Tag Archives: credit card

Jamaican Style Money Guide: Poun’ A Fret Can’t Pay Ounce A Debt

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When we are faced with a difficult situation, sometimes we may not be mentally ready to accept a few wise words of advice. As the saying goes, “Misery loves company,” and very often we secretly prefer to receive sympathetic gestures than to take positive action to eliminate our challenges.

I have found this reality to be very evident with persons who are suffering from money problems. Having experienced many of my own financial crises over the years, I completely understand this ‘woe-is-me’ mindset which tends to trap a person in a state of helplessness and negativity.

Of all the money predicaments that you can encounter, chronic indebtedness is perhaps the most challenging. There is nothing as depressing and defeating as facing unpaid bills, past-due notices and demand letters, and worrying about the legal consequences of your inability to pay. Continue reading Jamaican Style Money Guide: Poun’ A Fret Can’t Pay Ounce A Debt →

Jamaican Style Money Guide: Short Cut Draw Blood

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Many of our Jamaican proverbs are light and witty; while they give us pause to think, they usually also give us a hearty laugh. However, there are other old-time sayings that contain dire warnings which explain the problems that we will bring upon ourselves if their messages are ignored.

One ominous Jamaican adage that is often used for cautionary advice is, “Short cut draw blood.” This succinct saying has a clever twist on the meaning of the word ‘cut’; while a short cut can be a quicker way to reach your destination, the word cut can also connote a type of physical injury.

It’s natural for people to seek the easiest route to achieve their objectives, and historically this has helped mankind to develop many important inventions. However, there are times when trying to find the easy way out of a situation can actually cause more harm than good. Continue reading Jamaican Style Money Guide: Short Cut Draw Blood →

Budgeting for Family Vacation

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For most children, summer time heralds the beginning of two months of freedom, but for parents it can start a period of overspending and loss of budgetary control. If you’re a parent, you may want to ensure that your children enjoy their vacation, but it’s important not to spend more than you can afford on summer fun.

Ideally, you should have started planning for your vacation many months in advance. Just like any other expense in your budget, you would estimate the total cost of your holiday plans, divide this total by 12 (or by the number of months left for your planned vacation to start), and then save this figure each month to arrive at the amount you need to spend.

Finding the funds for fun

If vacation time is already here and you haven’t started saving for it yet, be very careful about taking on debt in order to finance your summer fun. Remember that September and back-to-school time is just around the corner, so you can’t afford to spend unwisely with these impending school expenses on the horizon. Continue reading Budgeting for Family Vacation →

Christmas Spending Recipe

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Whether you’re ready for it or not, the yuletide season is now in full swing. Merchandisers persistently and persuasively remind us how much we really need to buy their products or services if we want to enjoy the holidays. Christmas is, after all, the major shopping period for the year.

It’s easy to get caught up in the wave of consumerism that engulfs us during at this time. With so many demands on your spending dollar during this month, you may feel overwhelmed by the pressures to spend, and frustrated if you don’t have enough money to satisfy all your desires.

You could develop a Scrooge complex and just hide away from the frenzy until early next year, but there are more sociable ways to cope with the seasonal shopping stresses. Here is a Christmas spending recipe which should help you to survive the holidays with your budget and sanity intact. Continue reading Christmas Spending Recipe →

More Money: Get Paid to Shop

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Many people are feeling a tight squeeze on their pockets as their spending power decreases in line with the increasing cost of goods and services. Unfortunately, most of us don’t have incomes that automatically adjust to inflation, so it means that what we earn can buy fewer items each month. How can we maintain our standard of living in light of this reality?

To stay on top of rising costs, you need to create a budget plan for the year and track your expenses every month. When you consistently record your actual spending, you will quickly be able to ascertain when your bills start to increase. You can download a budget plan with a monthly tracking spreadsheet at www.financiallysmart.org.

Rebalancing your budget

When the expenditure side of your budget goes up, your first strategy is to try and rebalance it by cutting back on other costs. Apply conservation strategies to reduce your utility bills, plan your driving routes to use less petrol, and make drastic reductions on non-essential expenses such as cable TV, fast-food restaurants and mobile phone calls. Continue reading More Money: Get Paid to Shop →

The Debt vs. Savings Dilemma

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“I took out a home equity loan to consolidate two credit cards that had been maxed out and carry out repairs to my house. I am due to get a gratuity at the end of my contract which will be renewed in a few months. Should I use this money to pay off my debt or should I rebuild my savings?”

Let’s look at three factors that can help you to make the right decisions with your money:

The price of the debt

When borrowing money, many people only think how the loan proceeds will help them to take care of their immediate money needs, but don’t consider how the loan payments will further impact their cash flow. Very often, the loan that was supposed to solve their money woes only ends up adding to their financial distress.

One of the ways to resolve your debt vs savings dilemma is to examine the effect that your debt has on your monthly budget. Download a personal budget from the financial tools section of www.financiallysmart.org and fill out your expense and income details. This will help you to see if your earnings are currently able to fulfil all your spending requirements.

If you realise that your monthly loan payment is taking up a significant portion of your budget, and that it is hindering your ability to deal with other important expenses, then you should pay off your debt. Otherwise, you may be forced to go back to using credit cards to pay your bills, and you’ll end up in a worse financial position than before you consolidated your loans.

Another consideration is the interest rate on your debt. Although loan costs are relatively low at this time, the price of debt will almost always be higher than what you could earn on a secure savings or investment account. For example, if the loan interest rate is 12 per cent per annum, and your investment would net you an eight per cent return, then you would be better off without the debt.

