Welcome to The Smart Money Manager. This website is designed to help people balance their budget and to get their finances back on track! Over the next week, I will be introducing new software for download that will help achieve that goal.

With home prices beginning to drop, and with no sign of interest rate falls on the horizon, now is the time to get finances organized, cut waste and build assets, without going into excess debt.

While my background isn’t in the accounting sector, I have taken a keen interest in financial matters for some time, having been caught in an economic downturn in Australia during the late 1980s. I was a contractor with a large company that decided on a radical cost cutting exercise. Unfortunately for me,  I was one of their costs!  

While people borrow money for different purposes, have different goals and so forth, before signing your life away it is worth stopping to ask:

a) Can I afford the repayments if the worst case scenario develops - I can’t work because of sickness, the company that I work for  goes out of business and so on.

b) Even if the worst doesn’t happen, will what I am buying still be worth anything once I have finished the repayments?

Most Western economies are showing mixed signals at present, but there are some key areas to indicate that maybe things aren’t quite as as rosy as they seem.

US House prices have fallen on average by almost 1% this year, while the number of foreclosures in April of this year has been estimated to be double that of 2006.

The first impulse may be to panic and sell the house, or to try and earn extra income.

However, selling out in a falling market could be the worst thing to do, as a lot of other people will be seeking to cut their losses and get out as well. This in turn causes a flow on effect, because as more houses come on to the market, prices will fall even further.

Earning extra money is a key, but unless records are being kept to track spending and to cut waste, this can lead to further stress, especially on relationships. Yes, extra income will certainly help, but unless a check is kept on spending, and a good percentage of the extra income paid off existing debt, it could be a costly exercise.

Maybe I can consolidate all my bills!

This may be an option, but as with simply earning extra income, getting a loan to consolidate debt can have it’s own drawbacks. This is where it pays to stop and ask yourself a few honest questions, such as:

a) Did a lack of discipline bring me here? One of the problems we face in a consumer society is that there are always new things to buy, and things that for some reason or other that we must have. When our repayment load is reduced, or extra money comes in, it is quite easy to get caught again.

Unless we are hard on ourselves, we can end up where we started!

b) What about the interest? If you get a loan to consolidate debt, you may be also paying interest on interest, and possibly early exit fees for the debts themselves. Over the life of the loan, this can lead to a considerable amount of money. Is it worth it?

My Opinion: If at all possible, debt consolidation should be avoided at all costs! Never, except in the direst of circumstances refinance personal loans, hire purchase agreements or leases. You will find that the rebates are all weighted in favour of the financier! 

Mortgage Refinancing: Refinancing your home loan is another option, but one that should be considered very carefully. Many people use their home mortgage to pay for holidays, consumer goods and so on. Using it for these purposes, or for car financing, make it a ver expensive proposition in the long run.

Sometimes, unexpected costs such as medical bills or the death and funeral of a loved one can place us between a rock and a hard place, but all options should be explored before committing to a course of action such as this!

Paying your home loan off faster should always be the goal, avoid extending it if at all possible as to do this only adds more interest in the long run!

c) I’m really desperate, should I declare bankruptcy? This is an area for expert opinion, so all I will say is that if you can possibly avoid it, don’t go into bankruptcy. This is something that will stay with you for life, can affect all sorts of relationships and your own self esteem well into the future.

That being said, there are many reasons why people go bankrupt.  Possibly the result of a relationship breakdown, critical illness, or the failure of someone to pay you! And the list of real, and valid reasons why bankruptcy can occur goes on. 

Unfortunately, bankruptcy has a social stigma attached to it that seems to imply that someone “refused” to pay their debts or was corrupt.  This is probably true in only about 1% of cases.

There may be other alternatives, such as entering an agreement with ALL creditors concerned. You can find out more by seeing a professional in this area.

When seeking out a financial advisor, ask who they are affiliated with, what the fees are and so on. You need to minimise your costs in all areas, including this one.

My thanks to Ric Raftis for his invaluable advice in writing this article.