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The ‘YOLO’ Mindset is a Dangerous Thing

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yolo

I graduated high school in 2011 and “YOLO” was being screamed a graduation ceremonies, football games, even band concerts. “You only live once” is a good motto to live by. After all, you only get one chance to do your thing on this planet. If you look at how people act around the YOLO mindset though, you’ll see it can actually be a dangerous thing.

The Meaning of YOLO

YOLO stands for “you only live once.” You’ve probably heard it 1,000 times already. It’s in the same vein as “treat yourself.” Leave your job for your dream position, YOLO. Buy the candy bar, YOLO. Book the cruise, YOLO.

While the Canadian rapper Drake often gets credit for coining the phrase “YOLO,” it actually originated in 1993. Ben Zimmer was actually the man who trademarked the phrase and had it added to a line of apparel. It wasn’t until 2011 when Drake put it into a rap song that the phrase gained popularity though. Five years later, the Oxford English Dictionary entered YOLO into the dictionary as a word.

For many people, the idea of “YOLO” became a way of life. If you wanted to call out of work, YOLO. Maybe you wanted to head to the beach on a whim, YOLO. You finally quit that toxic job, YOLO. Someone asks you out for drinks after work and, even though you need to get stuff done at home, you say yes. YOLO.

You Only Live Once – Take Care of Yourself

As a college freshman in fall of 2011, I definitely shouted “YOLO!” before doing a few pretty dumb things. After all,  Drizzy said, “You only live once, that’s the motto, YOLO.” (I still am a pretty big fan of Drake.) However, after a few years of hard adult experience, I realized that YOLO mindset can be damaging. In some cases, it can be dangerous.

First, let’s talk money. YOLO is terrible for your finances. This mindset usually leads people to spend unnecessary money because why not? You only live once, right? So, they spend money on vacations and material items, wracking up debt along the way. There is no doubt that was me in my early 20s. I’d maxed out a few cards and even an Amazon credit account because YOLO.

I grew up a bit and grew past that phase in my life. Now, I’m a new mom, wife, friend, daughter, but I realized you really only do live once. While you are here, set yourself up for a good time. Take care of yourself, your finances, your relationships, and make the most of the time you have. This means paying off debt, saving money, and putting away cash for retirement so that you can truly enjoy your golden years.

For me right now, YOLO means being intentional with my time so that I can be with my little one. YOLO means taking care of my finances so it is not a cause of stress. It means nourishing my body, mind, and soul so that I can be the best person possible for myself and my family.

So, yes. YOLO. Just be careful!

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A Few Things to Know About Loans

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The current life standards have forced many people to think about the option of getting a loan whenever they want to buy something or enjoy a good holiday abroad. Even though people are paid much better than 20 or 30 years ago, the standards have risen to a point where you need to apply for loans several times throughout your life.

This is not something that we should be ashamed of. After all, those are things that we have to get used to. Some research has shown that more than 60% of the people in the world are living in some kind of debt. There are many things to know about loans and paying them off, but we wanted to share a few interesting facts about them which are highly informative.

Debt Consolidation

When you get a loan, it’s important to have a plan on how to pay it off. If you don’t have a plan, you might end up not being able to keep up with the monthly payments which can lead to a lot of trouble. One way to manage to overcome a problem like this is debt consolidation.

Debt consolidation is a form of refinancing in which you take a loan which will pay off all other loans. There are many advantages to it, like lower interest rates, fresh start on monthly payments, etc. But, these advantages come only if you get this type of loan form a good and credible company. So, it’s extremely important to choose a good company which will help you deal with your financial difficulties.

The overall lower interest rate is what makes debt consolidation loans so popular and handy for anyone who is having trouble paying off their debts. With this type of loan, the repayments can spread over to a larger period.

They Are Available Online

As we all know, there are plenty of advantages that came with the rise of the Internet. Many services have been made available online. Such is the case with online loans. Many online lenders hand out loans to people all around the world and they became extremely popular lately. The reason for that is that they are very easy to deal with.

Online lenders are flexible with their clients. To make things even better, their approval rates are much higher than the ones of the banks. Online lenders have a 70-75% approval rate, whereas the banks have around 55-60%. The applying process is also much faster – all you need to do is fill out an application and wait a few days for feedback.

