debt management

Is Your Debt Out Of Control?

November 25, 2015 by editor

Having debt out of control is one of the ways to make your life more stressful than what it would normally be. You may be afraid to answer the phone in fear that you have a debt collector calling you, or you may be having trouble buying simple things in your life due to all the debt that you are in. However, for every one person that realizes that they are in debt and that this is out of control, there are double that amount who do not realize that they have an issue.

[Read: Nine Tips for a Debt Consolidating Loan]

Signs that your Debt is No Longer in your Control

There are several signs that point to having debt out of control resulting in your financial portfolio being less than stellar. However, many people are not facing the true situation. They refuse to see that their debt could be getting larger than what they should feel comfortable with. The following are five signs that showcase how a person can tell if debt out of control is an issue for them:

You are in denial. You may not think that you have a debt issue, but look at the way in which you are dealing with your debt. Do you avoid talking about how much debt you really have? Do you dodge phone calls? Do you neglect bills because you do not have the money? In these cases, you are in denial about your debt.
When do you want to be debt free? If you have no date in mind and just say at some point in your life your debt will be back in line, or if you simply state that the debt will follow you until you die, then you are suffering with debt out of control that is more of your life than it should be.
You are the king or queen of the balance transfer. This is something that many people who have debt out of control are doing. They take out another credit card to transfer the balance to, and then repeat this for many years to come. The person does not realize that they are simply prolonging their debt.
Are you paying on debt instead of saving? This s something that many people do, as they are trying to pay their debt off, but they are sacrificing their savings in order to do this. This is a huge sign that the debt is taking up more of your life than it should be, you are someone with debt out of control.
Do you have anxiety about the debt that you do have? If this is the case, then this could signal that your debt is becoming too much, a sign that you are in too much debt.

How to Get a Handle on Debt that is Out of Control

There are several methods that you can utilize in order to ensure that debt out of control is no longer an issue that you have to worry about. The following are a few suggestions to get you started:

Take the time to analyze just how much debt that you have. You will want to start listing the debt, the day in which they should be paid and how much you should pay. Be sure that you are paying the minimums.
Prioritize your debts to pay off faster. You will want to pay on those that have the highest interest rate first, and devote whatever extra that you can in order to get this debt paid off faster. You then move onto the next, and the next until you have no debt at all.
Have a sheet of just what you income you are bringing in and just how much of this you can devote to paying off your debt. Even if you can only afford a few dollars extra, any amount is going to help to control debt out of control.
Set a date that you want to be debt free, though be sure that you are making this realistic. Then aim to hit this date as close as possible or even before the date.
Do not utilize balance transfers, as you are simply spreading the debt from one to the next, and this is not going to help you get out of debt any faster.
Consider debt consolidation if you feel that you are coming to the point in which you can no longer control the debt. This can help you to consolidate the debt into one lower payment per month.
Bankruptcy is an option, however, this should be used as a last resort. Bankruptcy can affect your credit rating for several years to come, and be something that you cannot get away of for seven to ten years.

[Read: Debt You Can Handle]

For those who believe that they do not have a debt issue, though they show signs of having more debt that they can control, then it is best to start getting debt under control. The more that you take control of your debt now, the better your future will be. Without taking action though, your debt is going to take over and control your life.

Credit Card Moves To Prepare For Raised Federal Interest Rates

November 15, 2015 by editor

One of the words parts of having a credit card is the interest rate, and, as if they weren’t bad enough already, they’re about to go up. The nations central bank is about to raise key-lending rates, which will domino effect down to your credit cards APR rate, and it will increase. They plan to do this in increments; one raise now, another one in a few months, and probably another one after that. At first, the raise will barely be noticeable, but add these tiny bumps up over a period of time, and the difference will become increasingly apparent.

[Read: Understanding Reverse Mortgages: It’s Easier than You Think]

The reason these little changes are most likely going to influence you is because of your variable-rate credit card. Don’t have one of those? Cool! Then this may not be something you need worry about. For those of us who do posses one of those tiny pieces of plastic, it’s important for us to understand that the APR on our cards is tied to the ‘prime rate’ all our banks follow, which is in turn connected to the federal interest rate. But why are the feds messing about with these sensitive numbers to begin with?

The last time the federal funds rate was increased was back in 2006, while the economy of America was still booming, in hopes to keep pushing it forward. After the crash it became painfully apparent the rate was to high, so the fed’s made the educated decision to lower the rate in 2008. Now, with everything picking back up again, and the economy beginning to (shakily) stand on it’s own two feet, the time has come for the increases to begin once more. Yes, this will mean more money out of your pocket in the long run, but have no fear. There are plenty of credit card moves for you to prepare yourself for when that time comes.

