Financial independence can mean different things to everyone. A 2013 survey from Capital One 360 found that 44 percent of American adults feel that financial independence means not having any debt, 26 percent said it means having an emergency savings fund, and 10 percent link financial independence with being able to retire early.
I define financial independence as the time in life when my assets produce enough income to cover a comfortable lifestyle. At that point, working a day job will be optional.
But what about the rest of America? How would you define financial independence? If freedom from debt is what you’re seeking, here are five areas that could be holding you back.
1. Not having clear, financial goals
If you’re not planning for financial independence, chances are you won’t reach it. The future is full of unknowns, but having an idea of when you’d like to achieve financial freedom should be your first step.
Do you want to retire before you turn 65? Do you want to travel the world with your spouse once you reach early retirement? Both goals will require a significant amount of cash stashed away, so it’s important to start saving ASAP to make those dreams come true. (See also: 15 Secrets of People Who Retire Early)
2. Not saving enough
It’s important to identify how much you’re currently saving, and how much you need to save in order to retire when you want to, or reach another major financial goal. Using a calculator like Networthify can help you play with various money-saving scenarios and make realistic projections about retirement.
Another way to make saving money easier is to automate it. Setting up an automatic weekly or monthly transfer from your checking account into your savings account will take the extra task off your already full plate. Even if it’s as little as $5 a week, it’s enough to start building that nest egg. (See also: 5 MicroSaving Tools to Help You Start Saving Now)
3. Not paying off consumer debt
If you’re carrying a credit card balance each month, financing cars, or just paying the minimum on your student loans, compound interest is working against you. Creating an aggressive plan to pay off debt quickly should be a number one priority for anyone who is serious about achieving financial independence. Otherwise, your money is working for your creditors, not you.
If you prefer to tackle credit card debt first, there are several debt management methods you can try, including the Debt Snowball Method and the Debt Avalanche Method. The Debt Snowball Method has you paying off the card with the smallest balance first, working your way up to the card with the largest balance. The Debt Avalanche Method is similar, but here you would pay more than the monthly minimum on the card with the highest interest rate first, working towards paying off the card with the lowest interest rate. Both are highly effective methods, and choosing one really just depends on your preference.
4. Giving into lifestyle creep
A high income does not automatically make you wealthy. As you move up in your career, the temptation to upgrade your lifestyle to match your income will be ever-present. After all, you work hard, so why not reward yourself with the latest gadgets and toys?
However, if you continue to spend and live modestly, you can put more money away for travel or retirement with every pay raise you earn. Financial freedom will be just around the corner if you resist that temptation to upgrade your home, car, and electronics to match your income bracket. (See also: 9 Ways to Reverse Lifestyle Creep)
5. Being driven by FOMO
Fear Of Missing Out, aka FOMO, is the modern version of keeping up with the Joneses. Except now you have access to the Joneses’ social media platforms, and they go on all kinds of fun adventures. Social media is a great tool for keeping in touch, but it can also make you want to spend all your money on lavish vacations, clothes, spa treatments, and other extravagent things. Resist that urge. And block the Joneses on social media if needed. (See also: Are You Letting FOMO Ruin Your Finances?)
Debt can feel like a terrible thing, but paying off your debts is how you demonstrate that you can successfully manage your finances. Whether you make your debt payments on time makes up 35% of your credit score. Making on-time payments is one of the smartest ways to use your debt to your advantage.
If you need a little help, debt management apps can help you organize and manage all of your debts in one place. Just input all debt data into your phone and manage them there. Here are a few options to consider.
Get Help Now
Best Used For
Credit card management
Free to download
iOS and Android
Snowball Method, debt summary and tracking, progress bar
Pay Off Debt
Motivation to make your debt payments
iOS and Android
Budgeting for debt payments
Web, iOS, and Android
Student loan repayments
iOS and Android
Quick payoff calculator
Savings to apply to debt
iOS and Android
Credit Report Card
All-around financial wellness and credit score tracking
Web, iOS and Android
Tally is a debt management app that makes it easy to save money by automating your credit card payments to help you reduce your debt faster. The app is free to download, but the real value of Tally comes if you are approved for a Tally Line of Credit that consolidates your credit card debt with a lower APR. You’ll owe interest on that loan, but Tally will automate your credit card payments and determine the best way to save you money based on your credit card rates.
>> See our full review
Debt Book is an app for borrowers as well as lenders. It allows you to track and update your debt in a “Master Book,” which shows your borrowed/lent amount, how much has been paid/collected, and how much remains. The app also gives you options to view this data in a statistical chart for a visual representation of your current debt situation. And if the borrower and lender are both on the app, they can communicate and send payments through the app. This makes it easier to stay in contact with one another and to stay on top of existing debt.
Debt Manager uses your debt information to create progress bar graphs to help you see how far along you are in paying off each debt, how much debt is remaining, and your interest rate. The application specifically focuses on the Snowball Method to track and pay off all debts quickly and efficiently. The interactive app gives hints and tips based on your debt situation. You can also track monthly payments within the app manually or automatically and test out different “What If?” scenarios.
Pay Off Debt helps you choose the payoff method and order that works best for you. You can use the debt snowball method, debt avalanche method, or something else. Track your payoff progress and the interest you’ve saved. Pay Off Debt also prioritizes keeping you motivated during your debt payment journey: the app provides a burst of motivation with a PAID icon each time you pay off a debt, and you can add pictures to symbolize your “Why.”
You’ll need to budget in order to efficiently pay off your bills. Mint helps you do just that. It’s one of the best-known budgeting apps for good reason. It’s easy to use and is packed with extra features. Mint gathers everything in one place—your cash, credit cards, loans, investments, credit score, and more. Track your bill payments, budget for future payments, and get alerts when you overspend or a bill is due.
A round up app like Acorns, ChangEd is an easy way to automate regular extra payments to pay off your student loans early. Connect your loans and bank accounts and create an FDIC-insured ChangEd savings account. As you spend, ChangEd will roundup your purchases and transfer those roundups to your ChangEd savings account. Once you reach $100, they’ll send that money to the student loan you want to pay off first.
If you want a quick and easy way to visualize your debts and how long it will take you to pay them off, Unbury.me is a great tool. You don’t need an account to use it—just start entering your information—but you can sign up for a free account to save your information. Enter the principal remaining, interest rate, and monthly payment and see how long it will take to pay off those loans based on the payment methods you choose.
In order to pay off your debts, you need money. That’s where an app like Digit comes in. It’s not a traditional debt management app, but it’s definitely a debt management tool. For $5 per month, it helps you save automatically without even thinking about it. You won’t miss the money it puts in savings for you, but you will benefit from it when it’s time to pay your bills.
If you want to see how your debt management is improving your credit, sign up for Credit.com’s free Credit Report Card. Our Credit report Card is an easy-to-understand breakdown of your credit report information that uses letter grades so you can track —plus you get a free credit score updated every 14 days.
Get Your Debt Under Control
Regardless of what approach you prefer to manage your debt, these apps have options for everyone. We suggest taking a look at which app works best for you and personalizing it to fit your needs.
Ready to take your finances to the next level? Sign up for ExtraCredit. This five-in-one financial tool will help you build, track, protect, and restore your credit profile—and reward you while you’re at it! Learn more about all the amazing benefits of an ExtraCredit account at Credit.com/Extracredit.
Have you found yourself with extra cash? Lucky you! Laura’s 3-step system will help you spend, invest, or save it wisely.
Laura Adams, MBA
October 21, 2020
investing your emergency money unless you have more than a six-month reserve.
The goal for an emergency fund is safety, not growth.
If you don’t have enough saved, aim to bridge the gap over a reasonable period. For instance, you could save one half of your target over two years or one third over three years. You can put your goal on autopilot by creating an automatic monthly transfer from your checking into your savings account.
Megan mentioned using high-yield savings, which can be a good option because it pays a bit more interest for large balances. However, the higher rate typically comes with limitations, such as applying only to a threshold balance, so be sure to understand the account terms.
Insurance protects your finances
Another critical aspect of preparing for the unexpected is having enough of the right kinds of insurance. Here are some policies you may need:
RELATED: How to Create Foolproof Safety Nets
How to invest for your future
Once you get as prepared as possible for the unexpected by building an emergency fund and getting the right kinds of insurance, the next goal I mentioned is investing for retirement. That’s the “I” in PIP, right behind prepare for the unexpected.
Investments can go down in value—you should never invest money you can’t live without.