Countries With Low Interest Rates

The top 3 countries with the lowest interest rates in the world are Switzerland, Denmark, and Japan. The good economic state, as well as the politics of the countries, have been huge contributors in making them stable and ‘affordable’ to the people. Feel free to check out the top 5 list here.

Side Jobs Can Help You Pay Loans

This may sound a bit funny, but many people around the world take up some side jobs as a way to help them pay off their debts. And they can extremely helpful, a lot more than you would think. There are plenty of easy profit-making side jobs that can better your financial status and ease your worries when thinking if you are able to pay off your debt. Going online to make money is also a good idea.

5 Things to Avoid to Live Debt-Free

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Live debt-free

Reaching financial freedom is far from easy. Only 29% of Americans consider themselves to be financially healthy. Once you obtain debt freedom, you want to be able to stay there. So, there are several things you’ll want to avoid to live debt-free.

1. Budgeting is Always Crucial to Your Financial Health

You had to budget to get out of debt. That doesn’t stop just because you no longer have creditors to pay off. In fact, budgeting is even more important once you’ve paid everything off. If you don’t set a budget you run the risk of racking up debt again if an emergency arises.

Remember that your budget needs to be 100% cash. Don’t consider your credit cards or any other form of money spendable.

2. Overspending is a No-No If You Want to Live Debt-Free

That directly ties into overspending. If you start considering the money available on credit lines to be spendable, it is more likely you’ll restart the cycle of debt in your life. You certainly don’t want that after all of your hard work to get where you are.

Instead, plan for bigger purchases and save up for what you want. You should also have a set budget for recurring expenses and other plans. Don’t deviate from that budget.

3. Don’t Stop Saving Your Money

Saving money isn’t just important during your debt freedom journey either. As mentioned in the point above, it is important to save money for large purchases and planned expenses. However, it is also always a good idea to keep money saved.

Having an emergency savings fund will keep you from tapping into credit lines if something comes up. Additionally, saving money can help you secure your financial future and ensure you’ll be able to retire someday.

4. Giving Up on Investing Isn’t an Option

When it comes to saving for retirement, you should also continue to invest while you live debt-free. Even though you may not have as much cash flow or you may be tempted to spend cash, it is a good idea to invest in a diversified portfolio.

Not only will this allow for you to have financial freedom throughout the rest of your life but it can help you expand your current finances. Avoid being afraid of the stock market once you’ve paid off your debts.

5. Neglecting Insurance Will Cost You

Renter’s insurance, homeowners insurance, car insurance, and health insurance. Purchasing coverage is important to protect your finances. In the event of an accident or emergency, these policies can help you avoid racking up debt.

Even though the monthly cost of insurance may seem like a pain, it can help you replace damaged items, restore your health, and protect your belongings. Without it, it is easy to swipe your credit card. Insurance is crucial if you want to live debt-free.

Readers, what else would you add to the list? How do you live debt-free?

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Picking and Choosing What to Pay During the COVID-19 Pandemic

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COVID-19 pandemic

Jobless claims in the United States have reached more than 6.5 million as of last week due to layoffs amid the COVID-19 pandemic. Because of this, many people are falling behind on their bills, despite the stimulus package. In our home, our monthly income has been sliced in half, leaving us picking and choosing what bills get paid now.

Establishing a Financial Cushion

If you’ve been keeping up-to-date with our financial journey, you know we just recently established our $1,000 emergency fund (again). Well, due to my husband’s layoff, we needed to use a chunk of that to cover expenses of moving his tools and covering bills. After doing that in March, we are re-evaluating how we are going to tackle the COVID-19 pandemic financially.

Initially, I was just going to maintain all of my payments across the board, but that leaves us essentially paycheck-to-paycheck (which is a little iffy in the current environment). However, after seeing our EF drained, I reconsidered that and decided to take a break from 2 larger monthly payments just to refund our emergency savings. Having cash saved and on-hand right now would provide our household with some peace of mind.

That being said, my student loan is under forbearance until September and my car company is giving me a three-month break from payments. This will allow us to bank $768 each month for the next three months, which will be a nice emergency savings fund.

Consider What You Need

For us, having that buffer cash on hand is going to be key in keeping us financially stress-free during this time. Believe me, the last thing you want to do is to be stuck in the house with your spouse fighting about money. You may be thinking, “well, we HAVE to make payments on the credit card, car, etc.” That may not be entirely true.

