It is important to try to improve your credit rating. Paying off debt on time should be seen as a vital part of keeping your financial affairs in order. Often, people will fail when trying to improve this rating because they think that taking out more credit or different types of credit will help. In reality, planning and budgeting are the key to improving your credit rating and many people find this a lot less appealing than taking out another credit card. However, the truth is that there is no substitute for paying your bills on time, and paying them off as quickly as possible.

Budgeting is the Key

Often people lose track of their finances because they’re not managing their money properly. Setting a simple monthly budget will shed light on the actual state of your finances and provide a guide on what you can or cannot afford.

Don’t make purchases on credit, even if you see an item that has been discounted and think that it’s a good bargain. If you put this on your credit card but do not pay the full balance when the bill arrives then, due to interest charges, the item will work out to be more expensive than you think.

Short and long term budgeting are crucial when trying to improve a credit score and get out of debt. Once you make these plans, you need to stick to these budgets and not deviate. Work out what your monthly income is and also your fixed monthly expenses. By doing this, you can calculate what your disposable monthly income will be. These short term measures can allow you to make longer term plans, such as saving up to pay cash for larger purchases such as vacations, Christmas gifts, or furniture. When you quit putting puchases on credit and pay down the debt you already have, your credit score will gradually improve.

Spending Money You Don’t Have?

Although the overall level of personal debt has gone down during 2010, many of us are still too careless with our credit cards. Spending money you do not have is extremely damaging to a credit rating. Credit cards allow people to spend money they do not have because a credit limit is set by a number, not actual money in the bank. People spend 15-20% more when using credit than when using cash, so it is best to pay with cash. Some people take out numerous credit cards and use one credit card to pay off debt on another one. For obvious reasons, this is not a smart thing to do.

Probably the most important thing you can do to improve a credit rating is to pay bills on time. Credit agencies will see it as a big black mark against you if fail to pay bills on time. This will have a very detrimental effect on your rating. If you only pay back the minimum amount required every month it can be difficult to pay off overall debt.

In short, improving your credit rating is a worthwhile goal. Budgeting and being aware of spending habits will help you get there.

Financial troubles, made especially pronounced in a poor economy, can affect an individual’s health in at least two ways: psychologically and physically. Arthur Goldsmith, an influential professor of economics, concludes after years of research that simply being un-employed for five weeks for more can cause serious health problems. For instance, Goldsmith mentions, “Those exposed to a few months of unemployment begin to exhibit higher levels of anxiety, depression and lack of sleep.” If unemployment goes on longer, he continues, these problems become pronounced and often long-term. Similarly, the New York Times ran an article in 2009 regarding a study conducted by the Harvard School of Public Health, that concluded the unemployed were twice as likely to develop high
blood pressure, diabetes or heart problems. Research has also shown that financial difficulties can also have devastating effects on relationships, especially marriages.

Since the effects of unemployment are serious, it is crucial you that you take steps to ensure your financial stability. First of all, debt should be avoided at all costs. One of the principal problems of unemployment is that it adds to your debt. When you are unable to make your payments on time, your stress level rises, which often results in a poorer quality of sleep and unhealthy habits. In order to prevent such a situation, set aside money that can be used in case you face the prospect of becoming unemployed. You should also make sure those in your home who could possibly be secondary providers are employable in case the primary worker is either  unemployed or unavailable to work. Ultimately, remember to live within your means. Massive amounts of debt are often unnecessary and can compound financial issues if the economy takes a downturn.

While the suggestions above may help you stay away from financially stressful situations, oftentimes unemployment and debt are not a choice. If you are facing both of these issues, it is essential that you take measures to stay mentally and physical healthy. Getting proper exercise is extremely important when under financial pressure. Studies have shown that exercise helps people better manage stress, contributing to both better physical and mental health overall. Thus, if you are feeling overwhelmed, consider simply taking a walk or run around the block to get some fresh air and relax. Researchers believe that in addition to adding to debt, being inactive greatly adds to the adverse effects of unemployment. Thus it is important to find something to do that will help you focus and take your mind off of more stressful topics. This activity can be something as simple as finding a new hobby or volunteering at your animal shelter or soup kitchen. The goal is to keeping your mind and your body active. This way, you can thwart the onslaught of poor mental and physical health that a poor economy brings.

