Author: Sean Pyles

Beat Your Summer ‘Revenge Shopping’ Debt

Posted on by Sean Pyles

The joy of shouting to your friends over the roar of a crowded bar, the giddiness of seeing the world rushing by below you from the seat of an airplane, the weirdly constricting sensation of wearing pants that aren’t elastic — the summer of 2021 brought back many experiences we had forgone during the past year and a half of the pandemic.

But this push to re-create a world that felt something like “normal” may have brought back another familiar feeling: the anxiety of racking up debt.

If your summer of “revenge” spending has come for a payback of its own in the form of lingering debt, make a plan for paying it off. Then, think about how to prevent yourself from getting into more debt as you navigate progress and setbacks on the path to normalcy.

Take stock of your debt — and find your payoff path

Whether you’re back to spending most of your time at home or killing time at an airport terminal before a flight, find time to sort out your debt and pick a payoff strategy.

First, understand exactly how much you owe and to whom. If you don’t know all the details, certified financial planner Pamela Rodriguez in Sacramento, California, suggests pulling your credit reports, which you can do for free.

“Pulling your credit report is probably the fastest way to know what you owe because there’s no hiding from your credit report,” Rodriguez says.

Using a spreadsheet, pencil and paper, or a debt payoff app, list your debts. Include the balance, interest rate and monthly minimum payment for each. Be sure to account for all forms of debt, like buy now, pay later loans.

Then, dig into your income and expenses to see how much money you can put toward debt and where you can cut spending. If you’re spending more on dining out than you were six months ago, for example, try cutting back on that to free up cash for debt payoff.

Next, pick a strategy for paying it off. Here are a few common tactics:

Debt snowball: With the debt snowball, you channel your debt payoff energy toward the smallest balance first while making minimum payments on the rest. Once the smallest debt is knocked out, roll the amount you were paying on it to the next smallest debt. As you wipe out more debts, the payment amount keeps growing like a snowball until you’re debt-free.

Debt avalanche: With this method, you pay off the debt with the highest interest rate first. Then, similar to the debt snowball method, once that is paid off, you cascade the payment onto your debt with the next highest interest rate.

Balance transfer credit card: If your credit score is high enough to qualify for one, a credit card with a 0% APR promotional period can help you pay off debt faster and cheaper than keeping it on the original credit card. Be sure to wipe out the balance before the 0% promotional period ends to avoid paying interest.

No matter which payoff path you choose, it’s important to decide on one and commit. Waffling between a few different options can cost you time and money as debts continue to accrue interest.

“People have decision overload when figuring out how to pay off their debt,” says Thomas Nitzsche, financial educator at the nonprofit credit counseling agency Money Management International. “Just come to terms with the fact that you’re going to have to do something and figure out a way to overcome that emotional barrier.”

If you don’t see a way to pay more than the minimums on your debts monthly, think about calling a nonprofit credit counseling agency for free budgeting and debt help.

Know your spending habits and triggers

If your summer debt was the result of revenge spending, dig into the triggers that led you to overspending so you can avoid sliding back into debt in the future.

For many, that may have been the opportunity to experience something that they were deprived of during the first year of the pandemic.

While travel and eating at restaurants may be safer for those who are vaccinated, these activities can wear down your budget. Rodriguez suggests finding more-affordable ways to enjoy activities you’re seeking.

“If you can think of the one thing you were deprived of, find a smaller scale of that,” Rodriguez says. “So a smaller scale of travel would be going on a local adventure, and that is so much more manageable financially.”

The path forward in the pandemic seems likely to have a number of starts and stops, with accompanying opportunities to either spend or save money. Take advantage of moments where you can pull back your spending and direct more cash toward your debt. Having manageable debt — or no debt at all — equips you with more options whenever the world is ready to fully reopen.

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

Sean Pyles writes for NerdWallet. Email: spyles@nerdwallet.com. Twitter: @SeanPyles.

The article Beat Your Summer ‘Revenge Shopping’ Debt originally appeared on NerdWallet.

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A Garden’s Lessons for Growing Your Money

Posted on by Sean Pyles

Soil, sun, water and seed: The ingredients of a garden are simple, but the final product is never guaranteed. Willing a plot of land into a vibrant state of bloom takes intention, know-how and no small amount of trial and error.

Like many people staying at home, I spent much of the past year tending to the soil of my yard and crafting a garden oasis of my own imagination. The work wasn’t easy, and I’m sure many now-dead plants wish that I’d been a little more proficient.

But as my vision came to life — and I realized the care that this new hobby requires — I saw parallels between tending to a garden and handling finances with intentionality.  Here’s what my garden taught me about managing money.

Have a vision

Before you put a spade into the ground — or sign up for a new financial instrument — define what you want to accomplish. Like a garden, your financial future can be a reflection of your passions and priorities.

