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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.
You need 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 problems 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.
6 ways to make the most of your tax refund
You’ve finally received your tax refund! While it’s exciting to have some extra cash, it can be tempting to spend it on whatever, whenever—after all, it does seem like free money. However, it’s crucial you use your refund wisely, rather than spending it on frivolous things. Here are some ways you can make the most of your tax refund:
Pay off existing debt
It sounds obvious, but if you have student loan or credit card debt, use your refund to help pay it off. It might not sound fun, but putting money towards paying your debt gets you closer to financial freedom. Interest rates can snowball and make payments seem overwhelming, so any amount you put forward helps. Start by paying off debts with the highest interest, and then trickle down from there. Later on, once you’ve finally eliminated your debt, you’ll be thankful you were responsible and used that refund.
Save it for emergencies
Again, another obvious choice—save your refund! According to CNBC, 30% of households have less than $1,000 saved. That isn’t nearly enough to cover your costs if you were to have an emergency like your car breaking down or any unexpected medical bills. Ideally, you should have three to six months’ worth of living expenses saved. Open a savings account if you don’t have one already, and save your refund. Even if you can’t put away that much, use a portion of your refund—just a little is better than none.
Start home improvements
Have you been dying to give your home some much-needed improvements but had to put your funds elsewhere? Well, now that you have your tax refund, you can start your home renovation plans now! There are dozens of projects you can do for under $1,000—from painting to landscaping, those little improvements can all help your home drastically. Not only will it make you happier, but it will also add value to your home.
Use towards big purchases
Does your child need braces, or are you looking to buy a new car? Maybe even a home? Your tax refund is perfect for offsetting those costs. Use it to save for a down payment on a car or house. Every little bit helps when it comes to these purchases, so make your refund count where it should. Open a high-yield savings account, like a money market savings account, so you can earn the most from your money.
Donate to charity
Earn some good karma—donate part of your refund to charity. It feels nice to give back to the community, and using part of your refund to help your favorite organization is the perfect way to do so. Be sure to save your receipts, too, so you can write off the donation on your taxes next year.
Lastly, if you’ve done all of these things, help yourself! We all need self-care sometimes. Go on the trip of your dreams, or simply treat yourself to a new wardrobe—either way, don’t forget about making sure the most important thing is taken care of: you!
Seven strategies for paying off student loans
Graduation is a time of celebration. You’ve finished four—ok, maybe five years of school, and you’re ready to conquer the world. Do you know what else you should be ready to conquer? Your student loan debt.
In 2018, the total amount of student loan debt in the U.S. was at an all-time high at nearly $1.5 trillion. Spread over 44 million borrowers, you can take comfort in the fact that you’re not alone. While the idea of repaying your debt may be overwhelming and a seemingly impossible feat, take heed. We’ve got a few words of wisdom that can help you get started. With some self-discipline and a little sacrifice, you’ll be able to wipe out that I.O.U. sooner than you think.
Here are some practical strategies you can use to get your finances in order, knock down that debt, and be well on your way to financial freedom:
1. Live like a college student
You’re eager to venture out into the real world and live on your own. You want to rent a cool apartment that doesn’t include a hand-me-down couch and four other roommates. We get it. But if you can stand it, try not to inflate your current lifestyle too quickly. By keeping the same penny-pinching habits you used in college, you’ll be able to send a bigger chunk of your paycheck to your lender. The quicker you pay it down, the faster you’ll graduate to a more comfortable lifestyle that doesn’t include a repayment plan.
2. Send more than the minimum payment
If you continue to send the required minimum loan repayment each month, it’ll take the full term of your loan to pay it off. You’ll also wind up paying the maximum amount of interest. Consistently sending more than your $50 minimum payment, for example, will not only help you pay the balance down more quickly, it will significantly reduce the total amount of interest you pay over the term of the loan. Increasing your payment by any amount will save you both time and money, and who wouldn’t want that?
3. Pick up a side hustle
If you need more money, find a way to bring in additional income. Maybe you DJ on the weekends, wait tables at night, or work as a freelance photographer. Whatever your talent, parlay it into a side hustle. The key here is to have enough discipline to take the extra income and pay down your student loans. It’s not a way to save for a vacation, to buy a new car, or a Louis Vuitton bag—right now, anyway. If your objective is to tackle your student loans, keep your eye on the prize!
4. Send extra payments
Did you get a tax refund, a bonus at work, a little extra cash in your birthday card? It might not be the most exciting thing to do, but paying down your loan with a windfall, no matter how big or small, is the financially smart thing to do. Making extra payments, whether it’s each month, every quarter, or whenever you happen upon some extra cash, will speed up your loan repayment and reduce your total interest expense. The faster you pay it down, the more money you save, and the quicker you get out from underneath that student loan debt.
