In January I wrote about the specifics of your credit score. Quickly, your credit score is a number between 300 and 850 that tells lenders how trustworthy you are for a loan. The better your credit is, the higher the score. Credit scores cost around $15 to get.

Your credit score is based off your credit report. It’s a huge report card that shows any loans, credit cards, or mortgages you’ve had and how trusty you were with the loan – aka did you pay the loan.

Legally, you’re allowed to get a free copy of your credit report from each of the three main credit bureaus - Experian, TransUnion, and Equifax – once a year. This means you can get them all at one time, or you can spread them out over the course of a year.

Today, I’m going to show you the process as I check my credit report so you can feel comfortable getting your own report. On Wednesday, I’ll do the same for my credit score.

In January I got my credit report from Experian, so today I’m going to go with TransUnion. Once again, there are only tiny differences between the reporting agencies so don’t think yourself to death choosing between the 3.

1. Visit AnnualCreditReport.com

Note, this isn’t the commercial FreeCreditReport.com – that sites scammy and should be avoided.

2. Select your state and fill in your information

This step is simple and straight-forward. You’ll need to fill in your name, address, and social security number.

3. Choose 1 of the 3 credit bureaus to receive your report

4. Click through and answer security questions about yourself

They want to make sure you are who you say you are so they’ll ask you questions about loans or credit cards you may have with companies. If there is no answer for the question, choose that option. Sometimes a credit card will have a bit of a different name, so make sure you choose the right one.

5. You’re done! Read your credit report

It’s a lot of information to take in, but it’s important to go through the report and make sure it’s accurate.

When I checked mine last summer, there was a mysterious credit card that was actually my mom’s so I called the credit card company and got my name removed. It’s stuff like this that cleans up your credit report and boosts your credit score (which will save you on a car loan or mortgage someday).

What my credit report told me…

• I’ve been reported since August 2005 – the day I got my first credit card.
• I have 3 credit cards (true)
• My Discover card pulled my credit report in 2008. This remains on my report for 2 years, but won’t have a huge effect on my score.
• 1o different credit cards/banks have reviewed my information in the past 2 years. This doesn’t affect my credit score in any way.

What to do with your credit report

• Look for any incorrect reported information and call the company to dispute it
• Make sure all of your credit card information and payments are what you expect
• Print and file the report for future reference
• Create a GCal reminder to check your credit report again in 4 months

It’s pretty simple and should take you less than 5 minutes to get your actual report. It’s important to do so to make sure your financial self is reported fairly. A mistake on your credit report can bring your score down dramatically so take some time this weekend to get your report and make sure your information is accurate.

Once again, on Wednesday I’ll walk you through the steps to get your credit score.

Have you ever had any discrepancies on your credit report?

Photo: MeddyGarnett

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Once the interest kicks in it can add a lot to your loan. When you break down the numbers and look at the percentage of your payment going to principal and percentage going to interest, it can be quite disturbing.

Here’s the breakdown of how much each payment goes to interest vs. principal in the first 6 months of a $10,000 loan at 7%:

About half of each payment is going straight to the lender in interest payments and barely making a dent on the loan’s balance.

Seeing these numbers may persuade you to increase your loan payments in order to pay less interest over time. But how do you figure out how much extra you should pay towards your loan every month?

Here’s a guide to help you decide how much extra you can afford to pay towards your student loan every month.

First, organize your loans by the size of the interest rates. Open a spreadsheet and list all of your loans, the principal, the minimum payment, and start with the highest interest rate on top. Anything over 5% is a priority for accelerating payments.

Find out how much each loan will cost you in interest. Use this student loan calculator and plug in the specifics of your loans. How much will each loan cost you in interest if you just pay the minimum? Write this number down in your spreadsheet.

The cost of a loan is misleading. A $5,000 loan at 6.8% with $50 monthly payments ends up costing $6,904 – with $1,904 in interest.

Mark your loans as high, medium, or low priority. High priority loans will be anything above 7% because at this point you’re better off throwing extra payments at your loans instead of investing. Paying off a loan gives you a guaranteed return on your money where as short-term investing is dangerous.

Medium loans are anywhere from 3-7%. Investing will trump paying extra on these loans because their rates aren’t devastating. Eventually when your high priority loans are paid off, you’ll start paying extra on your medium loans because you’ll end up paying thousands and thousands in interest if you just pay the minimum for the loan.

