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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.
6 reasons why you should avoid Payday Lending
Short on cash this week? A payday loan might seem to be the perfect short-term solution. After all, it takes only minutes to apply for a small loan, the approval turnaround is quick, and the money can be deposited into your checking account within 24 hours. Ideally, you’ll pay it off with your next paycheck and get back on track.
It sounds like a great plan, but in reality, payday loans are made by predatory lenders who offer high-interest, high-risk loans to borrowers who need quick cash to cover short-term expenses. They’re notorious for kicking off a cycle of spiraling debt and are rarely the answer to a financial crisis.
Here are some important reasons you should avoid payday loans at all costs:
1. Interest rates are astronomical
If you financed your home or your car at 400% interest, would you think it was a fair rate? According to the Consumer Financial Protection Bureau, it’s not uncommon for annualized interest rates on payday loans to reach a few hundred percent. Borrowers should be prepared to repay 100% or more of the loan amount in interest and fees.
2. Hidden fees are excessive
There’s typically a $15 per $100 fixed fee charged for each payday loan. However, there are also additional fees that can add up quickly. Loan rollover and renewal fees, late payment fees, returned check fees, and debit card fees are the most common. Simply checking your balance on a pre-paid debit card or calling customer service could incur an additional fee.
3. Loan rollovers are costly
The large majority of people who apply for payday loans are unable to repay their loan within the typical 14-day repayment period. Unfortunately, that means they’ll have to rollover their loan to the next term…and so on and so on. Tack on the high compounded interest and fees and the debt becomes increasingly unmanageable and overwhelming, leaving almost no way of breaking the cycle.
4. You trade one financial problem for another
A payday loan may help you repair your car, buy groceries, pay your rent, but it doesn’t solve the long-term problem. The particular bill may be paid, but you’ve traded one debtor for another, and you’re still spending beyond your means.
5. It hurts your credit rating
A payday loan, even repaid on time, is not a plus on any credit report. In fact, lenders may even hesitate to lend money to borrowers of payday loans because it may be an indication of the inability to effectively manage their finances.
6. There are other options available
If you need a short-term loan, consider your other options. Borrow money from family or friends or your local credit union. Even a credit card, although not ideal, has a lower interest rate than a payday loan. As long as you pay it off within the month, or at least as quickly as possible, it could be a viable option. Can’t pay a creditor? Why not work out a payment plan over the next few weeks or months? Do you have some jewelry, sports equipment, or other items you could sell to raise money? Can you ask for an advance on pay from your employer?
In the long run, you’ll see that a payday loan is the least wise financial decision you can make. Although solving your immediate cash flow need is a priority, it’s also critical take a step back and take a look at your overall financial health, as well as your budgeting and spending habits.
4 Tips to Help Manage Student Loan Debt
If you’re a recent college graduate who took out student loans, you likely owe about $35,000. As eye-popping as that average debt figure is, you’re certainly not the only one wondering how you’ll possibly get out from under your loans. As with any difficult assignment, though, research and a well-thought-out plan will help you tackle even the most challenging of debt situations.
Making use of the following strategies will help you dig your way out of student debt. Here’s a look at where to get started.
Know what you owe
First things first: Figure out what your monthly payments should be. To do that, use one of a handful of repayment calculators. These tools let you plug in the total amount that you owe along with your loans’ interest rates and term lengths. You’ll get a better sense of how much you should be paying each month if you want to take care of your debt within a certain amount of time.
Adjust your monthly budget accordingly
Knowing how much money you’ll need to put toward eliminating your student debt each month will help you adjust your budget. That may mean making tough decisions like cutting back on nonessential expenses.
Remember: Every extra dollar you put toward your debt reduces the total amount of interest you’ll end up paying over the life of your loan, so it’s well worth the effort.
Consider automatic payments
To ensure that you make your monthly payments on time, set up automatic deductions from your checking account. The way it works is easy: Your student loan servicer simply subtracts what you owe from your account whenever your payment is due. Your lender may even offer you a discount if you choose this option, which can be much more convenient than writing and sending a check every month. Just be sure that there’s enough money in your checking account so that you aren’t hit with overdraft fees.