“There are no rules — it’s your garden,” says Brooke Edmunds, associate professor of community horticulture with Oregon State University Extension. “Don’t be afraid to try new things. You’ll get so much joy out of the pride of growing things yourself.”

How you manage your money is an individual endeavor, too. “When imagining your goals, a good jumping-off point is defining your needs and your wants and what you value,” says Lacey Langford, a North Carolina-based financial coach. “Not everyone values the same thing. Some people might value a nice home or a nice car or retirement savings more.”

Understand that big goals can take years to accomplish. “Take the long-view approach,” Edmunds says. “It really takes five years or so to really see how plants are and to learn your garden space.”

Likewise, think about various aspects of your finances — debts, income, investments — and define what you want them to look like in five years. Do some self-reflection and sketch out the life you want. Then get started on bringing this vision to fruition.

Make growth easy

With goals defined, dig in and establish the right foundation for growth.

In a garden, this step means testing the soil to determine if it has the right components to support your specific plants. Developing the right soil can make the difference between a season of vigorous growth and a lackluster performance.

When it comes to managing money, think of the fundamentals — things like income, expenses and savings, as well as your attitudes and behavior toward money — as the soil. Your ambitions are the plants you put into the ground, hoping they’ll take root and thrive. Upon inspection, you may find that you’re primed for growth or that the soil needs amending.

Adjusting financial habits to meet an ambitious savings goal, like a down payment on a house, is one example. If you’re not able to save much after covering your current expenses, get creative and trim expenses or increase your income.

Next, turn to your attitudes and habits around money, says Kathleen Burns Kingsbury, a wealth psychology expert based in Vermont.

“I recommend people look at what lessons they learned growing up about managing money,” Burns Kingsbury says. “How have those beliefs about money impacted their behavior as adults? The foundational part is really looking at how these thoughts and beliefs impact your ability to make progress down this path.”

Reorienting attitudes toward money can help you meet your goals. For example, you may have been taught that debt should be avoided at all costs. You could reassess your thinking and explore ways to use debt as a financial tool with less risk. When paying for a major expense, a credit card that has a 0% annual-percentage-rate period could help you cover the cost while keeping your savings intact.

Put in the work

A green thumb or a certified financial planner certificate isn’t necessary to achieve your goals. Much like weeding, regularly chipping away at tasks is easier than trying to accomplish everything immediately.

“You don’t have to weed the entire garden in one day,” Burns Kingsbury says. “Take a small chunk and think about how to get rid of those weeds.”

Focus on regular tasks to nurture your finances. When paying off debt, for example, spend a day organizing accounts into a spreadsheet or using a debt tracker. The next day, choose a payoff path, like the debt snowball or debt avalanche method, then stick with it. Breaking tasks into small steps makes them easier to manage. The same is true when improving credit; making regular on-time payments will build your score over time.

“Your garden doesn’t have to be perfect, but stay on top of your weeds so they don’t affect the productivity of your garden,” Edmunds says.

Tending to a garden and managing finances are about marrying a bold vision with daily, incremental tasks to bring it to life.

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

Sean Pyles writes for NerdWallet. Email: spyles@nerdwallet.com. Twitter: @SeanPyles.

The article A Garden’s Lessons for Growing Your Money originally appeared on NerdWallet.

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Trial, Error and What I Learned About Money in My 20s

Posted on by Sean Pyles

Your 20s are a time of self-exploration, finding your footing as an adult — and likely making some money mistakes.

To save you from learning the hard way — and pass on some knowledge as I enter my 30s — here are five money lessons from my past decade.

Get serious about goals

For several years, my main financial goal was to go out as much as I wanted and still have enough money left at the end of the month to cover rent.

Eventually, though, groggy mornings and paltry savings proved unfulfilling. My partner and I decided to set goals and plan for them. We wanted to buy a house, which meant moving to a less expensive city so we could build savings.

Tip: Know your passions to know your goals.

Sacramento, California, certified financial planner Pam Rodriguez suggests identifying what brings you joy, then crafting a financial plan to create more of those moments.

“Personal finance is a lot more emotional than it is a math equation,” Rodriguez says. “Even though the numbers have to add up, you’ll never take action unless you feel strongly about something.”

If you want to buy a house to host friends and family, for example, identify how much you’ll need for a down payment and closing costs, then work toward that savings goal over time.

Figure out a budgeting system

For most of my 20s, my budgeting system was defined by the lack thereof. Eventually, I sucked it up and started tracking my spending. At first, I felt that I was slacking if I didn’t document where every penny went. But I quickly realized that keeping a simple budget was more my style.

Tip: Choose a budgeting system that reflects who you are.

If you’re a hyper-analytical person, a detailed budgeting spreadsheet might suit you. But if you’re more hands-off, a budgeting app might do the trick.

No matter how you budget, it’s important to at least understand the money coming in and going out monthly.

“When people see their spending, they have an aha moment, because they didn’t realize where their money was going,” says Sidney Divine, an Atlanta certified financial planner.

