When Life Blows Up Your Well-Laid Plans

Job loss, business failure, involuntary retirement, divorce, disability or the death of a breadwinner — these are just some of the ways our finances can force us to come up with a Plan B. That’s never as simple as downloading a list and ticking off completed assignments, however.

Checklists can be helpful, for instance when you’ve just been laid off. But the biggest task after financial loss may be dealing with your emotions after the future you had envisioned disappears.

Be realistic about your emotions

People who lose a loved one expect to grieve. People who lose their financial security or a standard of living suffer “ambiguous loss,” where many elements of their lives are the same but a major element is now gone, says financial therapist Edward Coambs of Charlotte, North Carolina.

“You know what’s happened, but it’s not like you get a funeral for it,” says Coambs, a certified financial planner and couples therapist. He’s a member of the Financial Therapy Association, a group of advisors who combine financial and psychological counseling.

Acknowledge that your grief is legitimate rather than trying to minimize what you’re going through, Coambs says. Also, don’t expect grief to proceed in predictable stages. Psychological research shows that grief is more dynamic than that, and people may feel shifting emotions that can include sadness, despair, confusion, disorientation, fear, anxiety and even relief.

“A lot of the grief around the financial loss is going to feel kind of unexpected,” Coambs says. “‘Why am I crying now? Why am I angry now? Why am I disappointed or lethargic?’”

This process won’t be quick, Coambs says. Our brains get used to our habits and routines. When those get dramatically disrupted, our brains need to catch up.

“It takes time for the neural pathways to adjust and change, right? My brain is literally needing time to reorganize itself,” Coambs says.

You can help this process by discussing your emotions with someone you trust, says financial therapist Preston D. Cherry, a certified financial planner in Lubbock, Texas. Cherry says writing can help. He writes poetry, but writing in a journal is also effective. Studies have shown that expressive writing — writing nonstop for 15 minutes or so each day without inhibitions about the traumatic event or experience — can help people deal with emotional fallout. Writing can help us organize our thoughts and give meaning to what happened, which can help us break free of ruminating or brooding.

Talk to your kids

Many of Coambs’ clients have problems with money that stem from childhood traumas, often because of a parent’s layoff or the loss of a family business.

“What they often end up seeing is the parent lose their sense of self, fall into depression and despair, and never make it out,” Coambs says.

Processing your emotions can help you avoid that fate, and if you’re raising kids you’ll also want to talk to them in age-appropriate ways about what’s going on, he says. Children need to know this isn’t a problem they created and it’s not their responsibility to fix it.

“Kids will assume inappropriate levels of responsibility for negative outcomes financially,” Coambs says. “Parents can say, ‘Mommy and Daddy are taking responsibility for this. We’re going to try to find the answers. You can come to us with your fears and concerns.’”

Know when to get help

If you’re struggling, keep in mind that this is just one phase of your life and that it, like the current pandemic, will pass, Cherry says. He also recommends regular “self audits” — taking time alone to reflect on what’s happened, work through your feelings and start to consider possible futures.

But when you’re feeling stuck or isolated, you may need to seek professional help. If you’re employed, your company may provide mental health resources. If money is tight, 211.org may be able to point you to free or low-cost treatment.

Depression or anxiety that persists for weeks or months isn’t normal and may need medical treatment. If you don’t have someone to talk to who is empathetic, understanding and nonjudgmental, a therapist could help guide you through your trauma so you can move on with your life.

“That’s probably one of the bigger things that I see, is when people don’t have other people to process the grief with or they feel like they’re becoming a burden,” Coambs says. “That’s when professional help can be a big win.”

This article was written by NerdWallet and was originally published by The Associated Press.

Liz Weston is a certified financial planner and columnist at NerdWallet, a personal finance website, and author of “Your Credit Score.” Email: lweston@nerdwallet.com. Twitter: @lizweston.

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Common Tools Can Save You Time, Money on Taxes

Receipts, like memories, tend to fade with time. That’s just one reason to digitize and track tax-related information. The right apps and habits can save space, time, money and hassle — but only if you use them.

“Apps should make things easier, not more complicated,” says Clare Levison, a certified public accountant in Blacksburg, Virginia. “The definition of a good app is what works for you, not the one that’s the trendiest.”

Use tools you already have

Apps don’t have to be elaborate. The camera on your phone, for example, can capture receipts and other documentation. Levison recommends regularly transferring those images to a designated folder in your photo app to make them easier to find later.

“You don’t want those photos mixed in with all your other selfies and whatever,” Levison says.

Similarly, you can create folders in your email account to collect tax-related documents. If you’re an active investor, for example, you can put your trade confirmations there (or set up a filter so the confirmations are routed there automatically). If you purchase supplies for your business online, a folder can collect emailed receipts.

Another commonplace tool that can be helpful, especially for anyone claiming business expenses or mileage, is a calendar app. These records can help document meetings with clients, business travel and other potentially deductible events.

“The IRS auditor always asks for a copy of my calendar,” says Leonard Wright, a San Diego CPA who’s been audited four times.

