With home prices beginning to drop, and with no sign of interest rate falls on the horizon, now is the time to get finances organized, cut waste and build assets, without going into excess debt.

While my background isn’t in the accounting sector, I have taken a keen interest in financial matters for some time, having been caught in an economic downturn in Australia during the late 1980s. I was a contractor with a large company that decided on a radical cost cutting exercise. Unfortunately for me, I was one of their costs!

While people borrow money for different purposes, have different goals and so forth, before signing your life away it is worth stopping to ask:

a) Can I afford the repayments if the worst case scenario develops – I can’t work because of sickness, the company that I work for goes out of business and so on.

b) Even if the worst doesn’t happen, will what I am buying still be worth anything once I have finished the repayments?

Most Western economies are showing mixed signals at present, but there are some key areas to indicate that maybe things aren’t quite as as rosy as they seem.

US House prices have fallen on average by almost 1% this year, while the number of foreclosures in April of this year has been estimated to be double that of 2006.

The first impulse may be to panic and sell the house, or to try and earn extra income.

However, selling out in a falling market could be the worst thing to do, as a lot of other people will be seeking to cut their losses and get out as well. This in turn causes a flow on effect, because as more houses come on to the market, prices will fall even further.

Earning extra money is a key, but unless records are being kept to track spending and to cut waste, this can lead to further stress, especially on relationships. Yes, extra income will certainly help, but unless a check is kept on spending, and a good percentage of the extra income paid off existing debt, it could be a costly exercise.

Maybe I can consolidate all my bills!

This may be an option, but as with simply earning extra income, getting a loan to consolidate debt can have it’s own drawbacks. This is where it pays to stop and ask yourself a few honest questions, such as:

a) Did a lack of discipline bring me here? One of the problems we face in a consumer society is that there are always new things to buy, and things that for some reason or other that we must have. When our repayment load is reduced, or extra money comes in, it is quite easy to get caught again.

Unless we are hard on ourselves, we can end up where we started!

b) What about the interest? If you get a loan to consolidate debt, you may be also paying interest on interest, and possibly early exit fees for the debts themselves. Over the life of the loan, this can lead to a considerable amount of money. Is it worth it?

My Opinion: If at all possible, debt consolidation should be avoided at all costs! Never, except in the direst of circumstances refinance personal loans, hire purchase agreements or leases. You will find that the rebates are all weighted in favour of the financier!

Mortgage Refinancing: Refinancing your home loan is another option, but one that should be considered very carefully. Many people use their home mortgage to pay for holidays, consumer goods and so on. Using it for these purposes, or for car financing, make it a ver expensive proposition in the long run.

Sometimes, unexpected costs such as medical bills or the death and funeral of a loved one can place us between a rock and a hard place, but all options should be explored before committing to a course of action such as this!

Paying your home loan off faster should always be the goal, avoid extending it if at all possible as to do this only adds more interest in the long run!

c) I’m really desperate, should I declare bankruptcy? This is an area for expert opinion, so all I will say is that if you can possibly avoid it, don’t go into bankruptcy. This is something that will stay with you for life, can affect all sorts of relationships and your own self esteem well into the future.

That being said, there are many reasons why people go bankrupt. Possibly the result of a relationship breakdown, critical illness, or the failure of someone to pay you! And the list of real, and valid reasons why bankruptcy can occur goes on.

Unfortunately, bankruptcy has a social stigma attached to it that seems to imply that someone “refused” to pay their debts or was corrupt. This is probably true in only about 1% of cases.

There may be other alternatives, such as entering an agreement with ALL creditors concerned. You can find out more by seeing a professional in this area.

When seeking out a financial advisor, ask who they are affiliated with, what the fees are and so on. You need to minimise your costs in all areas, including this one.

My thanks to Ric Raftis for his invaluable advice in writing this article.

This post is a quick and easy guide to some very basic stock market terms!

$ Last Trade

Last trade refers to the price at which the last trade was made.

A simple definition of a trade is simply someone selling stock to someone else.

Volume

Volume refers to the total number of shares traded in that market on that particular day!

$ Change

Change, posted as both a percentage and dollar amount, refers to the difference between the price of the last trade the previous day, and the current price.

There is of course a lot more to learn about trading on the stock market.

A resource that I have recently found on line is Intelligent Stock Trading

It’s published in PDF format, and is an easy step by step guide to investing on the stock market.

Another asset in learning about investing is Top Forex Trades, a website that is updated with fresh articles on a daily basis.

I know that when this article appears in an article directory, and maybe even on this blog, that the Google ads will soon start showing great deals that you can get to minimise your debts. I must admit that at times, it can be very tempting, and that in some cases may even work.

However, consolidating debt isn’t getting debt free – it can be a step along the way, but only if the money that is freed up is spent releasing further debt.

Human nature being what it is, many people tend to spend the ‘extra’ money on consumer goods that they can now ‘afford’, or they may even go into new debt. This defeats the purpose.

Getting debt free involves developing a whole new mindset, and borrowing money usually doesn’t achieve the required result. Refinancing deals are always balanced in favor of the lender, and if they weren’t, there wouldn’t be anywhere near the number of firms competing for this section of the market.

Taking out a new loan means paying interest over a longer period, as well as the cost of payout costs on previous loans, and the interest that had already accrued on them.

When considering a debt consolidation loan, one needs to stop and ask exactly why they are heading down that track. It is easy to get excited, enjoying the thrill of the prospect of more disposable income, but a month or six down the track, if you spend up again in the meantime, is when the reality will set in.

Often, paying it back isn’t as easy as first thought.

Before considering debt consolidation, have a look at your budget, and check for money leaks. Do you have a subscription that you are still paying for, but not using? Cancel it, and save some money! I recently realized that I had a small isp account still active, that was draining my money for the sake of the convenience of retaining the email address. It’s cancelled!

How about transport costs? A well tuned and serviced vehicle costs less to run and maintain, and will likely have fewer major mechanical problems then one that isn’t.

Looking for areas of waste, saving money and paying it out on bills can go a long way in helping to get out of debt. A major reason for refinancing is simply to cut the number of payments that have to be made on a regular basis, and is very understandable.

Try saving money in different areas, and paying it out on the smallest debt first. Once this debt is dealt with, pay the extra money, and the money that you were paying on that debt towards the next one, and so on. This can take a bit of time, but has a snowball effect as each debt is paid.

The effect isn’t just financial, but reflects on your self esteem as well. Being in debt can affect relationships and cause added stress. Paying out the bills not only relieves stress, but brings a new sense of empowerment and personal freedom as well.

Making extra income, either online or working an extra job maybe handy, but as Robert Kiyosaki says, a well paid slave is still a slave, and until one cuts their spending, and gets out of debt, that is what they will remain!

To summarise: track where your money is going, cut wasteful spending, use the money saved to pay out debt and begin a savings plan, and you may find that you will become debt free without the burden that a new loan could possibly bring through undisciplined spending.