Paycheck

What to Do When You Can’t Pay Your Bills

Posted on by Liz Weston

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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How to Keep Your Spirits Up in the Long Game of Saving

Posted on by Margarette Burnette

Dreaming of a savings goal is almost always fun — a sunny vacation, the perfect home, a dazzling holiday gift. But think about how long it can take to get there, and all that fun might fade away.

Even if you’re doing the right things, such as cutting your expenses or taking a part-time job for extra income, it can be discouraging when the finish line is far away. Here’s how to stay motivated until you reach it.

Automate your savings

If you plan to save a little bit each month for the next year or so, you can simplify the process by setting up automatic transfers from your checking account to your savings. You’ll be making deposits without extra effort.

This tactic helped Marissa Ryan, co-founder of a Chicago-based digital marketing agency, when she wanted to save $25,000 for her wedding within 18 months. Using direct deposit, she split her paycheck between two different accounts, one for her wedding fund and the other for daily expenses.

She says automation helped, because there were months she didn’t feel like making the effort. “Setting up automatic deposits took ‘me’ of the equation, so I didn’t have to worry about skipping a month,” Ryan says.

To boost your savings even more with minimal effort, put your money into a high-yield savings account or certificate of deposit, which can earn 20 times more than a traditional savings account.

Celebrate small wins

Say you want to save $5,000, and you’ve set aside $500. That’s a reason to celebrate, says Joseph Polakovic, owner of Castle West Financial LLC, a financial advisory firm in San Diego.

He explains that when you have a large financial goal, it helps to see it as a series of smaller targets that are easier to meet. When you reach these milestones, celebrating them  — with an inexpensive treat, for example — can help you stay motivated.

“You don’t get just one reward at the end. You give yourself several rewards along the way,” he says.

Look at the big picture. Literally.

While you don’t want to be overwhelmed by how far away a goal seems, reminders of the goal itself can be helpful. Once Ryan picked her perfect wedding venue, she downloaded a picture of it and used it as the background image on her phone’s home screen. “It made me feel good just to anticipate the place, and that kept me going,” she says.

Polakovic agrees that this is a good strategy. You could print a photo that represents your goal and place it where you see it every day, such as on the refrigerator or bathroom mirror, he says.

Take setbacks in stride

There will probably be stumbling blocks along the way. For Ryan, it was an unexpected $3,000 car repair bill. She says she used some of her wedding fund to pay it, but was determined to rebuild the balance as quickly as possible.

If you do have a savings shortfall, there are options for getting back on track, including increasing your income. Ryan says she took on extra freelance work in order to replenish her fund.

Be accountable

Find a friend or family member who you can update on your progress. Scott Perry of Raleigh, North Carolina, says he and his wife held each other accountable when they decided to pay off $60,000 in student loans early. They made a plan to live below their means and earn extra income with side hustles. When surprise money came their way, say from a gift or job bonus, they’d use some of it to pay down loan principal, in addition to building up an emergency fund.

“There were times we would have rather gone out to eat on weekends instead of cooking at home to save money,” he says, but together, they resisted these urges. With a little time and patience, Perry says, they were able to cut their loan repayment period nearly in half, writing the last check a little more than five years after they started making payments.

Your savings goal can sometimes seem like a faraway dream. But keep plugging away, and it can eventually become a reality.

Margarette Burnette is a writer at NerdWallet. Email: mburnette@nerdwallet.com. Twitter: @Margarette.

The article How to Keep Your Spirits Up in the Long Game of Saving originally appeared on NerdWallet.

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3 Ways Millennials Are Getting Money Right

Posted on by Kelsey Sheehy

Read almost any article about millennials and you’ll come away with the distinct impression that this generation is royally screwing up.

That they’re suffocated by student debt. That they spend frivolously. And that they’re behind on everything from owning a home to starting a family.

Don’t buy into all the gloom and doom. Millennials are killing it in some areas, thanks in part to the turbulent financial times in which they came of age.

“Millennials were given a front-row seat to the financial crisis,” says Hallie Kraus, a financial advisor with the Humphreys Group, a financial planning firm in San Francisco.