While many people use the terms saving and investing interchangeably, they’re not the same. Let’s clarify the difference between investing and saving so you can think strategically about them:
Saving is for the money you expect to spend within the next few years and don’t want to risk losing it. In other words, you save money that you want to keep 100% safe because you know you’ll need it or because you could need it. While it won’t earn much interest, you’ll be able to tap it in an instant.
Investing is for the money you expect to spend in the future, such as in five or more years. Purchasing an investment means you’re exposing money to some amount of risk to make it grow. Investments can go down in value; therefore, you should never invest money you can’t live without.
In general, I recommend that you invest through a qualified retirement account, such as a workplace plan or an IRA, which come with tax benefits to boost your growth. My recommendation is to contribute no less than 10% to 15% of your pre-tax income for retirement.
Magen mentioned Roth IRAs, and it may be a good option for her to rebuild her retirement savings. For 2020, you can contribute up to $6,000, or $7,000 if you’re over age 50, to a traditional or a Roth IRA. You typically must have income to qualify for an IRA. However, if you’re married and file taxes jointly, a non-working spouse can max out an IRA based on household income.
For workplace retirement plans, such as a 401(k), you can contribute up to $19,500, or $26,000 if you’re over 50 for 2020. Some employers match a certain percent of contributions, which turbocharges your account. That’s why it’s wise to invest enough to max out any free retirement matching at work. If your employer kicks in matching funds, you can exceed the annual contribution limits that I mentioned.
RELATED: A 5-Point Checklist for How to Invest Money Wisely
How to pay off high-interest debt
Once you’re working on the first two parts of my PIP plan by preparing for the unexpected and investing for the future, you’re in a perfect position also to pay off high-interest debt, the final “P.”
Always tackle your high-interest debts before any other debts because they cost you the most. They usually include credit cards, car loans, personal loans, and payday loans with double-digit interest rates. Remember that when you pay off a credit card that charges 18%, that’s just like earning 18% on an investment after taxes—pretty impressive!
Remember that when you pay off a credit card that charges 18%, that’s just like earning 18% on an investment after taxes—pretty impressive!
Typical low-interest loans include student loans, mortgages, and home equity lines of credit. These types of debt also come with tax breaks for some of the interest you pay, making them cost even less. So, don’t even think about paying them down before implementing your PIP plan.
Getting back to Bianca’s situation, she didn’t mention having emergency savings or regularly investing for retirement. I recommend using her upcoming cash windfall to set these up before paying off a low-rate student loan.
Let’s say Bianca sets aside enough for her emergency fund, purchases any missing insurance, and still has cash left over. She could use some or all of it to pay down her auto loan. Since the auto loan probably has a higher interest rate than her student loan and doesn’t come with any tax advantages, it’s wise to pay it down first.
Once you’ve put your PIP plan into motion, you can work on other goals, such as saving for a house, vacation, college, or any other dream you have.
Questions to ask when you have extra money
Here are five questions to ask yourself when you have a cash windfall or accumulate savings and aren’t sure what to do with it.
1. Do I have emergency savings?
Having some emergency money is critical for a healthy financial life because no one can predict the future. You might have a considerable unexpected expense or lose income.
Without emergency money to fall back on, you’re living on the edge, financially speaking. So never turn down the opportunity to build a cash reserve before spending money on anything else.
2. Do I contribute to a retirement account at work?
Getting a windfall could be the ticket to getting started with a retirement plan or increasing contributions. It’s wise to invest at least 10% to 15% of your gross income for retirement.
Investing in a workplace retirement plan is an excellent way to set aside small amounts of money regularly. You’ll build wealth for the future, cut your taxes, and maybe even get some employer matching.
3. Do I have an IRA?
Don’t have a job with a retirement plan? Not a problem. If you (or a spouse when you file taxes jointly) have some amount of earned income, you can contribute to a traditional or a Roth IRA. Even if you contribute to a retirement plan at work, you can still max out an IRA in the same year—which is a great way to use a cash windfall.
4. Do I have high-interest debt?
If you have expensive debt, such as credit cards or payday loans, paying them down is the next best way to spend extra money. Take the opportunity to use a windfall to get rid of high-interest debt and stay out of debt in the future.
5. Do I have other financial goals?
After you’ve built up your emergency fund, have money flowing into tax-advantaged retirement accounts, and are whittling down high-interest debt, start thinking about other financial goals. Do you want to buy a house? Go to graduate school? Send your kids to college?
How to manage a cash windfall
Review your financial situation at least once a year to make sure you’re still on track.
When it comes to managing extra money, always consider the big picture of your financial life and choose strategies that follow my PIP plan in order: prepare for the unexpected, invest for the future, and pay off high-interest debt.
Review your situation at least once a year to make sure you’re still on track. As your life changes, you may need more or less emergency money or insurance coverage.
When your income increases, take the opportunity to bump up your retirement contribution—even increasing it one percent per year can make a huge difference.
And here’s another important quick and dirty tip: when you make more money, don’t let your cost of living increase as well. If you earn more but maintain or even decrease your expenses, you’ll be able to reach your financial goals faster.
Here are the 5 steps you need to take to stop yourself from overspending on Christmas gifts
The excitement, the gingerbread latte is now kicking in … the click-clack of your shoes racing down Target’s floor tiles… as you frantically snatch the must-have toy of the season off the shelf, clutching it possessively to your chest!
As you round the corner trying to get back to the main aisle, you can’t believe your eyes; you haven’t seen this Magnolia item in stock in FOREVER! In your shopping cart it goes! Off to checkout, and you slooooow way down going by the girl’s section, and think, “That’s super cute! My little one would love that!” It too goes in the cart!
An hour later, and your phone bings at you. Yup, it’s a large purchase amount alert from your credit card. It reads, “Did you spend $358.42 at Target? This amount is over your alert limit notification settings”.
And just like in The Christmas Story, you say (in slow motion for dramatic effect) “Oh FUDGE!”
You totally overspent! Again! You told yourself you weren’t going to overspend on Christmas presents again! (like ever!) Last year’s holiday credit card bill left you with hives, and you promised yourself that this next year would be different!
Well, guess what, that Target scenario up above… it was just a dream. Just like Ebenezer, there is time for you to change your ways. You’re not doomed to follow the same path you did last year! So if you’re ready, let’s dive into how to stop overspending at Christmas!
This post may contain affiliate links. Please read my full disclosure for more info
What is the Christmas Debt Hangover?
Ugh! No one likes a hangover! But unlike a hangover from too much bubbly, a Christmas debt hangover can last months and months (sometimes years)! No thanks!
According to a MagnifyMoney survey, “Americans took on an average of $1,325 of holiday debt in 2019”. Here’s how their numbers played out…
44% of consumers took on debt this holiday season, and the majority (57%) didn’t plan on doing so.
78% of those with holiday debt won’t be able to pay it off come January, including 15% who are only making minimum payments.
58% of indebted consumers are stressed about their holiday debt.
40% plan to consolidate debt and/or shop around for a good balance transfer interest rate, but more than half won’t even try. Of those that won’t try, 20% think it’s not necessary, and 18% don’t want to deal with another bank.
Now specifically regarding how long it would take them to pay off the debt, survey responders said…
22% said one month
21% said two months
19% said three months
8% said four months
16% said 5+ months
15% are paying only minimum payments
Right now, The Fed Reserve lists the average credit card interest rate to be 14.52%. You can generally assume that your minimum payment will be about 2% of your total bill. Here’s a screenshot of how long it would take to pay off the card (if you didn’t put any more purchases on it).
64 months? Paying $582 in interest? W.T.F.!
Are you ready to tame your shopping spree beast? Because, after looking at those numbers, overspending at Christmas is not cool!
How to stop overspending on Christmas presents: Step One – decide what you will focus on besides the gifts!
It’s just smart sense that when you take something away, you need to replace it with something else. Instead of a donut, have a whole grain muffin!
So instead of focusing on gifts, what do you want to spend the season focused on? I’ve got a great list of frugal family fun ideas for the holidays! These are bucket list items perfect for the holiday season!
You’re especially going to need something fun to do Christmas morning, as you don’t want the day to be anticlimactic without all the presents, as it might be hard on our littlest ones. Think about…
Doing a Meals on Wheels delivery route in your neighborhood.
Do a Christmas movie marathon (pj’s required!).
Make a full holiday meal together as a family.
Go sledding/skiing/ice skating or go to the mountains for snow time fun! Don’t forget the hot cocoa and accessories for the snowman you’ll build!
