Deal with Your Debt The Right Way to Manage

Most people carry debt for most of their adult lives. Yet, most books on debt focus mainly on how to pay italloff, and liveforeverwithout it. Too often, following that advice leads only to failure. People either give up, or pay off the wrong kinds of debt. They strand themselves with too little flexibility to survive a financial crisis -- and land in bankruptcy court. They neglect saving for retirement, homes, or college, and end up poorer than they might have been. For most people, itrs"s more realistic -- andsmarter-- to control and manage debt effectively, rather than eliminating it completely.Debt Smartshows how. Award-winning personal finance columnist Liz Weston explains the rules and explodes the myths surrounding debt. Discover the crucial role debt can play in a portfolio, identifying debts that actually contribute to wealth and flexibility, while avoiding or eliminating "toxic" debts. Weston presents effective strategies for evaluating, monitoring, and paying every form of debt, from credit cards and mortgages to student and auto loans. She offers practical guidelines for how much debt one should take on. Find realistic (and often surprising) guidance on everything from home equity loans and 401K borrowing to small business loans.

Liz Pulliam Weston is one of MSN Money's most-read columnists and author of the Q&A column Money Talk, which appears in newspapers nationwide, including the Los Angeles Times, the Cleveland Plain Dealer, and the NewarkStar-Ledger. She appears weekly on CNBC's Power Lunch and regularly on other radio and television programs, including NPR's All Things Considered.

An award-winning journalist, Weston is also a graduate of the certified financial planner training program at the University of California, Irvine. She is author of Your Credit Score: How to Fix, Improve, and Protect the 3-Digit Number That Shapes Your Financial Future (Prentice Hall 2004).

Acknowledgments

xiii

About the Author

xv

Introduction

xvii

1 Isn't Debt-Free the Way to Be?

1

(14)

Debt Isn't the Enemy

2

(2)

When "Good Debt" Isn't

4

(1)

Which Debts Should You Tackle First?

4

(1)

Why Debt Management Sounds Strange

5

(2)

When Debt Repayment Plans Go Awry

7

(6)

Addressing the Ants as Well as the Grasshoppers

13

(1)

Debt-Free Is the Way to Be-Eventually

14

(1)

Summary

14

(1)

2 Your Debt Management Plan

15

(26)

Get Intimate with Your Debt

17

(6)

Which Debts Are Deductible?

20

(1)

Am I Paying the Right Rate?

21

(2)

Assess Your Financial Situation

23

(4)

Retirement Savings

23

(3)

Financial Flexibility

26

(1)

Save or Pay Off Debt First?

27

(1)

Case Studies

28

(3)

Create Your Game Plan

31

(2)

Should You Pay Off Your Debt with More Debt?

32

(1)

Debt "Solutions" to Avoid

33

(1)

If You're Already Drowning

33

(6)

Step 1: Find the Cash

34

(1)

Step 2: Evaluate Your Options

34

(4)

Step 3: Choose Your Path, and Take Action

38

(1)

Summary

39

(2)

3 Credit Cards

41

(28)

Our Love Affair with Credit

47

(4)

The True Cost of Carrying a Balance

51

(5)

Floors But No Ceilings

51

(1)

Overnight Rate Changes

51

(2)

Fees and More Fees

53

(1)

Balance-Transfer Roulette

54

(2)

Gotchas for Those Who Pay Their Balances

56

(2)

The Right Way to Pay Off Credit Card Debt

58

(5)

Getting the Right Reward Card

63

(4)

Summary

67

(2)

Credit Limits

67

(1)

Shopping Tips

67

(2)

4 Mortgages

69

(24)

Myth #1: Real Estate Prices Always Rise

70

(1)

Myth #2: A House Is a Great Investment

71

(1)

Myth #3: Buying Is Always Better Than Renting

72

(1)

Myth #4: Homeownership Comes with Great Tax Breaks

73

(2)

The Right Reasons to Buy

75

(1)

How Much House Should I Buy?

76

(2)

What Kind of Mortgage Should I Get?

78

(6)

How Do I Get a Good Mortgage Deal?

84

(4)

1. Fix your credit.

84

(1)

2. Understand points and fees.

85

(1)

3. Shop around for rates and terms.

85

(1)

4. Check out first-time home buyers' programs.

86

(1)

5. Get preapproved for a loan.

87

(1)

6. Don't pay junk fees.

87

(1)

7. Plan for closing costs.

88

(1)

When and How Should I Refinance?

88

(2)

When Should I Prepay a Mortgage?

90

(1)

Summary

91

(2)

Credit Limits

91

(1)

Shopping Tips

92

(1)

5 Home Equity Borrowing

93

(14)

The Dangers of Home Equity Lending

94

(1)

Home Equity Loans Versus Lines of Credit

95

(3)

Questions to Ask Before You Borrow

98

(6)

Summary

104

(3)

Credit Limits

104

(1)

Shopping Tips

105

(2)

6 Student Loans

107

(16)

So, What's the Good News?

109

(1)

How Much Should I Borrow?

110

(4)

Where Should I Get My Loans?

114

(2)

What if It's Already Too Late?

116

(2)

What About Paying Off My Student Loans with Home Equity Debt—or Credit Cards?

118

(3)

Summary

121

(2)

Credit Limits

121

(1)

Shopping Tips

122

(1)

7 Auto Loans

123

(16)

How Cars Cost Us

124

(1)

Why It's Bad to Owe More on Your Car Than It's Worth

125

(3)

How Often You Buy Cars Matters, Too

128

(2)

The Proper Role of Cars in Our Spending

130

(1)

Ways to Keep Costs Down

131

(5)

Summary

136

(3)

Credit Limits

136

(1)

Shopping Tips

137

(2)

8 401(k) and Other Retirement Plan Loans

139

(14)

Types of Plans That Offer Loans

140

(1)

The Real Cost of Retirement Plan Loans

141

(3)

Cracking Your Nest Egg Early

144

(1)

The Hidden Cost of Withdrawals

145

(5)

Summary

150

(3)

Credit Limits

151

(1)

Shopping Tips

151

(2)

9 Loans You Don't Want to Get—or Give

153

(12)

Three More Loans to Beware

156

(3)

Why You Don't Want to Cosign a Loan

159

(2)

The Right Way to Make a Personal Loan

161

(2)

Summary

163

(4)

Credit Limits

163

(1)

Shopping Tips

163

(2)

10 Dealing with a Debt Crisis

165

(18)

Dealing with Your Creditors

167

(9)

Dealing with Collection Agencies

176

(4)

What if Your Creditors Won't Budge?

180

(1)

Summary

181

(2)

11 Putting Your Debt Management Plan into Action

183

(17)

Lower Your Interest Rates

184

(1)

Track Your Spending

185

(4)

Trim Your Expenses

189

(3)

Look for Cash

192

(3)

Sell Your Surplus Stuff Online

194

(1)

Review Your Priorities

195

(3)

Stay on Track

198

(2)

Some Final Thoughts

200

(1)

Index

201

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Deal with Your Debt The Right Way to Manage Your Bills and Pay Off What You Owe

Summary

Author Biography

Table of Contents

Supplemental Materials