“Many of us witnessed our parents struggle to pay the bills after getting laid off or suddenly finding their home underwater,” Kraus says. “Through these experiences, we were taught a unique set of lessons about money that are actually serving us well.”

Here are just a few ways millennials — a group that today reaches from their mid-20s to nearly 40 — are getting it right when it comes to their finances.

They know their worth

Millennials are making money moves. A 2018 report from Bank of America found that millennials were far more likely to ask for a raise than those in other generations. And when millennials made the ask, they got paid.

A whopping 46% of millennials had asked for a raise in the past two years, and 80% of those who asked for a raise got one, according to the report.

Those in other generations were far less likely to say they had asked for a raise:

  • Generation Z: 19%
  • Generation X: 36%
  • Baby boomers: 39%

Advocating for better pay is an important habit to build early in your career. Not only will you increase your immediate income, but you also could boost your lifetime earning potential exponentially.

They’re saving for retirement, early

While saving for retirement is a win on its own, millennials are going a few steps further by starting early and setting aside a larger portion of their paychecks.

Among millennials who are saving (73%), 3 of 4 are putting money away for retirement, according to a 2020 report from Bank of America. Those who are saving for retirement started at age 24, on average — earlier than boomers and Gen Xers, who started at ages 33 and 30, respectively, on average — giving them a much-needed head start on their future.

“Despite common stereotypes about this generation, significantly more millennials are saving for the future,” says Andrew Plepler, global head of environmental, social and governance at Bank of America. “These habits are encouraging and build on positive trends we’ve seen in recent years.”

Millennial parents are particularly diligent about saving for retirement, contributing a median of 10% of their annual income, according to a 2017 survey conducted online by The Harris Poll on behalf of NerdWallet.

The survey found that millennial parents who were saving for retirement contributed a median of 10% of their annual income to that goal, compared with 8% for Gen X parents and just 5% for boomer parents (all respondents to this question were employed). That seemingly small difference in savings rates can have a significant impact over time.

All that good news is soured by the fact that less than half (46.5%) of millennial households have access to a 401(k) or other work-based retirement plan, according to the most recent data from the Federal Reserve.

They’re focused on credit

Tracking expenses and keeping their eyes on financial goals is helping millennials gain ground in the credit game.

Nearly 40% of millennials improved their credit score in the past year, according to Bank of America’s 2020 survey. Other generations were less likely to claim a credit boost, Plepler says, noting the figures were 29% for Gen Z, 36% for Gen X and 31% for baby boomers.

“Millennials are practicing positive money habits day-to-day, and they’re moving closer to their goals because of it,” Plepler says. “[They] are also being practical and reserved when it comes to their financial choices. They’re willing to make lifestyle sacrifices and trade-offs in the present to achieve future goals.”

These gains are important, as the average millennial’s FICO score still falls in the “good” range at 668, according to credit reporting agency Experian; that’s on par with Gen Z and X, but far behind the older boomer generation (which boasts an average score of 731).

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

Kelsey Sheehy is a writer at NerdWallet. Email: ksheehy@nerdwallet.com.

The article 3 Ways Millennials Are Getting Money Right originally appeared on NerdWallet.

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How to Make Room for Fun in Your 2020 Budget

Posted on by Courtney Jespersen

Reporting for jury duty. Standing in line at the DMV. Going to the dentist. Making a budget.

What do all of these have in common? They’re activities you’d probably like to skip.

And while budgeting certainly isn’t exciting, breaking down your spending can give you the ability to do things you enjoy.

Here’s how to leave room for more than just bills in 2020. (These simple tips spell F-U-N.)

Find your 50/30/20 balance

There are countless budgeting techniques out there, but one is particularly effective and easy to remember.

It’s called the 50/30/20 budget. This plan accounts for typical general expenses like your mortgage, rent, car payment and utility bills, as well as individualized discretionary spending such as travel, streaming services and more.