Perhaps what is most important to remaining healthy though, is staying engaged. Researchers believe that in addition to adding to debt, being inactive greatly adds to the adverse effects of unemployment. Thus it is important to find something to do that will help you focus and take your mind off of more stressful topics. This activity can be something as simple as finding a new hobby or volunteering at your animal shelter or soup kitchen. The goal is to keeping your mind and your body active. This way, you can thwart the onslaught of poor mental and physical health that a poor
economy brings.

To be on the safe side, it’s best to review your home insurance policy on a regular basis. Renewal time provides the perfect opportunity because you’ll have your policy in hand and it will be
easy to make changes before you write a check. With a quick review, you may discover ways to improve your coverage and maybe even save a little money in the process.

Step One: Has Anything Changed?

When your renewal notice comes, the first thing you should do is read over the policy. Make sure all the basic information is correct– name, address, phone number, and property description.
If you have a garage, shed, or other outer building, there should be a notation on the policy. Also ensure the information concerning the mortgage holder is complete, accurate, and up to date.

Special tip: If you had a second mortgage that’s paid off, make sure the mortgage holder isn’t listed on the policy. In the event of a substantial claim, all parties who have a vested interest in
the home are included on the check. If the second mortgage holder is listed, but no longer has an interest in the property, it’ll be a nuisance to straighten the matter out. It’s far better to have them
removed before it becomes an issue.

Step Two: Do You Have Enough Coverage?

One of the most important things to look at when reviewing your home insurance policy is the amount of coverage you are carrying. A common mistake people make is to underinsure
their home. Although it may be tempting to save a little money in premiums by not carrying all the insurance you really need, you could end up having significant out-of-pocket expense if
something does happen.

Special tip: Most policies have an automatic cost-of-living adjustment. Due to inflation that amount generally goes up. In your review, determine if this adjustment exists and if it will cover
you in case of emergency. If the adjustment is a minimal amount, you may be able to save a little money by foregoing the increase. Be sure you keep an eye on it though, in case of larger
increases in the future.

Step Three: Have You Upgraded Your Home?

If you’ve made significant improvements to your home or property, it is likely more valuable than it was before. Your coverage should reflect this increase. If you need to file a claim or
rebuild the property and your improvements haven’t been included in your policy, you could end up taking a loss.

Special tip: It is your responsibility to inform your agent if you’ve added a security system, a new room, or redone existing parts of the home, such as a complete remodel of the kitchen. These
things can add considerable value to the home and may cost a lot more to replace. A security system could also net you a discount if your agent is aware of its existence.

Step Four: Are Discounts Available?

Find out about any discounts you’re entitled to. It may be to your advantage to combine your home insurance policy with auto and life insurance policies. Multi-policies usually lead to
considerable savings.

Special tip: If you have any questions concerning discounts–what’s available and how much the savings might be, contact your agent. They have the answers and will be more than happy to help
you determine what choices to make. After all, a satisfied customer is a happy customer, and a happy customer means repeat business.

Step Five: It’s Time to Make Improvements

After reviewing your policy, sit down with your spouse and discuss ways you can make improvements to your policy. Determine if there are any holes in your coverage that need to be
addressed. Your agent should call periodically to go over your policy with you, and point out any areas where prices or coverage have changed. Review your policy with them at that time. If
your agent doesn’t contact you on a regular basis you may want to consider shopping around for an agent that will take a more personal interest in you and your property. The bottom line is that
you want to make sure you’re protected in case of emergency, and if something does happen you want to be able to concentrate on making the necessary repairs and not on collecting the cash to
do so.

Special tip: Any time you can raise your deductible your premiums will drop correspondingly. If you take this route, make sure doing so won’t cause you to lose any sleep. Raise it only as much
as you feel comfortable with.

Guest post from Bailey Harris, who writes about homeowners insurance forwww.homeownersinsurance.org.

