As long-time readers know, I have a ‘weight-loss’ blog - No. Calories Needed - where I’ve just started writing about a new weight loss program I’m following - Paul McKenna’s 4 Golden Rules.  I’m really excited about the ‘program’ and I’ll be posting regular updates of my progress.

Now, this week’s Stroll Through My Blogroll -

The Digerati Life writes about steps you can take to lower health care costs.  (Our little girl will be born in less than a month!  So, this, for us, is timely advice.)

Gen X writes about the recent federal reserve rate cuts.  (I for one am getting a little nervous about the economy.)

Money Smart Life writes about big goals and achieving success.  (I love this post.  I’m a big believer in big goals!)

The Sun’s Financial Diary writes about gold and it’s $1000 dollar price tag.  (Again, did I mention that I’m a ‘little nervous’ about the economy?)

Lazy Man writes about Bear Sterns and a $2 stock price.  (This is an amazing story.  And to think, all of this as a result of ‘credit issues’.)

Blunt Money writes about DRIPs.  (Dividend Reinvestment Plans)

My Two Dollars writes about ‘keeping his wife in the loop’ and managing finances.  (I’ve created a similar ‘what happens if I die’ worksheet for my wife.)

Paid Twice writes about a ‘light bulb’ moment - literally!

Watch My Moneymaker writes about ‘The Moved Buffer Theory Budget’.  (Pretty interesting concept.)

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When making ‘extra’ debt payments, be sure that you understand the ‘policies and procedures’ that your creditors have implemented.  Call your creditors and ask -

1.  If I send in a payment amount that is ‘above’ my ‘minimum payment’ - how will that payment be handled?

This is a very important question.  Certain creditors will ‘hold’ any amount that is above the minimum payment - and apply it as a ‘prepayment’ of the next month’s minimum payment.  This is especially common with automobile companies and some mortgage companies.  Remember, we want our ‘extra payments’ to go towards ‘principal’.  We do not want to ‘prepay’ - we want to ‘pay off’.

2.  If I want to send in more than my minimum, should I send more than one check?

This question relates to question 1.  I always liked to make multiple payments per month to my creditors.  On each and every ‘extra payment’ I would make a notation - ‘Please cash immediately and apply to principal’.  Again, we do not want our creditors ‘holding’ extra payments and waiting to cash them.  Also, I used FREE ONLINE BILL PAY to initiate extra payments.  I never gave a creditor access to my checking account.  In other words, all ‘extra payments’ were initiated by me, and not my creditors.

3.  Is there a prepayment penalty associated with my loan?

If so, you need to get out your loan documents - prepayment penalties are usually associated with mortgages - and do you very best to understand every detail about the ‘penalty’.  I have never had a ‘prepayment penalty’ associated with a loan, so I have no personal experience with them.  But, if you have one, you need to know about it!

4.  Is there a limit to the number of ‘extra payments’ I can send?

Some credit card companies limit the number of transactions that can be INITIATED from their websites.  In other words, if you are going to your credit card company’s website and ‘pulling’ money from your checking account, these types of transactions may have a ‘per month’ limit.  To avoid these limits - login to your online banking account and ’send’ money to your credit card company.  In other words, as in question 2, YOU will initiate the transaction on ‘your side’ and you will not be using the credit card company’s ‘payment service’.

5.  How is my interest calculated?

Interest calculation is a ‘complex topic’.  I’m working on a post about the subject - it should be ready for release in a few days.  But, suffice to say, you need to have a basic understanding about how your creditors are calculating your interest.  For most loans, the SOONER you make a payment, the LOWER your calculated interest will be.  But, to be sure, contact your creditor and ask!

Now, I know what some of you are thinking.  Why would my creditor be willing to answer my questions about debt reduction?  Well, companies are bound by law to be honest with their customers.  If you don’t feel like you are being told ‘the whole truth’, request a conversation with a manager or supervisor.  The goal is to gather as much information as you can.  Don’t be intimidated.  Ask questions, listen, take notes, and be polite.  If you don’t FULLY understand an answer, rephrase the question.  Again, our goal is to get out of debt - and part of that process is understanding how your creditors handle extra payments.

If you have additional questions that you think should be asked, leave a comment and let us hear from you.

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I’ve been doing a few calculations - figuring out how much it costs, per month, to fully-fund various retirement accounts.

401(k) and 403(b) plans -

(Contribution limits are for those under 50. Certain plans offer ‘catchup contributions’ for those over 50.)

Contribution limits for 2008 -

$15,500

Contributions can be made for income earned January 1st until December 31st of 2008.

$15,500 / 12 Months = $1,291.66 per month

Roth IRA and Traditional IRA plans

(Contribution limits are based on age an income. The following information is based on a person, age 33, who makes $50,000)

Contribution limits for 2008 -

$5,000

Contributions can be made from January 1st 2008 until April 15th of 2009.

$5,000 / 16 Months = $312.50 per month

Assuming a couple, married, filing jointly, in their 30’s, who qualify to make full contributions -

Fully funding two 401(k) plans and two Roth IRAs would equal -

$15,500 + $15,500 / 12 Months = $2583.33 per month

$5,000 + $5,000 / 16 Months = $625 per month

Wow.

Here’s a related post -

What If You Make Maximum Retirement Contributions For 20, 30, 40 Years? (Roth IRA, Traditional IRA, 401k, 403b)

When I do calculations like this, I get PUMPED!