Step Two – Consider a gifting strategy
Every good General knows that you need a plan of attack or a strategy, shall we say. And if you don’t think Christmas shopping is kind of like preparing for battle, then hats off to your peaceful and serene holidays of the past. The rest of us battle-weary moms can barely nod in agreement (as we’re still a little shell shocked from last year’s holiday season).
Strategy One – Adopt the 4 Gift Rule
This one is amazing in its simplicity to help you stop overspending on Christmas gifts! It caters to those toying with the idea of having a minimalist(ish) holiday, and it’s gaining popularity every year! You gift each recipient (that you would typically buy lots for) just four gifts.
Something to wear
Something to read
Something they need
Something they want
I’d like to think of it as a way to buy a more meaningful selection of gifts. As you’re looking not just to buy lots of things, but purchase specific items. Hopefully, the receivers will appreciate their gifts a little more and not get lost in the craze of ripping off wrapping paper at the speed of light.
Don’t forget to snag your printable gift list tracker; there’s a four gift rule one and then a classic gift list printable. Everything you need to stay organized and on budget!
Strategy Two – Give the gift of an experience
Maybe your kids have everything that they need! Maybe you are dreading anything more coming into your home as you need to get your Home Edit on right now!
If that’s the case, then consider giving an experience instead. This could be a short trip to the beach or a big trip to Walt Disney World. Or tickets to a sporting game or an event like Comic-Con. Go as big or as small as you like. Set aside the Christmas money and put it in a sinking fund to make this experience come true (even if it’s at a later date).
Hint: if it’s a trip to a theme park, some have vacation planning DVDs or online videos (DisneyWorld does). This would be a great thing to wrap and put under the tree!
Strategy Three – Go the D.I.Y. route
Now, this isn’t for those of us that are all thumbs (meeee!) I am not a crafter/knitter/artist/DIYer by nature. But for those of you that are, consider harnessing your talent for homemade gifts!
Even if you don’t have a talent, maybe consider gifting a custom photo book from Shutterfly. Or collect great grandmothers family recipes together and turn them into a little book (or place her most famous recipe on a tea towel! Cute huh!)
That’s right, as your mother always said, it pays to plan ahead! That means getting your Christmas present shopping done early! As the holiday gets closer, we tend to panic slightly; we grab just about anything that will do as a good gift. Most of the time that means we’re spending a little more (because we don’t want to get a cheapo lame gift)!
So start jotting down your gift choices now! Aka ASAP! I.e., immediately!
Okay, you get the drift. Besides, online ordering gets bigger every year, and sometimes there are shipping delays or snowstorms that stop service in half the country (yikes!) You don’t want to get a substitute gift because your original gift won’t be back in stock until January 17th!
Step Four – Use Cash
They say cash is king, and they’re right! Especially when it comes to spending money. Because when the cash is out, the spending is done! It’s genius at its most basic, and it works every time (as long as you leave your credit cards at home). You simply cannot overspend on Christmas gifts!
Using cash envelopes is a strategy used by many successful budgeters! Besides, stuffing these cute festive holiday cash envelopes is fun! You can use one for each person you’re gifting to or use one for each holiday shopping category—I.e., food, decorations, gifting, fun times, supplies, etc. Or if you’re crafty here are some cash envelope templates that you can make on your own!
Nerdwallet references a cult classic report where, “An often-cited study is one conducted by Dun & Bradstreet, in which the company found that people spend 12%-18% more when using credit cards instead of cash.”
Don’t forget that when you pay with cash, you won’t have to pay interest on the charge either! Look at it this way; when you pay cash, you’re buying something. When you pay with a credit card, you’re borrowing the money for it; you didn’t buy it (but you’ll pay extra for it in interest!)
Step Five – Don’t go into the stores!
This one sounds silly, I know, but it’s so painfully obvious. If you don’t have to go into a store, then don’t! Because really, we’ve all gone into a store, we don’t grab a cart because we just need one thing, and we come up to the cashier juggling items like a clown!
Inevitably when you go into a store, it’s straight temptation. Why do that to yourself? Stay home, and send someone else to the store, or better yet, do some online ordering for that item you need!
Or if you’re poison is the 1-click buy, then take some super easy preventative measures. Delete your credit card info on your devices! GASP! I know, I know, it sounds drastic, but making it just the teensiest bit harder on yourself to shop online could mean saving hundreds! Because honestly, sometimes I don’t get up to walk across the house to grab my credit card number!
Better yet, do a marketing edit! Unsubscribe from those pesky emails from your favorite retailers and unfollow them on social media! You won’t want what you never see! Now, I know you’ve been thinking about this idea for a while, give it a try! You can always go back later and subscribe again!
Simple hacks to stop overspending on Christmas presents
Know your prices
Do you know the regular price of the “sale” item in your hand? Even though it says it’s on sale or discounted 20% off, it might still not be a great price! If you are 100% in on saving money this holiday season, then you should scout your gifts early, record their prices, and wait to see what the “holiday deals” actually are.
Many retailers change their prices regularly. What was $59 in September could easily now be $75 in December. Yet now they can mark it being 20% off! They get to keep their sales margin high enough to get a good profit, and you (the customer) feel like you got a good deal. Winner Winner… oh wait, that’s a bull$hit dinner!
Be smarter than the retailer!
Don’t go shopping when…
You are hungry
You’re short on time
With somebody else (friends can be bad influences, sorry friends)
It’s going to be super crowded (instead go early in the morning, or late at night)
Next years plan for Christmas gifting
If you get through this Christmas and going low key on gifts wasn’t for your family, then no problem. You can have the Christmas that your family wants; you may need to start socking away money for it a bit earlier than usual! Check out How to Start a Christmas Savings Plan and How to Plan the Perfect Christmas Budget!
At the end of the day
I know that reading about how to not overspend at Christmas sounds like a bummer of a topic. But honestly, think about how you’ll feel come January when you don’t have that big fat credit card bill that’s knocking out your wallet like it’s Balboa in Rocky 1!
I know that for many of us, we remember Christmases of youth, with mountains of presents, and we want to recreate those warm fuzzy memories for our own kids. But those warm fuzzy feelings can be created out of so many instances, not just present opening. So save yourself the agony and angst of overspending at Christmas, and don’t even go there!
Posts Related to How to Stop Overspending on Christmas Gifts:
What are your top tips for how to stop overspending on holiday gifts ?
Kari is a total Money Nerd Mama, helping other Mamas to learn about all things money & personal finance, so they can execute money management strategies to make a secure future for their family!
average of $233,610, and that’s for each child. This figure doesn’t even include the cost of college, which is growing faster than inflation.
CollegeBoard data found that for the 2019-2020 school year, the average in-state, four-year school costs $21,950 per year including tuition, fees, and room and board.
Kids can add meaning to your life, and most parents would say they’re well worth the cost. But having your financial ducks in a row — before having kids — can help you spend more time with your new family instead of worrying about paying the bills.
10 Financial Moves to Make Before Having Kids
If you want to have kids and reach your long-term financial goals, you’ll need to make some strategic moves early on. There are plenty of ways to set yourself up for success, but here are the most important ones.
1. Start Using a Monthly Budget
When you’re young and child-free, it’s easy to spend more than you planned on fun activities and nonessentials. But having kids has a way of ruining your carefree spending habits, and that’s especially true if you’ve spent most of your adult life buying whatever catches your eye.
That’s why it’s smart to start using a monthly budget before having kids. It helps you prioritize each dollar you earn every month so you’re tracking your family’s short- and long-term goals.
You can create a simple budget with a pen and paper. Each month, list your income and recurring monthly expenses in separate columns, and then log your purchases throughout the month. This gives you a high-level perspective about money going in and out of your budget. You can also use a digital budgeting tool, like Mint, Qube Money, or You Need a Budget (YNAB) to get a handle on your finances.
Regardless of which budgeting tool you choose, create categories for savings (e.g. an emergency fund, vacation fund, etc.) and investments. Treat these expense categories just like regular bills as a way to commit to your family’s money goals. Your budget should provide a rough guide that helps you cover household expenses and save for the future while leaving some money for fun.
2. Build an Emergency Fund
Most experts suggest keeping three- to six-months of expenses in an emergency fund. Having an emergency fund is even more crucial when you have kids. You never know when you’ll face a broken arm, requiring you to cover your entire health care deductible in one fell swoop.
It’s also possible your child could be born with a critical medical condition that requires you to take time away from work. And don’t forget about the other emergencies you can face, from a roof that needs replacing to a job loss or income reduction.
Your best bet is opening a high-yield savings account and saving up at least three months of expenses before becoming a parent. You’ll never regret having this money set aside, but you’ll easily regret not having savings in an emergency.
