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Monthly Archives: November 2017
15 ideas for how to get out of credit card debt
When it comes to money, there are few things more gut-wrenching than seeing those credit card statements pile up in your inbox every month. You hesitate to open them because you already know that they’ll be worse than last month. High interest, late fees, impulse purchases…it’s out of control and you need a game plan.
According to Investmentzen.com, the average American household has $16,748 in debt. And with an average interest rate of more than 15%, that’s no small chunk of change. Compounded with the worry and stress of managing that burden, the number of consumers looking for realistic ways to pay down their debt grows every day.
We came up with 15 easy but effective ways to help you dig yourself out of debt as quickly as possible:
- Create a spreadsheet. Be sure that it details all of your debt so you can see the full picture. You’ll know where you started, be able to track your progress, and know when to celebrate the milestones.
- Toss offers for new credit accounts. The more credit you have available, the greater the opportunity you have to build up a balance. It’s too much of a temptation!
- Stop making purchases with credit. Pay cash whenever possible. It will take some sacrifice at times, but you’ll be sure to spend less and only buy what you need.
- Negotiate a lower interest rate. If you’ve been a long-time customer with an on-time payment history and a worthy credit rating, your current creditors may be willing to lower your rate to keep your business.
- Track your spending. Some consumers honestly don’t know where their money goes. Write down every dime you spend for one month, and you’ll soon find out where your money goes when it disappears.
- Create a realistic budget. Start with the necessities. It’ll help you identify those areas where you can lower your expenses—like cable subscriptions, gym memberships or cleaning services—so you can redirect it to paying down your debt.
- Find ways to earn extra cash. Would a part-time job fit into your schedule? How about consigning some clothes on Poshmark.com or Swap.com? Ever wanted to be a mystery shopper? House sit, babysit?
- Curb your social media interaction. Keeping up with the Joneses takes a lot of hard work. New clothes, new golf clubs, a fancy family vacation…they all cost money. Don’t let them tempt you.
- Start cooking at home. It’s a lot easier–and tastier–to eat out, but it also costs more. It’s time to channel your inner Rachael Ray and get cookin’. That includes lunch, too.
- Send extra cash to your highest-interest credit card. Just don’t forget about making the minimum payments on your other credit cards to keep them current.
- Consider a balance transfer. If your credit card has a high interest rate, you may be able to find one with a 0% promo rate. Be careful though– read all the fine print about transfer fees and interest rates after the promotional rate expires.
- Consolidate your debt. A debt consolidation loan from a bank or a credit union may help you pay off your credit cards all at once. Then focus on making one large monthly payment to repay the debt consolidation loan.
- Track your progress. It’s hard not to obsess over your progress. Set reminders every few months to measure your success and find a fun, inexpensive way to celebrate!
- Keep your goals front and center. Will paying down your debt help you buy a home? Finally get a good night’s sleep? Pay for your daughter’s wedding? Whatever it is, it’ll keep you motivated when you slip up, or things aren’t moving as quickly as you’d like.
- Talk to a credit counselor. If your debt is too overwhelming, there are highly reputable, non-profit consumer credit counseling organizations that are experts in this area. Their services are free of charge. They’ll help you create a budget, review suitable options for dealing with your debt and design an action plan specifically for your situation.
Once you’ve reached your goal, it’s important to guard against the bad habits that helped you get here in the first place. Following a budget and using credit responsibly will help you maintain healthy financial habits. With that comes less stress and greater peace of mind, and who doesn’t want that?
5 Tips to Rein in Holiday Spending
The overflowing expectations around the holidays can entice us to spend more than we can afford. Not only do we have bills to face once the decorations are put away, but 43% of respondents to an Experian survey say extra expenses also make the holidays hard to enjoy.
Now’s the time to plan so your December spirit doesn’t lead to January bills. We asked five experts on frugality what they do to avoid holiday overspending.
Recognize your triggers
Donna Freedman, author of “Your Playbook for Tough Times,” says you need to recognize your spending triggers. Are you trying to make the holidays more magical for your family? Can you resist anything but a great a deal? Knowing what drives your spending can help you stop. Here’s what she recommends:
- Carry your list with you even after you’ve finished shopping. When you see a killer deal or a gift that’s “more perfect” than the one you’ve wrapped up, use the list to remind yourself you’re done.
- Make a game out of spending little or nothing for a gift. Freedman likes things that represent “a stirring tale of thrift.” She uses one such gift, a vase with a hole in it, to keep money she finds — on the ground, in vending machines, wherever — for giving to charity each holiday season.
- Consider limiting children to four gifts, asking them to choose “something you want, something you need, something to wear, something to read.” It helps children set realistic expectations.
Work with a list
For Tiffany Aliche, aka “The Budgetnista,” step one is making a list of whom you plan to give to and how much you plan to spend. Make sure your gift budget fits into an overall holiday budget that accounts for shipping, decorations, food, travel and entertainment. Her top tips:
- Check that list twice. It’s easy to forget thank-you gifts for coaches, teachers, the letter carrier, party hosts. Decide what you want to give each person. Once the list is set, adjust it as you go to keep planned gifts and your budget in sync.
