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Monthly Archives: December 2017
How to Actually Keep Your New Year’s Debt Resolution
Paying off debt in the new year is a common resolution. But resolving to do something and actually doing it are two different things.
Taking a smart approach to building good habits, however, can help you master your debt in the coming year.
Jon Bailey, professor emeritus in the psychology department at Florida State University, suggests applying some principles of behavioral psychology to help you create sustainable habits.
“Our general approach is really from the angle of self-management,” Bailey says. “You have to know yourself and your environment so you can put some things in place … (to) make the behavior, in this case paying off debt, more likely to occur.”
With this in mind, here are tactics to help you follow through on your debt resolution:
Know what you owe
Create an inventory of your debts, including their totals and interest rates. Add them up to see exactly how much you have to pay down.
Defining your goal can help you focus your payoff journey and see what being debt-free would look like, says Weslia Echols, an accredited financial counselor in Michigan. “Seeing that picture clearly and knowing the value of not having that debt can motivate you to stay the course.”
Break it down into smaller tasks
Focus on the day-to-day steps needed to achieve your goal.
Figure out how much you can put toward your debt each month.
Choose how you’ll approach paying off debt. Consider using the debt snowball method, in which you pay off smaller debts first to secure early victories that will keep you motivated.
Trim expenses to find more money for debt paydown.
When making budget cuts, Bailey sees moderation as key to success. “If you go out to eat four nights a week, see what you’d save by only going out three nights a week. The extreme — cutting out going out entirely — isn’t going to last.”
Keep yourself accountable
Track your progress and create a backstop to help you stay focused, such as updating a friend about your progress each month. Think about using an app to help you cement your new habits.
Consider imposing a penalty if you don’t stay on track. For example, make a deal with your accountability partner that if you skip a payment, you’ll have to clean their apartment.
Build in rewards as you make progress. Each $100 you pay off, for example, give yourself some small treat to celebrate. This can keep you encouraged and on track toward paying off your debt in the new year.
Should you buy a house when you’re under 30?
Buying a home is a huge milestone on the way to achieving the American Dream, but when you’re under 30, is it always a good idea? Most people view home ownership at any age to be a reflection of financial stability and a wise investment. When you’re under 30, it’s especially admirable and a pretty good indication that you have your act together.
There’s plenty to consider when you want to buy a home at the tender age of twenty-something, though. You’re young in your career, still learning to manage your finances and facing the hard truth about life’s unpredictability. Let’s look at some things you should consider before you rent a U-Haul and move down the road to home ownership.
What are your long-term plans? Buying a home is not a spur-of-the-moment decision. If you expect a return on your investment, be prepared to stay put for at least five to seven years, as a rule of thumb. You should also be in a position of stability in terms of your career and be on a path to financial advancement.
Calculate your monthly expenses. Are you still digging yourself out of student loan debt? Is your credit card debt under control? How much is your car payment? If you already owe tens of thousands of dollars, compounding it with a mortgage may be spreading your financial responsibilities a little too thin. Be honest with yourself and don’t bite off more than you can chew.
Are you able to purchase a home without exhausting your emergency fund? Your emergency fund is for unexpected costs. It’s critical that you have a financial cushion for surprise expenses that may otherwise devastate your finances. It’s even more important when you own a home. Costly home repairs are one reason, but if you’re laid off from your job or diagnosed with a serious illness, you’ll still need to continue to pay your mortgage and avoid foreclosure.
Can you afford to put down 20% and avoid Private Mortgage Insurance? Private mortgage insurance (PMI) protects the lender in the event your home falls into foreclosure. PMI usually ranges from 0.3% to 1.5% of the original loan amount per year, although it depends on the amount of your down payment and your credit score. Here’s a crazy thought: Put down 20% and avoid PMI altogether.
How’s your credit rating? Your credit score significantly impacts the interest rate on your home loan. Be sure to request a copy of your credit history before you apply for a mortgage. Review it and resolve any discrepancies. You might even think about taking some time to improve your score in order to secure a better interest rate.
How much do you know about mortgages? Rates may currently be at an all-time low, but you should still compare mortgage rates and talk to a trusted mortgage broker about loan options. There are first-time home-buyer loans, fixed and adjustable interest rates, and some that even offer down payment and closing cost assistance. They all have different features and requirements, so work with a knowledgeable broker who can find you the best deal.
Study the housing market before you buy. Is it a buyer or a seller’s market? You want to pay a fair price for your home, so make sure you’re not buying when houses are in high demand, and prices are inflated. Recognizing trends or changes in your local market could help you find a well-priced buying opportunity before anyone else.
Realize this won’t be your ultimate dream home. Your first home won’t likely be everything you want it to be, but a smart investment coupled with a few years of appreciation may lead you there. Seriously consider resale or rental value when choosing not only home features, but location as well.
Purchasing a home is a big deal, and it’s easy to get caught up in all the excitement. Consider these tips, take your time, and you’ll be sure to find your piece of the American Dream.