The low priority loans are below 3% and you’ll only pay the minimum on these unless you stumble into a large sum of money. These are your favorite loans because they’ll cost you very little in interest and you’ll be able to set up automatic payments and forget about them.

Before you pay extra on any high priority loans (>7%):

1. Have an emergency fund in place. If you live on your own, this should cover 3-6 months of living expenses. You can’t risk losing your job and having no savings so make sure you have a sizable rainy-day fund insuring your job. If you live at home, you can get away with having significantly less in your emergency fund and paying off your loans earlier will be easier.

2. Invest enough in your 401k to get the company match. If your employer offers a 401k with a company match, you need to take advantage of it. This is free money and shouldn’t be avoided, even if you are carrying high interest loans. You’re young so starting your 401k off now is beneficial for compound interest.

3. Look at your income and see how much you can afford to pay every month. Even an extra $50-100 a month will speed up the process and save you tons on interest in the end. If you hate loans, you may want to put as much as $250 extra towards your loan payments. If you’re content with your loans, then $50 extra is sufficient and will allow you to build up your savings else where.

Before you pay extra on your medium priority loans (3-7%):

1. Have an emergency fund

2. Max out matching 401k contributions at work (free money)

3. Max out your Roth IRA. The 2010 tax year allows you to invest up to $5,000 in a Roth IRA. This is money you won’t be taxed on when you withdraw in retirement, so max this out before you start paying off any medium priority loans because the market historically returns 7-8% (although this is never guaranteed). Starting your Roth now will allow it to grow exponentially faster when you’re older and you’ll be glad you started your Roth at 25 instead of paying an extra $75 towards your loans.

You can invest up to $5,000 but you can also invest any amount lower than that. You have until April 15th, 2011 to invest in a Roth for the 2010 tax year.

4. When the above 3 are complete, pay an extra $50-100 on your medium loans (3-7%). Start with the highest interest rate and work your way down.

Before you pay extra on your low priority loans (less than 3%):

1. Have an emergency fund

2. Max out 401k to get the company match

3. Max our your Roth IRA

4. Start building up specific savings goals (car, house, grad school, baby, etc.). The twenties are an expensive time in your life with a lot of huge purchases. Having extra cash around in your savings account will be beneficial. Open up a sub-savings account at your online bank to help save for specific goals.

5. When the above 4 are complete, pay an extra $50 a month for your low priority loans. At this point, you’ll be financially steady and you’ll end up savings yourself some extra cash by paying down these loans as well.

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Although student loans are an annoying burden that we all want to get rid of immediately, it’s important to take care of other areas of your financial life first.

Here’s a student loan calculator that allows you to see how much extra payments will help your debt situation. You can also figure out credit card debt within the same calculator.

Debt affects people differently so your priorities might be different from my suggestions above. But accelerated payments if you have the funds will save you tons on interest in the end. Run the numbers and get a system going for knocking out your student loans earlier so interest doesn’t dominate your life for the next fifteen years.

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Recently, Jesse at PF Firewall wrote about his top 14 personal finance tools to help out different aspects of yourfinances.

I looked through the list and had some experience with some of the products, but for me a simple Google Doc spreadsheet is my favorite money tool. It’s what I go to every month to track my net worth, view monthly changes, and organize my accounts.

No online product has replaced it yet, and I can’t picture a future without using it.

Tracking my finances monthly has allowed me to visualize the changes of my money like never before. Up until 2 years ago, I had just casually checked my checking account balance and as long as there weren’t any huge changes, I didn’t pay much attention to it.

Now, I keep track of monthly gains and decreases, and I can see exactly how much I’m saving from month to month.

This makes saving fun and addicting. It’s a challenge to keep my bottom line going up, and I now look forward to the 1st of every month when I total my money.

Here’s why a money spreadsheet will help your finances.

It’s Not Automated

Sites like Mint.com pull your information from different sites and provide you a picture of your overall finances. Sounds great, but the automation isn’t always as perfect as it appears.

Mint constantly gives me an error saying it can’t sign in to certain accounts and ING has notoriously denied Mint its transaction history during the day. It quickly turns into a huge headache when I just want to check to see if a transfer went through.

Meanwhile, my spreadsheet is available 24/7 with no hiccups.

I also use the monthly checks to search for any suspicious activity and to make sure they are working correctly. It keeps me engaged with my money without being overwhelming. I only open the spreadsheet on the 2nd of every month and that’s it.

Automation is great if it works correctly, but sometimes simple is the best option.