Balance Transfer Credit Cards

A balance transfer of your current debt to another, lower interest rate card, can help shrink the amount you owe due to your cards considerably. You do this by paying for one credit cards bill using a different, less expensive card with low rates, essentially re-borrowing the money. This is one credit card move that won’t be available for long.

Banks have been able to offer such low rate cards for the past few years for one reason: the federal funds rate has basically been 0 for a long time. Since the banks have essentially been borrowing money for free, they have had no problems offering the same deal to us on a short time basis. Unfortunately, when the federal funds rate increases, banks will no longer have access to a deal as sweet as that, and so neither will we. The domino affect will ensue, and balance transfer credit cards will become a thing of the past.

Deal With Your Debt

Another great credo card move, or credit move in general, is handling your debt. As if you need more incentive to deal with your debt! Try to free up cash, and increase your monthly payments, so you’ll be charged a smaller interest rate in the long run, regardless off the Fed’s raising rates.

Consider budgeting your spending every month. With a little extra planning and care, you should be able to free up some extra cash here and there.
Reduce unnecessary expenses. Why go see that movie in theatres when it’ll be out on Netflix in two months?

Keep an eye on where you’re moneys going, and you’ll find it easier to manage. Click here to check out more great tips and tricks to deal with your debt before they fed raises rates.

Ask And You Shall Receive

Many people the world over take everything their bank says at face value, no if and’s of buts about it. Would you believe me if I told you are completely underestimating your power here? A completely overlooked credit card move we all posses is the power of our voice. Out of 1,497 people who asked their banks for lower interest rates, 65 percent of people’s wishes came true. Even a seemingly insignificant reduction in your rate can make a huge difference in the long run! Don’t be afraid to take advantage of every credit card move available to you, especially your own voice.

[Read: Tips To Avoid the Risks of Debt Consolidation Loans]

Don’t let any of this information stress you out! I’m not announcing doomsday here. Yes, while a raise in rates is highly likely, allow me to reiterate that they will not be rising all at once. This is going to be a gradual, slow transition that will take time. So take advantage of that time, and get to work. Take advantage of the credit cart moves above, and all should be fine when the time comes.

Is It Wise To Pay Down Debt Early?

November 2, 2015 by editor

Many may think this a surprising question, but the answer isn’t always a simple yes. Depending on your situation, it is not always the best idea. Everyone needs to ask themselves the following questions before paying down their debts early.

[Read: What Are Your Debt Relief Options?]

Are you in dangerous debt?

Some people are surprised by this question, thinking that debt is just debt. But this is not true; the type of debt you are in can vary enormously. Dangerous debts should always be a first priority and should be paid as soon as possible. These types of debt include –

Child support payments
Court judgments
Delinquent taxes.

These are the type of debt that if unpaid could result in your wages being garnished, or you could even find yourself in jail. Do not ignore this sort of debt until it is too late, whatever your circumstances.

Do you have enough savings?

Having savings can be far more beneficial than paying off debt early. When all your dangerous debt is paid, think about your cash reserve. When an unexpectedly large expense occurs, having paid more than you needed to for your student loan repayment is not going to be much help to you. Or if the worst happens and you lose your job, you will need an emergency fund to live on in the meantime, even if you manage to find a new job fairly quickly. Aim to build savings that are at least the equivalent of three months living expenses – and put them in an account that is not easy to access. If it is quickly accessed then you may be tempted to transfer a small sum occasionally when you are a bit strapped at the end of the month, or if you need to buy something on top of extra expenses. Having savings can make you feel safe, even when you have debt, but remember not to overdo this principle of saving and refuse to pay off debt. You need to strike a balance and compare interest rates to check the correct course of action. If you have $27000 in a basic savings account barely earning any interest when you have $10000 worth of credit card debt accruing interest at 10%, it is probably with your while using for savings to overpay that debt. The remaining $17000 is still a good buffer for emergency situations.

Could you invest Instead?

