Month: February 2019

Budgeting

Bank Fees

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I’ve talked about the importance of opening a bank account already. But, now, you should consider the right account for you at the right bank for you. You need to understand the bank fees, interest and how to access your money.

  1. Monthly Fees. Some banks charge you monthly to have an account with them. Don’t pay this fee. If they have a minimum required in the account to avoid this fee, keep the minimum in your account. If they just charge the fee to everybody, keep shopping. You can shop for a bank just like anything else. If your credit is really poor or you have had bank issues in the past, you might only qualify for a savings account. But, a savings account will still boost your credit and help you earn interest.
  2. Overdraft Fees. Know what your bank will charge you if you go negative in your account. This is only possible on a checking account. These overdraft fees then put your account more in the negative so even when you put money in, you need to replenish the fee plus the negative. These fees often add up to much more then a credit card interest payment would be. Be aware of your balance and don’t overspend.
  3. ATM Fees. These are the most common fees you will pay when you have an account. Avoid these fees by only using your bank to make withdrawals. If you have a checking account, you can also make a small purchase at the grocery store and they will give you cash back for free. When you make the withdrawal the ATM shows the fee. But, your bank will also charge you a fee. If you really are in a situation where you need to pay the fee to get your money, take out more than you need so you only get charged the fee once.
  4. Avoidable Fees. These include foreign transaction fees, paper statement fees and inactivity fees. Read all the fine print and know what your bank will charge you for all of these things. Then, try to avoid them.

Try to avoid banks that charge high fees or excessive fees. But, you still could find one of these fees on your account. Sometimes, you can have the fee waived if you just call and ask nicely.

Make this your year that you understand your finances and pay less fees.

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Budgeting

3 Reasons to Open a Bank Account

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Having a bank account can boost your budget in new ways. You can earn interest and your money is insured (up to $100,000). Your mattress can’t keep your money that safe. So, here are three good reasons to open a bank account.

  1. Pay Bills. When you have an account, you can pay your bills online. If you like standing in line for money orders to pay your bills then you should probably stick with the mattress account. They charge you for the money orders, also. With an account, you can easily manage and pay your bills.
  2. Direct Deposit. Direct deposit of your paycheck is quicker then waiting for the mail. I have my money available in my account two or three days before I would receive it in the mail. Then, if you have an actual paycheck, you need to go stand in line to cash the check and sometimes they will charge you a fee.
  3. Interest. You can earn interest if your money is an account. An account is a great way to earn a little extra money each month. It’s only a few bucks but if it saves you more than that in fees, it is completely worth it.

It’s a great idea to open a bank account. The account can help you build wealth, credit and manage your money. If you can’t qualify for a checking account, start saving your money in a savings account.

Budgeting

Student Loans

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According to a 2017 USA Today article, outstanding student loans has passed credit card debt. Total outstanding student loans at that time were estimated at $1.4 Trillion. Most people believe that student loans are necessary. Once it comes time to pay it back, you need to be educated and know exactly what you have gotten yourself into so you can get yourself out as quick as possible.

If you haven’t started college yet, I want you to look at your options for staying debt-free. Using your savings accounts, shopping for a cheaper college and using available scholarships and grants are great ways to reduce your debt before you even start. Educate yourself on all of these options and the best loans to acquire for your situation.

Once in school you can make a big impact on your student loans. Generally, they don’t need to be paid while you are in school. But, if your loan is not subsidized (income requirements) then they are adding interest to your loan every single month. If you take out a $10,000 loan at 10% and don’t start paying it back for 4 years, you now owe almost $15,000. On the other hand, if you can just pay the interest each month, you will owe the $10,000 when you leave school. On a $10,000 loan, $84 every month pays the interest. So, drive a cheaper car, cut the cable or internet, work a part-time job, don’t eat out regularly. A $10,000 loan is much more manageable than $15,000. Do whatever you can to start paying early.

