“Apply to principle” are the three most important words to help you payoff your debts quicker. Adding those three little words to your extra payments makes all of the difference in the world.

“Apply to principle” means just what it looks like. When you add those words to your extra debt payments, you are telling the company that is processing your extra payments that you want this payment to paydown principle, not next months payment.

What happens you don’t add “apply to principle” to your debt payments, is that the payment will typically be applied towards next months payment.

No “Apply to Principle” Example

• You owe $6,000 on your car with a payment of $500 per month.
• You send two checks. One for the $500 payment and one for $500 without “apply to principle” in the memo line.

The result of this example is that you won’t have to make a payment next month. What you want to happen is this:

“Apply to Principle” Example

• You owe $6,000 on your car with a payment of $500 per month.
• You send two checks. One for the $500 payment and one for $500 with “apply to principle” in the memo line.

The result of this example is that you will have reduced your principle balance by $500, which means that you will pay less interest in the long run.

You will need to check with your loan servicer to ensure that early payments are allowed and that you will not be penalized for paying early.

In these tough times it’s vital that you have an emergency fund, but how big should your emergency fund be? The answer to that question depends on your current financial situation.

The basis for your emergency fund should be equal to one months living expenses. Take the time to figure out how much money you really need to meet all of your obligations for a month. If you’re to lose your job, do you really need cable?

Once you have that number figured out, it’s time to find out how many months you may need. The current thought is that you should have 8 months of expenses on hand. I would say 6 is enough, but I’m not as pessimistic as most economists are.

Once you’ve decided on a comfortable month count, take your monthly expenses number and multiply that by the month count. Then you’re done. Now you just have to start saving up that amount.

It’s been over 3 years now that we’ve been blogging about personal finance, though we did take a year and a half off and have switched domain names all together, yet we’re still learning. We’re still making mistakes. We’re still growing together financially as a couple and as individuals.

Personal finance isn’t something that you just get. It’s something that takes practice. The difference between then and now, is that when we make a mistake — we catch it more quickly and can more easily recover — instead of digging ourselves into a financial hole.

When we look back on the past year financially we can definitely see some mistakes, but we see more good than bad and that has changed dramatically since April of 2006 when we first decided to pull ourselves up and get going in the right direction.

Our financial process has changed dramatically. We’ve gone from no budget to a complicated budget. From that complicated budget to something much more simplistic. It’s an evolutionary process that will settle down at some point, but for now we’re still a little crazy.

Do you have credit card balances with payment protectors? Here’s a tip for you to reduce your balance by taking advantage of your payment protection plan.

Some payment protection companies allow you to utilize an emergency payment once per calendar year. Depending on your credit card’s plan, it may just allow you to skip a monthly payment. Others will actually make your minimum payment for you. Capital One’s plan is like this.

Normally I recommend against payment protection plans, because it’s just over priced insurance. If you have balances, then the amount you end up paying for interest and the payment protector is basically double what you would pay in interest alone.

If, by chance you do have a payment protection plan and a balance on a credit card, then now is the time to use that emergency payment. Then you’ll also be able to use it in January. After that, cancel the plan all together.

When you invoke the plan, make sure to plan on making your regularly scheduled payment so that you can knock some more principal down.

The most expensive thing in your budget isn’t always just one thing. Sometimes it’s the cumulative of all of the little things. Those are the little holes in your bucket that should be plugged up if possible.

What could these little holes be? If you subscribe to monthly services, those are usually the primary culprits. Things like Tivo or Netflix, credit monitoring or identity protection. Even cable tv could be considered a little hole depending on how much you pay.

Canceling these services could save you a fair chunk of change. Do you need them? Maybe, but you probably could live without them.

These services make money off of you by keeping you as a customer. They are very skilled at keeping you, and they’ll wage a war of attrition to keep you as a customer and hope that you’ll forget about them and just keep letting the new charges come on in.

These are those little holes in your finances that sap resources that could be better spent paying off your debt or adding it to your more long term savings.

I’ve been teaching my wife how to play golf recently. It’s been a great experience for the two of us. For starters, we get to spend more time together, and she gets to learn something new. The problem with golf is that it is expensive.

The average round of golf in our area is about $60. For the two of us to play a round on a course would easily eat up the majority of our dat budget for a month. Thankfully though there are some ways to save money on your next golf outing.

• Go to the country. If you’re living in a metropolitan area, golf is going to be more expensive, because land is at a premium. In order to find cheaper rounds of golf, head out of town. A cheap round of golf is more likely to be found where land is more plentiful.
• Only play 9. Paying for 9 holes is much cheaper. During the summer it’s a little nicer to be done with a round of golf in two hours rather than 4.
• Show up late in the day. If you show up later in the day, you may be able to bargain down a discount. The course is probably done making money for the day anyways, so show up late and ask. The worst they can say is no.
• Play a couple holes after close. Some courses are okay with this, while others will throw you off. Wait until the course closed and then go play a couple holes before the sun goes down.

Of course, if you’re looking to just hit some balls, head over to a local driving range. You can usually score a bucket of balls for less than $10.