If you have spare money each month, investing might be a far better use for it than overpaying your debts. This may seem counter-intuitive at first, but if your investments can earn more after taxes than the after-tax interest rate of your debt, investing could be a far better idea. Student loans are often a good example for this as the interest rates are comparatively low. If you can find an investment fund that gives an after tax return greater than the after tax rate of interest for a loan, then investing for the greater return may be better use of your money. This is of course risky as investments are by no means guaranteed, but less risky funds are out there and still give good returns. In some cases, even very low risk investing can be more beneficial than paying off debt early. Some savings accounts such as ISAs can have very good rates of interest. Various accounts are partly linked to stocks and shares, adding slightly to the risk but potentially adding greatly to the reward. Higher risk investing (i.e. equities trading) is not recommended when you have large amounts of debt. It is fine to do some trading if you wish, but don’t use the majority of your spare income, try to use less than 20%.

If your main source of debt is a mortgage, this can cloud the issue somewhat, as paying off more of a mortgage is beneficial if house prices rise. But if there is a chance of negative equity then overpaying is not worthwhile.

[Read: Secrets To Create A Successful Debt Management Plan]

If you are struggling with whether to invest or not, seeking independent financial advice may help you see your way forward. There are many more examples of situations when you might want to invest over paying off debt.

There are many online calculators that will also help you to decide between investing and paying off debt early. But it is not always a mathematical decision. Investments may be personal in nature (say a friend’s business) and so may take priority, or you may feel like your debt is hanging over you. If only a small margin is gained by investing, your wellbeing should come first.

ABLE Accounts, America’s New 529 Plan for Disabled Children

April 15, 2015 by editor

Financial woes are something that parents of disabled children often deal with. Doctor’s bills and often finding the right educational institutes that support the needs of their children is enough to break any bank. There is relief in sight for these parents right around the corner. Soon parents of disabled children will be able to take advantage of a program similar to the 529 Plan. It will allow them the chance to save for expenses and enjoy this luxury tax-free. Congress recently passed the Achieving a Better Life Experience Act also known as the ABLE Account.

The Summary

The ABLE account is designed to help families that are raising disabled children form financial stability and establish a savings plan to cover qualifying expenses for higher learning. Parents will be able to contribute up to $14,000 per person per year. The contributor pays no taxes on this money’s growth. This is only as long as it covers qualifying expenses.

With the ABLE Act set in place disabled students won’t have to wait for Internal Revenue Service tools to be created in order for students to have brilliant future ahead of them. This Act will open doors and establish a brighter future for so many Americans.

A traditional 529 Plan’s expenses may only cover tuition, books, and other fees. For disabled children, this list may be a little longer. They may include:

Tutoring
Housing
Additional health care cost

In the case of a bankruptcy, assets are covered as long as the funds were added two years before the bankruptcy was filed. In spite of the IRS and Department of Treasury being a key asset, ABLE Accounts are going to be offered by state.

Qualifications

To qualify for an ABLE Account, the disability must have developed before the age of 26. In prior years, a disabled person could not possess $2000 or more if they wanted to meet the qualifications for Medicaid or SSI. Holders of ABLE Accounts are able to save up to $100,000 and can still maintain their benefits. If the individual has SSI Benefits, a disabled person under the age of 18 is considered to be disabled if they meet the severe functional limitation test.

Where to Open an Account

Each state has the responsibility of establishing the ABLE Program. If the state decides not to develop the program, they can create a contract with another state to offer their eligible residents with opportunities to open an account.

Once the act is signed, regulations will be developed. Requirements will be established such as, information needed to open an ABLE account, documents needed, and what disabilities qualify. At this time, no accounts can be created until all regulations are finalized. Applications will be taken near the end of 2015.

How Many to Establish

Students with a 529 Plan have the ability to hold an account in a parent and grandparent’s name for one person. Plans could also be established outside of the student’s state of residence. Unlike the 529 Plan where an individual could possess more than one account, the ABLE Act limits the individual to one account per eligible person. ABLE account holders must open their account in their state of residence.

ABLE vs Special Needs Trust

ABLE accounts give the family and recipient more control. The cost is a lot less than a Special Needs Trust. The ABLE Account holder maintains control over their funds in case their situation changes. If that issue arises, they still have options available to them. Finding the right options is determined based on the circumstances of the individual. Several families will benefit significantly over a trust program.

Quotes of Success from Legislation

Unlike many acts that often show disagreements between political parties, this is one act that everyone in congress seems to agree on. Here are some of the quotes from legislation.