When you graduate, you now have this student loan bill and don’t know if you can pay for it. So, here’s some ways to get it paid off early.

  1. Consolidate. Be very careful that you use a reputable lender for a consolidation loan. Make sure that it will reduce your interest rate and your monthly payments without extending the loan repayment period. This could be an option to help you pay them off. But, if you understand the debt snowball, you would want to keep some loans small so you can see the progress you have made. If you have a $5,000 loan and a $50,000 loan and you consolidate them, it is harder to see your progress.
  2. Pay more than the minimum. Once you graduate, most loans give you a 6 month grace period before they require repayment to start. If there is any way to start making the payments sooner, please start. The interest is again adding into your balance on the loan. Then, they calculate your payment over 10 years. So, always pay extra even if it’s just a little.
  3. Extra cash. Apply your extra cash towards your student loans. When you get a raise instead of spending the money, immediately increase your payment to the lender. Don’t let yourself spend that money and you won’t miss it. As with any debt snowball you are working toward, any extra cash like bonuses or tax refunds go towards your smallest debt.
  4. Don’t get behind. As with any debt, don’t get behind. Late fees and penalty interest add up to even more. Make sure that you pay the minimums on every loan every month. The government can not only damage your credit like other lenders but they will take your tax refund and can even garnish wages if you don’t pay back your student loans.

Student loans can seem like they will take forever to pay off. But, by paying as much as you can as soon as you can, you will shorten this time. The sooner you pay it off, the less you pay in interest. Just think what you could be doing with that money each month.

If you really can’t afford your student loans, you should talk to the lender about reducing your payments. But, make a budget and try to pay them off.

I offer free phone consultations for setting up your budget. Click on my contact page.

Photo by Pixabay on Pexels.com

Budgeting

How to Qualify for a Mortgage

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I generally talk about decreasing your debt. But, today, I want to talk about how to qualify for a mortgage. A home can be a good investment in your and your family’s future. I’ll give you four good reasons to own a home but then I’m going to talk about the long-term of how to get there.

  1. Finance. Mortgage payments don’t go up every year.
  2. You’re building equity. Equity is when your house is worth more than you owe. You want to have positive equity as much as possible.
  3. Stability. You don’t need to move all the time.
  4. Tax Breaks. Don’t buy solely for this reason. Due to the Tax Cuts & Jobs Act of 2017 most people aren’t itemizing anymore so they aren’t getting this tax break.

You can use an online Mortgage Calculator to see how much you might qualify for. But, don’t try to buy as much house as any lender tells you you can afford. This is how people get “house poor.” They forget about the extra expenses of living in a house and over-extend themselves on how much they buy. You want to be in a good position when you purchase a home.

If your credit is bad, it could take many years for you to be in a position to purchase a home. But, I like to start somewhere and knowledge is power.

  1. Down payment. There will be a minimum down payment requirement. This can range from 3.5% – 20% of the purchase price. You also need to take into account, there will be extra fees with the loan origination. Focus on #2 and #3 first. Then, you can start saving up for the all important down payment.
  2. Credit score. You want to start by getting your credit score up to 580 and keeping it that high for a year or two. Credit score effects your total loan amount you could qualify for. Credit score can effect the down payment and interest rate that you pay. An optimal credit score will help you buy the most house for your money. So, start paying extra on loans to try to get that score up. This is an area that can take years to build up. But, just start where you are and do the best you can.
  3. Debt-to-income ratio. Calculate this by taking your monthly debt payments divided by your monthly gross income. The acceptable ratio is set by (HUD) not the lender but some lenders may even want a lower ratio. This just tells the lender how much extra money you have each month. Currently, you must be at less than 31% for your housing payments and less than 43% for all debt. Paying off your debts is the first priority if you want to qualify for a mortgage.

In order to qualify for a mortgage, you are going to need to start by controlling your own finances. All of my blog posts have ideas and tips about budgeting and paying off debt. Paid off debt feels so good and can give you freedom to spend your money how you want.