Many companies are offering breaks on payments or lower payments in order to help individuals impacted by the coronavirus outbreak. Call and discuss your options with each business. Get your bills as low as possible.

If your available cash still doesn’t cover what’s due, consider what you need. Tiffany Aliche, aka the Budgetnista, told NPR in an interview, “then I would ask myself, is this something that I must pay for because I have to maintain my health and my safety? That comes first and foremost.”

So, if it doesn’t pertain to your health and safety right now and you don’t have it, take a breath. It is important to remember what you do and do not control at a time like this.

Putting Plans on Hold

COVID-19 pandemic

This photo will be us for a while: at home. Unfortunately, many of our plans have been put on hold, postponed, or canceled for the next few months. It is not yet clear whether some events will be refunded or not (I wish!).

We’ve put plans to visit home (Charlotte) on hold indefinitely. Hopefully, by mid-May, we can decide on a solid date to re-plan that trip. On top of that, just about everything else has been postponed or canceled in some form. This will likely help save us money and, in the long run, staying home will too.

Finding Ways to Stay Busy at Home

I’ve thankfully been able to continue working because I’ve worked remotely for more than five years. That isn’t to say being indoors isn’t driving us a little crazy! We have been able to find ways to stay busy though.

COVID-19 pandemic

I, for one, have been cooking a LOT. We recently discovered Sam the Cooking Guy on YouTube and his videos have me looking in my pantry to see what I have and what I can make. Here’s one of his quarantine recipes…

In addition to cooking, we’ve also been taking Enzo on a lot of walks (and he certainly isn’t complaining). Remember, you can still get some fresh air. Just avoid contact with people and if you can wear a mask!

COVID-19 pandemic

When we aren’t doing those two things, I’m fully reaping the benefits of some of our subscription services. Amazon has a plethora of free Audible books, Kindle reads, and things to watch right now. I’ve listened to about six books in the past week and a half (ha!).

No matter what you do to keep busy, it is important to stay inside and stay healthy. Remember, you have options when it comes to your finances. The most important thing is your health. Stay well. 

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What To Do If Debt Is Accrued By Identity Theft

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What To Do If Debt Is Accrued By Identity Theft

It is recommended you check your credit score at least once a year. However, those of us on debt freedom journies may check it more often. What happens when you look at your report and find something you don’t recognize? What if there is a debt on your report you didn’t authorize? Here’s what to do if debt is accrued by identity theft.

What To Do If Debt Is Accrued By Identity Theft

You’ve noticed something out of the ordinary on your credit report. First thing’s first, breathe. You will want to keep a level head and get all of the information on how to move forward clearly. Identity theft could cost countless dollars if not handled correctly, so you want to be sure to do it right.

File an identity theft report with the Federal Trade Commission (FTC). Next, you’ll want to place a minimum of a one-year (up to seven years) fraud alert on your credit report. This way, you’ll be alerted to any and all activity on your behalf.

Here is what you can expect when communicating with FTC officials about your identity theft. Take a look at the link and be sure to be prepared with the documents and information they need. When you talk to them, inquire about getting free credit reports. They can assist you with getting more than the guaranteed one-per-year.

Once you’ve reported the activity and moved forward with monitoring your credit, take the steps necessary to remove incorrect information. If needed, dispute the fraudulent accounts and request that creditors stop reporting them. To do this, send copies of proof of identity theft, which you will receive from the FTC.

If a debt collector is harassing you during this time, you also have the right to block them from contacting you (if all else fails).

Credit Monitoring Best Practices

Of course, you want to avoid identity theft altogether, if possible. It is a good idea to employ some credit monitoring best practices. For instance, services like Credit Karma and many credit card companies offer free credit monitoring. Many will also alert you if there has been a change. Sign up for alerts so you can be aware if there is anything abnormal taking place.

Additionally, it is always important to stay on top of what kind of scams are circulating at the time. Don’t fall victim to schemes aiming to destroy your credit and finances by being uneducated about them.

Lastly, if you do find anything out of the ordinary on your credit report, call the company right away and discuss what your next steps should be. The sooner you take action against identity theft, the better.

Readers, do you have any identity theft nightmare stories you’d like to share? Comment below! I’d love to feature you on the blog. 

