Debt Free

The national debt is cumulative amount our federal government has spent in excess of the revenue it has collected. This is done by the federal government issuing debt securities (bonds, notes, and bills) which are sold to investors. These securities are issued by the Federal Financing Bank and are known as public debt.

In addition to the debt sold to private investors, there are also intra-governmental holdings. These are government securities that are issued by one government agency and held by another. Such debts can include revolving accounts and trust funds. These intra-governmental holdings amount to about 40% of the entire national debt and are actually growing at a faster rate than the public debt portion of the national debt.

The national debt is not the total private debt of U.S. citizens, so don't think that outstanding debt on your Visa is contributing directly to the national debt. It's not, it's only hastening your own financial demise.

Although federal tax revenues have grown to record numbers either in spite of, or because of the Bush tax cuts, depending on whose side of the aisle you happen to sleep on, our federal debt has ballooned out of all proportion to the country's population increase. Although Bush cut the tax rate, the amount of revenue actually grew. This helps to illustrate that if you're trying to increase total tax revenues, you have to cut taxes to the point where the increase in economic activity generated by the larger amount of money in the private sector maximizes total tax revenue; no more and no less. If the tax rate is too high it takes money out of the private sector to the point where economic activity contracts, and tax revenues are actually reduced. If the tax rate is too low, the increase in economic activity doesn't compensate for the decrease in the tax rate.

As I write this our national debt is approximately $9.37 TRILLION. After you complete the task of wiping the vomit from your keyboard, you should know that it hasn't always been like this. If the growth rate of the national debt from 1945 to 1970 was maintained, our national debt would stand at about $1.9 trillion after adjusting for inflation, a staggering sum, but only a fourth of it's actual total. Even taking the growth rate from 1970 to 1975 our debt would be at about $3.9 trillion, or only about half what it is today. What the hell happened that has caused our national debt to explode in such a sick fashion?

A succession of over spending administrations and congresses have combined pork barrel projects, entitlement programs, and defense spending have caused the total of our national debt to spiral out of control. With the exception of the last 2 years of Carter, the first 2 years of Regan and Clinton's second term, the spend happy federal government has devoted most of it's energy to pleasing all those in the private and public sector, in addition to different voting blocks, that have been lining up with their hands out.

The mindset of many people in the country seems to be that of “buy me more stuff and I'll vote for you”. Just as coddling your kids in a search for popularity can run up your visa bill, congress and the various administrations have sought to please this block of voters and that by basically bribing them for their votes with entitlement programs and special projects, and in so doing, have blown up the national debt.

Say what you will about President Clinton, and I've said most of it myself, one thing he did help to do (aided tremendously by the Republican congress, before it jumped on the “let's spend more money” express) was actually reverse the growth of the national debt. As America swings more toward being a nation of citizens that expects to be provided for, (and politicians that are only too eager to comply), rather than one populated by self reliant, independent (I use that in economic, rather than political terms) citizens, the trend of a ballooning national debt will be harder to contain.

Where do we spend our federal dollars that have caused the national debt?

Here is where the Intra-governmental funds are spent according to the treasury's National Debt Schedule from 2007 and the agency that is responsible for it.

Fund                                                                               2006      2007

SSA: Federal Old-Age and Survivors Insurance Trust Fund 1,968,262 1,793,129

OPM: Civil Service Retirement and Disability Fund 687,665 675,936

HHS: Federal Hospital Insurance Trust Fund 319,377 302,186

SSA: Federal Disability Insurance Trust Fund 213,830 202,178

DOD: Military Retirement Fund 190,232 181,810

DOD: DOD Medicare-Eligible Retiree Health Care Fund 92,191 72,740

DOL: Unemployment Trust Fund 74,923 66,213

FDIC: The Deposit Insurance Fund 47,515 46,216

DOE: Nuclear Waste Disposal Fund 39,435 36,482

HHS: Federal Supplementary Medical Insurance Trust Fund 39,248 32,306

DOL: Pension Benefit Guaranty Corporation 35,775 36,635

OPM: Employees Life Insurance Fund 32,965 31,282

OPM: Postal Service Retiree Health Benefits Fund 25,491 0

HUD: FHA – Liquidating Account 22,405 22,030

Treasury: Exchange Stabilization Fund 16,436 15,711

OPM: Employees Health Benefits Fund 15,890 14,822

DOS: Foreign Service Retirement and Disability Fund 14,378 13,876

DOT: Highway Trust Fund 12,205 10,998

VA: National Service Life Insurance Fund 9,752 10,189

Other Programs and Funds 86,373 85,114

Interest on the national debt is a large amount of the debt , and although that percentage has fallen with interest rates the total amount continues to grow, in 2007 the federal government spent $430 billion on just national debt interest payments, compared to $405 billion in 2006. You can see that debt service is a large problem.

The greatest public uses of the national budget and thus the debt are, in order:

#1 Health and Human Services $670 Billion

#2 Social Security Administration $625 Billion

#3 Department of Defense $575 Billion

#4 Treasure Dept (includes interest) $480 Billion ($430 Billion of that is interest)

#5 Department of Agriculture $ 93 Billion

#6 Department of Vets Affairs $ 74 Billion

#7 Dept. of Education $ 54 Billion

You can see that the largest contributors to the debt, by far, are HHS, SSA, DOD, and Interest on the debt itself. So that is the cause for the national debt, but spending too much is the root cause and will remain so as long as we spend so much on ourselves.

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Posted by debtblog at 02:11 PM | Permalink | Comments (0) | TrackBacks (0)

I decided to look into the whole question of buying a new car just to save gas, because while I would love nothing more than to buy a new car, I find the process of actually doing so kind of revolting, and the thought of increasing my debt on a depreciating asset such as a car seems like financial suicide. Not to say that I don’t like cars. As you can tell from my frequency of automotive related posts, I actually love cars, but like many other loves, my attraction for things of a motorized nature has little to do with their financial appeal.

The first thing you have to examine is your current vehicle. Obviously that will have a tremendous impact on your decision. The gas mileage of your existing vehicle, how much you pay for insurance, it’s age and weather or not it’s nickel and diming you to death all enter into the equation. For the purposes of this discussion I’m going to choose a basic, 5 year old family sedan that actually gets pretty good gas mileage.

Let’s say you’re driving a 5-year old Honda Accord EX. It was one of the best selling cars in 2003 and there are sure plenty of them out there. The EPA combined fuel economy rating, revised for the new stricter standard is 25mpg. If you drive 15,000 miles per year you’ll burn 600 gallons of regular gas.

One note here:
Do not waste your money by burning premium fuel for this car. The manufacturer doesn’t recommend it, and as long as you’re using top tier gas, regular grade fuel has basically the same detergent additive package, so it will keep your engine just as clean as running premium. Only spend extra money to buy premium gas if your vehicle’s manufacturer recommends that you do so.

Back to the Accord. 600 gallons of regular will cost you roughly $2,460 at current prices. Yes, I know that gas prices will probably go up by the end of the year. They’ll probably go up by the end of the month. Lets say you were to trade in the Accord in on another Honda, the winner of my Top 10 Best Gas Mileage Cars (You Can Drive Every Day) Civic Hybrid. Now the Civic Hybrid gets 42mpg combined according to the EPA ratings, so for the same 15,000 miles you’d burn 357 gallons, at a cost of roughly $1,463. This means that you’ll save almost exactly $1,000 in annual fuel costs by switching to the Civic Hybrid over your old Accord.

That’s great, but you have to look at the other costs associated with the transaction. For one, your Accord, if you bought it new is paid off, or just about to be. That means from a pure cash flow basis you’ll be way behind by taking on monthly car payments of $455, assuming you could actually get a new Hybrid for the list price of $23,270, delivered. That also assumes you got a loan at today’s average auto loan rate of 6.48%. Honda actually has special 1.9%, 60 month financing for those who qualify, so you may be able to lower that to (only??) $413.

Average trade in for that car is $9,794, meaning you financed $13,476. If your Accord was paid off and you traded it in, your monthly payment would drop to an almost palatable $264. Edmunds.com lists the average annual cost for insurance, depreciation, and maintenance on the 2003 Accord LX as $3,200. Add that to the annual fuel bill of $2,460 for an annual cost of $5,660.