You Understand Your Money Situation

Since you’re manually putting in the numbers, you’ll understand your money better. You’ll actually see the changes and this will promote savings and smart money habits in your life.

If you’re in a dire money situation, stick with the monthly updates! It’ll be difficult to see the numbers fall or barely go up every month, but keep with it and you’ll see the results you want. If you can commit to keeping track of you finances, you have the ability to beat your money situation.

It’s easy to sign into Mint and gaze at your money, but it’s more beneficial to do it yourself and see the changes.

Easily Adjustable

Occasionally I’ll want to alter my records by adding an account, deleting an account, or adding a new way of tracking my expenses. With the spreadsheet it’s simple and I don’t have to worry about changing records within some database. Once I have all of the initial organization set up, it’s simple, and changes can be made almost instantly.

When you have your money being tracked by a website, it’s more difficult to get the customization you want for your money. The spreadsheet is as bare as it gets, and it allows the individual do as they please.

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Some people don’t trust keeping their finances online for fear of internet pirates. I don’t mind sharing my information with Google and I feel like it’s safer with them than on my computer which could crash or be stolen. If you don’t like Google Docs, try any spreadsheet application you have available.

Either way, the moment you start documenting your money will change you financial life forever. You’re taking an active step to become more involved with your money and there’s nothing but good things to follow.

Good luck!

Photo: Don Hankins

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I started a Lending Club account last year and I’ve been really impressed by the company during my time there.

For those new to Lending Club, LC falls under the category of social peer-to-peer lending.

It can work one of 2 ways for the average customer. One, a person can apply for personal loans from other members to consolidate debts or help pay off any debts like credit card, student, or personal. LC offers you a cheaper interest rate than you will get else where, making it easier to pay off your debt.

On the side of LC, an investor can invest money in notes – meaning investing in people who are trying to pay off debts. You can choose who you want to invest in, as LC provides loads of information about the person behind the loan, or you can just insert your risk level (7% is low, 20% is high)and LC will choose notes for you.

Lending Club’s claim to fame is their great return return – a whopping 9.65%. To compare, the S&P 500 has averaged around 8% after tax over it’s lifetime, and ING Direct’s saving account is currently at 1.1%.

For investors, the notes are a minimum of 3 years and each is a minimum of $25. If you need to liquify your money, they provide a way to sell notes to other investors making it less risky for short term investors. To maximize return, you can easily choose to reinvest notes. When my principals and interest repayments reach $25, a new note is automatically purchased.

LC takes around 1% as a fee.

With social lending there is the risk of default loans. The default rate has been below 3% since 2007 and LC claims they’re on your side as they only accept 1 in 10 loans – meaning they’re trying there best to make it a safe investing place. Regardless, diversification of notes is your best bet to keep your return high.

My Returns After 5 Months

I started off last fall with a $25 free trial, but eventually invested $500 into 20 different notes.

How does it look so far? Well, pretty good.

I wanted to diversify so I went with a lot of notes – 20 notes, $25 each –  since I was fearful of someone defaulting.

(click to see specifics)

So far no one has defaulted and my average return is 14.24%. According to LC, my return compared to investors like me (under $1,000) puts me in the 81 percentile meaning my net annualized rate to date is higher than 81% and lower than 19% of all investors.

After 5 months, I’ve received $68.62 in payments – $22.35 of which is interest.

Who is Lending Club for?

Well, it depends on your situation. Are you drowning under debt? Then maybe you should apply for a loan.

On the other side, do you have some extra money floating around in a 0% checking account that you could do without for a while? The returns on LC’s loans are great, even with a default or two, you should be able to get much higher than any CD or savings account out there today.

I’m considering investing more of my money in LC notes since it’s so difficult to get a good return with CDs and interest rates. Maybe it’s just the investment vehicle you’ve been looking for, too.

Interested? Check out Lending Club today.

Have you had any experience with Lending Club? Leave your stories in the comments!

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“[Chinese women] under 32 have an effective savings rate of zero.”

This quote comes from an article from Financial Times (via Jezebel) highlighting the 21st century yue guang zu or “spend-all-your-salary clan” women of China.

These twenty-something, working-class women are spending the bulk of their monthly paychecks on glamorous items like clothes, jewelry, expensive restaurants, and clubs with no care in the world. Their false confidence is solely based on the belief that their lives are better than their parents, and that their paychecks will continue to rise as time goes on.