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Why You Should Look at Motor Finance Alternatives

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As a driver, there will come a time where you’ll be looking at changing your vehicle for a newer one. Whether that’s because your current vehicle has become a bottomless pit of repair and running costs, or you’re starting a family a need something bigger than your current model. Unless you have the savings to cover it, it’s more than likely you’ll be looking at financial help to make this purchase easier. But where to begin? It can be difficult knowing which is the best option for you with so many different types of finance available. Here are some pointers to help guide you and why the alternatives may be better.

Older Vehicles Provide Better Deals

With a new year means many great deals on vehicles available. It was reported that 27% of all vehicles sold in October 2019 where brand new 2020 models, meaning many more people went for slightly older plates. This is because of the large drop in prices seen on models between 1-3 years old, even if they have low mileage. You should be able to take advantage of the dealerships wanting to make room for newer cars by moving on their current older stock. Based on that statistic, many people seem to agree. But to truly make the best of reduced costs on a nearly new vehicle, you need to choose your finance options carefully.

Higher Purchase Agreements or a Direct Lender Loan?

It can be easy to find understanding the various details of higher purchase motor finance agreements a little confusing. After all, they come with many different terms that you need to stick to avoid any extra charges. For example, if you were looking to lease a car, this will come with various details such as limited mileage to stay within or condition when giving the car back. For this reason, you could end up agreeing to pay a monthly amount that could end up being much more. Opting to purchase a car outright has far been the cheapest option for many years, as you’ll only pay the value of the car. Easy if you have the savings available, so how can you still do this without having the available funds? Fortunately, there are various alternative motor finance options available that will help.

There are many lenders who are willing to provide low-interest car loans that will provide you with the interest charge upfront and combine it with a flexible repayment length for low monthly repayments. This way you can avoid the dealerships and pay them outright, leaving you to pay a manageable, low rate loan instead. This also means you’ll own the vehicle, meaning you can decide to sell or keep it for as long as you want.

Credit Card

This one will depend on how great a rate you can get on a credit card. Otherwise, you could end up paying a lot more in interest than with any other option available. Credit cards are great for flexible lending, only using when you need it. But if they are not managed well, they can rack up high-interest charges and can quickly create an expensive debt. If you’re thinking of using a credit card, it’s worth looking for 0% interest-free deals that will mean you can, for a period, pay no interest on the amount you spend. The trick is to remember to move the balance to another credit card before the 0% period finishes, with ideally the new credit card having the same promotion.
The great thing about this is you can continue to do this for as long as you have the debt to pay. The only stumbling block would be your credit rating, as you’ll need to maintain the monthly payments to ensure this doesn’t drop and you can’t get approved for another credit card. If done successfully, you could pay no interest at all on your vehicle amount, apart from a balance transfer fee each time you move the funds.

Peer to Peer

This one is much less used than a loan or higher purchase agreement but can work out to be a great money-saving option. Peer to peer lending involves borrowing from other people who are willing to lend to you. This means not borrowing from a bank or car dealer or other direct lender company. Instead, you would go into an agreement with someone just like you; your peers! Now what differs this from just borrowing money from friends or family is that it is done through a peer to peer platform. By using it, you’ll be matched with other people willing to lend the money you require and will still need to undergo a credit check. Interest rates can be much lower, but this will depend on how good your credit rating currently is.

Read the Terms Carefully

Whichever option you choose to go forward with for motor finance should be carefully considered. Not all options will work for everyone and nearly all will require you to have a good level of credit. You should only enter into an agreement you can afford to maintain. This way, you can focus on enjoying your new vehicle, rather than worrying about how to pay for it and how much interest you’re paying back.

For more of our great articles, read these:

Yes, You Can Buy Someone else’s Debt

Here Are Some Handy Debt Free Charts

What Kind of Interest Will You Have On A $60,000 Loan?

The Complete Guide To Getting Out of Debt

 

Image source: GotCredit, via Flickr.

Determining Your Maximum Debt Limit: How Much Debt is Too Much

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When you look back on what you have been able to accomplish in your life, chances are that it was all possible due to debt.

Without a loan, you wouldn’t have owned your first home.

Without a loan, you wouldn’t have driven that first car of yours.

And without a loan, you couldn’t have earned that first degree.

In other words, debt can truly be a good thing. However, according to the old adage, you can have too much of a good thing. If you feel that you have piled up too many loans, there are tips to help you pay off your debt in a smart and efficient way.