For the Civic, it’s much, much higher, mostly due to depreciation. Weather a hybrid will still depreciate at current rates is debatable, but there’s only past history to go on, so that’s what I used. Depreciation, maintenance, and insurance for the new Civic Hybrid totals a staggering $22,752 for the first 5 years of ownership. Over $12,000 of that sum is due to depreciation. The 5 year annual average is $4,550 + the fuel cost of $1,463, and the annual interest of $469, for a total annual cost of $6,582.

SO, it’s almost $1,000 cheaper annually to continue driving you old Accord, at least until you start having to fix things. If you have to replace a starter, timing belt, water pump, wheel bearing, CV joint or any one of the dozens of things that can go wrong on a used car as it goes past 150,000 miles, the equation could swing back in favor of the new Civic Hybrid.

For right now if you’ve got a similar car to the Accord, or something that costs less to operate and own, I’d say it isn’t worth it to buy a new car to save gas. If you’re driving a big truck or a car with a big V-8, I’ll see you at the Honda dealership!

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Posted by debtblog at 03:27 AM | Permalink | Comments (0) | TrackBacks (0)

There are a few things to consider when you're calculating the affordability of a house. The first obviously is your income. How much money you make, or more accurately how much you bring home, will go the greatest distance toward explaining how much you can afford. The next piece of the affordability puzzle is how much of a down payment you can afford to contribute to your purchase. The question of how much down payment you can contribute is actually separate form the question of how much you should contribute. Obviously the greater the down payment, the lower your monthly payment will be.

There are two schools of thought when it comes to a down payment on your house. The first states that you should put as much down as possible, while leaving enough in your emergency fund to cover 3 – 6 months of living expenses. This strategy will reduce your monthly mortgage payment maximize your initial equity. This is the more fiscally conservative position.

The second school of thought on the size of your down payment says that you should be able to generate higher returns on your money by investing it than the interest you're paying on your mortgage, especially when the tax consequences of the mortgage interest deduction are calculated. As an example, if your mortgage interest rate is 5.9%, you would be better served by minimizing your down payment and investing the rest, presumably at a higher rate of return. This can be an extremely powerful strategy to generate wealth.

To illustrate the differences between the two different down payment strategies, consider the following example:

If you were to purchase a $250,000 house (I'm leaving out other costs for ease of calculation) and put 20% down, it would cost you a down payment of $50,000. Your monthly mortgage payments would be approximately $1,186. If you put only 5% down, your down payment would be just $12,500, and your monthly payment would be $1,409.

If you invested the $223 difference in the payments every month and received a 9% ROI, you would have a nest egg of $397,588 at the end of your 30 year mortgage. If you took the difference in the down payments of $37,500 and invested it at the same 9% rate of return, you'd have $497,538. This ignores the tax advantages you'd also receive by using the smaller down payment. Because of the mortgage interest deduction, you would be able to deduct the interest on your mortgage from your income. In the first 15 years of your mortgage that generates a substantial tax savings. However, it also ignores the fact that you'd be paying less interest due to the fact that you financed a smaller amount of money, and that with the small down payment strategy you'll be wasting money on PMI until the LTV ratio is at 80%.

With the larger down payment you would pay approximately $228,000 in interest over the 30 year life of the mortgage. With the smaller down payment, you would pay about $270,000. In purely monetary terms you would come out ahead with the lower down payment strategy, and that is before the tax benefits are included in the calculation, which would swing the calculation even more in favor of the lower down payment strategy. The one big caveat here is that you actually have to invest that lump sum, generate a consistent return, and not withdraw the investment for the 30 years in order for the calculations to be valid. Keep in mind too that there are fewer lenders willing to give you a mortgage with only 5% down these days, while many more are happy to do so with 20% down.

So, once you decide how much of a down payment you are going to use, you can calculate how much house you can afford. One problem faced by borrowers today is that lending guidelines have been changed to the point where you can actually get a house that costs too much for your budget. This condition wasn't as prevalent in the past, although now the pendulum is swinging back the other way. Most lenders allow a figure of 36% of your total gross income be allocated for debt payments, including your mortgage. I'm more comfortable with approximately a 33% debt allocation figure.

Many financial experts suggest that you can calculate how much house you can afford using 25% of 25% your monthly income. That is very fiscally conservative and likely to keep you well within your means. The only problem is that in many metro areas of the US, you just can't get much house at that figure, and in some areas you'd have to have what some would call a really good job in order to buy a house.

For example, according to the NAR's median sales prices for single family homes data (Q1, 2008) the media sales price of a home in Atlanta, GA is $154,000. That pencils out pretty well. If you put 5% down, you payments would be $868 per month. Add some property taxes and you'd be at about $1050 per month. You would need a monthly net income of $4,200 to afford that median Atlanta house. Cities such as Houston, Memphis, Pittsburgh, and St. Louis are even more affordable. The problem with the 25% calculation comes into play in some of the more expensive housing markets in the country. If you live in San Francisco or the surrounding areas, you'll pay about $775,000 for the median house, requiring a monthly income of $17,460 to stay at the 25% level.

This illustrates a point. As your income rises, you can actually afford to spend proportionately more on a house, because your other expenses will not rise to the same extent. For example, if you live in the Bay Area, in the median house, you will probably not need $13,000 a month to cover the BMW payments and your dining expenses. It also illustrates why so few people starting out can afford to buy a house in the more expensive metro areas. I dare say that not too many of you jumped into the job market with offers of $209,520 annual salaries! Other cities where you probably can't afford to buy a home unless you already own one include San Diego (median house $459,000), Los Angeles ($459,000), Honolulu ($620,000), Boston ($357,000), Bridgeport, CT ($439,000), New York City ($445,000), Newark, NJ ($409,000), and Seattle ($372,000).

So, the question of how much home you can afford can be easily answered, but in many areas of the country, the answer is just “NO!”

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It only takes a few mistakes throughout your working life to kill any chances you may have of retiring wealthy. Heck, you can ensure that you'll be asking “Would you like fries with that?” if you're not careful. With that in mind I'm going to reveal 10 of the most common retirement financial planning mistakes that can keep you from retiring wealthy, and may even make sure you see a whole lot more of your grandkids; every Friday from 3-11 at the deep fryer.

Retirement Financial Planning Mistake #10 is relying on Social Security to fund your retirement. If you're under 35, it may not even be around when you retire, and for the rest of you it won't provide a very high standard of living, even if it does stick around. Your maximum Social Security monthly benefit if you retire this month is only $2,030 for a single person and $3,027 if you're a married couple.

While this does rise over time, it's not too much unless you have virtually zero expenses. Consider that if you own your home, property taxes will rise, especially if your area experiences dramatic real estate appreciation. You could easily find yourself in a position where your property taxes chew up nearly all your monthly Social Security income.

If you're covered under the railroad retirement act you'll fare much better. For those of you that think social security is such a fantastic retirement vehicle (Mom, you know who I'm talking about) you should take a gander at the plan that railroad industry employees got out of Congress. It was first enacted in 1934, then redone in 1935 when the Supreme Court found the first version unconstitutional. The version of the act we have now has been with us since 1974.

In case you're unaware what good lobbying can accomplish, the railroad union talked Congress into exempting railroad employees from the Social Security system. They knew a bad deal when they saw one, I suppose. They basically got a plan to replace social security, except that it delivers greater returns to participants. In addition there is a second tier that delivers benefits according to years of railroad industry service. The upshot of the whole thing is that, while a Social Security beneficiary retiring this month stands to receive only $2,030, a railroad employee retiring this month will get almost double; $3,959. Put that in your retirement planning pipe and smoke it!

Retirement Financial Planning Mistake #9 is never financially educating yourself. It will be hard to understand everything there is to know about finances and your money. Indeed, that's why there are professionals. You should know the basics of personal finance, however. That way you'll know what questions to ask, what terms mean and when things just don't pass the smell test. You'll also be in a better position when it comes to voting and understanding the candidates position's on financially related issues, as the politicians who make their way into office can have a huge impact on your financial future.

Retirement Financial Planning Mistake #8 is not considering retirement benefits when choosing your employer. This can happen when you're young and free, because hey, retirement's a long way off. Thinking like that will make sure that it's a long way off, you knucklehead!