3. Boost Your Retirement Savings Percentage
Your retirement might be decades away, but making retirement savings a priority is a lot easier when you don’t have kids. And with the magic of compound interest that lets your money grow exponentially over time, you’ll want to get started ASAP.
By boosting your retirement savings percentage before having kids, you’ll also learn how to live on a lower amount of take-home pay. Try boosting your retirement savings percentage a little each year until you have kids.
Go from 6% to 7%, then from 8% to 9%, for example. Ideally, you’ll get to the point where you’re saving 15% of your income or more before becoming a parent. If you’re already enrolled in an employer-sponsored retirement plan, this change can be done with a simple form. Ask your employer or your HR department for more information.
If you’re self-employed, you can still open a retirement account like a SEP IRA or Solo 401(k) and begin saving on your own. You can also consider a traditional IRA or a Roth IRA, both of which let you contribute up to $6,000 per year, or $7,000 if you’re ages 50 or older.
4. Start a Parental Leave Fund
Since the U.S. doesn’t mandate paid leave for new parents, check with your employer to find out how much paid time off you might receive. The average amount of paid leave in the U.S. is 4.1 weeks, according to a study by WorldatWork, which means you might face partial pay or no pay for some weeks of your parental leave period. It all depends on your employer’s policy and how flexible it is.
Your best bet is figuring out how much time you can take off with pay, and then creating a plan to save up the income you’ll need to cover the rest of your leave. Let’s say you have four weeks of paid time off, but plan on taking 10 weeks of parental leave, for example. Open a new savings account and save weekly or monthly until you have six weeks of pay saved up.
If you have six months to wait for the baby to arrive and you need $6,000 saved for parental leave, you could strive to set aside $1,000 per month for those ten weeks off. If you’re able to plan earlier, up to 12 months before the baby arrives, then you can cut your monthly savings amount and set aside just $500 per month.
5. Open a Health Savings Account (HSA)
A health savings account (HSA) is a tax-advantaged way to save up for health care expenses, including the cost of a hospital stay. This type of account is available to Americans who have a designated high-deductible health insurance plan (HDHP), meaning a deductible of at least $1,400 for individuals and at least $2,800 for families. HDHPs must also have maximum out-of-pocket limits below $6,900 for individuals and $13,800 for families.
In 2020, individuals can contribute up to $3,550 to an HSA while families can save up to $7,100. This money is tax-advantaged in that it grows tax-free until you’re ready to use it. Moreover, you’ll never pay taxes or a penalty on your HSA funds if you use your distributions for qualified health care expenses. At the age of 65, you can even deduct money from your HSA and use it however you want without a penalty.
6. Start Saving for College
The price of college will only get worse over time. To get a handle on it early and plan for your future child’s college tuition, start saving for their education in a separate account. Once your child is born, you can open a 529 college savings account and list your child as its beneficiary.
Some states offer tax benefits for those who contribute to a 529 account. For example, Indiana offers a 20% tax credit on up to $5,000 in 529 contributions each year, which gets you up to $1,000 back from the state at tax time. Many plans also let you invest in underlying investments to help your money grow faster than a traditional savings account.
7. Pay Off Unsecured Debt
If you have credit card debt, pay it off before having kids. You’re not helping yourself by spending years lugging high-interest debt around. Paying off debt can free-up cash and save you thousands of dollars in interest every year.
If you’re struggling to pay off your unsecured debt, there are several strategies to consider. Here are a few approaches:
This debt repayment approach requires you to make a large payment on your smallest account balance and only the minimum amount that’s due on other debt. As the months tick by, you’ll focus on paying off your smallest debt first, only to “snowball” the payments from fully paid accounts toward the next smallest debt. Eventually, the debt snowball should leave you with only your largest debts, then one debt, and then none.
The debt avalanche is the opposite of the debt snowball, asking you to pay off the debt with the highest interest rate first, while paying the minimum payment on other debt. Once that account is fully paid, you’ll “avalanche” those payments to the next highest-rate debt. Eventually, you’ll only be left with your lowest-interest account until you’ve paid off all of your debt.
Balance Transfer Credit Card
Another popular strategy involves transferring high-interest balances to a balance transfer credit card that offers 0% APR for a limited time. You might have to pay a balance transfer fee (often 3% to 5%), but the interest savings can make this strategy worth it.
If you try this strategy, make sure you have a plan to pay off your debt before your introductory offer ends. If you have 15 months at 0% APR, for example, calculate how much you need to pay each month for 15 months to repay your entire balance during that time. Any debt remaining after your introductory APR period ends will start accruing interest at the regular, variable interest rate.
8. Consider Refinancing Other Debt
Ditching credit card debt is a no-brainer, but debt like student loans or your home mortgage can also weigh on your future family’s budget.
If you have student loan debt, look into refinancing your student loans with a private lender. A student loan refinance can help you lower the interest rate on your loans, find a manageable monthly payment, and simplify your repayment into one loan.
Private student loan rates are often considerably lower than rates you can get with federal loans — sometimes by half. The caveat with refinancing federal loans is that you’ll lose out on government protections, like deferment and forbearance, and loan forgiveness programs. Before refinancing your student loans, make sure you won’t need these benefits in the future.
Also look into the prospect of refinancing your mortgage to secure a shorter repayment timeline, a lower monthly payment, or both. Today’s low interest rates have made mortgage refinancing a good deal for anyone who took out a mortgage several years ago. Compare today’s mortgage refinancing rates to see how much you can save.
9. Buy Life Insurance
You should also buy life insurance before having kids. Don’t worry about picking up an expensive whole life policy. All you need is a term life insurance policy that covers at least 10 years of your salary, and hopefully more.
Term life insurance is extremely affordable and easy to buy. Many providers don’t even require a medical exam if you’re young and healthy.
Once you start comparing life insurance quotes, you’ll be shocked at how affordable term coverage can be. With Bestow, for example, a thirty-year-old woman in good health can buy a 20-year term policy for $500,000 for as little as $20.41 per month.
A last will and testament lets you write down what should happen to your major assets upon your death. You can also state personal requests in writing, like whether you want to be kept on life support, and how you want your final arrangements handled.
A will can also formally define who you’d like to take over custody of your kids, if both parents die. If you don’t formally make this decision ahead of time, these deeply personal decisions might be left to the courts.
Fortunately, it’s not overly expensive to create a last will and testament. You can meet with a lawyer who can draw one up, or you can create your own using a platform like LegalZoom.
The Bottom Line
Having kids can be the most rewarding part of your life, but parenthood is far from cheap. You’ll need money for expenses you might’ve never considered before — and the cost of raising a family only goes up over time.
That’s why getting your money straightened out is essential before kids enter the picture. With a financial plan and savings built up, you can experience the joys of parenthood without financial stress.
Between Santa shenanigans, special foods, long-distance travel and treats, holiday spending adds up quickly—and so does holiday debt.
In 2019, shoppers in the US spent 3.4% more than they did in 2018. Unsurprisingly, they also ended up owing 8% more—roughly $1,325 per adult in 2019 versus just over $1,000 per adult in 2018. Unfortunately, holiday credit card debt lingers far longer than leftover turkey. About 25% of parents surveyed by YouGov in November 2019 were still paying off expenses from the previous holiday season.
If you don’t—or can’t—repay holiday debt promptly, it’ll accumulate over time. In this article, we’ll talk about some of the best ways to pay credit off quickly.
How to Pay Off Holiday Debt
There are lots of ways to pay off holiday debt. Some people make single lump-sum payments to minimize interest, while others go for interest-free repayment plans or consolidate their credit cards. Here are seven solid ways to reduce seasonal debt.
1. Pay Debt Off Early
If you pay holiday debt off early, you’ll pay less in interest and save money overall. Pay off as much of your credit card balance as you can every month—and carry on until you’re home free. Interest charges accrue daily, so make those payments early in each statement cycle.
Remember that average $1,325 debt balance from the 2019 holiday season? Let’s imagine it’s all on a single credit card with a 21% APR:
If you pay $50 a month, it’ll take you three years to pay off your full balance, including $471 in interest.
If you pay $100 a month, it’ll take you 1 year and 4 months to pay off your full balance, including $196 in interest.
If you pay $200 a month, it’ll take you just 8 months to pay off your full balance, including $96 in interest.
Check out Credit.com’s credit card payoff calculator to figure out your own holiday debt repayment schedule.
2. Apply for a Balance Transfer Card
Balance transfer cards make everything simpler. If you have a good enough credit score, move your debt to a low or zero-interest balance transfer credit card to minimize interest charges. Here’s why:
You can use a 0% introductory APR to pay your holiday debt off over time without incurring any interest charges.
