible. This can be extremely advantageous. If you have a number of smaller loans all with different interest rates combining them to a single loan at a much lower interest rate will save you a lot of money each month. Also if that term on some of the other loans is short but consolidated loan may be for a longer time span which means you’ll pay less each month. Of course a longer time frame means you’ll probably end up paying more over time, but for some people that type of flexibility is helpful.

The ideal way to handle government debt consolidation loans for educational debt is to get the lowest rate you possibly can and then pay back the maximum you can possibly afford each month. A made-up maximum you can possibly afford. You still need to set aside money for emergencies and other unexpected expenses. Still if you can pay off loans quickly you’ll get out of debt more quickly. If you have other loans that are at a higher interest rate though, those may be a higher priority. Paying off the highest interest rate first allows you to pay the least in interest–and for some loans the interest may be far greater than in principle by the time you finish paying it off.

If you have a home mortgage at 6% and educational loans of 4% you’d be much better off paying down the mortgage quickly and just paying the minimum on the educational loans. On the other hand if your educational loans are at the highest interest rate you may want to pay them down first. The government debt consolidation loan can help lower the interest rate so you can have that option.

Another thing to consider is whether your loans are secured or not. In a secured loan the bank can come after whatever assets you have used to secure the credit. So for example with a mortgage they can repossess her house. With an automobile they can usually repossession car. What you don’t want to do is get into a situation where you pay down unsecured debt quickly and get into a situation where you don’t have money to pay down your secured debt. For example if you have a credit card that is unsecured debt, you don’t want to pay it off and jeopardize making your mortgage payment. If the credit card company can’t take anything from you, you need to factor that in your to your decision of who to pay first. They still may be the best loan to pay off quickly, but you may want to make sure you have adequate emergency funds to handle making your mortgage payment if times get tight.

Life insurance is very important unfortunately it’s something we don’t usually think about. No one wants to concentrate on what would happen if they died. However if you were to die and leave your family behind life insurance could be the difference between them wallowing in debt or having a comfortable time in life.

Most families that make a number of financial decisions based on the idea that both the husband and wife will still be around for years to come. They buy a house, buy a car, take out loans, get education, consolidate their debt, have kids, get a dog and a number of other things that create ongoing financial responsibility. Most of those financial responsibilities continue even after one spouse has died. Life insurance allows you to protect against that happening. I guess you can’t protect against time but it allows you to make sure it that the remaining spouse has the resources needed to continue the financial obligations.

When one spouse dies it places a much greater burden on the remaining spouse to take care of things. Taking care of several kids can be manageable with two adults–even if they are both working. But trying to take care of kids and work a full-time job when you’re the sole breadwinner can be nearly impossible. On top of that consider the cost of housing that was purchased based on expectation of multiple salaries. Cars that were purchased based on payments being made from it to salaried household and all the other little expenses they can add up to something significant.

There’s several different types of life insurance. The most economical is term life insurance. Term life insurance allows you to get coverage for the years when you still plan to be financially productive. It is fairly inexpensive because you’re insuring against death during the years when you are least likely to die. However at the end of the term insurance policy is not worth anything. So if you have a 20 year term policy you’re covered for the 20 years and you make the payment for the 20 years. After 20 years there is no value left in the policy and if you were to die in your 21 you get nothing. 20 and 30 year terms are fairly common. This type of insurance for someone in their mid-30s is likely to cost $3-$500 per year for a half-million dollar policy.

Right now than exceptionally good time to buy life insurance. Rates are at the lowest they’ve been in years. Term life insurance allows you to lock in these rates for the entire term. So if you’re looking at getting life insurance now is a very good time to check into it.

There are other types of life insurance as well. In particular there is universal life this is also known as whole life. This type of life insurance also doubles as a type of retirement fund. It is worth something when you die no matter how long you live. From this standpoint acts more like a retirement account that has an insurance component. If you continue to live a long life when you do finally die your family will get the money you invested. If you die ahead of time it has an insurance component built into it that will give your family more than what you invested. These type of life insurance policies have cash value so it’s possible to cash them out while you’re still alive. Many people like this flexibility. There are also some tax advantages of these type of accounts. However many financial advisers suggest against these because they feel it is better to separate your insurance from your investments.

Regardless of what type of insurance you get is always cheaper to get it today than tomorrow. The older you get the more expensive insurance will be for you. Getting it when you’re young how to lock in a lower rate that will continue through the rest of the term or in case of universal policies the rest of your life.