Retirement Financial Planning Mistake #7 is putting all your eggs in the company stock retirement plan basket. I've said this one before, but you're relying on your company for both your primary source of income and retirement funding, and that could easily lead to trouble. Several well publicized corporate debacles, such as Enron, have illustrated the fallacy of this approach. While stories are rampant of Home Depot and Wal-Mart cashiers retiring wealthy due to their company retirement stock plans, for every one of those there are many others who paid the price when their company's stock tanked just about the time they were due to head to the golf course for the next 25 years. Unless you have no other way, put some of your money in your company stock, but put 70% somewhere else.

Closely related to mistake of keeping all your eggs in the company basket, is failure to adequately diversify your investments. All but complete financial newbies will be aware that the purpose of diversification is to reduce risk, yet many of those same people will have large percentages of their retirement funds concentrated in sector funds, company retirement accounts, real estate, or a few company's stocks. If you're young you can have time to recover from a problem, but if you're nearing retirement, this can have devastating results. Anyone living through the tech bubble burst in 2000, or real estate investors in the last year or two (depending upon where you live) can attest to the perils of this approach. Yes, you can achieve spectacular results with investments that are concentrated in narrow sectors or industries, but that's a strategy best left to younger investors that have time to weather a storm, should one occur.

Retirement Financial Planning Mistake #6 is spending more than you make. This will not only make it much more difficult to save for retirement, but can leave you deep in debt. You want to have income and be debt free when you retire, not have a string of credit card bills and other debts to contend with. Remember that if you're truly retired, you're on a fixed income, so as inflation rises, your real income will fall. That doesn't leave room for too much debt.

Retirement Financial Planning Mistake #5 is failing to make a retirement plan. Yeah, we've all heard the “failure to plan is planning to fail” adage that's drummed into your head in business school and elsewhere, but you know, there's actually quite a bit of truth to it. You need to find the two things that every plan should incorporate; a goal, and a path to achieve it. A bit of oversimplification, yes, but that's what you need. You want to find out when you want to retire, what else (kid's college, vacation property, etc.) you'll have to fund along the way, and how much income you'll need to support you and yours in the lifestyle to which you've become accustomed (or any other lifestyle you may want to retire in). Once you've done that, you can sit down either with a retirement planning professional, or on your own, and make a step by step plan to achieve your goals.

Retirement Financial Planning Mistake #4 is funding other things ahead of your retirement. This is a common mistake, borne of parent's desire to see their children do better than they, or misplaced recreationally-oriented priorities (you bought a boat instead of maxing out your 401k). If you fund your kid's college fund at the expense of your retirement fund, all you're really doing is helping to ensure that your children will have the job necessary to help support you in your retirement years, because you won't have enough money. Better to not need their help and have them work their way through college like the rest of us. It will be far better for both of you, trust me.

Retirement Financial Planning Mistake #3 is using the “set and forget” approach to retirement planning. While there's nothing wrong with a buy and hold strategy when it comes to investing (Warren Buffett's done pretty well, after all), you want to revisit your asset allocation once in a while to ensure that your strategy is the most advantageous for the times. For example, technological, economic, political, and demographic shifts will make some industries have greater potential as times change. You want to be sure that you're taking advantage of this, or at least not getting caught heavily invested in dying or declining industries. You may also want to shift more of your assets from stocks to bonds to more closely match your investment requirements as you near retirement, for example.

Retirement Financial Planning Mistake #2 is common and very serious. It's starting too late. Learn from my mistakes here, please. The power of compounding is well known, but often ignored by young investors that have their priorities more closely aligned with this weekend, rather than what they'll be doing in 30 or 40 years. You're shooting yourself in the retirement foot with this strategy, however. As an example, if you're 25 years old and earn $40k/yr now, you can contribute 8% of your salary into a fund that earns 10% for the next 40 years. Assuming you et a 5% annual raise, you'll retire with a hair over $2.2 million. Making the same assumptions, but starting only 5 years later, at 30, and you'll have almost a million dollars less, just a bit under $1.3 million! If you stop and consider that people are likely going to live much longer, that money may have to last longer than you actually worked.

Retirement Financial Planning Mistake #1 is never starting or participating in a retirement savings plan at all. That's a sure way to find yourself on the opposite end of the wealth scale in your golden years. According to the U.S. Department of Labor, 25% of Americans who had an available 401K plan didn't participate in it. That's a financial tragedy that can keep wealth a distant dream you'll never have the pleasure of living. If you consider that many 401k plans include employer matching funds, you're turning your back on free money that can multiply your investment returns. Not too smart.

If you're just starting out, avoiding these top 10 financial planning mistakes. You can retire wealthy, the real tragedy is far too many people don't think they can do it, and so they're right. Remember (Debt Free Saying of the Day)

“Good luck is a created through the sacrifice of the persistent and the prepared.”

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Well, although you won’t get anywhere near the best interest rates on a mortgage, chances are you’ll still be able to get one, even with a foreclosure on your credit. You will pay between 1.5 to 4 percentage points in interest above what you’d pay if you had good credit. Often it pays to get your credit score up even a few points because it will put you in the next higher credit score range. For more on that, see a post I did a few months back on credit score ranges, and how only a single point in your credit score could save you thousands of dollars.

There are some things you can do to help yourself though. First of all, make sure your credit is only as bad as it needs to be. Clean up your credit report and get rid of any inaccuracies. The foreclosure is going to be the sore thumb on your report though, there’s no denying that. Concentrate on paying every single bill on time from this point forward. You want to rebuild your credit to minimize the interest rate on your next loan.

If you wait 2 years after your foreclosure, you should be able to get an FHA loan. You’ll only need 3% down for most FHA (technically FHA insured) mortgages, but starting in July you will pay more with lower credit scores even with FHA loans. There is an upfront risk mitigation fee and an annual fee for those with poor credit. This will go up as the credit score down. Even if you are backed by the FHA, your credit should be 580 – 600 before you go for an FHA mortgage. Many lenders are still skittish, even with the government’s blessing, ad some won’t even loan on credit scores under 580.

This shows the need to spend your 2 years wisely, rebuilding your credit and saving a down payment. Although you can get an FHA loan with 3% down, including buyer paid closing costs, you’ll want to know that the actual down payment must be only 2.25%, but 3% of the funds in the transaction must be contributed by the buyer. Unlike a conforming mortgage, FHA lenders don’t really care where you got the 3% because they’re not required to. There has been some discussion in congress about raising the down payment for FHA mortgages, possible to 3.5%.

So, if you’ve looked foreclosure in the face, smelled it’s wretched breath, and some out of the whole thing ready to start anew, there is hope for you. You can get a mortgage after you’ve had a foreclosure, and your best bet may be with an FHA backed mortgage.

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Already a major profit center for banks and other financial institutions, the checking account overdraft fees banks charge their customers are going up yet again. At least two major banks, Charlotte, NC-based  Bank of America, and Seattle's Washington Mutual are jacking up the fees they'll charge customers for overdrawing their checking accounts. In  addition they will make it more likely that banking customers will be charged the ffes and less likely that they'll be able to talk their way out of them.

Another bank, also Charlotte based, Wachovia, who was in the news recently for firing their CEO, has gone so far as to send a memo to employees about overdraft fees. Reportedly the memo stated the bank was "..looking for every possible way to generate revenue" and told employees they should not go easy on customers trying to talk their way out of paying late, overdraft, or over the limit fees.

Although it is certainly well within any business's right to charge fees for whatever they see fit, including going a bit over on a checking account, it's also well within a customer's right to find another service provider if they feel dissatisfied. Banks are betting that consumers who are already feeling squeezed by jumping fuel prices, rising food prices and increasing mortgage payments will just sit idly by while the bank inflates their fee structure. If in fact consumers do this, the banks will be vindicated in their decisions. On the other hand, if customers respond by voting as consumers always have, with their dollars, by transferring said dollars to another institution if they feel their bank's fees are unfair, the banks may not be so quick to raise fees the next time.

So, just because you didn't get an ARM that's now adjusted way upwards when you bought your last house, doesn't mean that you won't  be helping to pay for those who did, in the form of higher bank fees. Watch out at your bank.