“Pennsylvanians with disabilities face incredible challenges every day. They shouldn’t be penalized simply for trying to save for their future. Congress should use current programs to ensure America’s most vulnerable have the same opportunities that are provided to all citizens.” – Senator Robert Casey Jr.
“The ABLE Act is about giving people with intellectual and developmental disabilities the opportunity to achieve their dreams. Families are looking for ways to finance things like an apartment, or a ride to work, or additional educational opportunities after high school that don’t jeopardize other necessary services provided by fedreal programs. This bill creates a tool for families that could lead to a more independent and fulfilling life.” – Peter V. Berns, CEO of the Arc
“This is important, common-sense legislation tha twill provide an incredible financial boost to families affected by autism and other disabilities who are struggling to pay for critical services. If we allow families to save tax-free for college, it is only fair that they be permitted to save to meet the needs of all their children.” – Bob Wright, co-founder of Autism Speaks

To find out more about the ABLE Act stop by US News for more information.

Things to Think About Before Filing Your Own Taxes

February 26, 2015 by editor

Having you been considered filing your own taxes for a while now, but you can’t figure out the best way to go about it? You’re definitely not alone in that sentiment. More and more people are exploring the other options out there for them when it comes to filing taxes and upwards of 27 million citizens decided to file their taxes on their own from the comfort of home last year. Those numbers will only continue to increase as time passes. Programs like TurboTax continue to show the consumer how simple it can be to take their taxes into their own hands. You want to know as much as you can about taxes before filing your own taxes. Before you take a seat at your work desk to get down to the business of filing your taxes, there are some questions that you should be asking.

Can I Qualify For Free Filing?

The federal government has created FreeFile: a system that gives you access to free tax tools that will help you get the job done with less hassle. Before filing your own taxes, you want to have all the pertinent information. If you only been employed in one place and you’re planning to take the base deduction, a program like FreeFile would be most ideal for you to go with. If you made less than $60,000 last year, you could reap the benefits of free tax preparation software from some of the biggest names in the entire industry. FreeFile isn’t set up using the most comprehensive technology, so beyond the basic math calculations and assistance, you will have to do a little legwork yourself. Unfortunately, this software can’t be used to file your state taxes.

How Much Will More Comprehensive Tax Programs Cost Me If I Can’t Qualify For Freefile?

FreeFile is a good option, but it’s not the only one out there. If you can’t qualify for the FreeFile service, you can still manage to save a little something while you spend on tax preparation services. Before filing your own taxes, you want to make sure you’ve weighed all of your options. If you go with TurboTax, you could spend less than $100 on your tax filing as a sole proprietor and if nothing else, it’s important to note that that’s much less than what you would spend to hire a professional tax specialist to do your taxes for you. Search your local area: there’s bound to be a tax professional that’s willing to work with you in your unique situation. When tax season is in full swing, there’s all kinds of tax accountants that are trying to capitalize on whatever money they can make. Keep your eyes open and you might find a good deal that you weren’t expecting.

How Quickly Can I Get Things Done?

Once the tax season starts it seems as though the days speed by and before you know it, the deadline is upon you. If you own your own business, make any kind of income on the side or you’ve got your taxes itemized, you’re going to need to report all of that and it will take time to leaf through all of your documentation. Before filing your own taxes, you need to have all your ducks in a row. If you’re an organized person that makes it a priority to keep every receipt and statement stored away in a place you can always go to, this isn’t much of an issue. Most of us just can’t be that organized due to a number of different factors and you’ll have to get all of your paperwork together before you can start the filing process. As long as your situation isn’t too complicated, you might be able to get all of your tax filing done in an afternoon. Filing your taxes on your own can be a tedious process if you’re not familiar with how it all works, but doing them yourself could save you a lot of time and money if you check yourself throughout the process. Before filing your taxes, you’ve got to weigh the pros and cons to find out what’s worth your effort. One afternoon of mind-numbing number crunching could definitely be worth it for the right people.

How Many Deductions And Tax Credits Are Out There For Me To Gain From?

The simpler your tax situation, the easier it will be for you to file. A reliable tax software program from one of the bigger names in the industry should be able to enlighten you on the deductions and credits that will affect your taxes, but there’s still that chance that you could miss money on deductions and credits that you didn’t realize applied to you. If you don’t use good software as a guide when filing your taxes, you might be cheating yourself out of dollars you could be getting back in your pocket.

Understanding Reverse Mortgages: It’s Easier than You Think

December 25, 2014 by editor

If you’re reaching retirement age, or you’re already there you might be thinking about your future and how to plan your finances. One way forward that many people choose is to use the equity in their homes and either rent them out or sell them and downsize so they have a small amount of income to live on. However what many people don’t realise is that there is a third option and another way forward and that is to utilise something called a reverse mortgage. This is a guide to explain exactly what they are and how they work – and most importantly, you’ll be able to see if it is something you can do yourself.

