Albert Einstein’s Definition Of Insanity: doing the same thing over and over again and expecting different results.

So you are ready to tackle your debt and get control of your finances. Here’s an important question – are you going to do it by yourself or are you going to recruit some outside assistance?

Here’s why you might want to give some serious consideration to getting some help with your budgeting – because whatever you were doing in the past clearly didn’t work.

Now, there frequently are good reasons why people went into debt – a layoff, medical issues, a divorce, the current housing crisis causing mortgages to reset, the recession causing business to dry up.

However, even in those cases, there is generally some poor financial planning to go along with it. Without realizing it, people who go into debt generally failed to put enough money into savings every month to create a decent financial cushion, and also generally  spent too much money on things which they felt were necessities – an expensive car, a big screen TV, DVR, music system, designer clothes, expensive salon treatments, pricey vacations – BEFORE they made sure that they saved up a financial cushion.

So if a person has developed a lifetime of poor habits in spending and saving, it is going to be very challenging for that person to suddenly change completely on their own.

Here are some ways you could bring in outside help:

Ask a spouse, boyfriend or girlfriend, or trusted friend to help, if they are financially savvy and you feel comfortable doing so
Get a financial advisor for a small fee
Consult a consumer credit counseling agency – make sure they have nonprofit status and are certified by www.nfcc.org!
Use financial software such as Quicken or Numbers

You can always try to get out of your current situation alone, but if you are going to do so, you need to take a long, hard look at why you are in debt, and make hard decisions as to what spending habits of yours you need to change. If you show a few months worth of your debit card statements to someone else, for instance, they are likely to spot a lot of areas where you can save money.

You may be spending too much on groceries, on entertainment, on clothing, etc., for someone in your financial situation. A good financial advisor can point this out to you; it may be difficult for you to spot because you are too close to the situation.

If you have bad credit and have decided to rebuild your credit, you are undoubtedly eager to do so quickly.

However, while it is certainly possible to greatly improve your credit, it is not going to happen overnight.

One of the most important things to know is that ANYONE promising you that they can rebuild your credit quickly is lying to you and is attempting to get you to pay them a hefty fee.

“Quick credit fix” counselors offer dangerous advice, such as the advice to form a corporation so that you can get an Employer Identification Number and use that instead of a social security number, thus hiding your bad credit history. Important tip: that is illegal. You could potentially be charged with fraud.

The only way to rebuild your credit is to: 1.) work out a budget, 2.) contact your creditors and work out a repayment plan with them if possible and 3.) Make those payments your top priority and pay them off on time every month.

That’s it; there is no magic fix. The credit scoring agencies want to see that you pay your bills on time regularly, not for a month or two, but every single month, before your credit score will improve.

Also, don’t apply for new credit while you are paying off your bills unless you absolutely have to, because FICO, the credit scoring company, sees that as taking on new debt, which hurts your credit score.

So how long should it take you to rebuild your credit?

Well, late payments remain on your credit history for seven years, and bankruptcy for up to ten years, but don’t despair. Even a few months of paying your bills on time will cause your credit score to rise. There is no hard and fast answer as to how long it will take, because everyone’s financial situation is different, but you will see slow, steady improvement in your credit score as time goes on.

There are two main types of bankruptcy filed by consumers (not businesses) – Chapter 7 and Chapter 13 bankruptcy.

Chapter 7 bankruptcy involves getting rid of most of one’s debts, but requires a huge sacrifice – almost everything that the debtor owns is sold off to repay debtors, and it is almost certain that if the person declaring Chapter 7 bankruptcy owns a house, they will lose that house.

Chapter 13 bankruptcy offers an individual the opportunity to  keep their house, as long as they can make payments.

Chapter 13 bankruptcy involves designing a repayment plan which will generally last up to five years.

Most people are eligible for Chapter 13 relief as long as their unsecured debts are less than $336,900 and secured debts are less than $1,010,650.
Secured debts are debts like a house or a car.
Unsecured debts are generally debts like credit card bills.
When someone files for Chapter 13 bankruptcy protection, they work out a plan with their creditors and repay that over the course of five years, and the creditors are obligated to stop collection activity against the debtor.
As soon as the debtor files for Chapter 13 bankruptcy protection, debtors are supposed to cease their collection activities. This does not mean they will not get their money back or that the debtor no longer owes the money however.
The debtor generally will have to attend a 341 meeting. They will have to present a list of all of their debts and financial obligation, their income, the source of their income, and their assets. The creditors may attend this meeting. A trustee is assigned by the court and will attend this meeting.
No final decisions are made at this meeting. It is there to find out the facts of the case.
Just as in Chapter 7, the debtor still must repay taxes, child support, student loans, certain types of lawsuit judgement against them, and various other obligations.
Chapter 13 is generally going to be the best option for debtors because it allows them to keep more of their assets and to remain in their homes if they own a home.