Here’s the gist: Start with your take-home pay. Commit no more than 50% of that figure to needs and fixed expenses, like your mortgage. Use 20% for savings and debt repayment. The remaining 30% can be spent on wants and variable expenses. A 50/30/20 budget calculator will do the monthly math for you.

Katie Brewer, certified financial planner at Your Richest Life, likes the flexibility of this method.

“It’s a lot less restrictive than $200 in this category, $300 in this and $127.50 in this one,” Brewer says.

It’s also freeing to know that this method allows you to spend money on things that are important to you, your family and your lifestyle.

“I really like for people to go through and tell me the top two things they really like to spend money on,” Brewer says. “Sometimes with a couple, those might be slightly different. We try to always have those be a priority in their spending plan.”

Your current spending percentages probably aren’t at exactly 50%, 30% and 20%. You’ll want to slowly modify until you get close to these levels.

Understand your money flow

Once you have an idea of your recommended spending, start tracking.

“Have your bills account and your spending account,” Brewer says. “There’s no cheating that. Whatever is in there is in there.”

Divide your money appropriately between them when it first hits your bank account, she suggests.

Robert Lopez, CFP and founder of financial planning company FP Guidance, advocates a similar strategy. While some people may prefer to keep everything in one place, he says separate accounts can be helpful — especially if you name them. You can even create different accounts for different financial goals you have at the same time.

For example, if you call one account your “honeymoon fund,” you may be less inclined to pull money from it than if it were just an undesignated savings account.

But don’t stop there. Implement more methods to ensure you’re not spending your mortgage money on subscription boxes.

Lopez recommends getting a different-looking card for each one of your accounts, if your bank offers that option. So, for instance, your grocery shopping card might be red, but your entertainment card would be blue. Depending on which card you use, you’ll be pulling money from the appropriate category.

Then, you can check your bank’s app to see where you stand.

Never stop trying

Remember that having a wants category in your budget isn’t an excuse to spend money on vacations or shopping sprees just because. Rather, Lopez says, it’s like a cheat day — a way to keep yourself motivated to follow the rest of your budgeting habits.

“If your whole budget is just things that you need and then paying down debt or investing … you’re never going to have any fun, and you’re not going to stick to it,” he says. “You’re going to break that budget.”

Your budget will be a work in progress, and that’s OK. Your spending in some months may be higher than during others. You’ll probably spend more on gifts in December than in March, for example.

Brewer recommends starting to pay for your variable expenses with a debit card so you can be proactive (rather than reactive) about your spending. Once you get the hang of it, you can switch back to using a credit card. Lopez says cash can be helpful, too. If you bring only $50 to a concert, for instance, that’s all you’ll be able to spend on merchandise and refreshments.

Find the method that works for you. As he puts it, a budget is something to grow with.

“If someone can build a perfect budget in January, they are in the wrong profession.”

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

Courtney Jespersen is a writer at NerdWallet. Email: courtney@nerdwallet.com. Twitter: @CourtneyNerd.

The article How to Make Room for Fun in Your 2020 Budget originally appeared on NerdWallet.

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How I Ditched Debt: From ‘Extravagantly Broke’ to Comfortably Frugal

Posted on by Courtney Jespersen

DeShena Woodard

How much: $51,754 in 2 years 8 months

DeShena Woodard is happy.

She’s working full time in her dream job as an RN, running her own financial blog and living in a suburb outside of Houston.

From the outside looking in, you’d never guess this got-it-all-together professional was recently struggling.

Just a few years ago, Woodard was anxious. Every dollar she made at her part-time job was earmarked for a bill to pay someone else. She had nothing in savings and was growing weary of living paycheck to paycheck.

Woodard was spending more than she earned, something she refers to as living “extravagantly broke.” (Appropriately, Extravagantly Broke is now the name of her blog.)

That’s when things changed. With her children getting older and her own education complete, Woodard was in a position to begin working full time. She upped her salary to approximately $75,000 in 2017 (a sizable increase from about $50,000 in 2016) and undertook a financial journey.