We’ve always strived towards living a simple life free of clutter, unfortunately we’ve always had to fight our natural urges to be pack rats. We keep everything, even pretty cardboard boxes.

A few months ago, we decided to unclutter our lives. From that decision I created Uncluttah. Uncluttah is a website about cleaning out our closets and helping fight poverty.

As we clean out our condo, we’re selling the things that we don’t need anymore. From those sales we’re using 50% of the proceeds to help fund loans on Kiva.com to fight poverty around the world. The other 50% goes to pay for hosting costs, Paypal fees, eBay fees and our emergency fund.

So far, we have generated about $350 that is lent out to those in need.

To find out more about Kiva, check out their website.

If you’re selling things on eBay, you’re going to need some shipping supplies. Instead of paying for boxes, you can recycle the cardboard boxes that you get and you can also get free shipping boxes from the USPS.

To get your free boxes, just visit http://ebaysupplies.usps.com. You can choose from a few different sizes of boxes and the shipping is free.

The 201st Carnival of Debt reduction has been posted over at Living Almost Large. I submitted my article from the other day about the debt firehose. Be sure to check out all the other great posts.

There are a couple of debt repayment options for you to choose from after you’ve realized that it’s time to get out of debt. One is the debt snowball. The other is snowflaking your debt, which is basically the same as the debt snowball method with smaller numbers.

I would like to propose a third option. A third option that draws upon the previous two, but will adds sacrifice.

The Debt Fire Hose

When you’re fighting a fire, you can’t use a garden hose. You need to put as much water as you can possibly muster to put it out. You need a fire hose.

The same holds true for getting out of debt. Sure, you can set a budget and figure out how much extra that you can pay towards your debt as you do with the debt snowball, but with the fire hose you need to do more.

The Funding Sources

The fire hose has to get the water from somewhere. During a fire, the water that comes out of the fire hose either comes from a fire hydrant, the tank of a tanker truck or via a body of water through a pumper truck.

The Fire Hydrant

Your income is like a fire hydrant. It’s a steady stream of money that you can pretty much count on to be steady for an extended period of time.

You can siphon off some of the money that comes from your income for debt, but by the time everything gets paid, you may just have a trickle left to pay a little extra in your debt.

The Tanker Truck

Think of your savings account like a tanker truck. It stores the water that gets carried to fight fires. You can payoff your debt from a savings account, but at some point the tank goes empty.

The only way to get anything back in is to pour it in. You only have so much money to put into it. Sure you can put some of your savings towards your debt, but do you want to empty that tank all together?

The Pumper Truck

The most versatile truck to fight a fire with is the pumper truck. This truck can hook up to your fire hydrant, or it can drain a pond. If there’s water to be had, it can put it on the fire.

The fire hose debt repayment method is just like the pumper truck. It’s versatile and it draws from any source of money it can find, but it does need help getting the most out of every drop available.

The Plan

The fire hose plan isn’t overly simple, and it’ll take some time and dedication to get setup. For starters, you need to know exactly where your money goes.

To do this, you should track every penny for at least a month. Categorize it into a few categories like food, utilities, rent/mortgage, entertainment, etc. Take a look at the One Month Challenge at The Simple Dollar.

Tip: If you don’t have a Mint.com account, you can sign up for one and enter all of your accounts. Once you’ve done that it can track all of your spending for you, except cash transactions. You’ll need to track those yourself.

One you know exactly where your money goes, you’ll need to start slashing. The idea here is that your creating a pool of money for your debt reduction pumper truck to come and put on your debt fire.

The Slashing

This is where people don’t put a hole lot of effort in. You have to ask yourself the hard questions here. Do you really need cable TV? Do you need Netflix? Do you need Starbucks? You can make all the cases in the world for why you need to have those things, but that’s only rationalization of unnecessary things. The answer is no.

Trim all of the fat. If you don’t need it to live, then cut it out of your finances. If you need inspiration, just take a look at No Impact Man.

The Pool

Now that you’ve slashed everything, your pool will start filling up with all of that extra income. With that pool, you send your debt reduction pumper truck to turn it’s fire hoses on your giant debt fire. But you’re not done yet.

From here, you can choose to pay down whichever debts you want to pay down the most, but when you do decide which one to pay down, you turn your full powered fire hose on and point it at that one item only. Don’t think about your other debts — other than those pesky minimum payments.

The Sacrifice

The idea behind the fire hose repayment method isn’t vastly different from the snowball or snowflake method. The real difference is sacrifice. You need to give up quite a bit for the fire hose to be fully powered. If your spending extra money on things that you don’t need, then you’re just prolonging your own debt ridden misery.

To get out of debt you need to sacrifice, but like No Impact Man, you may find that once you cut out all of the frivolous things in life, you truly discover the best things in life.

Today, I was out for a quick lunch with my wife when we noticed a farmer’s market that we’d never been to before. Since we love to buy produce locally, we decided to check it out.