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To decide weather or not you will keep your home or put it on the market, you have to look at the circumstances that caused your financial difficulties. If you have a very good chance to make your house payments in the future, you can aim toward keeping your house. To determine the likelihood of making your house payments, you'll need to make an honest and realistic budget. With a little luck and some skill, you may be able to make one of a few things happen that could make keeping your home easier.

To keep your home, you'll need to either get a refinance (if you have sufficient equity and good enough credit), or workout your foreclosure through one of the following methods; mortgage modification, forbearance, or a deferment. These will help you improve your financial situation and make it easier to make your monthly mortgage payment. A hardship letter is but one step in the process toward making this happen.

To write a hardship letter you need to remain honest, but give your lender a true picture of why you are in your current financial situation. You'll need to show them what caused your current financial problems and how they caused you to become delinquent on your mortgage payments. You'll need to do your best persuasion job in the letter, because the whole reason you're writing it is to convince the lender that you're worthy of a second chance. If you're in sales, now's your time to shine. Heck, maybe you can craft such a good letter that you can actually start a business writing them for others.

The thing to remember is that you want to be convincing, but honest. Remember that lenders see many such letters and they can smell the stench of BS for miles. Before you write your letter, you'll need to workup a complete household budget. Don't leave anything out. This will be used by your lender as the basis for a mortgage modification or payment plan. Be careful, because since you will be required to submit this to your lender, they will probably hold you to it and may not allow you to change it.

In the budget, you have to show them how your ability to pay their mortgage fits into the budget that you've submitted. It's very important that you actually can fit realistic payments into the budget, because if you can't, selling your home may be your best option. Hopefully you'll be able to get your mortgage modified so that you can get payments that you can afford from this point forward. Be realistic though. If you owe $200,000 on your home, you aren't going to get a 3%, 30 year fixed mortgage, so if those are the only payments you can afford, you may have to look at other options.

After you've completed your budget, you can write your hardship letter. Here are some of the key components you need to include. All the vital statistics, such as your name, property address and best contact phone numbers. Be very cordial and simply explain to the lender exactly what hardship circumstances you've experienced. Don't lie or tell any tall tales, because they will backfire on you. Explain the circumstances (example:death in the family, medical problems, injury, military service, divorce, etc.), tell them it was a temporary situation, and that you are now able to make the payments on your mortgage. A few paragraphs will be fine. Don't get too lengthy. You will want to include the dates of your hardship in the description. Also include a statement that you believe that the facts contained in the letter are true to the best of your knowledge.

Although you can do this on your own, it's not a bad idea to seek professional assistance in fighting foreclosure from experts (which I am not). The difference between losing your home and keeping it could be a slight one, and it would be a shame to lose your home when you could have saved it. Remember that ignoring it will not make it go away. That's the worst thing you can do when facing a foreclosure situation. You need to be proactive and contact your lender as soon as you think there may be a problem. If it gets that far, writing a hardship letter to stop foreclosure will be but one step in the process. Good luck.

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They are offering a way to roll all your outstanding high interest rate debts into a single loan, typically with a lower payment than the combined payments of all your debts before (obviously if you have debts that have a lower interest rate than the offered rate for the consolidation loan, you would just retain that existing loan(s) for it's(their) original purpose). A debt consolidation loan is usually just a cash out refinance, or home equity line of credit that you use to pay off all your other outstanding debts. Despite what some of the radio ads say, they don't eliminate your debt, they just move it, and possible allow you to eliminate it faster than you otherwise would have.

There's one thing to be aware of before you begin to solicit offers for a loan. There is a scam that's becoming much more prevalent with the rising tide of credit problems and foreclosures called the advance fee loan scam. You'll be asked to pay huge fees in order to secured a guaranteed loan. Here is the FTC warning on these scams -

“Advance fee loan scams prey on consumers who may be under financial duress and may be seeking quick and easy loan approval and funding. The scam typically involves the lender making false promises to arrange for a loan in return for fees paid upfront by the loan applicant. Scam artists may even design Web sites and online loan applications giving the appearance that the company is legitimate. “

Make sure that the company that you are dealing with is a bona fide financial services firm with a proven track record. There are hundreds of real lenders in the marketplace, so finding a good one should not be difficult, just be sure and do your due diligence's.

So, how do you go about separating the wheat from the chaff when you're looking for a consolidation loan? Can one of these loans really help you get debt free? Will you pay less in interest and fees with one of these loans than you will if you just paid for your credit cards (and other debts, but the majority of these loans go to pay off credit cards) and didn't get a loan? You'll certainly want to answer these questions before you get a loan.

First of all yes, typically you will pay a lower interest rate if you transfer your debt from credit cards, which are unsecured, to a debt consolidation loan, which is secured. The mere fact that the consolidation loan is secured, typically by the borrowers home or other real estate, means that the lender faces lower exposure to risk, which is reflected in a lower interest rate to the borrower. Many people get confused by the fact that they are paying a lower interest rate, however.

Just because you are paying a lower interest rate doesn't mean that you'll pay less in total interest. That is because the term of a debt consolidation loan is much longer than the term to pay off most credit cards. If you make the minimum payment and stretch out the payment schedule to the maximum allowable time, you could actually pay more in total interest. This is because, while each interest component of each payment is lower, you will make many more payments. So, one key to getting the best debt consolidation loan is to not only search for the best interest rate, but to make the payments in such a way that you really do pay less in total interest payments.

Carefully compare the fee structure of the loan offers you receive to help determine which are the top loans. There are many fees that you may be charged, such as origination fees, processing fees, appraisal fees, credit report fees, and other fees. Not all loans will charge the same fees and not all fees for the same thing will be at the same rate between the different loans. The only way to determine which loan has the best fee structure is go through the fee schedule with a fine toothed comb.

If you have outstanding credit you can get a personal loan you can use for anything you'd like, including debt consolidation. With a personal loan you will not have to put any security up for collateral, so you won't be in danger of losing your home should you run into unforeseen financial problems. You will usually pay more than you would for a secured loan, but less than you're paying on your credit cards this way. This solution is only available for borrowers with premium credit. Keep in mind that you will also not be able to receive any tax benefits with a personal loan, as you may be able to receive if you got a cash out refinance or home equity line of credit to use for debt consolidation.

One note here, and it is a very important one:

• Make sure that the circumstances which caused you to go into debt have been eliminated, because you'll rapidly get into serious financial trouble otherwise.

In short, here is how you can be sure you are getting a top loan when you're shopping for a debt consolidation loan:

• Compare interest rates, including the simple interest and the (APR), which takes into account interest , fees and other charges.

• Compare fees – Look at the total amount of loan and service fees you'll be charged, and when you'll be required to pay them. Remember that any fees that you roll into the loan will accrue interest over the live of the loan, multiplying them substantially.

• Look at the total interest in dollars you be charged over the life of the loan

• Verify if the loan offers any tax benefits – Refinances or some home equity loan products will offer these benefits. To be sure, check with the IRS.

• Check the lender's track record. How long have they been in business, and do they have a good reputation?
  
  

One of these loans may or may not be the best solution to more quickly get you out of debt. This guide should help you get one of the top debt consolidation loans. But remember, getting debt free is up to you.

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Posted by debtblog at 01:48 PM | Permalink | Comments (0) | TrackBacks (0)

Some of your general investing choices include real estate, individual equities (stocks), bonds (debt), equity funds, mixed funds (stocks and bonds), and your own business. Within those very broad classifications, there are numerous sub classifications. For example, there are many different types of mutual funds you can invest in, all with different characteristics designed to meet the needs of different investors. You can short sell stocks, buy and hold, or try and time the market (for most investors timing the market isn't too smart).

For real estate investors, you can invest in REITs, buy single family properties and rent them out, rent multi family properties, flip properties, concentrate on foreclosures, develop and improve existing properties, or develop raw land. If you'd rather run your own business, there are literally more different business opportunities you can invest your money in than there is room to list them. You can start your own business from scratch, buy an existing business, buy a part of an existing business, or buy a franchise. The different types of businesses that are available to invest in is mind boggling.

