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Tag Archives: Debts

Home / Posts Tagged "Debts"

9 Apps That Will Help You Manage Your Debt

February 10, 2021 by Liam Lane Posted in Debt, Mortgage Tagged apps, Auto, bar, budget, Budgeting, CRC, Credit, Credit Card, Credit Card Debt, credit cards, credit report, Credit Score, Debt, Debt Management, debt snowball, Debts, Digit, existing, ExtraCredit, Financial Wize, FinancialWize, investments, lexington law, line of credit, Loans, Make, Managing Debt, money, More, Motivation, Pay Off Debt, principal, protect, Rates, real, save, Save Money, savings, Savings Account, Student Loans, Tally, top-five-post
December 23, 2020 &• 5 min read by Credit.com Comments 0 Comments

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Disclaimer

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.

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App Best Used For Price Platform
Tally Credit card management Free to download iOS and Android
Debt Book Borrow/lender communication Free Android
Debt Manager Snowball Method, debt summary and tracking, progress bar $0.99 iOS
Pay Off Debt Motivation to make your debt payments $4.99 iOS and Android
Mint Budgeting for debt payments   Web, iOS, and Android
ChangEd Student loan repayments $1/month iOS and Android
Unbury.me Quick payoff calculator Free Web only
Digit Savings to apply to debt $5/month iOS and Android
Credit Report Card All-around financial wellness and credit score tracking free 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.

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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.

Features of ExtraCredit

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.


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Source: credit.com

Got Cash? What to Do with Extra Money

February 10, 2021 by Liam Lane Posted in Moving Guide Tagged 401(k), apartment, Auto, big, building, Buy, car, College, Credit, Credit Card, Credit Card Debt, credit cards, Debt, Debts, Emergency Fund, Extra Money, Family, Financial Goals, Financial Wize, FinancialWize, Grow, Home, house, housing, How To, Insurance, Interest Rates, invest, Investing, investment, investments, IRA, keep, Life, Loans, Make, money, More, more money, mortgages, Move, Moving, Personal, Personal Loans, protect, Rates, rent, Retirement, retirement savings, Roth IRA, save, Save Money, Saving, savings, Savings Account, School, Security, Spending, spouse, Student Loans, tax, Taxes

Have you found yourself with extra cash? Lucky you! Laura’s 3-step system will help you spend, invest, or save it wisely.

By

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.


About the Author

Laura Adams, MBA

Source: quickanddirtytips.com

S Corp vs. LLC: Which Is Best for Your Business?

February 10, 2021 by Liam Lane Posted in Podcasts, Small Business Tagged Blog, budget, Budgeting, business taxes, cons, Credit, Debt, Debts, earnings, Finance, Financial Advisor, Financial Wize, FinancialWize, general partnership, Home, How To, income tax, industry, investment, keep, Life, LLC, Main, money, More, Personal, personal finance, planning, Popular, pros, Pros and Cons, protect, Rates, S corp, S corporation, Salary, save, savings, School, Security, Self-employment, Small Business, sole proprietorship, tax, Taxes, Vs.

S Corp vs. LLC: Which Is Best for Your Business? – SmartAsset

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So you own a business and you’re looking to incorporate. Two of the most popular business structure are the S Corp and the LLC. Which is best for your business can depend on many factors, such as what you do for a living, your tax situation and more. We’ll walk through the key characteristics of the two, and how to decide between them.

Why Incorporation Is Important

In most cases, the best reason to incorporate is liability. When you create a corporation, you separate your personal assets from your company’s assets. If someone wants to collect a debt or, at worst, file a lawsuit, they can only do so against the company and any assets in that company’s name. In turn, your personal savings remain protected. Both LLCs and S corporations can effectively protect your home life from a downturn in your professional world.

What Is An LLC?

A limited liability company, or LLC, is a type of corporate entity. It’s one of the most basic business types, and chiefly serves to separate the assets of the business owner(s) from the business itself.

If you opt to create an LLC, you will have created an entity that exists entirely separate from yourself. Clients will do business with this entity, which will have its own assets, debts and liabilities. If someone collects a debt or sues the LLC, they cannot pass that debt on to you.

What Is An S Corporation?

An S corporation is a tax status that allows a company to pass all profits directly through to its owner(s). This allows a small business to distribute profit-based income without double taxation.

Under the standard corporate form, known as a C corporation, a company first pays its corporate income tax. It then pays its owners and workers, who in turn pay personal income tax on that salary. This works well when a company functions entirely separately from the people who own and operate it.