Some cards offer a 0% option for 12 or 24 months, giving you up to two years to pay down holiday debt.
TD Cash Credit Card
0% Introductory APR for 6 months on purchases
12.99%, 17.99% or 22.99% (Variable)
0% Introductory APR for 15 months on balance transfers
Snapshot of Card Features
Earn $150 Cash Back when you spend $500 within 90 days after account opening
Earn 3% Cash Back on dining
Earn 2% Cash Back at grocery stores
Earn 1% Cash Back on all other eligible purchases
$0 Annual Fee
Visa Zero Liability
Instant credit card replacement
Card Details +
3. Give Up One Expensive Thing
Expensive habits can make it hard to pay off debt. If you want to make a bigger dent in your balance, think about giving up a couple of luxuries each month. Consider making the following changes—just for a little while:
Cut your cable bill and trim other entertainment expenses
Cook meals at home instead of eating out
Consolidate errands so that you drive less and spend less on gas
Forgo a few luxuries at the grocery store
Go out for drinks fewer times a month
Should I go on vacation or pay off debt?
Everyone loves a restful vacation. If you’re struggling with high-interest debt, however, you might be better off staying at home until you get your payments under control. Concentrate on paying off debt now, and you can reward yourself with a truly relaxing vacation later.
4. Spark an Avalanche or Snowball Your Debt
Personal finance experts swear by two distinct methods when it comes to debt repayment—the snowball and the avalanche. Here’s how they work:
The Snowball Method
The snowball method builds motivation and helps build up to the toughest balance. In a nutshell, you pay off your smallest debts first to give yourself a boost, and then move onto larger and larger debts.
The Avalanche Method
With the avalanche method, you make minimum payments on all debts and use any leftover money to pay down high-interest debt. Over time, this method will save you a lot of money in interest charges.
>> Try these debt management apps
5. Go for Debt Consolidation
If you want to lose the plastic altogether, think about applying for a debt consolidation loan. Go for a loan with a low interest. Then, avoid putting any more money on credit cards until you’ve paid off most of the consolidation loan.
How Can I Get Out of Debt with No Money?
If you’re in a financial rough patch, don’t panic. First, call all your lenders and tell them what’s going on. Many financial institutions offer deferments, temporarily lower payments, low-cost structured repayment plans and other reassuring options—but only if you ask.
Meanwhile, nix unnecessary monthly expenses, create—and stick to—a strict budget, and don’t create any more debt. You could also:
Put together a realistic debt-repayment plan
Increase your income with a better-paying job, or ask your boss for a raise
Ask your lenders for a lower interest rate
Consider consumer credit counseling
Concentrate on one debt at a time to avoid feeling overwhelmed
>> Download our free budget template to get started.
6. Use Financial Planning Apps
Financial planning apps make life much easier, whether you’re saving or repaying holiday debt. Tally, for instance, can help you get a handle on your outgoings, save money on interest payments and create a solid debt-reduction plan.
Mobile banking option Chime includes a plethora of tools designed to make your financial life much easier. Chime Savings Account has two automatic savings options: One feature rounds up transactions and saves the change every time you spend, and the other lets you easily save a percentage of your paycheck every time you get paid.
>> Read our full Tally review
>> Read our full Chime review
How much debt does the average person owe?
According to credit bureau Experian’s 2019 Consumer Credit Review, we are accumulating debt at an average of 3% per year. The average debt load is broken into the following categories:
$6,194 on credit cards
$1,155 on store cards
$16,259 on personal loans
$19,231 on auto loan debt
Not all consumers have mortgages or student loans, of course, but those who do have an average $203,296 mortgage balance and a $35,620 student loan balance.
7. Check Your Credit Score
Winners keep score—and they stay on top of their credit scores, too. Regularly checking your credit report will help you understand your finances and can give you a benchmark for improvement. You’ll also be able to respond to discrepancies and add missing information. Don’t know your credit score? Check out your Credit Report Card at Credit.com for free or sign up for ExtraCredit to crunch the numbers.
Tackle Holiday Debt Now
Try to save ahead to reduce the amount of debt you accrue each holiday season. If you opt for a credit card, choose a low-interest option with rewards—and try to pay off your balance quickly. To avoid interest charges in the medium term, transfer your balance to a low APR card or go for a debt consolidation loan. Above all, create a realistic budget and stick to it to avoid unnecessary holiday debt. After all, the best gifts—expensive or not—come from the heart.
Are you at the point where you’re ready to invest more in retirement each month but aren’t quite sure how? Maybe you want to increase your savings rate but the numbers don’t add up. I’ve always said that saving something is better than nothing. If you can’t max out savings like your retirement account, it’s not a big deal and you can always work your way up to this goal year after year. We’ve put together 5 sacrifices to max out your retirement account.
Right now, the maximum contribution limits for a 401(k) is $19,000 and $6,000 a traditional or Roth IRA. This year, I was finally able to max out my retirement account contributions for the first time. I know how it seems like you’d have to fork over a lot of money each year to do the same thing, and that’s because you will. However, you can save enough to max out your retirement for the year and still live a comfortable life.
You may have to make some sacrifices, but they may not produce super drastic changes to your budget or your lifestyle. Here are 5 reasonable sacrifices to help max out your retirement account next year and every year afterward.
One thing that you can sacrifice to help you max out your retirement account is your car. While you can probably save a ton of money by not having a car especially if you live in a big city, you don’t have to give up owning a car completely. My husband and I both drive older paid-off cars and we love it. With the average car payment hovering around $400 to $500 per month, that’s a lot of money to fork over each month just to drive.
In fact, $500 per month is all you need to max out an IRA right now since the annual contribution limit for anyone under 50 is $6,000. Since cars depreciate in value so much, it often doesn’t make financial sense to buy a brand new car. Used cars can be paid off quicker and you may even be able to buy a decent used car in cash. From there, you can use that money that you would save by not having a car loan and put it toward retirement savings.
Here are 5 reasonable sacrifices to help max out your retirement account . Click To Tweet
Live in a Smaller Home
My husband and I are sacrificing our dream home right now and I’m totally fine with that. We bought our first home a few years ago when we were 26 and 29 years old. It’s a nice starter home and it’s small. We don’t even have a basement but our family size is small right now so it’s fine. By having a smaller home and making it work, we save a ton of money on our mortgage, maintenance, repairs, and cleaning.
Now, would I love to have more space, walk-in closets or an extra enclosed room to serve as my office? Sure, but it’s not killing me that we live in a 1,300 sq ft home and instead I’m choosing to focus on what I love and enjoy about our home. I love how we have an extra bathroom and a nice fireplace in the family. We always have a decent-sized yard with a wrap-around deck and garden boxes that were already set up when we moved. Even though we are technically ‘sacrificing’ our dream home right now, I know that we will buy it later down the line and I’m content with where we’re at now.
RELATED: 6+ Easy Ways to Save Thousands on Home Repair
Some people give up traveling to pay off debt and save more. You don’t have to do this even if you’re willing to make sacrifices to max out your retirement next year. Instead of giving up travel altogether, find ways to make it more affordable so you can go on trips, and still invest generously. This is why I love frugality. Being frugal allows you to get creative and use the resources available to spend wisely on your values and save where you can.
Instead of paying for flights full price, you can wait for sales or sign up for a rewards credit card. Instead of spending tons of money on a hotel, see if you can stay with a friend or relative when you travel or book an Airbnb. Usually, when I travel, I’m not super picky about where I stay so long as it’s clean. I also plan to cook some meals if possible if our accommodations allow it.
I’ll usually book an Airbnb or a suite with full kitchen access so I can prepare breakfast and snacks. You don’t have to dine out for all 3 meals when you travel and breakfast is one of the easiest meals to prepare whether you have full access to a kitchen or not.
RELATED: How to Plan for Budget Travel This Year
Delay Your Gratification
We live in a society where people want everything fast and right now. This often leads to getting items and services before you can pay for them in full. If you want to avoid debt and living above your means, practice delayed gratification regularly and budget for larger purchases instead of financing them.
My husband and I used to have a ton of credit card debt, student loans, personal loans, and car loans. This debt really ate into our disposable income. Even after paying it off, I’ve still been tempted to finance things like furniture and other purchases. I choose not to and to delay my gratification. By simply waiting and planning, I save a lot of money and do a better job of committing to live below my means.
When you slow down on financing purchases and making impulse buys regularly, you’ll find that your budget is not so tight. You may even wind up with thousands extra each year that you can invest.
