This is a guest post from Debt Free Revolution, special thanks to her for taking the time to do this. I was going to wait until after the end of the credit card cut up contest but I have the flu so here it is:

Jesse asked me to do up a guest post since I just became consumer debt free on February 26th, and I am happy to oblige! He thinks y’all will be particularly interested in the “big picture” since my journey to eliminating debt (except for the mortgage now … and that will get its day) spanned just three days shy of fourteen months. It felt tough at times, but this was something I knew in my bones had to be done if I was ever going to turn the financial ship around in my life.

I accomplished this debt free feat using the Dave Ramsey “baby steps” and recommend them personally.

Once I made the decision to get out of debt, I had to learn a few productive money habits. The first was getting caught up on my bills, and paying them on time (cringe; yes I was that disorganized). The second was learning how to make a budget that works. Yes, I just used that nasty “B” word. Except it’s no longer a bad word for me. The best quote about budgeting I think I have ever heard was: “A budget is telling your money where to go instead of wondering where it went.” Some folks rename their budget, calling it a “cash flow plan” or maybe even “allocated spending plan” since that sounds fancy, or you can just call it “Fred” if you want. (”Fred” says we can’t buy that right now.)

Doing a realistic working budget was a huge eye-opening experience for me. Before I wrote it down in dry erase and white, I thought we didn’t make enough to make ends meet. After writing it down, I discovered that somehow at least $600 per month was just disappearing! Over a year later, I still can’t say for sure where that money went to … although I suspect it vanished in the local restaurants.

OK, so I was current on my bills and I now had a working realistic budget in hand … time to kill some debt, right? Not so fast, Hoss …. and this is where I am so grateful I was following the Dave Ramsey plan! The next step is to build up a baby emergency fund of approximately $1,000. No problem, I said. I had a non-retirement mutual fund I could cash out, and I did. I squirreled away the $1k and used the rest to finish off the last two months of my car note and start in on the next debt on my list.

Then my furnace broke at the end of January when it was only 21F outside. The repairs ended up being $1140, and it wasn’t the only time I tapped the baby emergency fund! The other time was a few months later in May when I had to replace the brakes on all four wheels on my car. So … I play my radio a little to loud to have heard the brakes squealing BEFORE it became a serious problem. I had about $300 of the $538 it cost to fix that, so I only pulled about $250 to cover it. I distinctly remember my son whispering to me after I paid the bill: “Mom, can we afford this?” I whispered back: “Yes, we have an emergency fund.”

Which brings me to another thing I did: get a weekend job delivering pizzas. It doesn’t have to be pizza delivery, but picking up a part-time job on the weekends is a great way to bring up your income. Just don’t work somewhere you might be tempted to spend!

Oh, and one thing I didn’t do that I wish I did: convince hubby to sell his truck. Somewhere on hubby’s Y-chromosome is the “I Love Trucks” gene, and there was just nothing I could say or do to convince him to sell it, even though its sale price was MORE than one year worth of salary for him. Hubby dug his heels in deep on this one, so it was a matter of knuckling down and simply paying it off. He did promise to drive the wheels off of said truck, so hopefully it will last until at least 2015 (it’s a 2005, but also a Chevy). But if you can sell high-dollar items without causing a major rift in your relationship … DO IT!

And right there are the keys I used: better habits about paying bills, getting on a working realistic budget, and getting a part-time job. Just be sure to put that baby emergency fund in place LOL Add in a natural stubborn streak and the burning desire and determination to get out the chains of debt, and you see me DEBT FREE but the house, BABY!!!! LOL It’s been a week now and I am still celebrating.

Oh, there’s a whole lot of other parts to this story but Jesse asked for a “big picture” post which was in danger of being the size of an ebook before revision. Although Jesse has left the door open to the possibility of further guest posts that deal with y’all’s questions

If you have been reading, then you know the number one step in eliminating your credit card debt…Cut up your credit cards.

