Getting out of debt is not a dream. It can be a reality. Anyone can do it. The key is to develop a plan of attack that will work to help to reduce your debt levels. You can slowly pay down your debts month after month until one day, you will be living a debt free life. Use the following three steps to get yourself closer.

Make a List

The first step is to get a handle on how much debt you are in. You can do this by figuring out exactly how much money you owe your creditors in total. Add up all of your current debts including mortgages, loans, and credit cards. Add in student loans and personal loans. Next, add in all of your past due debts. Include any debts that are in collections or late. The grand total is the total amount of debt that you are in. This is how much money you need to be completely debt free.

Don’t worry about the interest rates at this point. Your focus should be on repaying the principal borrowed. This is the money that you agreed to repay to your lenders.

Make a List of Your Income

Now that you know how much all of your debts are, you need to find out how much money you have coming in every month. Add all of the money that you receive each month in your household. Include all full time, part time income, gifts, and other means of support that you receive. Tally up the amount of income received and get a grand total. Then subtract your necessary expenses from that total. The number that you get is the amount of money that you can use to pay your debts right now.

If you find you do not have enough income to meet your debts, you will have to find alternative income sources. You can pick up a second job or start a new venture that will bring in some cash. All of the extra money earned will go towards your dream.

Here are some ways to make extra money:

• Landscaping
• Tutoring
• Dog walking
• Personal assistant
• House cleaning

Allocate the Income to Existing Payments

This is the portion where you match up your extra income with existing debts. Be sure that you allocate enough money to send at least the minimum payment to each bill. You don’t want to fall deeper into debt by paying off one bill and falling behind on another. The amount of money left over after making a minimum payment on each bill is the money that you will use to reduce your debt even further. Send the extra money left over to the account with the highest amount of interest first.

If your total monthly bills are $3,000 and you make $3,500 in income then $500 should be applied to the account with the highest interest rate. Send this amount every single month until the debt is paid in full. Once this debt is paid off, apply the $500 to the debt with the next highest interest rate. This will reduce your interest payments substantially.

Follow this plan month after month and you should notice your debt levels getting smaller and smaller and eventually disappearing.

So readers, how have you battled debt in the past? What strategies have you found work well?

This post was written by staff writer Miss T.

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There are plenty of good reasons why a homeowner may want to setup a mortgage escrow account when taking out a new home loan. A mortgage escrow is an agreement between a homeowner and a third party in which money is deposited into an account each time a house payment is made. Funds from this account are then used to pay for expenses like property taxes and homeowners insurance, which require lump sum payments once or twice a year.

Making escrow payments each month offers plenty of advantages to homeowners. They are setup to cover large payments, such as property taxes, which can help the homeowner budget appropriately to cover these infrequent (but large) expenses. A mortgage escrow account also prevents from any late penalties or fees as the third party service assumes the responsibility of making the payment on time. Plus, the account is always funded and the third party will adjust your payment requirements based on increases or decreases in your property taxes and homeowners insurance.

For many homeowners, a mortgage escrow account is a convenience they are willing to pay for. However, for other opportunistic homeowners, a mortgage escrow account can be viewed as a missed opportunity to earn extra income.

How to Create Your Own Mortgage Escrow Account

Setting up and managing your own mortgage escrow account is an easy way to earn a little extra income. If you are thinking of refinancing your existing home or taking out your first mortgage, here are some steps you can use to setup and manage your own mortgage escrow account.

1. Decline Mortgage Escrow from Lender

The first step in setting up your mortgage escrow account is to decline this service when asked by your lender. Whether you are taking out a new mortgage or refinancing an existing loan, you will need to decline this service.

Make sure you are comfortable with managing your mortgage escrow account on your own prior to declining the service. While setting up your own account can allow you to earn extra income, there is a convenience to going with a third party to manage your funds.

2. Design Your Escrow Account

After you have made the decision to manage your own escrow, one of the first actions you need to take is to decide what the account will fund. Most escrow accounts managed by a third party pay for home related expenses like property taxes and homeowners insurance. While there are other expenses that can be funded through an escrow, those are the main two. I am currently building my own account which will fund my annual property taxes (due every November) and my insurance (due every February). I have also considered adding my HOA account to the mix in the near future.