However, in many small businesses, owners will take the profits entirely as their personal income. This creates a problem of double taxation, because in this case a business owner’s corporate income tax and personal income tax are one and the same. An S corporation allows the company’s owners to pay taxes only once via their personal income tax forms.

S Corp vs. LLC: Similarities and Differences

It is important to note that, because one is a corporate form and the other a tax status, LLCs and S corporations can, and do, overlap. To be clear, an LLC can file for S corporation tax status. Conversely, if you have S corporation tax status, you can also incorporate as an LLC. These forms do share a number of similar features, though, including:

  • Asset Protection – Both S corps and LLCs protect your personal assets from debt, bankruptcy, legal liability and other possible losses incurred by the corporation.
  • Double Taxation – All corporate profits pass along to the owners of LLCs and S corps without incurring corporate income taxes. This helps you avoid being taxed twice.
  • Multiple Members – LLCs and S corps can each have anywhere from one to multiple members, though an S corporation caps out at 100 shareholders. Further, only U.S. citizens and legal residents can be members of an S corporation.

In practice, one of the largest differences between LLCs and S corporations lies in how they assign payment. Under a default LLC operating as a sole proprietorship/general partnership, profits and expenses pass entirely through to the taxes of the individuals involved. Each participant both deducts business expenses and claims all profits on their personal income taxes. The LLC itself does not have any tax filings.

Under an S corporation, the members assign themselves a salary that the company pays out of its operating budget. This income must be reasonable for their position and industry. Then, after the company pays all expenses, it passes along any additional profits as a distribution to its members.

Here’s an example that illustrates these differences. Sue is a freelance programmer. She currently has an LLC that she operates. Last year she made $100,000 in income and had $10,000 in business expenses. Here’s how her tax situation plays out under the two statuses:

  • Sole Proprietorship LLC – Sue would claim $100,000 of personal income on her income taxes. She would reduce her taxable income by the $10,000 in expenses she incurred, leaving her with $90,000 in taxable personal income.
  • S corporation LLC – Sue has determined that a reasonable salary is $75,000. She would report that $75,000 as earned income. Her corporation would then pay the $10,000 in expenses and pass the remaining $15,000 as a profit distribution to Sue, who would report and pay taxes on it as corporate profit income.

Operating requirements for a multi-member S corporation are also significantly more complex than they are for an LLC. An S corporation must adopt bylaws which meet IRS guidelines and must have a corporate governing body that includes a board of directors and officers.

How Taxes Affect S Corps and LLCs

Most Americans pay a FICA tax of 7.65% of their income under $132,900, encompassing contributions to both Social Security and Medicare. Their employer pays the same 7.65% on their behalf. The self-employed, however, pay both sides of this tax, creating what’s known as the “self-employment tax.” This combines the aforementioned rates to the tune of a 15.3% tax on all self-employment income beneath the $132,900 limit.

The self-employment tax applies to all pass-through income as well. It does not apply to corporate profit distributions, though. The profit distributions will likely be taxed as ordinary income, while you may be able to classify them at the lower dividend income rate. In the end, you will not pay any payroll taxes on them.

S corporation members do not pay self-employment taxes on their profit distributions either. As a result, these members usually try to minimize the income portion of their earnings in favor of profit distributions. This is entirely valid as long as your income remains within a reasonable range. If you attempt to reduce your income too much, you will likely trigger an audit.

Continuing our previous example, Sue’s LLC earned $100,000 and spent $10,000 in business expenses last year. Under the S corporation form, Sue would save herself more than $2,000 in payroll taxes. Here’s how things would shake out:

  • Sole Proprietorship – Sue will claim the $100,000 of income and the $10,000 of expenses herself. This will lead to her having $90,000 of taxable income. She will pay the 15.3% self-employment tax on all of it, leading to $13,770 in self-employment taxes.
  • S Corporation – Sue takes a salary of $75,000. Her LLC will pay $10,000 in expenses and send her $15,000 as a corporate profit distribution. Sue and her LLC will pay the full combined 15.3% tax on her salary earnings, coming to $11,475. She will pay no payroll taxes on her profit distribution.

Bottom Line

In most cases, if you do business as an individual or a partnership, you should consider forming an LLC. This corporate form is inexpensive and highly flexible. Unless you anticipate major growth involving external shareholders and outside investment in the future, an LLC is a good way to protect your personal assets.

For an individual operator, the choice to elect S corporation tax status is largely a matter of accounting. If you would save a meaningful amount of money in self-employment taxes, it is likely worth electing S corporation status.

For a partnership, consider the operating requirements of an S corporation carefully. Would it significantly affect your business to adhere to bylaws and corporate governance? Do you have few enough members, and will you likely keep that membership group small? If so, once again, consider whether an S corporation would create enough tax savings to justify the costs of filing and paperwork.

