There are benefits to using one of these services to assist you. For example, these services can:

• Reduce some of the stress by combining all your debt to one payment a month;
• Lower the interest rate on your current credit card accounts dramatically;
• Improve your cash flow by lowering your overall payments for each month;
• Eliminate late fees and penalties;
• Improve your credit score.

But keep in mind that it is not as great as it sounds, there are other factors that you should consider before you decide to use a debt consolidation service or not:

The debt doesn’t just go away!

Your debt is just consolidated into one pretty package. So whether you are paying one payment or 3 or 4, the amount you owe is the amount you owe.  Unless the company is able to help you reduce your total debt, the amount you owe is there until it gets paid off.

A lower interest rate doesn’t mean you pay less interest

The debt consolidation companies are often able to reduce the interest rates on your current credit card accounts.  You might be currently paying a 24% or even a 29% interest rate and they might be able to reduce it to 10% or even less.  But if they have reduced your monthly payments and interest rates at the same time, then most likely you will be paying your debt for many years to come. If you were required to pay off your debt  in 5 years before, now you might be paying it off in 15 or 20 years.  More years to pay means more interest to pay. Here’s an illustration:

Let’s say you have $10,000 in debt with 24% interest rate and you pay $300 a month for less than 5 years. You will be paying a total of $6,060 in interest rates.

Now if you had the same debt of $10,000 with 10% interest rate you can pay as low as $120 a month for almost 12 years you will be paying a total of $6,875.

So as you can see, you will have a lower monthly payment and lower interest rate, but at the end of the 15 years you will have paid more in interest.

Of course the main factor is how much can you pay on a monthly basis. If you can increase your monthly payment from $120 to $150, it would have a major impact on the total interest you will be paying as well as how fast you can pay it off.

But don’t forget, you can also pick up the phone and talk to the credit card companies yourself.  Let them know your situation and that you are not able to meet your debt obligations with the current high interest rates and that you are thinking about going through a debt consolidation agency.  In many cases the credit card companies are able to reduce the interest rates for you directly.

False sense that things are fine

I am a big believer of fixing things at the root of the problem. If you find a quick fix to your accumulated debt, you aren’t looking at the underlying patterns that you have created in your life.  The reason you are in debt is because you have lost control of your spending or your income is not matching your expenses. The more you can work on understanding how you got here, the better it is for you to learn to have a healthier relationship with your wallet. There was a bankruptcy repeat filings study done by John Golmant and Tom Ulrich for the Administrative Office of the U.S. Court where they analyzed 13 million bankruptcy filings. They found that 16% of the U.S. bankruptcy filings between 1993 to 2002 were repeat filings. In another study of Household Borrowing after Personal Bankruptcy, of those who had filed for bankruptcy, 89% had accumulated debt again and 16% had 60+ days delinquencies.

What these studies tell me is that even if one files for bankruptcy and clears away debt, studies shows that people still tend to go back to their old patterns of getting into debt… until they learn not to.

Learning the reasons behind your spending habits and debt accumulation patterns is the best way to ensure it won’t happen again.

Keep in mind the cost of debt consolidation

When analyzing all the plus and minuses of going through a debt consolidation agency, keep in mind that there is a fee for their services. Find out how much they charge; is it a flat up front fee or a monthly charge added to your payment plan?  Knowing what the fees are will help you evaluate the cost / benefit ratio.  Go back to the list above for all the benefits and the shortfalls of going with a debt consolidation service.  Is the fee they are charging you worth it or not?

Sometimes the easy way might actually not be the best way.  By learning how to deal with credit card companies, paying off your debt and improve your credit score yourself, you can build your self esteem.  You can pay someone to fix the problem today or you can learn to for the rest of your life.

Have fun learning and let  me know if I can help!

I was talking to one of my client’s last week about all the ways she can come up with some cash quickly. We realized that she typically got a refund with her tax filing and what better way to get that money sooner than later. In my experience, it takes 10 to 14 days for you to get your federal tax refund with online filing and a little bit longer for your state refund.