Learn from mistakes

Did you know that if you work a contract gig and don’t put aside enough cash to cover taxes, you may be left making monthly payments to the IRS for years to come? In my early 20s, I learned this the hard way.

Tip: Locate the source of a problem and find a solution.

In my case, the problem was that I ignored my finances and didn’t think about tax obligations. I resolved the issue by proactively managing my budget and paying off my tax debt. Getting a new job that wasn’t a 1099 gig helped, too.

“You’ve got to figure out: Is it the same mistake you’re making over and over? Is it a pattern?” says Christine Papelian, a certified financial planner in Phoenix. “If it’s a new mistake, then now you have an opportunity to get back on track. It’s almost never too late to change a behavior or a habit.”

If you have a habit of making late payments, for example, think about setting up automatic bill pay so you don’t have to worry about tracking various due dates.

Build financial fortitude

The past year has been a crash course in instability. And while recent crises were unusually severe, you can count on unexpected financial challenges to pop up throughout life. For instance, a broken alternator on my car once drained my emergency fund, but at least I was able to avoid going into debt to cover the expense.

Tip: Make savings mandatory.

“Focus on building an emergency fund,” Rodriguez says. “Everyone needs one because everyone is going to have an emergency come up.”

Consider using direct deposit to send part of each paycheck into an emergency savings account or setting up automatic transfers from a checking account to savings.

Take advantage of that long time horizon

Youth may be wasted on the young, and so is their financial time horizon — at least for those who don’t seize it.

Despite the various mistakes I made in my 20s, saving for retirement is one area that I didn’t neglect. Once I saw the power of compound interest via a retirement calculator, I quickly set up regular contributions to my 401(k).

Tip: Use these years to boost retirement savings.

One way or another, your 20s will have ripple effects on your retirement years. And life may get more complicated later, especially if you buy a house and start a family, making it harder to save for retirement. Tucking away more cash now can save you from playing catch-up in later years.

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

How to Craft Smarter Money Goals in 2021

Posted on by Sean Pyles

Setting money goals in 2020 was likely an exercise in futility. Maybe you’d been saving for a trip abroad, but the pandemic kept you at home. Or you wanted to save up for a down payment on a house, then the recession left you out of a job.

The pandemic made achieving yearlong goals a challenge for many last year. In fact, 29% of Americans with financial goals for 2020 said COVID-19 forced them to put some of those aspirations on hold until 2021, according to a NerdWallet survey conducted online in late fall by The Harris Poll among over 1,700 U.S. adults with 2020 financial goals.

Although the pandemic is still part of our daily lives, the new year offers an opportunity to craft fresh money goals — and perhaps the trials of last year can help you clarify your financial ambitions.

Know yourself and your priorities

Before you set your goals, think about your current financial situation and your priorities for the new year.

“Take an inventory of where you are and more importantly who you are,” says Jordan Awoye, an equitable advisor based in Long Island, New York.

First, dig into the state of your finances, including your income, monthly expenses and emergency fund. Understand where you are right now to get an idea of where you could be in a year’s time.

Then think about your personal priorities and values — and how they may have shifted as a result of the pandemic — to pinpoint what you want from your finances. Maybe you want to get back to a baseline of where you were in early 2020, before a year of financial challenges. Or maybe you want to use the money you saved while staying at home to put a down payment on a house.

“Start with an understanding of the why behind your goal,” says Kristen Holt, CEO of the nonprofit credit counseling agency GreenPath Financial Wellness. “A great goal is ‘I want to get out of debt,’ but go deeper and ask why. Will you be able to sleep better? Will you be able to enjoy life more? Get clear on your why, because that can be motivation to stick to your goal.”

Craft SMART(R) money goals

With the foundation of your priorities and motivation settled, it’s time to establish the framework to build your financial future. That means crafting your goals in a way that makes them easier to achieve. The SMART template for goal-setting can help:

  • Specific: Make your goals as specific as possible. If you want to curb your spending, for example, pin down how much you spend on unnecessary items each month. Then set an exact dollar limit for such spending.
  • Measurable: Choose a way to track your progress. If you’re paying down debt, think about using a debt tracker. Or if you want to save a certain dollar amount, consider visualizing your goal in a savings progress chart that you’ll color in as you go.
  • Attainable: Your goals need to be something you can accomplish within a year. If you’re paying off $10,000 in credit card debt, for example, find what you can realistically pay monthly, multiply that by 12 and use that amount as your goal.
  • Relevant: Choose goals that are meaningful to your personal values. Similar to finding your “why,” choosing relevant goals helps ensure that your 2021 financial plan is connected to your life goals. If you want to retire early, think about upping contributions to a retirement account so you’re on track to accomplish that multi-year goal.
  • Time-limited: Setting a deadline can keep the pressure on. And think about breaking up your overarching goal into smaller pieces that you’ll achieve on a monthly basis. Hitting monthly goals can provide a steady feed of accomplishments, which can keep you motivated.