Click on my contact page if you want a free budgeting consultation.

Budgeting

6 Ways to Improve Your Credit Score

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Your credit score can affect where you live and how much you pay, it can affect what you drive and your car payment, it can affect a job search and it can affect your other monthly bills. A good credit score will give you freedom to do many more things with your money. Whether you use credit or not, a good credit score will help you in your life. So, how do you fix your credit score if it is currently not good?

#1 – Request your credit report. Requesting your credit report will not affect your credit score. Go online to any of the credit reporting agencies and you can request a credit score for free. You can request one each year. This is the minimum amount of time you should go before checking your credit report again. Review thoroughly each separate account and dispute any claims on there that you feel are in error. Make a plan or a credit score goal with a time-frame. Avoid expensive credit monitoring services. You can do it on your own. If you have questions, call the credit reporting agency and they will help you.

#2 – Pay bills on time. To fix your credit, now is a good time to stop paying your bills late and late fees. If you absolutely must pay them late, be careful to keep it under 30 days late. Set up automatic bill pay so you don’t miss any payments. Late fees are so expensive but if you go over the 30 days, the late payment can also effect your credit.

#3 – Reduce debt owed. Look at your bills and see if you are really living within your means. This means you can pay all of your bills each month. Start paying a little extra on the bill with the lowest balance. Is your car payment or rent way too high? Look into other options so that you can reasonably pay your bills each month. It is expensive to sell your car when you’re upside down or to terminate a lease on an apartment, but in the long run it might be better for you if you can find more affordable options.

#4 – Focus on credit cards. Credit cards make it too easy to overspend every month. Stop moving your balances around. Keep your balances low. Avoid opening new credit card accounts. Pay off your oldest debt first. But, do not close the oldest accounts. Closing old credit card accounts can actually hurt your credit. Just leave the balance at zero.

#5 – Sustain an emergency fund. Borrowing money at high interest rates when you have an emergency arise, can hurt your credit and cost you crazy amounts in interest. Always have a plan for emergencies and maintain your emergency fund first. When you use it, stop paying extra on other bills and re-establish this crucial fund. Everyone with good credit or zero debt has an account sufficient for most of their needs.

#6 – Avoid quick-fixes. Unfortunately, repairing credit takes time, years even. If someone is offering you a quick-fix, it is most likely a scam. Just like with losing weight, you must change your habits and gradually you will lose the “pounds” of debt that you are carrying.

Start somewhere small. If you are drowning in debt, start by paying off one bill. Then, move on to the next bill using the extra payment that you are now free from. Track your progress every month.

Do you need help setting up a budget or evaluating your finances? Click on my contact page. I offer free budget consultations. Coming soon, a free debt e-book to help you start the journey of improving your credit score.

Budgeting

Debt Consolidation & Management

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Are you completely overwhelmed by your debts? Credit card debt is so easy to get into but it is very difficult to get out of debt. There are companies and organizations that are able to offer services to help you. How do you know if it is time to get help from others?











Calculate your debts and minimum monthly payments. When you look at your debt and total up your minimum monthly payments, compare that to your income. Are your minimum payments more than 40% of your monthly income? Can you afford to pay more towards your debt each month? Can you sell some things that would help you pay down your debt quickly? Can you sell vehicles if they are unaffordable?

If the answer to these questions are no, you might need to get help with your debts. Two great options are debt consolidation and debt management. You should always be careful, do research and find the best options that won’t just take your money.

Debt consolidation with a credit card. The best option for this is sometimes a 0% interest credit card where you move your high interest loans to this card. The cautions would be to make sure that you can pay off this credit card before you have to pay the interest. And, with debt consolidation, you should be sure to quit spending. If you don’t quit overspending this will just make your situation worse.

