fbpx

Our Debt Free Family

Commit. Plan. Take action.

The ‘YOLO’ Mindset is a Dangerous Thing

| Leave a Comment

yolo

 

 

What is the Meaning of YOLO?

The “You Only Live Once” (YOLO) mindset has gained popularity in recent years, often celebrated for encouraging people to embrace spontaneity and take risks. While there’s value in living life to the fullest, it’s important to recognize that an unchecked YOLO mindset can also be dangerous.

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  although you need to get stuff done at home? You say yes., because YOLO!

We’ll dive into the potential risks and drawbacks associated with a “You Only Live Once” mentality.

 

Immediate Gratification vs. Long-Term Planning

The YOLO mindset prioritizes immediate gratification over long-term planning. While it’s healthy to enjoy life’s pleasures, constantly indulging in spontaneous decisions without considering future consequences can lead to financial, emotional, and physical troubles. Neglecting to plan for the future, such as saving for retirement or investing in education, can result in long-term difficulties that could have been avoided with careful consideration.

Financial Implications

Embracing the YOLO mindset without financial restraint can lead to reckless spending and financial instability. Impulsive purchases and lavish expenditures may provide temporary satisfaction but often lead to debt, stress, and limited financial security. A lack of financial responsibility can hinder opportunities for growth and limit one’s ability to navigate unexpected emergencies.

Don’t Miss: Dave Ramsey’s Financial Peace University Review: Is it Worth the Money?

 

Risking Personal Safety

The YOLO mindset can lead to risky behaviors, including engaging in dangerous activities without considering potential hazards. Engaging in extreme sports without proper training, experimenting with drugs, or engaging in reckless driving are examples of how the YOLO mindset can compromise personal safety. Prioritizing thrill-seeking over precaution can result in life-altering injuries or even loss of life.

Relationships and Emotional Well-being

Adopting a YOLO mindset without considering the impact on relationships can strain personal connections. Having fun with your loved ones is a great and memorable feeling, but acting solely on personal desires without thought for the feelings or needs of others can lead to broken relationships and a sense of isolation. Additionally, constantly seeking instant gratification might hinder the pursuit of deeper, meaningful connections that require patience and effort to develop.

Limited Growth and Development

The YOLO mindset might discourage individuals from pursuing personal and professional growth that requires sustained effort and dedication. Avoiding challenges or responsibilities in favor of short-term enjoyment can hinder personal development and limit one’s potential. Growth often demands stepping out of comfort zones, setting goals, and embracing delayed gratification.

Health Consequences

Neglecting health and wellness due to a YOLO mindset can lead to long-term health consequences. Poor dietary choices, lack of exercise, and neglecting regular health check-ups can contribute to preventable health issues down the line. Prioritizing instant pleasures over long-term health can result in a reduced quality of life in the future.

Missed Opportunities

An unchecked YOLO mindset can blind individuals to opportunities that require planning and preparation. Educational pursuits, career advancements, and personal goals often demand a degree of dedication and foresight. Focusing solely on immediate pleasures might lead to missed chances for personal and professional growth.

 

YOLO Mindset and Depression

You may be wondering how can a thrilling YOLO mindset leave you feeling depressed and empty. The issue is that you can only YOLO for so long. Think having a wild night out drinking with friends. It eventually comes to an end and you’re then greeted with a headache and other alcohol induced symptom. You may even develop a dependency or deep desire for that tipsy or intoxicated feeling, and when you’re unable to feed that desire, you become depressed. The same applies to a YOLO mindset. Placing your wellbeing and happiness in constant impulsivity and spontaneity will eventually leave you in a depressed stat once you’re unable to maintain the YOLO lifestyle.

Read our article on being debt free and bored.

 

Finding a Balance

Balancing a “You Only Live Once” (YOLO) mindset requires a thoughtful approach. Embrace spontaneity and adventure, but do so with mindfulness. Set clear priorities, both short-term and long-term, to guide your choices. Budget responsibly, saving for the future while still indulging in experiences. Surround yourself with positive influences who encourage responsible decision-making. Learn from past experiences, making calculated risks instead of impulsive choices. Recognizing the potential dangers of an unchecked YOLO mindset can help individuals make more informed decisions. By practicing mindfulness, setting achievable goals, and embracing a holistic approach to well-being, you can navigate life with a more balanced perspective while still having fun.

 

READ MORE:

What To Do If Debt Is Accrued By Identity Theft

| Leave a Comment

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.

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. 