Calendar records should be kept for at least seven years, which is how long the IRS typically has to audit you. (There’s no time limit if the agency suspects tax fraud, however, so be sure your choice of electronic calendar lets you retain enough history. )

You also need to regularly download monthly statements from your financial institutions, says Kelley C. Long, a CPA and personal finance specialist in Chicago.

If the IRS suspects you’ve underreported income, it may ask for bank and brokerage statements. If you use a credit card for business or other tax-related purposes, those statements can help support your deductions. While the institutions are required to keep your records for several years, you may have to pay fees to access older statements.

Be sure you’re storing for the long term

Ideally, your computer and phone are already being backed up into the cloud so that you can access your data if the devices are lost, stolen or destroyed. If not, you want to make sure that at least your tax information is regularly transferred to a secure cloud storage system or other safe, off-site location.

The key is to keep information safe and accessible, which means choosing electronic over paper wherever possible. Paper is bulky, inefficient and vulnerable to all kinds of disasters, including fire and flood. Ink can fade, particularly on receipts needed to document expenses (credit card or bank statements typically aren’t considered enough documentation without the accompanying receipts).

“I usually tell business owners, ‘No receipt, then no deduction,’” says Bob Fay, a CPA in Canton, Ohio, who is also a consumer financial education advocate for the American Institute of Certified Public Accountants. “This is a short message that sticks with them as they have so much on their plate every day.”

But the time the IRS gets around to asking for those receipts, all you may have left is flimsy, unreadable paper if you haven’t captured a digital version, Levison says.

Also, paper documents can cost you more.

“People still give their CPAs literally a shoebox,” Long says. “What your CPA does then is pay one of their interns to scan all that stuff into their systems and they charge you for that.”

Consider specialized apps to make it easy

Sometimes, specialized apps can make sense. Scanner apps can help you capture tax-related paperwork, and some have optical character recognition that allows you to turn images into editable — and searchable — files.

If you have an iPhone or iPad and itemize your expenses, ItsDeductible and iDonatedIt can help you track charitable gifts throughout the year and find values for noncash donations, such as clothes and household goods. (These apps don’t have Android versions.)

Apps that create expense reports, such as Expensify or Everlance, can help gig workers and other self-employed people track business-related costs.

Wright, the much-audited CPA, swears by apps that help track mileage, such as MileIQ, TripLog or Everlance.

“Many of these apps are easy to maintain and allow you to track and distinguish between business or personal use,” Wright says. “They’re so simple you can do that while you’re in line at the supermarket.”

But it’s crucial to develop the habit of using the apps and other processes you set up, says CPA Tim Todd of Lynchburg, Virginia. Otherwise, you’re not creating the digital paper trail you’ll need to survive an audit. Plus, you could be costing yourself money.

“Keeping records in real time can also help make sure you don’t forget those items come tax time,” Todd says.

This article was written by NerdWallet and was originally published by the Associated Press.

Liz Weston writes for NerdWallet. Email: lweston@nerdwallet.com. Twitter: @lizweston.

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How to Prioritize Debt Payments in the Pandemic

A singular crisis has led to extraordinary relief options for borrowers. Interest and payments have been paused on federal student loans. Homeowners can request nearly a year of mortgage forbearance. Credit card issuers and other lenders dramatically expanded hardship programs.

Still, many Americans say they took on more debt last year because of the pandemic, according to NerdWallet’s household debt survey.

If you are one of them, or if you have other household debt that’s been put on hold, you may not want to rush to pay that money back even if you can. The COVID-19 crisis and its economic fallout are far from over, so you’ll want to be strategic when dealing with pandemic-related and other debt.

Student loans are still on hold

President Joe Biden extended federal student loan forbearance until October and during his campaign proposed canceling $10,000 in federal student loan debt per borrower. If you could benefit, consider not making any extra student loan payments while you wait to see what happens.

Paying off student loans probably shouldn’t be your top priority anyway. More important goals include saving for retirement, paying off higher-interest-rate debt and building an emergency fund of at least three months’ worth of expenses.

If you have trouble making payments when forbearance ends, you may qualify for income-driven repayment plans or further forbearance and deferral options. Ask your loan servicer and check out the resources at StudentAid.gov.

Mortgage debt can be postponed, not erased

The first coronavirus relief bill, which Congress passed in March 2020, offered protection for borrowers with federally backed mortgages. Those include loans backed by Fannie Mae and Freddie Mac as well as FHA, VA and USDA loans.

Homeowners with FHA, VA and USDA loans have until Feb. 28 to request a 180-day forbearance on federally backed loans. (Currently, there’s no deadline for Fannie Mae or Freddie Mac loans.) Borrowers can request an extension of 180 days, for a total forbearance of nearly a year.

Forbearance doesn’t erase debt, however, and typically interest still accumulates. In most cases, borrowers can make arrangements to pay back the missed payments over time or add the payments to the end of the loan.