Tips for Managing Your Finances

  • In-depth budgeting is a worthwhile strategy to adopt if you’re looking to improve your long-term finances. It may, however, be difficult to build a budget if you have little to no experience doing so. To get some help, stop by SmartAsset’s budget calculator.
  • Many financial advisors specialize in financial and tax planning for business owners. You can find a financial advisor today using SmartAsset’s financial advisor matching tool. Simply fill out our short questionnaire and you’ll be matched with up to three fiduciary advisors in your area.

Photo credit: ©iStock.com/andresr, ©iStock.com/PattanaphongKhuankaew,©iStock.com/alfexe

Eric Reed Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
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Bank statements: 3 things mortgage lenders don’t want to see

February 10, 2021 by Liam Lane Posted in Money Etiquette, Money Management, Mortgage, Mortgage Rates, Real Estate Tagged About Mortgages, agent, Auto, Auto Loans, Banking, big, borrowing, Buying, car, Checking Account, Credit, Credit Card, credit cards, credit report, Credit Score, Debt, Debts, employment, estate, existing, Family, Fees, Financial Wize, FinancialWize, Gina Pogol, Home, home buyer, home buying, housing, How To, lists, Loans, Make, money, More, Mortgage, mortgage lenders, mortgage payments, Mortgage Rates, Mortgage Strategy, mortgages, Personal, real, Real Estate, Refinance, save, savings, Security, seller, selling, Student Loans, tax

What do mortgage lenders look for on bank statements? 

When you apply for a mortgage, lenders look at your bank statements to verify that you can afford the down payment, closing costs, and future loan payments. 

You’re much more likely to get approved if your bank statements are clear of anything questionable. 

Red-flag issues for mortgage underwriters include:

  1. Bounced checks or NSFs (Non-Sufficient Funds charges) 
  2. Large deposits without a clearly documented source
  3. Monthly payments to an individual or non-disclosed credit account

Fortunately, you can fix a lot of issues before they become, well, issues. Here’s what to look for, and how to deal with problems you find.

Verify your home buying eligibility (Feb 9th, 2021)


In this article (Skip to…) 


How far back do lenders look at bank statements?

Lenders typically look at 2
months of recent bank statements along with your mortgage
application.

You need to provide bank
statements for any accounts holding funds you’ll use to qualify for the loan.

Lenders use these bank statements
to verify your savings and cash flow, check for unusual activity in your
accounts, and make sure you haven’t taken on any recent debts.

Two months worth of bank
statements is the norm because any credit accounts older than
that should have shown up on your credit report. 

One uncommon exception is for self-employed borrowers who hope to qualify based on bank statements instead of tax returns. In this case, you will need to provide the past 12-24 months of bank statements.

What underwriters look for on your bank statements 

The underwriter — the person who evaluates and approves mortgages — will look for four key things on your bank statements: 

  1. Enough cash saved up for the down payment and closing costs
  2. The source of your down payment, which must be acceptable under the lender’s guidelines 
  3. Enough cash flow or savings to make monthly mortgage payments
  4. “Reserves,” which are extra funds available in case of an emergency

An underwriter generally
wants to see that the funds in your bank accounts are yours, and not borrowed
from someone else (unless via a properly-documented down payment gift).  

In other words, any funds used to
qualify for the mortgage need to be “sourced and seasoned.”

“Sourced” means it’s clear where
the money came from, and any unusual deposits are explained in writing. And
“seasoned” typically means the money has been in your account for at least 60
days. (So the funds should show up on the two months’ bank statements you’re
required to provide.)

Bank statements also prove to
underwriters that you haven’t opened up any credit accounts or created new debt
prior to getting the mortgage. 

Do lenders look at bank statements before closing?

Lenders typically will not re-check
your bank statements right before closing. They’re only required when you
initially apply and go through underwriting.

However, there are a few things your
lender will re-check before closing, including:

  • Credit score
  • Credit report
  • Employment and income

You should avoid financing any large
purchases or opening new credit lines (like a credit card) between mortgage
approval and closing.

New debts can affect your credit score as well as your debt-to-income ratio (DTI), and could seriously affect your loan approval and interest rate.

In addition, if anything changes
with your income or employment prior to closing, let your lender know
immediately so it can decide whether this will impact your loan approval and
help you understand how to proceed.

Verify your home buying eligibility (Feb 9th, 2021)

    Related

3 things mortgage lenders don’t want to see on bank statements 

You might want to take a look at your bank statements with a mortgage underwriter’s eye before turning them into the lender.