What Is A Reverse Mortgage?

Normally, when you buy a home and take out a regular mortgage you’ll simply pay a monthly fee to a lender, and slowly start to build up equity in your home. Over a period of time, usually many years, what happens is that the “debt” you’ve accrued slowly goes down, you get more equity and then eventually when you’ve paid it off, the building is yours outright.

A reverse mortgage works a great deal differently and might at first seem odd to some. Instead of you paying a lender a monthly fee, the lender will pay you a fee. This is usually based on a percentage value of your house and will either come to you in one lump sum or in smaller repayments.

You get to keep the title deeds to your home, it’s yours to live in but whereas with a normal mortgage the debt decreases and equity increases, the reverse happens here. If you move, or decide to sell up or if the worst happens and you die, what will happen is that the lender will take control of the home and sell it, after any fees are paid the remaining money will come to you – or if you have died your next of kin or heirs.

The Federal Trade Commission states that if you outlive the reverse mortgage or if you receive more payments than it is worth, you will only be responsible for anything other than the original value of the home.

Here’s an example of how it can work:

There are two homeowners, let us call them Bill and Ted. Bill was born on January 1^st 1940, whilst Ted, who lives next door to Bill, was born slightly later – on January 1^st 1953. Both men have houses that are worth $300,000. Bill may be able to get a home equity loan of $174,900, but his neighbor, Ted will probably only be able to borrow $154,200 because he is much younger.

Reverse Mortgage Costs – Can They Work For You?

There are different fees and costs associated with reverse mortgages and they’re outlined below:

1.) Loan Origination Fee: If your home is worth less than $125,000 then you might be responsible for this type of fee which can cost up to $2500. Any lender can charge up to 2% of the home’s value, for the first $200,000 then 1% on any value higher than that. These fees, however, are capped at a maximum of $6000.

2.) Servicing fee: Depending on the sort of interest rate you have on your reverse mortgage you can be charged a fee of either $30 or $35. This type of fee is used to cover admin costs.

3.) Third Party Charges: These include costs for items like appraisals, title searches and insurance, inspections, credit checks, surveys, and any mortgage taxes you might incur.

4.) Mortgage Insurance Premium: This ensures that, should your reverse mortgage provider go out of business, you will still receive your loan advances. You’ll be charged your MIP on an annual basis and it usually works out to 1.25% of the mortgage worth.

To Qualify For A Reverse Mortgage You Must Be:

1.) 62 years old or over

2.) Own your own home

3.) Not have any debt

4.) Use the home you’ve paid the mortgage on as your main residence

5.) Be in a strong enough financial position to pay all your fees

The amount of money you’d receive will depend on the age of the youngest borrower (as couples can borrow and not just one person), what the state of interest rates are and the value of the home.

It’s really important to be aware that if you do qualify for one and decide to go ahead and take a reverse mortgage out, that in the long term it will leave you and your heirs/next of kin with fewer assets that they can rely on, but on the whole they are a safe bet for those people who are “house rich yet cash poor” and who need to be able to have a bigger income to live off during their retirement years.

Protecting Your Accounts from Bankruptcy

November 5, 2014 by editor

Having bankruptcy protection is important when you have one or a number of accounts that houses your hard-earned money. Bankruptcy protection comes in handy in case you find yourself in the situation of recovering from a financial crisis by way of filing for bankruptcy. Thanks to the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, also known as the BAPCPA, certain accounts are eligible for bankruptcy protection and will not be touched in the case of needing to file for bankruptcy. Read on for more information on the BAPCPA and the certain accounts that qualify for bankruptcy protection.

What Happens During Bankruptcy?

Having some accounts that are covered under bankruptcy protection are important when you find it necessary to file for bankruptcy. During the process of bankruptcy, you report all financial information, including income earnings, expenses, and monetary and physical assets. So, during the process, the financial institution where you are filing bankruptcy determines what assets can be used by creditors to take care of your debts. These assets can include valuable property, merchandise, and even savings stashed away in accounts. It is already difficult to know that bankruptcy will strip you of your valuable assets, but to be stripped of your hard-earned saved money could be too devastating to bear. That is where savings accounts that is under bankruptcy protection come into play. These beneficial accounts are covered under the BAPCPA and certain aspects may qualify you to obtain one of these accounts.