There are several characteristics of investors you can look at to find just the right investment choice. One of the first to consider is the time horizon. How long will it be until you'll need access to the money? If you're investing for retirement and you're only 25 years old, you'll choose a totally different strategy than if you're 56 (the new 36) and rolling over an IRA. If you're 25, you can invest more aggressively than if you are closer to the time when you'll need the money because there is time to recover from volatility effects.

Typically more aggressive investments will deliver a higher rate of return, but they will bring with them commensurately more risk. If you're investing for far down the road, you'll have time to recover from those little ups and downs. Looking back over the last 20 years the tech sector has done very well indeed. However, there have been some serious bumps in the road.

For example, the Fidelity Select Software and Computer fund (FSCSX ) has returned an annualized 16.34% over the life of the fund. That's a highly respectable return, and you could do well if all your assets generate such a ROR. The problem is that the tech sector tends to flirt with volatility on occasion. If, in 1998 you were planning on retiring in 5 years, you may have looked at the stats for life of the fund return and think that plopping your money in FSCSX would have been a great idea. That would have been a fatal mistake with regards to your portfolio, however.

As you were crawling our from under the overpass, squinting in the noonday sun, and wondering what the hell happened to your money, you would have realized that just because an investment has great historical returns, it might not be the best investment for you. In this case virtually all equities in the tech sector were pulverized by the dot.com implosion. FSCSX lost almost 50% of it's value between the end of 1999 and the end of 2002.

More recently investors have experienced similar problems with regards to real estate and mortgage sector investments. The key when evaluating an investment vis-a-vis your time horizon is to look at the volatility. By definition volatility indicates a greater likelihood of wide swings in value, even if the overall rate of return during a specific time period is high. That means that you could be caught with your pants (or portfolio's value) down just when you need to begin withdrawals. By choosing investments with lower volatility when your time horizon is relatively short, you'll lower your risk of this happening.

The next thing to examine when evaluating different ways of investing money is your required rate of return. You can never predict an investment's future rate of return with 100% accuracy because you only have past history, industry trends and an evaluation of the local and world economies on which to base your decision. Lord knows any of these variables can be pretty difficult to predict with any certainty, let alone all of them combined.

You can, however, get within shouting distance of what you can expect to receive as a return on your investment by examining these factors and the past history of the prospective investment. In many cases there will be any number of industry analysts only too happy to offer their opinion. In some cases they'll be spot on, but it's often better to look at a general consensus on what performance can be expected in the future.

You will need to determine your required rate of return by determining how much you'll need to accomplish the goal of the particular investment. If you're investing for retirement, you'll need to determine how much annual income you'll require to keep you in the lifestyle to which you've become accustomed, and how long after retirement you plan on living (ah, but you know what they say about the best laid plans!). You can calculate how much of a retirement nest egg you'll need to supply that annual income figure for the requisite time period. Basically, your lump sum retirement account is calculated to pay out like an annuity. Typically a fixed rate of return is assumed for calculating purposes.

Once you know how large that lump sum must be and how long you have to amass that sum, you'll be able to calculate what rate of return you must generate to reach it, providing you known how much you'll be contributing each year. You can calculate your required rate of return using a formula, but it's generally easier to use an investment calculator.

The next thing you'll want to look at when evaluating a prospective investment is your risk tolerance. Many people have substantial tolerance for risk, others are extremely risk averse. Sometimes their risk tolerance for things financial is different that in other aspects of life. For example, you can love to bungie jump, ski and rock climb, but get pretty skittish when it comes to risking your hard earned cash. You'll want to balance your risk tolerance with the required rate of return to find a suitable investment.

Keep in mind that there is usually a positive relationship between risk and return. Higher risk investments compensate investors for taking greater risks with a higher expected rate of return. It's the expected part that can trip you up here.

Lastly, there are various intangibles that come into play. You may want to invest in things that interest you or in industries with which you have some familiarity. If you have a strong social commitment, you may want to pursue “socially responsible” investing. Other things will impact your investment choices as well, such as local or global economic factors that can make certain investments more attractive due to temporarily greater expected returns, shortened expected payout times or lowered risk.

An example of this is real estate investing in the current economy, particularly in foreclosed properties. Many regions have particularly large opportunities available here due to conditions in their regional economies. In these areas current economic climates, there are large numbers of foreclosed properties, leading to opportunities for investors who would like to invest their time and money here. You may want to retire unbelievably wealthy in a short amount of time. Well, your choices are understandably limited here, but foreclosure investing does offer you the ability to do so. Although the potential upside is large, you could also get yourself and your retirement nest egg into a spot of trouble this way. After all if it was that easy, everyone would be doing it. A few wrong moves and you could be the one getting foreclosed upon.

Another investment opportunity spawned by changing economic conditions is the growing number of new business that cater to those people wanting to save money on fuel costs, weather on motor vehicle fuel or heating oil. The very rapidly rising costs quickly created a market for products and services that wasn't really viable just a short time ago. The risk here is that your investment could be torpedoed if fuel costs drop in the future. Although analysts predict the costs of petroleum products to remain high for at least the next 18 months, possibly longer, analysts have been wrong before.

In order to evaluate different ways of investing money, you'll want to look at the following factors:

• Your investing time horizon

• Your required rate of return – Is the prospective investment expected to generate sufficient returns?

• An investment's risk as it relates to your personal risk tolerance

• Other personal factors that influence your comfort level with a personal investment.

• Your reason for investing – Is it a hobby, do you want regular income from the investment, or are you investing for retirement?
  

These factors will help determine if the different ways of investing your money will deliveer your desired result.

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On the way in this morning I sat behind a brand new, back convertible Bentley Continental. You know, the one with the 550hp twin turbo 12 cylinder. While the guy driving that car was probably not all that concerned with the recent increases in the price of fuel unless it affects his business or investments, he's probably one of the few to share that sentiment. Most of us are pulling up to the pump and trying not to retch into our cup holders as we're confronted by the most recent fuel price increase.

If this describes you, and you're leasing a vehicle, investigating one of the firms that allows you to either swap your lease to drive a different vehicle, or just get our of your current car (so you can take the train to work) may be worth doing. One benefit for those who'd like to get into a newer vehicle, is that in many cases you can do it with no money down, and a comparatively low payment. It's kind of the automotive equivalent of buying a distressed property. Here's how the whole lease take over process works.

Getting out of an existing auto lease.
You go to one of the companies that specialize in lease take overs and sign up for their service. You'll typically pay a listing fee, just as you would if you ran a classified ad to sell your vehicle. When an interested lease assumer decides they love your old car and want to take over your lease, they're credit checked to ensure they're able to take over the lease. Depending upon the service, the buyer and seller will then usually negotiate the applicable terms and come to an agreement. In many cases it works out very well for the one taking over the lease because the original lease holder has offered some sort of incentives. Even if they don't, they have already paid all the fees and deposits at the inception of the lease, so the party taking over the lease can just step in and begin making payments.

It is also great for the original lease holder because they can get out from under a lease that they can no longer afford, or a vehicle that no longer suits their needs, without paying an early termination fee to do so. Those fees can be oppressive, and a huge barrier to getting out of lease early. Letting someone else take over your existing lease will avoid the whole issue, as the lease isn't terminated, just “borrowed” until the term is completed.

Taking over an existing lease.
Just as getting the drain of a vehicle that you can no longer afford the lease payment on, or is killing you at the pump can be a weight releasing experience, so can stepping into a vehicle by just assuming the payments. A further benefit is that, since you'll only be assuming the existing lease, the term is in most cases fairly short. If you want to “try before you buy” this may be just the ticket. You can make relatively small monthly payments for terms of as short as 4 – 6 months before deciding if the vehicle is right for you. There's nothing like living with a vehicle for an extended time to make sure it's really the car that you'd like to be driving. You just can't make that evaluation in the 15 minute test drive you get at the dealership.

In some cases the lease listing agency will charge a transaction fee, and in other cases, they'll only charge a listing fee. In addition you may have to pay a fee charged by your leasing company, but in many cases these fees may be avoided. Remember that many lease terms, such as the monthly payment and allowable mileage are set in the lease terms and cannot be changed, although other terms can be negotiated between the assumer and the assumee, such as additional funds or assets that can be included in the transaction. Take note that many of the vehicles listed are fairly expensive vehicles that people are no longer in a position to afford. In addition, some of the vehicles have higher mileage so one of the reasons that people were getting out of them is that in order to stay within the maximum mileage, they can only average 800 – 900 miles per month for the remainder of the lease. Some people cannot do this.

