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What to do after becoming debt-free
When you’re focused on getting out of debt, it’s easy to get caught up in the process and not think about what happens afterward. But, it’s necessary to establish a plan once you’ve eliminated your debt, or else you’ll slip back into the cycle again. Below are crucial steps you should take after becoming debt-free:
Organize your finances
Preparing for your new financial future starts with organizing your finances. The easiest first step is to automate your finances. Put any recurring bills, like your cell phone, electricity, or credit card on auto-pay, so you don’t miss a due date. You can even automate your retirement account and emergency savings contributions.
Now’s also the time to organize any financial paperwork you may have neglected while paying off debt. Sift through papers and shred anything you no longer need, like old cable bills. Keep only the most recent copies of items, like account statements or insurance policies. However, one exception to this rule is tax returns, which you should keep for at least three to seven years.
Build a solid emergency fund
Having a solid emergency fund covering at least three to six months of expenses is crucial—and something you may have neglected to save for while paying off debt. Now that you’re debt-free, it’s time to get back on track towards saving for the unexpected.
You may need to revisit your goals and figure out how much you should have saved in case of an emergency—and if you don’t have a savings account for unexpected expenses, you should open one now. The bigger your savings are, the more equipped you’ll be to financially handle an emergency (and avoid falling back into debt).
After spending months (or even years) sticking to a strict budget to pay off debt, it can be exciting to have extra cash—it can also be tempting to stray from your budget. But, if you stop budgeting entirely, you may become neck-deep in debt again.
With more money on hand your monthly income has changed, which means your budget should, too. Take the time to reevaluate your budget and see how you’re spending or where you can cut expenses.
Contribute to a retirement account
The sooner you start saving for retirement, the better—but it’s never too late. If you haven’t started saving for retirement, look into an employer-sponsored plan, plus additional options like a Roth IRA. If you’re self-employed, look for a SEP IRA, a Simple IRA, or an individual 401(k).
The most important thing is to be consistent with your contributions. If your employer offers matching, try to take advantage of that. Don’t touch your retirement fund until you reach retirement age, or else you’ll face tax penalties.
Start saving for major purchases
If tackling debt was a motivator to start saving for a home or a car, you’re one step closer to achieving that dream. Establish a separate savings account to reach your goal, and start contributing—you’ll get there before you know it! If you’re a first-time homebuyer or are applying for a car loan for the first time, Georgia’s Own has options to guide you through the process.
Review insurance coverage
You may have been skating by with the bare minimum insurance coverage while trying to pay off debt. Now that you have more money, you may consider increasing your insurance coverage. For example, if you don’t have life insurance coverage, you may want to look into that. Depending on your age, you may also want to consider additional coverage, like long-term care insurance if you’re in your 40s.
Refresh your financial plan
After making sure you’re covered for any future events (both good and bad), you can start refreshing your financial plan. As previously mentioned, now that your income has changed, your financial plan should change, too—your financial plan from two or three years ago may not work anymore.
Take the time to assess your financial goals and see where you should reevaluate. Start looking at your short-term goals and decide where you are with meeting them. If you’ve met them (or are close to meeting them), you may want to adjust them to your current financial circumstances.
Now that you’re debt-free (and if you have an established emergency fund) try diversifying your investments. You can consider financial products and other investment options with a higher risk that have higher earning potential, like stocks, bonds, or mutual funds.
If you’re new to investing, consider working with a financial planner. Georgia’s Own offers investment and retirement services to help you get on track and make the right choices when it comes to your money—and you can meet with one of our financial planners at no cost and with no obligation to discuss your options.
Being debt-free is an incredible feeling, so it’s only appropriate that you celebrate! Having a healthy financial plan is knowing when to be disciplined and when it’s okay to treat yourself. Have a party or take yourself to a fancy dinner—you deserve it after putting so much work into reaching your goal of becoming debt-free.