At the farmer’s market we purchased some fruit and veggies. At the end, my wife wanted some fresh flowers for the house. The problem was that we only had $7 left. Instead of shopping for the flowers by what we wanted, we asked the farmer’s what they would be willing to sell us for the amount of money that we had.

Inevitably someone decided to give us a discount. It was only a dollar off, but that was still a 12.5% discount. You can’t really beat that.

So, if you want a deal, ask around. Someone’s bound to give you one.

There’s been a lot of stink made recently about Chase’s decision to up minimum payments from 2% to 5%. The question is though, is it really a bad thing?

Many people who have gotten the notice from Chase that their minimum payments would increase to 5% aren’t in a position to pay the increased payment. They have turned to the internet to lodge their complaints.

The issue at hand is that it appears as if Chase is forcing cardholders with low interest rates to make higher payments, or if they so choose, to negotiate a higher interest rate in exchange for a lower minimum payment. This isn’t really ethical, but Chase is fully within their rights to do so.

It is my opinion that the 5% minimum payment is actually better for those with credit card balances in the long run. Sure it stings now, but when you’ve paid off that credit card 48 months earlier than at 2%, you’ll be happy. I’m not the only one who thinks this way.

What can you do about it?

If you happen to get the notice from Chase informing you of the minimum payment hike, then you can either pay the increased minimum payment or try to negotiate a lower minimum payment.

If you try to negotiate a lower minimum payment, Chase will try to increase your interest rate. Maybe you won’t get them back to 2%, but you may be able to knock it down a little without a higher interest rate.

To try to negotiate, you should call the Chase Hardship Department. As of this writing the number for that department is 866–351-0182. Be prepared for lengthy hold times.

My recommendation

If it were me, I would try to find the extra money in our budget to make the increased payment. Are you currently snowballing your debt elimination? Can you just move your snowball payment to the Chase card?

Even though the move by Chase is sketchy at best, just remember that this is just one more reason to get out of debt for good.

Did you used to smoke? If you did smoke, when you quit, did you become angry at the people who still smoked? For me, the answer is yes. Well, not angry, but annoyed. It’s like I realized just how stupid smoking was in the first place, and now I’d like to tell other people how stupid it is to still be smoking. Does the same thing happen when you payoff debts?

Surprisingly, the answer to that is no. It’s a completely different experience. The reason being is that people who got into debt aren’t always in debt because of stupid decisions. Some may be, but not all.

The causes of debt are many, and it is becoming more evident as time goes on that many of the external forces of debt are much more influential than previously thought — you’re still responsible though.

The other thing is that being in debt doesn’t negatively affect me as much as your second hand smoke. Sure, in the long run all of our rates may go up if your indebted behind fails behind on your payments, but that’s not guaranteed.

I actually feel compassion for others who are in debt. I want to help them get out of their situation. Well, I should say that I want to help them help themselves get out of debt.

The question is — what is the most efficient way to do that?

Wouldn’t it be great if you could sell yourself all of your good assets while leaving behind all of your debts. That’s what GM has done today as they emerged from one of the shortest corporate bankruptcies in history.

GM shed a lot of it’s debt today after it sold itself to itself. Included in the sale were only the valuable assets. The old GM was left with massive debt obligations that will get paid off for pennies on the dollar.

If you’re with billions, this is what you get to do. If you’re like us — average people — then you get to do it the old fashioned way. If you declare bankruptcy, some of your debts will get discharged, but many will still need to be paid. The biggest difference between you and GM is that your credit will suck, while GM gets billions in loans from the government.

Does this sound fair? It really isn’t, if you consider that GM should have just been allowed to fail in the first place. I’d put even money on GM failing in the next couple of years anyways. The inevitable has just been prolonged.

You may be wondering why I want to tackle healthcare on a personal finance blog, but healthcare is the number one cause of financial ruin in America, so I feel that it’s relevant.

There is a simple two syllable reason as to why healthcare is broken in America.

Pro·fit

The one thing that I hold dearest to my heart is the one reason why healthcare will never be fixed in America. It’s the thirst for profit that has driven the cost of everything up.

Healthcare companies are in business of making money. You have insurance companies on the stock market, where the only thing that matters is your quarterly profit.

The sole purpose of profit is to maximize your revenues while decreasing costs. In healthcare, this means denying claims and treating only the sick instead of trying to prevent people from getting sick in the first place.

This holds true for our food supply, where everything has gotten cheaper and much less healthy, but that’s another post.

Getting rid of the profit

There’s been a lot of talk of a public option for health insurance. While I don’t think that this goes far enough — I believe in totally socialized medicine — it can at least help reduce the pressures that are put onto healthcare to maximize earnings.

A public option would ensure that everyone was insured, regardless of preexisting condition. Overall it will increase all of our costs, as someone will have to pay for the subsidies, but everyone will be covered.

There’s a public option for flood insurance

A health insurance public option isn’t a new concept. The flood insurance industry only exists in America because there’s a public option. If there wasn’t a public flood insurance option, millions of Americans would be forced to relocate to places

Of course, having a public option is really just a finger in the dam trying to hold back the water. The only real way to solve the problem is through a total socialization of healthcare.