The Federal Citizen Action Center offers the following tips for finding a good savings account.  When choosing the one that is right for you, consider:

• Minimum deposit requirements. Some accounts can only be set up with a minimum dollar amount. If your account goes below the minimum the bank may not pay you interest on the money you deposited and you may be charged extra fees.
• Limits on withdrawals. Can you take money out whenever you want? Are there any penalties for doing so?
• Interest. How much (if anything) is paid and when: Daily, monthly, quarterly, yearly? Is this a variable rate or fixed rate savings account? To compare rates offered locally to those from financial institutions around the nation, visit www.bankrate.com
• Deposit insurance. Make sure your bank is a member of the Federal Deposit Insurance Corporation. This organization protects the money in your checking and savings accounts, certificates of deposit and IRA accounts up to $250,000.
• Credit unions. A credit union is a nonprofit, cooperative finacial institution owned and run by its members. Like the FDIC does for banks, the National Credit Union Share Insurance Fund (NCUIF) insures a person’s savings up to $250,000.
• Convenience. How easy is it to put money in and take it out? Are there tellers or ATM machines close to where you work and live? Or would you receive most of your service via the telephone or Internet?

Also, don’t forget to check out your local credit unions. They often offer the best rates around, and have great customer service to boot.  Remember to look into high interest checking accounts as well. These tend to have many strings attached, such as requiring you to use direct deposit, a minimum number of debit card purchases per month, and a cap on the amount of money that can earn interest. However, if you’re doing all those things already, you may find that your best fixed rate savings account is actually a checking account. Happy saving!

We have reviewed 8 everyday items and personal finance products which you may or may not already have in your life, and a guide to help you decide which ones are worth keeping and which are impeding your frugality.

When you are trying to live a frugal lifestyle, it is important to step back and review the items you have in your life, especially since a number of items you thought were helping you be smarter with your money and protect your family could actually be costing you more.

So without further ado, here’s the list:

1 – Protections

Not all forms of insurance and warranty are un-frugal but in some cases you can be paying extra for coverage you don’t need, won’t use, or isn’t worth the value you are paying for it. For example:

• Extended warranties. An extended warranty on a car or electrical item can be as little as $30 to as much as several thousand dollars and is aimed at extending the manufacturer’s warranty in case there is a problem with the item. However, some items are not likely to break down even within the extended warranty period and you can instead save yourself money by choosing the most reliable brands to start with, and using the products the way they were intended to be used. Even if a product does fail outside of the warranty period, you can still try and negotiate with the retailer for repairs or compensation.
• Credit card insurance. You can be paying around $1 for every $100 of your balance for insurance to cover your minimum monthly repayments if you are unemployed, injured, disabled or you die. However, in most cases your life insurance policy will already cover your expenses in case you can’t.
• Identity theft protection. Having your identity stolen can cost you a lot of money not to mention inconvenience however, at up to $240 per year, identity theft protection can cost you even more, especially when there are significant gaps in the protection according to the Federal Trade Commission’s Chairman. Instead, keep an eye on your own finances and read bank statements carefully, keep your letter box locked and don’t give out your PIN to anyone.
• Phone insurance. Yes, you really can buy IPhone 4 Insurance. However, that doesn’t mean it’s a good deal. Losing your phone is annoying and paying up to $96 per year and an extra $25 to $100 deductible when you claim may seem like a small price to pay for the convenience of an automatic replacement. However, this is not generally a frugal way to spend your money as your phone may already be covered under your home contents insurance. Plus, there can be conditions which may exempt you from a new phone in the insurance contract.
• Collision insurance. If you have an older vehicle, you could find a more frugal use for your funds than paying for collision insurance. You can be paying an extra $300 per year for reimbursement of the value of your car in the case of an accident. However, the cost of the coverage is likely to overtake the maximum amount the insurance will pay for so once the cost of the insurance is 10% of the car’s book value, the policy is not worth keeping.

Verdict: Not frugal.

2 – Account and investments which charge fees

Your transaction and savings accounts and investments are supposed to be making it easier for you to manage your money and make every dollar go further. Therefore watch out for these expenses which can eat into your frugality:

• Sales commissions on mutual funds. Load mutual funds can be paying four to six percent in sales commissions to your broker or financial advisor, where no-load funds often perform the same or better for your returns. Therefore, shop around for the best performing no-load mutual funds, and remember that even if funds appear to be on par, load funds will need to offer higher returns to make up for the loss of returns to fees.
• Fees on transaction accounts. If you have had the same transaction account for many years, you may not be aware of the new products on the market. For example, there are many transaction accounts which won’t charge you ongoing monthly fees for holding the account, nor require you to maintain a minimum balance to pay you interest.