- Use technology. “Price-check online before you buy or go in a store,” Aliche says. Know your price range for every gift on your list and set up price alerts. One of Aliche’s new favorites is the Chrome extension Wikibuy, which looks for better offers as you shop online and applies the best coupon when you check out.
- Consider making an experience the gift. If you’re already planning a holiday outing with a group of friends, can you agree it will be a gift to one another?
Match your approach to your values
The blogger who writes under the pseudonym Mrs. Frugalwoods says her family’s frugality is “larger than the holidays.” She notes that while the season is “wonderful and it’s fun, it’s not an excuse to dip into your emergency fund.” Her tips:
- Decide what’s most important and spend accordingly. For her, it’s a family gathering. She hosts Thanksgiving and cooks from scratch rather than buying pre-made or going to a restaurant.
- Shop with gift cards or cash-back rewards. She prefers giving an item rather than a gift card but occasionally passes along gift cards that were given to her. It’s regifting at its finest.
- Let your values be your guide. She favors “small, reasonable gifts” and shopping locally.
Know the difference between cost and value
Mary Hunt, the author of “Debt-Proof Living,” blogs at Everyday Cheapskate. She says it’s important to understand that your credit limit is not a license to spend. Try these instead:
- Shop with cash only; leave your checkbook and credit and debit cards at home. Need more cash?See if you can cut your grocery bill temporarily by using up items in your freezer or pantry, or track down unused gift cards to fund holiday shopping.
- Know the difference between a gift’s value and its cost. A $20 toaster that you found on sale for $8 is still a $20 gift. If you budgeted $20 but paid less, that doesn’t mean you owe the recipient $12 more in gifts.
- Define “gift” more broadly. Can you give your expertise, such as setting up a website for a tech-challenged friend? Do you have a treasured possession to pass on? One of Hunt’s favorite gifts was vintage crystal that belonged to her mother-in-law: “She wrapped it up for me for Christmas and got to see me enjoying it, rather than just leaving it to me in her will.”
Plan for thrift
Having a plan is central to being thrifty, says Gary Foreman, founder of The Dollar Stretcher. “If you don’t have a plan, you’ll overspend,” he says, noting that some people don’t finish paying for Christmas until April or May. His tips:
- Subscribe to online price alerts so you’ll know about price drops for a specific item or for travel. (And unsubscribe later so continual alerts don’t tempt you to spend.)
- Regifting is OK, especially when you know someone will love something you can’t or won’t use.
- The thought really does count, and thoughtful gifts can be inexpensive. One of his favorite gifts came when his daughter tracked down an ethnic bakery to get him some kolaches, Bohemian pastries his grandmother used to make. “Once you have needs met, the gifts that make a difference are the ones that say the giver knows who we are. Those are the best and most memorable gifts,” he says.
How fast should you pay off your student loans?
Have you seen the cost of a college education lately? It’s astronomical. And if you want to live on campus, you might as well ask your parents to mortgage their home, cause you’re gonna’ need access to some serious cash. There’s no sugarcoating it. College is expensive, and unless you’re smart enough to earn a full ride or lucky enough to have a trust fund, you’re going to have to pay for it.
It’s not surprising that most students will need to borrow money in the form of a student loan to fund all or a portion of their college education. For many, this is their first experience with high balance, long-term debt and it’s likely that all the debt management advice they’ve ever received was, “pay it off as soon as you can.”
Generally, that’s smart advice, but there are conflicting opinions about the speed at which you should pay down student loans. The basis of those differences comes down to a personal decision and the overall effect on your financial plan. We’ve looked at some important factors to help you decide which approach might work best for you:
Evaluate your overall financial picture
Consider all your income and all your liabilities. How much do you have in savings? Do you have an emergency fund? Do you have any other outstanding debt you may want to tackle before your student loan? Reducing the balance on any high interest, revolving, credit card debt before focusing on your lower interest student loan debt might be a smarter financial choice.
Once you pay your monthly bills, how much discretionary income to you have left? Can you afford to send additional money to pay down your student loan any more quickly? Would you have to forego any necessities that may affect your quality of life? It’s one thing to give up buying a new pair of shoes or going to a concert. It’s another to give up paying your health insurance premium or contributing to your 401(k) plan.
How much are your loans costing you?
The interest rate on your student loan is one factor that may help you decide which strategy to choose. Are you paying 2% or 6% interest? If your loan has a low interest rate, you may be better off tackling your higher interest rate debt because your student loan isn’t costing as much—and the little it costs you is tax deductible! However, if you’re paying 6% interest, that can really add up over time.
Not only does a higher interest rate significantly increase your outstanding loan balance, but it can also be used more wisely. Paying it off more quickly might allow you to use that money to invest in the stock market or other investments where you may find the opportunity to potentially earn a higher return.
What are your 1, 3, 5, 10-year plans?