Looking at some of the sites that specialize in the lease transfer market, I've seen some interesting vehicles such as a:

2003 Acura RSX - $145/ mo for 17 months – nice, 4-cylinder (pretty good gas mileage) performance coupe.
2007 Ford Focus – $229/ mo for 18 months
2008 Mercedes Benz R350 (Mercedes Mini-Van / SUV) $380/ mo for 26 months
2006 Mercedes Benz SLK-350 $541/mo for 14 months – Want to drive a small, but pretty quick Mercedes convertible for the summer? Here you go.

The whole lease take over marketplace is one that many people just aren't aware of. Since awarenes of the secondary market is so low, most people don't think about doing this when they're either saddled with a vehicle that they'd rather be rid of, or when looking for a new one. Taking over a lease or giving one up may not be the best choice for you, but it bears looking into if you're in either position. One of the leaders in the lease trading or take over industry is swapalease.com. You can find out more about the process, and see if it is an alternative that could work for you here. They've been featured in many national publications and are Better Business Bureau accredited.

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My post from las week about getting part time evening jobs to pay the bills was included in the 156th Edition , Carnival of Personal Finance. Check out the Carnival here.

There were some great posts. My favorites are:

Kelly's post from My Small Cents about a tale of 2 budgets. Nice contrast (in this admittedly very small sample size) for those who'd like to see the difference between living in two different systems; France and the US.

Financial Rambings post about the differences between jumping on to the fuel efficient car bandwagon and  running out to pick up a new car that gets better gas mileage. In the vast majority of cases you'll actually pay more, due to interest and depreciation, than if you continue to drive your current vehicle. Obviously if you're trading in a F-350 4x4 with a 6" lift kit for a Honda Fit, you'll probably come out ahead, but I dare say that most people won't be jumping between those two extremes.

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That is a big key when searching for cars that return high gas mileage figures. Not everyone can live with a go cart sized transportation appliance. It might be nice, but the realities of daily life intrude. People need to transport their families, luggage, athletic equipment, lawn fertilizer, tools, bags of groceries, cases of beer, and all manner of other things that must be moved in the course of our daily lives. In addition, we've been spoiled now that it's easier to find cars loaded with power windows, air conditioning, C/D players and 6 speaker stereos, and central locking, than not. People expect their cars to be well put together, and exhibit minimal rattling, buzzing, and humming as they drive down the road. First and foremost, drivers today expect their cars to start instantly, every time they turn the key or push the start button, and do so for many years.

That means that high gas mileage isn't the only thing to consider. With that in mind, I assembled the first annual Debt Free Blog’s  List of the 10 Best Cars (IMHO) for These Times of $4.00 a Gallon Gas. Feel free to disagree if you must. Keep in mind that it's not only the great gas mileage that the cars get, but their actual fuel cost that you'll pay that makes a difference. So, remember that while many diesel cars get fantastic fuel mileage, their actual fuel economy is somewhat lower, as diesel fuel currently costs about 17% - 20% more per gallon than regular gas. Amenities, handling, general driveability, performance and safety were all considered as well. If I haven't personally driven these vehicles, I looked to published road test and comparison reports from various industry and consumer publications.

NOTE: All mileage figures are from the EPA combined fuel economy ratings published May 16, 2008, and I chose only vehicle that use regular grade gas.

The Highest Gas Mileage Car – 10
Coming in at number 10 on my list of highest gas mileage cars that you can drive everyday is the 2008 Nissan Altima with the CVT automatic and the 2.5 liter 4 cylinder engine, with an EPA combined rating of 26mpg. One of the few cars on the road to showcase the wonders of the continuously variable transmission, the 2008 Altima is fairly stylish, holds a family of 5 with a modicum of comfort, gives you a real trunk to hold your stuff, and is a pleasure to drive. It gives brisk acceleration, and the CVT helps combine very respectable gas mileage with the aforementioned acceleration. The base price of the 2008 Altima with the 2.5 liter 4 cylinder engine and the CVT is $20,970.

The Highest Gas Mileage Car – 9
Hitting the number 9 spot on the Debt Free list of highest gas mileage cars was a Toyota. No, not the hybrid darling of the Hollywood / green set, the pioneering hybrid Prius; it’s the Camry. Although Toyota has delivered to drivers a hybrid version of their bread and butter sedan, I chose the 2.4 liter, 4-cylinder version instead. Why? Well, because as in many other hybrid vehicles, the incremental cost will take quite a long time to pay off, given the improvement in gas mileage. I want to see the payoff in less than 100,000 miles, and the Camry Hybrid can’t make that happen.

Besides, the 2.4 liter is a great family car. I should know; my mother in law drives a 4 cylinder SE version. This car hasn’t gotten to be one of the top selling cars for the last 5 years for nothing. It brings those attributes and combine them with its 25mpg EPA combined rating to earn its number 9 ranking. The base price for the LE, the least expensive 2008 Camry available with an automatic, is $22,085.

The Highest Gas Mileage Car – 8
At number 8 on the Debt Free list is the Mazda 3i sedan. I handles like a go cart, stops on a dime, has room for all your stuff (although not as much as the much more expensive 5-door version), and returns an impressive 26mpg on the EPA combined test. It's a bit tight for a family of 5, but if yours has only 4, you're in! Mazda makes the 3S, which offers a larger engine, but only a little more power and torque, plus some more standard features. The 3s costs more however and gets worse gas mileage though, so I stayed with the 3i. You get alot for your money, it gets good mileage, and it's high on the fun to drive scale. With A/C (an $880 option!!) and the ABS / side airbag safety package ($395), the 3i tickets for a modest $16,820.

The Highest Gas Mileage Car – 7
Busting into the high mileage 10 at position number 7 is the Volkswagen Jetta, and the back-for-2009 TDI engine. I actually did an analysis of the older version of this vehicle, and determined it wasn’t worth the extra money VW charges over the base car, but that was when gas was only about $3.00 a gallon. Obviously, things have changed for the worse on that score. Returning a stellar 33mpg for the EPA combined rating, it stretches to 40mpg on the highway. Those mileage figures are with the automatic transmission, too. Some reports have this car getting up to, sit down now, 60mpg on the highway. The new diesel sets bench marks for refinement in small diesel auto engines, being smooth, relatively quiet, and offering new environmentally friendly, clean diesel technology.

VW, like corporate cousin Audi, has a well deserved reputation for making top-notch, high grade  interiors, and the ’09 Jetta TDI continues that tradition. The Jetta cockpit is a great place to spend your commute. German cars have vehicle dynamics bred from years of having a national highway system with no speed limits. The just have a great way of feeling composed as they go down the road, and their steering seems to always go right where you point it. Jettas were getting a bit wallowy in the early part of this decade, but at least some of that great feeling is back. The driving dynamics and first rate interior, combined with enough room for 5, decent trunk space, and that stellar fuel mileage combine to earn the 2009 Jetta diesel the number 7 spot on my list. The base price for the Jetta with the diesel engine is estimated to be in the mid $22,000 range when it hits our shores in mid summer.

The Highest Gas Mileage Car – 6
At the number 6 position is the new 2009 Hyundai Sonata, with a 25mpg combined fuel economy rating. Hyundai was once the poor stepchild of the automotive world, competing only on price, because lord knows they couldn't compete on quality or any other aspect of automotive desirability. As did the Japanese 20 years before however, the Koreans figured out how to make a pretty damn good car, and now Hyundai is well regarded as a maker of quality vehicles that are on par with any of the better offerings from Japan, Europe or the USA, often at a lower price. The 2009 Sonata is their bread and butter sedan, competing in the crowded niche along with the Camry, Accord, and the two cars above, although the Chevy Malibu is a bit larger than the others.

They put in a ton of work in the place you'll spend your time, the interior. It looks great! The outside received some styling tweaks as well, but overall it pretty much blends in to the crowd. The engines were revised as well. Take note that last year a Sonata with the 6 cylinder engine was clocked by speed cameras in Scottsdale Arizona traveling at 143 (that's one hundred and forty three) miles per hour, but that's not the engine that I'm recommending. In today's times of gas that cost's nearly as much per gallon as bottled water, you'd better stick to the newly revised, 2.4 liter 4.

