The root of the problem

So what if someone wrote you a check to pay off all of your debt today? Wouldn’t that be exciting? You wouldn’t have to put up with the extra job, the time away from family and friends, the strict budget and all the other annoyances with getting out of debt. It would be a cause for celebration if you learned your lesson.

Getting out of debt is meaningless if you never addressed the reasons you got into debt in the first place. If I’m walking through my house and I step on a nail, I would immediately clean my foot and put a bandage on the wound. However, if I don’t remove the nail from the floor, the next time I walk that way, I will step on the nail again. It is the same way with debt, we have to address and correct the real problem or we will continue to financially hurt ourselves. The real problem isn’t debt, debt is only the symptom of various other issues that may need to be addressed.

Here are a few root problems that may need to be fixed so you can stay out of debt:

• Not being prepared – this is the point in building up your savings; things will happen and if you are prepared it dramatically decreases your chances of having to borrow money.
• Greed – The excessive desire for more of something than is needed. There is nothing wrong with desiring increase but not at the expense of submitting yourself to financial bondage. We must learn to be more patient to get things. Luke 12:15 says “beware, don’t be greedy for what you don’t have…”
• Overspending – We can’t afford it but we buy it anyway.
• Health Insurance – Many people don’t have credit card debt but they don’t have health insurance so one unexpected sickness can put them thousands of dollars into debt. I know its expensive but if you can afford it, definitely get it.
• The Jones’ – The old cliché “keeping up with the Jones’.” However, if we take an in depth look at the Jones’ income and compare it to how much goes out in living expenses we will clearly see they have no money and no savings. They are broke!
• Impulse spending – We don’t take the time to think before we buy. We just see it, we want it so we get it right there on the spot. Proverbs 13:16 says “wise people think before they act…”

Many people have paid off debt, only to end up in debt again a couple years later. It’s because they didn’t correct the root of the problem.

Making Home Affordable program

While we don’t want to overreact and make statements like “everyone is losing their homes,” we also want to face the reality that some people really are stuggling to make their mortgage payments. The reasons vary and can be contributed to job loss, unexpected sickness, salary cutbacks, they could have bought more house than they could comfortably afford or they signed up for a subprime mortgage. There are many different reasons and they should be acknowledged but more importantly, where do we go from here.

The Obama Administration has introduced two programs to help people struggling to make their mortgage payments. They have a “loan refinance” and “loan modification” program. I will be talking about the Loan Modification program.

Making Home Affordable Loan Modification

This program is available to those who can no longer afford their monthly mortgage payments because their interest rate increased or they have less pay. Qualifying for a loan modification will make your mortgage payment more affordable. You can visit this website for more detailed information, to see if you qualify and what steps to take. You or someone you know may need to take advantage of this program. Below are a few of the frequently asked questions.

Can Making Home Affordable help me if my loan is not owned or securitized by Fannie Mae or Freddie Mac?
Yes. Making Home Affordable offers help to borrowers who are struggling to keep their loans current or who are already behind on their mortgage payments. By providing mortgage servicers with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.

Do I need to be behind on my mortgage payments to be eligible for a Home Affordable Modification?
No. Responsible borrowers who are struggling to remain current on their mortgage payments are eligible if they are at risk of imminent default, for example, because their mortgage payment has recently increased to a level that is not affordable. If you have had or anticipate a significant increase in your mortgage payment or you have had a significant reduction in income or have experienced some other hardship that makes you unable to pay your mortgage, contact your servicer. You will be required to document your income and expenses and provide evidence of the hardship or change in your circumstances.

How do I know if my servicer is participating? Are all servicers required to participate?
Servicer participation in the program is voluntary. However, the government is offering substantial incentives to servicers and investors, and it is expected that most major servicers will participate. Participating servicers will sign a contract with Treasury’s financial agent, through which they agree to review every potentially eligible borrower who calls or writes asking to be considered for the program.

You can visit www.makinghomeaffordable.gov for more FAQs and to read information on how to avoid being scammed. These are tough times for many people but resources are available that may be the help that is needed.

Justifying our financial decisions

You’ve heard it before, “I’m buying this car because I need a new car” or “I had to get that sofa because mine was worn out.” You may have even been the one who said it. It’s no secret and even though we are slow to admit to it but we justify many things to make ourselves feel better about doing them. It’s no different when it comes to our money. We will spend much more money than we have and conjure up a reason to justify it.

Why do we justify it

Why else? Because it lessens the guilt and removes the responsibility of discipline. I have done it before. At one point one of my cars had been stolen and totaled beyond repair, so when the insurance company sent me the check I started telling myself I deserve a better car than I had. I wasn’t making much money and once I paid rent and other expenses I wasn’t left with much. However, I signed up for a newer car with a huge payment that I could not afford and justified it with the fact that my car had been stolen so I deserved something better.

When we justify something our purpose is to prove that the action or the future action is reasonable. We disregard the logic, we don’t count the cost, we don’t sit down and weight the calculated risk concerning the purchase. We simply justify doing it. It doesn’t mean that the reasoning is not valid but there are always other options that could be considered.

If you are digging yourself out of debt or trying to build savings you may not be able to buy your newborn or toddler six different pairs of shoes because you want them to have the best. The reasoning is valid. Clothing and shoes are a need but even our needs must be purchased and planned out wisely.

Decisions

We are surrounded by financial decisions every day. We are presented with a choice and we make the decision. How do we increase the chances of making the right decision? We think it through. We ask ourselves will this positively or negatively affect me in the long run? Will I reap good or will I reap bad from this? It’s when we simply say well little Johnny does need a winter coat and we just buy one is when we move into the area of overspending, living above our means and take the walk into financial ruin.

We can’t make bad financial decisions then give a “good reason” to justify that decision. Financial maturity tells us to plan out purchases through a budget by making it work on paper before ever attempting to making it work off paper.

Think it through

Proverbs 14:15 says “a wise man gives thoughts to his steps.” We have to consider the long term costs for our financial decisions. Justifying something may seem like a good idea in the present moment but it could cost you much more if you don’t give it careful consideration.

The truth about “zero percent” car loans

Who would turn up buying a car knowing you won’t have to pay interest? That’s beating the system right? Well, not really. Many times just because an offer seems like a good deal doesn’t always mean it’s a good deal. We have to weigh the costs and get a complete understanding because going into a transaction with limited knowledge is sure to hurt you in the long run.

The truth

The stipulations for 0% financing are rigid. To qualify you must have excellent credit and a high credit score. This fact screams that only a small percentage of buyers would qualify for the 0%.

If you are looking for a lightly used vehicle you won’t be able to enjoy this “free money” either. The zero percent applies to new cars and usually only to a limited amount of make and models, so there’s a smaller selection to choose from.

Zero percent financing comes with shorter term periods giving y0u less time to pay off the car and resulting in extremely higher monthly payments. The average term is 24 – 36 months.

Not really worth it

Zero percent sounds good because you automatically hear “free money” but the dealership is not in the business of giving out “free money.” If you do qualify for the 0%, you can bet the dealership is making up for that free interest somewhere on the back end of the transaction with fees or add-ons of some sort.

So if you are looking for an “affordable” monthly payment, this probably isn’t the deal for you. The average car buyer needs to push their term out to 72 months just to make the payment somewhat affordable.

An affordable car payment

I believe the most affordable car payment is $0.00/month. Thomas Stanley observed in his book “The Millionaire Next Door” that the average millionaire did not have a car payment. It’s not that they don’t have car payments because they are millionaires but they reached that level because they didn’t have car payments prior. Whether its 0% or 5% interest, the best way to build wealth is steer clear of any car payment and pay cash.