Time is not a renewable asset. Once you use your time, it’s gone. You can never go back or relive a day where you wasted time. Keep this in mind when considering sacrifices to max out your retirement account. However, it should also be motivation to make good use of your time especially when it comes to working and earning extra money. If you’re looking to start maxing out your retirement account, odds are you’re still earning an active income where you’re trading time for money. If you want to earn more or increase your savings rate, you may have to get a second job or a side hustle.
Even if you want to establish a passive stream of income, you’ll need to dedicate time or energy to get that idea off the ground. Of course, sacrificing your time to work is not a waste. You can even make the most of your effort by choosing work that is enjoyable and fulfilling. Or start a side business where you can do things you love and still make good money.
Try to stick to your budget and save your money wisely to make it all worth it in the end. Pay yourself first consistently and remain dedicated to your goal in order to max out your retirement next year and each year afterward.
Life can feel overwhelming when you’re saddled with loads of debt from different creditors. Maybe you carry multiple credit card balances on top of having a high-interest personal loan.
Or maybe you have a loan with an adjustable-rate and your payments are starting to rise each month, making your budget more and more uncomfortable.
In these situations, it may be wise to look at a debt consolidation loan. For some people, it’s a smart choice that gets your debts organized while potentially lowering your monthly payments. Ready to learn more? Let’s get started.
Best Debt Consolidation Loan Lenders of 2021
We’ve compiled a list of the best debt consolidation loans online, along with their basic eligibility requirements. Research each one carefully to see which one can help you with your debt consolidation.
Different lenders are ideal for different borrowers. Review these options and take a look at which ones best suit your needs as well as your credit profile. Once you have your own shortlist, you can get prequalified to compare loan options and find the best offer.
Since 2012, DebtConsolidation.com has worked with borrowers to find the best debt consolidation service for their unique situation. If you are not really sure where to get started with your debt repayment process, then this is a good place to start.
The company offers many resources, tools, and relief programs on how to get out of debt quickly. Wherever you are at on your debt repayment journey, they may be able to help.
After you provide some information about your debts, the website will present the best way forward. You may be matched to debt consolidation loans, debt settlement companies, or credit counseling depending on your individual situation.
You can easily compare several different options through this service which is a great way to start your debt repayment journey off right!
It is completely free to use their services. However, when you are matched to a partner, the partner may charge fees for their services. Always make sure to understand the exact terms of your debt consolidation loan before moving forward with any company.
Marcus by Goldman Sachs
If you’re looking for an online-only lender, then Marcus by Goldman Sachs may be the right choice for you. Marcus offers personal loans that can be used for debt consolidation.
If you have a credit score of 660 or higher, you may qualify for a personal loan between $3,500 and $40,000. The APR range is between 6.99% and 28.99%.
One of the best things about taking out a loan through Marcus is how transparent the bank is. There are no hidden fees and that includes late fees, which is pretty rare among other lenders.
Plus, the bank gives you the option to choose your own payment due date. After making 12 months of consecutive payments, you can defer one monthly payment if you want.
The only real downside is that you’ll need good to excellent credit to qualify. And Marcus won’t let you apply with a co-signer.
Read our full review of Marcus
Avant is designed for borrowers with average credit or better and offers a number of perks for debt consolidation loans.
You can get help with your debt management by getting free access to resources, plus you receive regular updates on your VantageScore to track your credit repair process.
In fact, the average borrower using the funds for debt consolidation sees a 12-point increase within the first six months. So who can get a loan through Avant?
Most borrowers have a credit score between 600 and 700. While you don’t need to meet a minimum income threshold, most customers earn between $40,000 and $100,000 each year.
One of the great things about borrowing with them is that once you are approved and agree to your loan terms, you can get funding in as little as a day. This is a great benefit if you have a number of due dates coming up and want to get started paying off your current creditors as soon as possible.
Their loan terms range anywhere between two and five years, so you can choose to either pay off your debt aggressively or take the slow and steady route.
Read our full review of Avant
If you have fair to good credit, you may be eligible for a debt consolidation loan from Payoff. The company offers debt consolidation loans with competitive rates and flexible repayment terms. Payoff focuses on helping borrowers pay down their high-interest credit card debt.
Payoff does this by providing debt consolidation loans between $5,000 and $35,000. The APR range is between 5.99% and 24.99%, depending on your credit score. The repayment terms will be between two and five years.
One of the advantages of taking out a debt consolidation loan through Payoff is the additional support they provide. Payoff doesn’t just want to help you repay your debt; they want to help you build a solid financial future.
The lender will provide financial recommendations, tools, and resources to help you stay on track. This will help you meet your short-term goals and build positive long-term financial habits.
Read our full review of PayOff
Upstart’s target borrower is a younger person with less established credit. So maybe you don’t have a problem with bad credit, but you have a problem with no credit. When you apply for an Upstart loan, more emphasis is placed on your academic history than your credit history.
Upstart will review your college, your major, your job, and even your grades to help make you a loan offer. The minimum credit score is 620. Most borrowers are between 22 and 35 years old, but there are no technical age restrictions.
However, one requirement is that you must be a college graduate, which obviously limits the applicant pool. And while loan amounts range up to $25,000, you only have one term option: three years.
Upstart doesn’t offer the most flexibility with its debt consolidation loans. However, they have competitive rates and a unique approval model that may help some borrowers who want a loan.
Read our full review of Upstart
PersonalLoans.com directly helps individuals with low credit scores so this is a great place to come if you’re still in the credit repair process.
However, there are a few restrictions: you cannot have had a late payment of more than 60 days on your credit report, a recent bankruptcy, or a recent charge-off. But if you meet these basic guidelines, PersonalLoans.com may be a good option for you.
PersonalLoans.com is unique in that it’s a loan broker, not an actual lender. Through the application, you’ll get offers from traditional installment lenders, bank lenders, and even peer-to-peer lenders.
Your actual loan agreement that you choose is signed between you and the lender, not PersonalLoans.com. This provides a convenient way to compare rates and terms through just a single application process.
Read our full review of PersonalLoans.com
LendingClub is a peer-to-peer lender. That means rather than having your debt consolidation loan funded directly by the lender, your loan application is posted for individual investors to fund.
Additionally, your interest rate and terms are determined by your credit profile. The minimum credit score is just a 600, but the average borrowers is higher.
LendingClub boasts competitive rates; in fact, its website claims that the average debt consolidation borrower lowers their interest rate by 30%. You can use the website’s personal loan calculator to determine how much you could actually save by consolidating your debt.
There’s also a large-cap on loans, all the way up to $40,000. That’s on the higher end for many online lenders, especially those open to individuals with lower credit.
Read our full review of LendingClub
Upgrade appeals to all different types of borrowers. When assessing a new borrower, the lender considers various factors, including their credit score, free cash flow, and debt-to-income ratio.
The company offers personal loans that can be used for many different purposes, including debt consolidation. Upgrade will even make payments directly to your lender for added convenience.
If you have a minimum credit score of 600, you may qualify for a personal loan between $1,000 and $50,000. When you apply, the lender will do a soft pull on your credit so it won’t affect your credit score.
Upgrade is one of the best options for borrowers with poor credit and borrowers with a high debt-to-income ratio. And the lender offers a hardship program, so if you fall on difficult times financially, you may receive a temporary deduction on your monthly payments.
Read our full review of Upgrade
Discover offers personal loans for borrowers with good to excellent credit. You can use a personal loan from Discover to consolidate your existing high-interest credit card debt.
If you qualify, you’ll receive a personal loan between $2,500 and $35,000. The APR range is 6.99% to 24.99%. And the bank never charges any origination fees.
You must have a minimum credit score of 660 to qualify, so Discover isn’t a good option for borrowers with bad credit. And unfortunately, Discover doesn’t give borrowers the option to apply with a co-signer.
Read our full review of Discover
With an A+ rating from the Better Business Bureau, OneMain is a lender committed to customer satisfaction. While they offer debt consolidation loans up to $25,000, you can also get a loan for as little as $1,500.
This is one of the lowest loan minimums we’ve seen, which is perfect if you have just a small amount of debt you’d like to consolidate because of exorbitant or adjustable interest rates.
In addition to applying online, you can also elect to meet with a financial adviser at a OneMain branch location.
In fact, part of the application process entails meeting with someone either at a branch or remote location to ensure you understand all of your loan options. This is a great step that most online lenders lack, allowing you to really take the time to weigh your options and decide which is best for you.