Of course, if you know you are in a situation that you will be owing taxes this year, there is no benefit of filing it early except perhaps to get it off your mind. Tax time can be a very stressful time of year for a lot of people. Gathering all your tax documents, finding the appropriate tax service provider and making sure everything is filed properly and on time can be a hassle… unless you are like me and just love crunching numbers!

So what are you waiting for, have you done your taxes yet??

Driving by vendors on the side of the road in Dhaka.

The contrast between the poor and the rich is very obvious in this country. As you may know, Bangladesh is one of the poorest countries in the world. The average salary is estimated at $600 a year and more than 37% are living below the poverty line.  The contrast between this city and New York was evident from the moment I stepped into the streets of Dhaka from the airport. I had a luxury car picking me up from the airport, directly driving me to a 5 star hotel.  The drive was quite unique to say the least with rush-hour traffic still continuing after 11 p.m. — making traffic in NY or Los Angeles seem like nothing. The main reason for the traffic was of course too many cars on the road, but also the fact that the infrastructure has not been built to sustain the population.

The highways were only two lanes, poor quality and not being maintained. Most of the side roads are far worse than the highways there, with traffic coming from all sides; seemingly lawless. In addition to the mass of cars in the road, there are almost the same amount of people in the streets, either trying to cross over or begging for money. The poor are not limited to one or two streets or neighborhoods; they are everywhere. From what I could see from my car view, the poorest homeless person in NY is a hundred times better off than a poor family in Dhaka.

Textiles are a large part of the industry of Bangladesh.

During my two weeks in Bangladesh, one day, my friend and I took a road trip to a nearby village. We spent the day there seeing the whole town and meeting the locals. The people of this village mainly make their living by creating hand-made clay products or fabric for sari’s for local distribution. A worker makes an average of $2 a day which most of the year is under hot, humid weather conditions. There were no TV’s, Internet or malls in that town. Walking through the village, I could not fathom how anyone could live there. There was no entertainment, no distractions, no billboards or any sky-scrapers! People live in shacks made of thin Metal and wash their cloths in the river. Small kids walk around the village with no adult supervision, which just seemed so odd to me. Neighbors just walked right into each other’s homes. I asked one of the locals why he chose to live in the village and he smiled and said: “Look around, it’s peaceful here, I love the fresh air, I love knowing all my neighbors. I wouldn’t trade this for any other place in the world.”

A woman creating a sari that she'll later sell.

I began to realize the concepts of rich and poor, luxury and necessity are very relative to one’s own experiences. For example, someone who lives in the slums of Dhaka could not dream of having meat more than a couple of times a year while most of us don’t think twice about what we are eating on a daily basis. Living in New York, I know many people who have lost their jobs in the last two years. Some people who have been a bit more fortunate have had only pay freezes and bonus cuts! I know that many people in U.S. are affected by the economic downfall and that is sad.

Current U.S. unemployment is at 9.7% while in some countries in the European Union it is much worse, with Latvia at 22.8% and Spain at 19.5%. But as bad as things are in U.S. our standard of living is far better than most people in the world. People in the U.S. who live below the poverty line rarely ever have to fear about getting three meals a day. Poverty in many communities in Africa, on the other hand, often means the prospect of death.

So, next time you are worried about your current financial situation, just remember it is all relative!

1. Is this in my budget?

Of course you first need to have a budget, but once you do, it makes spending your money guilt free! Not having some sort of budget, even if it is a general one, is like driving without direction. You will never get far, or worse: you’ll end up getting lost. If you are working with me, you already know how easy and fun budgeting can be. So keep your budget in mind as you are buying.

2. Can I afford this?

Sometimes even if what you are buying is within your short-term budget, it might not fit within your bigger goals. For example, if you have a goal of buying a house, sometimes you might be better off to skip the purchase. Even if you have the money at the end of the week, it might be better for you to put that money towards your savings. You would be happy when you reach your goals.

3. Do I really need this?

Many times, you might find yourself having a snap desire to buy something, even if you don’t really need it. Yes, you can always have another pair of shoes, but do you really need it or are you just buying for the sake of buying? In a study of 700 women, 79% said they would go on shopping sprees for an emotional boost.