Now step two:

Getting rid of the temptation

Everyone is tempted sometimes, its just a fact of life. From Adam and Eve checking out the tasty looking apples hangin out on the tree in garden to me buying (and later taking back after I came to my senses) a gigantic TV. Credit cards are one of the most insidious forms of temptation because they allow for immediate gratification EVERY DAY. Giving in isn’t selling your soul to the Devil, but it is like selling your wallet to him. Of course the devil in this case is the credit card company and your eternal damnation is an eternity of debt. Sick of the personification? Ok, lets down to business.

Temptation #1: The Mail
Most people don’t know this but you can actually stop the credit bureaus from seeling your name and address. To get the forms dial 1-888-5-OUTPUT. Thats right, no more “0% limited time offer is here now, you must do this now or else you will never get another good deal again and your firstborn is cursed and you will regret it for the rest of your natural life. Really you will, you fool, get our card now or risk eternal damnation and burn in hellfire with the other that did not take this offer” mail. Not to mention the “this is official and dated information, VERY important. You MUST fill out this form.” Next, write to the Direct Marketing Association, Mail Preference Service, P.O. Box 9008, Farmingdale, NY 11735-9008.

Bonus step: Call your credit card companies that you have accounts open with that you want your account marked to indicate that you do not wish to have any of your personal information shared with telemarketing firms. Remember, just because we cut up our cards doesn’t mean we are closing our credit lines (Dont!) so credit card companies will still treat you like a customer which includes sending you crap.

Temptation number #2: Free Stuff
“Five free oil changes if you fill our this credit card application.” “Sign up today and get a free PONY!” “You are entered to win a life of ease drinking margaritas on the beach, all you have to do is fill out this application.” Do any of those things sound familiar? Oh yeah, of course they do. Walk on a college campus or through a mall on a busy day, and you WILL see people peddling credit card apps for random free crap. Don’t give in. You will be able to buy 100 ponies with the money you will save not paying 20% interest on a maxed out credit card.

Temptation number #3: Store discount
I have covered this before, and if you are one of the 15% of people that pay off store purchases right away then you probably aren’t reading this article. So, simply, don’t do it. Check my girlfriends testimony on the credit card cutup contest.

Now that we’ve slain the temptation dragon, tomorrow we taken on the next step….

Helping a reader out:

“Hello and my name is Jacob. I just graduated with a degree in mechanical engineering. I have 5k in high interest credit card debt, 21k in student loans, and 8k in a car loan. I just received a job working for a company that designs cranes and I am starting out at 55k a year. I don’t know what I should do next. Should I be trying to buy a house or stay in my (very inexpensive) apartment? I have six months before my student loans are due so should I ignore them for now? The biggest one is very high interest (18%) due to my parents at the last minute not being able to pay for a bunch of expenses. What order should I be looking at things? Should I be putting money into the company retirement plan? Im still pretty young so I have a few years to start that. Basically I am just completely lost, help me please :)”

This is a great email because I think it reflects a lot of people coming out of college. It’s a whole different world with different priorities.

My advice to him was fairly short and sweet.

1) Stay in the apartment
If it is inexpensive, wait until you have saved up enough for a sizable downpayment to go the house route. There is no reason to rush this and it would even hurt you in the long run. Plus housing prices will continue to fall as foreclosures increase.

2) Get to work on the credit card debt. Start getting rid of that sucker ASAP. Even better, ff you can, transfer it to a zero percent interest card.

3) Consolidate those student loans. Since the majority is high (ridiculously high, I thought my 11 percent I had for one while unemployed was crazy high) consolidate those SOBs. Federal consolidation rocks because it is capped at 8.25% This means you get an automatic lowering of your interest rate. Nice.

4) Make sure you immediate start investing in the retirement plan ASAP. The company match is FREE MONEY. Its like the company saying, oh you’re going to give yourself 100 bucks when you are 60? Ah what the hell, heres 100 more just cause. Not to mention the younger you start, the more years for compound interest and the more moola you will have.

I also gave him a few other points, but I am curious what you, the readers have to say to him, what are your ideas?

Some of you reading right now are going to win some great stuff. I am giving away the following things:

• Two iPod nanos

• One (large) surprise prize
• One copy of Organizing Your Life

• Five copies of Ramit Sethi’s personal finance ebook (a special thanks to Ramit for donating these)

• Two copies of Trent’s 31 Days to fix your Finances ebook

Ok so whats the deal?