Read our full review of OneMain
Best Debt Settlement Companies of 2021
Taking out a debt consolidation loan is just one option when you want to lower your monthly payments. Another way to go is enrolling in a debt settlement program. Rather than paying off your lender in full, a debt settlement company can help negotiate an amount to repay so that the debt is considered settled.
In the meantime, you agree to freeze your credit cards and deposit cash each month into an account that will eventually be used to pay off the settlement.
However, the downside is that to make this strategy work, you must stop making payments on your owed amounts, which will cause them to go into default. That means your credit score will take a nosedive. But, the goal is to pay less than what you owe.
If you have enough debt that it seems impossible for you to ever repay, debt settlement might be a better option than filing for bankruptcy. Below are Crediful’s top two picks for debt settlement companies. You can find the full list here.
Accredited Debt Relief
Accredited regularly works with major banks and lenders to help clients negotiate settlements. These include Bank of America, Wells Fargo, Chase, Capital One, Discover, and other financial institutions of all sizes, both large and small.
They’ll even work with retailers if you have store cards with major balances. While results vary from person to person, they offer examples of clients saving anywhere between 50% and 80% on their amounts owed.
Read our full review of Accredited Debt Relief
National Debt Relief
National Debt Relief has an A+ rating with the Better Business Bureau and prides itself on trying to help those who truly have financial hardships in their lives.
One benefit of working with this company is that your funds are held in an FDIC-insured account that is opened in your name.
That means you have full control over the account and don’t run the risk of being scammed out of your money — you can rest assured that National is a reputable company.
Plus, the team is fully versed in consumer and financial law so you can trust that your interests are being served to the fullest legal extent possible.
Read our full review of National Debt Relief
What is debt consolidation?
Debt consolidation allows you to pull all of your smaller existing debts into one new debt that you pay each month. When you take out a debt consolidation loan, you receive funds to pay off all of your existing debt, like your credit card balances and high-interest loans.
You then make a single monthly payment to your lender, rather than making multiple payments each month. Keep in mind that this is different from debt settlement in that you’re not negotiating a new amount owed. Instead, you keep the same amount of debt but pay it off in a different way.
Depending on your personal situation, debt consolidation loans come with both pros and cons. It’s important to weigh both sides carefully before deciding if a debt consolidation loan is right for you.
Let’s delve into the details so that you can get closer to making a decision.
Advantages of Debt Consolidation Loans
There are a number of advantages and disadvantages associated with debt consolidation loans. We’ll go over all of them so you can weigh your options.
Lower Your Monthly Payments
The biggest benefit of a debt consolidation loan is the ability to lower your combined monthly payments. Because interest rates on credit cards are so high, it’s possible that you can find a lower interest rate on a debt consolidation loan instead, which means lower payments.
However, your actual interest rate depends on several factors, especially your credit score. It’s important to compare interest rates and the total cost of the debt consolidation loan to your current payments to make sure you don’t end up paying more over time. The goal is to save you money.
Improve Your Credit Score
Another advantage of taking out a debt consolidation loan is that it can actually help increase your credit score. While your amount of debt stays the same, installment loans are viewed more favorably than credit card debt.
So if the majority of your debt comes from maxed-out credit cards, you could potentially see a rise in your credit score because your credit utilization on each card has gone down.
A debt consolidation loan streamlines your monthly payments. Rather than being inundated with multiple due dates each month, you simply have one to remember. This also contributes to building a healthy credit score because it lowers your chance of having a late payment.
Disadvantages of Debt Consolidation Loans
In some cases, debt consolidation loans might not be a great idea. We talked about the total cost of the loan, which needs to be reviewed holistically, not just as a monthly payment. This is true for several reasons.
First, most lenders charge some sort of fee when you take out a new loan. The most common is an origination fee, typically charged as a percentage of the total loan amount.
So if you have a loan amount of $10,000 and there is a 4% origination fee, you’ll only actually receive $9,600. Next, compare interest rates and loan terms.
Even if the monthly payments look good on paper, you may be paying a lot more over an extended payment period. You can use the APR to compare interest rates and fees, but you also need to consider how much you’ll spend on interest over the entire loan term.
Changing Your Spending Habits
Finally, it doesn’t necessarily fix the root problem of your debt.
This isn’t something you need to worry about if your debt results from a one-time incident, such as an expensive medical procedure or temporary job loss. But if you habitually spend more than you earn and are still incurring new debt, then debt consolidation loans will not help you in the long run.
If this sounds like you, try to figure out how you can curb your spending to stop accruing more debt. You can even talk to a debt counselor to help create a sound management plan for your finances.
Student loan consolidation and refinancing can help you manage your debts, reducing monthly payments, creating more favorable terms, and ensuring you have more money in your pocket at the end of the month.
Get approved fast for a Personal Loan!
Compare multiple loan options from the nation’s top lenders.
Attention: Still Open During the Financial Crisis…
Tip: Apply now to see if you qualify for a personal loan today!
But how do these payoff strategies work, what are the differences between private loans and federal loans, and how much money can consolidation save you?
Private and Federal Student Loan Consolidation
Federal student loan consolidation can combine multiple federal loans into one. Private consolidation can combine both federal loans and private loans into a new private loan. The act of consolidation can improve your debt-to-income ratio, which can help when applying for a mortgage and greatly improve your financial situation.
Which Loans Qualify for Student Loan Consolidation?
You can generally consolidate all student loans, including Federal Perkins loans, Direct loans, and other federal loans, as well as those from private lenders. You cannot consolidate private loans with federal loans, but you can consolidate them with other private loans.
What Should you Think About Before Consolidating Student Loans?
Consolidating isn’t just something to consider if you’re struggling to meet current terms. In fact, private lenders often require a minimum credit score in the high-600s and you’ll also need to have a stable income (or a cosigner) and a history of at least a few punctual payments.
Federal student loans are a little easier to consolidate and available to more borrowers, including those looking to qualify for income-based repayment or student loan forgiveness schemes.
In either case, it can reduce your monthly payments, making your loans more manageable.
How to Consolidate Private Student Loans
Some of the private lenders offering this service include:
The rate you receive will depend on your credit score and whether you opt for a variable interest rate or a fixed interest rate, but generally, they range from 3% to 8%. Each lender has their own set of terms and requirements, but they’ll often require you to:
Be at least 18 years old
Have no more than $150,000 in debt
Be the main borrower (not the cosigner)
Complete a credit check
The lender will run some basic checks to determine your creditworthiness before offering you a consolidation sum that will clear your debts and leave you with a single monthly payment. There are different types of private loan depending on whether you’re applying to consolidate just private loans or both federal loans and private loans.
If you only have federal loans, you should apply for federal student loan consolidation instead.
What Will I Pay?
The main goal of student loan consolidation is to reduce your monthly payment. If you have a strong credit score you can get a reduced interest rate and may even benefit from a reduced repayment term. However, as with most forms of consolidation, it’s all about reducing that monthly payment, improving your debt to income ratio and increasing the money you have leftover every month.
Shop around, consider all loan terms carefully, run some calculations to make sure you can meet the monthly payment, and compare repayment options to find something suitable for you.
Don’t feel like you need to jump at the first offer you receive. A personal loan application can show on your credit report and reduce your credit score by as much as 5 points, but multiple applications with multiple private lenders will be classed as “rate shopping”, providing they all occur within 14 days (some credit scoring systems allow for 30 or 45 days).
How Federal Debt Consolidation Loan Works
Federal student loan consolidation won’t reduce your interest rate, but it does make your repayments easier by rolling multiple payments into one and there is no minimum credit score requirement either.
When you consolidate federal student loans, the government basically clears your existing debt and then replaces it with a Direct Consolidation Loan.
You can consolidate directly through the government, with the loan being handled by the Department of Education. There are companies out there that claim to provide federal student loan consolidation on behalf of the government, but some of these are scams and the others are unnecessary—you can do it all yourself.
You can apply for consolidation once you graduate or leave school and you will be given an extended loan term between 10 and 30 years.
Just visit the StudentLoans.gov website to go through this process and find a repayment plan that suits you.
What is Student Loan Refinancing?
Student loan refinancing is very similar to consolidation and the two are often used interchangeably. In both cases, you apply for a new loan and this is used to pay off the old one(s), but refinancing is only offered by private lenders and can be used to “refinance” a single loan.
The process is the same for both and in most cases, you’ll see “consolidation” being used for federal loans and “refinancing” for private loans.
Student Loan Forgiveness and Other Options
You may qualify to have your federal student loans fully or partially forgiven. This is true whether you have previously been accepted or refused for repayment plans and it can help to lift this significant burden off your shoulders.