How to budget money on a lower income
We all know managing money wisely is essential to anyone’s financial plan. It’s easier said than done, though—especially if you aren’t making as much money. Most budgeting tips are geared towards people who earn higher salaries or have dozens of options for storing their money. Can you manage money when you feel like you have nothing? The answer is yes, and we’re here to help. Read on for tips on how to budget money on a lower income.
Analyze your current budget
The easiest way to budget money on a lower income is by analyzing your current budget. By looking at your complete financial picture, you can see where you can cut expenses or what you need to prioritize. Ideally, 6-15% of your net income should go towards transportation costs. If you find you’re overspending in that area, see what solutions you can implement, like refinancing your car loan or negotiating your insurance.
If you don’t have a budget, this is your chance to make one. A common budgeting tactic is the 50/30/20 rule. Divide your after-tax income into three categories: needs, wants, and savings. 50% of your budget should go towards needs like rent/mortgage, groceries, transportation, utilities, and insurance. 30% will go towards wants like dining out, entertainment, gym memberships, or shopping. Lastly, 20% will go towards savings like an emergency fund or a down payment on a house.
Set attainable financial goals
Setting reasonable financial goals will help you stay on track. Ensuring they’re SMART—specific, measurable, achievable, relevant, and time-based—allows you to reach your goal. For example, if student loan debt is overwhelming you, your intent might be to pay off a $10,000 student loan in 36 months. That qualifies as a SMART goal because it is specific, a measurable amount, achievable within your means, relevant, and has a timestamp.
Strategize paying off debt
If you’re struggling with paying off debt, the snowball method is an excellent tool to get it under control and manage money on a lower income. Start by listing your debts from the smallest to the largest dollar amount (not including your mortgage). Take extra money from your budget, apply it to the smallest debt, and then make the minimum payments on your other debt. Once that smallest debt is paid, you’ll move on to the next and continue the process. Another method is the opposite—the avalanche method. Rather than listing your debts from the smallest to largest dollar amount, you pay off debts with the highest interest rates first. This also reduces your overall debt load faster.
The snowball method is more of a motivational boost—paying off debt seems more manageable when you get rid of your lowest debt first. The biggest con, though, is your high-interest debts accumulate more interest when you make only the minimum payment. The avalanche method is a smarter choice financially because you pay less interest overall. However, your smallest debts may be the ones with the highest interest—like credit card debt. In this case, you’ll be practicing both methods at the same time. But, it’s important to choose the method that works best for you.
Cut unnecessary expenses
Did you know the average American spends $237 per month on subscriptions? That’s nearly $3,000 per year! You can use that money to pay off debt, save for a home, or build an emergency fund. If you’re on a tight budget, cutting unnecessary expenses is your ticket to saving big. Canceling unused or unwanted subscriptions is the perfect beginning step. For example, if you have a Spotify and a Pandora subscription, do you need both? Cancel the one you use less frequently. Or maybe getting fit was your New Year’s resolution—but you never go to the gym. See if you can get out of that costly contract.
Create positive spending habits
Budgeting sometimes has a negative connotation. Creating positive spending habits allows you to look differently at how you spend your hard-earned money. Reducing credit card spending is an easy way to start. Credit cards aren’t evil, but bad spending habits can accumulate in the form of credit card debt. Remove stored credit card information from online sites where you find the urge to splurge. Instead, open a savings account for larger purchases.
Impulse buying is another habit to kick to the curb. You may feel happy during the moment, but impulse purchases rack up quickly and take a toll on your finances. If your impulse purchases aren’t monitored, your account can quickly deplete. Before you make an unplanned purchase, wait a day or two. This will give you time to think about whether you need it or not—it also gives you time to shop for a better deal.
It’s possible to break the cycle of living paycheck-to-paycheck and set yourself up for financial success. Despite how difficult it may seem, you can get in financial shape—with some effort. It’s not easy to live on a tight budget, but by following the above tips, you can improve your financial outlook and achieve your goals.