If you can resume making payments, you probably should do so to avoid paying unnecessary interest. Contact your lender to learn about your repayment options. If you can’t make payments when your forbearance expires, ask your lender if it has any additional hardship options.

Pay down credit cards if you can

Americans have been paying down their credit card debt in the pandemic, according to the Federal Reserve. At the same time, participation in lender hardship programs has soared. About 2.4% of credit card accounts were in hardship status in December, according to the credit bureau TransUnion. In contrast, the rate was just 0.007% in December 2019. Hardship programs differ, but credit card issuers may lower interest rates or payments, pause payments for a few months or waive late fees.

If you can pay down your credit card debt, however, you probably should. Credit cards tend to carry high interest rates, and the payments you make typically free up credit that you can use again in an emergency.

If you have good credit scores and steady income, you could get out of debt faster by using low-interest-rate balance transfer offers or a personal loan. If you don’t have good credit or you’re struggling with your bills, a debt management plan from a nonprofit credit counseling agency could help lower your rates and allow you to pay off your debt over three to five years. You also may want to consider talking with a bankruptcy attorney about your options.

Auto loans relief is limited

Auto lenders also expanded their hardship programs to allow borrowers to defer payments, typically for one to three months. The deferred payments are usually added on to the end of the loan, so a 60-month loan would be extended to 63 months.

TransUnion says 2.9% of all auto loans were in a hardship program in December compared with 0.5% a year earlier. For subprime borrowers — those with poor credit — the rate was 9.8%, compared with about 1% in December 2019.

Still, serious delinquencies — payments that were 60 days or more overdue for loans that weren’t in hardship status — rose in December compared with a year earlier. Missing even one payment can hurt your credit scores and lead to your vehicle being repossessed. If it doesn’t sell for enough money at auction to cover your loan, you could be sued for the difference. Handing back the keys in a “voluntary” repossession has similar consequences: credit damage and a potential lawsuit.

If you can resume payments, do. If you can’t and owe less than the car is worth, consider selling it or trading it for a more affordable vehicle. If you owe more than it’s worth, ask the lender if it will restructure the loan to make it more affordable.

This article was written by NerdWallet and was originally published by the Associated Press.

Liz Weston writes for NerdWallet. Email: lweston@nerdwallet.com. Twitter: @lizweston.

The article How to Prioritize Debt Payments in the Pandemic originally appeared on NerdWallet.

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How to Budget When You Hate to Budget

Budgeting is a pain. But what’s more painful is a bill you can’t easily pay, debt that costs a fortune or not having enough money to retire.

Fortunately, you can have a useful, working budget without watching every penny. Automation, technology and a few simple guidelines can keep you on track.

The following approach works best if you have reasonably steady income that comfortably exceeds your basic expenses. If your income isn’t steady or doesn’t cover much more than the basics, you may need to track your spending more closely.

Also, no budget in the world can fix a true income shortfall, where there’s not enough coming in to cover your basic bills. If that’s the case, you need more income, fewer expenses or outside help. One place to start your search for aid is 211.org, which provides links to charitable and government resources in many communities.

Otherwise, though, you can craft a spending plan with the following steps.

Start with your must-haves

Must-have costs include housing, utilities, food, transportation, insurance, minimum debt payments and child care that allows you to work. Using the 50/30/20 budget, these costs ideally would consume no more than 50% of your after-tax income. That leaves 30% for wants (entertainment, clothes, vacations, eating out and so on) and 20% for savings and extra debt payments.

A budgeting app or your last few credit card and bank statements can help you determine your must-have costs. The more these expenses exceed that 50% mark, the harder you may find it to make ends meet. For now, you can compensate by reducing what you spend on wants. Eventually, you can look for ways to reduce some of those basic expenses, boost your income or both.

“After tax,” by the way, means your income minus the taxes you pay. If other expenses are deducted from your paycheck, such as health insurance premiums or 401(k) contributions, add those amounts to your take-home pay to determine your after-tax income.

If you don’t have a steady job or are self-employed, forecasting your after-tax income can be tougher. You can use a previous year’s tax return or make an educated guess about the minimum income you expect to make this year. A withholding calculator can help you determine what you’re likely to have left after taxes.

Automate what you can

Automatic transfers can put many financial tasks on autopilot, reducing the effort needed to achieve goals. If you don’t automate anything else, automate your retirement savings to ensure you’re saving consistently.

Also consider saving money in separate accounts — often called “savings buckets” — to cover big, non-monthly expenses such as insurance premiums, vacations and car repairs. Online banks typically allow you to set up multiple savings accounts without requiring minimum balances or charging fees. You can name these accounts for different goals, and automate transfers into those accounts so the money is ready when you need it.

My family typically has eight to 12 of these savings accounts at our online bank. I figure out how much I want to have saved by a certain date, divide by the number of months until that date and send the resulting amount, via automated monthly transfers, from our checking account.