While her husband paid down household debt, Woodard worked on paying her own. She shifted her focus from habits like buying new clothes and overspending on Christmas to holding on to things longer instead of replacing them. She bought only what she needed and rarely what she wanted. Her lifestyle went from extravagant to frugal.

And it worked.

Between January 2017 and August 2019, Woodard paid off $51,754 in debt — a combination of credit cards, auto loans and a personal loan.

She paid off a Nissan auto loan, hefty credit card charges for her schooling that had been building up and expenses for her daughter.

Nowadays, she’s living comfortably and is still getting used to small victories like seeing money building in her bank account. The best part? Woodard says she’s doing better emotionally.

“I feel much happier not having any debt and driving a Nissan than I would having a lot of debt driving a Mercedes.”

Here’s how she paid off debt and what she learned along the way, in her own words.

What triggered your decision to start getting out of debt?

I was not happy with the current state of my finances. I was stressed and anxious about money all the time. I knew that what I was doing wasn’t working and decided to make a change. I changed my attitude toward money and that is what led to a change in my spending behavior. I made the choice to live a comfortable life instead of an extravagantly broke one.

How did you prioritize your debts?

I was paying all of them at the same time, but I was paying more on some than others. For one credit card, I was paying $500 a month and the other one $300. On my car, I was paying double. But once I got both credit cards paid off, then I was able to pay triple on my car.

For me, I needed to see that they were all moving in the right direction. That’s just what worked better for me. For some people, it may be better to just pay one thing off at a time if that’s what you can do.

How has your life changed for the better since you got out of debt?

My life has definitely changed for the better since being out of debt. For one thing, I can sleep better at night. I’m not always worried about being able to pay my bills. I am now at the point where I forget when payday is. And I often go for more than a week before even checking my bank account to make sure that I did get paid.

How do you remain debt-free today?

I have become much more money savvy and I don’t make spur-of-the-moment purchases. Every spending decision has to be well thought out. I stick to using cash or debit. And I budget for everything.

What made you start your blog?

I know there are people out there like me. For me, it took a mindset shift. Until we can change our thinking, it’s hard to change our behavior. In my writing, I focus a lot on mindset, trying to dive a little deeper. I can just give you tips, but until something changes mentally, it all just washes over people.

It really takes this sort of self-discovery. You really need to think deep and figure out what is the reason that you need that? Why do you need this car versus that car? Or do you really need another car? What’s wrong with the car you have? Would it be more affordable to fix that up or put a little money into it versus pay a monthly car payment that you’re going to be responsible for for the next 60 months or however many months of your life?

What is your next goal?

I’m working toward becoming a certified life coach so that I can begin coaching people on their mindset and their money to help them bridge the gap and get over the hurdle of why they’re spending.

How to ditch your own debt

In addition to shifting her thinking, Woodard implemented several money-saving strategies. Used in combination, they were effective in reducing her spending and paying down her debt. Here are a few you can try, too:

  • Distinguish between needs and wants. Stick to a budget that differentiates between needs and wants. Woodard says she tries to live on 50% of her income and is saving approximately 30% of her income. According to the popular 50/30/20 budget, no more than 50% of your monthly take-home income should be spent on needs, 30% on wants and 20% on savings.
  • Shop smart. Woodard is always on the lookout for a good sale. But she doesn’t shop a sale just because she finds it. She waits for a sale to match an item she already needs. For instance, she waited until a Memorial Day sale to replace her refrigerator.
  • Become a savvy consumer. Often, when you sign up for promotions from utility providers such as cable companies, the introductory price is valid only for the first year, so it’s up to the customer to ask for a new deal. Woodard calls regularly to negotiate a better price.

There are also some universal strategies to keep debt at bay. Here are a few of NerdWallet’s top tips:

  • Use a calculator. If you’re not sure how much you should be spending each month, rely on a budget calculator to do the math for you. Then try to adjust your spending to the recommended levels.
  • Write everything down. Put your budget down in writing in an app, on a spreadsheet or on paper to track your spending.
  • Build an emergency fund. Cushion your savings with a healthy emergency fund to prevent yourself from falling back into debt. It’s important to have the money to cover an unexpected expense.