It is also important to recognize when your payments you are trying to fund will be due. For example, my current property taxes are due once per year every November. The first home that my wife and I purchased paid winter and summer property taxes. Find out the frequency and dates of when these expenses are due. This information will be important in setting up your account, especially if your taxes are due in the next couple of months.

3. Estimate Monthly Payments

If you plan to manage your own mortgage escrow account, then you need to estimate how much money to allocate each month. The frequency of when you allocate funds does not have to be monthly, just as long as the total for the year covers the annual expenses. It is also a good idea to factor in when your property taxes and homeowners insurance payments are due when starting out, so you have enough funds to cover these expenses.

Refinancing
If you know how much you pay in property taxes and homeowners insurance, this should be an easy step. Simply take your total annual expenses and divide by 12. I prefer to add another 5% – 10% into the monthly amount to provide a little cushion. For example, if you pay $5,000 per year in property taxes and insurance, your monthly payment would need to equal $350 – $365 (based on the extra cushion).

New Homeowner
If you are a new homeowner, then you will need to estimate what you think you will pay in property taxes and insurance. Your insurance company should be able to provide you with your annual payment, but you may need to research your property taxes. If you are buying an existing home, then you can look up what the former homeowners paid in past years on sites like Zillow.com. If it is a brand new home, look at comparable homes in your area to get an estimate.

Once you have your estimated annual property taxes and insurance information, sum the total and dividend by 12. I would suggest adding a 10% cushion starting out if you are estimating your annual property taxes. For example, if you estimate your taxes and insurance will cost $5,000 per year, then you need to allocate about $458 each month.

4. Find a Good Online Bank

Once you have calculated your estimated monthly escrow payment, it is time to find a place to invest the money. Starting out I would suggest a low risk investment such as a high yield savings account. While interest rates of savings accounts remain very low, it is important not to risk these funds. As you begin to manage your account you may find more profitable opportunities to invest your money.

I prefer to use an online bank (ING Direct) to fund my mortgage escrow account. Each month I have $400 automatically transferred from my checking account to my online savings account. My suggestion is to find an account where you can setup an automatic transfer each month to avoid any hassles. Our account is funded the same day that we send in our monthly mortgage payment to make it simple.

5. Manage Your Mortgage Escrow Account

Now that your account is setup and being funded, most of the work has been done. However, there are still times when you will need to monitor and manage your account. First, you will need to make sure to pay your property taxes when they come due from this account. Remember that you are forgoing the convenience of having a third party pay your taxes in return for extra income. Make sure you pay your bills on time to avoid any late fees or penalties.

If you are paying for homeowners insurance through this account, then make sure you have it on your calendar when this payment is due. The same can be said for any other payment you wish to fund through your mortgage escrow account. Remember that the purpose of starting your own account is to make some extra money, not spend it on late fees.

Property taxes tend to go up and down for most homeowners. In the event your taxes go up, then you need to adjust for this increase in your monthly escrow payments. It is important to monitor any increases to ensure your account is fully funded. If your taxes go down, then you could adjust your account as well, although I prefer to keep my payments the same since I am earning the interest and not the bank.

Final Thoughts

Managing your own mortgage escrow account is a way to earn extra income on your money. For a few hours of your time each year, you can quickly setup an account and begin to earn interest off your money instead of a bank or mortgage lender. While some homeowners prefer the convenience of having a third party manage their escrow, those looking to build some wealth may decide to setup their own account.

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Most people that currently work in “Corporate America” are really feeling trapped today. They are grateful that they have a job and can still support the family, but since many of their co-workers have been laid-off, they are overworked and under-appreciated. Since the economy is still at a lull, there’s just nowhere else to go. They just need to keep their head down and stick it out. But, do they really need to? What are the other options?

If you are a regular visitor, you have seen John’s progress toward creating a passive income. I do not know if he is attempting to replace his day-job income, but within another year or so, I bet he’ll have the option to do so! He is a great model for the topic at hand today: How to quit your day job with little risk.

Step 1: Find Your Reason Why

Before you even start to think about quitting your job, ask yourself why you would consider it. Is it….

• because you despise your tasks every day?
• because of the people you work with?
• because you’d like to earn the income you deserve?
• because you’d like more time with the ones you love?

Whatever it may be, make sure that you write it down, and remind yourself of this reason as you go through your journey. If you do not have your reason readily available, you will most likely fade off from the path of success and continue working at the job you hate. Why? Because there WILL be obstacles, and without a good reason, it will be much easier and more convenient to go shrug your shoulders and go back to your familiar lifestyle.

