This weeks question put to the personal finance bloggers brain trust at GetOutOfDebt.org was: When people are working with a credit counselor or working up their own budget they often hear or believe that they should not make religious contributions and should not put any money in savings while they are making debt repayments. Instead, some believe that every dollar should be used towards debt reduction. What is your opinion? Elizabeth Warren - A national expert in consumer debt and bankruptcy . She has authored a number of books and is often see on news shows and talk shows providing expert consumer debt advice. More Information | Blog Paying down debt is a form of savings. Because credit card companies charge 16% (or more) and savings accounts pay 4% (or less), it usually makes sense to pour every penny into debt repayment. Getting rid of debt is life transformative, and it is worth pushing hard toward that goal. I see religious contributions as a very different issue. For some, tithing is a regular part of religious observance. For such people, contributions are an expense, much like food or medical care. The costs should be kept to the lowest sustainable level, in the same way that it makes sense to pass up steak when the budget is tight, but nourishing the soul is as important as nourishing the body. Getting out of debt is about building a better and more complete life. WC - A 27-year-old writer living in Chicago and writing about personal finance through The Writer’s Coin . I think this all comes down to priorities. Religion is a very personal decision and I don’t think anyone should tell anyone else how to handle their religious beliefs. Debt can be a crushing thing, though, and I personally believe that you can’t really take care of other people until you can take care of yourself first. I would make religious contributions something you can take care of once you’ve settled your debt. Pay it off first and you’ll be in a better position to give down the line. Dawn - Iowa Hippie Chick blogs about money love and marriage and offers so very insightful posts on personal finance that involve emotional insight and awareness. Vist her blog . To me, the reason we usually get into debt in the first place is a lack of financial balance. The process of debt reduction can be a terrific time for us to learn that balance. Even if our primary goal is reducing debt - allocating a percentage of our incoming dollars to an emergency fund, savings, or retirement account, is a start to living in financial balance! And if we are committed to tithing or donating to a charitable organization - it can definitely continue during debt reduction. Maybe just scaling back on the actual dollar amount if necessary, until the debt is reduced. It’s really not about the debt reduction period - it’s about learning good financial skills for life! (If we don’t learn how to balance our finances during our debt reduction, we will probably just end up back in the same place - DEBT). Patrick Bryan - Living in Northern Ireland, Patrick helps people in a very different environment and economy but yet, mush is universal and much is the same. Visit Patrick’s Northern Ireland blog on debt . Thought provoking question, glad to have the opportunity to rumble it around my brain! I think the practical outcome to your question will depend on the level of debt people find themselves in, and how much agreement they have to obtain from their creditors in terms of their budget, although fundamentally I would always defend a person’s right to make religious contributions and have savings. If a client is going into a debt management plan or IVA then as you know there are ‘allowable expenses’ up to a certain level, and also ‘other’ expenses which the creditors may or may not permit. I had a case recently for example where the creditors agreed a £30pm gym membership because the clients had made reasonable claims in other sections of the income & expenditure form. I argued that staying healthy was important for these people and would help them continue to work hard to repay the money they owed. I certainly support an individual’s right to make religious/charitable contributions whilst in debt themselves, as for many people they feel a strong personal obligation to give, and when struggling with personal debts they also need to boost their feelings of self-worth wherever possible. The desire to make that religious/charitable donation may just give that person enough determination to grit their teeth and work harder to resolve their debt problems. In terms of making savings there are two aspects to this - from a purely financial perspective if you are paying 29% APR on a credit card and earning 6% on a deposit balance then it makes good sense to repay the credit card BUT in many cases credit card companies will cut a client’s spending limit if they reduce the balance on their account, or have perhaps defaulted them which means that they can’t spend at all. If that is the case then they have no emergency fund accumulated even though they are reducing their borrowings. For this reason I would recommend clients still have some savings tucked away for a rainy day as they are less likely to be able to rely on using their credit card as a buffer zone. Also, learning to save is a fundamental way of keeping out of debt in future, so it is good to get people in to that habit early, even if it is just a small amount whist they are reducing their debts. Steve Rhode - A personal finance blogger and founder of the Myvesta Foundation, a global scoial enterprise that helps people find solutions for money troubles. You can ask Steve your debt related question through GetOutOfDebt.org and he’ll help you for free. Many debt advisers and credit counselors approach the budget as a purely technical exercise and do not realize that to be truly representative of the person it should include expenses that are critical to the person even if we do not agree. Giving to a religious organization at a time of debt reduction is one such area. If tithing is fundamentally important to the person in debt, they are aware that money used to donate is not available to reduce debt and they want to give it, then I support that decision. It would be wrong for an adviser to suggest that they stop something like tithing or religious contributions and giving that is a core belief. If giving is slashed by the adviser it can have ramifications with the debtors self-worth and self-esteem when they are unable to give as they feel is necessary. And continuing to feel a valuable part of their religious community can give comfort and emotional support during an otherwise difficult time in their lives. However, I do have the conversation with people that they can give in other ways that are valuable, other than money. They can donate time and work around their religious organization to still feel like an important contributor even though the money donated may be less that their previous donation amounts. It is my opinion that savings should be part of a debt reduction budget. If the person is not putting emergency cash aside then far too often unexpected expenses wind up right back on the credit cards if they are still open. If the cards are not open they often find themselves in a very difficult position and it is not unheard of a client to then go get a silent payday loan to cross that financial bridge. Savings should be based on the individual persons circumstances but I usually suggest no less than $50 per month. If a large reserve is built up then a lump sum payment could be used to accelerate debt reduction latter. What are your thoughts about this? Leave your comment below. Other Related Articles to Read Lourdes Writes In “What Should I Do to Get Out of Debt?” Kiva Thu Wrote Me And Said “I’m Really Struggling, My Husband is Disabled, How Can I Get Out Of Debt?” Ryan Writes In Looking For His Lifestyle Back Christy Asks “Why Should I Even Bother With Getting Out of Debt?”