Take the SMART acronym a step further by tacking on an “R” for “reward.” Plan rewards for yourself as you make progress. The more enjoyment you get out of the process, the more likely you are to keep working at it.

Say you want to reduce debt. For each $100 you pay off, find a way to treat yourself, maybe by making a nice dinner or having a DIY spa day at home.

Tactics to boost your progress

Finally, here are a few simple tips to build momentum:

  • Automate: Taking a “set it and forget it” approach can make accomplishing your ambitions easier. For savings goals, try direct depositing a portion of your income into a high-yield savings account. And for debt payoff, set up automatic payments for an amount above the minimum due to ensure you’re making progress.
  • Cut your interest rate: If less of your payment goes to interest, more of it goes to debt payoff. You may be able to reduce your rate by refinancing your mortgage, student loan or car loan. If you have credit card debt, see whether you can qualify for a debt consolidation loan or a balance transfer credit card with a 0% APR promotional period.

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

Sean Pyles writes for NerdWallet. Email: spyles@nerdwallet.com. Twitter: @SeanPyles.

The article How to Craft Smarter Money Goals in 2021 originally appeared on NerdWallet.

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Get Ahead of Holiday Debt With a Payoff Plan

Posted on by Sean Pyles

In a holiday season that many of us will spend apart from loved ones, gift-giving might feel even more important than usual. After all, if you can’t travel to see family, at least you can see them unwrap gifts over a video call, right?

And just as many families will use a video service for holiday celebrations this year, many will also turn to credit cards to cover their expressions of love. Three-quarters of holiday shoppers are planning to use credit cards to purchase gifts this year, according to a NerdWallet survey of 2,049 U.S. adults conducted online by The Harris Poll.

Using credit cards can be a great way to earn rewards or get cash back, but make sure you know how to dig out of the debt you ring up. Otherwise, you might be still paying off the debt late into next year, something 33% of 2019 holiday shoppers who used credit cards said they were still doing when surveyed in September.

Here’s how to handle holiday debt.

Take stock of what you owe — and what you can pay

First, catalog your holiday debt. Log into each credit account and note the balance and interest rate. Consider creating a simple spreadsheet or using a debt tracker to keep accounts organized. If you have debt that’s not on a credit card, such as a shopping loan from a company like Klarna, list that, too.

With your debts sorted, turn to your budget. The 50/30/20 budget is an easy template. With this approach, half of take-home pay goes toward necessities, like housing and groceries. Then, 30% goes toward wants, like takeout or a nice bottle of Champagne to celebrate bidding farewell to 2020 on New Year’s Eve. Lastly, 20% of your income goes toward debt and savings.

As you hash out your budget, pin down how much money you can allocate toward debt each month. Divide the total debt by that amount to estimate how fast you can rid yourself of debt, keeping in mind that accruing interest can increase the balances.

Focusing on what you can pay monthly helps make your debt more manageable, says Kathleen Burns Kingsbury, a Vermont-based wealth psychology expert who helps people understand the personal factors of money decisions.

“Ask what you can reasonably pay off each week or each month and really work at achieving it,” Burns Kingsbury says. “From a psychological standpoint, this helps you feel a sense of success, and the more successful you feel, the more motivated you are to continue that behavior.”

Find your payoff path

Your best route to resolving holiday debt depends on your cash flow, credit score and personal preferences. Here are a few:

Pay off the full balance with the first statement

If you have the cash, this is the fastest way to deal with debt — and the cheapest, since you avoid paying interest. According to the NerdWallet shopping survey, 35% of holiday shoppers who added credit card debt in 2019 took this approach.

Roll a snowball or kick off an avalanche

The “debt snowball” and “debt avalanche” are two popular debt payoff methods. Which is right for you depends on your financial priorities.

With the debt snowball method, you focus on paying off the smallest balance first, then roll the amount you were paying on that first debt into the next largest. The amount you’re paying on the focus debt keeps growing, like a snowball rolling downhill. You might choose this if you need the early wins from paying off the first accounts to keep you motivated.

The debt avalanche method may be best if you want to pay as little in interest as possible. With this route, you prioritize paying off the debt with the highest interest rate first, regardless of balance size. Again, when that first debt is done, you put the amount you were paying on that into the next highest interest account, repeating until you’re debt-free.

Consider a balance transfer card

To avoid costly credit card interest, look into taking out a balance transfer credit card with a 0% APR promotional period, says Mike Cocco, an Equitable financial adviser based in Nutley, New Jersey.

“Once you have that, you’re eliminating interest, which can allow you to pay off debt a lot quicker,” Cocco says. “Then, be cognizant of when the 0% APR period runs out and work backwards to create a reverse Christmas Club for paying off your debt. If you have $1,000 on the card and 12 months interest-free, you have to pay at least $83 a month.”