—

Photo courtesy of DeShena Woodard.

The article How I Ditched Debt: From ‘Extravagantly Broke’ to Comfortably Frugal originally appeared on NerdWallet.

3 Things to Do When You Get a Salary Increase

Posted on by Laura McMullen

Bravo! Everyone wants to make more money, and you’ve managed to do just that. Whether you received a raise or took a higher-paying job, a salary increase is something to celebrate.

It’s also something to evaluate within your larger financial picture. That way, you know what to do with your additional cash.

Here’s what to do when you get a salary bump.

1. Determine your new take-home pay

It’s too easy to fall into the “earn more, spend more” trap known as lifestyle creep. Extra spending could easily surpass your additional income — and that’s before you even see most of it.

“People will say, ‘Well, annually, I’m going to make this much more,’” says Autumn K. Campbell, certified financial planner at The Planning Center in Tulsa, Oklahoma. “Well, that’s from one year after the time you got the raise,” she says. In that time, she adds, “we can learn habits that are tricky to get out of.”

Before building such habits, get a reality check by calculating how much more you’ll make in the shorter term. “We need to talk to ourselves in real numbers,” says Lynn Ballou, CFP and senior vice president and partner with EP Wealth Advisors in Lafayette, California.

Say you were making $50,000 and received a 4% increase, or $2,000 over a full year. Divide that $2,000 by 12 for about $167 per month. If you’re paid every other week, divide $2,000 by the 27 pay periods expected for 2020, and you’re looking at $74 per paycheck.

This math doesn’t account for tax withholdings and deductions that chip away at your take-home pay. (Scrutinize your paychecks to calculate that amount.) But having a rough figure for this extra income does help you figure out what to do with it.

2. Check your financial picture

To identify opportunities for your extra income, first take stock of your cash flow (incoming and outgoing money), as well as savings, investments and debts. Depending on your situation, these questions may help you think about next steps:

Are you meeting basic needs?

Consider food and shelter. If you’re facing overdue bills and shut-off notices for utilities, those payments should be a priority, says Campbell, who is also the president of FPA NexGen, a professional group for young financial planners.

Could you cover an emergency?

Emergency funds help prevent you from taking on debt if — actually, when — you face unexpected expenses. This is a smart time to start the fund if you don’t have one, Ballou says.

Ideally, the fund could cover a few months’ worth of living expenses, but it’s OK if you can’t swing that. Just build a buffer. For example, perhaps you set up automatic monthly transfers of $50 from your checking account to a high-yield savings account.

Do you have high-interest debts?

These are debts with interest rates around 20% or higher and could be from credit cards, personal loans or payday loans. They can hinder both your current and future finances. “It’s very hard to plan long-term if our short-term needs are in flux or being stretched,” Campbell says.

Sound familiar? Identify your debt strategy and consider using some of your additional income to pay it down.

Could you put more toward goals?

Use this opportunity to check on your financial goals, Ballou says. (Or identify a few, if you don’t have any.)

Say you’re aiming to retire with a certain amount saved. Consider contributing more to your 401(k), a tax-favored retirement savings account offered by some employers.

Other goals may lead you to put more earnings toward a down payment or vacation fund, or toward your student loans. Or perhaps this is the time to buy life insurance or contribute to a 529 plan for your kids’ college savings.

3. Reward yourself

Celebrate your raise “in a way that honors your hard work and also moves you forward in life without the stress of spending it and never really getting ahead,” says Lazetta Rainey Braxton, CEO and founder of Financial Fountains, a financial planning firm in Baltimore, and president of the AAAA Foundation, which helps cultivate the next generation of African American financial planners.

To pull this off, give yourself the “gift of time” rather than something that costs money, Ballou says. Spend an afternoon hiking or digging into a book, for example.

If you do spend money, Braxton suggests setting boundaries, such as a spending limit equal to the increase you’ll see in one or two paychecks.