What are your goals over the next few years? Is it paying down your debt or are you saving for some other goals? Saving for a house or starting a business? Getting married or backpacking across Europe? These plans should also be factors to consider. If you’re allocating more money toward your student loan debt, that means your devoting less to other areas of your life. Can you do both? Of course, but it’s important to create balance between the two so that you see progress in both areas. Not only does it help you reach your debt payment and your savings goals, but it also keeps you motivated as well.
Consider though, how your debt could impact some of those goals, like buying a house, for example. Paying off your student loan debt more quickly will reduce your debt to income ratio, which will positively impact your credit score and likely affect your mortgage interest rate. Your debt to income ratio is also a factor banks consider during the mortgage approval process.
What’s your repayment plan?
One way of lowering the cost of your student loan without changing your monthly cash flow is to refinance. Not everyone with a student loan is qualified to refinance and not every loan is worthy of refinancing, but it’s worth considering.
If you have the extra cash to repay your student loan, it’s definitely the wise choice. But, most graduates have to consider a number of factors when deciding whether or not to pay it down more quickly or stick with it for the long haul. Regardless of your choice, it’s important to have a plan so you can keep your financial goals front and center.
How to create a budget (and why it’s important)
Everybody looks forward to payday, but when you’re living paycheck to paycheck, it can’t come fast enough. How many times can you squeak by eating pasta for dinner and praying your landlord waits an extra day to cash that check before you figure out that there must be a better way?
It may not be intentional, but living on the financial edge is incredibly stressful. If we told you there’s a more effective way to manage your money, that you’ll be able to see where you’re overspending and even start saving, would you listen? Well, pay attention, because creating a monthly budget is the answer and it’s not as hard as you might think.
Most people think a budget is about restrictions–and that’s no fun. That’s also not true. People at all levels of income use budgeting to as a way to maintain control in their lives. The reality is, you can do anything and go anywhere you want, as long as you understand your cash flow and plan ahead. It’s all about making wise decisions and prioritizing what’s most important. It’s about having a plan, and that’s what a budget is.
Creating a budget
There are 5 easy steps to creating and managing a budget:
Step 1: What are my goals?
Write down your short and long-term financial goals. Do you want to pay off your credit cards, buy a house, start a family, retire in 20 years, fund your kids’ college education? It can be any number of things, but you have to have to have a reason that fuels your efforts. Otherwise, you’ll lose your motivation.
Make a list and post them in a place where you’ll see them every single day. If you’re a visual person, create a vision board. Regardless of whether it’s a list or a group of pictures, it should serve as a daily reminder of what you’re working towards.
Step 2: Where SHOULD my money be going?
We know there’s no budgeting equation fits everyone’s situation, but some general guidelines have proven to help keep people on the road to reaching their financial goals. Ideally, your spending should be divided among fixed costs, flexible expenses, and savings.
Your fixed costs are the bills that are generally the same amount each month, (e.g., rent, utilities, phone, insurance, credit card payments, car payment, etc.). Shoot to spend no more than 50% of your take-home pay on these expenses.
Flexible expenses are those that vary. Things like entertainment, groceries, gas, gifts, and clothing fall into this category. Thirty percent of your take-home pay is what you should aim to spend in this area.
Your savings has to be a priority if you’re going to reach your goals. You remind yourself of what you’re working towards when you look at that list or those pictures every day. In a perfect world, you could set aside 20% of your take-home pay into a savings or investment account.
3. Where IS my money going?
If you’re living paycheck to paycheck and you want to save some money, you’re going to need to start living below your means. That’s pretty difficult to do if you don’t understand where your money is going now.
Make a list of all your recurring expenses last month. Then, add in all other expenses including restaurant bills, groceries, lattes, shopping, dates, movies, and that late night Uber. Finally, how much were you able to save last month?
With all of those numbers in front of you, you should have a much more clear picture of where your money is allocated during the month. And, if the answer to the last questions is zero, you know it’s time to start prioritizing your spending and looking for ways to cut costs.
4. Create your budget
Now it’s time to create a budget that works for you and your personal needs.
Apply the percentages against your monthly take-home pay for fixed costs (50%), flexible expenses (30%) and savings (20%) and compare those numbers against your current needs. Are they realistic?
In the beginning, they may not be, but that’s no reason to give up. Look for ways to reduce expenses and cut costs. Shop cable providers, cancel that Netflix subscription, cook dinner at home, work to pay off that high-interest credit card. You’ll be saving money by getting rid of the interest charge sooner than later. Just be sure to keep your other credit card payments current. Every change you make is progress, and it’s one step closer to your goal.
5. Track everything you spend
The only way to know where you spend your money is to track it. There are apps like Mint, HomeBudget, and BudgetBoss, to name a few, that are designed help you create your budget and track your progress from your smartphone, computer or tablet. It’s the last step in the budget process, but it’s the most important. Tracking keeps you accountable and is a huge motivator, but if you don’t do it, all the work you’ve done to get this far will gradually slip away and you’ll be more likely to fall into your old habits again. Whether you do it yourself or use an online program, make sure you track!