Ways to pay off your debt faster: a review of Tally
If you are in any type of debt, you will probably jump at the chance to discover new ways to reduce or even pay off your debt in a timely manner. It’s important to recognize these opportunities—and even more to determine if they are legit. Read on for ways you can pay off your debt faster through services like Tally.
What is Tally?
Tally is an app that is designed to help you pay off your credit card debt. After you download the app and provide it with the necessary information, Tally gives you an analysis of your debt and a plan to help you pay it off, specifically through discovering how to maximize payments in such a way that it addresses those debts with greater interest rates first.
This app also takes financial customer service one step further: in order to utilize all the features of the app, you can apply for a line of credit with the Tally. This may seem counter-intuitive, but Tally charges a lower rate of interest than many of the credit card companies you are paying each month. If you decide to open a line of credit with Tally, they will redistribute your monthly payments to your creditors in a manner that minimizes your interest costs as much as possible.
Do I want to do this?
Sure! Okay, you should really do more research first. Tally is specifically marketed to those who want to reduce their credit card debt, especially if you are also paying on a high interest rate. Tally’s website emphasizes that they seek to level the playing field for those in debt by allowing them the opportunity to make smaller payments while still maintaining their credit.
If you are in debt but it runs more along the lines of student loans, medical expenses, etc., that are not on your credit card, this app may not make a difference for you. The website does offer some other financial resources at no additional cost, like a debt calculator, so it may still be worth your time to scroll through the options.
But really—do I want to do this?
Before you decide if Tally is the right fit for you, consider some of the pros and cons this service offers:
Pro: The app is easy to use, even for the most inexperienced money manager. Tally is set up to walk you through the steps you need to begin reducing your debt, and maintains a high user rating on its website and in app stores. This means less stress for you, and, even better, more savings.
Con: While the app itself is very user-friendly, you may have a hard time qualifying for their line of credit, which is how you reap most of the benefits it offers. In order to qualify, you need a FICO score of at least 660. Being a resident of certain states also disqualifies you, though the app is working to be available to every state.
Pro: Using Tally means paying just one bill each month instead of managing multiple payments and bills. This is not only less stressful for you, but also saves you some time each month. Plus, you can rest assured that you have not skipped any bills by mistake, since Tally is the one paying your credit card company each month.
Con: Not all credit cards participate with the app. Tally is working to secure more partnerships, but at least one major credit card, USAA, is not compatible with the app, so you would need to continue to make that payment separately.
Pro: Tally is ideal for those who are looking to build good credit habits, like paying down debt each month and keeping track of expenses you charge on a card. Using Tally can help you practice smart debt management and that experience and knowledge will continue to serve you no matter how long you decide to use the app.
Con: In spite of the app’s lower interest rate, it is still one more financial strain to consider. And while Tally encourages the habit of paying off current debt, they do not address the idea of holding off from going into more debt in the future. So when you use this app, keep in mind that you are still paying them for a service, and that the most important thing is to get out of debt in an efficient and responsible manner.
So what’s the bottom line? If you have credit card debt and you want help managing it, see if Tally works for you! Be sure your credit score is high enough, and check the website to learn if your state currently participates with the app (about 30 states currently do). At the end of the day, no app can replace your ability to be smart with your finances, so take it one step at a time.
Forbearance vs. deferment: what’s the difference?
When you’re in the midst of a financial crisis, it can seem nearly impossible to dig your way out—especially if you’re paying off loans. However, there are various alternatives to ease the strain on finances, like forbearance or deferred payments. Forbearance and deferment are terms often used interchangeably—but, there are differences between the two. We’ve broken down the basics of forbearance and deferment, so you can decide what works best for you and your financial situation.
What is forbearance?
A forbearance is an agreement between a borrower and lender to temporarily suspend or reduce payments. People typically request forbearance when they’ve experienced a temporary financial setback, like job loss or illness.