Public Service Loan Forgiveness (PSLF): Offered to government workers and employees with qualifying non-profit companies. You can have your federal loans forgiven after making 120-payments. This program works best with income-focused repayment plans, otherwise, you may have very little left to forgive (if anything) after that period.
Teacher Loan Forgiveness: Teachers can have their federal student loans partially forgiven if they have been employed in low-income schools for at least five years. They can have up to $17,500 forgiven.
Student Loan Forgiveness for Nurses: Nurses can qualify for PSLF and this is often the best option for getting federal student loans forgiven or reduced. However, there are a couple of highly competitive options, including the NURSE Corps Loan Repayment Program.
There are also Income-Driven Repayment Plans, which is definitely an option worth considering.
Income-Driven Repayment Plans
An income-focused repayment plan is tied to your earnings, taking between 10% and 20% of your earnings, before being forgiven completely after 20 or 25 years. There are four plans:
Pay as you Earn (PAYE): If you have graduate loans and are married with two incomes then you may qualify.
Revised Pay as you Earn (REPAYE): Offered to individuals who are single, don’t have graduate loans, and have the potential to become high earners.
Income-Based Repayment: If you have federal student loans but don’t qualify for PAYE.
Income-Contingent Repayment: If you have Parent Plus loans and are seeking a reduced monthly payment.
These programs can greatly reduce your monthly payment and your obligations, but they are not without their disadvantages. For instance, they will seek to extend the repayment term to over 20 years, which will greatly increase the total interest you pay. If anything is forgiven, you may also pay taxes on the forgiven amount.
You can discuss the right option for you with your loan servicer, looking at the payment term in addition to your current circumstances and projected income as well as your student loan terms.
Conclusion: Help and More Information
Student loan refinancing and consolidation can help whether you’re struggling with federal loans or private loans, and there are multiple options available, as discussed in this guide. If you have credit card debt, personal loan debt, and other obligations weighing you down, you may also benefit from a debt management plan, balance transfer credit card, or a debt settlement program.
You can find information on all these programs on this site, as well as everything else you could ever want to know about federal student loans and private loans.
Whether your mailbox is stuffed full of past-due notices or your phone is ringing off the hook, you can’t ignore your creditors forever. And it’s always better to try and work out a deal before the situation becomes serious. If it gets worse, your debt gets sent to a collection agency.
Negotiating with creditors can help your finances in the long run and will definitely save your credit. Don’t worry about being nervous about trying to strike a deal. We’ve got you covered with the best tips for successfully working with your creditors.
Be Honest and Direct
Start the conversation with your creditor by explaining why you’ve fallen behind on your payments. Never lie or embellish the facts. Instead, come up with a brief summary of why you’ve endured economic hardship and how you’re working to move forward.
Maybe you lost your job and you’re currently looking for a new one. Perhaps someone in your family got sick unexpectedly and you’ve had major medical bills to catch up on. Or maybe you’re coming out of a costly divorce and are finally getting back on your feet. Keep your explanation limited to just a couple of sentences, otherwise, it might sound like you’re making excuses.
Always conclude with the fact that you’re ready to make things right and come to an agreement. If it’s easier for you, practice your short speech a few times before picking up the phone. That way you’ll sound more confident and avoid getting flustered when actually speaking with the creditor.
Leave Your Emotions at the Door
Sometimes representatives in the collections department are trained specifically to try and make you lose your cool. The guiltier you feel, the more likely you are to quickly agree to anything they say. These pressure tactics can be intimidating, but don’t let them get the best of you. Treat the entire negotiation process like it’s a business transaction because that’s really what it is.
At the end of the day, that person on the other end of the line is going to go home to a nice dinner and not think twice about the conversation the two of you had. You should do the same. Stay calm and professional. If you find yourself feeling bullied or losing your temper, quickly end the conversation and call back at another time.
You don’t have to come up with an elaborate story; simply excuse yourself and say that something has come up, then just hang up the phone. You can always try again later once you’ve got your head back on straight.
Know Your Rights
There’s a fine line between a creditor trying to bully you and actually threatening you in an illegal manner. That’s why it’s important to know exactly what your rights are in the negotiation process.
Consumer protection laws like the FDCPA are in place to ensure you are not overly burdened by creditors or collection agencies. For example, they may not call you before 8:00 a.m. or after 9:00 p.m.
You can also write them a letter requesting that they stop contacting you. They’re required to oblige, and may then only call to inform you of a specific action being taken upon your account.
If you feel like they have violated any of your rights, you can report it to the Consumer Financial Protection Bureau (CFPB), Better Business Bureau (BBB), or your state’s attorney general.
Keep Diligent Records
Tracking every step of the debt settlement process is vital; otherwise, you might get stuck in a “he said, she said” situation. And let’s face it, that’s probably not going to work out in your favor. Your first step is to read and save all of your mail you receive from your creditors.
You’ll also want to make copies of any letters you send out, just to have verification of each channel of communication. Be sure to send everything via certified mail so the creditor can’t claim they never received your letters.
In addition to keeping records of your mail, you’ll also want to take notes of everything that happens on your phone calls. Record the date and time of the call, as well as the name of the representative you speak with. Then write down the key talking points you discuss. This gives you a handy reference to use later and also helps keep you focused during the conversation.
Create a Financial Plan
Before you even contact a creditor to negotiate a deal, you need to come up with a game plan so you know exactly what you’re willing to offer. Most creditors would rather take one big payment than a monthly installment plan because it ensures they get paid quickly, instead of risking more missed payments.
This situation is actually better for you, too, because you avoid having to pay extra fees or interest on the new payments. But whichever type of plan you decide on, first take a look at your finances and figure out what exactly you can afford. You don’t want to put yourself in the position of not being able to make your payments again.
Do you have some cash set aside that you can offer as a lump sum? Is there anything you can cut out of your budget in order to make new monthly payments? Have a maximum dollar amount in mind so you can negotiate in your own best interest.
Avoid Going to Collections
Having your debt sent to a debt collector is best to be avoided if at all possible. Get started negotiating with creditors early so that you can work directly with them. Once your account is sent to collections, it’s noted on your credit report and can cause serious damage to your credit score.
While the impact on your credit score lessens over time, the collection stays on your credit report for seven years. That can really affect your future ability to get approved for loans or credit cards, and you certainly will pay for it in higher interest rates.
Demand a Contract
Once you’ve reached an agreement with a creditor, make sure they send you a written agreement stating all of the details of your arrangement. If they don’t, there is the possibility that they could make a different note on your account and make you go through a different payment process than the one you agreed on.
Get it in writing before you make a payment. Ensure they include the full amount you owe and any payment terms such as length of time (if doing a monthly plan), interest rate, and fees.
You should also have them agree to remove the late payment from your credit report. This is an easy step to repair your credit, and creditors are usually happy to do this for you, especially if you’re paying them a lump sum.
Work with a Professional Debt Settlement Company
In case you find yourself completely overwhelmed or unprepared for the negotiation process, consider getting help from a professional. Start by finding a reputable credit counseling agency or debt settlement company. They’ll take a look at your finances to help you decide the best path going forward to settle your debts. They can also call the creditor on your behalf to reach an agreement.
This can work out well because it’s your credit counselor’s job — unlike you, they aren’t emotionally involved in the situation. But you’re also a paying client, so it’s in their best interest to get you a good deal.
If you have so much credit card debt that you don’t think you’ll ever be able to repay it, you might consider talking to a bankruptcy attorney. Declaring bankruptcy comes with huge financial repercussions, so this is not a decision to be taken lightly.
If your debt burden stems mostly from student loans, you probably won’t be able to get those deleted through a bankruptcy. Make sure you exhaust all of your other options before filing for bankruptcy because it will take years to recover.
Move Forward with Better Credit
Once you’ve gone through the debt settlement process, it’s time to create a game plan for moving forward. Start working on repairing your credit so you can rebound from your debt as quickly as possible.
Credit repair takes time, so the sooner you begin, the sooner you’ll see results. There are a number of ways to remove negative items from your credit report, which will automatically contribute to a higher credit score.
On top of fixing your credit, you should also take a look at your finances to understand how you got into so much debt in the first place. You can’t help unexpected expenses that crop up because of life, but you can try to prepare for them. Pare down your budget so you can put extra money into your savings account for a rainy day.
Once you have a sizable nest egg set aside for emergencies, you can loosen the slack on your spending. Just remember to keep contributing to your savings and never charge more than you can pay off at the end of each month. If you can follow these simple steps, your debt problems will become a thing of the distant past.