5. Add loan repayments to your gift wish list
C’mon, how many Starbuck’s gift cards do you really need? When friends and family ask you for birthday or holiday gift suggestions, you might tactfully ask them for a cash gift to pay down your student loan balance. Check out sites like LoanGifting or Generosity, now a part of GoFundMe, to make it official. Services like these are exclusively dedicated to helping reduce student loan debt by accepting and processing loan repayment donations. Set up a profile, connect it to your loan account information, and gift-givers can help you on your road to financial freedom.
Be sure to read the fine print, though. Setting up an account is free, but there are some fees deducted from each financial gift.
6. Refinance your student loans
Consolidating and refinancing your student loans at a lower rate can help you reduce the amount of interest you’ll pay. It may also allow for a shorter repayment term and a quicker route to becoming debt free. With one loan, one monthly payment, and a more competitive interest rate, it’s worth a look. There’s no harm in evaluating your options, especially when there may be an opportunity to save some cash and reduce your debt more quickly.
7. Look for employers who can help
Student loan repayment assistance is an employee benefit that’s growing in popularity. In fact, according to Forbes, it was the hottest employee benefit of 2018. Check out their list of ten companies that are already on board.
There are other similar programs, too. Government employees may be eligible for the federal government’s Student Loan Repayment Program. Nurses and teachers may be eligible for the Nursing Education Loan Repayment Program and Teach for America, and public sector employees may be able to receive assistance through the Public Service Loan Forgiveness Program.
Weighted down with student loan debt isn’t the ideal way you’d like to begin this next chapter of your life, but it’s a reality for most college students. You can make the minimum payments, repay your loans as scheduled, and live happily in the process. But, if you’re anxious to finish those monthly payments and begin investing in your future, use these strategies and get started sooner than later.
What you need to know before lending (or borrowing) money from family
In the midst of a financial crunch, most people consider borrowing money from a family member to be a better option than a bank or credit union, a good friend, their 401(k) plan, or even a low- or no-interest credit card. While most people look to their family as the non-judgmental, do-anything-to-help, ideal solution to their financial dilemmas, there are pros and cons to entering into this arrangement for both the lender and the borrower.
It seems like a simple transaction
From the borrower’s perspective, the application process is simple—just ask. Other than explaining why it’s needed, there are typically no other requirements to meet, not even a credit check. Even better, family members are often generous enough to loan money for free. Most don’t charge any interest, or if they do, it’s much lower than the best rate a bank or credit union could offer.
Family members are often eager to help, but if they’re lending money, they should understand their motivation behind their offer and the risks they assume in doing so.
The details define the loan
When a family member loans money to another family member, details need to be documented, and specific expectations must be set. Conversations around money are tough and sometimes extremely awkward. Think of this as the price you pay for borrowing money from a relative.
Discussions should address the reason for the loan and whether or not the lender is expecting to be repaid. A repayment schedule should be agreed upon, including dates, amounts, and method of repayment, and steps that will be taken if the borrower defaults on the loan.
The borrower should be able to provide the plan for repaying the loan and address the possibility of missed payments. Discussions should also define any rights that are granted to the lender until the loan is repaid in full, like approving large purchases or vacation plans, reviewing a monthly budget, or monitoring bank accounts.
The more detail discussed before the loan is issued, the better chance of preserving the family relationship. Many family loans are successful, but, in order to avoid tensions, communication must be continuous, clear, and in writing. While some family members might consider this too formal, it’s for the protection of both parties.
Lenders need to protect themselves
Any time you lend money, there’s a risk that the borrower will not be able to repay the loan. While you may have every confidence that the borrower will be true to their word, lenders should consider collateral to secure the loan. In the case of default, the sale of any named asset could help recover the outstanding balance.
Speak with your attorney to discuss any additional risks that you should address in order to protect yourself. You can also ask your attorney to draft the written agreement that includes the agreed upon details of the loan and its repayment.
Tax implications to consider
In addition to ironing out the details of the loan, there are serious tax issues to consider. The transfer of large amounts of money can alert the IRS. Even without any wrongdoing, it could trigger an audit into your finances.
There are also rules that address the minimum interest rates that can be charged on personal loans and a potential gift tax that can be assessed in some cases. There may be other tax implications that you hadn’t yet considered, so be sure to talk with your tax advisor before you set an interest rate, sign any documents, or transfer any funds.
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.
Ways to use debt consolidation to reduce your debt
If you added up all your debt, how high is that number? And do you think it’s more or less than say, your best friend’s? Or maybe your boss’s? According to the 2016 American Household Credit Card Debt Study, the average household has racked up a whopping $135,924 in debt. Yeah, a big chunk of that is your outstanding mortgage, but it also includes an average credit card debt of $16,425. Did you know that the interest alone on a revolving credit balance of that caliber could cost you almost $1,300 per year– how crazy is that?