The article highlighted one woman’s spending habits, “she spends at least 70-80 per cent of her salary every month – but towards the end of the year, it creeps up to 100 per cent or more”.

Unfortunately, the excessive spending habits of the yue guang zu are all to similar to many people in America. It’s important to spend your hard earned money on the things you love, but spending like these girls do as a therapeutic act will only lead to disaster.

Here’s 6 reasons why you shouldn’t save money like a young Chinese woman.

1) Cost of living rises with your paychecks

The yue guang zu spend because they believe their paychecks will be much larger in the future and it’ll make up for their extravagant spending. Yes, there paychecks will probably increase as time goes on, unfortunately, so will their cost of living.

According to Living Wage Calculator, it costs a family of four $61,595 to live in Chicago for a year. This figure includes housing, transportation, food, medical, etc.

If you assume a generous 3% increase in the CPI (Consumer Price Index), or cost of living, than after 30 years, that family of four will need $149,507 to equal the value of today’s $61,595. Paychecks tend to go up, but don’t forget that so does the price of everything.

If their yearly pay raise isn’t 3% or more every year, they might be making more, but they’ll also be spending equally more every year.

Ignoring finances and assuming a big future paycheck will fix all money problems is never a good way to go about handing your money.

2) Loss of compound interest years

I’m a big fan of compound interest and these Chinese women have no idea how much their time is worth as young people.

Most of these women are in their twenties and living at home. That means they have no major bills and are netting a large amount of money every month. If they saved even 20% of their income, they’d be able to reap huge benefits in 30 to 40 years when compound interest really kicks in.

Check out the graph in this post that shows how it’s possible for a 25 year-old to save significantly less over time than a 35 year-old, but still makes more in the end, due to starting young and using compounding interest.

Unfortunately for these Chinese ladies, missing out on the younger years will never allow them the chance to catch up and it’s going to be too late before they realize this.

3) Easier to save when you have no dependents or major bills

Most of these women work entry-level jobs with modest salaries. Many still live with their parents, but probably don’t realize they’re going to be for a long time because one day they’ll have a family of their own but they won’t be able to afford it.

Without any dependents, this lifestyle can last for a little while. But what happens if a child is added into the equation? It’ll never get easier for these women to save money, but they won’t notice this until their credit cards are denied by the local jeweler.

Kids cost a lot of money. The CPI for an adult in Chicago is 20,070, but add on one child and it’s $37,709 – an 88% increase.

You can mix saving and having a good time now, but don’t put it off waiting for a day that will never come.

4) Learning about money is easiest when you’re young

Learning how to handle money at a young age is vital for everyone. You learn the tricks to save, while still being able to make mistakes without grand consequences.

For a single person, a money mistake may lead to moving back in with your parents. Add in a family and a career, and a money mistake destroys lives.

When you’re young you have some time to learn how to handle your money and you can coast later on in life. However, these Chinese women will soon find out that a lack of money education when you’re young is forever painful because there will never be a better time to learn.

They may turn it around later on in their lives and realize how flawed their thinking was, but it’ll have cost them years of their salary by then.

5) Social spending is a race without a finish line

The women are referred to as a “clan”. Mob mentality usually leads to something blowing up. The ridiculous spending and materialism they are promoting will almost always continue to rise, until they are in over their heads.

If you surround yourself with outrageous spenders, chances are you may turn into one, too. As they get older, purses may turn into flat-screens, which may turn into houses. The items will get larger and more expensive, but their paychecks will remain the same. The credit cards can hold you over for a while, but the bubble will eventually burst.

How do your friend effect your spending?

6) Your money can appreciate, but items depreciate

This quote from a marketing agent in the article really got me:

“Investing in brands is an investment in the future,” he says, noting that purchases of expensive cosmetics, shoes, handbags and clothes “are expected to open doors” to a better salary. Many yue guang zu say the same: they are happy to accumulate short-term debt, in the service of their career.

Yes, a nice suit and car will get you into the country club, but the members will sniff out a phony after a while.

If properly saved, money appreciates over time and grows into more money. Items like purses and jewelry, on the other hand, almost always become less valuable. Perhaps, a few doors will open up in their careers but that is no excuse for such unnecessary extravagance.

It’s dangerous and it’ll only lead to you worrying about your credit card bills when you’re 34 and you’re kids are crying in the playroom.

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These Chinese women obviously have some flawed thinking, and it’s quite comical. But learn from their mistakes and use these tips in your own life. I don’t know people who spend the way the yue guang zu do, but we all know some people who are in the same ballpark.