Before spending, try to wait a few weeks or even months. By that time, you’ll have paychecks that show exactly how much more you’re taking home — and hopefully you’ll have cooled on any impulse-purchase ideas. After all, “there’s no rush,” Campbell says. “It’s not like the money is going to disappear.”—

The article 3 Things to Do When You Get a Salary Increase originally appeared on NerdWallet.

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How I Ditched Debt: Small Wins Help Achieve a Big Dream

Posted on by Amrita Jayakumar

Bernadette Joy and AJ Maulion

How much: $309,800 in 3 years

Bernadette Joy Maulion, 34, went to business school part time after a career in human resources, hoping to start a new chapter in her professional life. School wasn’t cheap, and she took out $72,000 in student loans.

She and husband AJ, 37, had a $57,000 mortgage on the first house they’d bought in Charlotte, North Carolina, and were using it as a rental. They also had a $180,800 mortgage on a second home they’d bought after becoming inspired by Chip and Joanna Gaines from HGTV’s “Fixer Upper.”

While in business school, Bernadette Joy had an idea for her own company, a local version of online clothing store Rent the Runway. She got the business off the ground with AJ’s help but quickly realized that debt was standing in the way of her entrepreneurial future. The Maulions knew it was time to face their debt.

They set out to pay off the student loans — selling things, taking on part-time jobs and adding a roommate while living mainly off of AJ’s salary as a project manager. Motivated by their success, they also paid off the rental home, then later sold it and put the proceeds toward paying down their primary mortgage.

Now, Bernadette Joy runs her business full time without debt. She connected with NerdWallet to share the highs and lows of her experience, which may inspire your own journey to pay off debt. 

How much debt did you have starting out?

Bernadette Joy: We had approximately $72,000 in student loans, $57,000 left to pay on the rental property and $180,800 on our primary home. Our salaries at the time were $91,000 for AJ as a project manager and $30,000 for me as an executive recruiter. AJ was eligible for annual bonuses and I was eligible for commissions.

(Note: The Maulions paid off the rental property in 2017 and sold it in 2019 for $153,000, using the proceeds to pay down their remaining mortgage.)

What triggered your decision to get out of debt?

BJ: We thought the business had great potential, and I was itching to quit my day job. I looked at my student loans my last semester of my program in January 2016, and I was completely overwhelmed. The only thing keeping me in my day job was the debt. After much crying and stress, we decided that if we could pay off the student loans it would make us feel comfortable enough for me to quit.

What strategies did you use to pay off debt?

BJ: We started with the student loans using the debt snowball method. We paid off the series of loans from smallest to largest [by amount owed]. The snowball method spoke to me specifically because I am the type of person [who] likes to see things checked off my list.

From a budgeting standpoint, being able to reduce the amount of variability in your expenses is important. It made more sense to mentally allocate AJ’s salary because it was consistent. We started living off of his income. Anything I made was like icing on the cake.

We halted any unnecessary expenses, including vacations, professional development, and I also chose to grow the business more slowly to keep it debt-free.

AJ: We put a hold on my 401(k) contributions for a year until we paid off the student loans. We really wanted to focus and put our resources into the debt. We thought it through and said once we are done with this debt, we can contribute the maximum amount. [Editor’s note: NerdWallet recommends saving for retirement even while paying off debt, to allow time for your money to grow.]

How else did you free up money for debt paydown?

BJ: My car was on a lease, AJ’s 2009 Kia Spectra was fully paid off. We got rid of the leased car, and that saved us a couple hundred bucks a month. I kind of went crazy and sold everything; we had a yard sale. AJ’s younger brother was our roommate from 2016 until April of this year. He paid us rent.

AJ: I would drive for Uber on the way home from work. I pretty much did that for six months. I was also an extra on TV shows, like “Banshee” on Cinemax and “Shots Fired” on Fox.

We also cut down on eating out and bought everything on sale at the grocery store, even Cheez-Its.

Were you ever discouraged? How did you stay motivated?

BJ: There were instances where we had to slow down because we were exhausted.

Once, I went to the mall and bought a bunch of stuff because I thought I deserved it. I went home and felt so guilty — I realized a lot of my personal spending was triggered by emotion. Knowing my trigger, I would divert that energy into [building] my business.