To get a 0% balance transfer offer, you’ll need good to excellent credit. In general, that means a score of 690 or higher, although credit scores alone don’t guarantee approval. Issuers will look at your income, existing debts and other information.

Regardless of which debt payoff method you choose, the important thing is to find a plan and commit to it. Taking decisive action to resolve your debt can ensure you are debt-free faster — and maybe let you start building up savings for the 2021 holiday season.

Sean Pyles writes for NerdWallet. Email: spyles@nerdwallet.com. Twitter: @SeanPyles.

The article Get Ahead of Holiday Debt With a Payoff Plan originally appeared on NerdWallet.

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How to Create Financial Stability in Shaky Times

Posted on by Sean Pyles

In a year that has thrown a pandemic, natural disasters and economic calamity at us while we lurch closer to a presidential election, stability can feel elusive. No matter how well-laid your plans, some new crisis might be lurking around the corner, waiting to upend your life.

While it’s never been more clear how much is out of our control, you can still take steps to improve your financial stability. And it’s not just about cash flow.

Find your idea of stability

Financial stability is both a state of money and a state of mind, says Ed Coambs, a certified financial planner and certified financial therapist near Charlotte, North Carolina.

On the money side, stability is straightforward. “You have a budget, you know where your money is going, and you know how much you should be saving to meet your bigger goals,” Coambs says.

“What’s a little harder is more the state of mind,” Coambs says. This financial peace of mind is subjective and looks different from one person to the next.

Do some self-reflection to pin down what stability means for you. Maybe you don’t want to feel anxious when you check your bank balance, or you hope to save enough for retirement so you won’t have to worry about the future. Whatever your focus, feeling stable means you won’t have to constantly worry about money.

If you find yourself overwhelmed because the pandemic has destabilized your finances, follow the advice of Tara Tussing Unverzagt, a Torrance, California, certified financial planner and financial therapist. She advises people to think through the worst that could happen rather than avoiding the topic out of fear.

“This often helps people open up a way to reframe the situation from, ‘There’s no way out of this,’ to ‘I have some choices — this isn’t my preferred path, but I can move forward with this,’ ” Tussing Unverzagt says.

Once you’ve defined what personal financial stability means to you, you can build a sense of control through proactive money management.

Knock off money tasks one at a time

You can probably rattle off half a dozen serious issues to worry about right now. But how many of them can you do anything about?

Rather than hand-wringing and doom-scrolling through social media when you feel anxious, focus on actions you can take. Namely, work to improve your financial basics.

Get a grasp on spending

Pin down a budget, if you haven’t already. The 50/30/20 budget is an easy tool for this. Half of your take-home pay goes to necessities, like housing, groceries and utilities. Then, 30% of your budget takes care of wants, like takeout from your favorite restaurant or home decor to spice up your pandemic shelter. Lastly, 20% of your income goes to debt payments and savings.

If you find that your debt payments or housing costs eat up more than the allotted percentage, you could increase financial peace of mind by getting them back in line. That might mean concentrating on paying down debt or looking for less expensive housing. Tackling one or two big expenses does more for your budget than canceling a handful of streaming services.

Look into refinancing debt

With interest rates at record lows, see if you can refinance your debt. You might be able to refinance your student loans or your mortgage to get a lower interest rate. Note that you should generally only refinance private student loans, because if you refinance federal loans you will give up important options such as access to income-driven repayment plans.

But in general, paying less in interest will make your debt more affordable and free up cash in your budget. Note that you’ll generally need a steady income and a healthy credit score to qualify for the best rates.

Build your emergency fund

Increasing your savings helps you cover an unexpected expense, like your car breaking down.

“People should focus on creating a safety net, which is the emergency fund,” says  Jovan Johnson, a certified financial planner in Decatur, Georgia. Start with a goal of $500 to $1,000, which is enough to insulate you from common emergencies, then keep building over the long haul.

“A rule of thumb is three to six months of nondiscretionary expenses, and I like to include maximum out-of-pocket health care expenses in that,” Johnson says.

Stick with steady retirement savings

The stock market will go up, and down, then back up again. It’s best to be a steady investor. Make regular contributions to your IRA or 401(k) every month or every pay period to smooth out fluctuations in the cost of investments.

You can take further steps to ride out market volatility by rebalancing your 401(k) or other retirement and investment accounts, says Daniel Granucci, a certified financial planner in Sandy Hook, Connecticut.

“By doing systematic rebalancing, historically that’s been proven to minimize risk in times of distress and can add to your long-term returns,” Granucci says.

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

Sean Pyles is a writer at NerdWallet. Email: spyles@nerdwallet.com. Twitter: @SeanPyles.

The article How to Create Financial Stability in Shaky Times originally appeared on NerdWallet.

