Do you pay attention to the little things? Is your brain fascinated, daresay obsessed, with details? If you believe the small things count as much as the big things, you might already be a snowflaker and not know it, or at least, are well on your way to becoming one.

The idea of snowflaking is simple - put forth effort to either save small extra amounts of money or earn small extra amounts of money above and beyond your normal earnings, and then put that money to work for you in a systematic fashion. What you decide to do with the money is up to you - in my life, our goal is to get out of debt so I snowflake to debt reduction, but you can snowflake to savings, investments, or any other endeavor that is in line with your financial values. The key is to create opportunities to snowflake above and beyond your normal spending, saving, or debt reduction plan.

Many people already practice concepts of snowflaking, or are indeed a snowflaker, without even realizing it. If you make every dollar count, and put your extra earnings and savings to use for you, you’re already snowflaking!

If you aren’t already a snowflaker, how can you become one? Simply start noticing the little things. Do you consistently check prices on the staples of your shopping list for the best deal? Do you have extra time you could devote to developing another income stream? Do you know all the details of your insurance policies and are confident you have the right coverage for the best price? There are many places where you may be able to save a little more than you think, and multiple ways to earn a little extra income. I focus a lot of my frugal efforts on cutting our variable expenses, specifically food and gasoline. I’ve learned to combine trips and think thoughtfully about how much I use our car, and I have spent a lot of time developing a system for getting the best prices for the food we eat (which is still a work in progress!). As far as developing extra income, I have sold a number of our possessions that we no longer use through both eBay and craigslist, and I also do online surveys in my spare time for select companies, as well as writing my blog which also earns a little side revenue.

Trying to see the big picture with such small amounts can be discouraging. It is hard to feel like you are making any progress with your savings or debt reduction goals when the numbers look so tiny. That is why tracking those details is so important. When you look at one snowflaked amount, it might seem pointless. But practicing this systematically and continuing to work to find new ways to create snowflakes adds up much faster than you might think. In my budgeting sheet I have a column just to track snowflakes. Some months it may only add up to an extra $50, but some months it can be several hundred or even break a thousand dollars, all told. It may not seem like much individually, but snowflakes working together can create quite a snowstorm.

Anyone can snowflake. Examine your life and see if you are living it according to the financial values you hold and are striving towards meeting your goals and dreams. If you feel like you could be doing a little more, give snowflaking a try. You might be surprised at how important the little things can be.

This guest post if by paidtwice of I’ve Paid For This Twice Already… a blog focusing on debt reduction and making small changes in your life for big rewards. Subscribe to her feed so you don’t miss a thing! And if you’re also a snowflaker, you may want to check out her Snowflake Revolution.

Pay day loan shops (and cash checking and other similar short term loan shops) are often singled out as places that prey on consumers in a tight spot. While I don’t dispute that, I want to point out other places that also prey on consumers in a tight spot that don’t often get the spotlight.

Pay Day Loans Are Bad

Don’t get me wrong, pay day loans are horrible products for consumers because of their high fees, high interest rates, and their propensity to become financial sinkholes. It’s the financial version of someone going in for a routine cavity filling and coming out with a lobotomy. You just need a little extra help to get you to the next pay day but end up paying for years. According to this warning by the FTC, they give an example in which “the cost of the initial loan is a $15 finance charge and 391 percent APR. If you roll-over the loan three times [42 calendar days], the finance charge would climb to $60 to borrow $100.” $15 to start and 391% APR is horrible but let’s compare to some of these other products.

Refund Anticipation Loans

Refund anticipation loans, tax rebate loans, assisted refund loans, etc. are horrible horrible, don’t ever get a refund anticipation loan. These products are often highlighted as preying on consumers but I felt they should be mentioned anyway. Given the fervor over pay day loans, you’d think a loan with a $30 activation fee, $20 check processing fee, and a 36% APR would get a little more heat than it does. $50 to start plus 36% APR on funds that are guaranteed (if the tax preparer does their job right) by the IRS… seems a little rougher than the pay day loans, which are loans on funds that are not guaranteed.

Bank Fees

According to Bankrate’s 2007 bank study, bank fees are on the rise. Big time. A bounced check will cost you $28.23, average ATM surcharge will run you $1.78, and the average monthly service fee on a checking account was $11.72 (don’t ever pay a fee for a checking account). You’d think that they were lending you money given those fee values! I can understand the headache of a bounced check but let’s get real here, bounced checks never come alone. In fact, considering banks withdraw the largest amounts first, you’re more likely to see multiple bounces than a single bounce.

