It’s been reported that the median amount of credit card debt owed by American households is around $1,900, which is not bad at all. But there are 11% of American households that carry at least $8,000 in debt, a pretty heavy load to bear. Check out these statistics on those who struggle with credit card debt:

• More than a third — 36% — of those who owe more than $10,000 on their cards have household incomes under $50,000.
• 13% who owe that much have household incomes under $30,000.
• The percentage of disposable income used to pay debts is still near record highs.
• The median value of total outstanding debt owed by households rose 9.6% between 1998 and 2001.
• Bankruptcies set another record in 2003, with 1.6 million personal filings, the American Bankruptcy Institute reports.

For many, it’s a big challenge to avoid accumulating debt. I had a friend who once confided that she had $20,000 in debt while she made $18,000 a year, but didn’t seem too fazed about it. Part of the problem here seems to be that some of us do live with limited income, and find it difficult to pay for day-to-day living expenses. But we can also attribute our personal debt problems to not taking the debt issue that seriously, or to simply spending more than necessary.

Putting the cap on a spiraling debt problem does take some amount of discipline, self-control, patience and work, and by doing so, such problems can be reversed. In my mind, the best way out of trouble is to take the bull by the horns and tackle the problem head on. So why not try to oust your debt as aggressively as possible?

Here are a few tips on how to fight off debt aggressively (and perhaps quickly as well)!

#1 Cut your interest rate: talk to your credit card company.
How about giving your credit card company a call and seeing if you can be granted a lower rate on your card? It may be worth a shot. The credit card companies I’ve had have always been very cooperative, waiving fees and penalties I’ve incurred on occasion. This is how being a loyal customer can be a plus.

#2 Cut your interest rate: transfer your balance to a low-rate card.
Take advantage of special offers by credit cards that give you low to 0% rates. However, read the fine print and check on the transfer fees to make sure that doing a transfer makes sense. Avoid predatory offers that can get you into unexpected trouble. And most importantly, make sure you keep track of when the teaser rate offer expires as rates may jack up once the intro period is over. You’re in great shape if you can manage to pay down your debt before the low rate period expires. [Editor’s Note: Applying for a debt consolidation loan from Prosper may also reduce your interest rate.]

#3 Apply more of your money against your debt.
Before you make any more purchases or think about building an emergency fund or investing in the stock market, pay down your debt first. Pay more than the minimum to chip at the principal. When you send off your payment, make sure to indicate that the extra payment should be applied to the principal, which will enable you to bring down your balance faster.

#4 Work on a debt repayment and consolidation plan.
If you can do this yourself, you can save yourself some money. All it takes is some determination and dedication to your goal of wiping away your debt. Start by paying down the smallest bills first in order to get the psychological boost of retiring your debts early. But for the most efficient way to challenge your debt, pay down the debt with the highest rates first, even if it may take longer.

#5 Hire a loan consolidator or debt negotiator.
When debt becomes overwhelming, it’s easy to feel paralyzed and unable to take action. In this case, hiring a debt counselor may help. There are financial professionals out there who have experience in consolidating loans, negotiating your debt for you or even helping you create a payment plan that will keep you on track with your bill payments. They may be able to negotiate better terms for your credit card debt, which can potentially reduce what you owe by a significant amount — a 60% to 80% cut in your debt is not entirely impossible to work out.

~ooOoo~

By applying these strategies, you may just be surprised by how quickly your debt diminishes; it may take a few years but by staying focused, making your financial goals a priority, and executing your anti-debt program, all the misery of debt can soon become a distant memory.

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The Silicon Valley Blogger (SVB for short) is behind the The Digerati Life, a blog that covers personal finance, business, investment and real estate topics along with the occasional Silicon Valley tech story sprinkled in. SVB is a married mother of two young kids who juggles a nine to five job in the IT industry along with raising a family and various entrepreneurial pursuits.

It never fails. When I pick up my mail, I notice how much of it happens to be junk or worse: credit card and debt consolidation offers, lines of credit applications and shopping catalogs that entice me to spend, spend, spend. My mail can definitely be hazardous to my wallet, with so much of what I receive just aiming to suck my money away from me and thus, my first and only response to the junk mail I do get is to have it be tossed and shredded by my glorious Fellowes Powershred Shredder.

I’ve been offered to receive half a million dollars’ worth of easy money — a lot of them via credit card applications and home equity lines of credit. That, along with the dozens of coupons and equally free catalogs — who knows what percentage of our mail *really* works to separate us from our bucks.