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Make Room on Credit Cards to Add Options in an Emergency

Posted on by Sean Pyles

Maybe you’ve been working through credit card debt for a while now. Or maybe you racked it up recently as you prepared for the coronavirus lockdown. Regardless of how and when you got into debt, ridding yourself of this financial burden can free up cash — and relieve at least one stressor in an exceptionally anxious time.

If you’re in a good financial position right now, meaning you have savings in the bank and a steady income, it’s a good time to knock out some credit card debt. Here’s how to think about debt payoff now and what tactics you should consider.

Get your budget and savings in order

The economic and personal upheaval of the coronavirus pandemic has made sorting out your budget and savings top financial priorities — even before debt payoff.

Update your budget

Unless you were a grocery-hoarding hermit before the pandemic, chances are your spending habits have shifted. Revise your budget to reflect where your money is going now, accounting for things like expanded grocery expenses and less spending on entertainment, such as concerts and dining out.

Beef up your savings

Preparing financially by increasing your emergency fund is almost always a wise decision. Savings are a source of stability in uncertain times. Work to have at least a month or two of expenses in the bank. “Now is actually a good time to pay off your debt,” says Kate Welker, a certified financial planner in Rochester, New York. “But my advice is build the emergency fund first, because it can get you through a tough time and help you avoid building up new debt in the future.”

How to pay off credit card debt

Though it feels like the world has changed from top to bottom, tactics to pay off debt have largely stayed the same, says Billy Hensley, CEO of the National Endowment for Financial Education, a nonprofit promoting informed financial decision-making.

“The traditional sort of boring vanilla strategies still seem to work well,” Hensley says. “Look at where you can cut expenses now, look at if you can lock in a lower interest rate that could save you a few dollars a month.”

The goal is to knock out your debt while you’re in a good place financially so you don’t have this burden if you lose your job or your income is reduced later on. Don’t close credit cards as you pay them off, though. You may need access to that credit if your situation changes.

Consider these tactics:

Ask your creditors for lower interest rates

You may not qualify for any hardship programs being offered by your credit card company, but you might be able to get your interest rate cut. That can make paying off your debt more affordable.

“It’s not a bad time to call a lender and see if they can reduce your rate right now,” Welker says.

Be sure you understand the terms of any agreement and get them in writing, including how long the benefit will last and any trade-offs, like having a lower credit limit.

Direct freed-up cash toward debt

With restaurants closed, travel a no-go and fewer events to buy new clothes for, you might have actually saved money throughout lockdown. Use that money to boost your debt payoff. And if you have federal student loans, which are on pause through September thanks to the coronavirus relief bill, consider putting what you would have paid on those loans toward credit card debt, which likely has a higher interest rate.

Try your luck with a 0% APR card

For those with good credit, balance transfer credit cards with 0% APR introductory periods are a go-to for making debt more affordable. Creditors aren’t handing these out as generously as before, but they’re still on the market. If you qualify, these cards can make your debt payoff faster and cheaper, because for a time your entire payment goes to your balance, not interest.

In addition to these tactics, try to find a debt payoff method that works for you and stick to it over the long haul. Take the debt snowball method, for example: You direct your cash toward your smallest debt first, maintaining minimum payments on the others. When the first debt is paid, focus your payoff efforts on the next-biggest debt. Picking off the smallest balances first can give you some quick wins that will help see you through your debt payoff journey.

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

Sean Pyles is a writer at NerdWallet. Email: spyles@nerdwallet.com. Twitter: @SeanPyles.

The article Make Room on Credit Cards to Add Options in an Emergency originally appeared on NerdWallet.

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Put Off Debt Payments to Start Saving Now

Posted on by Sean Pyles

It’s our new normal: Tens of millions of Americans are unemployed or on a reduced income. We’re social distancing and spending more time at home. But one thing hasn’t changed — debts still have due dates.

If you’re among those who are out of work or earning less because of the pandemic, paying off those debts in full is less important now that your cash is limited.

Instead, your best move is paying minimums or taking advantage of hardship programs so you can build up savings. Yes, now might seem like an odd time to focus on savings, but gathering any cash you can will give you more flexibility to respond to the next emergency.

Dig into cutting expenses wherever you’re able. And if you were laid off and expanded unemployment benefits are more than your old pay, see if you can save some of that additional income.

Why having cash is important right now

Already the impact of the pandemic has been vast and disorienting, and we don’t know what the economy or job market will look like in coming months.

But increasing the cash you have on hand can lend stability. Savings of as little as $250 to $749 can make families less likely to be evicted or miss a housing or utility payment after a drop in income or job loss, according to a 2016 report from the Urban Institute, a think tank based in Washington, D.C.

“Normally, you would want to pay off your credit cards,” says Dan Keady, chief financial planning specialist at TIAA, a financial services organization. “But on the other hand, you do have to maintain a cash reserve in the household, because it is a rather uncertain time.”

Update your money picture and set your savings goal

Make sure you understand your current budget. Break down what you have coming in and your monthly expenses, including minimum debt payments.