Saving now will only make life easier. Saving later will always make life harder.

Photo: Jakob Montrasio

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Clark Griswold embodies the American dad. A caring family man who wants nothing more than to host the perfect Christmas for his family and leave everyone smiling. As we know, there were some wrinkles in the process but in National Lampoon’s Christmas Vacation, Clark manages to carve out the perfect Christmas for his family.

Here are 10 money tips I learned from Clark Griswold and Christmas Vacation. I also included a quote with each money tip to get you in the Christmas Vacation mood.

Happy holidays!

1) Don’t buy what you can’t afford

Buying on credit is a risk you should avoid at all costs. Clark put a down payment of $7,500 (almost $13,000 in today’s money!) on a new pool for his family when he didn’t have enough in his checking account to cover the cost.  He was expecting a Christmas bonus to come his way, but this risky financial move nearly left him and his family in a money nightmare on Christmas Eve.

Instead, save up for big purchases, like a pool or a vacation, by taking a percentage of each paycheck and automatically transferring it to a sub-savings account named for the savings goal. This way you can properly save for the goal and avoid any risky purchases that could put you and your family into a money hole.

Ruby Sue: “Uncle Clark, are you sure you ain’t Santa Claus?”
Clark: “I’m sure… I can’t even afford to be an elf.”

2) Everyone needs an emergency fund

If Clark couldn’t afford a pool, he was probably living paycheck to paycheck with no real savings. If his Christmas bonus wouldn’t have come, he would’ve been in deep debt. His poor money habits almost ruined Christmas for not only him, but his entire family.

An emergency fund is vital for everyone’s finances. At first, start by putting a percentage of each paycheck aside in a separate savings account. Eventually, this fund should hold anywhere from 6-12 months worth of expenses to starve off a job loss or major financial crisis. At first it may be difficult to build up this fund, but your financial life will become much less stressful as soon as you get this fund to a comfortable place.

Clark: “It’s a membership to the Jelly of the Month Club.”
Eddie: “Clark, that’s the gift that keeps on giving throughout the entire year.”

3) Spend money on the things you love

Personal finance isn’t about sitting at home with your lights out and eating rice to save money. It’s about making smart money choices so you can spend on what you love.

Clark loved the holidays and his favorite part was going all out to decorate his home. He probably spent a lot of money on the 25,000 Christmas lights which covered every square inch of his home. But Clark took pride in decorating his house and it was a Griswold family tradition that he was sharing with his son. This was money well spent because it was what Clark truly enjoyed.

Aunt Bethany: “Is your house on fire, Clark?”
Clark: “No, Aunt Bethany, those are the Christmas lights.”

4) Be a smart holiday shopper

Stores break out all kinds of tricks to get consumers to purchase unexpected items during the holidays. Clark fell for one of these tricks: the attractive cashier. Although you don’t see it, would you be surprised if Clark left with four expensive necklaces that he didn’t plan on purchasing? Recognize, that stores try to manipulate you into spending on items you don’t need. Go shopping with a list and stick to it in order to save this holiday season and beyond.

Clark: “Oh, I was just smelling – smiling. I was just blouse – browsing.”

5) Treat others with respect because it may help with money, too

Treat others with respect and dignity and your actions may help you financially some day. Clark welcomed – although hesitantly – an uninvited Cousin Eddie and his family into his already packed home for Christmas. As a thank you for Clark’s hospitality, Cousin Eddie kidnapped Clark’s boss when he found out Clark wouldn’t be receiving his Christmas bonus. This wouldn’t have happened if Clark wasn’t inviting to Eddy’s family and his actions saved Christmas for the Griswold family.

Remember, you never know where help will come from so treat everyone the way you’d want to be treated.

Clark: “My cousin-in-law, whose heart is bigger than his brain…”
Eddie: “I appreciate that, Clark.”

6) Money allows you to do what you want

We all love Cousin Eddie, but he’s not doing himself or his family any favors by being unemployed for 7 years. I’m all for following dreams, but sometimes you have to suck it up and get a paycheck. With two kids (my reader Joanne points out in the comments that Eddie has 4 kids, thanks!), a wife, and a dog that eats more than the family combined, he needs to be more rational about his employment situation. Any sort of income from a job would provide at least something for his family to live off.