Verdict: Possibly not frugal—be sure to figure total return including expenses.

3 – Home Equity Loans

In these difficult economic times, people are often tempted to access the equity in their home to help with expenses and family activities. However, equity release schemes can be very expensive as you only get back a fraction of the house’s value and you are giving up a large portion of your accumulated wealth just for cash flow in the short term.

Instead of using an equity release loan or scheme, consider downsizing to a smaller more affordable home and investing the profits from the sale of your first home.

Verdict: Not frugal.

4 – Coupons

Coupons are often touted as the frugal family’s best friend, however, you can find yourself spending more than normal, or getting a decreased value from your purchases simply to make use of a coupon. Therefore, make sure you avoid these non-frugal coupon uses:

• Retailer coupons. If the coupon is for somewhere you already shop then you can use it frugally, but often retailers give out coupons to attract new customers and you can find that you make impulse purchases, without considering whether the item is good value. Therefore, make sure you compare the products and prices of items before you buy somewhere new. You also often can’t use more than one coupon on the same item so the individual discounts may not add up.
• Buying a new product. Everyone has the brands they know and like, but if you receive a coupon for a new product, you may be tempted to buy it. However, make sure you actually need the items, and consider whether your money could be better spent on a product you know you’ll like, rather than on a new brand of product you may end up throwing away without finishing.
• Buy one get one free. This type of coupon offer is only viable for frugality if you are able to use the extra items before they go bad. If you have a big family or are having a party then stock up, but otherwise these free items could be wasted.
• Other brands are still cheaper at full price. If you have a coupon for a branded product, but the store brand is still cheaper at it full price, you are not spending frugally if you spend more on the same product simply because you have a coupon.

Verdict: Sometimes frugal—but only for products you know you would buy anyway.

5 – Convenience foods

Don’t confuse ease of use with enhanced lifestyle because when you buy the more expensive frozen or pre-packaged foods you are paying more and not only wasting your money, but short-changing yourself on the quality family time you could spend preparing food and meals together. Instead of buying frozen meals for when you’re too tired to cook, spend a day with your children helping you in the kitchen to cook up batches of meals which can be frozen. Rather than buying small containers of yogurt for lunch boxes, buy the larger tub and distribute them into your own smaller containers.

Verdict: Not frugal.

6 – Reusable menstrual products

Guys, feel free to skip this paragraph. OK ladies, I want you to stop and think for a moment about how much you’re spending every month on tampons or pads. Did you even realize there are other options out there? Google “menstrual cups” and you’ll find quite a variety under brand names like Diva, Mooncup, and Keeper. Not only are you saving 10 to 15 dollars each month on disposable products, you’re also stopping all of those products going into landfill. Be sure to read up on these before you buy, however, as they come in different sizes and a proper fit is essential for them to work properly.

Verdict: Frugal.

7 – Beauty products from the kitchen

When we look good we feel good and one of the hardest parts of living a frugal lifestyle can be giving up on beauty products. However, there are a myriad of frugal alternatives right in your own home, such as:

• Enzymes and acids. These features of beauty products are now thought to be more effective at renewing your skin than harsh scrubbing products, and you can find them in natural yogurt. You can make a face mask from just one teaspoon of yogurt once or twice per week and feel refreshed in summer, or warm the yogurt to room temperature in winter.
• Lactic acid. If you don’t want to slather yogurt on your face, use milk or powered milk. You can make a mask out of powdered milk, or simply dip your face into a bowl of fresh milk. The lactic acid is the ingredient in the yogurt which removed dead skin cells and brightens and smooths your complexion. You can even take a milk bath by adding a cup of milk or milk powder to your bath water.
• Probiotics from the inside. Don’t forget to eat some of the yogurt too, or add probiotic capsules to your diet as this helps improve your complexion form the inside by neutralising and removing toxins before they can be pushed out through your skin – prevention is better than cure.
• Fruit masks. Fruits such as kiwi, peaches or papaya can be pureed to create a face mask but remember the acids in the fruits work quickly so don’t leave them on for more than a couple of minutes. For dry skin, try an avocado paste mask.
• Apples. You don’t have to do anything to your apples except eat them – including the skin as that’s where most of the nutrients are found – as apples contain pectin which cleanses your intestines of toxins which would normally be excreted by your skin.
• Basic toner, cleaner and moisturiser. With the natural fruits and acids working on perfecting your skin you will find you don’t need to spend a lot of money on the fancy toners, cleansers and moisturisers. Instead, look for products which don’t have acids or enzymes in them to give your skin a break.
• Aloe Vera. This is a very simple product which can be used to great effect as an eye gel and wrinkle smoother. If you have puffy eyes in the morning it will firm up your skin and it can be used in place of your regular moisturiser several times a week.