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San wrote to me through the GetOutOfDebt.org site and wanted some free help. I’m happy to help as always and if you have a question you’d like to ask, just go the the GetOutOfDebt.org site and ask. I’m here for you too. “Dear Steve, We need some way to figure out how to pay our debts off. We have credit card debt, car loan, a home equity loan that has a balloon next year, medical bills and owe a balance to my brother for his half of property we inherited jointly. We have two incomes and we should be able to live on them. We have about 15 years to retirement and we would like to be totally out of debt in 5 years so we can save for the rest of the time. We are behind on mortgage and 2 other creditors and are trying to get that caught up and current. How do we straighten out our finances and make a budget that we can live with and still get things paid off in 5 years? San” Dear San, I’m sorry to say you’ve got all the ingredients for a financial disaster brewing here. Here are the things that concern me the most. Home equity loan has a balloon payment due next year. Can’t make it on two incomes. Need to cash out brother. Retirement looming but not enough savings for it. Behind on mortgage. Behind on two other creditors. Want to be paid off in five years. San, wishing and wanting don’t add up to reality all the time. But the good news is that with some adjustments there may be some solutions. The issue of making enough money but not having enough to live on tells me that you don’t have a basic understanding of where your money is going each month. Don’t worry, most people don’t. The fix for that is to use an online program like Mvelopes or just write down every penny you spend for thirty days and at the end of that period, categorize your spending and total it all up. Either method will help you to clearly see where you might be able to make easy budget adjustments to reduce your outgo. I think the Mvelopes method is just easier. Every dollar you save by making budget adjustments way remains in your pocket for debt reduction. The best and most logical method of debt reduction is the debt snowball method. Debt Snowbal Debt Reduction The basic steps in the debt snowball method are as follows: List all debts in ascending order from smallest balance to largest. This is the method’s most distinctive feature, in that the order is determined by amount owed, not the rate of interest charged. However, if two debts are very close in amount owed, then the debt with the higher interest rate would be moved above in the list. Commit to pay the minimum payment on every debt. Determine how much extra can be applied towards the smallest debt. Pay the minimum payment plus the extra amount towards that smallest debt until it is paid off. Note that some lenders will apply extra amounts towards the next payment; in order for the method to work the lenders need to be contacted and told that extra payments are to go directly toward principal reduction. Once a debt is paid in full, add the old minimum payment (plus any extra amount available) from the first debt to the minimum payment on the second smallest debt, and apply the new sum to repaying the second smallest debt. Repeat until all debts are paid in full. In theory, by the time the final debts are reached, the extra amount paid toward the larger debts will grow quickly, similar to a snowball rolling downhill gathering more snow (thus the name). The theory works as much on human psychology as it does on financial principles; by paying the smaller bills first, the individual, couple, or family sees fewer incoming payment requests as more bills are paid off, thus giving ongoing positive feedback on their progress towards eliminating their debt. Source: debt snowball You see San, without a major expense reduction or income increase it does not look good for a happy outcome here. When people fall behind on their mortgage it is a priority to get that caught up. To do that means you typically have to fall behind on your other bills. But you’ve got that balloon coming up next year and the problem with balloons is that they explode. You might not be able to refinance that due to your current bad credit or because the mortgage industry is in a bit of a meltdown, then like now. I’m sure your brother wants to be paid as well. Rightfully so. I’ve seen issues like this tear families apart. Don’t let that happen to you. Your brother is a creditor like the others and you need to treat him just as fair. If you apply all those techniques and you still can’t make it them I’m afraid we are going to have to talk about the big B word, bankruptcy . Bankruptcy is a legal and viable option for you and before you make any sort of emotional decisions about bankruptcy I insist that you get a free bankruptcy review and talk to a bankruptcy attorney to get the facts rater than the assumptions. If you go bankrupt you will have to move and you may lose some stuff but it would allow you to clear the debts and start saving for your retirement sooner rather than latter. Big hug. Steve Other Related Articles to Read Donna Writes and Asks “What Is The Best Way To Become Debt Free The Fastest?” Karen Writes In “Ex-Husband Isn’t Paying The Bills and He’s Trashed My Credit. What Can I Do to Repair It?” Steve Writes In “I Want to Cash Out My 401(k) And Pay Off Debt.” Teresa Writes In And Asks “What Should I Do Next?” Ryan Writes In Looking For His Lifestyle Back