Step 2: Begin Brainstorming Ideas for a Side Business

The best way to quit your job without risk is to already have some cash-flow coming in from a side business. Once it replaces your current income, vwala! the day job may no longer be needed. 

Begin to think of work that will generate income, but also fulfill your needs that you expressed in step 1. Also, make sure that you have a passion for your possible side income. If you love the work you do on the side, you will have a much better chance at replacing your day job income.

Step 3: Find the Time

Many of you are saying, “How in the world am I going to find time to work MORE?” This is an incredibly valid question. Those of you that really want to quit your job will find the time. Those of you that don’t want it quite as badly will not. For those of you that truly want to leave that day job, read on.

Do you have a television? How often do you find yourself in front of it? An hour a day? Two hours a day? Maybe even more? Start to check out the clock and discover how much extra time this could free up (especially on the weekends). How exciting is television really? Half the time I don’t even remember what show I’m watching during the commercial break.

Learn to schedule everything! Outside of work, many of us do not have much of a schedule. We get home, tinker around a bit, eat dinner, and then the time just slips away until it’s bed-time! Start documenting how you are spending your time and learn to utilize a daily calendar. Once you get pretty good, you will have your day scheduled by every quarter-hour. You’ll be amazed how many extra things you can squeeze in when your day is planned on paper!

Step 4: Get Started!

There is really an infinite amount of side-businesses you can start. I have heard of quite a few creative ventures, but even though some of them sounded off the wall, they provided the income necessary for those individuals to get out of that daily grind.

You might be struggling for some ideas, so let me get your brain juices flowing with a few:

• Blogging – Many people are trying this to create some income (including myself), but to be honest, most of the incomes are not large enough to replace the day job income. To do this, you’ll need to operate multiple sites, or try your hand at the next option.
• Freelance Writing – If you decide to blog for some extra income, once you become somewhat established, you will have some options to do some freelance writing. You will most likely get paid per article, but if you have enough gigs, this could surpass your current income shortly.
• Wedding Planning – Since most weddings are on the weekends, this is a great way to earn some extra income, and if you’re good – replace that regular income.
• Photography- you could photograph children, families, weddings, events, or even sell your photos online! There are so many options here (as I’ve learned from my wife – this is her fortay, and she’s starting to earn her income through this medium).
• Day Care – some of you are new moms and can’t bear the thought of going back to work. With the proper licensing, you could watch some other kids along with your own and make a pretty good living. Plus, you get to see your kids grow up instead of your co-workers (actually, some co-workers never really grow up do they…)!
• Pet-Sitter/Walker – People love their pets and make sure they are taken care of. If you have a love for animals, this one is for you, and it can be quite lucrative if you schedule your day properly!
• Cell Phone Repair - I just had to include this one since I recently heard the story. A kid dropped his cell phone and broke it. Through a little research online, he was able to fix it, and then started a business fixing other people’s cell phones! He’s now franchised his repair business and is making thousands of dollars a month! Turns out, he won’t need to look for another job after college.

What ideas do you have for a side business? Are you currently making money on the side already? I’d love to hear your story.

This post was written by Derek.

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Investing in dividend paying stocks is one of the top ways to earn passive income. Using a list of dividend stocks can be a good place to find possible investment ideas and start earning that extra income. One of the more recognized and respected lists is the S&P 500® Dividend Aristocrats.

From the Standard & Poor’s website – The S&P 500® Dividend Aristocrats index measures the performance of large cap, blue chip companies within the S&P 500 that have followed a policy of increasing dividends every year for at least 25 consecutive years.

Here is a list of the individual stocks that make up this index.