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Modern life involves credit in many different shapes sizes and forms. There are credit cards, store charge cards, deferred payment plans for furniture, automobile payments, school loans and many other different forms of credit.

Many of these different forms of credit charge absorber and we high interest rates. Unsecured loans have to charge high interest rates in order to make money. The lender has very few options if you stop paying. They charge a high interest rate to make up for the people who do stop paying.

A credit consolidation loan involves grouping a number of these high interest credit payments together and paying them off with a single low interest loan. To get the low interest rate usually requires some form of collateral. Usually this collateral ends up being your house. If you have equity in your home this is one of the easiest ways to do a credit consolidation loan.

With a lower interest rate, your credit consolidation loan will allow you to make much higher payments on the principle. The more money you pay to principal each month, the faster you can get out of debt.

The danger with credit consolidation has to do with your financial restraint. If you do not change your spending habits, it won’t be long before you’re back in the same situation again, but even worse because you’re unlikely to be able to get another consolidation loan. If you can’t find another credit consolidation opportunity it’s likely to be at a much higher interest rate.

Credit consolidation is a viable financial strategy, but only after you’ve solved your spending problem. Consolidation implemented before developing financial restraint is a recipe for disaster.

Credit debt consolidation is a way of combining all of your high interest loans into a single loan at a lower interest rate. Consumer credit such as credit cards, revolving credit, etc. often charge them the highest interest rates on the planet. A credit debt consolidation move will help you lower the interest rate.

A lower interest rate will let you apply more money to principle and less money to the interest. This is a good move. The more money you can apply to the principle of your credit the faster you can pay off the balance. Credit consolidation helps make that possible.

To get the lowest rate, a credit debt consolidation loan will need some type of collateral. Often this means tapping equity in your house to get the lowest interest rate.

If you are extremely financially unstable, a credit debt consolidation loan may not be your best option. If you are current credit commitments are unsecured debt, there are limitations to what your creditors can take as payment. Once you secure that debt with your home, the creditors can foreclose and take your house.

Still for people who want to be honest and fulfill their obligations, a credit debt consolidation loan using the house as collateral may be the fastest way to get out of debt.

Is there any such thing as a debt free consolidation loan? Yes. Obviously if you are taking out a loan you are not debt-free. But a consolidation loan may be an integral part of your strategy to become debt-free.

Everyone is excited about the destination of their debt free journey. But much of the value comes from the practices and disciplines you develop along the way. Being debt-free is a lifestyle and a way of managing your finances. Even if you are not debt free today you can still manage your finances with the frugality and restraint a debt-free lifestyle requires.

This is where debt free consolidation loan may be beneficial. A debt consolidation loan that is designed to help you get out of debt can be a vital strategic move. A debt free consolidation strategy involves a high degree of financial literacy. You must understand exactly what you are committing to in the details of the consolidation loan.

Without this financial literacy you may be able to consolidate your credit but you are not making a strategic debt free consolidation move. Your self-discipline, fiscal restraint and financial understanding are just as much if not more important than the loan itself.

Is there such a thing as free credit consolidation? No. Of course not. No one is going to give you a loan for free. You’re going to have to pay for one way or another. Credit consolidation works the same way as any other loan. The lender makes money off the interest you pay.

That is because it isn’t free doesn’t mean that credit consolidation is a bad idea. In some cases it can be a very financially wise way to get out of debt. Beware if people try to tell you it is free. Just because it doesn’t cost you any money upfront, does not mean it is free.

Like many loans free credit consolidation can roll the fees into the loan itself. That doesn’t make it free, but it does mean you don’t have to bring any cash to the table. If you’re strapped for finances, this may be the difference between being able to consolidate your loans and not.

As with anything you must have financial literacy to understand your free credit consolidation offer is actually beneficial. Read the fine print. Do the calculations. Don’t sign anything until you understand exactly what it means and exactly what you’re committing to.

People are offering to consolidate your credit in order to make money for themselves. It isn’t something they’re doing out of the goodwill of their hearts. It’s up to you to understand the details of what you’re committing to.

Be particularly wary of companies advertising free credit consolidation. It’s fine if they say there is no fee upfront. It’s fine if they explain exactly how their fees are rolled into the life of the loan. But if they keep emphasizing the idea that you’re getting a loan for free, chances are they may be trying to scam you.

At first glance debt free consolidation seems oxymoronic. If you are getting consolidation loan, you obviously aren’t debt-free. Being debt-free is a journey. It is a process for most people. You can’t just wake up one day and decide you’re going to be debt-free. It’s about making good wise financial decisions that separates you from the culture of heavy consumer spending.