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Thu wrote to me through the GetOutOfDebt.org site and asked me the following question. If you have a question you want to ask, visit the GetOutOfDebt.org site and ask. I’m here to help for free. “Dear Steve, I’m married, my husband is disabled. I have 3 growing children and a 6 year old disabled child. My payroll checks go straight to bills. I use the credit card for foods and miscellaneous household items. I’m really struggling. I go to work in deep depression and stressful almost everyday. How do I get out of my debt? I’m not the type of person that always go shopping or buying stuffs that I don’t need. Please give me some advice that can help me go through this tough situation. Thanks, Thu” Dear Thu, First, let me offer you a big bear hug and give you my virtual shoulder to lean on. I’m so sorry that you are living through this right now and I can feel, from your words, how oppressive and stressful it must be. Your open statement about the “deep depression” you are living with, concerns me. Depression is not conducive to getting out of debt. In fact, living with depression leaves you unable to make long-range plans, unable to follow through, unable to execute comprehensive plans, unable to deal with the hurdles that you face every day. If at all possible I’d like for you to seek help for your depression first. This might be through talk therapy or medicine or a combination of both. If you can get help for your depression then facing your situation will become easier to deal with. Here is a list of places you can go to get help with depression and some of them may be free for you. I don’t know what the balance of your bills are right now but I am sure they are growing since you mentioned that you are using the credit cards to pay for food and household items. That is never a good sign. What that tells me is that you can’t afford to live within your current income and that’s a huge problem. Now is the time to search for benefits that may be available for you. You may be eligible for government benefits and you can search here for those . Unless you are able to increase your income or reduce your expenses, then getting help with medical, assistance, housing and food benefits will be critical to you. While bankruptcy is an option to eliminate your bills, if you can’t live within your income now, discharging your bills in bankruptcy isn’t going to help you to make it from day-to-day, that is unless the money you are paying on your bills now would help to bridge your cash valley you have right now. If you want to learn more about bankruptcy, speak to a bankruptcy attorney and ask for a free bankruptcy review . I think the best your solution will lie in a three step approach: Treatment for your depression. Discovering benefits you are eligible for. Bankruptcy Big hug. Steve Other Related Articles to Read Lourdes Writes In “What Should I Do to Get Out of Debt?” Emily Wants to Know “I’m Pregnant And Got My Hours Cut. What Do I Do?” Crys Writes In And Asks “We’ve Been to Credit Counseling But Should We File For Bankruptcy?” This Time I Asked “Do You Think You Are a Failure When You Break Your Budget?” Scott Writes Me and Asks For Help - “We Are Behind And Overwhelmed”