So, how much debt is too much? Here is a rundown on how you can determine your maximum debt limit. Let’s get started!

How Much Debt Is Too Much?

A good way to determine how much debt is too much in your situation is to look at your ratio of debt to income.

To get this figure, you should divide your recurring debt each month by your gross income each month. You will then express this figure as a percentage.

Your monthly debt includes anything that you have to pay each month. This includes, for example, your mortgage, credit cards, car payment, and student loan.

Meanwhile, your gross income is the amount of money you bring home prior to paying taxes, Social Security, and insurance.

Example of Debt-to-Income Ratio Calculation

If you have $3,000 in current debt and generate a gross income of $6,000 per month, your debt-to-income ratio comes out to 50%. Unfortunately, this is not a good figure.

Many lenders generally like to see ratios of around 36% maximum. In fact, some financial advisors state that ratios of more than 20% are indicators that consumers are borrowing too much. Still, others say that near 30% is the magic number.

What does this tell us? It tells us that there’s no black-and-white answer for how much debt is too much for you. However, if you find that your disposable income each month seems insufficient, you’re probably carrying more debt than you should.

How to Help Yourself

If you’re wondering whether to get that next loan, ask this question to yourself first. “How much debt is too much?”

There are many different reasons to get a loan. Irrespective of the circumstance, you must eventually pay back the borrowed money. Therefore, it is always advisable to not borrow more than you need and your repayment ability.

When you start feeling the burden of too much debt, consolidating all of them into one can help you simplify your finances. In some cases, you may even be able to reduce the monthly payments.

The next time you decide to get a loan, determine your requirement, check about your ongoing debt payments and figure out how much you need. There are lenders who also help you to determine the ideal loan amount and then design a suitable repayment term for you.

Always find the right fit lender and loan fit for your financial situation.

Image source: Institute for Money and Technology.

When Can You Be Taken To Court Over Debt?

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Taken to court over debt

Repaying your debt is stressful enough without having to deal with debt collectors and, even worse, lawyers. You may have heard horror stories of people being taken to court over debt. If you’re like me, you probably push those to the back of your mind. In some cases, those stories don’t even seem real. However, you can be taken to court over debt and millions of people have been.

Are You in Danger of Being Taken to Court Over Debt?

You can be taken to court over a number of different kinds of debt, including medical debt, auto loans, business debt, and even credit cards. The only debt you’re not likely to be taken to court for is a foreclosure. In most cases, the mortgage company is able to resell the property and you won’t be taken to court for that.

One of the best ways to stay on top of whether you are in danger of being taken to court or not is to open your mail. Believe it or not, many people just throw away mail that comes in. Sometimes people throw away important notices regarding debt. If you do that, you could land yourself in court to settle those debts.

What To Do

Finding out that you are in danger of being taken to court over debt is enough to send your anxiety through the roof. The first thing you should do after you find this information out is to contact some kind of legal aid. Some lawyers will offer you a discount or even a free consultation for your problem. In some cases, lawyers will provide their services for cases like these pro bono.

Next, be sure you do research on what the statute of limitations is on the debt you owe is. For different debts, the amount of time changes. It also varies from state to state. Additionally, your “time” can restart in some cases. You’ll want to be sure you’ve educated yourself about these limitations before getting too upset. It may turn out that you are no longer responsible for the debt (though you should never have that mindset).

Once you’ve done those two things, decide on how you wish to move forward. If you cannot pay the debt, you may be able to work out a settlement or payment arrangement within the court. Take a step back and assess what the best plan of action will be for you.

Readers, have you ever been taken to court over debt? How did you handle it?

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The Complete Guide to Getting Out of Debt

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getting out of debt

In total, Americans owe about $1.04 trillion in credit card debt alone. The average debt per person just on bank-issued credit cards comes in at $6,354. For mortgages, the average borrower in the US has $202,284 in housing-related debt. Student loans also pack a punch, leaving the average borrower owing around $33,654. With so much debt piling up, many households are desperately trying to reduce their balances and eliminate their debt. If you want to conquer your credit cards, ditch your mortgage, free yourself from student loans, and otherwise remove creditors from your life, here is a look at the steps you can take to get out of debt.

Create a List of Your Debts

Before you take any steps beyond making your minimum payments, you need to understand your debts. Create a list that includes all of the lender names, debt types, interest rates, minimum monthly payments, and remaining balances.