Recently my girlfriend, a self professed shop-o-holic took a big step. She cut up all of her credit cards. I am having her explain in her own words:

My dad told me, “Lauren, don’t get yourself caught up in credit card debt”. At the time, I didn’t really even know what he was talking about. It started in college my sophomore year. I opened up a buckle charge card to buy a pair of $75 jeans. I thought, I will get a monthly bill of $10 and in about 8 months it will be done. Well, six years later that $75 turned in to $8500! I soon graduated college and received a full time job (more money, more debt) and bought my first house and had opened another 8 credit cards since my first! I have to say, the catch for me is not just “buy now, pay later”, but the up front discount they give you to open the card. “15% off if you open a Kohls charge card”. I promise you that if you do not pay it off right away, they will get that
that discount back from you and more in interest. So, this really started to consume and I thought back to my dad when I was younger “Lauren, don’t get yourself caught up in credit card debt”. I didn’t know where I was going to get extra money to pay off the debt, but I have managed to bring that $8500 down to about $6500. At this point every little bit helps and it actually feels really good. The trick for me is not paying little sums of money on every card, but when I get a large sum of cash ($100 or more), I pay it towards one card. It’s like I never knew I had the money. For example, my recent tax returns, I was due to receive $1800. I put $1600 of that towards paying off debt and cut up all of my cards in the process. I’m telling you, it was really hard for me to do this, but knowing that you are closer to being rid of debt is a much better feeling. I actually paid myself by doing this. By paying off my 3 credit cards, I now have an extra $100 per month! So, my take away is listen to your dad, and start getting rid of debt ASAP.

Here they are, its quite the pile:

This got me thinking. How many of us having extra temptation in our wallets? How many of us are carrying around credit cards we don’t need that can do nothing but put us into debt?

The contest:
All you have to do to enter is CUT UP one or more of your current cards and take that step in the direction away from relying on them, and take a picture. Mail me that picture at contest@thepennysaved.com along with a message about your experience with credit cards. Those that have no credit cards or cannot cut theirs up can still send me their experience to be eligible for any prizes EXCEPT the iPods. Here is the breakdown:

Grand Prize Man: Black Ipod Nano, Ramit’s Guide to kicking ass, 31 days to fix your finances
Grand Prize Woman: Pink Ipod Nano, Ramit’s Guide to kicking ass, 31 days to fix your finances

First runner up: Secret Prize, Ramit’s Guide to kicking ass, Organizing your Life, Investing online ebook

Two random drawings from the entry pool: Ramit’s Guide to kicking Ass, Investing online ebook volume 6

Added Bonus: As a commitment to all of you and the cause, I will cut up MY credit cards. All of them. I now have the ability to put rewards on my debit card so I will cut up all of my credit cards as well and post the VIDEO of it online.

The deadline is TWO WEEKS FROM TODAY. Thats Monday March 10.

A couple rules:
It must be a real credit card and not a fake one that comes in the mail. If there are not at least 30 entrants I will give away everything except the ipods.

There are all sorts of articles everywhere that will tell you how to avoid blowing your budget…but what do you do if you DO blow your budget? Well that exact thing happened to me this weekend so now is a decent time to tackle it because lets be honest if you are part of the 99% of people that aren’t always perfect, it will happen to you at one point or another. Now Im not referring to “I got super sauced and bought a corvette from a used car dealer” kind of blown budget. More along the lines of “unplanned dinner and taxi trip” kind of thing. Anywhere from a few bucks to a few hundred.

So this weekend, I went over budget. We went down to Denver to visit some friends this weekend and I budgeted a certain amount of money for going out. One slight problem: we went out friday night with friends from work as well. This took out roughly 1/2 of the money I had planned for the weekend (I was expecting to spend only a few bucks friday night). Long story short I kept to budget until about 10 PM when we decided to take the light rail to a karaoke bar. If you haven’t ever been to a good karaoke bar with a huge group of fun people, I highly recommend it. So anyway four hours, one rendition of The Bad Touch (complete with dance), one rendition of Beat it (complete with attempt at dance) , taxi ride, and taco bell meal later I was roughly $125.00 over budget.