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Ben wrote in through the GetOutofDebt.org site and asked for help and advice. “ Dear Steve, At times I feel like my life is over. This year I did something I never thought I’d ever do, I went bankrupt. I was raised to pay my bills and I’ve always done that, but last year my overtime go cut and we were just making it by and this year my regular hours go cut and we started to fall far behind. I contacted one of those credit counseling groups and asked for help but the monthly payment they wanted was just out of my reach. We could not afford that and the truck payment. I spoke to a bankruptcy attorney and then we gathered up the money to go bankrupt. Now that is over and I feel terrible that I went bankrupt. Will I ever have a financial future again? “ Dear Ben, The answer is that you will have a financial future again and you life is not over. Bankruptcy can make you feel like a complete failure and a big loser but the reality is that what ever brought you to the point of not being able to pay your bills, happened. It’s a lot like the farmer that plants this years crop but it does not come in because of a drought. The lack of rain doesn’t make the farmer a loser, it’s just unfortunate that water did not fall from the sky in sufficient quantities to make the crop grow into cash to repay his debts. Sure, if you want to be narrow minded and a big dick you could make a claim that you just walked away from your debts and didn’t man-up to them, but honestly, you know that’s not the truth. I’d love to see all the people that bitch and complain about people that go bankrupt, lose all their shit and then try to put on a happy face and bound joyfully through the day. Bankruptcy is hard and painful but believe it or not, what you have done is probably more responsible that limping along for years to come. Bankruptcy is a legal solution that exists to help people out from situations where no reasonable hope exists to resolve the debt problems at hand. When faced with huge debts people often live from paycheck-to-paycheck just making it by. They cut out things like needed medications, medical care, dental visits, etc. They also take away any fun times for the kids, a cheap vacation and saving for retirement. Basically they make the future less safe to make up for past financial mistakes. Honestly, when faced with a bad debt problem you are better off facing it honestly, being real about how long it will take you to recover and determining if years of just getting by are something that you can do. You’re also better off going and talking to a bankruptcy attorney and getting the facts before emotionally deciding that bankruptcy isn’t for you. My thought is that people at times like these have a greater responsibility to make the future better for their families than to unreasonably try to repair the past. And when I say better, I don’t mean a life of luxury, no, I mean proper health and dental care, caring for the children, not punishing them for your financial misfortune, and creating a caring, loving and safe environment for the kids to grow up in. Ben, you’ll be surprised that now that you have gone bankrupt, creditors will be lining up again to give you unsecured credit again. In fact you’ll want to get credit again so that your credit report and credit score don’t just suddenly end with “Ben’s Bankruptcy”. If you want to get credit in the future you’ll need to start replacing your current financial problems on your credit report with good credit. One of the ways of doing this safely is to get a secured card that will report to the credit bureaus that you are paying the card off. You can get a secured card online here . Just remember this, Bad Debt Happens To Good People. Big hug. Steve Other Related Articles to Read Ryan Writes In Looking For His Lifestyle Back Mark Writes In “I Need to Go Bankrupt in the UK” How You Can Get Out of Debt Fast Without Filing Bankruptcy Keith Writes in And Wants To Know “Should I Consider Debt Consolidation For a Fee?” Donald Writes In And Asks For Help “I’m Getting Behind on Bills!”

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If you're new here, you may want to subscribe to my RSS feed right now, before you forget, to get the latest posts. Thanks for visiting!The CNN website has been running an extended series that lets you peak inside the debt situations of some American families. The continue to add more photos and ...[Read More]

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Will your medical credit score limit your access to care when you need it? And what about the typical issue of medical insurance companies taking their sweet time in paying bills, will that now count against you and your medical credit score and will that ding limit your access to care?

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Back in my medical days we always had drug reps come through. Some were far better than others and those tended to be the companies that we relied on. That was imply based on excellent customer service. But today, more and more is coming to light about medical doctors (MDs) that are under greater ...[Read More]

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