This is why smart money decisions when you’re young are so important. They allow your finances to breathe so you can make the decisions you want instead of freeloading off your extended family for dog food at the local supermarket.

Clark: “Seven years and he can’t find a job?”
Ellen: “Catherine says he’s holding out for a management position.”

7) Money isn’t the end word

Clark’s boss thought he was saving the company and himself some money by cutting the Christmas bonuses from the budget. What he ended up realizing was that he was lowering morale of his workers and this would hurt his business even more in the long run.

Not every decision comes down to the numbers. Debt, buying a home, and education are just some of the financial situations we come across in life that have more weight to them than just the numbers. Make sure to take into account personal well-being and how a decision will effect you over the long haul. Thanks to Cousin Eddie, Clark’s boss ended up making the right money decision, and this ends up helping not only his workers, but his business.

Clark’s boss: “I guess a healthy bottom line doesn’t mean much if to get it you have to hurt the one’s you depend on. It’s people that make the difference. Little people like you.”

8) Quality time with family is the best and most affordable entertainment

No matter how many TVs, cars, or Xbox 360s you buy, there’s nothing like sitting with family around a Christmas tree as you exchange presents. This is something you can never buy and this is what Clark holds closest to his heart. All he wants is for his family to get along and have a wonderful Christmas under his roof, and that’s what he ends up delivering.

So remember, if you can’t afford presents or a huge turkey dinner, hold your family and friends close because they’re your most valuable gift this holiday season.

Clark: “The most enduring traditions of the season are best enjoyed in the warm embrace of kith and kin. Thith tree is a thymbol of the the thspirit of the Griswold family Chrithmath.”

Have a wonderful holiday with your family and friends!

Merry Christmas from Foreigner’s Finances!

Photos courtesy of Warner Brothers

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Bad money situations do not appear out of mid air. Poor education, bad luck, or lazy habits are just a few of the many problems that can lead to a difficult money situation. But one thing is for certain: complicated and dire money situations are tough to navigate.

Massive debt can be incredibly constricting and cause a lot of stress in one’s life. It’s difficult to escape a poor money situation and, unfortunately, too often the bad habits continue because the individual avoids taking action due to the size of the problem.

What an individual who is suffering from debt needs is clarity.

With bills piling up and not enough money coming in, the situation can seem complex. It may seem like there is always someone who is demanding more money, yet, there is no money available. The credit cards help for a while, but even they have their limits. Deep down inside, the person may want to fix the problem, but they just can’t seem to get themselves in a place where they are able to tackle the situation.

This is where meditation comes in. Yes, Foreigner’s Finances is going to get new-agey for a minute.

This week all the Assistant Language Teachers in the prefecture joined together for a Mid-Year Conference. One of the workshops I attended was titled: “Stress Management through Meditation or How to Deal with Your Coworkers and Boss without Freaking Out“. I didn’t have many expectations for the workshop, but it changed the way I viewed meditation forever.

After trying our own meditation for ten minutes, the group joined together to discuss the effects of meditation on an individual. The idea of meditation as clarity was brought up.

One person asked, “how do I avoid not sleeping?” The answer was, “perhaps, meditation is telling you that you need more sleep in your life.”

Another person asked, “how do I stay focused when so many thoughts run through my mind?” The answer was, “perhaps, meditation is the only time you’re letting your mind rest and it’s telling you that you need to rest it more often.”

I thought the last sentence was brilliant. Meditation opens up the mind and allows you to see yourself and your needs more clearly.

When you use meditation to tackle a debt situation, it can bring about the same results.

Perhaps, your debt situation is incredibly complex and instead of analyzing it and taking steps to defeat it, you avoid it. You excessively browse Facebook, go shopping, go out for drinks, watch movies; anything to avoid thinking about the debt situation. These actions are counterproductive and will only create more anxiety about the problem. You will always need to do something in order to avoid the one looming problem in your life: your debt.

Meditation can calm your mind and give you uninterrupted time to think clearly. It can lead to moments of clarity, and can be the first step in fixing a debt situation.

Here’s how to do a simple meditation session:

Meditation Steps

• * When you’re awake and energized, take ten minutes and sit upright on a chair.
• *Close your eyes or let your eyes settle on the ground. Place your hands on your knees.
• *Listen to your mind. Try to calm it down, but let your thoughts wander. Give your mind time to breathe and work.
• *After ten minutes, analyze how you feel. Could you sit still for the entire time? Where did your mind wander? What thought repeatedly occurred? How do you feel?