One place the Korean cars have done well is in the content for the dollar game. They give a good value. The Sonata comes with a full complement of safety features, including front, side seat curtain, and side airbags, ABS, traction control and electronic stability control (ESC has been shown to be much better at improving safety than has ABS). It has an MP3 jack in the stereo, XM satellite radio, and a USB input for your iPOD so you can see your iPOD’s info and control it from the controls on your stereo. With a 5 speed automatic and the 2.4 liter 4 cylinder engine, the Hyundai sells for $19,320, complete with power windows, cruise control, power heated mirrors, power locks, A/C, and a tilt wheel. The high content, decent size, good quality, luxo interior, and high gas mileage, at a sub $20K price are what get the Sonata to within spitting distance of the top 5.

The Highest Gas Mileage Car – 5
Breaking into the top 5 is the 2008 Honda Fit, which hits the EPA combined chart at 29mpg. Although it looks like one of those too-small cars, its small size belies the astounding space available inside. That’s a great feat of packaging by the engineers at Honda. Although the interior has copious space, even for the over 6 foot crowd, you can only do so much with a 157.4” overall length, and there’s not tons of luggage space for long trips if you bring 5 people. The sport version, with alloy wheels, a 5 speed automatic transmission, 200 watt stereo with MP3 jack, A/C, cruise control, anti lock brakes and power everything is barely over $16,000. Although the fit only has 109hp, by all reports it handles great, and is really fun to drive. For 2009, Honda is adding 11hp and more torque for added drivability, but they promise no decrease in gas mileage.

The Highest Gas Mileage Car – 4
At number 4 on the countdown is the all new for 2009 Toyota Corolla, in particular the S model. It looks like the Camry’s smaller sibling, which in fact it is. A ’09 Corolla S with option package A will suck $19,655 from your wallet, but the automatic tranny version will deliver a highly respectable 29mpg combined. The S is powered by a 1.8 liter 4 cylinder, part of the reason it’s no speed demon, but also the primary reason for it’s great gas mileage. Toyota offers a 2.4 liter (the some one as is found in the Camry) in the upper XRS model, but the price and fuel economy penalties are too severe for my blood. Stepping up to the 2.4 liter will cost you an additional $2,800 at the bank, and 4mpg at the pump; too rich for me.

The Highest Gas Mileage Car – 3
At number 3 position is the 2008 Chevy Malibu with the 2.5 liter, Ecotech 4 cylinder and 6-speed automatic tranny. What, no hybrid? Well, Chevy does offer a nice, mild hybrid version of this vehicle, but it only shows a 2mpg improvement on the EPA combined scale, hitting at 27mpg, while the traditional 4-cylinder power train combo gives 25mpg.

That 2mpg improvement in gas mileage will set you back about $4,000 more at the local Chevy dealership, probably more with the obligatory hybrid 2^nd sticker found at so many dealers these days. I don't know about you, but that's a pretty large incremental cost for a 2mpg improvement in my book. Even at $4.00 a gallon, that’s 1,000 gallons of gas you'll have to save before the hybrid drive train pays for itself. At the 2mpg difference, you're looking at 336,700 miles of driving before that day comes. I'd venture to say that most people just won't put that many miles on their new Malibu, no matter how well it drives.

This Malibu is not to be confused with the car of the same name Chevy has been foisting on the driving public for the last few years. The new one is based upon GM's Epsilon platform, as is the Saturn Aura, but the Malibu seems to be a better car. It certainly looks better than the Saturn (and any previous Malibu) inside and out in my eyes. It seems like American car companies have finally (it only took 30 years) deciphered the code to designing decent looking interiors. The Malibu's plenty large enough for a family of 5, and most of their gear too. The new 6 speed auto has gotten pretty good reports from the field when mated to the 2.5 liter 4-cylinder engine, too. Anytime you can have a car return 25mpg combined and 32mpg on the open road that’s this big, that drives this well, that's a pretty good thing.

The Highest Gas Mileage Car – 2
Well, you knew it would be on here somewhere. Yes, the number 2 position is taken by the Kleenex and TiVO of hybrids, the Toyota Prius. Far better than the original Prius, the current version debuted in 2004, when Toyota turned it into a real, usable car. It beats everything in the country with its 46mpg EPA combined rating, has good interior space, and decent power, although an acceleration champ it’s definitely not.

Although the electric portion of the drive train boasts a healthy 295 lb-feet of torque, that’s not the Prius’s raison d'etre. No, the main motivation to wait in line for one is that big number 46 on the window sticker; the EPA sticker, not Toyota’s, although some dealers are slapping healthy 2^nd stickers on them (reports have had ADM stickers at the $3,000 level). If you live for the open road, this isn’t the car for you, but if you spend much of your time commuting in urban traffic, and taking a 30 mile jaunt to grandma’s on weekends, this is the car for you.

The Highest Gas Mileage Car – 1
Okay, this is it; the highest gas mileage car on the Debt Free list. Another Honda, the Civic Hybrid, occupies the number 1 spot on the Debt Free list of highest mileage cars (that you could actually use for your family). It earned its ranking by virtue of its outstanding 42mpg, refinement, and fairly low price. Hondas are known for their jewel like power plants, and this one’s no different, except it really sips gas, and is backed with a CVT, instead of a traditional transmission. I vacillated between the traditional Civic with the closest level of equipment to the hybrid, the LX, and the hybrid. The LX is no slouch itself, achieving a 29mpg combined score, at a substantial, $3,900 discount. With the hybrid you get an additional 13mpg, alloy wheels, automatic climate control, and a better stereo with a CD/MP3/WMA Player, 6 Speakers and XM Ready ®  as standard equipment, that’s not on the LX version, so the $3,900 is buying more than just added fuel economy.

If you plan to keep the car for a while, you’ll probably see a return, especially if gas gets even more expensive. At $4.00 a gallon, you’re looking at 975 gallons you’ll have to save before you see that return, which will happen at about 90,000 miles. 90k miles is attainable for many drivers, while some hybrid differentials don’t seem to be. It handles better than a Toyota Prius and looks better on the inside as well, and you know how I feel about nice car interiors.

So that’s the 1^st annual Debt Free list of the Highest Gas Mileage Cars (that you can really use for your family). I hope you find yours on there. One note: I left off the Smart ForTwo car on purpose. It’s just too small, and at 36MPG combined, doesn’t get nearly the gas mileage you can get from some of the real cars on the market. Sure it’s cheap, but just not enough a smart choice for me.

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I did a post last month on the real reasons why gas prices are so high, if you want to know about such things. 

Thanks, and have a great weekend! 

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Posted by debtblog at 07:10 AM | Permalink | Comments (0) | TrackBacks (0)

How much can you save by sending those Camels to the great ashtray in the sky? Well, simple math reveals that it's a heck of alot of money. If you're looking for reasons to quit smoking, you've just found another great one. Think about how much those little sticks of tobacco add up to. At around $5.50 a pack (more in some places, less in others, mostly predicated upon the local or state tax rates) a 3 pack a day smoker will spend $6,022 pretax dollars a year for the joy of sucking that smoke into their lungs.

$6,022 pretax dollars is a healthy chunk of change. If you're single and earning $50,000 a year your top marginal tax rate is 25%, and your average effective tax rate is about 17.7%. That means that everything you buy really costs 17.7% more than the sticker price. This is because because you have to earn that much more to actually have the purchase price in your pocket after you pay taxes (Federal taxes only, if you pay state income taxes you have to earn even more). So, if you're earning $50K a year, that $5.50 pack of cigarettes will really set you back about $6.47 each. If you'd taken those pretax dollars and invested them in an IRA instead of the profits of U.S. Tobacco, you'd have quite a nest egg by the time you retired.

For example, if you're 30 years old, earning the same $50K per year, and smoking 2 packs a day, you're spending $4,723 in after tax dollars on cigarettes every year. If you quit smoking and invest that amount, in an IRA earning 8%, it will grow to over $372,000 by the time you retire at 65. If you're a 3 pack a day smoker, sit down before you get sick. You're spending a hair over $7,000 in after tax dollars for smokes throughout the year. That amount will grow to about $560,000 by the time you're 65.