4. Do I need this, right now?

Even if you need it, can the purchase wait? I find myself sometimes buying something that I will eventually need — like that perfect dress that would be great for the cocktail party that I am going to in a month from now. Learning to manage your cashflow is as important as managing your spending all together. You can save yourself months of interest expense and possible late fees if you can manage your cashflow better.

5. Is there a better way to spend my money?

You work hard making money, make sure it is being spent in the best way for you. My dad always told me it is better to have one good shirt that lasts you, than 10 cheap ones that don’t. My motto is: if you only have enough money to buy something with poor quality then save it until you can get the better valued item.

I find my selective shopping habit makes my purchases truly rewarding. When I buy something today, I understand how it affects my finances and how it fits with my overall goals.

I’m 33 years old and was raised in a middle class family. Besides growing up in a war-struck country, I can say my childhood was pretty typical; I had two loving parents who tried to raise me with all the traditions their parents raised them with. I have siblings both older and younger, so that makes me the middle child.

Growing up, I didn’t get to learn about money until I was around twelve or thirteen — much too old in my view. I guess that is typical of our society. My father had his own business and he was doing well that I never felt the pinch of not having enough. We lived in a nice house with a nice backyard and a pool. I had my own room and got everything I asked for (I was, in general, a modest girl so I didn’t ask for much). Hence, money was never a concern.

It wasn’t until my teen years when we moved to Switzerland that I started to realize there was a restriction of some sort to getting what you wanted in the world. At first we lived in a hotel and had meals prepared and everything served to us. After a few months, we moved to an apartment and we began buying food from the supermarket. I remember my mom complaining about the cost of groceries and the value of what we were getting compared to the price we had to pay. My mom was used to the bazaars where she was able to buy a box of herbs or pounds of fruits with such ease and now she not only had to be cautious in her spending, but things were extremely scarce compared to what she was used to. I remember thinking how strange that was. How unfair it was not to be able to get as much of what you wanted. The idea of sacrificing something (money) in order to get something else (groceries) or needing to choose one thing over another thing was very foreign to me. I don’t even think I still fully understood what money was or where it came from.

My dad (the money maker of the family) couldn’t work in Switzerland since he didn’t have a work visa and we were living off his savings. At times, talk around the house centered on his lack of work and hence money; again, two ideas that meant very little to me. With all of this, I was still not exposed to the hardships of not having a steady cash flow, living in a very high cost of living country and not knowing when, or if, it will all change. My parents seemed to be more determined to keep us all “unharmed” from the harsh realities of adult responsibilities. Needless to say, as an adult, for a long time, I had a disconnect between the money I made and the money I spent. I did start working part time from my late teens. But the money I made became added value to my teen life and not a means to an end. I now had extra money to buy cool things with and that’s when it all began… my parents still paid for all my expenses; room, food and clothes.

This pattern continued even after my college years when I got a full-time job and now made so much more money that I had no idea what to do with it. So I did what any sane adult does: I bought a car, went on expensive trips around the world and spent money on clothes. When I began to live on my own and pay my own bills, that’s when my bad habits began to become a problem.

I often wonder, if I had learned the value of money at an earlier age, would my relationship with money be better? I think it is important to train kids early on about money. Not only can the experience be lots of fun for them, but they can learn to have a healthy relationship with their wallets years before they go off to college. College years are often the first time many people begin to take on financial responsibility and where they learn, unfortunately, to make life-long mistakes.

Total U.S. household debt currently is $14 trillion, with average household debt ranging between $10k-$20k — and that doesn’t include one’s mortgage. Most people have 5-10 credit cards open at any given time. What this all means to me is that most of us are living beyond our means. Now, we can argue that it is the economy’s fault, or that we don’t make enough money or that health insurance costs are too high. But I know for myself and most people I know in my life, the problem is much closer than that and it would be wise to look a bit at our own relationship to money and how we are contributing to the national debt!

I hope that going forward, you find this site to be of value and I hope it helps with your current financial life. I’ll be offering tips and advice on financial strategies, budgeting, approaches to credit, debt and other related topics. My hope is you’ll see enough value in my expertise to contact me for professional advice and help.

Happy reading!