Financial Education Resources

The past year has taught us that we have to be as prepared as possible for the unexpected. While we all have future savings goals, having an emergency fund to support present, unaccounted needs (like a car breakdown, dental bill, or even a last-minute fun treat) should be a top priority. If you do not have emergency savings, you are flying without a net. Without emergency savings, even a small setback could send you on a downhill spiral, one that could set your finances back and make daily life even more difficult.

Experts agree that workers should put away three to six months in living expenses, yet few people have saved that much. If your finances are lacking, you need a plan to catch up. Here are nine ways to boost your emergency savings quickly.

1. Bank your change 

Your spare change can be the key to a more robust emergency stash. Just empty your pockets every time you come home, then deposit that loose change when the jar fills up.

2. Split your paycheck 

Diverting a portion of your paycheck to a savings account is a great way to build an emergency fund quickly. This forced savings also forces you to live on less than you make, a financial discipline that will serve you well later.

3. Negotiate your monthly bills 

You may not be able to negotiate a lower rent with the landlord, but you have more bargaining power than you think. From the cable company to your internet service provider, you may be able to negotiate a better rate and pocket the savings.

4. Trim your budget by 10% 

Implementing a 10% across-the-board cut in spending can help you build your emergency fund and provide additional fiscal discipline.

5. Invest your tax refund

If you are in line for a big tax refund, use that cash to boost your emergency savings and give yourself peace of mind. Instead of spending your yearly windfall, turn it into a lasting investment in your future.

6. Get a side hustle

Increasing your income is a great way to build your emergency reserves, so look for a suitable side hustle. There are more ways to earn extra cash than ever before, and the money you earn will go a long way toward solving any financial shortfall.

7. Find a better savings interest rate 

You work hard for your money, and your money should return the favor. If you are stuck in a low or no interest savings account, seeking a higher interest rate can help you boost your emergency reserves that much faster.

8. Set a weekly and monthly savings goal 

If you do not know where you are going, you are unlikely to get there. If you want to build up your emergency savings, set a weekly and a monthly goal. Be sure to track your progress to make sure you stay on track.

9. Keep your emergency cash as inaccessible as possible 

Having extra money around can be tempting, so make your emergency fund off-limits. Stashing the cash in a separate account, or a different financial institution, is a great way to reduce temptation. 

Financial experts recommend that all workers have at least three to six months worth of living expenses tucked away, but doing it can be a real struggle. If your emergency fund could use some help, the nine tips listed above can help you get started.

Life is unpredictable. Whether it’s a medical emergency, job loss, or unexpected car repair, financial surprises can throw your budget into chaos. That’s where an emergency savings account comes in. It acts as a financial safety net, providing security and peace of mind when the unexpected happens.

Life’s curveballs can lead to debt

Without an emergency fund, you may be forced to rely on credit cards or loans to cover sudden expenses, leading to debt and financial stress. Here’s why having one is crucial:

• • • Prevents debt accumulation: Avoid high-interest debt by having cash on hand for emergencies.

    • Provides financial stability: Knowing you have funds available reduces stress and uncertainty.

    • Protects long-term savings: Keeps you from dipping into retirement or investment accounts during crises.

What an emergency fund covers

An emergency savings account is for unplanned, essential expenses, such as:

• • • Medical bills and unexpected healthcare costs

    • Car repairs or sudden home maintenance issues

    • Job loss or income disruption

    • Family emergencies requiring immediate financial support

It’s not for discretionary spending, vacations, or planned expenses like a new phone or a holiday gift fund.

How much should you save?

Financial experts recommend saving three to six months’ worth of essential expenses. However, starting small is better than not saving at all. A good initial goal is $500 to $1,000, then gradually increase it over time.

How to set up an emergency savings account

1. 1. 1. Choose the right account: Opt for a high-yield savings account to earn interest on your money.

      2. Automate your savings: Set up automatic transfers from your checking account to your emergency fund.

      3. Start small and grow: Begin with a manageable amount, like $25 or $50 per paycheck and increase contributions when you can.

      4. Save unexpected money: Put bonuses, tax refunds, or side gig earnings directly into your emergency fund.

      5. Avoid unnecessary withdrawals: Keep your emergency savings separate from everyday spending to avoid temptation.

An emergency savings account is one of the most powerful financial tools you can have. It provides peace of mind, prevents unnecessary debt, and helps you stay financially secure during life’s surprises. Start small, stay consistent, and watch your safety net grow.

For most people, buying a home is both an exciting and challenging venture—it is the quintessential American dream. However, because of the high costs involved, saving for home purchase takes commitment, research, and sometimes sacrifice. This fact sheet will provide general information on the costs involved and the types of expenditures you will need to save for in order to buy your first home.

The Down Payment

The down payment will be the most significant outlay of your pre-purchase costs. The rule used to be that you needed to put down 20% of the purchase price, and you would obtain an 80% mortgage. Today, homebuyers can buy a home with as little as three to five percent down. If you do put less then 20% down, you will probably have to purchase private mortgage insurance, which will cost you between .5% to 1% of the loan amount until your equity reaches the full 20%. Keep in mind that the more you put down, the less your mortgage payment will be.

Earnest Money

Earnest money is a cash deposit you make when you submit your offer, which proves to the seller that you are serious about wanting to buy the home. Your real estate broker will deposit the money into an escrow account, and if your offer is accepted, it will be applied towards the down payment. If the offer is rejected, it will be returned to you. Typically the earnest money deposit will be about two percent of the price of the home.

Closing Costs

Closing costs include all fees required to execute the sale transaction, such as attorney fees, title insurance, appraisals, points, and tax escrows. Typically these fees are paid up front. The average cost is three to five percent of the purchase price.

Post-Purchase Reserve Funds

You may also need to prove to the lender that you have some reserve funds to protect against potential cash flow problems. This not only is assurance for the mortgage holder, but is also for your peace of mind. Post-purchase reserve funds should be at least two to three months’ worth of housing payments. This money is recommended to be in a savings account and accessible without penalties for early withdrawal (though money in a retirement account can also be counted toward the reserve requirement).

Cost Breakdown

So how much money will you need to come up with to buy a home? The actual figure depends on many factors. You may have to save more or less for the same home depending on current interest rates, whether you get a fixed or an adjustable rate mortgage, repayment terms, and your credit rating. Other expenditures you may want to save for are landscaping, immediate repairs, redecorating, furnishings (particularly if you are moving into a much larger space), and moving expenses.

Example for a $300,000 Property:

20% Down payment $60,000
3.5% Closing costs $10,500
3 Month reserve fund* $5,625
Total estimated pre-purchase costs $76,125

* $1,875 per month for Principal, Interest, Taxes and Insurance. Example based on a 30-year fixed mortgage, 6% interest, $2,436 annual property tax and $2,796 annual homeowners insurance.

Educate Yourself

Obtaining high quality, objective home ownership education is essential for first time homebuyers. The Department of Housing and Urban Development (HUD) can put you in touch with the nearest housing counseling professional in your area by calling (800) 569-4287. You will learn how to develop a reasonable savings goal and time frame, how large a mortgage you qualify for, and the approximate price range in which you should be looking. You will also be given feedback about your credit score, and what you need to do in order to make improvements. Suggestions may include increasing income, paying down debt, closing unused accounts, paying collection accounts, correcting errors, and making timely payments for a specific time period.

Review Your Spending Plan

Analyze your current financial position by reviewing all assets and liabilities. Do not overlook any source of funds. Include all checking and savings accounts, CDs, stocks, mutual funds and savings bonds. Retirement funds such as a 401k or an IRA can be counted toward the reserve requirement. You may even be able to borrow against your 401k plan and use the proceeds toward the down payment (check with your human resources department for details and restrictions).

Prepare a cash flow spending plan to determine how much you can realistically save each month. You may choose to sacrifice some expenses or delay the purchase of non-essential items in order to meet your monthly goal.

Save Effectively

Some good techniques for effective saving include:

• • • Set up direct deposit with your employer, where a portion of your income is siphoned directly to a savings account. What you don’t see, you don’t miss.

    • Track your spending. Awareness leads to diligence and thrift.

    • Get the family involved. It is easier to save when everyone is excited and working towards the same goal.

    • Tape a photo of the home or type of home you are saving for on the refrigerator or computer. It will be a constant reminder of your objective.

Ultimately, saving for a home is a choice. If you find your savings plan to be unfeasible, consider extending the time frame.

Conversely, if you really want to stick with the original time frame, you may want to buy a home that has a smaller purchase price—and buy “up” later. The idea is not to abandon the dream, but to reassess, reorganize, and reengage!

It is easy to think of wealth as something that happens overnight. The media often emphasizes rags to riches stories, forgetting how rare those scenarios are. News sites share stories of happy lottery winners, reports that also overlook the enormous odds ticket buyers face when they lay down their hard-earned money.

Given these misperceptions, it is easy to see why so many people haven’t taken the steps that could help them achieve their financial goals. Goals that may seem unattainable. With discipline and hard work, building wealth is possible. Here are a few strategies and everyday habits that can make wealth building easier.

Pay yourself first

Pay yourself first, or “PYF,” is perhaps the most effective wealth-building habit and one of the easiest to implement. With this simple strategy, you direct part of every paycheck to a savings account, mutual fund, or other investment vehicle, forcing yourself to live on less than you make.

Know how much is in your accounts

There is a reason why financial institutions make so much money on overdraft fees – a shocking number of account holders have no idea how much money is in their account. As a result, they are blindsided when writing a check or withdrawing cash from an ATM sends their balances negative. Knowing how much is in the account is an essential first step toward controlling unexpected costs and taking control of your finances.

Prioritize fee reduction and demand real value for your money

Those who manage to build wealth know that prioritizing fee reduction is a vital first step and that every dollar not spent on management costs is one more dollar that can be invested. The wealthy, and those on their way, always demand value for the money they spend on their investments.

Deposit (or invest) raises, bonuses, and other found money

If you want to build wealth, start by putting bonuses and other found money in a savings account or investing the cash in a mutual fund or other low-cost investment. When wealth builders get extra money, they avoid lifestyle inflation, opting instead to beef up their savings and investment accounts.

Take advantage of tax savings

From 401(k) contributions to IRA accounts to health savings accounts, some types of investments have a double and even triple advantage. One of the most effective ways to build wealth is to prioritize investments that offer tax savings and the promise of tax-free withdrawals. Consult a tax advisor to determine the best strategies for your situation.

Develop multiple streams of income

One of the fastest ways to build wealth is to bring in extra money, which starts with developing multiple income streams. That could be a side hustle, a home-based business, or even rental real estate. The idea is to generate extra cash, money that can be saved and invested.

Save on everyday purchases

People who are successful at building wealth look for ways to save money on everyday purchases. These people choose generic and store-brand products when they go grocery shopping. You might even see them scanning the racks of the local thrift store for gently worn designer duds and used but still pristine furniture and home décor.

Take the long view

Building wealth will be a slow and steady process unless you are the one in several million who buys that winning lottery ticket. If you want to succeed, it pays to adopt the long view, saving consistently, taking calculated risks, and tracking your progress over time.

Conduct an annual financial review

Successful wealth builders know where they stand and where they are going. So they conduct annual reviews of their finances, including emergency savings, investments, insurance, and all other expenses.

Building wealth is not an easy process; in many cases, it is not fast either. If you want to build wealth for the long term, start today, and adopt these smart habits that can help you succeed. The strategies listed above can help you get started, one dollar, and one day, at a time.

No doubt about it, medical expenses – even if you have health insurance coverage – can be steep. However, if your policy has a high deductible, you may be able to use a Health Savings Account to pay for some very common (and often pricey) out-of-pocket medical expenses at a tax advantage.

Why Have an HSA?

Health Savings Accounts (HSAs) are vehicles that allow you to save for certain medical expenses that aren’t covered by insurance with pre-tax dollars. Contributions to these accounts not only reduce your taxable income, but withdrawals and investment earnings are tax-free as long as you use the money for qualified healthcare costs. Even better, you can deduct your HSA contributions on your income taxes, whether you itemize or take the standard deduction.

HSAs are only compatible with high-deductible health insurance plans. A deductible is the amount of money that you are responsible for before your insurance coverage begins to pay out. The upside to high-deductible health insurance plans is the affordable premiums. The downside, however, is that you could be out thousands of dollars before your insurance company pays a penny. HSAs were developed to bridge this gap. Because of all the tax advantages, they can greatly reduce the amount you have to pay for those uncovered medical costs.

Who Can Open an HSA?

In order to be eligible for an HSA, you must meet certain conditions:

• • • You are covered under a high deductible health plan (HDHP). Read more about these types of plans here.

    • You have no other health coverage except what is permitted under Other health coverage.

    • You aren’t enrolled in Medicare.

    • You can’t be claimed as a dependent on someone else’s tax return.

How to Set Up an Account

If you buy the insurance policy on your own, you can sign up for an HSA at such financial institutions as banks, credit unions, and insurance companies. Your insurance agent should also be able to help guide you to policies that qualify for HSAs.

Many people have group health insurance coverage through their employer, and if that policy qualifies as high-deductible, you will be able to sign up for an HSA during your open-enrollment period. Depending on your company’s policy, your employer may fund all or a portion of the HSA, or they may match contributions.

What are Qualified Medical Expenses?

You can withdraw the money you deposit in an HSA to pay for such routine health care costs as:

• • • Dental care

    • Maternity expenses

    • Long-term care insurance premiums

    • Mental healthcare

    • Physical therapy

    • Alternative healthcare (including acupuncture, homeopathy, traditional Chinese medicine, and nutritional consulting)

    • Ambulance fees

    • Preventative healthcare (including blood tests, vaccines, and lab tests)

    • Prescription drugs

    • Special needs health care (including wheelchairs, guide dogs, and special classes)

Restrictions

HSAs have maximum annual contribution limits. While there is no “use it or lose it” rule (any money you don’t spend simply rolls over for the next year), there are spending limits. Each year these restrictions change, so check with the IRS for account limit information: log on to www.irs.gov, or call their toll-free hotline: 1-800-829-1040.

Also, be aware that if you use the money for non-medical expenses before the age of 65, you will be charged a 10 percent early withdrawal penalty, and will have to pay income taxes on the amount you take out.

HSAs make good financial sense, but they don’t open by themselves – it requires action on your part. Therefore, if you have a high-deductible health insurance policy through work, talk with your human resources department to find out how (and when) you can sign up. If you obtain the policy on your own, contact your financial institution or insurance agent. You will need to decide how much money you want to contribute, and if you want to use the plan to pay for current medical costs or if you’d rather invest for future expenses.

Most parents have already heard the bad news: a college education has never been more expensive. Many, in fact, are still paying off their own student debt and would like their children to avoid that burden. The good news is that there’s a lot parents can do to help their children and make the costs of college more manageable.

1. Invest in a Tax-Advantaged 529 Account

The 529 account is an education savings account and it’s a fantastic deal to save for education expenses for a child, grandchild, or even yourself. Though contributions to 529s are not tax deductible, the account’s earnings are not taxed when you use the money for qualified education expenses – things like tuition, books and even room and board. Start automatic deposits from your paycheck when your child is young and you could have a substantial nest egg when she’s ready for college.