It’s getting so that we no longer need to leave our house to spend ourselves into oblivion and debt hell. I can just imagine how easy it would be to apply to receive all the credit made available to us, and how effortless it would be to subsequently spend it all on the goodies that jump out at us from print media, online sites and even our television sets (or plasmas, as the case may be).

So what’s the best way to avoid getting into a junk mail induced debt mess? I’ve already mentioned that my automatic response is to junk the junk. But if you’d like to be even more merciless about the unwanted, unsolicited mail, then you can do the following things:

Stop Piling On The Debt! Declare War On Junk Mail

#1 Find out how your information gets around.
To have a fighting chance at solving the junk mail problem, you’d want to find the source of the problem. Your information is being bought and sold and resold and it could be tricky to determine where it all originates. A good way to trace your mailing info is by making slight alterations to it each time you pass it along to a new company or entity. For example, by changing your middle initial or name, you may notice how that data gets around.

#2 Tell companies to quit peddling your information.
After identifying who’s behind your unwanted mail, you can write them directly to complain and to request them to drop your name and address from their lists. Inform your credit card companies, credit bureaus and all other business organizations you’ve corresponded with (if possible) that you do not want to release your name, address and phone number for junk mail, promotional or marketing programs.

#3 Use services to help you delist your name from existing mailing lists.
Check out Junkbusters, a free web site which provides great instructions on handling all sorts of junk mail, telemarketing calls, spam and other annoying promotional campaigns. You can also review the material on the New American Dream web site, which has a section called “Declare Your Independence From Junk Mail”.

#4 Refuse to accept the mail at your door.
You can actually write “return to sender” on an untouched envelope, if it’s mail with the label “return postage guaranteed” or “address correction requested”. For mail that includes a reply envelope, use their envelope to return a message insisting that you be removed from their list. Other tactics: mark your junk mail with “refused” and send it back to where it came from. Note that this should not cost you anything because first class postage covers returns.

~ooOoo~

What’s great about cutting down on junk mail is that by doing so, you’re also saving the environment. With less junk mail making the rounds, there’ll be less trash, less need for landfills and dump sites, and ultimately, we’ll all benefit from lower garbage collection bills and taxes. So save yourself from debt while saving the environment at the same time!

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Read about Silicon Valley and Money at http://www.TheDigeratiLife.com

Do you hate debt?

Well so do I, but not enough to avoid it completely. But let me qualify — I only have a problem with it if it gets the better of me. Understandably, it’s hard to resist the cards, freebies and rewards that credit card companies dangle in front of us, but this is what makes it so easy to fall into a growing credit trap that takes many years to get out of. Nevertheless, the bottom line is that debt is still just a tool that we use at our disposal. In and of itself, it is not the financial evil that many purport it to be: the problem is actually in the way it typically ends up being utilized.

I’ve personally never had a problem with debt because I tend to be very conservative with it. I’ve only managed to owe money for very few items, although these were things that I felt I *really* needed to borrow for. My position on debt is to keep it at a safe distance, to regard it with care, and to reel it in only when I feel thoroughly confident and comfortable about being able to pay all of it back. The problems arise when we don’t think far enough ahead about the consequences of borrowing money and instead just dwell on the here and now. And that’s where the root of debt trouble lies — in HOW it is used (or in many cases, abused).

In defense of debt, I’d like to share some of my positive experiences with it.

The Good Side of Debt

• If it weren’t for my several hundred thousand dollar mortgage, I wouldn’t be able to afford a house in Silicon Valley, or a good school district for my children.
• My spouse is toiling away at a startup and to help us bootstrap our business ventures, we had to turn to loans.
• To finance some of my education and college lifestyle, I admit that I had to resort to a couple of small student loans. All paid off now though!
• I’ve taken some 0% financing offers to save me some money (or even earn me some, by buying my money some extra time in my savings accounts), which I’ve subsequently paid off in full before the offers expired. Granted, I don’t do this often since I’m lousy at keeping track of payment schedules of this sort.

So these are some of the reasons I can’t really hate debt all too much. With debt, you’re able to use “other people’s money” to further your causes. And the leverage from “OPM” (as they call it) can be a good thing if you know how to handle it. There are just some things you may be better off having now, rather than later — but you’ll need to weigh this need against your capability for taking on and managing debt. Polarizing as it is, debt has its benefits, but the fact is, until we can successfully wrestle it down and have it become our slave instead of the other way around, it’ll continue to be something to hate.