That’s because the lender looks for red flags that, if found, can require lengthy explanations. 

Mortgage underwriters are trained to unearth unacceptable sources of funds, undisclosed debts, and financial mismanagement when examining your bank statements.

Here are three things you can look for on your bank statements that might turn up a red flag for a mortgage company.

1.  Bounced checks

If your checking account is littered with multiple overdrafts or NSFs (non-sufficient funds) charges, underwriters are likely to conclude that you’re not great at managing your finances.

Mortgage rule-making agency Freddie Mac says that additional scrutiny is required when bank statements include NSF fees.

FHA loans require lenders to manually re-approve borrowers with NSFs, even if the borrower has already been approved by a computerized system.

2. Large, undocumented deposits

Outsize or irregular bank deposits might indicate that your down payment, required reserves, or closing costs are coming from an unacceptable source.

The funds might be borrowed. For instance, you could take a cash advance on your credit card, which might not show up on your credit report.

A large deposit could also indicate an “illegal” gift. A home buyer can’t take help from a party who stands to gain from the transaction — like the home seller or real estate agent. 

So, what’s considered a “large” bank deposit by mortgage lenders? 

  • Fannie Mae’s Selling Guide says, “When bank statements (typically covering the most recent two months) are used, the lender must evaluate large deposits, which are defined as a single deposit that exceeds 50 percent of the total monthly qualifying income for the loan.”
  • Likewise, Freddie Mac lists “recent large deposits without acceptable explanation” as red flags about which lenders should follow up with the applicant

If you can’t prove through documentation that the source of a big deposit is acceptable under the program guidelines, the lender must disregard the funds and use whatever is left to qualify you for the loan.

If the verified funds aren’t enough to qualify you for a loan, you’ll need to save another chunk of cash — from an acceptable source.

That said, borrowing a down payment is allowed. You just have to disclose where the down payment money came from. This must be considered an “acceptable” source, like: 

If you did receive a large deposit recently — and it wasn’t from one of these sources — you may want to wait 60 days before applying for a mortgage. 

At that point, the funds become “seasoned,” meaning they are now your funds, despite the source.

It’s still not a good idea to take funds from a party with interest in the transaction. That breaks a myriad of other rules. 

But if your family member paid you back for a recent vacation, or you sold a car to your aunt and didn’t document it, waiting 60 days could be a solution.

3. Regular payments, irregular activities

Watch out for a monthly payment that does not correspond to a credit account disclosed on your application.

Typically, your credit report will pull in your credit cards, auto loans, student loans, and other debt accounts. But some creditors don’t report to the major credit bureaus.

For instance, if you got a private, personal, or business loan from an individual instead of a bank, those debt details may not show up on your credit report.

The monthly $300 automatic payment on your bank statement, however, is likely to alert the lender of a non-disclosed credit account.

Verify your home buying eligibility (Feb 9th, 2021)

A bank “VOD” (verification of deposit) won’t solve all bank statement issues

Verifications of Deposit, or VODs, are forms that lenders can use in lieu of bank statements. You sign an authorization allowing your banking institution to hand-complete the form, which indicates the account owner and its current balance.

VODs have been used to “get around” bank statement rules for years. But don’t count on them to solve the above-mentioned issues.

First, the lender can request an actual bank statement and disregard the VOD, if it suspects potential issues.

Second, depositories are also required to list the account’s average balance. That’s likely to expose recent large deposits.

For instance, if the current balance is $10,000 and the two-month average balance is $2,000, there was probably a very recent and substantial deposit.

In addition, there’s a field in which the bank is asked to “include any additional information which may be of assistance in determination of creditworthiness.”

That’s where your NSFs might be listed.

There are good reasons to double-check your bank statements and your application before sending them to your lender. The bottom line is that you don’t just want to be honest — you want to avoid appearing dishonest.

Your lender won’t turn a blind eye to anything it finds suspicious.

FAQ on mortgage bank statements

Why do mortgage lenders need bank statements? 

Mortgage lenders need bank statements to make sure you can afford the down payment and closing costs, as well as your monthly mortgage payment. Lenders use your bank statements to verify the amount you have saved and the source of that money. They want to see that it’s really your cash — or at least, cash from an acceptable source — and not a discreet loan or gift that makes your financial situation look better than it really is.

How many bank statements do I need for a mortgage?

Mortgage lenders typically want to see the past two months’ worth of bank statements.

Do I have to disclose all bank accounts to a mortgage lender?

If a bank account has funds in it that you’ll use to help you qualify for a mortgage, then you have to disclose it to your mortgage lender. That includes any account with savings or regular cash flow which will help you cover your monthly mortgage payments.