Verdict: Frugal.

8 – Lighting

One of your biggest household bills will be for your power and there are a number of ways you can reduce this cost until your whole family gets into the habit of turning off the lights when they leave the room. Using compact fluorescent light bulbs in all of the sockets in your home can save you hundreds of dollars per year. For a longer lasting alternative, LED lights will save you even more money because they are maintenance free and you won’t have to replace them for years.

Verdict: Frugal.

Alban is a personal finance writer at Home Loan Finder, a home loan comparison website.

Separate speculation from investment  

If you are trying to foresee the distant future and investing on the basis of market news, you are merely speculating. Of course, investing is all about analyzing and taking chances, but blind guess work will not lead you anywhere. If you are a true investor then you should have a reason to buy shares of a company. Remember that your money should ideally be used to promote planned growth of a company. It you are not a veteran, then stay away from speculation, particularly during recession. 

Do not invest what you cannot afford to lose

Investing in stocks can be highly profitable as well as fun. However, that does not mean that you should spend a fortune in the stock market. You need to think about your future and your family before investing in stocks with high odds. In case you are determined to make some speculative moves, you should build a separate fund for it with spare money you can afford to lose. Make sure that you don’t contribute what should go to future savings or family expenses.

 Invest in reliable companies  

Yes, we recommend you to play safe here. It might sound boring, but investments have the potential to make or ruin your future. It’s true that investing in fortune 500 companies has less potential for profit, but these are also less risky.  Your primary investments should be so reliable that you can afford to forget them for months without worrying. 

Diversify your investments  

Many people believe that buying a few stocks from a large number of companies is diversification. Nothing can be far from truth. If you invest in so many companies then you might suffer considerably if the entire market collapses (which often happens). Diversification actually refers to dividing the available capital into several parts and investing in different categories like precious metals (gold, silver etc.), real estate, bonds etc.  This is true diversification because even if another recession hits, some of your investments will still fare well. 

Evaluate your investment strategy  

It is wise to evaluate your portfolio at least once a year. This is because all your assets grows at a different rate. For instance, during a real estate boom, you can sell a part of your properties and when the market is low you might buy some. The same applies for all your investments. As a thumb rule, you should sell the excess whenever an asset grows beyond 25%. If you do this on an annual basis, then your portfolio will be dynamic and balanced. 

These old fashioned investing strategies will work even in a declining economy. Stay away from get-rich-quick schemes and promises of quick easy profit. Regardless of the economy, tried and true investment advice will serve you well.

Colorado Attorney General Suthers today issued a list of top ten tips on how to avoid becoming a victim of fraud this holiday season.

“Nothing can dampen the holiday season faster than becoming a victim of consumer fraud,” said Suthers. “The holidays are a busy time of the year for thieves. By keeping a few tips in mind, you can prevent them from taking advantage of you and your wallet.”

Each year, the Attorney General’s Office receives more complaints on fraudulent activity during the holiday season than any other time of year. To avoid becoming a victim, the Attorney General’s Office suggests following the below tips.