Read More

The Complete Guide to Getting Out of Debt

| Leave a Comment

,getting out of debt

In total, Americans owe about $986 billion in credit card debt alone. For mortgages, the average borrower in the US has $236,443 in housing-related debt. Student loans also pack a punch, leaving the average borrower owing around $39,351. 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 Name Account Type Interest Rate Minimum Monthly Payment Remaining Balance Owed
Bank of America Auto Loan 6.25% $336.21 $18,112.36
Wells Fargo Mortgage 5.5% $925.00 $174,536.14
Capital One Credit Card 17.9% $181.40 $7,256.18
Best Buy Store Credit Card 25.9% $64.67 $2,586.88
Sallie Mae Student Loan 6% $168.16 $23,472.01
Credit Union Personal Loan 12.9% $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 or donate for a tax deduction.

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 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.

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.

5 Things to Avoid to Live Debt-Free

| Leave a Comment

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?

Read More

A Few Things to Know About Loans

| Leave a Comment

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.

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

| Leave a Comment

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 a title such as “mom pays son’s debt” can be pretty disheartening. Why not give your child the tools to better their finances on their own, a strategy 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?

Read More

If You Must Get a Debt Consolidation Loan, Here is How

| Leave a Comment

debt consolidation loans

 

Consolidate Your Debt in Three Steps

Debt consolidation is an option many people turn to when they feel they are drowning in debt. There is no doubt that, for some, it is a great option to consolidate and pay off your debts. So, if you have to pull out a debt consolidation loan, how do you do it?

Of course, consolidating your debt isn’t an overnight process. It will take some work and planning on your part. However, it doesn’t have to be complicated. In fact, it is as easy as 1-2-3:

Step One: List Your Debt

Before thinking about taking out a debt consolidation loan, consider whether you have enough debt to consolidate or not. Take some time to write down all of your debt. Include any loans and credit cards you have that need to be paid off. Generally, if this amount is $10,000 or more you can pull out a debt consolidation loan to ease your payments.

Be sure to list each of your debts along with the interest rate. Lower interest rates on payments may be worth simply paying off instead of consolidating. You may also want to consider seeking debt counseling before settling on consolidating your debt.

Step Two: Research Debt Consolidation Loans

Once you’ve established your need for a debt consolidation loan and have identified the debts you want to target, research the different types of consolidation loans available to you. Generally, there are three debt consolidation loans to choose from:

  • Unsecured Loans – Unsecured debt consolidation loans require good credit, which is a difficulty for many people looking to consolidate their debt. These types of loans will allow you to pull out a loan, based on your credit, and consolidate your debts as you see fit, into one monthly payment.
  • Secured Loans – Secured loans for paying off debt don’t always make sense. However, if you’ll save money on the interest they can be helpful. Secured loans allow you to borrow against money you have in savings or elsewhere to pay off your debt with one monthly payment. If the consolidation loan’s interest rate is less than your credit card interest rates or loan interest rates, a secured loan is a great way to go!
  • Private Student Loans – For many people, student loans make up the majority of their debt. If you want to consolidate these, you will have to pull out a private student loan. Many banks offer private student loans and can provide you with a lower-interest loan to pay your education off.

Step Three: Create an Easy Payment Plan

After deciding what debt consolidation loan is best for your repayment needs, determine the terms of your loan. If you can only afford $200 per month towards debt repayment, adjust the length of your loan accordingly. You should also be sure to put your payment date on a date that is always convenient for you. To ensure the loan payment is always made, set up an automatic payment. Making the payments in full and on time will help your credit score significantly.

If you find yourself gravitating towards a debt consolidation loan, you’re not alone. Just be sure you go through the steps above and define the best course of action for you and your finances.

Readers, have you taken out a debt consolidation loan? What was your experience? 

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

| Leave a Comment

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.

Is the Secret to Growing the Economy Canceling Student Loan Debt?

| 1 Comment

The United States economy has seen better days, that’s no doubt. The stock market recently saw one of its worst trading days in recent history. Many economists have been debating what could help mend the current climate. Could the secret be forgiving student loan debt?

A recent report says yes. The easiest way to ease the pressure being felt by more than 44 million Americans is to forgive all student debt. (And I’m not just saying that because I’ve got about $24K in student loans…)

A group of economists at the Levy Economics Institute of Bard College found there could be some great benefits if the federal government were to forgive student debt. The report details how young people struggling to pay off a massive amount of debt from college will help the economy as a whole.

While it may sound like a fantasy, it is possible, and it could have a significant and positive economic impact. The report found that canceling all student debt could potentially lead to an increase in U.S. GDP (gross domestic product). How big of an increase, you ask? Economists predict the increase could land anywhere between $861 billion and $1,083 billion over the next 10 years.