2. Apply for Financial Aid

You have to be poor to receive financial aid for college, right? Wrong! While many scholarships and grants are needs-based, many other financial aid opportunities are merit-based. So, if your child does well academically, or meets other specialized criteria, she may qualify for assistance even if you are affluent. For example, many colleges and universities have endowments and use this “institutional aid” to attract promising students – and not just athletes – to their programs.

When exploring your options, keep an eye out for scammers. While there are reputable college financial planners, no legitimate scholarship program will require students to pay to apply for aid. And, of course, be wary of any college funding strategy or investment that sounds good to be true!

3. Explore Local Community Colleges

Academically-speaking, community colleges offer a phenomenal value for meeting almost any degree program’s general education requirements. Plus, students at community colleges often benefit from close teacher-to-student ratios, while many university and four-year college GE classes aren’t even taught by full-time faculty. There are also huge savings on room and board when a child attends a local institution and can continue living with mom and dad. Just remember to investigate requirements for transfer students to ensure that preparatory coursework will be accepted by the student’s chosen degree program.

4. Borrow Sensibly

Even with financial aid and parental support, many students will still need to take out loans to pay for college. The key is to limit borrowing to an amount the student can reasonably be expected to pay back in ten years or less. The lower the loan amount, the better, but a good rule of thumb is to borrow no more than the expected first year’s salary.

5. Let Your Child Have Skin in the Game

If the money’s there to pay all of your child’s college expenses, it’s all good. However, parents who skimp on critical goals — like saving for their own retirement – to pay for a child’s education, may never recover from the financial hit. Remember, your child can pay for college with a combination of student loans and work earnings, but you can’t get a “retirement” loan to pay expenses when you’re no longer working!

If you’d like to save for your child’s future higher education expenses while also reducing your tax liability, consider opening a 529 plan. They come in two basic varieties: the college savings plan and the prepaid tuition program. Both are easy to set up and offer the same tax advantages.

College Savings Plan

Every state has at least one 529 savings plan available. You may use whichever state’s plan you like, and can use the money you save and invest at any accredited college or university in the United States.

Each state’s college savings program offers several different investment choices, so shop around for the plan that best meets your financial and educational needs. For example, some begin with aggressive investments and gradually become more conservative. Others offer a “guaranteed option” which protects your principal, but also provides for some investment growth.

Prepaid Tuition Plan

Prepaid tuition plans allow you to buy all or part of a public in-state education at today’s prices. The value of the investment is guaranteed to at least meet college tuition inflation. This can give you a lot of peace of mind. The plans offer a better rate of return than savings accounts and certificates of deposit, involve no risk to principal, and often are guaranteed or backed by the state.

Pre-paid tuition plans are offered by individual states (although not every state has one). The tuition guarantee is based on an enrollment-weighted average of that state’s public college tuition rates. Therefore, if your child does go to an in-state public college, the plan will cover his tuition and fees. However, if he attends a private or another state’s public college, the plan will pay the average of the in-state public college tuition. In other words, you won’t lose the money, but there may not be enough to cover the new institution’s cost. In that case, you’ll have to come up with the difference.

Tax Advantages – And Drawbacks 

With both college savings and prepaid tuition plans, as long as you use the investment for qualified education expenses, you won’t have to pay income tax on the earnings. For the savings plans, qualified expenses include tuition, books, supplies, and room and board if the student is enrolled at least half time. In contrast, the prepaid programs typically just cover tuition and room and board. If you use your own state’s plan you may also qualify for a state tax deduction. Your contributions, however, are not deductible on your federal tax return.

If you take any money out for non-educational purposes, the earnings portion of the “non-qualified” withdrawal will be subject to income tax, and you’ll have to pay a 10 percent penalty tax. Some states even add an additional 10 percent penalty for early withdrawal.

If Your Child Doesn’t Need or Use the Money

If your child does not end up going to college, you can change the beneficiary to another qualifying family member who will go. Doing so will enable you to avoid the expensive penalties for non-qualified withdrawals. Also, if your child receives a scholarship and doesn’t need all or some of the funds that you saved in the plan, you won’t be penalized for the remainder of the money you withdraw.

Be aware that if the person for whom the account was originally intended dies or becomes disabled (and you don’t transfer the account to someone else), you will not be charged the penalties when you terminate the account and withdraw the funds.

Who Can Use 529 Plans

Everyone is eligible to take advantage of a 529 plan. There are no income limitations or age restrictions. While most people use these plans to save for their children, you may use them for anyone, including yourself.

529 Plan Management

One of the advantages of a 529 plan is that you don’t have to do much to manage the account. Either the state treasurer’s office or an investment company that is hired as the program manager does that for you. All these professionals come with a price though: management and fund fees can be high, and in some cases even outweigh the plan’s benefits. Also, several plans charge one-time enrollment fees, which range from $10 to $90.

How to Open a 529 Plan

To know what each state is offering and to compare and contrast plans, visit the College Savings Plans Network’s website: www.collegesavings.org, or Savingforcollege.com at www.savingforcollege.com. Many financial institutions offer information about 529 plans, and the option to enroll in the plan with them as well.

After you decide which 529 plan to use, you just need to complete a simple form and make your first contribution – which can be as low as $25. Be sure to sign up for automatic deposits to make savings easy.

Saving for college with tax-advantaged investment vehicles makes good financial sense. Higher education can be a major expense, and saving and investing early will help you achieve this goal efficiently.

Buying with plastic can cost you little or plenty, depending on how you use it. Knowing the true price of credit before you charge can save countless dollars and hours of anxiety.

Be aware of your grace period. You typically have between 21 to 30 days before interest is assessed. Some creditors only charge interest on carried-over balances. Generally, there is no grace period for cash advances. Interest accumulates immediately, and in most cases you will also be charged a service fee, making this a very costly form of credit.

Currently, the average credit card annual percentage rate (APR) is around 15%, but make two late payments and it can skyrocket into the twenties. Though seductively low introductory and balance transfer rates do exist, such deals expire quickly. Compare a $2,000 debt with 15% APR with the same balance, but 25% APR:

There are numerous fees to be aware of—and avoid. Some issuers charge annual, inactivity, and closure fees. Creditors who charge such fees target an uninformed population, or those whose credit is already damaged.

Forgot to pay your credit card bill? Pre-dating your check and hoping they won’t notice is a good (but futile) try. Chances are you’ll be assessed a late fee, generally between $15 and $35 (depending on the number of occurrences and balance on the account), if you are just a day late from when your payment is due.

Over-the-limit fees are another type of penalty. If you are already teetering at your credit limit, one late fee can push you over, and you will be charged an additional fee until you pay the balance down. However, ever since the Credit CARD Act of 2009, borrowers have to opt in in order to spend over the limit before getting charged a fee. Many credit card companies have done away with this fee and option altogether.

Understanding the true price of credit before making purchases can help you make wise decisions. By keeping balances low, paying on time, and researching your credit options carefully, you can keep the costs—and aggravation—to a minimum.

Credit cards are a valuable financial tool for both individuals and businesses–but they come at a price.

You get purchasing power on the spot, and the creditor only requires you to pay off a small amount of the total every month, i.e., the minimum amount due. However, it’s important to remember that the minimum is calculated in the best interest of the creditor, which puts you at a disadvantage.

Here are some important reasons why you should always pay more than the minimum due on your credit card.

1. Save Money

When you only cover the minimum every month, you end up paying more in interest. The minimum payment exists to ensure that interest fees are covered, with only a small amount going toward the actual balance.

For example, suppose you have a $3,000 balance with a 14 percent APR (Annual Percentage Rate). Your minimum payment would be around $65. By the time you pay it off, you will have paid an additional $1,332 in interest.

On the other hand, if you were to pay $100 every month instead of $65, you would only pay $713 in interest.

2. Get to Debt-Free Faster

The more you pay, the quicker you’ll be debt-free. Using the same example, it would take 67 months to pay off the original $3,000 balance, along with all that extra interest. That’s 5.5 years!

Paying $100 per month instead would clear the debt out in approximately 38 months, which is just over three years. Of course, this is provided you’re not adding additional charges to the card and that your APR remains at 14 percent.

3. Raise Your Credit Score

The ratio of your balances to your credit limits is called “credit utilization.” This ratio actually accounts for 30 percent of your entire credit score.

For example, a credit limit of $2,000 with a balance of $500 would mean that you have a credit utilization of 25 percent. A lower ratio is better because it shows that you’re using only a small amount of the total credit that has been extended to you.

If you’re only paying the minimum, your balance remains high relative to your total credit limit. This will cost you some points on your score. Naturally, this also means that when you begin making higher payments that quickly bring down your balance, you’ll likely see an increase in your credit score to reflect this change.

So what’s the solution to avoiding the minimum payment trap? Whenever possible, pay off your balances in full every month.

Deferred deposit loans, commonly known as “payday loans” (also called cash advance loans, check advance loans and post-dated check loans), have become an increasingly popular method for consumers to access fast cash.

How it Works

Bad credit? No credit? Not a problem. All a consumer needs to obtain a payday loan is a job, a phone, a utility bill, a checking account, and a driver’s license. The borrower writes a personal check payable to the lender for the amount they wish to borrow, plus a fee – typically 15% of the check. The check is usually held for two weeks, until the customer’s next payday, at which time the borrower either redeems the check by paying the face amount, or allows the check to be cashed. If the borrower can’t afford to cover the check, they may roll it over for another term by writing another check, which will result in another set of fees being added to the balance.

Consumers may be mislead into thinking that payday loans are a cheap and convenient way of borrowing money for the short term. However, with average annual interest rates ranging from 391% to 521%, payday loans are no bargain. Consider this example:

• • • Loan: $200

    • 15% fee: $30

    • Amount that must be repaid to lender: $230

    • Repayment period: 2 weeks

Paying a $30 fee on a $200 loan with a 2 week repayment period translates to an APR of 391%.

Consumers often have difficulty repaying the entire loan when their payday arrives because it will leave them with little or no money for their living expenses. Result: The consumer pays another round of charges and fees and obtains no additional cash in return.

Collection tactics for payday loans can be very aggressive. Lenders may require customers to sign an “Assignment of Salary and Wages” authorizing them to go directly to the borrower’s employer to ask for the amount owed to be deducted from the borrower’s paycheck and paid to the lender.

Breaking the Payday Loan Cycle

The average payday loan customer makes nine transactions a year – and maintains an endless sequence of debt. If you find yourself caught in the payday loan cycle, follow the steps below for relief:

• • • Analyze your financial situation in its entirety:

    • Set reasonable and achievable financial goals.

    • Understand your earning potential: Can you work overtime, obtain a second job, or turn a hobby into income?

    • Review your expenses: Can you reduce or eliminate anything in the short or long term?

    • Review your debt: List everything, then set priorities. Because the interest rates on payday loans are well above other types of debt, treat it as a financial priority.

    • Track your spending and regularly review your budget.

    • Commit yourself to not using payday loans in the future.

    • If you are using payday loans because you inadvertently overdraw on your account, consider overdraft protection.

    • Develop a savings plan. Three to six months’ worth of expenses in an accessible savings account is recommended, but anything is better than nothing. A hundred dollars set aside for emergencies can save you a trip to the payday loan company – and a tremendous amount in fees.

    • Understand the root of the problem. Are you spending beyond your means because you’re income is insufficient to live on, or because you’re spending more than you need to on non-necessities?

Other Ways to Generate Money

Difficult financial situations do happen. It is recommended that consumers consider all available options before choosing to use a payday loan:

• • • Ask your bank or credit union for a loan. The interest rate cap for small unsecured loans is currently 36% – significantly lower than a payday loan.

    • Request an extension on what you owe. If you have had a good payment history, this may be the best option. Ask about finance and late charges for delinquent payments and payment plans.

    • In an emergency, consider using a credit card to pay your bill.

    • A cash advance on your credit card is often more expensive than a credit card purchase, but still an option. Check with your credit card company to compare rates.

    • Borrow from a friend or family member.

    • Take inventory of your belongings. You may be able to sell an asset.

    • Some employers will give an advance on a paycheck. Check with your human resources department for specific regulations.

Laws that Protect Consumers

Under the Truth in Lending Act, the cost of payday loans – like other types of credit – must be disclosed. Among other information, you must receive, in writing, the finance charge (a dollar amount) and the annual percentage rate or APR (the cost of credit on a yearly basis). Collectors for payday loans must comply with the Fair Debt Collection Practices Act. Any complaint against a lender may be filed with:

Federal Trade Commission: (877) FTC-HELP or www.ftc.gov

Consumer Financial Protection Bureau: (855) 411-2372 or www.consumerfinance.gov/complaint

Your credit score can have a major impact on your life. Not only do creditors typically check your score when deciding whether or not to approve your loan application and what interest rate to charge you if you are approved, but landlords, insurance companies, and even employers often check it as well. Having a good score can help you achieve your goals quickly and at the lowest possible cost.

What is a Credit Score?

Your credit score is a mathematical assessment of the likelihood you will repay what you borrow. It is based on the information in your credit report, which tracks your credit-related activity. Types of credit include credit cards, store cards, personal loans, car loans, mortgages, student loans, and lines of credit.

For each account, your report shows who it is with, your payment history, the initial amount borrowed (for loans) or credit limit (for revolving credit), the current amount owed, and when it was opened/taken out. Your report also shows if you have experienced any credit-related legal actions, such as a judgment, foreclosure, bankruptcy, or repossession, and who has pulled your report (called an inquiry).

There are three major credit bureaus that compile and maintain credit reports: Equifax, Experian, and TransUnion. Theoretically, all three of your reports should be the same, but it is not uncommon for creditors to report to only one or two of the bureaus.

FICO Score

The most commonly used scoring model is issued by the Fair Isaac Corporation. Called a FICO score, it ranges from 300 to 850, with a higher score being indicative of less risk.

Generally, those with a higher score are more easily granted credit and get a better interest rate. A score of 700 and above is typically considered good, while 800 and above is excellent. However, most scores fall between 600 – 750, according to Experian.

If your score falls below 600, you will probably have a hard time getting a mortgage (many lenders require you to have at least a 620 or higher). To get the best interest rate, you usually need at least a 740.

The following are the factors that are used to calculate your FICO score:

• • • Payment history (35%): Making your payments on time boosts your score. Conversely, if you make a late payment, your score will take a hit. The more recent, frequent, and severe the lateness, the lower your score. Collection accounts and legal actions have a serious negative impact.

    • Amounts owed (30%): Carrying large balances on revolving debt, like credit cards, particularly if those balances are close to the credit limits, will lower your score.

    • Length of credit history (15%): The longer you have had your accounts, the better.

    • New credit (10%): This factor looks at the number and proportion of recently opened accounts and the number of inquiries. While many inquiries on your report will lower your score, all mortgage or auto loan inquiries that occur within a 45-day period are considered just one inquiry for scoring purposes. Accessing your own report is not damaging to your score nor are inquiries from pre-approval offers. Having new accounts can hurt your score, but if you have had a history of late or irregular payments, reestablishing a positive credit history will be taken into account.

    • Types of credit used (10%): Having a variety of accounts, such as credit cards, retail accounts, and loans, boosts your score.

Since your Equifax, Experian, and TransUnion credit reports do not necessarily contain the same information, your FICO score from each bureau may be different. When you apply for credit, the creditor may only check one of your scores or check all three and average them or take the lowest or middle score.

Improving Your Score 

Following these habits can boost your score:

• • • Always pay on time: Your payment history makes up the largest chunk of your credit score, so making your payments on time is extremely important.