So what to do?
Well, the trick is that you should always put aside money each month for “unexpected expenses.” Aha, but I ALREADY used my set aside money.

So what now?
Its painfully obvious but should be pointed out anyway; cut back for this week, eat a few more meals at home, don’t go out next weekend.

For the sake of argument lets say you are already living perfectly frugally, what else can you do? Well there is a little trick called payment shifting. I don’t recommend it except as a last resort. Its this: you postpone when you pay a certain bill so that it coincides with the next paycheck. An example is, I get paid on the 1st and the 15th of every month. My mortgage is due on the 16th of the month. I pay my mortgage with money from my first paycheck of the month, if I had a situation where I was behind I could use my second paycheck of the money, effectively buying myself an extra 15 days worth of money if I needed until I had a chance to make back up the original money that was overspent.

By no means am I advocating blowing your budget but we are all human (even Michael Jackson, despite outward appearance) and mistakes happen. The real takeaway is that if you make one mistake do NOT get discouraged and just start putting things on credit card that you cannot pay off or give up on budgeting.

Hey, everyone checking out this page, FYI I am giving away two iPod nanos. (click to check it out)

Last night my girlfriend and I got into a discussion over children and expenses. Though I am about as stubborn a person as you can find, she made a good point about affording kids and kids expenses that got me thinking about big picture. The truth is that as life goes on, there will never be a BETTER time to save money and pay off debt. For that matter there will never be a better time to do ANYTHING. Follow me here…

Saving money and paying off debt NOW
-No matter where you are in life there is no better time. If you are recently graduated from college or in your 20s and you can’t save money and pay off debt right now, how the hell are you going to do it when you are when you have a new home complete with mortgage payment, how about a car and car insurance. Or if you already have a home how about wife/husband, kids, diapers, babysitter, kids sports, family vacations. Or if you already have kids how about when your kids go to college? Or if your kids are all out of college and you are in your say, 60s, how about increasing cost of insurance, and medical bills. Or even if you are older and in good health you best be saving and paying off debt before your retire. As you can tell there is NEVER a better time than now. Salary increases WILL just get eaten up if you don’t get into the right spending habits right now.

Start a business NOW
A lot of the same things that apply to saving and debt also apply to starting something new. One of my friends told me he didn’t want to start a business until he had saved up a good amount of money and had “learned some more.” Now thats great and all, except that his idea had to do with social networking and quite frankly who knows where thats going to be in five months let alone FIVE or TEN years. And who wants to be 30, 40, 50+ working on a college social networking project? For some reasons I get visions of that old perverted creeper standing around at the bars just waiting for some college girl to be drunk enough to wander over to him. Other reasons: when do you have more time than before you are married with kids?

Getting in shape NOW
Theres that peyton manning commercial where he gives the pep talk that if you aren’t a professional athlete or under the age of 23 forget the six pack and just buy a bigger shirt…well there is a certain truth. As we age our metabolism slows down and our hormone levels drop making it harder to lose weight and harder to add muscle. Just think about having to run twice as far when you are 40 as you do when you are 20 to lose those l-b-ses, that should motivate you, you lazy couch potatoe you. In fact, stop reading this article and go to the gym, then come back and finish. Unless you’re at work, then you get a pass. I won’t even mention the fact that being healthy with benefit you greatly as you age. Oh, I guess I just did.

Clean your house NOW
The dirtier you let something get (I know, I have lived with 5 guys before) the harder it is to get it cleaned up later. Do it now, unless you like dirty crap all over the place. Especially dishes, nothing smells better than a dish thats been sitting in the sink for days or a week or a month or NINE MONTHS (I actually saw this at an apartment several years ago. Apparently they simply stopped using dishes but didn’t bother to clean the ones that HAD been used).

Do your taxes NOW
I hate doing taxes. I would rather clean the bathroom at your local gas station than do taxes. Really. That being said, getting it over with is better than having it hang over your head.