The cost of debt
We all know that debt doesn’t only come in the form of credit cards. It includes student loans, mortgages, car payments, medical payments, personal loans, and any other type of money borrowing or payment plan arrangements. All debt, however, is not created equal. While subsidized student loans might be 6.8%, unsubsidized loans could be as low as 3.76%. Compare that to credit card debt at 15% – 18% or more. An auto loan might be 5%, and a mortgage could cost around 4%.
If there is a type of “good” debt, it would be low interest and definitely used to finance something that will provide value in the future, e.g., your education or a home. “Bad” debt, on the other hand, is high interest, used to purchase an item that has no long-term value or is beyond your income level, e.g., revolving credit card debt, ridiculously expensive designer clothes or a car with a monthly payment that eats up the majority of your paycheck.
What is debt consolidation?
Debt management is a serious issue and a growing concern for many Americans. We all want to honor our financial commitments, but how can we handle outstanding debt and manage it more responsibly? Debt consolidation is the act of combining multiple outstanding debt contracts. It allows you to repay multiple creditors at one time and to consolidate multiple monthly payments into one new monthly payment paid to one new loan issuer. Ideally, it should reduce your interest burden and the overall long-term cost of your debt.
Ways to consolidate your debt
If managing your outstanding debt has become too much of a challenge, as it has for many people, there are several solutions that may help you consolidate your payments, save some interest, and salvage your credit at the same time.
Debt consolidation can be a bit risky from both sides of the coin, however. Borrowing funds to satisfy your current creditors addresses one issue, but how easy is it to fall back into your old habits? It’s a serious matter for both you and any financial institution to consider. You may be confident that you’re on the path to debt-free living, but your potential loan issuer may or may not be willing to take on that risk. It’s a common reason for any potential solution to be declined, so be prepared. There are both pros and cons to each approach, so it’s critical to understand what’s at risk when it comes to choosing an option.
1. A zero interest credit card
Credit cards and revolving debt and can be double trouble if you’re trying to consolidate debt, but if you can find one with zero-percent interest, you may be able to take advantage of that introductory rate for six months to a year. Zero-rate cards target high credit score consumers, so they’re a little harder to come by. If you qualify, be sure to check the fine print for transfer fees, penalties for late payments and any other hidden charges. Consider transferring only the amount you can pay off before the rate expiration because when it does, it will likely jump to a much higher rate. If you transfer more than you can pay off, be diligent about searching for another card to transfer the balance before the rate expires. Remember, too, that opening too many new credit card accounts within a given period of time may negatively impact your credit score.
2. A home equity loan or line of credit
Do you own a home? One of the most popular ways to consolidate debt is through a home equity loan or line of credit. By borrowing against your home, you’re able to withdraw cash that can be used to pay bills that are incurring higher interest charges. You may also get a tax break, too. Be careful, though. Default on the loan and you could lose your house. And be sure to talk with your tax advisor before pulling the trigger. Equity loan interest tax deductions could be limited in some instances.
3. A debt consolidation loan
Using a debt consolidation loan to pay off your debt increases your bill paying efficiency, saves your hard-earned money from excessive interest charges, and simplifies your overall life all in one fell swoop. With 15 different creditors, each with a different interest rate and payments due on different dates, who can keep track? With a debt consolidation loan, simply pay them all off and repay one new loan. It’s one single payment on one day of the month. Easy? Yes. Does it always add up to savings? No. Make sure you do the math. You also don’t have anything to secure the loan, like a house, so it’s likely that the lender might bump up the rate just a bit, understandably so. Be sure to do your homework and shop around.
4. A loan from a friend or family member
One final way to consolidate your debt is to borrow the funds from friends or family and design a repayment plan that agreeable to both of you. There are many variables involved in this type of arrangement, including being comfortable enough in your relationship to be able to ask for and repay a significant amount of money. You must also be willing to share the full details of your current financial standing, your plan for budgeting future spending and expenses and how you envision a structured repayment plan will work. Although borrowing money from family and friends may be easier and often less expensive from that of a bank or other financial institution, it also comes with significant risks. Money often changes relationships, especially when one party feels that the other oversteps their bounds or doesn’t honor the agreement. Choose wisely and weigh all of your options. Otherwise, strained relationships may lead to very awkward holiday conversation.
The main objective of debt consolidation is to get to a point where you’re comfortable with a monthly payment that effectively reduces your debt in a reasonable amount of time. Yes, debt consolidation can help you pay off debt faster and help you avoid credit damage, but it also requires discipline and sacrifice. If you’re ready to address your concerns with debt management, talk with your financial professional to design a plan and implement a solution that works for you and your wallet.