    • Pay down existing debt: Even if you have never missed a payment, a large debt load will lower your score. Explore ways you can lower your interest rates and free up cash to make more than the minimum payments.

    • Avoid taking on additional debt: Besides paying down existing debt, make an effort to not take on more debt in the future. For revolving credit, ideally you should not charge more than you can pay off in full the next month, but at the very least, try to keep the balance well under half of the credit limit.

    • Check your report for errors (and report them): Many reports contain score-lowering errors, so make sure to check your credit report from the three bureaus at least annually. You can get a free copy of your report once a year from the Annual Credit Report Request Service. Note: Equifax and Experian handle their disputes online, while TransUnion lets you submit your dispute through their website, by phone or mail.

    • Keep your old accounts: A long credit history with the same accounts indicates stability.

    • Limit balance transfers: While transferring balances to “teaser rate” cards can be a way to efficiently get out of debt, it can also have a detrimental effect on your credit score. The accounts will be new and likely have balances close to the limit to maximize the advantage of the low rate – two factors that lower your score.

    • Avoid excess credit applications: When you apply for credit, your score decreases just a bit. If you do it frequently, a creditor may see it as a sign that you need to rely on credit to pay your obligations.

    • Be patient: It may feel like credit mistakes can haunt you forever, but remember that your payment history from the past two years is much more important than what happened before that. Also keep in mind that most negative information is removed from your report after seven years.

Obtaining Your Score

When you apply for credit, the creditor may provide you with your score at no cost. Otherwise, if you want to see your score, you typically have to pay for it. There are a variety of services that sell different types of credit scores, so when you are purchasing your score, it is extremely important to pay attention to what exactly you are getting.

Since it is the mostly widely used, it generally makes the most sense to purchase your FICO score. However, even then, keep in mind that you may not be seeing the exact same score a lender will see. (There are different versions of the FICO score available. Additionally, there are many creditors that use an internally-created scoring model in conjunction with or in lieu of the FICO score.)

Checking your credit score can be helpful if you are planning to get a mortgage or car loan soon, and want to have an idea if you will get approved or qualify for the best interest rate. Otherwise, you may just want to stick with checking your credit report, which is available for free. Remember, your score is based on the information that is in your report.

Contact Information

Equifax
www.equifax.com | 1-800-685-1111

Experian
www.experian.com | 1-888-397-3742

TransUnion
www.transunion.com | 1-800-888-4213

Fair Isaac Corporation
www.myfico.com | 1-800-319-4433

Annual Credit Report Request Service
www.annualcreditreport.com | 1-877-322-8228

In the modern world, almost everyone holds a credit card. A recent study revealed that 84% of American adults have at least one credit card and that are 572 million open accounts in the US.

The reach and popularity of credit cards have made it a major target of scammers. Many fraud schemes target credit cards, such as skimming (copying the credit card details electronically and duplicating the card), card theft, identity theft, phishing, vishing (voice phishing), card not present fraud, etc.

Here is how you can protect yourself from these credit card scams.

Types of Credit Card Fraud

Unfortunately, there are multiple credit card frauds you need to be aware of. The most straightforward of them all is the card theft. When you order a new card upon the expiry of your existing one, someone may steal the new card from your mailbox. Similarly, if you lose your card, an unscrupulous person may get his hands on it and may take advantage of your credit.

Card ID Theft happens when the fraudster comes to know the details of your card and tries to use those details to make charges with it.

Phishing is a scheme in which the scammer steals credit card details. It’s an online tactic in which the perpetrator, posing as a legitimate entity, solicits your credit card number, expiry date, and CVV number.

Vishing (voice phishing) is similar, but here someone pretending to be from the bank or the credit card company calls you to get more information about your card.

Card Not Present (CNP) fraud happens when the perpetrator uses your CVV number to pretend they are in possession of your card. Merchants use the CVV number to verify that you are in possession of your card when you make purchases online or over the phone. This verification is not required for in-store purchases.

If the fraudster somehow obtains your credit card number and expiration date, they can try to find the three-digit CVV number by trying various number combinations. They may try 1,000 different combinations before they succeed.

Credit Card Skimming is a fraud scheme in which an illegally modified point of sale (POS) machine is used to capture your card details. The details are then used to create a duplicate card that can be used to make charges to your account. A fraudster who wants to withdraw money using your card may even install a spy camera in an ATM to capture your PIN.

Protecting yourself from fraud schemes

Try not to let these schemes get you too stressed. If you’re careful, you can greatly reduce the potential damage to your credit. Here are a few precautions you can take to protect yourself from wannabe thieves.

1. Never share your credit card details

Actual employees from banks or credit card companies will never call you and ask you for the credit card number, expiration date, or CVV number as part of any verification process. Never divulge this information to anyone online or offline.

Always ensure you type in your bank URL on the address bar of your browser, rather than clicking a link in an email. Phishing perpetrators usually set up a website that looks similar to your bank’s website to fool you into handing over your credit card details.

Also be sure to look at the address bar and ensure the browser verifies the site’s security certificate. It may say “secure” or there may be a padlock symbol. Don’t enter your credit card details at any site whose security isn’t verified.

2. Keep checking your account

Instead of waiting for your monthly statement to scan for anomalies, keep checking your credit card account online at least once a week to ensure there are no unusual transactions. Small charges also shouldn’t escape your scrutiny. Small charges on your account may well be an indicator that someone is trying to test your CVV number. Be vigilant and ensure you inform your financial institution about any unusual charges you find.

3. Never let your card out of your sight

When giving your card for payment, ensure that it remains visible the entire time. Additionally, don’t give your PIN to anyone. Instead, insist on typing the PIN yourself on the POS machine. It may be difficult to check whether the POS device used by the merchant is genuine or has been modified to skim your card. If something doesn’t feel right, take your card back.

4. Check your credit report

You’re entitled to a free credit report every year from Equifax, Experian, and TransUnion through AnnualCreditReport.com. You can use this to check if your identity has been used by someone else to make transactions.

The credit report will give you detailed evidence of any fraudulent activities in your name. If you see some fishy activity, initiate a fraud alert with your credit bureau so that financial institutions or creditors are informed every time a credit request comes up in your name. You can initiate the fraud alert with only one of the above the above listed credit bureaus; the other two will receive automatic notifications.

5. Check where you swipe your card

There are many skimming methods to steal your card information. Sometimes it involves attaching a skimming device inconspicuously to the ATM. Gas stations, department stores, and other retail locations also may have compromised POS machines with a skimmer placed on them.

Usually, the skimmer on a POS machine can be detected if you look carefully for any ill-fitting parts. To get an idea of what to look for, check out YouTube videos on identifying a skimmer at a POS.

You might think it pays to be paranoid in today’s world. When it comes to credit cards, the main issue is their prevalence. Almost everyone has one, but only a fraction understands the technologies involved and the vulnerabilities present. However, if you’re careful with credit card and information, and make a commitment to continue to keep up with the latest scams, you can give yourself greater peace of mind.

Each of the three nationwide credit reporting bureaus – Equifax, Experian, and TransUnion – will provide you with a free copy of your credit report, at your request, once every 12 months. They have established one central website, telephone number, and mailing address to use for ordering your report. The credit bureaus will only be providing the free annual reports through this central location, not through their individual websites, telephone numbers, or addresses.

Web: www.annualcreditreport.com 
Telephone: 1-877-322-8228
Mail: Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281

You may get a free report from each of the three bureaus all at once, or stagger your requests throughout the year. If you request the report online, you should be able to view it immediately. Requests via telephone or mail will take approximately 15 days for processing.

Credit scores

The free credit reports do not include a credit score. A credit score is a number used to determine the level of risk you might represent if a financial institution were to lend to you. Many lenders use credit scores to determine whether to extend credit, and at what rate. The credit bureaus provide, for a fee, reports with scores.

Beware of free credit report scams

Unfortunately, with this opportunity to fight identity theft, there is an opportunity for fraud. The Annual Credit Report Request Service is the only authorized source for your free annual credit report from the three major bureaus. Neither the Annual Credit Report Request Service nor the bureaus will send emails requesting your personal information. If you get an email or see a pop-up ad that claims to be affiliated with the Annual Credit Report Request Service or www.annualcreditreport.com, do not reply or click on any link in the message – it’s probably a scam.

Other free reports

You have the right to request a free credit report directly from the credit bureaus under certain circumstances. These additional reports are not available through the Annual Credit Report Request Service. You may be eligible for free reports if:

• • • You have been denied credit, housing, employment, or insurance based on the information in your credit report within the last 60 days (from the bureau that supplied the information)

    • Adverse action was taken against you based on information contained in your credit report

    • You certify that you are unemployed and plan to seek employment within 60 days (one free report every 12 months)

    • You certify that you are receiving public benefits (one free report every 12 months)

    • Your report is inaccurate due to fraud (one free report every 12 months)

Contacting the bureaus

• • • Equifax
      800-685-1111
      www.equifax.com

    • Experian
      888-EXPERIAN (1-888-397-3742)
      www.experian.com

    • Trans Union
      800-888-4213
      www.transunion.com

Carrying consumer debt can weigh heavily on our minds, reduce our freedom of choice,  and cost us a ton of money in interest. Assuming you’ve got more than one debt to pay off, which method of debt repayment should you use?

The Snowball Method

The snowball method works as follows:

• • • Rank your loans from smallest balance to largest balance.

    • Pay above the minimum on the loan with the smallest balance. Pay the minimum balance on all your other loans.

    • When the smallest debt is paid off, take everything you were putting toward the account and add it to the payment for the loan with the next lowest balance.

    • Repeat the process until you’ve paid all debts.

The Avalanche Method

The avalanche method works as follows:

• • • Rank your loans from highest interest rate to lowest interest rate.

    • Pay above the minimum balance on the loan with the highest interest rate. Pay the minimum balance on all your other loans.

    • When the debt with the highest interest is paid off, take everything you were putting toward the account and add it to the payment for the loan with the next highest interest rate.

    • Repeat the process until you’ve paid all debts.

Which method wins out?

As you can see from above, both the snowball and avalanche method are similar in that they have you focus on a particular account while paying the minimum on all others. And when you’ve paid off one account, you redirect whatever money you allocated for it to the next one.

But when you do the math, the avalanche method usually will get you out of debt faster. That’s because you reduce the amount of interest you pay on the loan. For this reason, the bulk of money gurus tell people to attack high-interest accounts first.

But here’s the catch. For some individuals, it’s incredibly hard to stay motivated to stick to a debt repayment plan because they don’t feel the gratification that comes with being done with accounts. There’s some solid science behind this. Dopamine is a natural hormone that not only keeps people looking for new information and answers (motivation), it also helps them feel happy. The brain releases dopamine in anticipation of reward. So in theory, having multiple zero balances to look forward to along the way can make it easier to stick to a debt repayment plan.

Ultimately, which technique you use is your personal decision. Just be honest about your situation and habits and pick the strategy with which you feel most comfortable.

If overwhelming debt is causing you stress, you are not alone. Millions of Americans are suffering from anxiety and depression because they have difficulty paying their financial obligations.

Whatever the cause of the debt – be it over-spending, salary reduction, or emergency expenses such as medical bills – the action you take to beat the “bill blues” is the same.

Talk About It

If you are depressed about money problems, you may feel alone. Yet the moment you begin to discuss it, you will find you are not only in immense company, but that discussing it can make you feel a lot better. If you feel your “debting” is compulsive, you may want to talk to the professionals at Debtors Anonymous. Log on to www.debtorsanonymous.org or call 800-421-2383 to find a meeting near you.

Put It in Perspective 

Do you have your health? The love and support from friends and family? Focus on the good things that are happening in your life. It’s hard, but you are going to need to be optimistic to make positive changes.

Confront the Problem 

Rather than hiding from bill collectors, regain control by answering the calls. Be calm and rational. Understand the Fair Debt Collections Practices Act, a law that protects your rights as a consumer. Write to your creditors to explain your situation. Include what led to the problem (even if it was your “fault”) and how you plan to fix it.

Fight Inertia

Doing nothing, while easier than taking action, will get you nowhere. Get up and get out, but resist the urge to shop if your spending is out of hand. If you are already loaded down with debt, and keep receiving offers for more credit cards in the mail, destroy them and throw them away. Consider removing your name from promotional lists by visiting www.optoutprescreen.com or by calling 888-5-OPTOUT (888-567-8688).

Prioritize Your Spending 

Chances are, there are some expenses you can reduce or cut out that can immediately relieve some of the pressure. Review your spending plan and eliminate expenses that aren’t absolutely essential. Prioritize according to necessity – basic needs such as food, housing, utilities and children’s expenses come first, and everything else after those.

If overwhelming debt is causing you stress, you are not alone. Millions of Americans are suffering from anxiety and depression because they have difficulty paying their financial obligations.

Whatever the cause of the debt – be it over-spending, salary reduction, or emergency expenses such as medical bills – the action you take to beat the “bill blues” is the same.

It is not unusual for college tuition to cost $40,000 or more a year. Some students are able to pay for it with savings or get grants or scholarships. Many have to turn to student loans to finance at least some or all of their costs. Taking out student loans can pay off in the long run because having a college degree usually makes it easier to get well-paying jobs. If you borrowed a hefty chunk of change, repaying your loans may seem like a daunting task. Student loans payments can rival those of a mortgage, and most graduates aren’t bringing in $300,000 a year at their first job. However, there is no need to change your name and flee the country; it’s completely possible to repay your student loans and avoid default, even if you are facing economic hardship.

What Types of Student Loans Do You Have?

Knowing what types of student loans you have is very helpful, as it can affect repayment options. One important distinction is whether the loan is public (meaning the government is either the lender or guarantor of the funds) or private. There are three major federal student loan programs: the Direct Loan Program, Federal Family Education Loan (FFEL) Program, and Perkins Loan Program. The authority for schools to make new Perkins Loans ended in 2017, and final disbursements halted in 2018. As a result, students can no longer receive new Perkins Loans. The Direct Loan and FFEL Programs both offer Stafford and PLUS loans.

The Stafford loan is the most common type of student loan and can be either subsidized or unsubsidized. If your loan is subsidized, the government pays your interest while you are in school or a period of deferment. If your loan is unsubsidized, you are responsible for the interest as soon as the funds are disbursed. While you are in school or deferment, you can choose to either pay the interest as it accrues or have it added to the loan balance (capitalized). PLUS loans are made to parents and graduate students and are always unsubsidized. Perkins loans are always subsidized.

Private loans are made by lenders with no government involvement. They are generally not subsidized. While federal student loan holders have many options available to them under the law – such as alternative repayment plans and deferment (discussed more below) – private lenders are not required to offer these options.

What if you do not remember what types of loans you have? Look for your loan documents. You or your parents should have them somewhere. Also, you can call your lenders and ask. You can access information about federal student loans from the National Student Loan Data System. Contact information is located at the conclusion of this article.

When Do You Have to Start Paying Your Student Loans?

In general, you do not have to repay your student loans while you are in school, as long as you are enrolled at least half-time. For Stafford loans, your first payment is normally due six months after graduating. For Perkins loans, you are given nine months. For PLUS loans, the borrower is given the option of starting repayment either within 60 days after the funds are disbursed or waiting until six months after the student has graduated or dropped beneath half-time enrollment. The grace period is only 45 days after leaving school for graduate students. If you have private student loans, you should talk to your lender about when you have to start repaying them.