Sometimes a debtor gets so far underwater that they may be forced to consider filing for bankruptcy.

This is always a last alternative; it remains on one’s credit report for at least seven years  and can make it more difficult to buy or even rent a home, to buy a car, to apply for any kind of credit, et cetera.

The two most common types of bankruptcy are Chapter 7 and Chapter 13 bankruptcy. Today we’re going to talk about Chapter 7 bankruptcy.

With Chapter 7 bankruptcy there is no repayment plan. Any assets that the debtor owns that are not exempt – and this varies from state to t state – are sold off to repay debtors and most debts are wiped clean. Assets could include television, computer, car, furniture, clothing, house, bicycle, jewelry…there is a long list of what may be seized and auctioned off.

After Chapter 7 bankruptcy the debtor still is likely to owe income taxes, student loans, alimony, child support, and certain court judgments including injury caused by drunk driving.

While it may seem ideal to wipe away all of one’s debts and start fresh, Chapter 7 bankruptcy is not a perfect solution for many people.

And in fact, some people may find that their income is too high to qualify for Chapter 7 bankruptcy, in which case they would need to file for Chapter 13 bankruptcy, which requires a five year repayment plan.

The judge will look at numerous factors when deciding whether to allow the filing of a Chapter 7 bankruptcy. They do not want people to run up large amounts of consumer debt, such as buying expensive toys like big screen televisions, boats, et cetera – and then attempt to wipe out their obligations with a bankruptcy.

Some mitigating factors would be unemployment, medical bills, disability, et cetera. There certainly can be legitimate reasons why a person would have to file for Chapter 7 bankruptcy.

It is up to the bankruptcy judge as to whether he will allow the filing of a Chapter 7 bankruptcy plan.  The judge has the option of converting the case to a Chapter 13 bankruptcy or dismissing it altogether.

Before filing any type of bankruptcy it would make sense to consult with a bankruptcy attorney to see which type of bankruptcy is most appropriate to file, or whether there are better alternatives than a bankruptcy filing.

It’s not impossible to repair a bad credit score, but many people don’t know where to start.

That’s where credit counseling agencies come in. However, there are many credit counseling agencies out there who are there to help themselves, not you. They will advise you to take out expensive credit consolidation loans, they will not help you to budget or learn to live within your means, and they will give you bad advice, such as telling you to shut down older credit cards – which actually hurts your credit.

One place to turn is the National Foundation For Credit Counseling, a non-profit agency which maintains a list of local, nonprofit agencies.

Their home page has a wealth of information on everything from fair debt collection practices, to smart budgeting.

And their member agencies can offer free or low cost budget advice and credit consolidation advice. Whether it is free or involves a minimal fee depends on a number of factors, including your financial situation.

However, even if the agency uses the NFFC seal of approval, use your common sense. Check with the Better Business Bureau to see if there are any complaints against them. Consider going to your local courthouse to see if any civil complaints have been filed against them. And whatever advice they give you, you have to decide if it makes sense for you in your particular situation.  Think carefully before closing out old lines of credit, and before taking out a new credit consolidation loan. ONLY do that if you are sure that you can repay the new loan.

This shouldn’t scare you away from using a credit counseling agency’s services, because they provide helpful advice to millions of people every year. If you do a little investigating, you may find that a credit counseling agency is the perfect solution for you.

When times are good, and you need your car fixed or your hair cut, it’s easy to go for the most convenient option and not worry about cost.

However when you are in debt and watching every penny it’s important not to pay more for ANYTHING than necessary.

Whatever you are paying for currently, there is almost always a cheaper alternative.

How do you find it? Go back to school. No, don’t sign up for school; go back to trade schools to get cheap services performed by services.

Need your car repaired? Here is a great option that many people don’t take advantage of: local technical high schools or vocational schools. They will generally repair a vehicle for the cost of the parts alone. This can save you a FORTUNE. Labor is usually the biggest part of a repair expense.

If you are nervous about having students work on your vehicle, don’t worry: they always do this under the supervision of a trained supervisor. Think of it this way, they don’t want to botch up the job and get sued, and they want to train their students to repair cars properly.

Call around to find out what options are available in your area.

Here are some more cost saving tricks:

For hair cuts and color, call the local beauty schools to find out when their students give reduced price services. They often also do makeovers and manicures and pedicures.

If you need legal services, while law schools don’t come under the heading of trade schools, many of them offer legal clinics where you may be able to get an hour of free legal advice.

Don’t just rush out and pay far more than you need to get a necessary service or repair. Always look for the lower cost alternative, and you may find yourself saving hundreds or even thousands of dollars every year in fees – money that you can put into, you guessed it, paying off debt.

In order to effectively create a budget, does budgeting software help?