I used to hang Post-its on my refrigerator of our current debt number. Even if I could knock off a couple dollars I put it on a Post-it. For example, there’s this pair of shoes I really wanted at the store. Instead of buying them, I put that money toward the debt and put up the Post-it. I put photos of them up on Instagram and people reached out to me. They would ask, “Hey, where’s your Post-it?” That accountability from people was great.

AJ: You get so engrossed in [paying off debt], but don’t forget to acknowledge your successes.

You gotta keep taking those small wins. For us it took three years to pay off debt, for others it might take more. Celebrate the small wins so you can last longer.

What would you have done differently?

BJ: I would have given myself a lot more grace during that time. The reason we were able to pay off debt soon was because I was so mad about it.

Our original timeline to pay the student loan was two years. But once we started getting momentum, I thought we could pay it off sooner. I didn’t recognize that in the beginning, it’s a bit easier to trim from your budget. I wish I could have told myself: You’re still being really good; people don’t usually pay this off in two years.

How did this experience influence your business?

BJ: I chose to grow my business more slowly, not rush it. My business model was influenced by wanting to make it affordable for me to run and for my clients. It forced me to be super creative. I think if I had gone the traditional route, I would have taken a small-business loan. But it was all self-funded, no outside investors, no loans.

In reality, we didn’t stop investing [for our future] completely. We were diverting funds toward building this business.

AJ: It took me a while to get comfortable with this investment. She got me to believe in the long term, the future vision. I was taking a lot of pictures for inventory. We have a room in our house where we had clients come in to browse dresses. I felt like I was a part of something bigger for our future.

What are your financial goals now?

BJ: We want to retire early, and now that I’m not in a 9-to-5 job, we want to see how we can get AJ there, too. The picture on our fridge now is about our next vacation home. Every first Sunday of the month, we talk about how are we going to get that.

How to ditch your own debt

Inspired by the Maulions’ commitment to ditching debt? Here’s how you can get started:

  • Build a budget that gives every dollar a job to do. We like the 50/30/20 budget, which allocates 50% of your take-home pay to necessities, 30% to wants and 20% to savings and paying off debt.
  • The Maulions said staying on the same page as a couple helped them succeed. Set up regular money conversations with your partner to check in on goals, stay motivated and hold each other accountable.
  • Don’t shortchange your retirement. If your employer offers a retirement plan with a match, NerdWallet recommends contributing at least enough to get the match even while you’re paying off debt. The sooner you put money into your retirement fund, the longer it has to compound for your retirement.

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In this series, NerdWallet interviews people who have triumphed over debt. Responses have been edited for length and clarity. 

The article How I Ditched Debt: Small Wins Help Achieve a Big Dream originally appeared on NerdWallet.

Photo courtesy of Bernadette Joy Maulion via nerdwallet.com

Can’t Bear to Check Your Finances? Here’s Help

Posted on by Laura McMullen

Would you rather eat that ATM receipt than risk seeing your balance? You’re not alone. Keeping tabs on money can be stressful and confusing. Even if you know you should keep track of your finances, it can feel easier to just ignore balances, credit card statements and bills.

But what’s easy now may become hard to stomach later. Avoidance can lead to overdrafts, a lowered credit score, debt and perhaps missed opportunities to save and invest.

Sound familiar? Don’t feel guilty, says Justin Nichols, certified financial planner and director of operations at Garrett Planning Network. He tells clients in this situation: “Let’s just start new right now and figure out a plan to move forward.”

You’re already making moves by clicking this article. Read on to learn how to get a handle on neglected finances.

Determine if you need professional help

These tips are most helpful for folks whose finances aren’t yet in dire straits — just ignored. However, avoidance is particularly easy (and harmful) when you’re financially overwhelmed, says Sarah Newcomb, behavioral economist for Morningstar and author of “Loaded: Money, Psychology, and How to Get Ahead Without Leaving Your Values Behind.”