Switch up your repayment plan
If you’re still struggling to put money toward your student debt, consider changing your repayment plan on federal loans, which you can do whenever you want. You may, for example, opt to switch from standard repayments —which have you contributing a set amount each month over a period of about 10 years — to graduated repayment, which is when your payments start out lower and increase over time.
Extended repayments, on the other hand, give you additional time to pay back your loans, sometimes up to 25 years, if your debt is more than $30,000 and you meet certain other requirements. Other plans, aimed at borrowers whose federal student loan debt is high relative to their income and family size, are income-based. If you qualify, the payments you owe are based on how much you earn every year. Although any of these plans can ease your monthly payment, you’ll end up paying more for your loan over time than you would if you had stuck with the standard 10-year plan.
Private lenders typically have stricter policies, but it’s still worth checking to see whether there’s any way to adjust your repayment plan with them.
If you’re a teacher or a public servant, you may qualify for student loan forgiveness. Otherwise, your last resort may be opting for forbearance, which means you can stop or reduce payments for a month or two. However, because interest continues to accrue, this course of action is better avoided.
With all that said, what you definitely don’t want to do is default on your loans. When you do that, the entire unpaid balance of your loan is due immediately, and you also lose the right to defer or change your repayment plan.
Breaking down the repayment process into smaller steps will make your student debt feel less overwhelming. Although it may take several years to wipe it out completely, a carefully crafted plan will set you up for success down the road.
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Join us on April 25, 2017 at 6pm for a FREE student loan webinar, How to Prepare, Pay and Stay in College.
4 Financial Resolutions for the New Year
Another new year is upon us, and with it comes a fresh start. Take a moment to shake off all the bad vibes from 2016 and start 2017 off right by resolving to get your finances in order. Below are a few financial resolutions to start you down the path to better money management in the New Year.
Set a Budget
Setting a budget is the first step to financial fitness. Without a budget, it’s difficult to know where you stand financially. Sure, you probably know roughly how much money you make each month, but do you really know where that money is going? Are you spending too much on your morning coffee or takeout or shopping? Could you be making greater payments on your debts or saving more toward retirement?
To get a better handle on your finances, you’ll need to create a budget. You’ll need to know your monthly income after taxes (net income) and your recurring monthly expenses, such as rent or mortgage payments, car payments, insurance, utilities, etc. Once you’ve gathered these items, you’ll add up your expenses and subtract them from your income. If you have money left over, you can allocate those funds for savings or other financial goals and toward things like shopping and entertainment.
Sticking to a budget is the tricky part for most. Budgeting apps like Mint can help greatly, and a quick Google search can provide you with printable worksheets if you prefer to go the pen-and-paper route.
Erase Your Debt
The average amount owed per household is nearly $8,400, making getting rid of debt another priority for 2017. Although $8,400 is a pretty daunting number, you can opt to set a goal for yourself that is more manageable. WalletHub suggests repaying 20% of your debt within a year. If 20% stretches you too thin, adjust it – try paying off 15% of your debt instead. Or, maybe you want to pay 20% of your debt off within six months instead of a year – that’s fine, too. The key is to set a goal that works for you and your current financial situation.
Don’t forget to look at other areas of your budget when you set goals. Are there areas in which you could reduce spending and then allocate those funds toward a credit card payment instead? Are there small lifestyle changes you could make to reduce spending? For example, using a reusable water bottle, walking to more places to save on gas or cab/Uber/Lyft fare, or reducing the number of times you eat out.
If you have multiple debts, like credit cards, consolidation might be a better fit. Some credit cards offer low introductory rates on balance transfers, or a personal loan may even be the answer.
Save, Save, Save
Most of us know how unpredictable life can be, which is exactly why having a healthy savings account is so important in avoiding or lessening financial struggle in the case of emergency. Establishing an emergency fund is often advised before tackling other debts, and the ideal amount you should aim to save is three to six months’ worth of living expenses.