1. When buying online, always know who you’re dealing with.
   Anyone can set up shop online. Confirm a store’s URL by calling. Never input financial data into a pop-up message, or in response to an unsolicited email, as a legitimate business will never ask for such information this way.
2. Keep a paper trail.
   Print and save records of all your transactions, including receipts and product descriptions.
3. Update your security software.
   Updated software includes anti-phishing features to protect against fake sites that attempt to trick consumers into purchasing or divulging personal data. Never download so-called anti-spyware products pushed through pop-up messages or unsolicited email.
4. Shop on a site that encrypts data.
   Look for the URL to begin with “https” instead of “http”. On the checkout page, make sure there is a padlock icon in the lower right-hand border of the browser window.
5. Purchase gift cards from a customer service agent not from display racks.
   Gift cards purchased from a display rack are an easy target for crooks, who can write down the card numbers and wait a few days until the card is actually purchased and activated. They are then able to go online and start shopping with your card.
6. Check a company’s history with the Better Business Bureau (BBB).
   Consumers can easily inquire with the BBB to check a company’s reputation and history of complaints.
7. Give wisely and beware of charity fraud.
   During the holiday season, charity fraud is most popular. Be careful of charities that use similar sounding names as legitimate charities. Consumers should check the registration status, financial statements, and campaign reports of charities and paid solicitors BEFORE making any charitable donation. Carefully review account statements and credit card activity.
   Detecting fraud early increases your chances of recuperating your money from unauthorized purchases.
8. Protect your credit card numbers.
   To prevent fraudulent charges, make sure sales clerks make only one impression of your credit card and never give your credit card number to someone unsolicited.
9. Beware of emails that offer loans or credit.
   Scam artists can take advantage of cash-strapped consumers over the holidays by offering ”bad credit loans“ for an upfront fee.

In some cases, refinancing almost always makes sense. Let’s say you have an adjustable-rate mortgage (ARM). ARM’s are extremely risky, as your rate and monthly payment can increase greatly when the loan adjusts. In a split second, your manageable $1500 monthly payment can turn into a crippling $3000 payment. If you have an ARM, you should refinance to a fixed rate as soon as possible, period.

If you already have a traditional, fixed-rate mortgage, you’ll need to do some calculating to determine whether it’s worthwhile to refinance. Here is some key information you’ll need to know: 1) how long you expect to own your house, 2) what rate you can expect on your new loan, and 3) how much you expect to pay in fees. A lender can help you estimate the last two.

Once you have estimated these, you are ready to calculate your break-even point. This is time it will take for your monthly savings to exceed to amount you will pay in fees to refinance. Here’s how:

1. Use a mortgage calculator to estimate your new monthly payment.
2. Subtract the new payment from your current payment to see how much you’ll save per month. For example, if your current payment is $1500 and your estimated new one is $1350, your monthly savings is $150.
3. Divide your estimated refinancing fees by your monthly savings. In our example, if the refinancing fees are $2745, we divide by our monthly savings of $150 for a breakeven point of 18.3 months. This means it will take us about 18 months to break even on this refinance.

If we plan to keep the house much longer than 18 months, it makes sense for us to refinance. Otherwise, we stay with the current loan.

Other factors like taxes can complicate things a but, but calculating your breakeven point is a good rule of thumb for deciding if a refinance is a good move for you. If so, then don’t wait to lock in your rates. They have nowhere to go but up.

You’re not alone. Many people face financial crises at some time in their lives. Whether the crisis is caused by personal or family illness, the loss of a job, or simple overspending, it can seem overwhelming. But often, it can be overcome. The fact is that your financial situation doesn’t have to go from bad to worse.

If you or someone you know is in financial hot water, consider these options: realistic budgeting, credit counseling from a reputable organization, debt consolidation loans, or bankruptcy. How do you know which will work best for you? It depends on your level of debt, your level of discipline, and your prospects for the future.

Developing a Budget
The first step toward taking control of your financial situation is to do a realistic assessment of how much money you take in and how much money you spend. Start by listing your income from all sources. Then, list your “fixed” expenses — those that are the same each month — like mortgage payments or rent, car payments, and insurance premiums. Next, list the expenses that vary — like entertainment, recreation, and clothing. Writing down all your expenses, even those that seem insignificant, is a helpful way to track your spending patterns, identify necessary expenses, and prioritize the rest. The goal is to make sure you can make ends meet on the basics: housing, food, health care, insurance, and education.

Your public library and bookstores have information about budgeting and money management techniques. In addition, computer software programs can be useful tools for developing and maintaining a budget, balancing your checkbook, and creating plans to save money and pay down your debt.