What do underwriters look for on bank statements?

When underwriters look at your bank statements, they want to see that you have enough money to cover your down payment and closing costs. Some loan types require a few months’ worth of mortgage payments left over in the account for emergency “reserves.” In other words, the upfront costs can’t drain your account. 

Underwriters also want to see that all the funds in your accounts have been “sourced and seasoned.” That means the source of each deposit is acceptable and verified, and the funds have been in the account long enough to show they weren’t a last-minute loan or questionable deposit.

Do mortgage lenders look at savings?

Yes, a mortgage lender will look at any depository accounts on your bank statements — including checking and savings — as well as any open lines of credit. 

Why would an underwriter deny a loan?

There are plenty of reasons underwriters might deny a loan. The two most common are insufficient credit and a high debt-to-income ratio. As far as bank statements are concerned, an underwriter might deny a loan if the sources of funds can’t be verified or aren’t “acceptable.” This could leave the borrower with too little verifiable cash to qualify.

How long does it take an underwriter to make a decision?

Underwriting times vary by lender. The time it takes an underwriter to approve your mortgage could be as little as two or three days, or as much as a week. Big banks tend to move more slowly than non-bank mortgage lenders.

Do you qualify for a mortgage loan?

Bank statements are just one of many
factors lenders look at when you apply for a mortgage.

Almost all areas of your personal
finances will be under scrutiny; including your credit score and report, your
existing debts, and any source of income you’ll use to qualify for the
loan.  

These factors help determine how
large of a loan you qualify for, as well as your interest rate. The cleaner
your finances look across the board, the better deal you’re likely to get on
your new home loan or refinance.

Verify your new rate (Feb 9th, 2021)

Compare top lenders

Source: themortgagereports.com

Struggling with money anxiety and finding balance

February 10, 2021 by Liam Lane Posted in Budgeting, Debt, Making Money Tagged away, balanced money formula, big, budget, Budgeting, car, Debt, debt snowball, Debts, Emergency Fund, Entertainment, Finance, Financial Wize, FinancialWize, housing, How To, keep, Life, Loans, Make, money, More, Personal, personal finance, priorities, Psychology, real, Relationships, Saving, savings, Savings Account, School, second, Spending, Tally, tax, Taxes, Travel

On Saturday evening, I had a chance to chat with my friends Wally and Jodie. You might remember them from a reader case study from last August. They’re the couple that wants to get their finances in order but they’re worried because they’re starting with less than zero.

When we chatted in August, Wally and Jodie had over $35,000 in debt. They had variable incomes, but somehow seemed to spend exactly what they earned — about $3000 per month after taxes. Worst of all, they were behind on some payments.

Now, eight months later, their situation has improved.

Over smoked German sausage and beer, Wally and Jodie told me about their progress. (My dog, Tahlequah, was eager to take part in the conversation. Or maybe it was the sausage she wanted?)

Jodie, Tally, and Wally

Taking Baby Steps

“Based on your advice, we’ve worked hard to increase our incomes,” Jodie told me. “We’ve both been picking up extra shifts whenever possible. And I started a second job that pays pretty well.”

“So, you’ve been able to get a gap between your income and your spending?” I asked.

“You bet,” said Wally. “By working more, we don’t have time to spend much money. In August, we didn’t have any gap between our earning and spending. Our gap was zero. Now our gap is almost $2000! And we’ve been using the debt snowball method to get out of debt. We’ve already paid off a bunch of smaller stuff and now have $438 extra per month for debt payoffs. Plus, we have an emergency fund.”

“This all sounds amazing,” I said. “Great work!”

“It is amazing,” Wally said. “This is the best shape I’ve ever been in financially. But we’re struggling to figure out what to do next.”

“What do you mean?” I asked.

“Well,” said Jodie. “We’re getting married in September. We don’t know how much to budget for that. Meanwhile, we still have a lot of debt. We owe about $10,000 on Wally’s car. We had to replace my Mini Cooper last winter, and that brought us another $10,000 of debt. Plus, I still owe on my school loans.”

I did some mental math. While the couple’s cash flow has improved, I was a little nervous that they hadn’t actually decreased their debt since the last time we talked about money. That said, I know Jodie’s old car had been a thorn in their side. And they have paid down nearly $10,000 in miscellaneous debts.

“The real issue is that we can’t seem to find balance,” Wally said. “We’re burned out. We’ve been working so much that we never have time for ourselves. Or each other. It’s affecting our moods and our attitudes.”

“Yeah,” I said. “That’s tough.”