How does forbearance work?
During a forbearance agreement, lenders agree to accept reduced payments or no payments for up to 12 months. When the forbearance period ends, the borrower must resume payments and repay what they owed during the forbearance period, plus interest and possible fees. Repayments can be made in a lump sum or up to 12 installments added to regular monthly payments.
Most people request a forbearance on their mortgage or student loans. But, forbearance works differently depending on each situation.
Homeowners can request a mortgage forbearance to catch up on payments and avoid foreclosure. Most lenders require proof that homeowners are enduring a temporary financial hardship, as well as assurance that the borrower can pay back what they owe when the forbearance period is over. During the forbearance period, lenders stop foreclosure proceedings and allow the borrower to make reduced payments or no payments. If your financial trouble lasts longer than anticipated, or you don’t have the funds to make repayments, you can discuss options with your lender, like a loan modification.
Student loan borrowers can apply for forbearance when they are facing a temporary hardship and don’t qualify for deferment. With student loan forbearance, you can temporarily halt payments for up to 12 months at a time with no set maximum for federal loans. You do not need a specific, qualifying event to apply for student loan forbearance.
Are you still charged interest during a forbearance?
Interest accrues on both mortgage and student loan forbearance, unless otherwise stated. Because of COVID-19, federal student loans were placed on administrative forbearance, and interest rates were reduced to 0%, so they’re not accruing interest right now. For mortgage forbearance, interest accrues on skipped or lowered payments. So, you will have to pay back what you owed during the forbearance period, plus interest. For student loan forbearance, the amount you owe will always increase—at the end of your forbearance period, interest may capitalize, which means it’s added to your loan’s current principal balance. From there, interest will be calculated on the new amount.
Does a forbearance impact your credit score?
Mortgage forbearance can lower your credit score—but, it depends if your lender reports it to the credit bureau. If they do, then your credit score could dip. And, if you wanted to refinance or purchase a new home, you have to reestablish yourself as a credible borrower, so you must repay what you owe. Still, a temporary drop in your credit score from a forbearance is much better than a missed payment—and it helps avoid foreclosure, which can stay on your credit report for seven years. For student loans, forbearance does not affect your credit score.
What is deferment?
Deferred payments, sometimes called payment holidays, allow you to delay or suspend payments on a loan—generally a consumer loan. If you’re experiencing financial hardship, deferring a payment could be beneficial, as it temporarily halts the burden of making repayments. It could impact you in the long run—you may end up with higher monthly payments, and your loan’s term will increase.
How does deferment work?
Similar to a forbearance, during a deferment period, payments are suspended but for a shorter amount of time. And, unlike forbearance, you are not required to pay back what you owe all at once. What you owe is usually tacked onto the end of your loan’s term, which is why your loan term often increases. Most people request deferred payments on their auto loans or student loans. Again, deferred payments work differently depending on the circumstances.
Lenders will sometimes allow you to defer your car payment for a month or sometimes up to three months. Most lenders ask you to provide a brief explanation as to why you need to defer your payment, and they may also review your credit score or credit report. It can be a viable solution in the short run. But, deferring a car payment isn’t always the best long-term choice. If you realize your financial trouble may last longer than anticipated, discuss refinancing options with your lender.
Similarly, borrowers can request a deferment on their student loans to relieve the financial burden. Unlike forbearance, you must have a specific, qualifying event to be approved. Student loan deferment generally works best if you have a subsidized federal student loan or a Perkins loan. And, deferment length depends on the type of deferment—some last up to three years, while others last as long as you qualify.
Are you still charged interest during a deferment?
For student loans, interest does not accrue on subsidized federal student loans and Perkins loans. For other consumer loans, whether or not you’re charged interest depends on your loan type, so it’s best to check with your lender first. You may be responsible for interest that accrues while your payment is postponed. You could potentially receive a break if your interest rate only applies to your principal balance—which means you won’t be charged interest on the interest that accrues. Once you restart payments, the interest that accrued during your payment holiday could be added to your principal balance, and your interest rate would then be applied to the new, larger principal balance—meaning even more interest could accumulate once you resume your regular payments.