Credit Card Fees

Again, credit card companies have come under heat too but it still bears highlighting that they’re practices are closer to pay day loans than they are to the Fed. If you make your payment late, most places will charge you somewhere between $20 and $30, with the bias towards $30. Interest rates? High, plus companies have been mailing out letters notifying people that their rates have gone up for no reason. I’ll leave it at that since the credit card industry does take a lot of heat for their practices.

So as you can see, pay day loans are horrible but there are a lot of other horrible and more mainstream products out there that simply don’t get the same exposure. Bouncing a check is like missing a payment which is like taking out a pay day loan, in terms of cost, but at least with a pay day loan you get something out of it (a horrible horrible loan!).

This is a dueling bloggers post between me and JD of Get Rich Slowly. Read his post on Using a Home Equity Loan to Pay Off Credit Cards and share with us your thoughts on the issue!

So you’ve racked up a little bit of credit card debt and you’re trying to find a way out from under the interest payments so you can make some headway. You’ve considered a few options and now have settled on tapping into your home equity to give you some breathing room - a lower interest rate and the deductibility of those interest payments. Before you transfer that debt over, let me give you a few warnings and then some alternatives that may be more attractive.

First things first, by home equity I mean tapping into a line of credit or a loan against the amount of your home that you actually own. Home equity is the value of your home minus the current balance on your mortgage and is a representation of how much value you possess in your home. When you go to the bank for a loan, they may or may not send out an appraiser to assess the value of your home to determine this number. The home equity loan will use your home as collateral against the loan, meaning if you can’t make payments they will seize it and auction it off.

The primary reason I don’t advocate the transfer of the debt from an unsecured credit card to home equity is because of the downside. If something catastrophic occurs and you are no longer able to service the debt, having it be tied to your house is much worse than having it be tied to an unsecured credit card. If you can’t make payments on your credit card, there’s very little they can immediately take away from you as a matter of process. If you can’t make payments on a home equity loan, they can seize your house and sell it. That’s because your home equity loan is backed by your home as collateral, that’s the reason why the interest rates are so much better (they take on less risk for loaning you the money).

Another reason against transferring the debt from credit cards to your home is that it doesn’t address the underlying root problem (this is for cases where the debt is the result of runaway spending, if you have the debt for reasons outside your control like medical expenses or unexpected emergencies, feel free to skip this paragraph). Your problem isn’t that you are having trouble with the payments, your problem is that you can’t stop spending. What you need to do, if you haven’t already, is to take steps to curb your spending. Whether that’s freezing your cards in a block of ice or cutting up your credit cards, you need to address the underlying problem. The danger of transferring your debt to more favorable terms and not addressing your spending is that you fix a symptom but expose yourself to much greater danger. You’ve just given yourself more rope to hang yourself with and this time you run the risk of losing your house, not just access to credit.

Lastly, there is a psychological reason for keeping the interest rate - it keeps the debt in the forefront of your mind. When you consolidate it into a home equity loan, it starts losing its significance. This is especially true if it’s a HELOC (home equity line of credit, where you have a standing line of credit similar to a credit card) and you have other projects tapping that HELOC as well. By keeping it in the “credit card realm,” you have a constant reminder that you have this debt and you have to fight like crazy to get out from under it. This is a purely psychological reason and goes against the math.

So, if not home equity, where? Keeping unsecured debt as unsecured debt while reducing your rate is key. I can think of two great options that you should consider instead of putting your house at risk:

Other credit cards! Credit card companies love revolving debt and will be willing to give you a great teaser rate in order to get you to sign on. I know a lot of people who have taken advantage of 0% balance transfer offers as a way of catching up. Now, the risk of transferring this debt to another card is that you still don’t address the underlying root problem of spending (if that’s the case), but you would need to address that regardless of the steps you took to reduce your interest rate. Going with another unsecured line of credit is significantly better than a secured line because you don’t risk your collateral if you do slip.

Prosper! Depending on your credit, Prosper is another great location to go to get unsecured credit to help you pay down your bills. You’ll have to check your credit to see what the representative rates are for your credit score but I’ve heard good things from debtors about Prosper. I’ve personally never done this so I can’t speak to it but Tricia at Blogging Away Debt has and you can read about her experiences with Prosper.

(Photo by ronaldstevens, don’t worry it’s a practice burn by the fire department)

When I graduated college, I had around four or five student loans (a mix of Stafford and Perkins loans) with as many lenders and was sending off checks each month to all of them. It was a headache… so when I heard that I could consolidate (through the billions of junk mailings the consolidators sent me), I jumped at the opportunity. In analyzing a bunch of student loan consolidation lenders, I came to one conclusion: it’s all about the rate discounts.