If you need reasons to quit smoking, think of this one; If you're still smoking at 65, you could be sitting there, bemoaning the size of your retirement account, or you could be heading out for a quick 9 at LaQuinta. It's up to you.

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Posted by debtblog at 01:33 PM | Permalink | Comments (0) | TrackBacks (0)

You have a few choices when confronted by such attacks on your personal finances. You can earn more at your current job. While that tie honored strategy may work for some, employers aren't doling out raises the way they are when times are better. Sure, in some industries, there's no reason to fear, but the increased costs for transportation have many business owners and shareholders on edge. Raises don't grow on trees in this business environment.

Something to try is finding another job with better pay, and hopefully a better benefits package too. The problem with that tack is  that, for much the same reasons that folks find it difficult to get a raise at their current job, many employers just aren't hiring. Those that are are looking for more talent seek workers with specialized skill sets. You'll be most likely to land a better psoition if you're an exemplary employee with a proven track records in your field. If you don't meet this criteria, good luck landing a better job. There just aren't that many available. Not to say you won't be able to locate a better job, but be prepared to look for a while, as employers that are hiring can afford to be much more selective.

The Employment Situation Summary for April 2008 from the Bureau of Labor Statistics reveals that the unemployment rate stood at an even 5%. That's up about 10% from the 4.5% level of a year earlier. Encouragingly, this reflects a .1% drop from the March figure of 5.1%. The health services sector, professional and businesses services sector, and leisure and hospitality sector, all posted slight employment gains, while as you'd expect, the construction, manufacturing, and retail sectors showed drops in the numbers of those employed.

Another choice to cope with higher payments for everything from food to fuel is to economize. You can inject a bit of frugality into your lifestyle. Do more with less, as it were. While this approach is laudable, and I espouse the benefits of it here, a cost cutting strategy can only take you so far. While you can drive less, shop at warehouse food stores, and ensure you're not wasting energy around the house, the reality is that there is only a finite level of savings you'll be able to realize with these strategies.

The grim reality some people are finding is that the only way out of this financial pickle is to pick up a second job, usually of the part time, evening variety. For those that must take on an extra, part time job in order to feed their families, or make their mortgage payments, here are some of the top part time, evening jobs to consider.

Part time, evening job choice 1 -
Side jobs –
Yes, you can do much the same work as you're doing for your regular employer, if you're in a field that allows such luxuries, or you can do other side work for which you have the requisite skills. Enter the side job. You can do all manner of jobs for clients outside your regular sphere of employment, and in some cases be paid rather handsomely for it, too. Many of these jobs are in construction or some type of contracting field, such as landscaping, tile, carpentry, electricians, etc. You can also find such work in such fields as graphic design, web design and interior design.

As prices of goods continue to increase, people are looking for ways to get more done for less, and this is where the side job comes in. Take note that although this can be a great way to earn extra money, it is not without peril. The main reason that many people can make such good money doing side jobs is that they are cheaper that a normal contractor who does the same work because they have little of the overhead associated with a traditional business. Which overhead is cut back? Typically such niceties as business licenses, contracting licenses, insurance, bonding, and permit fees.

It doesn't take a missile scientist to see that this avenue to saving money could lead to all sorts of trouble for both parties. If you're the one doing the side job and have no license, you have no recourse in most cases, should something go wrong and you customer decides they don't want to pay you. As far as the state is concerned, you had no right to be contracting for work in the first place. With no business insurance, your little venture could prove very expensive if you back your truck into your customer's brand new Lexus, or heaven forbid, burn down their house.

In addition to the legal issues listed above, the other place that most people running a side business save the client money is that the entire business is on a pure cash basis, meaning the IRS and state department of revenue known nothing about it. Should their state of ignorant bliss regarding your little venture end, you could find yourself owning a whole big pile of back taxes, penalties and fees.  These are just some of the tings to think about before entering into a little side business in order to make ends meet. It's best to do it above board to avoid possible trouble.

Part time, evening job choice 2 -
Restaurant / Bar  – This is the time honored second job. For many of those in the entertainment industry, it's really their primary gig until they land that Oscar winning role or win American Idol. The benefits are that you can earn a pretty nice income if you work at an establishment where you are able to get good tips. There are bartenders and wait staff that regularly bring in $200 - $300 a night. In many cases their regular pay is so low they are making virtually nothing, so the tips are essential to survival. You can also get flexible hours, so you can arrange this around your current job. Many of the best shifts are at night, so you will be able to earn good money and retain your current job. My wife actually paid off her (rather large amount of) student loans in only 2-1/2 years using this strategy, while working as a regional sales rep for another company.

Part time, evening job choice 3 -
Real Estate -  Although this is probably not the best time to jump into this field in many areas of the country, you can do pretty well in it by working on evenings and weekends. As with many relatively high paying, part time jobs, you'll have to have a bit of training and expertise in order to have this as a viable possibility.

Part time, evening job choice 4 -
I alluded to this in the side job listing above, but you can do rather well in the design field on a part time basis. If you have the skills and contacts, you can earn $25 - $60 an hour doing web design, graphic design, graphic art, and other design/art related contracting work. You can do this from your house, on what ever schedule works for you. In order to land most of the better jobs, you'll have to show some level of professionalism, so get your business license, print up some business cards, and get a website of your own. Who knows, in time this could replace your current job.

Part time, evening job choice 5 -
Massage Therapist -  Once again, you'll need to have some level of skill and preferably a certificate to do this, but you can have extreme flexibility and make fairly good money. All you need is a massage table and vehicle large enough to fit it in. If you're good, you'll soon build up a list of regular clientèle, and have a nice, secondary income on the order of $25 - $35 an hour. 

Part time, evening job choice 6 -
Security officer – Like to laugh in the face of danger, or maybe extreme boredom? Then maybe you could land a part time, evening job as a security officer. The range in this field is tremendous. There are opportunities for everyone from the $8.00 security guards with a badge, a flashlight, and no experience, to very highly paid security officers with military special forces backgrounds. Many full time police officers do this sort of work on a contract basis for businesses and sporting events and earn a nice, secondary income doing so.

Part time, evening job choice 7 -
Personal trainer – Here's another job where you can earn great money and keep very flexible hours, especially if you get the clients that are willing to pay for you exclusively. You're probably starting to see a pattern here, but to make the best money, you'll need special skills and certifications in this line of work as well. You can get certified from ACE, NCSA, or one of the other certification organizations. If you already posses some of this, get to work, time's a wastin'.

Part time, evening job choice 8 -
Health care professional – This is a huge field, and many of the positions require at least some level of expertise and education. Others require so much as to not really fit the bill for the purposes of this post. The health care field is the largest growing employment field, and is projected to be so for sometime. Some of the jobs in this field that are suitable for part time, evening work include home health aides, certified nursing assistants, and paramedic / EMT positions.

Part time, evening job choice 9 -
Network technician – This is an area where you will need some skill and obviously a background in networking. The bright side is that you can teach yourself much of this, and there are many classes available at community colleges and learning centers that will get you the required certifications in relatively short order. As the number of home and business networks deployed throughout the country continues to grow, the demand for network savvy technicians will grow  along with it.

The great thing is that while much of our nation's tech support positions have been outsourced to India, there's not much chance that this sort of work can be outsourced, since it is performed on site. Much of this work is done at night, because the networks are in operation during normal business hours, so upgrades, changes and a good percentage of the troubleshooting must be performed during off hours.

Part time, evening job choice 10 -
Data entry – all of that stuff in your computer (and everyone else's) had to get there somehow. Welcome to the exciting world of data entry, just watch out for all those data entry job scams advertised out there. Seriously you can get a real, legitimate data entry job that you can do on evenings or weekends for extra money. If you're a decent typist, and have a computer, you're in. Get employment from a legitimate firm and don't fall for the “pay us for a job” or “make $5,000 a week, at home, from your computer” scam that’s fairly prevalent in the data entry field.

Hopefully you haven’t experienced the economic setbacks that would require you to get a part time job in the evening, but if you have, or you just want to earn extra money, this list could get you started looking.

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Posted by debtblog at 07:17 PM | Permalink | Comments (0) | TrackBacks (0)