In addition to increasing the GDP, economists predict that canceling student debt would also lead to an increase in new jobs (an estimated 1.18 to 1.55 million).

Why is Canceling Student Loan Debt Such a Big Deal?

Why would forgiving student loan debt have that kind of impact on the United States economy? Well, the answer is pretty simple. There are more than 44 million Americans with some type of student loan debt hanging over their heads. Giving 44 million Americans a clean slate, where student debt is concerned, could help the economy greatly. The collective student loan debt in the U.S. is $1.3 trillion, which is higher than credit card debt and auto loan debt held in the U.S.

Who Would Pay the Student Loan Debt?

If the federal government decided to go about canceling student loan debt, it wouldn’t be that difficult. The problem, economists seem to believe, is that government officials consider paying the student loan debt as a zero-sum game. However, canceling student loan debt will free up tons of money to be put back into the economy.

Lawmakers have been able to provide massive tax cuts, and canceling student loan debt would be about the same. In fact, they’d be spending nearly the same amount of money to do so. Economists also found that canceling the debt could also help alleviate poverty.

As you probably know, poverty tends to be a cycle. Generally, people who grow up in poverty tend to live in poverty as adults. However, many people attempt to break the cycle of poverty by going to college. Canceling student loan debt could help ease racial disparities in debt and education. Canceling student debt would help keep borrowing/loans from continuing to support the racial wealth gap between the number of people in the U.S. looking for career opportunities and better employment through higher education.

Final Thoughts

It is your typical millennial response to be like, “Oh yeah. Cancel all the student debt.” However, it could make a significant impact on the economy. Taking into consideration my own student loan debt, I know it would free up $275 a month (more than $3,000 a year). Of course, some of that would go into savings, but a lot of it would also go back into the economy. (In fact, there are things I know I could buy with that money).

So, what do you think about canceling student loan debt? Would it help you? Do you think it’ll help the economy? Let me know in the comments! 

You may also enjoy reading:

Here’s How to Gauge How Long It Will Take You to Pay Off Debt

| Leave a Comment

how long to pay off debt

Anyone who has tackled paying off their debt knows having a timeframe doesn’t always work out. However, having an idea about how long to pay off debt can help drive you to meet your financial goals. Luckily, there are plenty of tools to help you put a finish line in your sights.

How to Determine How Long It’ll Take to Pay Off Your Debt

Of course, the key factor in how long it’ll take you to pay off your debt is how much debt you carry. To do this, I’ve opened a Credit Karma account. This gives me a snapshot of all my open accounts and the total amount of debt I carry. Once you get that number in your head, you know where you stand in your debt free journey.

Next, you’ll need to separate your individual accounts by amount and interest. Some people organize these by highest-to-lowest interest (how I do it) or you can organize it by lowest-to-highest amount owed. After you’ve organized your information, you can gauge how long it may take to pay off each piece of debt.

Tools to Gauge How Long to Pay Off Debt

There are a plethora of debt calculators on the internet. However, not all calculators were made the same and not all will give you the same information.

Most debt calculators have you enter some basic information:

  • Amount owed
  • Interest rate
  • Current/expected monthly payment
  • OR desired payoff timeframe

The last two bullet points are where the biggest difference is to be seen. If you are planning to only maintain the current monthly payment, rather than setting a timeframe for paying off your debt, your outcome may be drastically different. Here’s an example:

Auto Loan With Current Monthly Payment

  • The balance owed: $22,074
  • Interest rate: 4.8%
  • Current monthly payment: $488.74

How long to pay off debt: 50 months

Auto Loan With Timeframe

  • The balance owed: $22,074
  • Interest rate: 4.8%
  • Timeframe: 24 months

Expected monthly payment to pay it off in 2 years: $966/month

Debt Calculators to Try

If you want to find out how long it will take you to pay off your debt, there are two calculators I’d suggest checking out.

  1. Credit Karma: I can’t say enough about Credit Karma and the services they provide. Not only can you get your free credit score, but they also provide you with tools to help you pay things off.
  2. Calc XML: This site has a fantastic debt calculator that will help you figure out how long it’ll take you to pay off your debt based on your current or expected monthly payment.

When you look at paying off your debt, it is good to set goals. However, it is also important to not get discouraged when looking at the timeframe and monthly payments. You can use the tools above to determine a reasonable timeframe. Remember, everyone’s debt freedom journey is different!

Read More