Why? Well, consider the following -

What happens if I shoot for fully-funding my Roth IRA - $5000 - but I fall ’short’? Am I ‘bummed’? Of course. But, I’m also ‘psyched’. Why? Well, instead of ‘zero’ in my retirement, I have $1000 or $2500 or $4000! Would I love to fully-fund all accounts. Yes. But, the goal, especially when first getting started, is to DO SOMETHING.

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A few nights ago, I couldn’t fall asleep.  So, I got out of bed and did a little ‘channel surfing’.

Between reruns of Sports Center and The Andy Griffith Show, I spent a few hours watching a couple of ‘television shopping networks’.

Now, I’m hooked.  Not on the products - but on the way that the products are presented and promoted.

Here’s what I have learned -

Every product was presented as a ’special value’ or ‘amazing deal’.

As each host introduced a new product, a little box, with product details, would appear on the left-hand side of the screen.  And, inevitably, the text would state - ’special value’ or ‘first time offer’ or something similar.

Each product was promoted by a product specific ‘host’ and a product-specific ‘guest’.

It was amazing.  As a new product was introduced, a special ‘guest’ would appear to talk about and promote the product.  The host and the guest would interact and exclaim how ’special’ or ‘nice’ or ‘breathtaking’ or ‘unique’ each product was.

Callers would call in - and want to talk to the host, like they were old friends.

Callers called in and spoke to either the host or the guest, or both.  And, inevitably, the caller would say something nice - really nice - about the PERSON to whom they were talking.  Yes, the caller would mention the product - and how they ‘loved it’ - but, the key to the whole ‘call in’ segment appeared to be the callers’ desires to talk to the various hosts.  It was amazing.

Products were always available ‘at a special price’ or ‘via flex pay’.

No matter what the product was - a set of pillow cases, a pair of earrings, a power tool - the host would mention that it was on ’sale’.  And, sure enough, on the graphic, the ‘original price’ would have a ’strike through’ and the ‘value price’ would be highlighted.  On top of that, most items were available on ‘flex pay’ - where they charge your credit card for 1/2 or 1/3 of the payment, two or three months in a row.  Again, callers ‘loved!” this feature - and many remarked how ‘easy this made it for me to purchase’.

The setting for each product was custom-designed to evoke a specific mood and reaction.

I noticed, for instance, that when they sold a particular toilet cleaning product, the entire ’stage’ became a well-lit, beautifully decorated bathroom.  When they were selling clothing, each item was shown on a different size model.  In fact, ‘plus size’ models were featured.  The entire production evoked a sense of ‘connection’ between the customer and the product.

Each host had her / his own way of promoting the product, but all of them knew how to steer the conversation back to the ‘wonderful product’.

Again, no matter what the ‘guest’ or ‘caller’ might say, the host had an uncanny ability to promote the product.  Over and over and over again, the product was ‘my favorite’ or ‘the third one I’ve owned’ or ‘my mom’s perfect gift’.  Not only did they sell the product, they sold their ‘love’ for the product.

Every item was ‘almost sold out’ or ‘available in limited supply’.

No matter the item, the color, the size, or the quantity - Near the end of each segment, it would be ‘nearly sold out’.  And, as the host talked to the ‘producer’ - she’d be informed that those who ‘called right now’ could be assured that the product would be available, but they needed to call ‘right now’.

Some thoughts -

I have never purchased anything from a ‘home shopping network’.

I find it fascinating (perplexing, and a bit sad) that the callers seemed to consider the hosts to be their ‘friends’.

I wish that I could promote ‘debt reduction’ with the same fervor that these folks promote ‘products’.

I find it odd that after years of selling products via television, these networks still ‘run out’ of items to sell.

Surely, they really are running out?  Right?  They wouldn’t, you know, lie to us?  Would they?

Put the card away, be thankful for the stuff you already own, and call your real friends -

Tell THEM how wonderful THEY are.

You’ll save money, you won’t have to make payments, and you’ll be talking to someone who really wants to hear from YOU!

And, late at night, when you can’t sleep, come back here and read through the No Credit Needed archives!

But, hurry!

Supplies are limited!

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Should I Cash Out My 401(k) To Pay Off Debt?

Under most circumstances, if you cash out your 401(k), you will have to pay federal, state, and local income tax.

You will also owe an early withdrawal penalty - 10% - if you are under the age of 59 1/2.

In almost every case, for every $100 dollars you withdraw, you will pay between $25 and $50 dollars in taxes and penalties.

In other words, unless you are doing so to avoid bankruptcy, it’s a bad idea to cash out your 401(k) and pay off debt.

Instead, live on a budget, reduce spending, and create a debt snowball.  Stop looking for ‘quick fixes’ and learn to ‘do the work’.

Finally, if you cash out your 401(k), you lose years of ‘compounding power’.  To see how important ‘compounding’ is, check out this chart.

Over the next few weeks, I’ll post more ‘Questions And Answers About Debt Reduction’.

If you have not done so, consider subscribing to the No Credit Needed RSS Feed.

For in depth information about this topic (and similar questions), check out these articles from my fellow members of the Money Blog Network -

Can you cash out Roth IRA to pay off house? (Five Cent Nickel)

Should you borrow money from your 401(k)?  (Consumerism Commentary)

How much will a 401(k) loan cost you?  (All Financial Matters)

Your 401(k) is not an ‘investment’  (Wise Bread)

Don’t Kill Your Retirement Fund When You Change Jobs (Free Money Finance)

How Strong Is Your Piggy Bank? (Mighty Bargain Hunter)

Three Popular (But Dumb) Money Moves (Get Rich Slowly)

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