Use the number you came up with for your monthly expenses as an initial savings goal and work to free up cash so you can save that amount.

Find ways to save money daily, weekly and monthly. You might be able to trim subscription services, save on groceries or shop for a lower insurance rate for your car or home.

Still struggling to save? Delay debt payments

If stripping down your budget and paying only minimums isn’t enough, consider contacting creditors and asking to pause payments. They’ll want you to explain why you can’t pay.

“Be ready to plead your case,” says Jordan Sowhangar, a certified financial planner in Souderton, Pennsylvania. “Gather details of your income, how you’ve been directly affected by coronavirus. They’ll want to know when you can repay before they put together a customized game plan for you.”

Which debts you can delay will likely depend on the type of debt and creditor. Here’s how to think about different debts:

Credit card debt: This may be one of the easier debts to delay for a month or two. Your creditors want to work with you, so give them a call to discuss options. Note that depending on your creditors’ policies, you may still accrue interest while your debts are deferred.

Mortgage: Entering into forbearance — where you can make a lower monthly payment or skip payments entirely for a time — may be your best option if you’ve been financially affected by the pandemic. Terms vary: Some lenders are expecting lump-sum payments at the end of the forbearance period and others may tack delayed payments onto the end of the loan.

Private student loans: Unlike federal loans, which have been put on hold through September, private student loans may be trickier to put off. But it’s still worth calling your loan servicer to discuss options if you’re struggling to afford payments.

No matter what debt you’re trying to delay, understand the terms of your agreement with your creditor. Pin down what concessions you’re getting, when you’re expected to resume payment, and how it will be reflected on your credit reports — and get it in writing.

Know when to use your savings

Once you’ve saved a month or two of expenses, set some guidelines for yourself for when to use it. An emergency fund is designed to handle unexpected expenses, such as car trouble, rather than to aid debt paydown.

When you have a moment of doubt about whether to put this toward debt, take the long view: A few hundred dollars saved this month could see you through lean times ahead.

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

Sean Pyles is a writer at NerdWallet. Email: spyles@nerdwallet.com. Twitter: @SeanPyles.

The article Put Off Debt Payments to Start Saving Now originally appeared on NerdWallet.

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Strengthen Your Financial Resilience With These 3 Insights

Posted on by Sean Pyles

A few months ago you may not have thought much about strategies for managing credit balances or how much of an emergency fund you really need. But with finances strained by the coronavirus pandemic, making smart money decisions is crucial.

To better handle current conditions, ask yourself these three questions.

How much of an emergency fund is necessary?

The answer

Even a few hundred dollars can protect you. Don’t be daunted if you have no emergency cushion or it feels very slim.

“Families with a savings cushion of $250 to $749 are less likely to be evicted, receive public benefits and miss a bill after a job loss,” says Signe-Mary McKernan, a vice president at the Urban Institute. Research by that Washington, D.C., think tank found that less than $1,000 is enough to help families weather a financial crisis.

“Even small amounts of savings can make a difference, and we find that low-income families with savings are more resilient than middle-income families with no savings,” McKernan says.

What you can do

With more uncertainty ahead, dig into your budget and make cuts so you can shore up savings.

McKernan suggests setting up automatic savings from your paycheck — even as little as 2% will add up over time — and saving any windfalls like a tax refund or bonus.

How does carrying a credit card balance affect my credit?

The answer

Relying on credit cards can work as a financial bridge when money is tight, but paying at least the minimums on time is critical to protecting your credit standing.

“Your credit score is like your report card,” says Lauren Anastasio, a certified financial planner at SoFi, an online financial services company. “Every month that goes by is an opportunity for you to have a positive data point.”

What you can do

Because late payments hurt your score the most, pay at least the minimum by the due date.

If possible, pay more than minimums so you can bring balances down over time. The second-biggest influence on your score is how much of your credit limits you’re using, so rising balances may ding your score. But that damage quickly fades as you pay them down again.

Do pay off cards completely if you can, because carrying a balance isn’t necessary for good credit. “It blows me away the number of people who say they don’t pay off their credit card because they believe it will help their credit,” says Anastasio.

Should you take money from your 401(k)?

The answer

The CARES Act enacted in late March provided $2.2 trillion in relief and made accessing funds from 401(k) accounts easier. But you likely have better options for cash in a crunch.

To start, here are the recent changes:

  • Those affected by the coronavirus can now withdraw up to $100,000 from their 401(k) accounts or IRAs without penalty and avoid taxes if the money is repaid within three years.
  • For 401(k) loans, savers can now borrow up to 100% of their vested balance, up to $100,000. While these loans are typically due over five years, the CARES Act allows borrowers to delay payments owed in 2020 for up to a year.

But taking money from your 401(k) will stunt your retirement savings because that money is no longer earning compounded returns.