Who Should You Pay?

Student loans, like mortgages, are often sold by the loan originator on the secondary market. To further confuse matters, lenders sometimes hire a servicer – a third party who collects the payments. If you fell behind with your payments, it is possible that your loan was sent to a collection agency or, for federal student loans, your state’s guarantee agency or the Department of Education. Whenever a loan is sold or payment collection duties are transferred, you should be notified. If you are not sure who to pay, check your mail to see if you received a notice. You can also check your credit report or call the original lender. As discussed above, if you have federal student loans, you can find out where they are by checking the National Student Loan Data System. Be aware that information in the database may only be updated periodically.

Repayment Plans

For Direct and FFEL loans, there are several repayment options available:

• • • Standard Repayment Plan This is the default plan you’re put on when you start making payments. You pay a fixed monthly amount for 10 years – or less if the amount you borrowed was small. The monthly payment is the highest under this plan.

    • Graduated Repayment Plan Payments can start out as low as half of what the standard plan offers – but never below the interest amount – and are typically increased every two years. If you owe enough, you can combine this plan with the extended repayment plan. Otherwise, the loan must still be paid off in 10 years (for loans that entered repayment on or after July 1, 2006), meaning that the later payments will be higher than under the standard plan. This plan may be appropriate for you if your income is low now, but you expect it to increase significantly in the future.

    • Extended Repayment Plan This plan allows you to stretch the length of your repayment period to up to 25 years, which lowers your payment. You must owe at least $30,000 to use this plan.

    • Income-Contingent Repayment Plan (for Direct Loans only, excluding Parent PLUS Loans) Income and family size are taken into consideration when determining your monthly payment for this plan. For those with limited income, the monthly payment can be very low, maybe even less than the interest charges. The repayment period can last longer than 10 years, and any loan balance remaining after 25 years of payment is canceled.

    • Income-Sensitive Repayment Plan (for FFEL Loans only) Like with the income-contingent repayment plan, your monthly payment is based on your income. However, the payment must cover at least the interest, and the repayment period is limited to 10 years, so later payments will be higher.

    • Income-Based Repayment Plan (not available for Parent PLUS Loans) In order to qualify, you must have a certain level of student loan debt relative to your income and family size. Borrowers may be able to get a lower payment with the income-based repayment plan than the income-contingent or income-sensitive repayment plan. The monthly payment amount can be less than the interest charges, and any loan balance remaining after 25 years is canceled (10 years for Direct loans if you have a public service job). For FFEL loans, you have a right to switch your repayment plan once a year. Lenders can allow more frequent switching at their discretion. For Direct Loans, you can switch plans as often as you want. For FFEL and Direct loans, the standard repayment period for Perkins loans is 10 years or less. Alternative repayment plans are not available, but schools can extend the repayment period for low-income borrowers and those facing prolonged illness or unemployment. Alternative repayment plans may also not be offered for private loans, but if you are struggling, you can talk to your lender about the possibility of restructuring your loan.

Consolidation

Consolidation is the combining of existing loans into one new loan. You can consolidate all, some, or just one of your student loans. However, in general, you cannot consolidate a consolidation loan by itself. You may be able to get a lower payment by consolidating your loans. You do not have to be current with payments to consolidate – in fact, many delinquent borrowers use consolidation to get back on track. You cannot combine your private loans with your federal loans into a federal consolidation loan. You can consolidate your federal loans and private loans with a private consolidation loan, but this is not recommended, as you lose the rights granted to federal loans, such as deferment and alternative repayment plans.

Monthly Payment & Interest

The chart below illustrates the monthly payments and interest charges under each repayment plan for a Direct Stafford loan, based on a loan amount of $50,000, interest rate of 6.8%, and borrower with an adjusted gross income of $35,000 and family size of 1. These numbers are estimates only. Actual payments may vary. For the income-contingent and income-based repayment plans, it is assumed that there is an annual 3% increase in income and the poverty line.

Cancellation/Forgiveness

The circumstances in which a federal student loan may be canceled in full include the death or permanent disability of the borrower or attendance at a school where you were either falsely certified or the school closed before you could complete the program and you don’t complete a comparable program at another school. Some federal loans are eligible for full or partial forgiveness if you are a member in a uniformed service, teach or provide services to needy populations, work in a health care profession or law enforcement, or participate in a government volunteer program. Check with your school, lender, or employer for details about cancellation.

Student loans are extremely difficult to discharge in a Chapter 7 bankruptcy. You must prove that repayment would cause you undue hardship. You may include student loans in a Chapter 13 bankruptcy repayment plan. They must be repaid in full, but collections actions – such as wage garnishment – cease the moment you file.

If You Can’t Pay

If you find yourself unable to pay your federal student loans, you may be able to get relief with a deferment or forbearance. A deferment is a temporary suspension of payments. If your loans are subsidized, the interest will be suspended. If they’re not subsidized, interest will continue to accrue. Deferments are only permitted under certain circumstances, including enrollment as at least a half-time student, temporary total disability, enrollment in a graduate fellowship program, unemployment or other economic hardship, active duty in the armed forces, or participation in a rehabilitation program for the disabled. Forbearance is similar to deferment, only interest continues to accrue regardless of whether your loans are subsidized. Forbearance can also involve a temporary acceptance of smaller payments. Forbearances are granted for such reasons as a high monthly payment relative to your income, medical hardship or other unforeseen problems. If you have subsidized loans, obviously a deferment is preferable, but a forbearance is generally easier to obtain. Some private lenders may offer forbearances, but they are not required to do so.

A loan is considered in default if you don’t arrange a deferment or forbearance and are more than 270 days past due. The consequences of default are severe and can include aggressive collection tactics, tax refund interception, lawsuits, and non-judicial garnishment of up to 15% of your net wages. You will also be ineligible for deferments, alternative repayment plans, grants, and new student loans. Collection fees, which can be significant, will be added to your balance. Additionally, a default notation will appear on your credit report, and since there is no statute of limitations on student loans, the negative impact may follow you indefinitely if you continue to not pay. For federal student loans, you have a one-time right to get out of default with a “reasonable and affordable payment plan.” If they want you to pay an amount you feel you can’t afford, be persistent in pushing for an amount that you are comfortable with. It may be helpful to send them a copy of your spending plan. Once you make nine on-time payments (for Direct and FFEL loans you are permitted to miss one payment; for Perkin loans you are not) your loan is rehabilitated, i.e., taken out of default.

Resources

National Student Loan Data System
Allows you to look up information about your loans
800.433.3243
https://nsldsfap.ed.gov/login

Federal Student Aid Office
Gives information on loan repayment, forgiveness, deferral
and forbearance.
800.433.3243
www.studentaid.gov

National Consumer Law Center’s Student Loan
Borrower Assistance Project
Lays out repayment options for borrowers.
www.studentloanborrowerassistance.org

Living on a fixed income is hard for anyone, but for senior citizens, it’s especially challenging. Rising health care costs, insufficient retirement benefits, and longer life expectancies make a fixed income even more difficult. With limited dollars stretched in too many directions, many retirees have turned to credit cards to cover the shortfall. As a result, an increasing number of seniors find themselves having to repay large balances while still needing to cover necessary living expenses. However, if this sounds like you, don’t worry. You can take steps to relieve the pressure.

Take Swift Action

If you are just now finding that your income is insufficient to pay what you owe, do try to deal with the problem immediately. Communicating with creditors is almost always better and easier with a positive credit history and payment record behind you. If you wait until you miss payments, the debt goes into collections, or you are in the process of being sued, your options for improving the situation decrease.

In the meantime, if you know you can’t repay what you buy on credit, try to stop charging until you can. As much as you may need the supplemental income, credit cards are really short-term loans, and if you get in over your head, high interest rates and other fees can make them extremely expensive and difficult to repay—and make the problem worse in the long run.

Consider Your Whole Financial Picture

It is not uncommon for people with financial problems to overlook some possible ways to increase cash flow. So you know exactly what you have to work with, analyze your complete financial situation—you may have more to offer than you think. Your potential options may include:

• • • Permanent life insurance policy – If you have a permanent life insurance policy in which you’ve accumulated a substantial cash value, you may consider taking a cash-surrender loan to repay all or part of your debt. You can take out up to 96 percent of the investment portion while leaving the death benefit intact. The loan does not need to be repaid; the insurance company will recoup the balance (plus interest) after you die.

    • Savings and assets – Having enough money set aside for future expenses and emergencies is very important. However, if you have more than that tucked away and are holding onto high interest debt, you may consider using some of the savings to erode the balance. You may also consider selling unnecessary property too.

    • Employment – For some, going back to work is a reasonable and even attractive possibility to relieve a financial burden. If it is, your income may not be so fixed after all. However, if you are not able to work, do not unduly push yourself (or allow others to push you either). Your health and well being, particularly at this stage of your life, is too important to jeopardize.

    • Home equity/reverse mortgage – Many seniors are homeowners and have built up substantial equity in their homes. Use it to your advantage. Possibilities include selling the home and moving into a less expensive place, taking out a home equity line of credit or second mortgage, or obtaining a reverse mortgage (a loan against your home that you do not have to repay as long as you live there). Each of these options must be very cautiously considered, and entered into only after you know all of their positive and negative aspects.

Be aware that if your expenses continue to exceed your income, your problems won’t go away – they will just be delayed. The last thing you want to do is use up all of your resources, only to accumulate debt again. Be especially careful when tapping home equity. If you are unable to make the payments, you could lose your home to foreclosure.

Develop a Workable Spending Plan

Before contacting your creditors, gain a complete understanding of your finances so you know how much you have to offer. Develop a spending plan. List how much is coming in every month, and what all of your expenses are. It is exceptionally important to be realistic and conservative with your figures.

Subtract the total of your expenses from your income. The sum you have left over (plus anything you can get from other sources, such as home equity or selling assets) is the amount you can spread out among creditors. If you are in the red or there is very little to offer, you could try going back to your spending plan and reduce certain expenses to make up for it, at least temporarily. But if your spending plan is already pared down to essentials, avoid taking it down further. On paper you may be able to trim the amount you spend on groceries, but in reality it may be neither healthy nor doable.

Contact Your Creditors

Once you have a very good idea of how much money you have to offer, it’s time to contact your creditors:

• • • Write down a summary of your situation: how you got into debt, your inability to meet the payment, and how much you can offer for how long. Be specific and keep to the point. Notes are always helpful so you don’t get flustered or forget to mention key information.

    • Call each of your creditors and ask to speak to a manager or supervisor. Using your notes, explain your circumstances and proposed plan.

    • Be firm. If the minimum payment is $150, and all you have is $50 don’t promise more than you are reasonably able to give. If you can’t meet the payment, your credibility will be harmed, making future negotiation more difficult.

    • Keep a record of the person you spoke with, what was said, and the date and time of the call.

    • Back up your conversation with a letter or email. Write to each creditor, again outlining your circumstances and proposal. Include supportive documentation and if you have agreed upon a payment arrangement, a check (never send post-dated checks). Make and keep copies of everything. Mail letters from the post office so you can send it certified mail, return receipt requested.

Do not take it personally if you receive letters and phone calls that aren’t exactly polite. It’s not against you; the creditors do not know you as an individual. They just want the money and speaking in a gruff way sometimes gets the job done. Try to not be intimidated or scared.  That said, creditors should not get out of line.  If so, report them to the Better Business Bureau and your state’s Attorney General, who will investigate the matter.

Owing money is never a good feeling – but when repaying it is difficult or impossible due to income limitations and high expenses, the pressure can be terrible. If you are a senior citizen living with this kind of stress, make sure you take action by exploring all of your options and offering what you can. This way you can take pride in knowing that you are doing your very best.

The Fair Debt Collection Practices Act (FDCPA) makes it illegal for debt collectors to use abusive, unfair, or deceptive practices when they collect debt and it’s enforced by the Federal Trade Commission (FTC). The FDCPA does NOT regulate creditors or their internal collections departments, only collection agencies or lawyers who perform collection functions.

What are debt collectors not allowed to do?

• • • Threaten you with violence or harm, or use obscene or profane language.

    • Use the phone to harass you.

    • Lie or misrepresent the amount you owe.

    • Falsely claim you’ll be arrested or claim legal action will be taken against you if it’s not true.

    • They can’t engage in unfair practices such as trying to collect interest, fees, or other charges on top of the amount you owe.

    • Deposit a post-dated check early.

    • Threaten to take your property unless it can be done legally.

What types of debt are covered?

• • • Credit card

    • Auto loans

    • Medical bills

    • Student loans

    • Mortgage loans

    • Other household debts

Business debts are not covered under the FDCPA.

How can you be contacted by a collector?

• • • Phone

    • Letter

    • Email

    • Text message

When can a debt collector contact me?

Collectors can’t contact you before 8:00 a.m. or after 9:00 p.m., unless you agree to it. They can’t contact you at work if you tell them not to.

Can I tell a debt collector to stop contacting me?

Yes. You can send a letter by mail asking the collector to stop. In order to have a record of it, send it by certified mail with a return receipt. You may want to talk to a collector at least once to confirm whether it’s your debt or not. If it is your debt, you can find out more information about it.

If an attorney is representing you, inform the collector. The collector must then communicate with your attorney, not you, unless your attorney fails to respond.

What does the debt collector have to tell me about the debt?

Within five days of first contacting you, a collector must send you a written “validation notice” stating:

• • • The name of the creditor you owe
    • How much money you owe the creditor
    • What you can do if you don’t think the debit is yours

Can a debt collector contact other people about my debt?

A collector can’t discuss your debt with anyone by you, your spouse, or an attorney if one is representing you. Other people can be contacted to find out information such as your address, home phone number, and where you work.

Is there a statute of limitations on debt?

Yes, but it depends on what kind of debt it is and the laws in your state or the state specified in your credit contract.

Is there anything I can do if I think a debt collector has broken the law?

Violations should be reported to the FTC at 877-382-4357. A collector can be fined up to $1,000 for each violation. You can sue a collector directly up to one year from the time of the alleged violation.

Have a feeling you won’t be able to pay your bills? Are you already behind on payments? Resist the urge to hide your head in the sand and hope it will all just go away. Unless you take action, the situation will deteriorate, and your available options will be reduced. Here is how to gain control of the situation, prevent problems from escalating, and possibly even reverse damage.

Don’t Wait

If you know you won’t be able to meet your financial obligations before you actually miss a payment, contact your creditors immediately. You may be eligible for special programs that will keep your accounts in good standing. Waiting until you are behind will not only increase your balance because of hiked up interest rates and fees, but will damage your credit as well.

Be Honest

Never be less than truthful with a creditor. Chances are they’ve heard every story and excuse. If you are unable to pay a debt, explain why, even if it’s because you were “irresponsible.”

Stay Calm

Rather than succumbing to tears, threats, or panic, keep your cool. Getting overly emotional can cloud thinking and you could say something you later regret (e.g., “Go ahead and sue me then!”).

Be Conservative

Though it can be very tempting to offer more than you can realistically afford in a time frame you probably can’t meet, don’t do it. If you think you can send a payment in two months, ask for three. If you make a payment early, great, but if you fail to meet your self-imposed deadline, you may not get another chance for a break.