2010 S&P 500® Dividend Aristocrats Index

• 3M Co – (MMM)
• AFLAC Inc – (AFL)
• Abbott Laboratories – (ABT)
• Air Products & Chemicals Inc – (APD)
• Archer-Daniels-Midland Co – (ADM)
• Automatic Data Processing – (ADP)
• Bard, C.R. Inc - (BCR)
• Becton, Dickinson & Co – (BDX)
• Bemis Co Inc – (BMS)
• Brown-Forman Corp B – (BF/B)
• CenturyLink Inc – (CTL)
• Chubb Corp – (CB)
• Cincinnati Financial Corp – (CINF)
• Cintas Corp – (CTAS)
• Clorox Co – (CLX)
• Coca-Cola Co – (KO)
• Consolidated Edison Inc – (ED)
• Dover Corp – (DOV)
• Emerson Electric Co – (EMR)
• Exxon Mobil Corp – (XOM)
• Family Dollar Stores Inc – (FDO)
• Grainger, W.W. Inc – (GWW)
• Integrys Energy Group Inc – (TEG)
• Johnson & Johnson – (JNJ)
• Kimberly-Clark – (KMB)
• Leggett & Platt – (LEG)
• Lilly, Eli & Co – (LLY)
• Lowe’s Cos Inc – (LOW)
• McDonald’s Corp – (MCD)
• McGraw-Hill Cos Inc – (MHP)
• PPG Industries Inc – (PPG)
• PepsiCo Inc – (PEP)
• Pitney Bowes Inc – (PBI)
• Procter & Gamble – (PG)
• Sherwin-Williams Co – (SHW)
• Sigma-Aldrich Corp – (SIAL)
• Stanley Black & Decker – (SWK)
• Supervalu Inc – (SVU)
• Target Corp – (TGT)
• VF Corp – (VFC)
• Wal-Mart Stores – (WMT)
• Walgreen Co – (WAG)

For more details, check out the 2010 List of Dividend Aristocrats.

If you are considering investing in high yielding stocks, the list of dividend aristocrats is a decent place to start. While this index is by no means a list of stocks you should run out and start buying, it contains companies with a strong history of increasing their dividends. A company that has a good track record of increasing their dividends is a clear sign of how well they are run.

Full Disclosure – As of this writing, I own shares of ED, JNJ, and PG.

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photo credit: MarkyBonI often dream about having an unlimited supply of money that would never run out. Think of all the places we could visit and new things we could try. I could quit my job and spend all my time with my children and wife. I could learn how to cook and sail (2 things I have always wanted to learn) and have all the time in the world to train for marathons. The opportunities would be endless and the memories priceless. I understand that money doesn’t buy happiness, but I think it buys my time. I could spend the day doing things that I wanted to do in my life instead of working 60 hours per week for a company that could turn around tomorrow and let me go.

The chances of having an endless supply of money are extremely remote. I think each individual would have their own interpretation of endless supply of money, so I won’t put a number on it. What I think is possible is to eventually have an increase in my annual salary, or a new job that pays more than I currently get. Someday, when my passive income streams are more established, I am expecting to have a decent increase in income. So I ask myself, what would I do with that extra money? Just a few months ago, I was hours away from getting a new job offer that would have increased my monthly salary by $1,000 per month take home. That would have been a significant increase in income. I would have been sacrificing the same amount of my time as I currently do, so the time on the job would have been similar. Unfortunately (at the time), I was disappointed about losing out on this opportunity. Fortunately (present), it worked out in the end as the other company is now facing pressures from the week economy and laying people off. I guess things happen for a reason (but that is a different story).

For simplicity, let’s say tomorrow I got $1,000 extra in take home per month from my job or from an extra income stream. What would I do with that extra income? I have put together a few notes on what I would use this money for.

• Update Monthly Budget – I would make changes to the monthly budget that I post every month. I would initially increase my income to the appropriate amount and adjust my savings expense category with the balance of money. This ensures that our family stays on the same budget and lifestyle. I like the idea of getting a raise or increase in income and put it directly into your savings without changing your spending habits.
• Increase 401k contributions – I currently contribute 10% of my salary to my 401k along with a 6% company match. I would immediately increase my contributions to 12%, which is even more important now with the market being so low.
• Donate to charities – This is one area that I need to focus on. My family really does not donate any money at this point. We always donate extra clothing, blankets, coats, etc. but we never donate money. I would like to start giving back and would look into setting up some monthly donations with this extra income.
• Purchase more assets – As stated above in the monthly budget section, I would put almost all of the extra income (except for donations) into our savings. From our savings, I would look to purchase assets that could produce streams of passive income into the future. I would look at things like Tax Liens, Foreclosures, Rental Properties, Purchase High Yield Stocks, and more.

The important thing to keep in mind is that with any increases in our monthly income, we would try and maintain our current lifestyle. This would allow us to reach our long-term financial goals of financial independence.

What would you do with an extra $1,000 per month or any other large sum of money per month?

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