The purpose of the debt

Let’s now take a look at the reasons you got into debt in the first place. Although you have not explained why you had two maxed-out credit cards, I will assume that you used them to deal with expenses that your income could not cover. Like most of us, you probably also made some unwise spending choices over the years, and got carried away with using your credit.

As I have said on many occasions, if you borrow to finance an imbalance in your budget, you will only start a long-term cycle of indebtedness. If your income is insufficient to meet your needs it is impossible to successfully utilise debt to take care of the shortfall. Borrowing will only make your situation worse, as the underlying problem has not been resolved.

As they say in Jamaica, “short cut draw blood”. And quick loan fixes will only sink you into a deep, dark abyss of debt. The only way to deal with an income shortfall is to cut back on expenses wherever possible or try to earn more to plug the holes in your budget. If this is your situation, get rid of your loan and ensure that you reduce spending or increase your earnings.

Unfortunately, you have replaced your credit card debt with a home equity loan. Credit cards are unsecured, as they are not covered by any form of collateral. This is one of the reasons why the interest rate is much higher. Although the home equity loan rate is lower, you will put your property at risk if you run into difficulties paying your loan. Pay off your debt to secure your home.

The pain of the debt

Money psychology plays an important part in how people make financial decisions. In addition to looking at the numbers surrounding your debt — monthly loan repayments, budget balances and interest rates — you need to look at the emotional aspects of your indebtedness. In other words, how does being in debt make you feel?

Fear, shame, powerlessness, worry and stress are just some of the negative emotions that are commonly used to describe how people feel about their debt situations. Very often, persons with a chronic dependence on debt can get into a state of depression that ultimately affects their work, health, and their relationships with family and friends.

Some people get a false sense of security from having money in the bank and expensive trinkets while maintaining large loan balances. However, if your assets value the same amount as your liabilities, in reality your net worth is zero. You should also understand that your interest payments are actually putting your potential wealth into the coffers of your financial institution.

Although you may be able to cover your monthly loan payments right now, your financial situation could take a turn for the worse at any time, thanks to a major health challenge or job loss. Therefore, it might be best for you to start afresh with a clean slate; pay off your debt and use the previous loan repayments to fund a new savings plan.

Copyright © 2012 Cherryl Hanson Simpson. No reproduction without written consent.

Originally published in The Daily Observer, July 19, 2012

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Cherryl is a money coach and business mentor, and founder of Financially S.M.A.R.T. Services. See more of her work at www.entrepreneursinjamaica.com and www.financiallysmart.org. Contact Cherryl

Continue reading The Debt vs. Savings Dilemma →

How to Manage Debt Wisely

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Since the beginning of the year, we have been expanding on the elements of our 2012 Money Manifesto. It is possible to create the financial life that you desire by understanding and following the basic principles of money success.

In today’s column, we will take a look at the sixth component which speaks about dealing with debt. Let’s examine some key do’s and don’ts that can help you to manage debt wisely: Continue reading How to Manage Debt Wisely →

Can You Invest By Shopping?

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We have recently been discussing the concept of investing, which involves putting money into a venture with the expectation of making a profit. Whether you invest in financial securities, property or a business, the general idea is that you decide to forgo spending money in the present, in order to secure some benefit in the future.

Many people will admit that they find it difficult to invest, as they would prefer to get the instant gratification of spending money than waiting to reap a potential reward in the long term. Why invest and risk your money, they think, when you can buy something right away and enjoy the fruits of your labour immediately?

Some time ago, a reader e-mailed me about the concept of investing versus spending. He introduced a simple but thought-provoking idea — What if more people were to say, “I invested my money on an item instead of I spent my money on it”, would that encourage them to make wiser spending choices? Continue reading Can You Invest By Shopping? →

Managing Money for College Students

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I’m heading off to university for the first time this September, and I’ll be living on campus. I’ve never left home before and I’ve been accustomed to having my parents buy everything I need. I would like some advice on how to spend my money carefully and stay within my budget.”

College life can bring new-found freedom for most young adults. For perhaps the first time, they can make their own decisions: how long to stay out at night, what type of food they want to eat, what to spend their money on. The problem is- most students have had little experience in managing money, and end up making poor choices when it comes to their finances.

Here are some tips to help you to successfully navigate the tricky financial waters throughout your college years: Continue reading Managing Money for College Students →

Breaking Free of Debt

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“After reading your article about bad debt last week, I realized that I’m trapped in a cycle of debt. I have been taking our loans over the past six years. Each time I clear off an old loan, I borrow even more money which typically is used to purchase some unnecessary household item. I now owe about three times what I did when I originally started borrowing. Please help me to break free of this debt!”

The current growth in consumer debt has its pros and cons. On one hand, it’s great for the economy, as profits of the lending agencies and retailers increase when people’s appetite for debt grows. However, on the other hand, there are more reports of consumers who are suffering under a debt burden that they find hard to bear.

As we have been discussing recently, there’s ‘good’ debt and ‘bad’ debt. Debts that are financially beneficial are those that can provide you with some monetary advantage in the future; while borrowing to sustain a lifestyle that’s beyond your means will definitely lead to financial challenges.

So if you’re stuck in a cycle of spending and debt, what can you do to break free? Follow the steps below to start your journey towards freedom from debt. Continue reading Breaking Free of Debt →