Financial Advice

Reduce Your Debt With a “Sinking Fund”

Whether you use a budget or not, I bet you can name several significant expenses that you know you’re going to be paying in the next six to twelve months.

How about Christmas? Maybe the car needs tires or the roof needs to be re-shingled. How about that auto insurance payment you make every six months?

Even though you know they are coming, you often end up using your credit card to pay for these items. Now, you”re not only paying for the expense, but you’re paying interest too!

So, I hear you saying, what the heck is a sinking fund, and how can it reduce my debt? A sinking fund is basically the opposite of a credit card. In simple terms, a sinking fund is when you save a set amount of money each month, over a period of time, to pay for a future purchase or expense.

How does a sinking fund approach work?

Let’s say you know that you will spend around $1,000 on Christmas, and we’re in March.

Take the $1,000 and divide by nine months (March through November). Set aside $110 each month. Then, come December, you will have $990 saved, specifically for this purpose.

You can even use the sinking fund approach for small expenses.

If you know that you are going to be buying a birthday or graduation gift, you can set aside a small amount each month leading up to the event.

Some people use envelopes to hold the money. Just don’t be tempted to dip into that envelope to go see a movie or when that girl scout comes to your door selling cookies.

Also, be careful keeping money in your house. If the amount is going to be significant at all, a bank account is a safer place to keep it.

You can also use the sinking fund method for discretionary purchases.

In fact, the method works even better for this type of purchase since you have control over when you make the purchase.

If you really want that new big screen television, set aside some money each month until you save up the purchase price instead of using your credit card.

You may already be putting money into your savings account every month for “unexpected expenses.” Isn”t that the same thing? Well, no.

You still need your “emergency fund” for those truly unexpected expenses. A sinking fund is for an expense that you know is coming.

You can use the same saving account for both as long as you are disciplined about knowing how much is “emergency” money and how much is “sinking fund” money. If you decide to use a separate savings or checking account for your sinking fund, just be sure the bank fees don’t eat up your money.

The well-known radio personality and financial author, Dave Ramsey, wrote a recent blog post about this sinking fund approach (see Stop the Panic with a Sinking Fund).

He points out that although the concept is pretty simple, not many people use it. The reason is that it takes a skill that not many people have mastered, namely patience. He notes that we live in a culture where we buy now and bring an item home today.

He also points out that the credit card companies and banks are counting on people not planning ahead so they can collect those interest charges and fees.

Even if you only use the “sinking fund” approach for one or two of your larger expenses that are coming up within the next year, you may significantly lower your debt by not having to charge them. Keeping large purchases off of your credit card can really help you get your debt under control.

Joel Fink is a retired CPA and financial services executive living in Dallas, Texas. He enjoys writing articles that help real people with simple ideas to manage their money and improve their lives.

Today Joel Fink is sharing his writing with TheDollarStretcher.com. Visit today for what you need to know about spending to deal with stress and 6 ways to build a healthy relationship with money.

This article by Joel Fink first appeared on The Dollar Stretcher and was distributed by the Personal Finance Syndication Network.

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Financial Advice

Phony Telephone Number Scam Targets Veterans

There’s a new scam out there, preying on veterans who are making decisions about their medical care. The Veterans Choice Program (VCP) is an initiative of the U.S. Department of Veterans Affairs (VA). The program allows certain eligible vets to use approved health care providers who are outside of the VA system. Veterans or families can call the VCP’s toll-free number to verify their eligibility for the program.

Here’s the problem: Scammers have set up a phony telephone line that very closely resembles the VCP’s real telephone number. Con artists often use names, seals, and logos that look or sound like those of respected, legitimate organizations. This time they’re using a phone number that’s almost identical to the real thing, counting on creating confusion. You call and think you’ve reached the VCP. The fake line’s message says you’re entitled to a rebate if you provide a credit card number. But if you give up your account information, they’ll debit your account and you’ll get nothing in return.  There is no rebate and you’ll need to cancel your credit card. 

If you’re a veteran – or you’re helping one with health care – remember these tips to avoid a scammer’s tricks.

  • Be sure you’re calling the real number for the Veterans Choice Program: 866-606-8198. If you’re not sure you’ve reached the VCP, hang up. Check the VCP’s site for the real number and try again.
  • The VA – or any government agency – will not ask for your financial account information.

Visit VCP’s site to learn more about the Veterans Choice Program – or call 866-606-8198. Check out the VA’s identity theft prevention program, More Than a Number.  Report identity theft to the FTC – and get a personalized recovery plan – at IdentityTheft.gov.

This article by the FTC was distributed by the Personal Finance Syndication Network.

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Financial Advice

There Are No Short Cuts to Repairing Your Credit

Q. We’re living in an apartment right now, but we want to buy a home. After visiting with a Realtor, we learned that our credit isn’t good enough to qualify for a home right now. In the meantime, he suggested that we contact a credit improvement company. The company wants a lot of money to fix our credit, but we’re anxious to move forward with the home-buying process. What should we do?

A. I’m disappointed to hear that you’ve been advised to work with a credit improvement company. If you were to choose this route, I firmly believe this would only compound your financial problems. Credit improvement companies, alternately known as credit repair companies, prey upon consumers looking for a quick fix. Buying a home is a significant financial step, one you want to be certain that you are ready for. If your credit is an issue, it will take time for you to get things back on track.

Regardless of what you’ve heard, no one can remove accurate information from your credit reports. Assuming the information they contain is correct, negative information will typically remain on your credit reports for seven years. No amount of money, wishful thinking, or exaggerated promises can change this.

So, what can you do? Start by requesting a free copy of each of your credit reports by visiting annualcreditreport.com. Next, review your credit reports for accuracy. If you find any mistakes, you can dispute this information by following the process noted on the each credit reporting agency’s website. The dispute process may take some time, but it does not cost you anything.

After you get a handle on what is on your credit reports, I suggest that you enroll in a credit education program offered through a non-profit accredited credit counseling agency. In many cases, these programs are free, but if there were a fee, it would be far less what you would pay a credit repair company. With the help of one of these programs, you can learn practical steps for improving your credit on your own, without paying someone else hundreds of dollars.

You could also make an appointment with a HUD-approved housing counseling agency for pre-purchase counseling. You don’t have to be ready to purchase a home in order to get pre-purchasing counseling, though you can still learn about the home-buying process and what it will take to legitimately improve your credit.

You’ll have to be patient and willing to take the necessary steps to improve your credit, but you can realize your dream of homeownership. In the meantime, hold onto your money and avoid using the services of any company that claims it can repair your credit.

This article by Bonnie Spain first appeared on Rapid City Journal and was distributed by the Personal Finance Syndication Network.

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