Offer Specific Solutions

Make your offer first. If you leave it up to the creditor to find a solution to debt that’s owed, you probably won’t like what you hear. You may ask for:

• • • A hardship plan (lesser or no payments for a specific period of time)

    • Reduced or eliminated fees and interest

    • Paying interest only on the debt until you can resume making monthly payments

    • A settlement (a lump sum payment that is less than the balance due)

Negotiate

If a creditor makes an offer to settle on a debt, don’t hesitate to ask for a further reduction. It doesn’t hurt to try.

Communicate With the Highest-Ranking Employee

Ask to speak with a manager or supervisor regarding your account. They usually have more authority to strike a deal or make payment arrangements than customer service representatives.

Keep a Journal

Keeping track of people you spoke with and what was said can be very confusing, and information can be conflicting. In a notepad or on a spreadsheet, list names, dates, times of day, and what transpired.

Write Letters

Corresponding by mail or email lets the creditor know you are serious and allows you to say what you want without getting flustered. It also provides proof of communication. Having hard copies of your correspondence can be a great asset if the circumstances become dire and you have to go to court. Letters should:

• • • Have your contact information and account number

    • Be addressed to a specific person or department.

    • Include a detailed explanation of what led to not being able to pay for the debt

    • Include the specific solution you are seeking

    • Provide documentation (e.g., unemployment or medical papers)

Don’t Send Post-Dated Checks

Though creditors may ask you to send post-dated checks, don’t do it. They can be cashed anytime. And if the checks bounce, your situation will become even worse.

Know What Can Happen if You Can’t Pay

When communicating with creditors, it is important to know what they can really do if you cannot pay what you owe.

• • • If a debt is secured, the collateral (such as a car) may be repossessed

    • If a debt is unsecured (such as a credit card, medical bill, or collection accounts), you may be sued for the amount owed

Know Your Rights

The Fair Debt Collection Practices Act regulates third party collectors’ collection practices, and state law (which often closely mimics the federal law) regulates original creditors collection practices. Become familiar with what creditors are legally able to say and do so you can stop them if they go beyond their legal parameters.

Maintain Contact

Even if you don’t hear from your creditors, continue to provide updates with your situation. It puts you in control.

1. Set S.M.A.R.T. Goals

Saving tends to be easier when you have a certain purpose in mind: Saving for your first house, your retirement at a certain age, a child’s college education, or even a trip around the world. The important thing is for your goals to be specific, measurable, actionable, realistic and time-bound, or SMART.

To develop a sound plan, these goals must have both a time frame and a dollar amount that is MEASURABLE. Once you have listed and quantified your goals, you need to prioritize them. You may find, for example, that saving for a new home is more important than buying a new car.

Whatever your objective, be SPECIFIC. Figure out how many weeks or months there are between now and when you want to reach your target. Divide the estimated cost by the number of weeks or months to make it ACTIONABLE. That’s how much you’ll need to save each week or month to have enough money set aside. Ask yourself, is this REALISTIC? Remember, a goal is a dream with a deadline.

2. Pay Yourself First

Save and invest 5-10% of your gross annual income. Of course, this can be much harder than it sounds. If you’re currently living from paycheck to paycheck without any real opportunity to get ahead, begin by creating a solid spending plan after tracking all monthly expenses.

Once you figure out how you can control your discretionary spending, you can then redirect the money into a savings account. For many people, a good way to start saving regularly is to have a small amount transferred automatically from their paycheck to a savings account or mutual fund. The idea: If you don’t see it, you don’t miss it.

3. Maintain an Emergency Fund

Before you commit your newfound savings to volatile and hard-to-reach investments, make sure you have at least three to six months’ worth of expenses saved in an emergency fund to see yourself through difficult times. Keeping it liquid will ensure that you don’t have to sell investments when their prices are down, and guarantee that you can always get to your money quickly.

If you have trouble deciding how much you need to keep on hand, begin by considering the standard expenses you have in a month, and then estimate all the expenses you might have in the future (possible insurance deductibles and other emergencies). Generally, if you spend a larger portion of your income on discretionary expenses that you could cut easily in a financial crisis, the less money you need to keep on hand in your emergency account. If you have dependents, you’d want to keep more money in your emergency fund to offset the greater risk.

4. Pay Off Your Credit Card Debt

If you’re trying to save while carrying a large credit card balance at, say, 19.8%, realize that paying off the debt is a guaranteed return of nearly 20% per year. Once you pay off your credit cards, use them only for convenience, and pay off the balance each month. If you tend to run up credit card charges, get rid of the credit card and go back to using cash, checks and a debit card.

5. Insure Your Family Adequately

A major lawsuit, unexpected illness, or accident can be financially devastating if you lack proper insurance. The key to insurance is to cover only financial losses so large that you could not cope with them and remain financially fit (known as the law of large numbers). If someone is dependent on your income, you need adequate life insurance. Long-term disability coverage is important as long as you need employment income. Also, be sure to carry adequate liability coverage on your home and auto policies.

To save on annual premiums, it might be feasible for you to raise your insurance deductible, or eliminate dual coverage. And whenever purchasing insurance – life, home, disability, or auto – be sure to shop around, and buy only from a reputable firm.

6. Buy a Home

According to the US census, since 1968, the median price of new single-family homes has gone up almost tenfold; many houses still appreciate at a rate of 6% to 8% annually. Further, home ownership entitles you to major tax breaks. Interest on first and second home mortgages is fully deductible, meaning Uncle Sam helps subsidize your property investment. Additionally, the equity in your home can be a great source of retirement income.

Through a reverse mortgage, homeowners can access the equity in their home without having to sell, and have the option of receiving monthly income for life (or chosen term) or opening up a credit line against the home’s value.

7. Take Advantage of Tax-Deferred Investments

If your employer has a tax-deferred investment plan like a 401(k) or 403(b), use it. Often, employers will match your investment. Even if they don’t, no taxes are due on your contributions or earnings until you retire and begin withdrawing the funds. Tax-deferred savings means that your investments can grow much faster than they would otherwise. The same is true of IRAs, although the maximum amount you can invest annually in an IRA is substantially less than what you can put in a 401(k) or 403(b).

8. Diversify Your Investments

When it comes to managing risk to maximize your return, it pays to diversify. First you need to diversify among the three major asset classes: cash, stocks and bonds. Once you have decided on an allocation strategy among these three investment classes, it is important to diversify within each asset. This means buying multiple stocks within a variety of industries and holding bonds of varying maturities. Simply put, don’t put all your eggs in one basket. Also, don’t make the mistake of putting most or all of your money in “safe” investments like savings accounts, CDs and money market funds. Over the long haul, inflation and taxes will devour the purchasing power of your money in these “safe havens”.

All investments involve some trade-off between risk and return. Diversification reduces unnecessary risk by spreading your money among a variety of investments. Aside from diversification, the single most effective strategy is to invest continuously over time, with a long-term perspective.

9. Write a Will

The simplest way to ensure that your funds, property and personal effects will be distributed according to your wishes is to prepare a will. A will is a legal document that ensures that your assets will be given to family members or other beneficiaries you designate. Having a will is especially important if you have young children because it gives you the opportunity to designate a guardian for them in the event of your death. Although wills are simple to create, about half of all Americans die intestate, or without a will. With no will to indicate your wishes, the court steps in and distributes your property according to the laws of your state. If you have no apparent heirs and die without a will, it’s even possible that the state may claim your estate.

To begin, take an inventory of your assets, outline your objectives and determine to which friends and family you wish to pass your belongings to. Then, when drafting a will, be sure to include the following: name a guardian for your children, name an executor, specify an alternate beneficiary and use a residuary clause which typically reads “I give the remainder of my estate to …” Once your will is drafted, you won’t have to think about it again unless your wishes or your financial situation changes substantially.

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As pension-style retirement plans have fallen by the wayside, the 401(k) plan has become the go-to option for many companies looking to help employees save for retirement. The 401(k) enables workers to set money aside, and not pay taxes on it or its earnings until they retire and begin withdrawing funds from the account. Here are some key things you need to know about these tax-advantaged accounts.

Contribution Amounts

One of the best things about tax-deferred retirement accounts like the 401(k) is that you make contributions pre-tax, so in addition to saving for the future, you’re reducing your income taxes right now. But there are limits, set by the IRS, to how much you can put away each year. These limits do change from time to time, so perform a quick search engine query to learn the latest numbers.

If your company automatically enrolls employees in their 401(k), the default contribution amount probably won’t be anything close to the maximum, but you can probably elect to contribute more. If contributing the maximum is not doable right now, one smart strategy is to funnel any future salary increases into your 401(k) until you reach the maximum contribution.

Matching Funds

As part of their employee benefit package, many companies will match employee contributions to a 401(k) up to a certain percentage. For example, say you make $50,000 a year and your company matches up to 3% of your salary. When you contribute 3% (that’s $1,500) to the 401(k), the employer match of that amount boosts your annual investment to $3,000. If your employer offers matching funds, be sure to contribute at least as much as you need to get the full match. Otherwise, you’re leaving money on the table.

Vesting

Any money that you contribute to your 401(k) is completely owned by you, from the start. Though your investments may go up or down, you still own it when you leave your employer. Some companies, though, impose “vesting” requirements on the matching funds they contribute to your account. They may, for example, require you to stay employed for a set amount of time before you’re entitled to (or “vested” in) the funds they contribute to your account. If you leave your job before fulfilling your employer’s vesting requirements, you may receive only a portion (or none) of the matching funds.

Investment Options

Most 401(k) plans have several options for investing your retirement savings and some may even offer the services of a financial advisor to help you choose the right mix for your age and investment goals. As a general rule, though, the younger you are, the more risks you can take because you have more time for make up for potential losses. As you get closer to retirement, you’ll probably want to shift toward more conservative investments. Whatever your age, though, it’s important to be diversified – which is just a fancy way of saying “don’t keep all your eggs in one basket.”

Want to be proactive and start planning for retirement early?

Download our Retirement Planning Guide to get started today.

Preparing financially for retirement for many people is a shot in the dark; just save as much as you can and hope it’s enough. It’s understandable that people take that view. After all, it can feel like there are too many variables to even get a grip on. How do you know how much money you’ll need? How do you know how much income you’ll even have each month? If you can start to get a better handle on these numbers by completing a retirement budget, you can take a big step toward creating a truly relaxing and low-stress final act. While it’s best to do a retirement budget at least five years before retiring, there is never a bad time to take a close look at the figures.

Here are some considerations to keep in mind when you’re completing your projected budget.

Think About What Your Retirement Will Look Like

One of the most important exercises of this entire process is to actually take the time to think about what your retirement will involve. Will there be a lot of lazy days in a hammock? Or do you see yourself on the go a lot, traveling to new destinations? Start this process by writing down some of your retirement goals. Visualizing your future lifestyle will help in creating a realistic forecast for which categories of expenses will go up and which will go down in your retirement years.

Examine Your Current Expenses First

Before you can estimate your retirement spending, you’ll need to have a realistic assessment of what your costs are now. Track your expenses for a month to give yourself a baseline figure.

Pro tip: Putting all your charges for a month on a debit card or credit cards gives you an automatic record of where your money is going.

Determine Your Expenses in Retirement

This is where that list of current expenses comes in handy. Not only does it give you a jumping off point for determining your future expenses, but it also helps you start to identify some of the expenses you can cut in retirement.

Pro tip: Insurance needs and costs can change dramatically with the onset of retirement, so make a note to contact your agents to discuss your potential for future savings.

Remember to Include All Sources of Income

There are many ways people earn income in retirement, including employer retirement plans, individual retirement plans, pensions, annuities, investments and part-time jobs. Be sure to include all of these in your budget figures.

Pro tip: Call any former employers you believe may have put money in a retirement account or pension on your behalf.

Give the Budget a Test Run

One way to see if your retirement budget will be livable is to try to stick to it for a month or two. Track all your expenses and see if you’re able to stick to what you’ve projected.

Do Multiple Budgets if Necessary

There may be events happening during retirement that will change your financial situation. For example, you may pay off your house. Or you might feel like you want to work part-time for five years and then fully retire after that. Or maybe you’ll receive a sizeable inheritance. Don’t be afraid to do two versions of your budget, or even more if you think there could be multiple life-changing events.

Take Advantage of Free Calculators

With factors like inflation and compound interest affecting your future numbers, it can feel nearly impossible to calculate what your money will be worth or what things will cost at the time of your retirement. Visit the resources tab of this website for financial calculators to help you get a clearer picture.

Decide When You’ll Retire

One simplified way to determine when you have enough to retire is when the amount you will be able to have in monthly income meets what you project for monthly expenses. If you aren’t there yet, consider ways to amass more money for your retirement.

Pro tip: If you’re trying to max out your Social Security benefits, there’s a calculator at ssa.gov/prepare/plan-retirement that shows how much you’ll receive based on what year you retire. You can adjust the numbers to see what timeframe will work best for you.

Get Help

This is a big task to take on by yourself. Contacting a financial counselor, certified financial planner and/or tax professional can help you check your work and get fresh ideas for making the most of your money.

10 Money Saving Tips for Retirees

1. 1. 1. Patronize businesses offering senior discounts

      2. Take advantage of your schedule’s flexibility to travel on off days or get last-minute deals

      3. See if a local senior center offers free meals or entertainment options

      4. Sell a spare vehicle and reduce your insurance, maintenance and registrations costs

      5. Use some of your extra time to clip coupons

      6. Eliminate debt and pocket the money you were spending on interest and fees

      7. Since you won’t be in as much of a hurry, walk to do errands when possible

      8. Make trips to the library instead of buying books and magazines or renting movies

      9. Call your water, sewer, garbage, power and phone providers for senior rates

      10. Enjoy meals at home instead of dining out

If you’re nearing retirement, many decisions are coming your way, from where you’ll live to how you’ll fill your suddenly idle hours. One of the most critical retirement decisions involves your finances.

Without a steady paycheck, you’ll be responsible for creating an income that will sustain your lifestyle. As crucial as budgeting was during your working years, having a sensible spending plan will be even more critical as you move through retirement. Here are tips to help create and follow a retirement budget that works.

Forget the 80% Spending Rule

The much-touted 80% rule is more of a guideline than a prediction. You might indeed spend 80% as much as you did when working, but you could need more or less depending on your retirement lifestyle. It’s best to develop a customized spending plan for your unique retirement goals.

Research Your Guaranteed Sources of Income

Guaranteed income will play a key role in your retirement budget, and now is the time to map out your Social Security payments, pensions, and other steady sources of cash.

Estimate Your Investment Income

It’s a good idea to check out your investment income, from capital gains on your mutual funds and dividends on your stock holdings to interest on savings accounts and certificates of deposit. Use tax returns to estimate this income or go online to look at your brokerage statements.

Track Your Current Spending

Knowing how much you’re currently spending will give you a baseline, so grab your statements and start going through your bills.

Adjust Your Spending Estimates Based on Your Post-Work Priorities

Now that you have a baseline, you can adjust based on your retirement lifestyle. For example, those bills for work clothes and commuting will go away, but costs for things like hobbies and travel are likely to go up.

Conduct a Trial Run

It never hurts to try out retirement before you leave work. Set aside your estimated monthly income, including what you expect to get from Social Security and any future pensions, then live on those amounts for a couple of months.

Make Adjustments as Needed

If your trial runs smoothly, you don’t need to do another thing. However, if not, it’s time to make some adjustments.

Pay Careful Attention to Spending, Especially Early in Retirement

Spending too much in the early years could reduce your options later, so watch your budget carefully.