Contacting Your Creditors
Contact your creditors immediately if you’re having trouble making ends meet. Tell them why it’s difficult for you, and try to work out a modified payment plan that reduces your payments to a more manageable level. Don’t wait until your accounts have been turned over to a debt collector. At that point, your creditors have given up on you.

Dealing with Debt Collectors
The Fair Debt Collection Practices Act is the federal law that dictates how and when a debt collector may contact you. A debt collector may not call you before 8 a.m., after 9 p.m., or while you’re at work if the collector knows that your employer doesn’t approve of the calls. Collectors may not harass you, lie, or use unfair practices when they try to collect a debt. And they must honor a written request from you to stop further contact.

Credit Counseling
If you’re not disciplined enough to create a workable budget and stick to it, can’t work out a repayment plan with your creditors, or can’t keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But be aware that just because an organization says it’s “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, which may be hidden, or pressure consumers to make large “voluntary” contributions that can cause more debt.

Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.

Auto and Home Loans
Your debts can be secured or unsecured. Secured debts usually are tied to an asset, like your car for a car loan, or your house for a mortgage. If you stop making payments, lenders can repossess your car or foreclose on your house. Unsecured debts are not tied to any asset, and include most credit card debt, bills for medical care, signature loans, and debts for other types of services.

Most automobile financing agreements allow a creditor to repossess your car any time you’re in default. No notice is required. If your car is repossessed, you may have to pay the balance due on the loan, as well as towing and storage costs, to get it back. If you can’t do this, the creditor may sell the car. If you see default approaching, you may be better off selling the car yourself and paying off the debt: You’ll avoid the added costs of repossession and a negative entry on your credit report.

If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you if they believe you’re acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, though, you may have to pay an additional amount toward the past due total. Other lenders may agree to change the terms of the mortgage by extending the repayment period to reduce the monthly debt. Ask whether additional fees would be assessed for these changes, and calculate how much they total in the long term.

If you and your lender cannot work out a plan, contact a housing counseling agency. Some agencies limit their counseling services to homeowners with FHA mortgages, but many offer free help to any homeowner who’s having trouble making mortgage payments. Call the local office of the Department of Housing and Urban Development or the housing authority in your state, city, or county for help in finding a legitimate housing counseling agency near you.

The 411 on the Traditional 401k

The traditional 401k is the most typically known retirement plan. The 401k has been offered from corporations to employees since 1980, and ultimately allows individuals to set aside a portion of wages (contributions) to a tax-deferred account for safekeeping and retirement plans. Keep in mind that the traditional 401k account is funded with pre-tax dollars, and thus earnings must be taxed when they are eventually withdrawn. In certain cases, an employer may opt to “match” some or all of an employee’s contribution and an individual must take distributions at age 70.5 from the account.

• The Pros
  • Company Sponsored: Typical 401K accounts are company sponsored. Many employers also opt to match a certain percentage of contributions made to the company sponsored plan.
  • Pay taxes on withdrawals: Because upon retirement there is a possibility that you will be in a lower tax bracket than the year contributions were made, the 401K could be more beneficial than a Roth IRA assuming investment returns are the same.
  • No income limits: No matter how much money you make, you can contribute to a 401K. Individuals in the high income brackets are not allowed to make contributions to a Roth IRA.
  • Annual Contribution amount: For 2010 the maximum contribution amount is $16,500, which is greater than the annual contribution amount allowed for a Roth IRA.
  • Reduces taxable income: Whatever amount you contribute to your 401K will reduce your taxable income by that amount for the year that the contribution was made.
• The Cons
  • Forced Withdrawals: It is required that withdrawals must be taken at a certain age. Many investors argue that the forced withdrawal of massive amounts through 401K plans can cause the markets to severely drop due to the large amounts of capital leaving the market for the reason that individuals are required to sell, not because the value of the company dropped- which is artificial deflation of the stock’s value.
  • Employer Choice of Funds: Many companies will offer several fund options that are funds of their choice. This limits the flexibility of investments made through a 401K.
  • Pay taxes on withdrawals: While one of the main benefits of a 401K is that you defer paying taxes on the contributions until retirement, the taxation environment is unknown for the future. Tax rates have a tendency to increase, not decrease; so there is a possibility that higher tax rates will have to be paid on your funds.
  • Early Withdrawal Penalties: When it comes to taking early withdrawals from your 401K account, there are many more penalties associated with the action as opposed withdrawing from a Roth IRA investment account.