Debt consolidation can be a powerful tool as you head down the debt free path. Consolidation allows you to pay off your debts with a single check each month. In most circumstances a consolidated loan is going to require a much lower interest payment in loans from a handful of different consumer credit sources.

The consolidated loan can give you two advantages. First they can give you more breathing room. With a lower monthly payment you can better manage your finances and set aside emergency funds. Second they can give you more money to apply to the principle. The more money the goes to principle the faster you’ll pay off loan.

The risk most people face is a mental one. With more breathing room in their debt payments, it may be easier to acquire more debt instead of lowering your total indebtedness. With good financial discipline and financial literacy, a debt free consolidation loan allows you to get out of debt quicker than nearly any other option.

Getting out of debt is mostly a mental battle. If you have the self-discipline to follow a debt-free lifestyle, a debt free consolidation loan will help you achieve your goals. You won’t start out debt-free, but a consolidation loan is within the spirit of the debt-free mentality.

Getting out of debt may take some time. The goal is to enjoy the process in addition to the result. You must enjoy using financial wisdom in your purchases. Keep your eye on the end goal, but enjoyed where you’re at. Strive for the goal of being totally debt-free, but enjoy the current freedoms and security that debt free decisions will bring you.

We’ve had a number of people asking how to decrease their credit limit. Obviously this isn’t what most people are trying to do. It took me awhile to understand why someone would want to do that. After all, most people want to increase their credit. If you have a low self control threshold, it may make sense to trim back your credit  just so you can’t spend more than you can afford to pay back.

Another reason you might want to trim back your credit limit is because of the way it will affect your credit score. Lenders may view a tremendous amount of available credit as potential debt and may worry that you might max out your spending and get in over your head. For example, a mortgage lender may be hesitant to loan you money for a house if they see you have 10 credit cards with a total of $150,000 of credit available.

You may be better off in the long term by canceling a few of the credit cards with the worse terms in order to bring your credit limit down to a more manageable level. You can also call up your credit card company and ask them to lower the limit. They may try to talk you out of it, but most companies should be able to give you a lower limit if you ask.

Generally it is better not to make these types of moves right before trying to get a mortgage or qualify for some other major loan. Credit scores can be lowered when you cancel several credit cards and a sudden change in your credit limit may also look suspicious or count against you in the credit score calculations.

Decreasing your credit limit can be a very good strategy, but you must be careful not to generate any negative side effects–especially if you are expecting to buy a house or car on credit in the very near future.

The IRS rules say you cannot borrow from your IRA. But can you? Are there loopholes? There is a way to borrow from your IRA. It isn’t that the IRS wants you to borrow from your IRA. They have made it clear that this is against the rules. However, the rules that allow you to move your IRA from one investment company to another dude give you the ability to create a short-term loan.

You can withdraw money from your IRA and close it out. Once you do this you have 60 days to put it into a nether IRA account. During those 60 days you basically have a 60 day loan of the funds from your IRA. If you don’t get it back into an individual retirement account within the 60 day period you will owe taxes and an additional 10% penalty.

This is a risky strategy. When you borrow from your IRA you are running the risk of what could be significant expense in the form of taxes and penalties. A new IRA will generally take a few days to set up so you can’t wait until day 59 to start getting the new account ready. If you want to borrow money out of your IRA in this manner make sure you know exactly how long it will take to get a new account set up and give yourself some time as a cushion just to be on the safe side.

There is not a way to borrow against your IRA. In other words you can’t use the value of your IRA as collateral for a loan. This means you also can’t enable margin on an IRA brokerage account. Margin is basically the ability to borrow against your existing investments which is not allowed in IRA accounts. While you might be able to find an individual willing to loan you money by putting your IRA up as a pledge, this type of arrangement would technically void your IRA account. Which means taxes and a 10% penalty would be due immediately.

With regards to the 60 day loan by borrowing money from your IRA, the IRS is starting to be very careful about enforcing the 60 day rule. In the past they would often let things slide if someone established the IRA on day 61. That doesn’t seem to be the case anymore. The IRS realizes that people are closing and opening IRA accounts in order to get around the no borrowing rule. They haven’t closed the loophole. You can still borrow from your IRA for 60 days. But they are being much more careful to make sure everyone follows the rules.

The IRS still seems to give some leeway if the purpose of the IRA transfer was not to create a 60 day loan. But they are starting to look more closely at the reason behind the transaction before allowing any type of grace.

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