Debt consolidation. This is an option if you decide to stop spending on loans and credit cards. This only works if you commit to paying off your loans. Also, you should be cautious with debt consolidation companies. Some of them say to start paying them right away and then they will work with your creditors to get them to accept lower payments. Do your research and make sure that you are using a reputable company. Make sure your other loans are paid off before you start paying for this. These companies can ruin your credit if they don’t fulfill the promises they make.

Debt management. There are also debt management companies. This is where you go in and they help you go over your loans and payments. They will sometimes negotiate with your creditors to accept less money. This can also negatively affect your credit. You should only do this if it is a last resort before bankruptcy. Some companies will help you figure out how to pay down your debt without the negotiation. They will only help you make a plan. They can also help you decide if it is time to declare bankruptcy.

If you are completely overwhelmed by your debt and look at your situation and don’t think you can do anything, you might benefit from the services offered by these companies.

I do offer debt management help and make customized plans to help you learn to manage your debt. Contact me through my contact page for help.

Budgeting

Pay off debt.

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You’ve decided to pay off your debt. But, you don’t know where to start. Debt can be so daunting and that is why you are stuck. This is your year to start paying off your debt. Don’t be overwhelmed by people that have paid off a lot of debt in a small amount of time. Once you start, you might be able to gain momentum and pay off your debt faster than you planned. But, you need to start where you are.

  1. Know where you are. How much is the total amount of your minimum debt payments? Minimum payments are the first thing you pay each month. Collect all of your debt information. What is your balance on each loan, interest rate, payment and payoff time? How much extra each month could you make in debt payments? This doesn’t need to be a lot of money. You start where you are and stay realistic about how much you can afford. https://www.nerdwallet.com/blog/finance/debt-snowball-calculator/
  2. Make a plan. I added a link to a great debt snowball calculator. Let’s talk about debt snowball and debt avalanche. A debt snowball means that you start with your debt with the current lowest balance and pay all extra amounts towards that debt included with your monthly minimum. A debt avalanche means that you start with your debt with the highest interest rate and pay the extra amounts toward that debt included with your monthly minimum. After you pay off your first debt, you add the payment amount to the next debt. If you’re doing the debt snowball, you will move to the next lowest balance. If you’re doing the debt avalanche, you will move to the next highest interest rate. Which one is right for you? The debt snowball and debt avalanche generally only make a difference of a few months. I calculated that if I start with snowball, I would pay off debt in 26 months and save $5,432 in interest. If I start with the avalanche, I would pay off debt in 25 months and save $5,474 in interest. On nerd wallet, you can calculate both once you have all of your debt in, you can see what would be the difference for you. So, the point is it doesn’t really matter. But, the snowball can fill amazing because you could pay off one or two debts within a year. That motivates you because you are paying it off.
  3. Track. Track your debts. It feels so good to mark it off on a schedule. There are many debt snowball trackers. If you search for one, you will find one that works for you. I simply print off something similar to this and highlight the box as I pay off each set of $500. Then, I mark the date when I finish paying off each loan.
Debt Snowball
LoansDate
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
5500
6000
6500
7000
7500
8000
8500
9000
9500
10000
10500
11000
11500
12000
12500
13000
13500
14000
14500
15000

You can do this. Paying off debt feels so great. Each debt that we paid off, felt amazing. And, this last debt we are paying a large amount of money towards each month doesn’t feel nearly as overwhelming as before we started. It is so important to start where you are and just start.

I will help you evaluate your debts and budget. I can help you make a plan to get started and moving forward on your debt journey. Click on my contact page today.

Budgeting, Tips

Understanding Debt & Interest

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Do you understand how much you are paying in interest each year on your debts? Understanding debt and interest will help you get motivated to get out of debt. When you see the information, you will see how you could be spending your money in other ways.

Before taking out any loan, you should understand exactly what you will be paying in interest, APR, and how long you will be paying. There are some easy to use debt calculators online that will calculate your interest.