Wally nodded. “Now I have a friend who wants us to fly out to his wedding,” he said. “We’ve done the math, and we can’t afford it. He’s offered to pay for the trip, but we don’t know how we feel about that. We want to go, but even if we do accept his help, it’ll cost us a few hundred bucks — plus whatever income we lose while we’re gone.”

“What should we do?” Jodie asked. “We thought saving more would reduce the stress, but we’re just as anxious as ever. Well, maybe not anxious in the same way, I guess, but still. We’re worried about money — even with a $2000 gap each month.”

“Trust me,” I said. “The money worry never goes away. Everybody has money anxiety, no matter how much they earn, no matter how much they have saved.”

[embedded content]

Worrying About Money

“Do you worry about money?” Wally asked.

“Yes, of course,” I said. “I’m basically financially independent, but I still have money anxiety. In fact, I’m so worried about it that this year I’m tracking every penny I earn and spend. And, just like you, there always seems to be something that comes up for me to spend on. There’s my heart-attack scare, which now looks like it’ll cost me $7500. I just paid a huge tax bill. And there’s all of this travel I’ve committed to this year. It’s always something.”

“Should we fly to my friend’s wedding?” Wally asked. “I haven’t seen him in a long time. I can tell it’s important to him for us to be there.”

“That’s a tough call,” I said. “And it’s an example of how personal finance isn’t just about the numbers. There are relationships and emotions to consider too.”

“From a financial perspective, I don’t think you should go. But it’d be hypocritical of me to tell you that. My cousin Duane is still fighting cancer, but he wants to make another trip to Europe next month. At first, I was reluctant to join him. Like I said, I’m trying to cut expenses this year because I feel like I’m spending too much. But you know what? I’m going. So, you see, my advice and my actions are at odds here.”

I didn’t know how to tell Wally and Jodie, but my biggest concern with their situation is that it seems like they’re getting ready to stop the race when they’ve barely begun. They’re not out of debt yet. They’ve made some excellent progress, but there’s still a long way to go.

They’ve spent eight months on this project. From the looks of it, they have another eighteen months to go — but that’s if they use the gap they’ve created to accelerate their debt payments. If they don’t choose this route, it’s going to take them even longer.

At the same time, I get where they’re coming from about feeling cramped. Sure, there’s a finite amount of time until they get the debt paid off, then they can loosen up. But when you’re in the thick of it, eighteen months can feel like eighteen years.

Finding Balance

The key, of course, is to find balance. And I think that’s what Wally and Jodie are trying to do.

They’re not trying to quit the race early. They don’t want to get behind on payments like they used to be. They don’t want to spend their emergency fund or to stop their debt snowball. What they want is to find a balance between today and tomorrow.

I didn’t mention it to them at the time, but I think they should look at the balanced money formula from Elizabeth Warren and Amelia Tyagi’s excellent All Your Worth.

The Balanced Money Formula

Warren and Tyagi argue that in order to achieve financial balance, your after-tax spending should be allocated like this:

  • At least 20% should go to Saving (which includes debt reduction).
  • No more than 50% should be allocated to Needs (which includes housing, utilities, healthcare, basic food, and basic clothing).
  • The rest — around 30% — should go to Wants (which is everything else).

Warren and Tyagi are adamant that less than half your budget should go to Needs. If you pour too much toward necessities, you don’t have room in your budget for fun or the future.

The authors are just as insistent that you should build room into your budget for Wants. “You should ask yourself,” they write, “are you making enough room for fun?”

Wally and Jodie aren’t spending much on Needs at the moment, but they’re not spending much on Wants either. They’ve been pumping most of their money into Saving (in the form of debt reduction). This is a Good Thing. But maybe it’s too much of a good thing?

Making a Plan

On Sunday morning, Wally sent me an email. After meeting with me, he and Jodie formulated a plan:

  • Until their wedding in September, they’ll keep their debt snowball where it is today: minimum payments plus the $438 they’ve freed from satisfied debts.
  • They’ll use an envelope-like budget for entertainment, travel, gifts, dates, and personal items.
  • With the rest of their monthly gap, they’ll create a dedicated savings account for their wedding. After the wedding, they’ll throw this money at debt.

This seems like a good, purposeful plan to me. It balances today and tomorrow. And you can be sure that I’ll follow up with them in the fall to make sure they’ve stuck to the plan — that they’ve remembered to prioritize their debt snowball again.