Conduct a New Analysis Every Year

It’s important to track all your sources of income, and all your investments, on an ongoing basis. That means calculating your net worth on an annual basis and reviewing your retirement budget accordingly.

Make Adjustments Based on the Results of Your Analysis

If you want to enjoy a financially secure retirement, you need to build flexibility into your plan. That means making adjustments based on your current circumstances and changing the structures of your budget as you go along.

Your retirement should include fun, relaxation, and adventure, not financial stress. To enjoy your post-work years, you’ll need to create a budget that works for you and that’s flexible enough to change with your needs but robust enough to see you through all the years of your retirement. The tips listed above can help you get started to walk away from work with confidence and never look back.

Not that long ago, people looked forward to retirement as a time of relaxation and leisure when one might travel the world or take up a new hobby. Increasingly, however, people preparing to retire are doing the math and realizing that the future doesn’t look so bright financially. The following 10 guidelines will help you enjoy a more comfortable retirement even in an uncertain economy.

1. Have a Plan but Stay Flexible

Retiring successfully takes planning. Take an honest inventory of your assets, savings, investments, and set some goals for your retirement. Consider what you’d like to be doing, where you’d like to live, who you want to be near, and what kind of lifestyle you prefer.

While you need a plan you also need to be flexible and open to unexpected changes. Keep yourself informed about the latest developments in areas such as the cost of living, tax laws, investments, real estate trends, and other areas that are likely to have an impact on your life.

2. Watch Your Spending

Overspending is a common mistake for many retirees. The paradox about not working is that you have less money coming in but more time to spend your money. It’s natural to want to fill up all your free time with eating out, shopping, traveling, and other leisurely pursuits. It’s important to set a budget and stick to it. You don’t have to cut out all entertainment and treats. However, make sure you don’t spend beyond your means.

3.  Find New Sources of Income

It’s an unfortunate fact that people in the United States and many other countries are postponing retirement because they can’t afford to stop working. Some employees, meanwhile, are forced into retirement. There are, however, alternatives besides working full-time and complete retirement. Here are a few possibilities.

• • • Get a part-time job. This can actually be good to keep you active as well earning money.

    • Start a business. There are many businesses you can start from home, from selling items on Amazon or eBay to providing freelance services.

    • Make money from your property. If you have extra space, you might rent out a room or set up an Airbnb.

4. Get Out of Debt

Reducing or eliminating debt is one of the best ways to improve your financial situation. Debts are especially draining after you retire. Do whatever you can to cut down on what you owe, especially high-interest debts such as credit cards.

Paying off debt provides two main benefits. On the one hand, it reduces the burden of making high payments when your income may be decreasing. Additionally, you have a chance to improve your credit score which is useful if you want to apply for a mortgage, business loan, or another type of loan in the future.

5. Don’t Touch Your Retirement Account Early

Withdrawing money from your retirement account early may be tempting but it’s seldom a financially wise decision. You also incur tax penalties if you take money out of an IRA or 401K before retirement age (currently 59.5). If you’re thinking about raiding your retirement account, make this an absolute last resort. You’ll be glad you held out a few years from now.

6.  Downsize Your Lifestyle

For most people, mortgage, rent, utilities, and other home-related costs are their costliest expenses. Consider how much space you need and whether it might be practical to downsize. If you have your own home, you could sell it and buy a smaller one or relocate to an area with a lower cost of living. Renting or moving to a condo helps you cut down on home maintenance costs. An extreme way to reduce your cost of living is to retire to a country with very cheap living expenses such as Ecuador or Panama.

There are other ways to downsize and simplify your lifestyle aside from housing. Consider moving to a location where you don’t need a car. With ride-sharing services and short-term rental options, more people are finding that owning a vehicle is an unnecessary expense.

7. Take Care of Your Health

Medical expenses are one of the biggest reasons people fall into financial difficulties later in life. Aside from getting regular checkups, pay attention to your habits and lifestyle. If you smoke, drink heavily, use drugs, or don’t exercise, consider transforming your lifestyle.

Bad habits tend to catch up with you when you can least afford it. Eating a healthier diet, exercising regularly, and avoiding harmful substances will cause you to feel better while also saving you money on health care costs. You can also manage health expenses by researching the most advantageous health insurance options.

8. Invest Wisely

It’s never too late to start investing or to improve your investing strategy. As a general rule, you should invest more conservatively as you approach retirement.

Diversifying your holdings is the best strategy. Spreading investments between small and large-cap stocks, bonds, mutual funds, and real estate trusts increases your chances of reaping steady returns. An annuity can provide you with predictable payouts after you retire. If you need help, consult with a CPA or investment counselor.

The other side of the coin is to be wary of dubious investments. Older people are often targeted by scam artists selling fraudulent “investments.” Even legitimate investments that are highly speculative such as futures, Forex, cryptocurrency, and others carry significant risks. Make sure the bulk of your holdings are in more stable assets before you start speculating.

9. Don’t Be Overly Generous

Many older adults are victims of their own generosity. As younger people face rising housing and education costs, they sometimes turn to their parents and grandparents for help. While it’s great to help your kids buy a home or pay for your grandchildren’s college tuition, make sure you don’t overextend yourself. Before you give away large sums, look into the future and ask yourself how this will impact you 5 or 10 years from now. Sometimes you just have to say “no” even if it’s painful.

10. Take Advantage of Senior Discounts

There are many financial advantages to being a senior (though the exact definition differs depending on the situation; it may be 55, 60, 62, or 65). If you’re not a member of AARP, join now and learn about more benefits. Your local public library is also another good place to learn about programs. Before spending money on anything, from healthcare to travel to transportation, find out if you can get a discount based on your age.

These are some ways to help you manage your finances when you retire and even before. It’s important to look at your situation and devise a workable strategy. People get into trouble when they live day-to-day and ignore impending problems.

For quite a while, the standard advice was to take 4% out of your total retirement nest egg every year to have enough money for a comfortable lifestyle in your golden years. There was strong logic behind that number; a mixture of 60% of your money in stocks and 40% in bonds has historically been a very safe bet to return greater than 4% over any 30-year period. As long as you adjust your withdrawal for inflation periodically, you should be fine.

The problem though is that using a 3-decade time span smoothens out the rough spots in the market. In other words, what if the first few years of your retirement just so happen to be during a major downswing in the market in which you have the majority of your assets allocated? Suddenly the 4% plus an inflation adjustment isn’t feasible. So what do you do?

Adjust as You Go

Start out withdrawing at 4% per year. After the first year, see if your investments have done well enough to afford you to increase the amount you withdraw to cover inflation. If your investments have lost value, look for ways to cut back on what you withdraw or create other sources of income. Use a retirement withdrawal calculator to determine a safe withdrawal amount.

Start Lower

You may find that you want to ease your way into retirement, both from a work perspective and a withdrawal standpoint. If you can take 2-3% out for a few years while generating some income with a part-time job, you can get yourself on more solid footing for the rest of your retirement.

Consider annuities

Annuities can be a safer bet for retirees than bonds since they offer a guaranteed source of income. When balanced with investments in stocks, annuities can reduce your risk since the set return can offset fluctuations in other investments. However, make sure to discuss annuities with a certified financial planner as there are some aspects that might not be ideal for your particular circumstances.

The bottom line is that retirement withdrawals aren’t really a “fix it and forget it” proposition. While it is fine to start off with a 4% withdrawal rate and adjust for inflation as you go, be aware that you may need to alter that plan depending on how your investments perform.

When transitioning from renter to homeowner, it is easy to think that the monthly mortgage will be the only high cost. Unfortunately, many first-time homeowners have made that mistake, and lots have lived to regret it, wondering how they will handle all the additional costs.

Not budgeting for those other costs of homeownership is perhaps the single biggest mistake inexperienced buyers make. However, falling victim to this common blunder is avoidable. As you establish a monthly housing budget, these costs must be included:

1. Trash Service

For many apartment dwellers, the cost of trash removal is rolled into the rent, invisible but still there. However, that monthly, quarterly, or annual cost will quickly make itself known and felt for homeowners.

2. Property Taxes

The township or municipality where you live will want a slice of the action and some much-needed tax revenue. The problem with property taxes is they may sometimes rise unexpectedly, making budgeting for them as difficult as it is necessary.

3. Condo or Homeowners Association Fees

If the home or condo is part of a neighborhood association, It’s likely to have dues to pay, and those costs are not voluntary. Moreover, those mandatory condo or homeowners association fees are also subject to rise with inflation, making them even more unpredictable.

4. Sewage Fees

Wastewater treatment is a big business and expensive. Unless you have an on-premises septic tank, monthly or quarterly sewage disposal fees will need to be paid. Even if the property has on-site septic, future developments may require a different disposal plan.

5. Lawn Care

When living in an apartment, mowing the lawn isn’t a concern, and owning a lawnmower isn’t necessary. With a home, quality lawn-care equipment, or paying someone to keep the landscape looking great will be an added cost.

6. Snow Removal

In some parts of the country, winter rolling in means removing all that snow and making space for cars—which can be expensive. Whether paying a neighborhood kid to shovel the driveway or buying a snowblower, a budget line will be needed for those one-time and ongoing costs.

7. Insurance

Hopefully, renter’s insurance for the contents of your apartment already exists in your budget, but the cost is most likely negligible. The same cannot be said of homeowner’s insurance, and many first-time buyers are surprised at how much that protection can cost.

8. Routine Maintenance

Without a landlord to call, guess who will be responsible for every piece of ongoing maintenance and the costs associated with them? That’s right, you. It is easy to downplay those expenses, but it could be a bad idea.

9. Major (and Minor) Repairs

Eventually, something big will break, whether maintaining your home well or poorly. You will be on the hook for any needed repairs when it does. These costs can be unpredictable. That’s why an emergency repair fund is a must for every new homeowner.

10. Refinancing Costs

One thing is sure, the mortgage will likely be the biggest monthly expense a homeowner will have, and refinancing can lower both the principal and the interest. Unfortunately, those refinancing offers come with their own set of costs. Budget ahead of time to make sure the cost is affordable

There is little doubt that homeownership has significant financial benefits. Instead of throwing away money on rent, you get to build equity in a property that will hopefully rise in value over time, increasing family wealth and enhancing your financial picture in the process. Even so, it’s important not to downplay the actual costs homeownership can introduce. Being prepared for the real cost of owning a home is essential, and that starts with recognizing the reality of the ten expenses outlined above.

Using the equity in your home to pay off unsecured debt and/or make home improvements can be a hard financial decision. Low annual percentage rates, tax-deductible interest, and streamlining your monthly payment makes second mortgages extremely attractive. Meanwhile, using your home for collateral is a decision that should be weighed carefully.

Home Equity Loan or Home Equity Line of Credit (HELOC)

Second mortgages come in two basic forms: home equity loans and home equity lines of credit, or HELOC. They typically offer higher interest rates than primary mortgages because the lender assumes greater risk – in the event of foreclosure, the primary mortgage will be repaid before any seconds.

However, because the loan is still collateralized, interest rates for second mortgages are usually much lower than typical unsecured debt, like charge cards, credit cards, and consolidation loans.

The other major advantage of second mortgages is that at least some of the interest is, for borrowers who itemize, tax deductible. To receive the full tax benefit, the total debt on your home, including the home equity loan, cannot exceed the market value of the home. Check with your tax advisor for details and eligibility.

Is a second mortgage a good idea?

Before you decide which type of second mortgage is best for you, first determine if you really need one. If you have ongoing spending issues, using the equity in your home may not help and may, in fact, be detrimental. Ask yourself the following:

• • • Do you frequently use credit cards to pay for household bills?

    • If you subtract your expenses from your income, is there a deficit?

    • If you were to pay off your creditors by using the equity in your home, would there be a strong possibility of incurring more unsecured debt?

If you responded “yes” to any of the preceding questions, tapping out the equity in your home to pay off consumer debt may be a short-term solution that can put your home in jeopardy of foreclosure.

If you use the equity in your home to pay off your unsecured debts, then run up your credit cards again, you could find yourself in a very difficult situation: no home equity, high debt, and an inability to make payments on both your secured and unsecured financial commitments. Spending more than you make is never a good reason to use the equity in your home.

How do I get started?

If you have determined that using home equity is sensible, your next step is to understand the process of obtaining a second mortgage, and choose between a home equity loan and a home equity line of credit.

Factors to Consider

One factor to consider when shopping for a second mortgage is closing costs, which can include loan points and application, origination, title search, appraisal, credit check, notary and legal fees.

Another decision is whether you want a fixed or variable interest rate. If you choose a variable rate loan, find out how much the interest rate can change over the life of the loan and if there is a cap that will prevent the rate from exceeding a certain amount.

APR

Shopping around for the lowest APR (Annual Percentage Rate) is integral to getting the most out of your loan. The APR for home equity loans and home equity lines are calculated differently, and side by side comparisons can be complicated. For traditional home equity loans, the APR includes points and other finance charges, while the APR for a home equity line is based solely on the periodic interest rate.

Other Factors

Before you make any decision, contact as many lenders as possible and compare the APR, closing costs, loan terms, and monthly payments. Also inquire about balloon payments, prepayment penalties, punitive interest rates in the event of default, and inclusion of credit insurance.

When shopping for loans, do not rely on lenders and brokers who solicit you – ask fellow workers, neighbors, and family members for dependable leads, and research the Internet for immediately accessible quotes.

Home Equity Loans

With a home equity loan, you will receive the cash in a lump sum when you close the loan. The repayment term is usually a fixed period, typically from five to 20 years. Usually the payment schedule calls for equal payments that will pay off the entire loan within that time.

Most lenders allow you to borrow up to the amount of equity you have in your home – the estimated value of the house minus the amount you still owe. You are not required to borrow the full amount, but can instead borrow only what you need.

Interest rates are usually fixed rather than variable. You might consider a home equity loan rather than a home equity line of credit if you need a set amount for a specific purpose, such as an addition to your home, or to pay off your entire unsecured debt.

Home Equity Lines of Credit

A home equity line is a form of revolving credit. A specific amount of credit is set by taking a percentage of the appraised value of the home and subtracting the balance owed on the existing mortgage. Income, debts, other financial obligations, and credit history are also factors in determining the credit line.

Once approved, you will be able to borrow up to that limit, in restricted increments. Some lenders will charge membership or maintenance and transaction fees every time you draw on the line.

Interest is usually variable rather than fixed. However, the repayment term is usually fixed and when the term ends, you may be faced with a balloon payment – the unpaid portion of your loan.

The advantage of a home equity line of credit is that you can take out relatively small sums periodically, and interest will only be charged when you deduct the money. The disadvantage is the temptation to charge indiscriminately.

Watch Out for Too-Good-to-Be-True Offers

You may be tempted by offers that allow you to borrow up to 120% of your home’s equity. Be aware that any interest above the home’s equity limit is not tax deductible. Additionally, you won’t be able to sell your home until the lien is satisfied, which can negatively impact the marketability of your home.

Finally, if you suddenly change your mind, federal law gives you three days after signing a home equity loan contract to cancel the deal for any reason.

If you’re looking to buy a home, you may have been attracted to a government-backed Federal Housing Authority (FHA) loan. But before jumping into an FHA mortgage, it’s important to understand the possible benefit and drawbacks.

Advantages

• • • Less challenging credit requirements: If you have little or no credit history, it can be comforting to know that FHA approval requirements tend to be less stringent than those for conventional loans. At this time, it only takes a 580 credit score to qualify for a loan, according to the FHA.