Take risks NOW
Invest in risky stocks. Don’t even bother with bonds. Go skydiving. Travel to a part of the world where you dont speak the language. These are the kinds of things you can only do (responsibly) when you are young.

The absolute best thing you can do for your worries and regrets in the future is taking care of them right now.

*Check in later for my story on how I saved a guys life last night*

As my girlfriend rightfully pointed out, it has been a while since I have posted about getting rid of debt. Well, fear not, I have a whole laundry list of tips to erase your debt in no time.

Lets start with what is something you can do in fifteen minutes that can save you a decent sum of money month after month. If you are reading this, there is a decent chance you have credit card debt. There is equally as good a chance that at least some of that credit card debt is high interest. If you are paying 17,18,19, … 22….30% interest on your credit cards, thats highway robbery! Lets do something about it…

Call your credit card company any request an interest rate reduction.

When you first talk to someone in customer service you are talking to someone low on the totum poll. They probably dont have the authority to reduce your interest rate. I did some digging and my credit union has a clause that says “you have the right to request a supervising officer.” Ah, yes, you most definitely WOULD like to speak to a supervisor. When you have the supervisor on the phone, request the rate reduction. The vast majority of the time they will give you a reduction. If they are reluctant, threaten to balance transfer to a lower rate card. Unless you have terrible credit, this is a very credible threat and will do the trick.

How much will this save me?
I have heard of reductions anywhere from 5-13%. Thats huge savings if you have a couple thousand dollars on your credit card. Lets say your credit card has a balance of $5000.00 at 22%. If you get that reduced to say 12%, thats gonna save you $500 in a year. Thats $41/month. Heres the kicker, keep paying the amount you were budgeted to before you got your rate drop. That extra will go toward the principal and the next month you will be paying even LESS interest and MORE principal. Watch that debt shrink like lawyer in church.

Where do I find this magical number that I need to call to make these wonderful things happen?
Well either you need to:
1) paypal me and I will send a carrier pigeon with the number strapped to its leg
or
2) flip over your card and call the number on the back

Now you see the light, so stand up for your right. Get on that phone!

There is something that gets left out a lot when the topic of personal finance comes up. It is one of the most simple things to grasp, yet also one of the hardest to do. It is something that I personally am terrible about if I don’t watch myself. Ok enough suspense already, wheres the beef?

The secret is simple:

Do not buy things you do not currently have enough money to buy.

Ok, you’re thinking, thats pretty obvious. But is it really? Lets dig a little deeper here. If you are like me (note: not referring to good looking and intelligent) then how many times have you said to yourself “well, I have extra on my next paycheck so I will just fit it in there.” Well, there is a good chance that something else will come up next pay period, so then both the original charge AND the new charge get put off. This is what I like to call the reverse snowball. Snowballing is a common metaphor for how to get rid of debt….well this is the best way to build debt.

Here is a a good example. In the consulting environment I get paid a bonus based on how many billable hours I worked for a customer in a given month. I do not figure this into my budget and it varies wildly based on what customer, what Im doing etc etc and its always paid on the second paycheck of the month. For the first part of the month, if I know Im getting a good sized bonus for the month I will overspend outside my budget because, hey, extra money is coming. The problem is that I never know exactly how much it will be and it makes it very easy to get carried away and go wild with the spending. Yes, even a financial titan such as myself will be defeated occasionally by spending temptation. Its my Achilles heal if you will. Ok enough with the greek mythology. Lets strategize:

1) Stick to the budget except in case of absolute complete and total necessities. Medical expenses, car breaks down, furnace goes out and it’s so cold your beta fish is swimming under a layer of ice (true story)….these things are ok. NFL Sunday ticket is calling your name, not ok (also true story).

2) Budget according to only what you KNOW you will make.

3) Make an emergency fund. Yes I know its easy to use credit as an emergency fund, but you should be putting money aside anyway.

4) Be honest with yourself. Most people I know are masters at telling themselves they can easily pay something off later. Don’t do it.

5) Take care of yourself and your things so that you stay healthy, and they stay working. The best way to cut out medical and other expenses is preventative action.

Bonus: Pay yourself first, this will work wonders in keeping you to #1.