In the meantime, I sent Wally this Reddit post in which a young guy realized that by pushing for a 65% saving rate, he was miserable. He writes:

I’m currently shooting for a 55% saving rate and I cannot tell you how much more I enjoy life. I went from feeling like I couldn’t spend a dollar that wasn’t strictly budgeted, to travelling with friends, going to concerts, and enjoying the pleasures of life. That 10% made all the difference in the world

As for me, I still feel anxious. I’ve done a good job of controlling my small, everyday expenses this year, but the big stuff is still stressing me out. I need to heed my own advice and find better balance. That will come, I think, as I consciously make better decisions about future large expenses — and as I work to increase my own income.

Source: getrichslowly.org

10 Financial Steps to Take Before Having Kids

February 10, 2021 by Liam Lane Posted in Life Hacks Tagged 401(k), Auto, away, budget, Budgeting, Buy, Buying, College, Compound Interest, Credit, Credit Card, Credit Card Debt, Debt, Debts, Education, Emergency Fund, Family, Featured, Fees, Finance, Financial Goals, Financial Plan, Financial Wize, FinancialWize, government, Grow, Health Insurance, Home, How To, hsa, Insurance, Interest Rates, invest, investments, IRA, Life, Life Insurance, Loans, Make, Manage Money, money, Mortgage, News, Personal, personal finance, planning, Popular, Raising a Family, Refinance, refinancing, Retirement, retirement planning, retirement savings, Roth IRA, Salary, save, Saving, savings, Savings Account, School, Spending, Student Loans, tax, tax credit, Taxes, Travel
Good Financial Cents
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:

Debt Snowball

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.

Debt Avalanche

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. 

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10. Create a Will

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.

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Top Money-Saving Tips and Tricks to Beat 2020 Holiday Debt

February 10, 2021 by Liam Lane Posted in Debt, Education Tagged 4%, apps, Auto, balance transfer credit card, Banking, budget, Cash Back, Chime, CRC, Credit, credit bureau, Credit Card, Credit Card Debt, credit card payoff calculator, credit cards, credit report, Credit Score, Debt, debt consolidation, Debt Management, Debts, Entertainment, experian, ExtraCredit, Finance, Financial Planning, Financial Wize, FinancialWize, Get Out of Debt, Holidays, Home, keep, Life, Loans, Low APR credit card, Make, Managing Debt, money, Money-saving Tips, more money, Mortgage, mortgages, Pay Off Debt, paycheck, Personal, planning, save, Save Money, Saving, savings, Savings Account, Spending, Student Loans, Tally, TD Bank Cash Credit Card, Travel, versus

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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. 

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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

Card Details
Intro Apr:
0% Introductory APR for 6 months on purchases

Ongoing Apr:
12.99%, 17.99% or 22.99% (Variable)

Balance Transfer:
0% Introductory APR for 15 months on balance transfers

Annual Fee:

Credit Needed:
Excellent-Good

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
  • Digital Wallet
  • Contactless Payments

Card Details +

Features of ExtraCredit

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. 

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How to Prepare Your Finances for the New Year

February 10, 2021 by Liam Lane Posted in Budgeting, Life Hacks Tagged big, budget, Budgeting, Checking Account, covid-19, Credit, credit cards, Debts, Emergency Fund, Epic Content, Family, Fees, Finance, Financial Wize, FinancialWize, high yield savings accounts, How To, Insurance, invest, Investing, investments, keep, Life, Life Insurance, Main, Make, market, money, Purchase, Retirement, save, Save Money, savings, Savings Account, savings accounts, Security, Spending, spouse

Preparing for the New Year can always be a challenge. After all, most of us are trying to figure out how to make sure we do it better than we did this year. And with the pandemic going on this year, next year is certainly no exception! Because of COVID-19, a lot of us took some pretty big financial hits this year. I don’t know about you, but we want to make sure that we do everything in our power to secure our financial success next year so it won’t be as painful. Therefore, we wanted to give you a good guide to help you prepare your finances for the New Year and help ensure your future financial success.

Go Over Your Budget

The first step to really determining your future financial success is to go over what happened this year. And, the best way to do that is to go over your budget. If you had one, that is! If you didn’t, this step might be a bit more time consuming. But it can be done!

I prefer good, old fashioned Excel spreadsheets, personally. But, my spouse is more of a visual, hands on kind of guy. So, something more physical, like this budget planner, is a great idea for anyone like him. No matter how you choose to create your budget, just make sure it is something that will work well with your personality.

I plan to take a good, hard look at everything we have spent in the following categories:

  • Auto
  • Food
  • Beverages (including alcohol)
  • Household
  • Clothing
  • Gifts
  • Luxury

Since our regular household bills remain the same, those are already accounted for into our regular monthly budget. Therefore, this list is a good place for you to start a dissection of where this year’s money went. And if too much of it has flowed out of your hands and into the wrong category this year, now is the time to recognize it. This way you can get a better grasp on your cash flow for next year well ahead of time.