For me, my loans were all government backed student loans with very specific interest rates. I don’t know if this is different for students with private loans (non-government backed loans like Stafford and Perkins) but when it comes to consolidating the government backed loans I had, they just averaged the rates and the dollar amounts and treated it as one big chunk.

So, if I had $10,000 at 3% and $10,000 at 4%, my consolidated loan was for $20,000 at 3.5%. Every lender I talked to gave me the same exact information, I was going to have a loan for $20,000 at 3.5%; there was absolutely no difference and no negotiating that. The difference was in the rate discounts and they came in three forms:

• rate discounts for auto-debit,
• rate discounts for on-time payments,
• rate discounts for consolidating within your grace period.

Auto-Debit Discount is usually a quarter of a percent off your interest rate (or something around that) if you set an auto-debit from your bank account. On-time payment history is another great interest rate reducer, also around a quarter of a percent, and that’s usually after a year or so of on-time payments. The lender is looking to collect money and reduce headaches, so they offer these discounts. Lastly, if you’re willing to consolidate within your grace period, you can expect something on the order of half of a percent discount.

There you go, that’s what I found when I looked into consolidating my student loans.

Consumerist linked to a post on Zen Habits about how to live a life without credit or debt and my first reaction was “why?” There are plenty of reasons why credit cards and leveraging debt are beneficial, just as many reasons why they are dangerous, and understanding those are just as valuable as understanding why you should be wary of them. I’m a huge fan of credit cards and using debt to your advantage and here are ten reasons why.

Credit

1. Credit cards give you cashback
According to the Bureau of Labor and Statistics, the average household expenditure is approximately $46,409 a year in 2005. At 1% cash back, that’s an additional $464 in your pocket just for using a credit card instead of paying with cash. While five hundred dollars doesn’t seem like much, but I bet you’d rather have a free $500 than not have a free $500 right?

2. Credit cards protect you against fraud
You might think that credit cards introduce you to more fraud but I’d argue that it also protects you against fraud and in other ways as well. Let’s say you buy something online and it is delivered in a condition other than what the company originally portrayed it as. You buy new and it comes refurbished, you buy a higher end model but get the lower end model, or you bought red and they sent you black… but the vendor isn’t willing to talk to you anymore or has disappeared into the ether? Call your credit card company and let them deal with it.

3. Credit cards are safer than cash!
Would you rather be carrying $5,000 in cash around with you in your pocket or a small piece of plastic that gives you access to $5,000? If you said the cash, you’re just asking for trouble! Being able to access a large sum of money without actually carrying it very important, that’s why banks exist, and so why would you put yourself in the position of danger just to avoid using credit?

4. Credit cards are valuable in emergencies
This is aligned with reason 3 in that you can access funds you don’t actually have on you. Let’s say you are stuck in a foreign country and you need to buy an airline ticket back to the United States. Do you have enough cash on you? If you do, great; if not, well you’re out of luck unless someone wires you money… or if you have a little piece of plastic.

5. Credit cards provide protections, warranties, etc.
Okay, this is the last one about credit cards… credit cards will actually give you protections and warranties just for using them. If you use a credit card to make travel arrangements, many of them offer travel insurance; if you use a credit card to make a product purchase, many of them offer to double the manufacturer’s warranty up to a year; if you use a credit card to rent a car, many of the offer liability insurance. These are tangible benefits with actual cash value that can save you money in the long term. Cash offers none of these benefits.

Debt

6. Try to buy a house without a mortgage
Homeownership, for the last bazillion years, has been the number one best way for the average joe citizen to acquire wealth and that would be extremely difficult to do if one were not able to take on debt. The argument of whether you should buy or rent is one that’s been discussed into the ground, so I’ll ignore it now, but if you want to buy a house, doing so without borrowing money will, at the very least, limit your housing choices and, at the worst, prevent you from doing so.

7. Try to attend a private college without loans
When I went to school, I took out a lot of government backed Stafford loans to help pay for the schooling and I probably would’ve had a very difficult time attending without them. Certainly I could’ve attended a public college or university and been fine, but unless you have quite a large sum of money saved up, going to a private college or university is almost impossible without a loan of some kind. Add to the fact that if you graduate from college, public or private, your earning potential is significantly higher than if you hadn’t graduated - thus making the case that taking on this debt is a positive investment, much like a home.

8. Business is all about leveraging debt
Ultimately, I believe you have to treat yourself like a business. You go to school to improve your skill set so that you can market your services to another business in the hopes that they will hire you. Much like a business, you should use debt as a tool to achieve your goals and to discard debt out of hand is clearly a mistake. If the investment makes sense, such as in a strong college that you can take advantage of, don’t let the word “debt” or “loan,” scare you off from pursuing what you need to succeed.