The Real Deal on the Roth IRA

The Roth IRA, or Individual Retirement Account, option was created in 1997, and serves as an alternative plan to the traditional 401k. In this case, contributions are treated differently. With the Roth plan, contributions are considered to be after-tax dollars, and thus taxes must be paid the same year in which they are submitted into the account.  Keeping this in mind, the money that may grow over time in the account will be tax free money. The Roth IRA can be opened by most individuals that meet standard criteria and does not require an individual to take distributions at any point (thus, money can be transferred to heirs).

• The Pros
  • Avoid Early Distribution Penalties: There are not as many limitations on taking early distributions as there are with 401Ks. The Roth IRA has many exceptions that allow funds with be withdrawn without penalty.
  • No Age Requirement to make Withdrawals:  You are not required to make withdrawals at a given age like you are with a 401K. This allows you to keep money in your investments and earning gains (or losses). Money can remain in the account for its beneficiaries as well.
  • 2010 is a special year: There are special conversion rules that apply this year making this form of retirement account available to more individuals. For 2010 the adjusted gross income level for making conversions to a Roth IRA do not exist, taxes are not due in 2010 (can be deferred until 2011 or 2012), and conversions can be made from 401Ks and traditional IRAs.
  • Flexibility in investments: With a Roth IRA, you can invest in a much wider variety of investments as compared to a 401K.
• The Cons
  • Income limits: Contributions made to a Roth IRA are restricted to individuals and couples with an adjusted gross income of $120,000 and $176,000, respectively. If you make too much money to contribute to a Roth IRA and you have another existing retirement account, 2010 is a special year and the IRS has special conversion rules for converting other forms of retirement accounts to a Roth IRA.
  • Annual Contribution Amount: For 2010 the maximum contribution is $5,000, or $6,000 if you are older than 50 years old before 2011. This amount is significantly less than the amount allowed when making investments towards a 401K
  • Investments made after tax: Since investments are made after tax there is a possibility that your tax rate will be higher at the time of your investment than if you were to defer paying taxes until retirement thorough a 401K.

Still Unsure? The Main Differences Breakdown

• Withdrawal Timing: If the timing of your distributions is important to you then it is essential to consider this difference. There are fewer restrictions on taking distributions through a Roth IRA than a 401K. With a 401K, there are forced withdrawals at the age of 70.5, while with a Roth IRA, the funds can remain in the account.
• Employer Match: Typically most companies that offer a 401k also match a certain percentage of contributions made. In the case where a company match is made, it is a no brainer that a 401K should be used for at least the amount that the company is willing to match vs. investing the same money in a Roth IRA that has no match.
• Income limits: Since the Roth IRA has income limits associated with making contributions, it may not be available to all individuals.
• Contribution Amounts: There are different limits to the maximum amount of money that can be contributed to each type of account every year. A 401k allows for a higher contribution amount than a Roth IRA.
• Anticipated future tax rates: The IRS can either increase or decrease tax rates in the future (most likely increase) or you can be in a higher or lower tax bracket at retirement. Taking into account your tax rate when making your investment contributions and what your anticipated tax rate will be in retirement can determine which retirement alternative reigns superior (all else held equal).
• Investment Options: 401K plans are limited in investment options, while a Roth IRA allows for a much wider variety of investment options. You must ask yourself if you are the investor type and want to have full control of where your investments are going. 

Make up your Mind

Now that you have adequately learned about the Roth IRA and 401k plans, it’s time to make a decision. If you are still in your youth, now may be a great time to make the choice as you enter into your first job. If you have already entered into a retirement plan, it’s always a good idea to reconsider your choice with regards to the most practical option for you. Just because you have started on one retirement plan does not mean that you have to stay put. However, keep in mind that the earlier you begin planning and setting aside money to the proper account, the more work it can do for you. So consult with yourself, your friends, your employer, and your tax advisor to find your best option. And, hey, know that you can always decide to contribute to both types of accounts! Just remember, life is all about change- and making the decision to change your retirement plan could impact both you and your heirs’ lives forever.