If you’re like me, you probably felt calm for the first time in a while. I often feel anxious and have trouble sitting still.

The ten minute meditation session showed me I need to slow down and give my mind time to relax.

Meditation can bring you some clarity, and maybe you will discover a positive thought that leads you to tackling your debt situation. Don’t fear your thoughts because you will need them to defeat your debt. Instead, embrace, listen, and learn from them.

Meditation doesn’t have to occur every day, but it can be something done once a week that allows you to calm down. It can lead to thoughts of success and maybe it’ll help you find the solution to your looming money problem.

Give it a try and see what you find.

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Photo by alicepopkorn

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As some of you may know, the Federal Reserve recently banned overdraft fees for ATMs and debt card purchases. Starting in July 1, 2010, customers will have to choose to opt-in to overdraft protection or else they will be denied at the register if they attempt to purchase an item without enough money in their account. Banks will also be required to make the details of the overdraft fee protection available and clear to the consumer.

At first, this appears to be a big hooray for the consumer. But the more I thought about the move, the more I disagreed with its intended motives.

I hope no one is sitting at home reading this news and pumping their fists in triumph that they can now be more reckless with their debit card. The people that are going to benefit from this new legislation probably aren’t paying too much attention to Congress’s recent bank laws and will more than likely not understand what they have to opt-in to come July.

This new legislation appears to promote irresponsibility on the part of the consumer.

Yes, banks can be tricky with their fineprint and it’s good that in July they will have to make these rules known to the consumer, but shouldn’t it be up to the consumer to watch over his or her money?

Banks are a business. They’re for-profit. They’re providing the consumer a service so why should they have to bend over backwards for the consumer?

There are certain situations where good people have gotten screwed over by a bank. I realize this happens and I don’t applaud banks for these instances of poor business. But we have to take a look at ourselves and wonder if new bank legislation against overdraft fees is really a gigantic financial step in the right direction, or just a temporary break from the overreaching problem that Americans tend to be irresponsible with their money.

Consumer responsibility needs to be stressed and that starts with you and I and how we handle our everyday finances. The Federal Reserve shouldn’t have to protect us from our poor habits; we should be the one’s protecting ourselves. Here are four ways to become a more responsible consumer:

1) Know your cards, numbers, and pins

Take an inventory of your current debit and credit cards. Write down the type of card, its numbers, expirations, and security codes and place that document in a safe place. If you ever lose a card or have troubles with fraud, you’ll be able to quickly have the situation fixed with access to this information.

Keeping an inventory is crucial in case you lose a card and you don’t realize it for a couple of weeks. Instead of racking your brain to remember which card it was, check off the ones you have and that’ll lead you to the missing card. It’s responsible to know what you have in your pocket, and these details will allow you to understand your financial situation that much better.

2) Know your card balances

Almost every bank has a decent enough website that allows you to check your balance. Also, if you’re questioning how much you have in your debit account at the register, take five minutes and give your bank a call. The phone number is on the back of your debit card and they’ll be able to tell you how much you have in your account. This two minute phone call will be worth it if it’s going to save you a $35 overdraft fee.

The same goes with credit cards. Interest rates sky rocket if you go over your credit limit and it’s possible that that one occurrence will affect your credit for years to come. It’s not worth the mistake, so pay attention at all times. If you have the internet on your phone it’s even easier as you can check your current limit right at the store.

If this still isn’t enough, leave the card at home if the balance is too low. Don’t risk it and purchase an item with hopes that you have enough in your account to cover it. A lot of overdraft fees occur because of purchases like candy bars or a cup of coffee. Give the card a day off when it’s running low, and you’ll avoid th temptation to risk the purchase.

3) Use your money wisely

Too many people have large sums of money sitting in zero-interest checking accounts. With online savings accounts like ING your money is fairly liquid and you’ll get some interest out of it. Keep a safe buffer sum in your checking account to avoid any chance of an overdraft, but transfer the rest to an online bank. It’s also much safer to have your money spread out over different accounts. If all of your cash is in one checking account, all it takes is one lost debit card and someone could cash in big on your mistake.

4) Realize banks aren’t your best friends

They may give you free hot choloate and suckers when you’re filling out your deposit slip, but they’re trying to make money off of you. You have the right to question their practices, say no, or move your money elsewhere if you’re not satisfied. If they offer you a product that would be in your “best interests” you don’t have to agree.