9. Using debt wisely improves your credit score
If you shun all credit and all debt, you’ll likely not have much of a credit history to work with and thus a relatively low (and probably very inaccurate) score. Your credit score percolates to many many aspects of your life, including how much you pay for rent (or if you are even able to rent), how much you pay for various insurances, and how you appear to your employers as an applicant. By using debt wisely, you improve your score and thus lower some of the other necessary expenses in your life that don’t appear to be related to credit or debt.

10. Certain debts are tax deductible
This is by far the weakest reason for taking on debt, that it is tax deductible, because you could argue that it’s better to not pay interest in the first place. Now, I would agree except with one minor exception and that’s a product more of our IRS tax code than it is anything else. There are certain financial instruments, such as Roth IRAs, where your participation is limited by the amount of income you earn in a year. By borrowing money for a home or for education, you can reduce your earned income by the amount of the interest payments and thus make yourself eligible for some benefits otherwise unavailable to you.

There you have it, a layman’s response to a zen master’s thoughts, what do you think?

You have a car loan that currently sits at 7% interest, you have credit card debt that currently sits at 14.99%, and you have the option of rolling both of those loans into a new loan after you refinance your home… should you do it? Probably not and there are two good reasons and one pretty good reason why.

Good Reason #1: You Pay More Interest
Usually car loans are for five years so when you’re paying 7% interest each year, you’re really only paying it for five years so the total interest cost is relatively low. When you refinance a loan, say to a 30 year fixed or some sort of low rate ARM, you’re now paying for the lower rate, 6% or whatever, for thirty years. Five years at 7% on $10,000 means you’ll pay $1,880.60 in interest. Thirty years at 6% on $10,000 means you’ll pay $11,585.60 (you may be able to deduct it from your taxes so the interest really is three-fourths of that, or $8688.75).

Good Reason #2: If You Miss Payments, You Lose Your House
One of the many fallout stories with the mortgage industry is that of folks who refinanced in order to pay down their debt, in this case it was car and medical bills (so I can understand, there isn’t a choice at least with medical bills), and then found themselves unable to keep up with the payments. If you have a car loan and you can’t make payments, they take the car and you ride the bus. If it’s a credit card debt, it just goes into collections and you won’t get another card. If you have a mortgage payment and you can’t make payments, they foreclose on you and you have to find someplace else to live!

Pretty Good Reason #3: The Pressure To Pay Is Good For You
This isn’t a financial reason, it’s a psychological reason and so that’s why I say it’s only a “pretty good” reason. With a higher interest rate, you feel the pressure of paying it off and so you’re more likely to pay it off. If you roll it into a large mortgage payment, well you no longer feel the pressure and you’re likely to keep charging (if it’s a credit card).

I’ve read in a lot of places, from mainstream media to little bloggers like myself, about how debt is such an evil thing and I wonder how our financial markets would’ve fared if the concept of debt and leverage never existed. We wouldn’t be as prosperous as we are now, that’s for sure, because debt is not a bad thing! In fact, debt is a good thing. It allows you to do some of the things you might otherwise not be able to do, such as buy a house, go to college, and buy a car.

However, like many things in life, it’s good in moderation and when appropriate. I don’t think anyone can make a good case against getting a mortgage and buying a house (though I have tried). I also don’t think anyone can make a good case against going to college (again, I’ve tried). However, anyone can make a case against using a credit card and carrying a balance so that you can keep your three a day Starbucks habit. That’s where the moderation and appropriateness tests come into play and that, also, is up to your own personal preferences.

Ultimately, debt is important because allows you to do the things you want to and should be doing. It allows you to leverage some of your future in order to enjoy something now. While you can’t buy a home outright, you can still enjoy it while paying a fee to do so (interest). The only problem is that you can’t leverage the future so much that when it does come, and it will, you find yourself struggling to keep up. That’s why you must exercise moderation.

Appropriateness is a matter of personal opinion but even if you fail this particular test, being moderate in your debt accumulation will leave you in a good enough situation that all won’t feel lost. So you go through life spending on transient things, let’s say you go to movies all the time, and rack up a little credit card debt. While you have nothing tangible to show for the debt, if it’s kept in moderation it’s not something that will be a life changer. A few thousand dollars of credit card debt, while still bad, isn’t something that will play with your psyche… twenty thousand dollars of credit card debt will require much stronger fortitude to overcome (but very doable!)

So, don’t approach the idea of debt as something that’s evil and loathsome, think of it like a tool that can cut both ways and use it with care.