As you compile the information, you should end up with a table that looks like this:

Lender NameAccount TypeInterest RateMinimum Monthly PaymentRemaining Balance Owed
Bank of AmericaAuto Loan6.25%$336.21$18,112.36
Wells FargoMortgage5.5%$925.00$174,536.14
Capital OneCredit Card17.9%$181.40$7,256.18
Best BuyStore Credit Card25.9%$64.67$2,586.88
Sallie MaeStudent Loan6%$168.16$23,472.01
Credit UnionPersonal Loan12.9%$50.47$1,499.98

After gathering those details, you also want to total up your monthly payments to see how much you owe every month as well as your total balance owed. Using the example above, the total minimum monthly payments would be $1,725.91, and the total balance owed would be $227,463.55.

The idea is to get an incredibly clear picture of what companies you are paying, how much you are directing toward debt payments each month, and how much you owe.

If you are worried that you are overlooking a debt, head to AnnualCreditReport.com and request a free copy of your credit reports. The website is officially supported by the government, and you can get a copy of each of your reports from every major bureau every year at no cost. Then, you can review the reports for information about your creditors, including who you owe and other details.

Know Your Rights

If you have fallen behind on your debt payments, you might be stuck dealing with debt collectors. If so, it’s important to understand that all debt collectors have to follow certain laws.

Review the details of the Fair Debt Collection Practices Act if you want the most in-depth understanding of your rights and the various rules. If you want a solid overview using simplified language, the Federal Trade Commission’s Debt Collection FAQs is a good place to start. Along with information about what is and isn’t allowed, you can find out how to report a debt collector who violates the laws.

It’s important to note that individual states may have additional regulations regarding debt collection practices. In many cases, your state’s attorney general’s office can provide you with further details about your rights under your state’s laws. You can find contact information for your state attorneys general office through the USA.gov State Attorneys General search page.

Make Sure You Actually Owe on the Debts

There are instances where a person is subjected to billing or collection efforts even though the debt isn’t actually theirs. A company or debt collection agency might say that you need to pay when, legally, that isn’t the case.

At times, these attempts to get you to pay for a debt aren’t nefarious. In some cases, it is simply a mistake. A debt was associated with you on accident, such as through a technical error or an employee incorrectly entering customer information. If you believe one of the debts you are dealing with may fall in this category, contact the company or vendor. For additional support, you can also reach out to the Consumer Finance Protection Bureau, Better Business Bureau, or the Federal Trade Commission.

It is also possible that you have been the victim of identity theft. In these cases, someone else pretended to be you or used your personal information – such as your name, Social Security Number, and birthdate – to fraudulently open an account, making it appear that the debt is yours. If you might be the victim of identity theft, the Federal Trade Commission’s Identity Theft website can give you details about how to address the problem.

If a lender or debt collector says that you are responsible for a deceased loved one’s debt, they are usually incorrect. Debt can’t typically pass from one generation to the next if the surviving family member isn’t listed as an official borrower, such as by being a cosigner. Instead, any repayment is handled through the deceased’s estate. However, if you aren’t sure about your liability, you can consult a lawyer. Inheritance laws may vary from one state to the next, so it is wise to speak with a professional to confirm you aren’t responsible.

There are also situations where the debt was genuinely yours, but you are no longer obligated to pay it based on its age. There is a statute of limitations for many kinds of debt, and, once that period ends, the unpaid amount is time-barred. How long that time period is varies based on the type of debt and state law. If you aren’t sure if one of your debts is time-barred, contact your state attorney general’s office.

Understanding Your Interest Rates

Most people have heard debts being referred to as “high interest” or “low interest.” However, there isn’t usually a clear line that identifies what rates fall in which categories.

Since common repayment advice usually tells borrowers to focus on high-interest debts, it’s important to have some form of benchmark. One of the easiest ones is to compare the interest rate to what you could earn as a return if you invested the funds. If the interest rate is above the average return on an investment, consider it high-interest. If it is below, then consider it low-interest.

For example, the average S&P 500 return over the years has been about 10 percent. Using that example, all debts with a higher rate would be high interest. Any debts below 10 percent would be low interest.