More Information on BAPCPA

In accordance to the law, BAPCPA aims toward adjusting the federal bankruptcy law and to restate specific requirements that take care of the discharge or alteration of a Chapter 7, 11, or 13 filing. The BAPCPA also includes guidelines for retirement funds that include the various types of IRAs and qualified plans, and also educational savings accounts. In some cases, limitations and unlimited protection do apply under the act. Continue reading for an explanation of such cases.

Employee Retirement Income Security Plans

One of the accounts that qualify for bankruptcy protection is retirement plans that meet the qualifications under the Employee Retirement Income Security Act or the ERISA. All plans that are qualified under the ERISA can be excluded from assets that must be reported when filing for bankruptcy. Determined by a Supreme Court ruling in 1992, ERISA plans are not included in individual’s bankruptcy assets. Under the Federal Bankruptcy Code, the BAPCPA has guaranteed that under this act, all accounts that qualify are under bankruptcy protection for no specific number of accounts sponsored by employers.

At one point in time, whether or not a plan qualified under ERISA depended on if the plan was sponsored by employers or not. Plans that qualified that covered business owners only did not meet the specific requirements of the ERISA. So, the plans were not qualified for bankruptcy protection. Now, qualification for bankruptcy protection is according to the BAPCPA and the plans are not to be included with assets that are assessable through bankruptcy.

The Different Types of IRAs

Because of the BAPCPA, IRAs are also eligible for bankruptcy protection. There are many types of IRAs that are protected during the bankruptcy protection. Below is an explanation of each type:

Traditional and Roth IRAs exclude up to $1 million. The specified amount must be looked over every three years to figure out if the $1-million dollar amount should increase or not. The increase depends on the consumer price index.
SEP and Simple IRAs exclude all figures from the bankruptcy’s estate for no specific amount.

529 Plans and Educational Savings Accounts

Other plans and accounts that are under the bankruptcy protection provided under the BAPCPA are 529 plans and education savings accounts. Below are the limitations that are applied to covering the education saving accounts and 529 plans:

Contributions toward ESAs that are in excess or that are not eligible are not excluded from the bankruptcy estate.
Any amount that is put into an ESA during a 365-day period before you file bankruptcy is not left out of the bankruptcy estate.
Any amount that is put into an ESA or 529 plan during the 365-day to 720-day period before you file bankruptcy are limited to exclude $5,000.
Although any can add to the account on behalf of the account’s beneficiary, only additions to the account of the debtor’s children (step-children and grandchildren included) are excluded.

In conclusion, the BAPCPA is an act that is threatening to the process of filing for bankruptcy because it puts a limit on what assets can be taken during the process. Having these certain accounts will be beneficial for you if you have to file for bankruptcy because despite you losing a ton of assets in order to get back on financial track, you will still have the money you put into the bankruptcy protected accounts.

Debt You Can Handle

October 9, 2014 by editor

Most individuals hear or see the word ‘debt’ and cringe. The fear of debt is very common and understandably so because debt is easy to obtain and can negatively impact a variety of things and can also be very difficult to overcome. Debt can be accumulated by swiping credit cards, obtaining loans, having payments on a variety of things, and not being able to keep up with the payments on any of them. It is easy for people to find themselves in debt. However, debt is definitely something that can be overturned depending on whether or not you are able to handle it. Keep reading for information on debt you can handle.

Debt: The Easily-Attainable Monster

You are in your favorite store ready to purchase your merchandise. Your cashier rings you up and gives you your total. Then you recognize a common question asked nearly every time you make a purchase at the store: “are you interested in opening a new credit card with us?” At first, you may be hesitant to do so, but then the cashier adds to her question that with a new card, you are eligible to receive 20% off of your current purchase if you use that card today. This promotion sounds too good to be true, but to get that 20% discount, you elect to open the new line of credit. This took all of 15 minutes to convince you to get a new credit card. Just that easy is it for an individual to start the build-up of debt.

Between the years of 2005 and 2008, the debt of Americans was approximately $960 billion. Although the amount has decreased in the years after, the figure is still at an alarming level. This high number is attributed to the easy ability for individuals to receive credit and loans. Perfectly schemed advertising of new credit or lowered qualifications to obtain new credit has been the driving force behind the debt of the country. However, there are tips to consider when it is time to consider the debt you can handle.

Tip 1: Spend When Necessary

When considering debt you can handle, only participate in spending when it is absolutely necessary. What you borrow and what you purchase with that borrowed money is your decision. Choose not to use your credit card to make large purchases you cannot afford to repay. Try not to obtain loans on which you will not be able to keep up the payments. If you must open new credit lines or take out new loans, make sure they are all necessary. The only debts you need are necessary debts.