Manage what’s left

Return to your after-tax monthly income figure. Subtract your must-have expenses, your contributions to retirement and savings accounts, and any extra debt payments you plan to make consistently. What’s left is your spending money for the month. (Nothing left? Try winnowing some of those must-haves or set less ambitious savings or debt pay-down goals.)

In the olden days, you might have put cash in an envelope and used it for your spending money. Once the envelope was empty, you were supposed to stop spending. Some people still do that, but in today’s digital, contactless world, you might prefer other approaches.

The easiest would be to put all your spending on a single credit card that’s dedicated to this purpose and paid in full every month. (And since you’re paying in full, consider using a cash back or other rewards card to get some extra benefit from your spending.) Check your balance every few days or set up alerts to let you know when you’re approaching your spending limit for the month. To protect your credit score, you can make payments periodically throughout the month so your balance stays low compared to your credit limit.

Alternatively, you could use more than one card, a debit card or a spending app that’s tied to your checking account, such as Venmo, PayPal or Zelle. A budget app or spreadsheet can help keep you on track. You also could consider setting up a separate checking account just for this spending. Again, many online banks offer checking accounts without minimum balance requirements or monthly fees.

Your budget won’t be perfect and you’ll have to make adjustments as you go. But at least you, and your money, will be headed in the right direction.

This article was written by NerdWallet and was originally published by the Associated Press.

Liz Weston writes for NerdWallet. Email: lweston@nerdwallet.com. Twitter: @lizweston.

Start 2021 Off Strong With These Smart Money Moves

After the train wreck that was 2020, you may well question whether it’s worth trying to plan anything. But knocking off a few financial tasks early in the year can better prepare you for whatever 2021 has in store.

File your tax return ASAP

Filing your tax return early typically means getting your refund sooner. Not only that, it could thwart refund-stealing identity thieves. Also, If you were owed a stimulus check in 2020 but didn’t get one, or should have gotten more, you can claim the missing money on your return.

If you owe the IRS, it’s better to know sooner rather than later. You’ll have more time to find the money or arrange a payment plan.

Also, unemployment checks are generally taxable. Many people who received last year’s extended jobless benefits may face a larger-than-expected tax bill this year, tax experts say.

Check your withholding

Once your 2020 tax return is prepared, you can use that and your first pay stub from 2021 to see if you’re on track with tax withholding. A good tax withholding calculator can help you determine how to adjust the amounts taken from each paycheck. Then, contact your employer if you need to make changes.

If you’re self-employed, you may need to make estimated quarterly payments. You could consult a tax professional to find out how much those should be.

Adjust your retirement savings

Consider increasing and diversifying your retirement contributions. After you take full advantage of any available company match in a 401(k) or 403(b), look into funding a Roth IRA. Financial planners often recommend having at least some money in a Roth so you can better control your tax bill in retirement. If your income is too high to make a direct Roth contribution — the ability to contribute starts to phase out at modified adjusted gross income of $140,000 for singles and $208,000 for married filing jointly — you could consider converting a portion of an existing traditional IRA.

Check your spending

Budgeting apps and personal finance websites can help you see where your money went in 2020 and help you make a plan for 2021. You can also look back over bank or credit card statements. But even if you can’t get the full year’s worth of transactions, reviewing just a few months can show you some patterns and help you identify spending you want to change.

Set up your savings ‘buckets’

Preparing for irregular but predictable expenses can help you feel less panicked when those bills arrive. These expenses can include insurance premiums, property taxes, car and home repairs, vacations, back-to-school shopping and holidays. Check your spending in each of these areas for the past few years to ballpark how much to save this year.

Once you have your savings goals for each category, consider setting up separate savings accounts at an online bank that doesn’t charge monthly fees. You can divide the amounts by the number of paychecks you’ll get before the money is needed, and set up automatic transfers from your checking account to the appropriate savings account after each payday.

Put charitable contributions on automatic

Most charities prefer getting regular contributions throughout the year, since the steady income helps them plan. You may discover you can give more if you’re not trying to squeeze your contributions in with other year-end spending. You can use your bank’s bill pay system to send monthly checks or arrange with the charity to charge a credit card.

Spend your medical FSA

Flexible spending accounts are employer-provided benefits that allow you to put aside tax-free money for medical or child care expenses.

If you signed up for your employer’s medical FSA, try to spend that money as early in the year as possible. You don’t have to wait until the money is taken from your paycheck to use it for eligible health care expenses. (That’s different from child care FSAs, which don’t allow you to spend money before you contribute it.)

Spending early has a few advantages. You don’t risk leaving money in the account and potentially losing it. (Many employers extend the deadline for using the money past Dec. 31, but at some point unspent money is forfeited.)

Incurring medical expenses early in the year can help you meet insurance deductibles, too, so the rest of your health care can cost less. Also, if you leave your job during the year, you don’t have to finish making FSA contributions. In other words, you can spend the full amount you had planned to contribute, up to $2,750, without actually having to contribute the full amount.

This article was written by NerdWallet and was originally published by the Associated Press.

Liz Weston writes for NerdWallet. Email: lweston@nerdwallet.com. Twitter: @lizweston.