When Corinne and I had our book business in college we opened up a checking account at the local bank – a very popular bank. One of the worst banking experiences I ever had was when I went in to deposit cash and a sleezy account man with his bank’s logo on his tie took me into his office and tried to sell me a mortgage. This was just a couple of months after the financial meltdown and they were desaperate for any action, but that fifteen minute exchange left a very sour taste in my mouth and I’ll avoid that big-name bank because of it.

They may act like your friend, but they’re not. Pay attention to the details on your accounts, the charges on your statements, and take inventory of what’s in your wallet.

America needs consumers who are watching out for themselves, and taking these small steps will allow you to be that much more responsible and safe with your money.

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Do you think the Fed needs to protect consumers? How do you protect your money? And what’s your debit card number? Just kidding!

Photo by dianaoctavius

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My financial turnaround began a little over a year ago. After reading some articles online about personal finance, I was persuaded to head to the local library to pick up some personal finance books.

It was the summer before my senior year and I was having one of those, “oh my god, I’m graduating in a year moments”. Life transitioning moments like a graduation, marriage, birth of a child, or purchase of a house are usually the sparks that lite the change in many people’s personal finance lives.

In hindsight, it was one of the best decisions I’ve ever made. As soon as I was finished with the first book – it was The Automatic Millionaire by David Bach – I was hooked. I wanted to tell everyone what I had learned and have them be as interested in personal finance as I was.

The trend I began to notice in the personal finance books I was reading was that every now and then certain facts, graphs, or insight would show up that would stop me in my tracks and overhaul the way I viewed money forever.

These moments are much more much life-changing than a friend or family memeber just saying, “hey, you should pay off your credit card debt.” They are moments of clarity, of education.

Today, we’ll dive into some of these facts of clarity when looking at information on credit card debt and how much paying the minimum is really costing you every month.

The True Cost of Paying the Minimum on a Credit Card

Many people assume paying the minimum on their credit card statement isn’t hurting them too much. Most people think of a credit card balance as a temporary problem that will eventually be handled. Everyone believes they’ll pay it off someday.

Even if you do pay off your credit card balance, the cost of keeping any balance on your credit card is astronomical. Credit cards offer interest rates around 15-19% which doesn’t seem terrible upon first glance.

This graph with hypothetical data paints a different picture and shows how much paying the minimum on your credit card really costs.

Paying the minimum is easy. It seems like progress is being made, but the truth is that only the credit card company is pocketing the money. When one is carrying a balance, a huge percentage of the payment goes towards paying the interest. The principal – the money you borrowed and needs to be paid off – is take care of after the credit card company gets there loan back. In the case above, this takes decades.

For example, the first month’s payment for the $3,000 worth of debt would look like this:

Month: 1

Min. Payment: $60

Principal: $12

Interest: $48

Remaining Balance: $2,988

Total Interest Paid: $48

Only 20% of the payment is going towards the principal while a whopping 80% is going to the credit card company because they let you borrow their money.

To compare, this is what the last payment would look like:

Month: 310

Min. Payment: $13

Principal: $13

Interest: $0

Remaining Balance: $0

Total Interest Paid: $7,986

Check out creditcards.com for a more detailed graph of these numbers.

These numbers are frightening and too many people never spend the time to figure out how much it really costs to finance an item on their credit card.

Paying the minimum can eventually lead to someone paying off their entire credit card balance, but it rarely does. The reason is that credit card debt continues to grow. The above graph is only true if the person with $3,000 worth of debt stops using the card altogether. However, if the card is active, it is often being used and the balance is increasing as the payments are made.

Unless the card is frozen or cut up, paying the minimum on the card will only have the credit card company getting richer with interest payments every month for a long time.

What hurts even more is the opportunity lost while this money was being paid to the credit card company in interest. That money could have been incurring interest in a savings account or in the stock market. Here is what that $10,896 could have possibly done invested – assuming an 8% historical market average return – instead of being locked up in credit card debt.

$10,896

Invested as $419 per year for 26 years

8% Return

Returns $36,550!

These numbers help explain why so many people struggle with their credit card debt.

The numbers are almost possible to figure out in your head, and too many people assume the credit card company is looking out for them.

If you are buried under debt, check out some a budget calculator or credit card debt calculator at creditcards.com or bankrate.com. These allow you to plug in your own numbers and figure out how long it will take to pay off your debt, and what you can do to accelerate your debt repayment.

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Photo by JasonRogersFooDogGiraffeB ee

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