Tip 2: Proportion Your Debt in 3 Financial Categories

When considering debt you can handle, consider placing special attention on three main aspects of your finances:

Your income—income is a huge factor in handling debt, so making sure you have steady income is important.
Your job—of course, if you are a retired individual, this would not apply to you. However, for everyone else, job security is not a guarantee especially in today’s job market. Jobs are constantly relocated or laying off employees in an effort to save money.
Your savings—money put up has savings will come in handy in case of an emergency, like medical obligations that require payment, job loss, or a natural disaster that causes for financial obligations. Having extra money is a beneficial tactic when handling debt.

Tip 3: Rate Your Income and Savings to Determine Your Current Situation

When considering debt you can handle, consider placing your income and your savings on a rating scale to determine how much debt you are able to manage. Below is an example of the rating scale that was previously discussed:

Rate your level of income on a scale of 1 to 10 (1-low; 5-high): Rate = 4
Rate your level of savings on a scale of 1 to 10 (1-low; 5-high): Rate = 2
Total Rating = 6

Tip 4: Determine How Much Of Your Monthly Income Should Cover Your Debt

When considering debt you can handle, calculate what is known as your discretionary income. Discretionary income can be used for investing, saving, discretionary expenses, or repaying interest on loans. This figured is determined by your spending. Do not include your current payments toward debts. Below is an example of this calculation:

Total monthly income = $4,000
Monthly expenses = $2,000
Discretionary income = $2,000

Tip 5: Calculate an Estimated Personal Debt

When considering debt you can handle, it is wise to estimate your personal debts redline. This calculation will give you an estimated percentage of the amount of income you should use on handling your debt. Below is an example of this estimation:

Reminder: your rating was a 6 and discretionary income was $2,000.

Guidelines for Repayment (maximum % of income to use for repayment each month)	Total Rating
10%	2
15%	3-4
20%	5-6
30%	7-8
40%	9-10

$2000 (discretionary income) x 20% = $400 (used monthly to repay debt)

According to your numbers and the above table, your debt redline is reached when you find yourself spending 20% of your discretionary income on debt repayment. You should keep your debt payments below $400 a month. Your redline limit can move if you are able to monitor your debt repayments efficiently.

In conclusion, when considering debt you can handle, it is important to keep in mind your finances and savings, as well as your ability to handle monthly payments. Do what is necessary to handle your debt so that you can live in financial security and freedom.

How to Teach Your Kids about Money Management for Summer

July 5, 2014 by editor

Summer is here and your kids are home. For most children, summer time is the season for them to look for ways in which they can earn cash and spend it on whatever they want. As parents, it is a perfect opportunity to instill the importance of financial responsibility and how to make good choices when spending money.

Let us look at some of the ways you can influence their decisions in their money making and spending ventures by tactfully sneaking in some good advice for money management for summer.

Allowance

It is not a bad thing to give your children money for little stuff they may want to buy for themselves here and there. However, the constant repetition of handing them money for the rest of the time they are in your house is not advisable. You might term it as harmless, but in the long run, you are raising a child that will feel entitled to it, even when they don’t deserve it or have turned into an age whereby they can make their own.

The sense of entitlement develops when a child gets anything and everything they want with little or no effort and the day when they don’t receive it, they will not understand why. In society, they turn out to be lazy misfits and you will never be able to shake them off financially because they do not know how to make or manage money.

That is why the allowance that you give them this summer should come with some conditions. Attach that money to work they do around the house. Give each of them chores that have to be finished by a certain time of the day. In other words, it should be a reward, not a right. If they do not accomplish what they are told to do to earn that money, then they don’t get it. The lessons you apply now, will eventually be very essential to their life as adults. You should implement money management for summer faithfully for this is the time they are eager to spend money.

Getting jobs for the Summer

If you have your own company, don’t employ your kid. Instead, let them go work for someone else. Being a boss and a parent at the same time does not work out. Emotions from the both of you might get in the way and you are also prone to be obviously biased when it comes to your child.

For older kids, they can get more responsible jobs like non agricultural jobs, mowing the lawn or paper delivery services.

Kids that are younger or under the age of 14, can water lawns and weed gardens or manage a lemonade stand. Money management for summer can prove to be quite a task for them, but that is the whole point. They should know the meaning of what it means to work hard for money.