The article Start 2021 Off Strong With These Smart Money Moves originally appeared on NerdWallet.

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Life and Money Lessons From the Pandemic

I’m a “be prepared” kind of person. I like having money in the bank and a good stock of emergency supplies.

But I wasn’t prepared to see empty shelves at the supermarket, or thousands of cars lined up at a Texas food bank, or nurses dressed in garbage bags because there wasn’t enough protective equipment.

The pandemic showed me that being personally prepared isn’t enough. Our communities need to be better prepared, as well.

That lesson may seem obvious in retrospect — many lessons are. But the revelation made me curious about what other people have learned from this year. Four of my buddies in the personal finance realm agreed to share what the pandemic has taught them about money and life.

Stalling can be dangerous

Here’s what independent journalist Bob Sullivan learned: During a pandemic, you’re going to hate yourself for procrastinating.

“Say you needed a filling, but you were putting it off. In April 2020, you weren’t getting to the dentist in many places,” says Sullivan, who writes the Red Tape Chronicles newsletter.

Or maybe you always meant to stock up on supplies in case of a natural disaster. The pandemic hits and you wish you had at least gotten a few extra rolls of toilet paper.

Procrastination can cost us in so many ways: the minor car problem that turns into a major repair, or the chance for a low mortgage refinance rate that slips away because we don’t finish the application in time.

Sometimes, stalling can be disastrous. Dying without life insurance, if you have people who depend on your income, can leave those you love most in a terrible position. Not having a will or advanced care directives can do the same.

“So when you think, ‘I have plenty of time to deal with this,’ that might not be as true as it seems,” Sullivan says.

Virtual is now the norm

Many companies resisted remote work — until they had no choice. Now, some organizations plan to allow their employees to continue to work remotely after the pandemic ends.

Even when we’re able to move more freely, we may prefer doing more from home. Already, many more people are shopping online, video conferencing with friends and family, using delivery services, seeking health care through telemedicine portals and paying with apps instead of cash or cards. Virtual conferences and virtual tourism, meanwhile, have opened access to people who might never have shown up in person.

As a result, business owners need to think about how they can reach people online as well as in person even after the pandemic ends, says Lynnette Khalfani-Cox, CEO and founder of MoneyCoachUniversity.com. Khalfani-Cox recently coached the owner of a shuttered fitness center to start virtual personal training as well as an online subscription service.

“Most industries going forward will be hybrid industries,” Khalfani-Cox says. “I don’t know how anybody is going to survive in the future if they don’t have a hybrid strategy that incorporates digital at some level.”

The great reset

Author and blogger J.D. Roth of Get Rich Slowly started August by decluttering his house. He moved on to his digital life, ending streaming services and removing apps from his phone. Then, he considered the clutter in his financial life, which was exposed when he couldn’t do many of the things he normally would.

One example: his season tickets for a local pro soccer team. He’s had them for a decade and at first felt deprived because he couldn’t go to the stadium. When the season started, though, he realized he was perfectly content watching the games from home. Happier, even.

Finally, he considered his time. He realized he was spending far too many hours on social media and that his attention span was evaporating. Roth decided to limit his screen time and consciously do more things that required focus, such as reading books. He’s also spending more time on activities that are truly important to him, such as updating his website, creating YouTube videos and working in his yard.

“It’s very, very easy to let our lives become overcomplicated, you know?” Roth says. “Emphasizing essentials has really helped me.”

Reevaluating risk

Erin Lowry, author of “Broke Millennial Talks Money,” has a sizable emergency fund. She wants a bigger one.

The pandemic has demonstrated that there’s no such thing as a recession-proof industry or career, Lowry says. And we’re not out of the woods. Federal Reserve Chair Jerome H. Powell has warned that economic risks remain high as millions remain out of work and government aid runs dry.

Advice to have a large emergency fund can sound tone-deaf, since saving even a small amount can be difficult for households hit hardest by the pandemic. But the soaring personal saving rate indicates many of us do have the ability to put aside more, and that includes Lowry.

“Previously, I felt really comfortable with four to six months’ worth, but now I want at least a year’s worth of living expenses in cash,” Lowry says.

This article was written by NerdWallet and was originally published by The Associated Press. 

Liz Weston writes for NerdWallet. Email: lweston@nerdwallet.com. Twitter: @lizweston.

The article Life and Money Lessons From the Pandemic originally appeared on NerdWallet.

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Can You Have Too Much Credit?

People who care about their credit scores tend to obsess about some things they probably shouldn’t, such as the possibility they might have too much credit.

Let’s bust that myth right upfront: The leading credit scoring formulas, FICO and VantageScore, don’t punish people for having too many accounts. And right now, having access to credit could be a lifeline.

In June, the median duration of unemployment was nearly 14 weeks, according to the U.S. Bureau of Labor Statistics. “Median” is the halfway point, which means half of the unemployed had been out of work longer. After the Great Recession, the median length of unemployment peaked at 25 weeks.