This is also the time to revisit exactly how much money you have allotted into each category. If a category amount needs to be shifted, or reduced, this is the time to do it. I know that we are changing our overall monthly budget to reduce our spending by 25%. That means we will have to change how much money we have budgeted into some of the “want” categories.

But, if we know this ahead of time, it will be easier for us to handle making less income next year. So prepare your finances now by starting with your budget, in case this pandemic continues through the whole of 2021.

Emergency Fund Needs

Another huge category to reflect on, and potentially change, is your emergency fund. There are still so many people I know personally that don’t have an emergency fund that it makes my head spin. Especially in this day and age when so many people are losing their jobs left and right. It seems completely inconceivable to me to not have an emergency fund of some sort.

So, if you are one of the many people who fall into this category, prepare your finances by getting your emergency fund started. No matter how much money you have at your disposal, you should start putting something into it. And if you aren’t sure where to start, I would suggest opening a high yield savings account so that you have the chance to earn a little bit more interest on your money.

Even though the rates aren’t nearly as high on any of these high yield savings accounts as they were a year ago, it’s still better than nothing. For us, the goal is to keep at least 6 months of monthly expenses in our emergency fund. But, ultimately, we would like to bump it up to a full year in reserves, just to feel more comfortable.

If you need something that makes it even easier to put money into an emergency fund, then something like Digit may be right up your alley. You can connect your checking account and credit cards to your Digit savings account. Any time you spend money from your connected accounts, Digit will round-up the difference and put it into your savings account. Or you can choose to manually move money over into your savings account at any time also. Either way, the money will come out of your checking account. So just make sure that you have the available funds needed in order to make move to your savings account ahead of time. This is a tool that I used years ago which made it much less painful for me to slowly save money.

Investment Strategy

Next, but certainly just as important, is to revisit your investments when you prepare your finances for the New Year. If you have any investments to begin with, that is. Of course, you want to make sure you have a fully stocked emergency fund first. But, investing now is also a great idea since the market has been down for the majority of the year. And investing now in your future, can only help boost your overall financial success. Plus, it can help you reach retirement earlier too. Which is a huge bonus!

If you don’t have a lot of discretionary income to work with, then there are still plenty of ways you can invest with little money. We have a few different accounts that we use that has helped us diversify our investing.

Acorns is one of my favorite investing tools because it doesn’t cost anything to get started. And you can invest how much or little you want to a month. There is a $1 monthly fee for the type of account we use. They have a round-up’s feature that also adds in a multiplier, so we’ve been able to invest a lot more than we ever thought we could.

Another one of my favorite robo-advisors is Betterment. They ask for a bit more information about you and your projected retirement date in order to put you in a better targeted fund. Which I happen to be a fan of. And their fees are exceptionally low, which was the main reason I began investing with them in the first place.

One more great option, that you can give or get as a gift also, is Stockpile. With Stockpile, you get to use gift cards to purchase individual stocks for as low as $1.99. Which is pretty darn awesome!

Review Life Insurance

A big financial decision that a lot of us don’t think about it revisiting our life insurance. I know that it isn’t something I have done in quite a few years. But, just earlier this year we decided to take another look at our life insurance policies to see if any changes needed to be made. And it was a good thing we did because the rates are a lot lower right now for life insurance policies than they were even 2 years ago.

If you don’t have a policy yet, a good place to start is with Bestow. Their rates are exceptionally low and you can get an instant quote just by filling out some information online. They offer 10 – 20 year policies up to $1 million, which gives you a lot of flexibility with your choices.

And by getting life insurance now, you will only be helping to secure the financial health of your family should something happen to you. Seeing as we are in the middle of a pandemic, you just never know these days. And it is certainly much better to be safe than sorry!

These are some great tips to prepare your finances for the New Year! Click To Tweet

Prepare Your Finances For The New Year Summary

Ultimately, there are quite a few things you can do to help secure your financial stability for the New Year. And preparing your finances by revisiting and tweaking your budget is a good first step. After that, revisit your emergency fund or start one if you don’t have one yet. Do your best to come up with a reasonable plan to get it fully funded as soon as possible. The next step is to take a look at your investments, or start investing if you haven’t yet. There are a lot of great tools to help you get started. And lastly, take a look at your life insurance policy, or take one out if you don’t currently have one.

By following all of these steps, you and your family will be well on your way to much more financial security next year. Even if we are still in the middle of a pandemic.

What are the steps you have taken to prepare your finances for the New Year and create financial stability for your family?

Source: everythingfinanceblog.com

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