Interest. Interest is the extra amount you will be paying for using someone else’s money. When you have a savings account, interest is the amount that you are receiving for letting someone else borrow your money. Savings rates are usually much lower and so most debt-free people paid off their debt first, then built savings.

APR. This stands for Annual Percentage Rate. This is the interest rate you are paying. You should get the lowest APR you can. APR takes into account any loan fees and compounding interest. When you understand APR and increase your credit score, you can use those as tools to pay less interest. The chart below shows how much interest you pay at different interest rates (in blue). The red shows how much interest you would pay if you paid a $2,000 lump sum payment at the first of the loan but kept paying the same amount.

How long will you be paying for these loans? The chart above calculates interest on a 5 year loan of $10,000. Ask yourself if you can really afford to make those payments for 5 years. By paying upfront of $2,000, you can reduce the payback period. The 20% loan only took 45 months to pay off instead of 60. That is paying the same payment but putting down $2,000 upfront.

If you also add extra payments, you will be out of debt a lot quicker, increase your credit score, and be able to save yourself hundreds or thousands of dollars. It is so important to understand these aspects of debt and interest as you start on a journey to lower/eliminate debt, increase your credit score and learn how to save.

Budgeting, expenses

6 Reasons to Get Out of Debt

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Americans feel conflicted about their debt. About eight out of ten Americans have debts. Most people believe that debt is necessary but that they would rather not have it. Today, I will focus on the benefits of being debt-free. Reducing your debt can also help with some of these feelings.

  1. Free up your income. Not having debt payments each month, gives you opportunities to spend your money wherever you want. It also allows more freedom in the kind of work you do. Dave Ramsey posted, “My grandmother always said, ‘There’s a great place to go when you’re broke – to work.'” Debt compels you to work more and harder. If you’re debt free, you are “free” to change jobs, take time off, and enjoy your family more.
  2. Less risk. Many people are one paycheck away from losing everything. Budgeting can help with this. But, also, getting yourself out of debt helps. You’ve learned how to budget, live within your means and you have a savings cushion. Debt-free is a big cushion to get by for many months with smaller income.
  3. Less stress. #1 and #2 are great reasons and they also contribute to less stress. Debt creates stress. You worry about how you’re going to pay all your bills. When you have debt, sometimes, it is difficult to enjoy doing anything because you are worried about your debt. Getting rid of your debt releases a lot of stress. Then, you can spend time with your family, enjoying your work, and find new hobbies.
  4. Better relationships. Do you see the pattern of these reasons all building on the one before? When you don’t have debt, you can enjoy your family more. You can also enjoy all the activities that come with kids even though they are expensive. When you’re not worried about your debt, you know exactly how to pay for those expensive things that come up. I still require my kids to help pay for half of the activities they do once in high school. I think this better prepares them for life. My son plays football and he can’t have a regular job most of the year but he can do a couple of yard clean-ups every month to help pay his expenses.
  5. Helping others. I know that helping others helps you. Debt-free means you can help others. Even if you are still in debt, start finding ways to help others that don’t cost money. You can help people shovel snow, rake leaves, visit with family or friends. Once debt-free, you already know the benefits of helping others and will want to continue.
  6. Higher Self-Esteem and Confidence. I will give an example. One person goes into a dealership to buy a car not even sure of their credit score or how much they can afford. The second person goes into a dealership with cash to buy a car that they have been saving up for and know exactly which one they want and can afford. Buying a car is a high-stress situation but which of these two is more confident when they walk in the dealership? Which one gets the better car even if they spend the same amount? Buying a car is a great reason to be debt-free and easy to see the confidence it will bring to you.

These are only my top six reasons to be debt-free. But, knowing why it’s good and doing it are two different things. Start with a budget. If you can’t make your budget make sense, you should consider talking to a credit counselor. I offer free budgeting consultations. I do not consolidate your debt but I can help you make a budget that works for you. Erin Barbee erin@e3accountingsolutions.com