Most households don’t have enough emergency savings to get through extended unemployment. Access to credit ultimately could be what staves off eviction, keeps the lights on and puts food on the table.

Obviously, you can have too much credit if it would tempt you to spend recklessly. And the more accounts you have, the easier it might be to forget a payment — which can be devastating to your scores — or fail to detect signs of fraud.

But that doesn’t mean you should worry about applying for the credit you need in the misguided notion that having too much credit is bad for your scores.

“It’s not about the number of accounts,” says Ethan Dornhelm, FICO’s vice president of scores and predictive analytics. “It’s about how those accounts are handled.”

It’s not how many cards, but how you use them

Before the advent of modern credit scores in the 1980s, lenders did worry that people who had access to a lot of credit would suddenly run up big balances, then default, says credit expert John Ulzheimer, who formerly worked for FICO and for Equifax, a credit bureau. But data scientists have since learned otherwise. People who had been responsible with credit in the past tend to continue being responsible.

“I’ve got a gajillion credit cards,” Ulzheimer says. “I could charge up every single one of my cards tomorrow, but I’m not going to do that.”

Although you can’t have too much credit, you can have too much debt. Having big balances relative to your credit card limits, or a bunch of cards with balances, can definitely hurt your scores, credit scoring experts say.

“There’s no right number of credit cards,” says Jeff Richardson, senior vice president marketing and communications at VantageScore Solutions. “But if you have 22 cards and they all have balances, that can add up.”

Even small balances and balances you pay in full can be problematic. Credit scoring formulas consider how many of your accounts have balances and how much of your credit limits you’re using, among other factors. The scoring system uses the balances reported by your creditors, which are generally the amounts from your last statement. You could pay those balances off promptly, but they still show up on your credit reports and affect your scores.

Credit-building strategies

If you’re trying to polish your credit, Ulzheimer recommends using one or two credit cards and not charging more than 10% of their limits. That may require making more than one payment each month to keep the balances low or asking issuers for higher credit limits.

If you do use more than a couple of cards, paying the balances off before the statement closing date will typically result in a zero balance being reported to the credit bureaus, and that can be good for your scores.

Be careful about canceling unused cards, however. Closing credit accounts can hurt your scores, since it reduces your total available credit. If you’re concerned a lender might close an unused card, you can use it occasionally and immediately pay off any charges so you have a zero balance on the statement closing date.

If your credit scores are already high, however, Ulzheimer questions how much effort you should invest in making them higher. Once your scores are over 760 on the commonly used 300-850 scale, you’re getting the best rates and terms lenders offer.

Another thing people worry about, but probably shouldn’t: inquiries. Applications for credit typically have a minor impact on your scores and any impact fades within a year. But Ulzheimer says people are often convinced otherwise.

“It’s crazy how many questions I get about inquiries, and they are so meaningless in the grand scheme of things,” Ulzheimer says. “People love to obsess about little things that don’t really have a whole lot of influence.”

This article was written by NerdWallet and was originally published by the Associated Press.

Liz Weston is a writer at NerdWallet. Email: lweston@nerdwallet.com. Twitter: @lizweston.

The article Can You Have Too Much Credit? originally appeared on NerdWallet.

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Can You Really Trust Your Payment App?

Money transfer apps including Venmo, Cash App and PayPal have surged in popularity during the pandemic as people seek safe, contactless ways to send and receive money. Unfortunately, many people don’t understand the limitations of these payment platforms or how they can put someone’s finances at risk.

Like over-the-counter medicines, payment apps can be safe when used as directed — but people often don’t read the directions, says James E. Lee, chief operating officer for the Identity Theft Resource Center, a nonprofit that provides victim assistance and public education about identity theft.

“You’ve got to make sure that you’re doing the right things,” Lee says. “Because if there is a weak point in these kinds of services, it is that your behavior may make it less secure.”

Quick and convenient

Mobile payment apps allow people to transfer money to others quickly, often for free. They may be downloaded to a phone or other mobile device or accessed online. Some payment systems are available via social media, email accounts or other apps.

Apps such as Venmo and Cash App are known as “peer-to-peer” platforms because they’re designed to facilitate transfers among friends and family. People can search for each other using email addresses, phone numbers or user names, and money is usually transferred within one to three days. Some let users choose an instant transfer for a small fee.

Other systems, including Samsung Pay, are meant for business transactions, such as paying a merchant online or at a register. A few options, including Apple Pay, Google Pay and PayPal, can be used for both personal and business transactions.

Payment app adoption is rising

Even before the pandemic, 79% of U.S. adults used mobile payment apps, according to a NerdWallet survey conducted in January. Since stay-at-home orders hit, use of the apps has soared as more commerce shifted online and people needed to send money to friends and family they couldn’t see in person, says Adam Blacker, vice president of insights and global alliances for Apptopia, which tracks mobile application trends.

Installations of the most popular payment apps, which averaged about 14 million per month before the pandemic, rose to 17 million in April and more than 20 million in May and June, Blacker says. Users launched the apps about 1.8 billion times this June, compared to 1.3 billion times in June 2019.