After they start making money

Now this is the tricky part with money management for summer. Once they get that money in their hands, for most children; all they want is instant gratification. They either run to the candy store or play video games at an arcade. Of course, they are children. They can do that. But you have to be smart in your approach to influence them in doing something more constructive with their money that will also help you out financially. Some examples are:-

Tell them that they can save some money so that you can all go for a family trip to Disneyland or somewhere kid friendly. Tell them if they save a certain amount, then you shall come up with the rest. They will definitely be eager to do it.
Tell them they can go for that concert they always wanted to go to with the money that they save.
Tell them that they can buy better items with the money they earn like video games, school shoes or a bicycle.
Teach them the value of a good deal. You should show them how important it is to always shop around before going only to one shop and just buying the item they want. Teach them the importance of great bargains. That is one of the good tactics you should use for money management for summer.

All in all, the habits you help instill in your child do not only help their money management for summer, but it also helps them to grown into well informed, responsible adults. Of course, you cannot give them all this information without practicing what you preach, so be very aware what kind of financial habits you expose to your child. Money management for summer isn’t the only time they learn. It is every single day that they look up to you.

Why Taking out a Private Student Loan is Not a Good Idea

June 27, 2014 by editor

If you are a student who is looking into a private student loan, then you are at the right place, as the whole idea may not be as good as it actually seems. The clear example below cases a scenario of a former student and includes the problems the individual faced with their private student loan.

Scenario

The student graduated in college during the year 2001 with an estimate of $22,000 in student loans. The bulk of their debt was from a federal loan, which was $20,000. The student also had a small $2,000 private student loan. Even though the private student loan was like a tenth of the federal loan, it was actually a bigger headache, which took much more work and effort to be paid off. Without notice, the lender raised the individual’s payment without notifying them and increased the interest rate. In this individual’s situation, the payment amount was not so high, as it was an estimate of $60 per month. The individual considered paying off the total loan instead of facing stressful situations, which would arise every six months.

Luckily and thankfully in this case, this was the only private student loan the individual had. However, private loans can be a total nightmare to overcome, as they are never what they seem.

Rates

The rates are never what they seem to be and can be a little, let’s just say misleading. When you are in this position you may consider a private student loan over a federal loan due to the fact that the interest rates that are advertised are much less. However, this is just something that is shown in advertisements, just to attract people into borrowing. Underwriting is needed for private loans and not federal loans. What this means is that the bank that provides you with the private student loan assesses the risk of loaning you money. Due to this, only those individuals with best credit will be given these low rates. Another problem with a private loan is that the interest rate on it changes and variable rates are offered, whereas federal loans come with fixed rates.

Cosigners Are Being Put At Risk

A cosigner will need to be with a student for a private student loan. What this means is the cosigner, which is usually the parents, will put their credit at risk if their child fails to pay. Due to this, it is important both cosigners and students understand the consequences, as it may seem easy at the start, but just gets tougher with a private loan. If the student does consider a private loan and fails to pay, then the cosigners are in for harassment, potential calls, and a hit to their credit.

Possible Chance of Being a Falling Victim to Trickeries

If you have a few loans from the same lender, then what you will do is pay off the one with the highest rate first. However, the Consumer Financial Protection Bureau (CFPB) has found that some companies may not allow this sensible strategy. It was also found by the CFPB that servicers usually divide the overpayment and relate it to the unpaid loans, which as a result takes the borrower much longer to pay back the loan.

Another problem arises for those borrowers that fall back on payment. The lender will always say to the borrower to pay how much they can afford, but will not let them know that at the same time they are adding to all the loans, and not just the one with a high interest. This can have a negative impact on a borrower’s credit and at the same time develops penalties and late fees the lender places on the borrower.

Higher Limit on Lending

Regardless of whether you are in the position to fund the whole cost of your education with multiple loans or not, this really does not mean that is something you should do. If you choose to take out higher loans, this means the interest on that loan will also be high. With more interest, you will be paying much more on your loan than the overall amount that you took out.

Your Loan Depends On Your Credit Score

If your credit score is low or nonexistent, then you may be at a disadvantage. If you are in this situation, then you may also find it difficult to get the loan and if you are lucky, then you may only be able to acquire one loan with some ideal terms. These include fees, less flexible repayment plans, and high interest rates.

The Bottom Line

If you want some help with college costs and wish to make them possible, then a private student loan can be possibly helpful. However, if a student choses a federal student loan, they will face a better experience and one that is much safer to the private loan.