Does a deferment impact your credit score?
Deferred payments usually don’t impact your credit score. When your application is approved, your lender reports to the credit bureau that your payments are deferred. But, if you stop making payments or miss a payment due date before you’re approved, those missed payments could damage your credit. If you missed payments before you applied for a payment holiday, those won’t be removed from your credit history, either. You must continue making your payments until you have verification that your payments are deferred.
Deciding to apply for forbearance or deferment is an enormous decision, and there are various factors to consider. It’s critical to think about how long you anticipate a lapse in finances, your needs, and the potential outcomes.
If you’re facing financial trouble, you’re not alone—at Georgia’s Own, we’re here to help and provide financial advice and resources to get you through whatever financial struggles you’re facing. If you require financial assistance because of COVID-19, click here to see how Georgia’s Own is helping members during this time of need.
How deferred payments can help you through a financial crisis
Right now, many people have been unwillingly thrust into difficult financial situations. It leaves some wondering how they’ll continue making payments on their cars, credit cards, or other loans they may have. As a way to relieve some financial burden, you could apply to temporarily defer your payments. We’ve broken down the ins and outs of suspending a payment to help you weigh your options.
What is a deferred payment?
Deferred payments, sometimes called payment holidays, allow you to temporarily delay or suspend payments on a loan—generally a consumer loan. If you’re experiencing financial hardship, deferring a payment could be beneficial, as it temporarily halts the burden of making repayments. It could impact you in the long run—you may end up with higher monthly payments, and your loan’s term will increase. But, it’s better than accumulating multiple missed payments and late fees.
How does a deferred payment work?
To start, you’ll need to fill out an application with your lender. Once your application is approved, you can suspend your qualifying payment, without worrying about late fees. You must continue making payments until you have verification of your application’s approval. When your deferred payment period ends, you’ll resume your regular payments.
Does a deferred payment affect your credit?
The short answer—no, a deferred payment generally does not affect your credit score. When your application is approved, your lender reports to the credit bureau that your payments are deferred. But, if you stop making payments or miss a payment due date before you’re approved, those missed payments could damage your credit. If you missed payments before you applied for a payment holiday, those won’t be removed from your credit history, either.
Are you still charged interest on deferred payments?
You may be responsible for interest that accrues while your payment is postponed. You could potentially receive a break if your interest rate only applies to your principal balance—which means you won’t be charged interest on the interest that accrues. However, once you restart payments, the interest that accrued during your payment holiday could be added to your principal balance, and your interest rate would then be applied to the new, larger principal balance—meaning even more interest could accumulate once you resume your regular payments. This all depends on your loan type and lender, so it’s best to confirm with them.
What alternatives are there?
If you ultimately decide you don’t want to defer your payments, there are other options available if you need financial support. Depending on the loan type, you could consider refinancing. Your new loan could potentially have a longer term or lower interest rates, leading to lower monthly payments. You may also consider a debt consolidation loan. Check with your lender to discuss potential alternatives.
If you require financial assistance because of COVID-19, click here to see how Georgia’s Own is helping members during this time of need.
What to do if you’re in real financial trouble
It’s a problem that no one likes to admit, but that happens to nearly every person at some point in their lives: a serious lack of funds. The current crisis has left many unsure if they will be able to make their next mortgage payment, or even get groceries for the week.
If you are in financial trouble and are looking for your next steps, read on for some of our ideas and tips on the best way to turn your struggles into success stories. Some of the best resources for help are right here in Atlanta:
United Way of Greater Atlanta: This organization is all about making connections to get you and your family everything they need, from a hot meal to polishing your resume.