That depends entirely on you and your personality and your personal style.

There are paid budget software programs out there such as Quicken, which are very comprehensive.

Macintosh makes a budgeting program called Numbers.

If you have Windows, you can use a program called SimpleD, which is free.

www.mint.com and www.geezeo.com are a couple of websites which offer community forums and budgeting tracking and even import your information from banks.

If that’s all more complex then you need, you can do things the easy way at home. Gather ALL of your bills in one place; a shoebox will do. Get a piece of paper, make a list of what you owe for each bill. Write down the minimum payment and when it is due every month.

Make a note of each payment due date and write it in red on a calender that is displayed prominently – or use a cheap whiteboard and put it on the wall somewhere you will see it – again, with the monthly payment and the due date on there.

Next, set your bank account up to pay those bills automatically for you. And there you go – you are on your way to paying down your bills!

When you are paying for rent or mortgage, car payments, groceries, utilities, phone bill, and struggling to pay off bills, it can seem nearly impossible to set aside any money for a rainy day fund.

However, it’s very important that you have cash on hand so that when something breaks down and needs repair – car, air conditioning, heater, etc. – or the roof starts leaking or you’re sick and you’ve used up all of your sick days…it doesn’t cause you to get even further behind.

Little things can make a big difference when saving money. Here are some ways that you can set aside a little cash, that will add up big time:

Dump all of your change into a change jar every day and deposit it at the bank when it gets full.

When you pay off a bill, take the money that you USED to put into that bill every month, and put it into savings.

Get a part time job one day a week for a few months until you have saved up a good sized rainy day stash.

When you get a raise, put the extra money from that raise into your rainy day fund.

The same goes for annual bonuses – put it into your rainy day fund.

Don’t blow your tax refund on luxuries – treat yourself to something inexpensive so you don’t feel deprived – and put the rest into your rain day fund.

Sell off anything in good condition which you don’t use regularly, and put that money into a rainy day fund.

Instead of having a “save what you don’t spend” mentality have a “spend what you don’t save” mentality. Establish the amount that you are going to save every week or every month. Whatever is left over is yours.

Make sure to put your savings in an interest bearing account so the money isn’t just sitting there.

When you are trying to get out of debt and pay down high loan balances, you need to be ruthless about examining every single expense and trimming them where necessary.

To truly save money,  you need to look at all of your regular monthly expenses – cable TV, cellular phone, health club, insurance – and see where you can trim the fat.

And you will be amazed at how much fat there is.

Cable TV – if you’re in debt and paying late fees and high interest rates, Cable TV really is a luxury. If you absolutely feel that you can not live without it, trim expenses like HBO and Showtime and other expensive movie packages. Also, find out how much extra it costs to have DVR boxes and multiple cable units and remotes. It’s very likely that you could trim your bill significantly if you pare down.

Cellular Phone – If your contract is up, this puts you in a position of strength. If your current company won’t give you a discount – time to find one that will. If you are stuck with your current company, eliminate texting packages and examine very carefully how many minutes you really use per month.  Most home telephone plans offer free unlimited long distance as part of their basic package these days. So you can use the home phone more and the cell phone less. For that matter – do you truly need a home AND cell phone?

Gym membership – Bargain hunt. If there is a cheaper gym in your area, tell the manager at your gym – not in front of other members, of course – and show him or her the proof. If he or she won’t lower your monthly rate to match it, then give however much cancellation notice they require and move on to the cheaper gym.

Insurance – Are you overinsured? Do your homework, find what’s an appropriate amount of coverage, and don’t pay for more. This goes for homeowners insurance, life insurance, car insurance, renters insurance, liability insurance, et cetera.

There are a lot of myths and misinformation about credit scores floating around out there – what really hurts your credit score? What raises your credit score?

And credit card companies are not exactly a goldmine of information about credit scores.

Here are some of the biggest factors that help your credit score:

1.) Have credit cards, and use them regularly. If you have never had line of credit, or don’t have any that you use regularly, then credit scoring companies have no way to determine what you are like as a customer and whether you are a good credit risk.

2.) Don’t charge too much on your credit cards. Ideally you will pay off your balance in full every month so that you don’t have to pay interest. If you can’t do that, then at least do not charge more than 35 percent of your credit limit. If you have a credit limit of $10,000, then if you owe more than $3500 you will start to see your credit score fall.

3.) Pay your bills on time every month. This is huge. This accounts for about a third of your credit score.

4.) Check your credit reports regularly to make sure there is no inaccurate information on them dragging your score down.

5.) When you are shopping at the department store and they say “Would you like to save 10 percent on your purchase today?” – Just resist. They will have you apply for a store credit card. Every time that you apply for new credit this hurts your credit score a little bit. Old credit lines that are paid off on time are valuable and help your credit. Applying for new credit hurts your credit score.