Negotiating Principal and Interest Rates

Some borrowers are surprised that negotiating on debt principals and interest rates is an option. If you are struggling with your debt but have managed to stay current on your payments, you might have a decent credit score. If that is the case, you might be able to request a lower rate, reducing how fast interest builds up and potentially lowering your minimum payment.

If you do get any reductions in interest rates, update your debt list to reflect the new interest rates and minimum payments. Additionally, recalculate your total monthly payments and total amount owed, ensuring the information is current.

Additionally, if you can offer a substantial lump sum that is slightly below what you owe, the lender or debt collector might accept that amount as payment in full. Contact them, let them know what you can pay, and see if they will settle the debt for that amount. If so, get their commitment to closing everything out in writing before you send the payment. That way, you are protected if they try to avoid living up to their end of the bargain.

Just keep in mind that, if you settle the debt for less than you owe, there may be tax implications. You could receive a 1099-C (cancellation of debt tax notice) from the company. That means the difference between what you paid and what was owed might be considered income by the Internal Revenue Service (IRS), impacting your tax obligations. If you want to find out if the canceled debt is taxable, review IRS Topic No. 431 for additional information.

Create a Household Budget for Tackling Debt

Once you know who you owe and how much, have confirmed that you are responsible for the debts, and have negotiated when possible, you need to create a new household budget. Use your debt list as a starting point.

Next, add any more monthly expenses you have to handle. For example, this could include rent payments, utility bills, home or renter’s insurance, auto insurance, and any other recurring bills.

Then, put in details about your other living expenses that aren’t bills. For instance, groceries and fuel for your car would fall in this category.

The goal is to get a holistic view of where your money goes every month. If you spend money in one area on a monthly basis, write it down.

If your expenses exceed your income, then it’s time to make some cuts. See what costs you can reduce or eliminate. For example, eliminate cable television, reduce the number of streaming services you use, and pare down your food budget.

If you do not have a budget template, you can get one here.  Here is a handy screenshot so you can see what a good budget looks like.

While you might have to live a bit uncomfortably for a while, this process will help you live within your means and pay off debt. Otherwise, you’ll need to find options for augmenting your income if you want to make serious headway.

Increasing Your Earnings to Defeat Debt

Whether you have a budget shortfall or simply want to tackle your debt as fast as possible, increasing your income is always a smart move. Begin by examining all of your household items and decide if there is anything you could sell. The average American household has 300,000 items in it, so really scour your house for unused things that could be sold for some quick cash that you can put towards your debt.

After that, consider if you can enhance your earnings. Is getting a raise at your current job a possibility? Could you take on a second job? What about some freelance gigs? If increasing your income from work is possible, explore it.

Finally, you can also see if there is any assistance available that might allow you to pay off your debts faster. Check to see if you are eligible for government programs based on your income. Reach out to area non-profits, particularly if you might miss a rent, mortgage, or utility payment. While you might not find any options here, it is worth checking out if you are genuinely in dire straits.

Creating a Debt Payoff Strategy

Before you go beyond making your minimum debt payments, you need a payoff strategy. This will help keep you focused and prepare you to tackle your debt in the best manner possible.

There are two effective and popular strategies for paying off debt.

1) Debt Snowball. The Debt Snowball strategy was popularized by Dave Ramsey, a personal finance expert. In this approach, you focus on the debt with the smallest balance.

Essentially, you pay the minimum payment on every debt but the smallest. Next, you send every extra dollar you can toward the smaller debt. Once you tackle it, you get the mental boost of having a success. Then, you focus all of the money that was going to that debt to the new smallest debt, continuing the cycle until everything is paid off.

2) Debt Avalanche.  The second option, the Debt Avalanche, concentrates on the highest interest rate debt first instead of the smallest. You make the minimum payment on every debt, only sending extra cash to the highest interest debt. Once that one is conquered, you focus on the new highest interest account. This approach is the best financially, as you’ll pay less in interest than if you use the Debt Snowball method in many cases. However, if your high-interest debts are large, you don’t get a mental win as quickly, which can be tough on your motivation.

Either approach is viable, as they both help you get out of debt. Consider if you need the mental boost of a quick win. If so, the Debt Snowball is for you. If not, then use the Debt Avalanche to save on interest.

Sometimes, it is easier to decide if you can see the difference. Luckily, you can find easy to use debt snowball and debt avalanche calculators that will do the math for you, allowing you to input information about your debts and see exactly how the results differ.