The Salvation Army: There are several local locations of this group, which strives to help those struggling with homelessness, at-risk youth, financial issues, and the fight against human trafficking.
Downtown Atlanta: Don’t let the name fool you; this group serves all of Atlanta through their community service initiatives. Along with raising awareness for important global projects, Downtown Atlanta also has resources for those who need to get off the streets and into a stable residence.
CAPS: CAPS, or Childcare And Parent Services, is a program designed to help parents with low income find affordable, quality childcare so the parents can work or attend school. Their goal is to ensure that no child is denied education due to a financial strain.
National Foundation for Credit Counseling: The NFCC has long established a reputation of helping people across the United States figure out the next steps to manage their debt. Their website also offers a variety of tools and resources to aid you at any time.
You know where to go—now let’s talk about what you can do when you’re in real financial trouble.
Don’t ignore financial trouble
As we said above, no one likes to admit when they are in financial trouble. It may embarrass you, or perhaps you just aren’t comfortable with that level of vulnerability. Whatever the reason, the result is the same: Your money problems will not disappear, no matter how long you refuse to acknowledge them. In fact, they may just get worse.
Create a budget
You know how we feel about budgets—everyone needs one, and we mean everyone. Even if you know that there is no way your income covers your expenses, you need to make a budget to see where you stand financially. How can you plan to recover from a money crisis if you aren’t even sure how much you spend on gas every week?
See what you can trim or cut
We know that you have probably already started to cut back on the non-essential items. But have you looked at ways to save on some of the more necessary parts of your budget?
For instance, you can look for coupons at your local grocery store to see if you can save a few cents on your dinners for the week. Try consignment stores first when your kids need clothes for the spring. Saving a few cents and dollars here and there can add up a lot over time.
Consider talking it out
DJ Tanner of Full House said it best: You might not solve anything, but just talking about it helps. You don’t have to wait for the sappy violins to play, but if you are experiencing significant financial distress, it’s a good idea to talk to someone. They don’t have to be a professional – a good friend will work, too. Shouldering an emotional burden is an unnecessary stress you don’t need to add to your full plate.
Find good resources
There are organizations around Atlanta who want to help with everyday needs – but they can’t unless you tell them what you need. Places like United Way of Greater Atlanta, HOPE Atlanta, and the Atlanta Center For Self Sufficiency are just a few of the local resources that can assist you with housing and other basic needs. Reach out to them to learn what you need to do to take advantage of their resources.
Consult an expert
Once you get the help you need for the basics, it’s time to take charge of your finances. Check out free resources like the ones Dave Ramsey offers, or head to Udemy to take a class on creating and maintaining a budget.
If you want local referrals to an accountant who can help, dial 2-1-1 or text your zip code and need to 898-211, and the United Way of Greater Atlanta will reach out to you with the information you need. No matter what path you take, don’t try to go it alone – find the right people to help you succeed.
Get some credit counseling
Speaking of experts, have you considered seeking credit counseling to help you build your credit back up? Places like MoneyManagement International offer their expertise both in person and over the phone, for everything from managing debt to working through student loans. Getting this type of counseling will go a long way in shaping your future as you recover from this financial crisis.
Stick to your plan
You have the information you need from your financial advisor and other experts. Now it’s time to buckle down and follow the plan you made with them. Will it be difficult? Probably. But anything worthwhile is.
Take the steps outlined by your professional consultant, and do not vary from them, even a little bit. If you’re not sure how to proceed in a particular circumstance, give your advisor a call to see what they would recommend.
Let others know how to help
Asking for help, or even just accepting it, can be hard. We know that. But the truth is that everyone needs help sometimes. This can even be something as small as letting someone know what your financial limitations are so they can help keep you accountable. Or see if anyone you trust can give you more ideas for resources in your area.
Financial trouble can be overwhelming, but they don’t have to dictate the rest of your life. Find the right help, take the right steps, and watch as you take control of your financial future.