—The Silicon Valley Blogger (SVB for short) is behind the The Digerati Life, a blog that covers personal finance, business, investment and real estate topics along with the occasional Silicon Valley tech story sprinkled in. SVB is a married mother of two young kids who juggles a nine to five job in the IT industry along with raising a family and various entrepreneurial pursuits.

When you hear about people who file bankruptcy, what normally comes to your mind? Is it someone who is a spendthrift, has a zillion credit cards and can’t seem to hold on to a job? Maybe those who live with a lot of vices that have taken over their lives? True, a lot of what leads to grave financial loss is preventable and avoidable: getting in with the wrong crowd, embarking on high risk ventures, taking on expensive hobbies and maybe even addictions… But there are also those events that turn out to be huge surprises, those that catch us off guard and that can possibly threaten our finances. 

Do you know what happens to be the #1 reason for bankruptcy? Not divorce, job loss nor business failure. It’s actually ILL HEALTH. It’s a bit unnerving to hear that your failed health can just wipe you out like that, but it’s a gloomy fact. I find it unnerving because it’s something that seems harder to sidestep: a divorce can be worked out amiably or avoided altogether if you don’t get married; job loss isn’t as tricky if you keep your skills up; while business failure won’t happen if you don’t start a business. But with failed health, nobody is immune — it is all too likely to claim us at one point in our lives; after all, we’ll all be old and decrepit one day and we’re all simply delaying the inevitable.

Facts About The Leading Cause Of Bankruptcy

Here are some scary statistics that woke me up: they’re sourced from a Harvard medical study done a few years ago which involved sending out questionnaires to 1,771 bankruptcy filers in 2001 in California, Illinois, Pennsylvania, Tennessee and Texas:

• Expensive illnesses trigger half of personal bankruptcies.
• Majority of people who go bankrupt because of medical reasons actually have insurance! Many start out their illnesses with insurance while 38% lose coverage by the time bankruptcy is filed.
• Medical-caused bankruptcies affect about 2 million Americans each year, including 700,000 children.
• Illness leads to further problems like job loss and loss of insurance coverage.
• Out-of-pocket costs for those who’ve filed for bankruptcy ranged from ~$11,000 to ~$18,000. Now this is ridiculous:
  

  Out-of-pocket medical expenses covering co-payments, deductibles and uncovered health services averaged $13,460 for bankruptcy filers who had private insurance at the onset of illness, compared with $10,893 for those without coverage. Those who initially had private coverage but lost it during their illness faced the highest cost, an average of $18,005.

Wait a sec. Did I read that right? You mean, private coverage is costlier?

And here are some more sobering words from Dr. David Himmelstein, the Harvard study’s lead author and an associate professor of medicine: “Unless you’re Bill Gates, you’re just one serious illness away from bankruptcy. Most of the medically bankrupt were average Americans who happened to get sick.”

Avoid Bankruptcy, Plan Ahead!

Scary thoughts indeed. So if poor health will someday be our fate, what can we do to stave off some of its consequences? I’d like to share my thoughts on how to improve the odds against going bankrupt, no matter what the causes are:

Stay healthy.
While we still can, we can try to prevent disease as long as we are able. I’m always heartened to hear about 95 year olds who are still sprightly and able to enjoy each day as it comes. Hear out your physician and do what the doctor orders: do regular exercise (at least 3 times a week), eat healthy foods, manage your stress, get enough sleep, get regular physicals, take your vitamins.

Build your emergency funds.
One of the most basic financial moves we can make is to build up our emergency funds. These are cash or liquid funds that we should keep in handy and should be intended for unexpected expenses that come up. I normally have 10%, sometimes up to 20% of our portfolio in liquid accounts for this purpose. A typical cash fund of this sort covers from 3 months to 1 year of living expenses (most common is coverage for 6 months of expenses).

Have the appropriate coverage.
Insurance is one of those things I tend to want to sweep under the rug and never look at again. I hate dealing with insurance claims but it’s clearly a necessary evil. Premiums can be unaffordable so we’re tempted to ditch the coverage; even the stats are against us — why is it that out of pocket expenses are more expensive when you carry private insurance? But do we want to take the risk? Not really! I’m keeping with conventional financial wisdom and making sure I’ve got the following policies in place: life, disability, health, homeowner’s, liability and car insurance. Plus don’t forget that estate plan.