    • Smaller down payment: Whereas conventional mortgages often require down payments of 5-10% of the purchase price of the home, FHA loans can be nabbed for as low as 3.5% down.

    • Friendlier debt ratios: Keeping in the theme of more forgiving approval requirements, FHA loans can make qualifying easier if you already have a large amount of existing debt. For conventional loans, you are normally limited to having monthly housing and other debt payments equaling no more than 36% of your income. With FHA loans, this number gets boosted to 43%.

    • Potentially better interest rate: If you’re in the not-so-great credit category, you may run into a lot of big numbers while interest rate shopping. Since FHA rates are the same regardless of credit and are generally competitive, you could end up saving a lot on interest payments with an FHA loan if your credit is lacking.

Disadvantages

• • • Lack of reward for good credit: The flip side of the same-for-all interest rate is that you may be missing out on a lower interest rate if you have great credit. Over the life of the loan this could cost you thousands of dollars.

    • More mortgage insurance paid: Because you are making a lower down payment, you will have to pay more private mortgage insurance (PMI) to make up the difference. With FHA loans, you also have to pay an upfront mortgage insurance fee. This can be financed, but it will cause your mortgage insurance payments to be more expensive than with a conventional mortgage.

    • Inspection standards: To qualify as an FHA-eligible property, a home must go through a property standards inspection. This may limit your choices of available homes and can also make it difficult or impossible to get an FHA loan for a fixer-upper.

    • Fewer loan choices: You aren’t going to find the variety of loan options with the FHA that you typically would with conventional loans. This is especially true if you are looking for an adjustable-rate or interest-only mortgage.

    • Lower loan ceiling: The maximum amount you can borrow for an FHA loan is different from county-to-county. In certain areas with low supply and high demand, you may find that an FHA loan won’t allow you to buy the house you want because the price tag falls outside the allowable amount.

    • Limited condo supply: If a condominium fits your housing needs, be aware that the list of available FHA-approved units could be pretty short. The FHA is known to be very tough on giving the green light to condos, so be prepared to really hunt if you go with the FHA/condo combo.

The consensus among housing experts is that—all things being equal—FHA loans will usually cost you more over the life of the loan. However, if your only current option for becoming a homeowner is through the FHA’s eased standards, you can certainly consider a government-backed loan as a way to quite literally get your foot in the door.

Buy new, buy used, or lease? These are just a few of the many decisions you’ll need to make before happily driving away with a vehicle. While shopping for a car or truck is exciting, it’s also no simple matter. You can avoid buyer’s remorse by making important financial and practical decisions before signing on the dotted line.

By reviewing the pros and cons of buying and leasing, knowing your personal requirements, understanding how to get the best purchase price and financing deal, and assessing the laws that protect your rights as a consumer before you shop, you can be sure to make the right choice.

What’s Right for You?

Shopping for a car can be complicated and time-consuming. It involves balancing your desires with your economic reality, deciding whether to buy or lease, and knowing what’s the best deal for you. To make the process efficient and improve your chances of driving away happy, you’ll need to consider:

• • • Your needs – Think about your transportation requirements. Does your car need to be large enough for a family of five, or small enough to fit in tight city parking spaces; tough enough to haul firewood, or chic enough to drive clients around?

    • Your wants – Your desires certainly play a part in the car buying decision. Make, color, options, and style are all important to being happy with your final choice. Read car magazines and websites for ideas.

    • Your spending plan – It’s easy to get carried away and end up with a car outside your price range and a monthly payment beyond your capacity. Your spending plan – not a salesperson’s opinion – should dictate your decision. Review your income and expenses to see what you have available each month for auto expenses.

Save for a Down Payment or Total Car Cost

While it is possible to buy a car with no money down, you’ll end up paying a lot more for it in the long run. To put it another way, the more you borrow, the more the car will ultimately cost.

To decrease the amount you finance, it’s wise to make a significant down payment. With enough savings, you may be able to purchase a car outright (typically an option when buying a used car, rather than a new one).

Effective saving begins with first determining how much you want to save, then setting a reasonable date to achieve your goal. Using an automatic deduction can make the process easier. You can set-up a reoccurring automatic transfer to have a set sum deducted from your checking account and automatically deposited into savings.

New, Used, or Leased: Advantages and Disadvantages of Each

After you determine how much you can afford to spend, the next step is to decide between buying new, buying used, or leasing. It’s important to be familiar with each option’s positive and negative aspects.

While leasing a car may enable you to get “more car” for less money each month, it’s important to remember that leasing means renting. When the term of the lease is up, you return the car. At that point, you have the option of paying any outstanding fees for mileage or damage, or purchasing the car outright. Often, you’ll pay more over time by leasing and then purchasing than you would have had you simply bought the car in the first place. If, during the course of the lease contract, you choose to return the car, very high penalties will likely apply.

Credit Reports and Credit History

Your credit history will have a serious impact on the interest rate you’ll be offered. The better your credit score, the better rate you’ll be eligible for. Other factors, such as length of employment, income, and expenses may also be considered when determining the type of financing you may qualify for.

If your credit report isn’t perfect, you may consider having someone with good credit co-sign the loan for you. Be cautious about using this option though, as the cosigner assumes equal responsibility for the repayment of the loan. Any late or missed payments will appear on each of your credit reports.

Some financial institutions may offer special loans for first-time buyers. These may enable you to get a loan at a reasonable rate even if you have a limited credit history.

Financing Options and Implications

Because financing increases the total cost of the car, the loan you get is very important. Make sure you understand the following aspects of the loan agreement before you sign any documents:

• • • Exact price you’re paying for the vehicle

    • Amount you’re financing

    • Finance charge

    • Annual percentage rate (APR)

    • Number and amount of payments

    • Total sales price

Shop for the Best Deal

The total amount you’ll pay for your car depends on its price, the annual percentage rate (APR), and the length of the loan. When shopping for the best deal:

• • • Don’t be fooled by an advertised low monthly payment – if the length of the loan is long and the interest rate high, you’ll be paying more than you may have to.

    • Be wary of extremely low promotional APRs. Though you may qualify for particularly low rates by making a large down payment, it may be more affordable to pay higher financing charges on a car that is lower in price or to buy a car that requires a smaller down payment.

    • Look for manufacturer’s incentives. Dealers may offer cash back on specific models.

Beware Zero-Percent Financing

Zero percent financing sounds like an amazing bargain – after all, how can you beat a no interest loan? Often, you can. Such “deals” frequently come with inflated prices for extended warranties and loan insurance, high application fees, and pre-payment penalties. And because you forfeit the rebate option, you end up paying a higher price for the car. You may also be required to repay the car in three years or fewer – resulting in a very high monthly payment.

Zero percent financing can be elusive. It is only offered to those with very good credit, as determined by the lender. And it is often not available for the most popular cars and trucks.

Dealer and Finance Company Loans

At an auto dealership, you’ll be encouraged to use dealer financing. While not all dealer loans are bad, in most cases a loan from your financial institution will be preferable.

Never walk onto a car lot unprepared. Before you go, you should already know:

• • • The model you want

    • The options you’re looking for

    • Your transportation needs

    • How much you’re willing to spend

    • How much you can afford to finance

    • How much you can spend on a monthly payment

Gain a good understanding of price, models and features by conducting research online. Be sure to compare models and prices in ads and at dealer showrooms. Visit your financial institution before you shop, so you can seek your vehicle armed with the knowledge of how much you can spend.

Negotiate

To get the best price on your new car, you’ll often have to negotiate with the salesperson. Developing your bargaining skills will be worth it in the end, as it can often save you 10-20% of the advertised price. You may be able to negotiate a particularly good price on overstocked or less popular cars.

But remember – a deal isn’t a deal if you end up with a car you don’t really want. Sometimes ordering a car will save you more money than negotiating for one on the lot, as you won’t be paying for unnecessary options.

Trade in Your Old Car

If you already have a vehicle, you’ll likely be selling it and using the profit to pay for all or part of your new car. To get the best price, make sure you know your car’s worth. Check the internet to know its value. Try kbb.com and nada.com). After that, you have two options:

• • • Sell the car yourself. You’ll usually get the best price this way but will have to allow for the time it takes to sell, as well as the effort of placing the ad, talking to and seeing a lot of people, and negotiating with buyers.

    • Trade-in to the dealer. This is often the easiest option, though typically not the best deal. To ensure you get the most from a trade-in, do so only after you’ve negotiated the best possible price for your new car.

Save on Car Insurance

Car insurance premiums (monthly payments) can be a substantial expense. However, you can improve your chances of getting the best deal.

• • • Improve your credit score. Insurers may use your credit score to determine the premium. Pay down excessive unsecured debt, pay off collection accounts, and pay your current financial obligations on time, every time.

    • Establish long-term residence or become a homeowner. Both connote responsibility.

    • Avoid tickets, particularly moving violations. Attend traffic school if you can’t.

    • Lower your coverage amounts and/or increase your deductible. If you’re a careful driver with a good driving history, it may be worth the risk.

    • Buy a used car. Premiums are cheaper.

    • Avoid 4-wheel drive and high-performance cars, which often carry higher premiums.

    • Compare prices from local and national companies.

Leasing and Lending Laws

The following federal laws protect your rights as a consumer.

Truth in Lending Act – Requires creditors to provide written disclosure of APR, total finance charges, monthly payment amount, payment due dates, total amount being financed, length of the credit agreement, and any charges for late payments.

Federal Consumer Leasing Act – Requires the leasing company to disclose the total amount of the initial payment, the number and amounts of monthly payments, all fees charged, annual mileage allowance, whether the lease can be terminated early, whether the car can be purchased at the end of the lease, the price to buy at the end of the lease, and any extra payments that may be required at the end of the lease.

Credit Practices Rule – Requires creditors to provide a written notice to potential co-signers of their liability if the other person fails to pay.

Equal Credit Opportunity Act – Prohibits discrimination related to credit because of gender, race, color, marital status, religion, national origin or age.

A vehicle is likely to be one of the largest purchases you will make in your life. By taking the time to properly plan and prepare for buying a car, you can save yourself hundreds or thousands of dollars. Check out these steps to set yourself up for a more secure financial future:

#1 Figure Out What You Can Afford

Complete a spending plan. As you create your spending plan you can adjust the numbers to see how different transportation expenses would fit into your monthly expenses. You can then plug that monthly number into an auto payment calculator to see how much you can afford.

#2 Monitor Your Credit

Review your credit reports. To ensure the accuracy of the reports and pinpoint areas that may need work, use the credit bureaus’ annual credit report service to get free copies of your reports at www.annualcreditreport.com or by calling 877-322-8228. If you would like a certified credit coach to review your reports with you, call BALANCE at 888-456-2227.

#3 Find the Right Car for You

Think about how you will use the vehicle. Will you be using it to cross snow-covered mountain passes with hairpin turns and thousand foot drops, or will you be using your vehicle for something more challenging, like chauffeuring your children?

Pay special attention to the safety and reliability ratings. No car meets your needs when it’s up on blocks next to the garage or puts you in harms way.

Check with your insurance provider. That cherry-red sports car might sound like the key to your eternal happiness, but you might not be as thrilled when you get your car insurance bill.

#4 Consider New vs. Used, Buying vs. Leasing and Down Payment Amount

Decide whether you will buy a new or used vehicle. Do you prefer the negligible wear-and-tear and increased reliability of a new vehicle, even if it means the value may drop sharply in the first few years? Or would you rather let someone else take on that depreciation by going with a used vehicle, but take the risk of not fully knowing the condition and history of the vehicle?

Figure out if you would rather buy or lease the vehicle. If the idea of always driving a new car matters more to you than likely saving money in the long-run, leasing might be an option to consider.

Think about how large of a down payment you can make. Making a down payment can help you get qualified for a loan, get a better interest rate, get a lower monthly payment, get a more expensive car for the same monthly payment, or build equity (owing less on the vehicle than it is worth) more quickly.

#5 Get Financing

Arrange your vehicle loan before you go to the dealership. You will have a lot to think about when you are at the dealership looking at cars: different vehicles available, test-driving, negotiating a price, etc. Just like you shop around for a good deal on a car, shop around for the best deal on financing.

Avoid subprime lenders. If you can’t qualify for an auto loan with a credit union or bank, consider working on your credit standing first or maybe getting a co-signer and then reapplying for the loan instead of accepting the unfavorable terms provided by a subprime lender.

#6 Determine Favorites, Contact Dealers and Check Quality

Find the vehicles that best fit your needs. Websites like cars.com, Consumer Reports, Edmunds, and Kelley Blue Book regularly publish articles on the best vehicles to meet particular needs, so take advantage of these free resources. Create a comparison chart to keep track of all the attributes that matter most to you and how each vehicle stacks up.

Use the Internet or trips to dealerships to comparison shop. Once you know which vehicle will suit you best, start looking at particular models and add the prices of each to your comparison chart. Also, do test drives and check vehicle histories. During the test drive, pay special attention to the transmission, shocks, brakes and alignment. If you aren’t sure what to look or listen for, invite a more experienced driver along on the test drive. Write down the Vehicle Identification Number (VIN) and use it to get a vehicle history report from a company like AutoCheck or CARFAX if you are shopping for a used vehicle.

#7 Get the Best Price on the Car

Know what your preferred models are selling for. Companies like Kelley Blue Book, TrueCar and Edmunds specialize in tracking the average price of vehicles and rebates or incentives available.

Negotiate each piece of the deal separately. Beware of salespeople who roll the different components of the transaction (purchase price, financing, trade-in, extras) into one deal or who make an offer in one area of the deal that sounds too good to be true.

Walk away if you are not happy with the deal. You know what you can afford and ultimately you control this transaction, so let the salesperson know you know where the door is and that you won’t hesitate to use it if they can’t meet your number.

#8 Know Your Legal Responsibilities

Find out the insurance necessary for your state. The Insurance Information Institute’s website at www.iii.org has a list of the minimum insurance requirement for each state.

Learn what the DMV requirements are for your area. Contact your state’s Department of Motor Vehicles (DMV) to make sure you have the proper license plate stickers or any other items that might be necessary to register your vehicle.

Know what to do if you can’t make your car payment. If you find yourself in a situation where you are struggling to make a car payment, the worst possible thing you can do is to avoid your lender. Instead, work to avoid repossession by staying in contact and asking about hardship programs.

#9 Put Yourself in a Position to Succeed Long-Term

Establish an emergency savings account. Unexpected expenses have a way of popping up in life and vehicles can be a major source of these.

Save on gas. Consider ways you can get more out of the gas you buy, like using the air conditioning sparingly and removing heavy items from the trunk.

Save on your insurance. Shopping for the best insurance deal is always a good idea, but think about all the ways you could get a better deal, like improving your credit score, buying a used car instead of a new one and avoiding 4-wheel drive and high performance cars.

If you’ve gotten a lot of tickets for moving violations or filed a lot of accident claims in the past, you’re probably paying dearly for car insurance. While there’s not much you can do about your past, there’s a whole lot you can do now to make sure you’re getting the best deal possible on your car insurance.

1. Comparison Shop

It pays to shop around. This is especially true when circumstances change, like when you buy a new car or add a driver to your policy. Insurers continually modify pricing based on market conditions and business priorities, so the company that served you well when you were single and driving a sports car may not be your best choice when you transition to a different stage of life.