“Any loan you take from a 401(k), those are funds that are going to be uninvested while you’re paying yourself back,” Anastasio says. “Even though you’re borrowing against assets you’ve accumulated, these are funds that are designed to be appreciated over time, so there is that opportunity cost.”

And if you can’t pay back a 401(k) loan on time, taxes and penalties kick in if you’re under age 59 1/2.

What you can do

You may have some options that won’t interfere with your future retirement plans:

  • Personal loans: Unsecured personal loans are a good option for those with good to excellent credit scores and generally range from $1,000 to $50,000.
  • Credit cards with a 0% period: Also typically for those with good to excellent credit, cards with 0% APR periods, which usually last between 12 and 15 months, give you access to credit without paying interest.

If you need instant cash, services like Earnin and PayActiv can give you an advance on your paycheck without starting the cycle of debt often brought on by high-interest payday loans or car title loans.

Sean Pyles is a writer at NerdWallet. Email: spyles@nerdwallet.com. Twitter: @SeanPyles.

The article Strengthen Your Financial Resilience With These 3 Insights originally appeared on NerdWallet.

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How to Quickly Drop Holiday Debt

Posted on by Sean Pyles

If you woke up on Jan. 1 groggy with a holiday debt hangover, you weren’t alone: 3 in 5 shoppers took on some form of debt in the previous holiday season, NerdWallet’s latest holiday shopping report found.

Much like a champagne-fueled headache, this debt can persist long after holiday merriment fades. Of those who took on holiday debt in 2018, 35% were still paying it off when surveyed in mid-September 2019, the report found. In fact, only 24% of those who incurred debt during the holidays paid it off in the first billing period.

You can beat the odds, though, and work to quickly cleanse your finances of last year’s decisions. Here’s how to figure out when you’ll be free of holiday debt and speed your payoff timeline.

Assess your debt

Before you can find your debt-free date, you’ll have to take stock of your balances. It might be a little painful, but this step sets you up for success.

“First and foremost, take an inventory of your debt,” says Michelle Goeppner, director of credit product strategy at Alliant Credit Union, a nationwide financial cooperative based in Chicago. “People may forget about a store card they took out during the holidays. What are the balances, rates you’re paying and to whom? List all those out.”

Start by pulling out all your credit cards, logging into your accounts online and assembling a list or spreadsheet with the details. Make sure you know each account’s balance and interest rate, as well as your total debt load.

Know what you can pay

With your credit card accounts sorted, turn to your budget.

“Think about what you’re capable of paying toward your debt,” says Lauren Anastasio, a Pennsylvania certified financial planner with SoFi, an online financial services company. “Evaluating your monthly cash flow is really where that starts.”

One guideline is the 50/30/20 budget, where half your income covers needs like housing, 30% goes to wants, and 20% goes to debt payments and savings. Depending on your income and your debt payoff goal, you may need to temporarily trim your “wants” money to funnel more cash to paying off debt.

Find your debt-free date

Next, make a plan to winnow down holiday debt — and figure out when you’ll be debt-free.

A debt payoff calculator can do the work for you. Punch in the details of your debts and what you can pay monthly, then toggle between different payoff methods to see what might work for you and how much you might be able to save in interest or time.

The “debt snowball” and “debt avalanche” are two common payoff strategies. With the debt snowball, you focus all your extra payoff money on the smallest debts first, with the idea that getting small wins can keep you encouraged. But the debt avalanche, where you focus on highest-interest debts first, may save you time and money on interest.

Whichever method you choose, pay as much above your minimums as you can.

“If you’re only paying the minimum, you’re going to really be paying it forever,” says Tania Brown, a certified financial planner in Atlanta with SaverLife, a nonprofit that helps people build savings. “Sometimes people are really surprised by how much difference $50 can really make.”

On average, shoppers anticipated they would charge on credit cards $660 in gifts in the 2019 holiday season, according to the shopping report. If they wiped that out within four months, they would pay just $22 in interest assuming an interest rate of roughly 17%. But if they paid only the minimum on that amount, paying it off would take nearly four years — and they would incur roughly $240 in interest charges.

Boost your payoff dollars

If, after using a debt payoff calculator, you find that you’ll be paying holiday debt for months to come, use a strategy or two to boost your payoff:

  • Increase your income: You can pump some additional cash into your budget, for instance by selling things you no longer use or picking up a temporary side gig.
  • Use your tax refund: File your taxes early if you anticipate a refund and dedicate that money to wiping out debt.
  • Look into consolidation: Collapsing multiple debts into one, with a personal loan or a balance transfer credit card, means fewer bills to track and can make debt less expensive by lowering your interest rate. Compare options, but know that you’ll typically have to have good or excellent credit to qualify.

Sean Pyles is a writer at NerdWallet. Email: spyles@nerdwallet.com. Twitter: @SeanPyles.

The article How to Quickly Drop Holiday Debt originally appeared on NerdWallet.

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