Payment apps are secure but not foolproof

Many people assume their payment apps offer protections similar to those of credit or debit cards, but that may not be the case, says Kathy Stokes, director of fraud prevention programs for AARP.

For example, about half of U.S. adults incorrectly believe that they could reverse a payment made through a peer-to-peer platform, according to an AARP survey conducted in November. If you change your mind, have a problem or make a mistake — input the wrong email address or phone number, for instance — you’re usually at the mercy of the recipient.

“The only thing I can do is plead for that person to be ethical and send the money back to me,” Stokes says.

Payment apps usually protect you against unauthorized transactions, but not necessarily against other fraud — and that can be true even if you link to a debit or credit card that otherwise would offer such protections. Many peer-to-peer systems specifically warn people not to pay individuals or businesses they don’t know, Stokes says.

“If you use [a peer-to-peer app] to buy those great-priced tickets off of Craigslist, and you never get those tickets, you’re out the money,” Stokes says.

If you’re doing business with a merchant you don’t know, use a payment app built for such transactions, such as PayPal, which offers dispute resolution and purchase protection.

Lee recommends reviewing an app’s security, fraud and privacy policies before installing. He also recommends using unique, complex passwords, and turning on features, such as facial recognition and passcodes, that could prevent others from accessing your phone. Enable your phone’s “find my device” feature, which lets you erase its data if the phone is lost or stolen.

With proper precautions, though, feel free to use mobile payment apps, Lee says. In many ways, they’re more secure than traditional payment methods because your financial information isn’t exposed during the transaction. Your bank account or credit or debit card numbers can’t be intercepted by criminals or stored in a merchant database where they could be accessed by hackers.

“The mainstream products and services are very secure,” Lee says. “And particularly today, there are a lot of advantages to contactless payments in one form or another.”

This article was written by NerdWallet and was originally published by the Associated Press.

Liz Weston is a writer at NerdWallet. Email: lweston@nerdwallet.com. Twitter: @lizweston.

The article Can You Really Trust Your Payment App? originally appeared on NerdWallet.

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How to Ask Your Bank or Lender for Help

Many banks, credit card issuers and other lenders have promised to help those impacted by the coronavirus pandemic. They’re offering to defer or reduce payments and to waive interest charges and rebate fees for those who have lost jobs, had their hours reduced or otherwise lost income to the COVID-19 crisis.

The help usually isn’t automatic, however. You have to ask for it — and ask the right way.

“In many cases, you only get the help if you contact your creditor and mention that you need relief due to the coronavirus situation,” says Lauren Saunders, associate director of the National Consumer Law Center. “And that’s very frustrating because it’s very difficult to get through to your bank or lender.”

Many financial institutions are encouraging people to reach out digitally — through live chats or messaging on the companies’ sites or in their mobile apps. However you connect, there are important questions that need to be answered.

Among them:

‘What steps do I need to take to qualify?’

You can start your research on the financial institution’s site to see what kinds of help may be available and how to apply. Generally, you’ll want to confirm the details with a human being, including the steps you must take to apply, says Saunders, who advises keeping a record of the conversation and what you were told. You can take written notes of phone calls, including the time, date and name of the company representative, or take screenshots of electronic communications.

“Some people assume that [a hardship program] will automatically kick in if they just miss a payment, which is very dangerous to assume,” says Bruce McClary, a spokesman for the National Foundation for Credit Counseling.

Skipped payments can lead to credit score damage and collection calls, and could limit the hardship options available.

There’s one forbearance program that is automatic, but it pertains only to student loans held by the federal government. Payments on those loans are suspended until Sept. 30, and interest has been waived.

‘Exactly how does it work?’

Companies take different approaches to their hardship programs. One lender may allow you to skip payments but charge you late fees; another may waive the fees but report skipped payments to the credit bureaus. Most will continue to charge interest, and some will expect you to make a lump sum payment of the amount you skipped.

“This is not free money,” Saunders says. “It’s just putting off a debt that you’ll have to repay along with your other debts later.”

Even if your financial hardship is over, you may not be able to cough up several months’ worth of payments at once, McClary notes.

“The last thing you want is to have to drop some big lump sum of money on somebody when you’re in a financially fragile state,” McClary notes. “It’s important to try to negotiate different terms.”

Ask if the payments can be tacked on to the end of the loan or paid off over time, McClary suggests. Also request that the account be reported “paid as agreed” to the credit bureaus to avoid a potentially large hit to your credit scores.

‘How long will the help last, and how can it be extended?’

A hardship program may last three to six months, but you may have the option to extend the relief if you ask.

If you can’t make the payments on your federally backed mortgage because of the coronavirus pandemic, for example, you have the right to skip payments for nearly a year. The CARES Act requires lenders to give affected borrowers forbearance of up to 180 days, with the option to request an additional 180 days after that. The skipped payments don’t need to be repaid all at once but can be spread out over time or tacked onto the end of the loan.