Keeping Yourself Motivated

Paying off your debt takes time. As a result, you need to find methods for keeping yourself motivated that don’t involve unnecessary spending.

Many people enjoy having a visual aid. For example, you might create a debt thermometer that you can color in as you pay down your balances. This can help you see how far you’ve come, making it clear that progress is happening.

Additionally, updating your balance owed on your debt list to show the lower amounts can be encouraging. You get to put in smaller balances every month, an that can help keep you motivated.

Don’t Look for Shortcuts

While nearly everyone wishes that there was some kind of shortcut that can lead to debt elimination, there usually isn’t. It takes time, work, and dedication.

While there are reputable debt management organizations out there that can help make the process more manageable, there are also a ton of scams. Any company that touts their supposed ability to work a miracle and make your debt disappear should be considered highly suspect. If you are considering a formal debt management plan, research the organization heavily to make sure it is legitimate and doesn’t charge high fees that make your tough situation worse. If you have any doubts about their credibility, walk away, and get out of debt on your own.

Similarly, while many would suggest debt refinancing or consolidation, that isn’t always an ideal road. If you don’t have stellar credit, you might get a worse interest rate than you are dealing with today. Plus, it could potentially open the door for accumulating more debt, and that could make your situation worse.

This is especially true for balance transfer credit cards. Even if you could get a 0 percent rate for a period of months, using the service typically comes with a fee (around 3 percent of the amount transferred). Plus, if you miss a payment, you might lose the promotional rate, leaving you stuck with the regular (or even a penalty) rate instead. Unless you can be genuinely diligent and pay off the entire transferred amount before the promotional period ends, it usually isn’t worth pursuing.

Helpful Resources

There are plenty of helpful resources that can make your journey easier to manage. For example, online communities can give you moral support and might share tips that can help you get out of debt. Here are a few worth checking out:

There are also tons of Facebook groups dedicated to getting out of debt. You can perform a simple search and find people who are on the same debt conquering journey, which can be very beneficial.

Additionally, there are a bunch of personal finance experts that dole out helpful advice, including:

While you might not agree with everything they say or recommend, all of those experts can help you start thinking about personal finance in a new way.

If you need to do some more calculations, there are plenty of free calculators available too. Here are some free options:

Ultimately, it is possible to get out of debt. While it does take time and diligence, it is a journey worth taking. Assess where you are, figure out where you want to be, and create a strategy that will let you get from point A to point B over time. In the end, you’ll be happy that you started on the journey and elated once you are done.

Mom Pays Son’s Debt: Should You Consider Paying Your Child’s Debt?

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Mom pays sons debt

Most of us have heard a story about a mother, father, or family members stepping forward and paying someone’s debt. When it comes down to it, reading things like “mom pays son’s debt” is pretty disheartening. Why not give your child the tools to better their finances on their own, something that will undoubtedly help them for years to come.

“Mom Pays Son’s Debt”

Some would argue that if you have the ability to do so, why wouldn’t you pay off your child’s debt and help them start their life off on the right foot? While that is a valid argument, there is a good chance they’ll land themselves back in debt without the proper financial education.

This is increasingly a problem for millennials. In fact, 1 in 4 parents of millennial children pays their child’s bills (even though they work full time). Half of the millennial children are still on their parent’s cell phone plan. One-third relies on their parents to pay their car insurance, car payment, utilities, and even rent. Additionally, they are making payments on their children’s student loans, taking the bulk of the $1.4 trillion student loan debt.

And those are the kids that are working full time. When you take into account those who are working part-time or are without work, parents are footing a lot of the bill for their grown children.

Should You Consider Doing This?

Many parents risk absolute financial ruin if they help their children in this way. You’ll put off your own retirement, your own financial goals, and even go into debt yourself helping your child.

When it comes to whether your not you should consider settling up your child’s debt for them, the answer isn’t yes or no. Of course, you wouldn’t ever tell a parent to not help their children. However, rules need to exist. If your child needs financial assistance from you, they should be able to explain why.

Then, you should take steps to better educate your child about financial planning. Have open discussions about saving, debt freedom, buying a home, and other important topics. Making a comfortable environment for your child to talk about their financial concerns can help you help them and inspire them to take better care of their money in the future.

Readers, are there any instances where you would pay off your child’s debt?

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