Be prepared and develop a Plan B.
It may be grim and unpleasant, but it could be worth trying to visualize what you’d do if you ever had to encounter the worst case scenario. Doing so forces us to think defensively and to be ready for the unexpected. How about asking ourselves these questions: What do we do if we ever lose our jobs? If we lose our family’s breadwinner? What if we get disabled? These are tough questions to run through, but if we’re able to address these issues, the blow of loss, if it ever comes, is mitigated.

One of my favorite sayings is: make hay while the sun shines. The good life can be way too short so one can never take things for granted.

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The Silicon Valley Blogger (SVB for short) is behind the The Digerati Life, a blog that covers personal finance, business, investment and real estate topics along with the occasional Silicon Valley tech story sprinkled in. SVB is a married mother of two young kids who juggles a nine to five job in the IT industry along with raising a family and various entrepreneurial pursuits.

As I consider venturing forth into the realm of social finance as a lender, one of the biggest hurdles I need to overcome is my aversion to risk. But a lot of that fear comes from not being familiar with the territory. With some study and experience, dealing with peer to peer lending (or p2p lending) sounds like a promising way to put your money to use.

Some of the initial matters I’d like to learn about before I proceed with lending through Prosper or other p2p lending sites involve understanding how risk is mitigated in these environments.

How You Can Manage Your Risk With Peer To Peer Lending

#1 Know the borrower.

If you’re going to pick out your own loan listings (who you are interested in lending to), then reviewing a borrower’s story, credit scores and borrowing history are something you should weigh against the rate of return you’ll be getting from any given loan. Lenders have also gone as far as getting to know borrowers on a more personal basis before doing any lending, but you need not go this far since a lot of information may already be provided by the p2p lending site you are utilizing.

#2 Let the p2p lending mechanisms and tools help you.

Here’s a rundown of these mechanisms:

For some p2p lending sites, risk is inherently alleviated via the lending/borrowing model that is in place. For instance, in the cases of Zopa and Lending Club, you participate in pooled lending activities. According to the Wikipedia, pooled lending involves “lending your money to a pool of borrowers with similar credit ratings. In this model the risk of capital and interest for the lender is defaulters in the pool. The risk of capital and interest of the lender is reduced considerably.”

For direct lending sites such as Kiva or Prosper, other measures may be in place to assist lenders with making choices to help control their risk. In Prosper’s case, some functionality is provided that automatically builds in risk management for lenders, such as the Portfolio Plans feature. This is a convenient way of getting diversification in your lending portfolio, as well as selecting the level of risk you are willing to take.

In general, p2p lending sites normally have many measures in place to discourage defaults. If there are any issues with loan repayment, they will forward these problematic loans to professional collection agencies. Take note, however, that the statistics may not be entirely on your side since only 6% to 10% of loans are typically recovered in whole through collection agencies.

#3 Diversify.

Don’t put all your eggs in this basket. If you’re after a relatively “safe” lending experience, the tried and true approach of diversifying your portfolio also applies here. To achieve adequate diversification, the recommended MINIMUM number of loans to have in your lending portfolio has been deemed to be between 30 and 50 loans. So spread your money around when you start the process, and again, see if a site offers a way to diversify your portfolio conveniently and easily, just like Prosper does with their Portfolio Plans feature.

#4 Apply peer pressure.

Some sites, such as Prosper, have introduced the idea of “borrowing groups” so that the reputation of a borrower becomes linked to the reputation of the group they belong in. This arrangement allows people to self-manage themselves and become accountable to themselves as well as to other folks in their group. This form of peer pressure may just be the ticket to get a borrower to manage their debt more responsibly.

#5 Limit your investment, at least initially.

When getting your feet wet with any new investment, always start off small. When I begin to fund my lending accounts, I’ll be starting with a few hundred dollars to work with. I’d like to get the hang of things first and build on my experience before committing more money to this new activity.

#6 Charge interest rates that are commensurate to risk.

Easier said than done since measuring risk may not be that straightforward in this new environment. Some lenders may consider charging higher for loans in a portfolio that may contain other, riskier loans. The idea is to neutralize the effect of losses from potential defaults by tagging on additional points (say 2% to 4%) to interest rates.

Online peer to peer lending may be a new concept but don’t let the fear of the unknown stop you from trying things out.

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The Silicon Valley Blogger (SVB for short) is behind the The Digerati Life, a blog that covers personal finance, business, investment and real estate topics along with the occasional Silicon Valley tech story sprinkled in. SVB is a married mother of two young kids who juggles a nine to five job in the IT industry along with raising a family and various entrepreneurial pursuits.