Lenders may not make that clear, however. Some borrowers who asked for mortgage forbearance in recent days were told they would owe a lump sum after three months, with no mention of the potential extensions.

These rules apply only to mortgages backed by federal entities, including Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA), the Veterans Administration (VA), and the U.S. Department of Agriculture (USDA). But most mortgage lenders have some type of hardship program or loan modification options.

Don’t put off asking for help if you’re struggling, since it’s not clear when coronavirus-related economic disruptions will end. It’s better to have more help than you need than to need more help than you have.

This article was written by NerdWallet and was originally published by the Associated Press.

Liz Weston is a writer at NerdWallet. Email: lweston@nerdwallet.com. Twitter: @lizweston.

The article How to Ask Your Bank or Lender for Help originally appeared on NerdWallet.

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What to Do When You Can’t Pay Your Bills

The economic fallout from the coronavirus pandemic could be profound. Many people are already losing jobs, with unemployment jumping at a record pace. Even those who stay employed may face reduced hours or uncertainty about how long their paychecks will continue.

If you’re in a situation where you can’t pay all your bills, or likely to be there soon, you may have some options to limit the damage to your finances.

Prioritize essentials

Before paying anything else, try to cover the basics: shelter (mortgage or rent), food and utilities. Transportation, cell phone service and child care are necessities if they allow you to work.

The recently enacted stimulus package includes a 120-day ban on evictions for many renters, as well as a moratorium on foreclosures for most mortgages. People who have federally backed mortgages (including Fannie Mae, Freddie Mac, FHA, VA and Department of Agriculture) and who can attest to COVID-19-related financial hardship can request forbearance from their mortgage lenders.  If you’re going to miss a mortgage payment, contact your lender about hardship options and consider talking to a housing counselor approved by the U.S. Department of Housing and Urban Development. You can call HUD at 888-995-4673 for round-the-clock foreclosure avoidance assistance.

Housing counselors can help renters, as well. Another good resource is Just Shelter, which can point you to local organizations fighting eviction and homelessness. Also, emergency rental assistance may be available. Start your search for help at www.211.org.

Your local 211 organization can also connect you to resources to pay for other essentials, including food and utilities. Regulators in some states have told utilities not to shut off service for nonpayment during the crisis; elsewhere many utilities have vowed to suspend disconnections. Many also offer lower-cost “lifeline” service or payment plans if you fall behind.

If your car payments are too expensive and you owe less than the car is worth, you may be able to refinance the loan. Otherwise, the best option may be to sell it and buy something cheaper, if possible. If you owe more than the car’s value, you may still be able to sell it if you can get a personal loan to cover the difference in what you owe. Try to avoid repossession, either voluntary or otherwise, since you’ll still be on the hook for any deficit and your credit will suffer.

Identify your next-level priorities

Taxes, child support and insurance are expenses that can have serious consequences when you fail to pay.

The IRS and state tax agencies can take a portion of your wages, seize money from your bank account and even send you to jail (although that doesn’t usually happen unless you’re deliberately committing tax fraud). Similar penalties await people who fail to pay child support.

Falling behind on insurance payments, meanwhile, can cause your policies to lapse, leaving you vulnerable to potentially catastrophic expenses.

Some options for relief:

  • The IRS has pushed back the tax filing deadline to July 15. Many states are following suit. Tax agencies have payment plans if you can’t immediately pay what you owe.
  • You may be able to modify a child support agreement if you go back to court.
  • If your insurance is unaffordable, talk to the insurer about alternatives or shop around for a less expensive policy.

Now consider everything else

Access to credit can help you pay the bills when your income isn’t enough. Ideally you would make minimum payments on any loans or credit cards, since skipped payments can seriously damage your credit scores and cut off your ability to borrow. Miss enough payments and you could face collection calls, lawsuits and wage garnishment.

But some bills have a “pause” button. You can ask for forbearance on federal student loans, for example, which allows you to temporarily stop making payments. Since interest on federal education loans has been waived during the crisis, forbearance won’t increase what you owe. Plus, federal loans have income-driven repayment plans that potentially can reduce your required payments to zero. The U.S. Department of Education’s federal student aid site has details.

Meanwhile, some banks and other lenders are offering their customers more options after federal regulators encouraged financial institutions to help consumers affected by the pandemic. For example, credit card issuers, including Capital One and American Express, are allowing customers who ask for help to skip a monthly payment without penalty. Contact your lenders to see what’s available and how to qualify for any assistance.

Unfortunately, sometimes the available help isn’t enough. A credit counselor’s debt management plan could allow you to repay your debt at lower rates, or you may need to consider bankruptcy, which stops collections activity and legally erases many debts. You can get referrals from the National Foundation for Credit Counseling and the National Association of Consumer Bankruptcy Attorneys, respectively.

This article was written by NerdWallet and was originally published by The Associated Press.

The article What to Do When You Can’t Pay Your Bills originally appeared on NerdWallet.

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