2. Bundle Your Policies 

Insurance companies want as much of your business as they can get, and many offer big discounts when you buy more than one product from them. So, if you have a home or more than one car, be sure to see what the cost would be if you were to get all of your coverage from the same insurer.

3. Maintain a High Credit Score 

There are a lot of factors insurance companies consider when determining what to charge different customers, and in most states, credit score is one of them. That’s because research has shown that people with higher credit scores tend to have fewer accidents, so they cost insurance companies less money. To get the best rates, work on making your credit score as good as it can be and be sure to check your credit report regularly to make sure there are no inaccuracies in it.

4. Check for Discounts 

In addition to good credit scores, insurers may offer discounts to people in specific professions, students who get good grades, driving a car with certain safety features, and more. Ask about the discounts your insurer offers, and make sure you’re getting any that apply.

5. Ditch the Brand New Sports Car 

Some cars are more costly to insure than others, either because they are more expensive to repair/replace or more likely to be the subject of a claim. That means you’ll pay less to insure a safe and moderately-priced used car, than a pricey new sports car.

6. Join a Carpool 

For insurance companies, it’s a numbers game. The fewer miles you drive, the less likely it is you’ll get in an accident, so carpooling could drive down your rate. Likewise, if you get a new job with a shorter commute, be sure to let your insurance company know and ask if you qualify for a reduced rate.

7. Consider a Higher Deductible 

With most insurance, there’s a trade-off. If you want lower premiums, you’ll have to swallow a higher deductible or settle for less coverage. If you want no deductible or a low deductible, you’ll pay more in premiums. Remember, though, that the most important thing about insurance is to get the coverage you need to protect yourself and your assets. So, if you want to save on premiums but don’t currently have the cash on hand to cover a high deductible, make it a goal to save up. Once you reach your goal, you can safely increase your deductible, knowing you’ll have the money you need if you get in an accident and need to make a claim.

Preparing for the distribution of your estate (assets you own at the time of your death) can be a very stressful experience. After all, with so many important decisions to make, no one wants to make the wrong one. One of the most common dilemmas is whether to have a will or a living trust – or both. Knowing the fundamentals of each will help you make the right decision.

Begin with understanding probate, as it plays a significant role in estate planning. Probate is the administrative and court process that takes place after you die. It includes proving the validity of a will (if there is one), identifying, inventorying, and appraising property, paying debts and taxes, and (finally), distributing whatever assets remain.

Because probate can drag on for months or even years, much of the wealth you’ve accumulated over your lifetime can be eroded. Wills and trusts have the power to reduce probate dramatically, so that your heirs can efficiently inherit what you want them to receive.

Wills

A will is nothing more than a set of instructions that specifies who gets what of your assets. If you have property and loved ones, having a will is vital. If you die without one, state law takes over and makes distribution decisions on your behalf. In most cases everything goes to your spouse and/or children. If you have neither, your closest relatives will be the recipients, and if you have no relatives, your entire estate will be absorbed by the state. While the court may make the same decisions you would have, in many cases it does not.

One of the most compelling reasons to draw up a will is if you have children who depend on you for care. A will allows you to stipulate guardianship. Without one, the court will make this very personal choice for you.

If your estate is relatively simple, you may choose to create your own will with the help of a quality software program or guidebook. For more complex situations – or if you don’t feel comfortable writing your own will – hire an attorney or legal service to do it for you. Because this is such an essential document, you’ll want to be sure it’s done right. Consider investing in a lawyer to at least look over your finished product.

Living Trusts

A living trust is a bit more complicated in concept than a will, but in essence it’s a separate legal entity that holds title or ownership to your property and assets. While you’re alive, and acting as the trustee, you hold full control over all the property held in the trust.

The primary reason to create a living trust is to avoid probate. Property held in a trust won’t have to go through probate before your loved ones receive their inheritance. Where wills are public, trusts are private, and usually harder to contest.

As with a will, you can create your own living trust by using software and guidebooks developed for “do-it-yourselfers.” However, living trusts by nature are often more involved than wills, so having a lawyer draw it up for you in the first place may be the better way to go.

Not everyone needs a living trust though. Before spending the money to create one, be aware that they can be costly to arrange, are time-consuming to put together, and require considerable ongoing maintenance (adding to the cost). Changes to a trust can take a long time, and moving certain assets such as real estate, savings, and brokerage accounts into the trust requires re-titling, which can be cumbersome.

A Will Plus a Trust

Wills and living trusts are not mutually exclusive estate planning devices. In fact, if you have a trust, you should probably have a will to make sure all your assets will be distributed according to your wishes. Most trusts do not provide instructions for everything in your estate. A will acts as a backup for what’s not included in the trust, as it would have a clause naming a person you want to receive all leftover property. Without a will, anything you didn’t transfer into the trust will go through that long and expensive probate process. Once again, those assets will be distributed according to state law – and most likely not the way you would choose to have your property dispersed.

While estate planning certainly can be an anxiety provoking process, knowing the fundamentals of wills and living trusts should ease some discomfort.

If you’ve ever heard the term "probate" and felt confused, you’re not alone. Many people don’t think about it until they have to deal with the estate of a loved one. Simply put, probate is the legal process of handling a person’s assets and debts after they pass away. It ensures that everything is distributed properly—either according to a will or, if there’s no will, based on state law.

What Happens in Probate?

When someone passes away, their estate (which includes money, property, and possessions) must go through a legal process to be transferred to their heirs. Here’s how it works:

• • • If There’s a Will: The will names an executor, who is responsible for gathering assets, paying debts, and distributing what’s left to the beneficiaries. The court oversees this to ensure everything is done correctly. Having a will can make probate faster and less expensive because the court follows clear instructions rather than determining heirs from scratch.

• • • If There’s No Will: The estate is considered “intestate”, and a court appoints an administrator (often a close family member) to handle everything. The estate is then distributed based on state inheritance laws, which may not align with what the deceased person would have wanted. This process can take longer and cost more since the court must determine who inherits what.

How Much Does Probate Cost?

Probate expenses vary widely depending on factors like estate size, state laws, and attorney fees. Some of the common costs include:

• • • Court fees – Usually a few hundred dollars but can be more for larger estates.

    • Attorney fees – Many probate attorneys charge a percentage of the estate’s value (often 3-7%) or a flat/hourly fee.

    • Executor fees – The executor may receive compensation, which is set by state law or the will itself.

Overall, probate can cost thousands of dollars, reducing the amount that heirs receive. However, having a will can lower costs by streamlining the process and avoiding legal disputes.

How Long Does Probate Take?

The process isn’t quick. Depending on the complexity of the estate and local court systems, probate can take a few months for small, simple estates up to several years if there are legal challenges, debts, or complicated assets.

The Advantages of Having a Will

Even if you don’t have a large estate, having a will is one of the most important things you can do to protect your loved ones. Not only does it allow you to choose who inherits your assets instead of leaving it up to state law, but it can also make probate faster and less expensive for your heirs. A well-prepared will can significantly reduce delays by providing clear instructions, minimizing confusion, and avoiding court battles between family members.

Can Probate Be Avoided?

Yes. Many people use strategies like living trusts, joint ownership, and beneficiary designations on accounts to bypass probate and make things easier for their loved ones. However, even with these strategies, having a will is still essential to cover any assets that aren’t otherwise accounted for. Planning ahead can save your family time, money, and stress— consider speaking with an estate planning professional to see what’s right for you.

Note: Because laws vary by state, consider consulting an estate planning attorney to ensure your will and other estate planning documents comply with local requirements and reflect your wishes.

Estate planning isn’t just for the wealthy—it’s for anyone who wants to protect their loved ones and ensure their wishes are carried out. While estate planning can involve many elements, three essential documents form the foundation of a solid plan: a will, a durable power of attorney, and an advance health care directive.

Will: Ensuring Your Loved Ones are Protected

A will is a legal document that outlines how your assets—such as your home, savings, and personal belongings—should be distributed after you pass away. It also allows you to:

• • • Name a guardian for minor children.

    • Specify who receives your property and how.

    • Prevent family disputes by providing clear instructions.

Without a will, your estate will be distributed according to state laws, which may not align with your wishes. A will ensures that your loved ones are taken care of according to your plan.

Durable Power of Attorney: Managing Your Finances

A durable power of attorney (DPOA) allows you to appoint a trusted person to manage your finances if you become incapacitated due to illness or an accident. This ensures that:

• • • Your bills, mortgage, and other financial obligations continue to be paid.

    • Your spouse or children can access accounts needed for household expenses.

    • You avoid court-appointed guardianship, which can be costly and time-consuming.

Without a DPOA, your loved ones may face legal hurdles just to manage your basic financial needs.

Advance Health Care Directive: Ensuring Your Medical Wishes are Followed

An advance health care directive (AHCD) outlines your medical preferences and appoints a healthcare agent to make decisions on your behalf if you cannot do so. This document helps:

• • • Ensure your treatment preferences (such as life support or pain management) are respected.

    • Prevent family conflicts by providing clear medical instructions.

    • Give a trusted person legal authority to advocate for your care.

Without an AHCD, medical decisions may be left to doctors or family members who may not know your wishes.

Don’t Procrastinate

Estate planning doesn’t have to be complicated. Having these three essential documents in place can provide peace of mind and financial security for you and your loved ones. Not having them in place can be a huge burden on your family. Taking the time to prepare now can prevent stress, confusion, and unnecessary legal challenges in the future.

Note: Because laws vary by state, consider consulting an estate planning attorney to ensure your estate planning documents comply with local requirements and reflect your wishes.

Unless you majored in economics or finance in college, you probably didn’t learn much about the stock market growing up. And, if you’re like many people, your eyes glaze over when you hear stock market news. Nonetheless, despite the economic turmoil of recent years, the stock market remains among the most important options for Americans to build their wealth and secure a comfortable retirement. So, while you may still choose to work with a financial advisor to guide your investment strategy, here are some stock market basics every investor should know.

What is the Stock Market?

Simply put, the stock market is where ownership in companies is bought and sold – this is also called trading. When you buy stock – also known as shares — in a company, you’re buying a piece of that company, and that makes you a shareholder. When you hear talk about “equities,” remember that’s just another word for stocks. The “stock market” is, however, a general term. Companies actually list their stock on one of several different stock exchanges, such as the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX) and the National Association of Securities Dealers Quotation System, which is commonly referred to as the NASDAQ.

How Do You Make Money in the Stock Market?

There are two basic ways to make money in the stock market. The first is to buy a stock, and then sell it after it increases in value – the profit you make is referred to as a capital gain. The other way to make money is to buy a stock that pays dividends to shareholders; dividends are a company’s earnings, which it pays out to its owners. Companies that pay dividends are often older or well-established firms. Often, newer companies aren’t yet making enough money to issue dividends because they’re reinvesting their earnings back into the company.

What’s the Difference Between a Stock and a Bond?

Stocks are ownership investments – you’re buying a piece of a company. Bonds, on the other hand, are a lending investment. You give the bond issuer money, and they pay you interest in return, just like you pay interest to a creditor. In general, bonds are considered safer than stocks since the bond issuer has a legal obligation to pay them. They are not, however, risk-free.

What is Diversification, and Why is it Important?

Diversification simply refers to the practice of spreading your money among a variety of investments to balance risk. It’s important because nobody can know for sure exactly how different types of investments will perform at any given time. A diversified investment portfolio has lower risk because if one type of investment is down, it can be balanced by others that may be doing better.

What is a Mutual Fund?

A mutual fund is a collection of stocks or bonds, in which investors pool their money. Mutual funds can be a great way for smaller investors, and those who don’t have the time or expertise to research and purchase individual stocks and bonds, to diversify their investments. Shares in a mutual fund are purchased in the same way that individual stocks are purchased.

*This article is only intended to be used for general informational purposes. Consult a tax professional for the most current data and/or personal advice.

What is “smart tax management?” It’s a combination of timely filing and taking advantage of everything that can reduce the amount of money you pay in taxes. While tax management does take a bit of planning, organization, and know-how, the overall financial benefit is strong.

Maximize Retirement Savings Plans

If you have an employer-sponsored retirement savings plan (such as a 401(k), 403(b), or 457) available to you, it makes sense to use it. Since you make contributions with pre-tax dollars, your taxable income and possibly your tax rate will be lowered. Investments grow on a tax-deferred basis, so when you retire and take the money out, the earnings will be taxed on your new, and usually lower, tax rate.

IRAs are part of good tax management too. Contributions to a traditional IRA are tax-deductible, and account earnings aren’t taxed until you withdraw that money at age 59.5. There are income restrictions, though, and if you’re an active participant in an employer-sponsored retirement savings plan you can’t deduct your contributions. While contributions to a Roth IRA are always non-deductible, the earnings are tax-free.

Use Your Employee Benefits

If you’re an employee, your company may offer benefits that can reduce your taxable income and therefore your tax liability (the amount you owe):

Flexible Spending Accounts (FSAs). Medical FSAs allow you to set aside money for common health-related costs, and dependent care accounts let you save for work-related child or dependent care expenses. For both, the money is taken out through payroll deductions on a pre-tax basis.

Transportation plans. These plans allow you to use pre-tax dollars (and reduce your taxable income) to pay for public transit, vanpooling, or parking.

Pay the Right Amount

You know you’re paying the correct amount of taxes if you neither owe taxes nor receive a large tax refund. While a refund may seem positive, it’s really not making the most of your income during the year. For example, a $2,000 tax refund translates into $166 that you don’t have in your pocket every month. On the other hand, if you owe and can’t pay the entire sum, you’ll have to pay interest and possibly penalties, which will only add to your tax debt.

Make the Most of Your Adjustments, Deductions, and Credits

Tax adjustments and deduction are expenses you can subtract from your income, resulting in a lower taxable income. Common examples of these are:

• • • An exemption amount for you, your spouse, each child, and any other qualified dependents, and certain disabilities

    • Mortgage interest paid on your primary residence

    • Equity loan or line of credit interest

    • Charitable contributions to eligible organizations

    • Certain business expenses

    • Union and professional dues

    • Some medical expenses

    • The cost of tax advice, software, and books

    • Depreciation of business assets

    • Some work uniforms and clothing

    • Moving expenses, in some cases

    • Some educational expenses

A tax credit is a dollar-for-dollar reduction in what you would owe for taxes. For example, if you qualify for a tax credit of $1,000, you would be able to subtract that amount from your total tax liability. Common examples of tax credits are:

• • • Earned income credit. This credit reduces the tax burden for lower-income taxpayers.

    • Education-related credits. The American Opportunity credit can be used for the expenses you incur in the first four years of higher education. The lifetime learning credit applies to tuition costs for undergraduates, graduates, and those improving job skills through a training program.

    • Child-related credits. These include credit for child and dependent care expenses, the child tax credit, and the adoption credit.

File on Time – Whether You Have the Money or Not

Filing your tax return by April 15 (or later if you file an extension) is important. The drawbacks of not filing include:

• • • Your tax bill could increase by 25%, due to penalties, or interest charges on balances owed.

    • Additional penalties and/or criminal prosecution if you continue to not file (considered tax evasion).

    • Losing the refund, if there’s one due (typically after 3 years).

Even if you don’t have the money to pay, file anyway. Programs are available to help you avoid many of the harsher penalties.

Properly managing your taxes can greatly reduce the amount of money you pay in taxes and put more money into your pocket. After all, why pay more if you don’t have to?