If you already have a good chunk in your emergency fund, start working toward your other savings goals. Maybe you’d like to save more for retirement, or maybe you’d like to take that trip to Europe you’ve been planning in your head for years. Look for areas in your budget that you can adjust to help you save toward those goals. Another good tip? Start saving all your $1’s and $5’s – it’ll add up faster than you think.
Plan for the Future
Even if you’re young and just starting out in your adult life and think you’ll start saving for retirement later, don’t – retirement is a huge expense! The average American spends 20 years in retirement, and experts estimate you will need to save 70% to 90% of your pre-retirement income to maintain the same standard of living after you stop working.
Take advantage of your employer’s retirement plan and contribute as much as you can. If you have a 401(k) plan, your employer will match your contributions, usually up to a certain amount based on how long you’ve worked for them. If you don’t have retirement benefits through your workplace, you still have options, such as a Roth or Traditional IRA, or if you don’t know what your best option for retirement is, we can help.
The Big Do-Over: Win $20,000
We’ve all heard the saying “Life comes at you fast.” Maybe you racked up student loan debt or your credit card balance slipped away and got out of control. You aren’t the first person and certainly won’t be the last. What if you were able to get a do-over and possibly eliminate that debt? That’s what Q100 and Georgia’s Own want to give you with the Big Do-Over. We’ve teamed together with Q100 to give away $20,000 to fix your financial situation and there are 2 ways you can enter:
- Come by any of our get-togethers. 10 people will walk away with a $250 Checking Account from us. And you’ll be qualified for the Big Do-Over.
- Enter for your chance to win by telling us why you deserve a do-over by clicking here.
Thursday, Nov. 10th – Sweetwater Brewery
6:30 PM – 7:30PM
Sunday, Nov. 13th – Red Brick Brewing Co.
2:00PM – 3:00PM
Thursday, Nov. 17th – City Winery
6:30 PM – 7:30PM
Sunday, Nov. 20th – TBD
2:00PM – 3:00PM
Thursday, Dec. 1st – Finale/TBD
6:30 PM – 7:30PM
For complete rules of the contest, CLICK HERE.
Tips for how to get your credit card balances down
Revolving debt can wreak havoc on your financial health, especially when your spending is compounded by high interest charges. For many, it’s tough to regain control. Until you do, you’ll never be able to successfully manage your revolving credit and develop a realistic plan to reduce your debt.
Here are some tips to help get your credit card balances to a more manageable level and get your spending back in check:
Prioritize your debt. Your highest interest rate accounts are the ones that are have the strongest negative impact on your finances, so focus on them first. It might be tempting to simply pay off those pesky, little, low-interest balances, but stay on course. Managing your debt takes time and discipline. Having a plan of attack is critical.
Pay more than the required minimum payment. A specific amount of your payment is designated to pay down interest so you’ll need to make a bigger payment to reduce the outstanding principal. Curious about how long it will take to pay down your balance using different payment schedules? Check out one of the many online payment calculators to see which amount works best with your budget and goals.
Make a lump sum payment whenever possible. Did you get a bonus at work? How about your tax return? Those additional payments will make a substantial impact on lowering your outstanding balance.
Avoid additional fees at all costs. Companies make every effort to discourage delayed and missed payments as well as above credit limit spending, so consequential fees are typically an expensive slap on the hand. Be sure you’re organized in your bill paying and diligent about your limits so your hard earned money is not spent paying for something that can easily be avoided. Both of these oversights can cause an increase in your interest rate, which will obviously hinder your progress.
Leave your credit at home. When paying down your debt, the last thing you want to do is to increase your existing balance. Now is the time to seriously look at your budget and realistically consider what expenses you can afford. Without a credit card readily available, you’ll consider your purchases more carefully, especially when you’re paying with the cash you have on hand or with your debit card.
Ask for help. Georgia’s Own Credit Union has a Member Solutions department that is able to offer their members assistance in managing their debt. Sometimes it’s just too overwhelming. They’re experienced and knowledgeable representatives are there to answer your questions and help you put a realistic plan in place to get you back on your feet.