Since the federal reserve has been cutting rates like interest is goin out of style there has been a renewed interest in home equity loans and home equity lines of credit. So what exactly are these? What is the different? Should I care?

What is a HEL (home equity loan)?
This is a type of loan where the borrower uses the equity in their home as collateral. These loans a lot of times are used to finance home projects, pay off high interest credit card debt, or pay medical bills. A home equity loan requires good credit history and a good amount of equity in the home. In this loan, the borrower receives a lump sum at the time of closing and nothing more can be borrowed. The max amount of money that can be borrowed is determined by variables including credit history, income and the value of teh home. The amount that can be borrowed is usually up to the entire appraised value of the home minus the first mortgage. Closed end loans have fixed rates and can be amortized for periods of usually up to 15 years.

What is a HELOC (Home Equity Line of Credit)?
A Home Equity Line of Credit (often called HELOC, pronounced HEE-lock) is a loan in which the lender agrees to lend a maximum amount within an agreed period (called a term), where the collateral is the borrower’s equity in his/her house. This is also called an open-ended home equity loan.

What is the difference between a HELOC and a come equity loan?
The different is that in a HELOC the entire sum of money isn’t given to you up front. Instead you are given a line of credit, very similar to having a credit card. At closing you get a specific credit limit that you can borrow up to. During the period of time you are allowed to borrow you can borrow and pay back what you owe plus interest. Depending on how much you use the home equity line of credit you will have a monthly payment, generally only the interest on whatever is owed. Another difference is that the interest rate on a HELOC is based on the prime rate as set by the federal reserve. This means that the interest rate will change over time. Generally HELOC rates are lower than home equity loans because they are variable, however if there is significant economic turmoil you could get stuck with a very high interest rate.

For each, what are some of the advantages and disadvantages?

Home Equity Loan Advantages:
-All the money up front
-The interest is tax deductible
-Low closing costs

Home Equity Loan Disadvantages
-Fairly high interest rates
-No grace period, payments start right away
-No flexibility

HELOC Advantages:
-The interest is tax deductible
-HELOCs are viewed as not as bad in the eyes of creditors as a traditional home equity loan
-can be interest only
-no prepay

HELOC Disadvantages:
-Variable interest rates mean that rates can rise over time.
-Failure to keep to terms can and probably will result in foreclosure.
-No caps on interest rate
-Minimum draw amounts

As far as times to get home equity loans go, this is a good time. The federal prime interest rate is the lowest it has been in years. If you have sizable high interest debt, a HEL or HELOC might be a good idea…just remember putting up your home for collateral is dangerous!

What has she taught us about money? Its not that money can turn a slightly spoiled hollywood teen into a psychopath, though you could probably make that argument. No, instead it is she has taught us:

“Im a slave for you”

I have a friend that recently has crossed the line from frugality into cheap…in his obsession to save money he has stopped doing anything worthwhile. Everyone has a friend that sometimes fits into the category of Mr or Ms Cheap. You know, instead of the Teddy Roosevelt of frugality, they cross the line into Ross from friends, taking salt out of the hotel salt shaker and unscrewing light bulbs. Ok so my particular friend hasn’t reached that point yet but many people have. They have become slaves to their money.

Just for fun, lets go over Mr Cheap ala Ramit’s definitions.

Mr Cheap:

Mr Cheap lets his friends buy all of the rounds at the bar
Mr Cheap refuses to lend you dollar when you are one dollar short for lunch
Mr Cheap buys things simply because they are cheap
Mr Cheap affects everyone around him
Mr Cheap dismisses ideas because they cost money
Mr Cheap is upset when his friends decide to do something that costs money

Worst of all Mr Cheap drinks PBR. Terrible.

So What is the point? Your friends suck?

No. The point is that you never want to get to the point where you are no longer controlling your money, but it is controlling you.The whole point of personal finance is to manage your money so that you can life a good life. When your money is controlling you, it is one of the most stressful situations possible. Even if you are in debt badly you should be able to allocate at least a small amount of money for fun and entertainment. Pay yourself first. The dog should always wag the tail, never the other way around.