If you can’t cover your basic needs or feel like you’re drowning in debt, talk with a nonprofit credit counseling agency. Credit counselors offer free budgeting help and may be able to create a plan to consolidate your debts and lower the interest rate.

Schedule financial check-ins

Acknowledge any anxiety you feel about dealing with finances, says Amanda Clayman, a psychotherapist and coach specializing in financial wellness. “Anxiety sucks our attention and energy,” she says, which makes problem-solving difficult.

If you address your finances only when you feel bad, you may associate the behavior with negative feelings. Clayman gives the example of seeing a shocking credit card statement, panicking and choosing that time to address your overspending.

Rather than waiting until you’re preoccupied with anxiety, Clayman recommends scheduling a weekly financial check-in at a neutral time. The idea is to “reprogram your emotional experience around money so that you can be much more effective,” she says.

Take 30 minutes each week to review your spending activity and the balances on your checking and savings accounts, as well as any outstanding debt. Then, take note of any upcoming bills or other money events — like payday — and make a loose plan to prepare pending expenses.

If you feel overwhelmed by a 30-minute money review, Clayman suggests starting with 15 minutes or even five. (Maybe you simply note your balances.)

Keep anxiety in check by focusing only on your current financial picture. However, in time, building comfort and familiarity with your money today may help you prepare for tomorrow. For example, tracking expenses could lead to spending less and having money to sock away. Or, after reviewing your paychecks, you may decide to contribute to your 401(k), a tax-favored retirement savings account offered by some employers. (Contribute at least enough to snag all the matching dollars your employer offers.)

Tackle small, achievable goals

Changing behavior “comes down to our sense of identity,” says Newcomb, who used to ignore her own finances. For example, she says: If you’re OK with being someone who pays bills late, you will probably continue to do so.

“There came a point when I decided I didn’t want to be that person anymore,” Newcomb says. “Being a person who is on top of their finances is the goal — it’s not that I care so much if the electric company gets their money.”

Tackle small, achievable goals, like those check-ins, to start identifying as a financially responsible person, too. To identify your goals, Newcomb asks: “What are the things that feel like a gut punch when you see them?”

Ashamed by overdrafts? Go the next two months without one — then another two months. Paying bills late? Make each of next month’s payments on time. (And for each bill, set up autopay, which Newcomb describes as a “godsend.”) Bad credit score? Aim for a certain score within a few years, and learn what will help, such as making those on-time payments and keeping your credit card balances below 30% of your overall limit.

Reap your rewards

Build that positive association with money management by rewarding yourself. Treat yourself to ice cream or your favorite TV show after your weekly check-in, for example.

Some benefits will be intangible but meaningful nonetheless, like the pride in taking on those important (if dreaded) goals, Newcomb says.

Later, you’ll likely see those small goals you accomplished help your finances — which is pretty satisfying, too. Newcomb, who’s now in control of her money, has seen her balances increase. “Now, my reward for going through my finances is that I can see I’m in a better place,” she says.

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The article Can’t Bear to Check Your Finances? Here’s Help originally appeared on NerdWallet.

Will a Summer Job Burn Your Financial Aid for College?

Posted on by Ryan Lane

Roughly one-third of teenagers have summer jobs, according to the Pew Research Center. Some of these jobs may make you very familiar with the letters “SPF.” But every working student should know a different abbreviation to avoid getting burned: EFC.

While you may be working to help pay for college, the money you earn could affect the financial aid you receive. Here’s how.

Income and financial aid

Every student who wants federal financial aid must complete the Free Application for Federal Student Aid, or FAFSA. Colleges use this information to calculate how much a student and their family can pay for school. This is known as the expected family contribution, or EFC.

The EFC considers the income and assets of parents and students. In general, those with more money pay more money — and may not qualify for more desirable aid as a result.

“Typically, students with higher EFCs won’t be eligible for need-based money,” says Lauren Brantley, an eAdvisor for the College Advising Corps, a nonprofit organization based in Chapel Hill, North Carolina, that works with low-income, first-generation students.

Need-based aid includes Pell Grants, which you don’t repay, and subsidized federal loans, whose interest the government pays while you’re in school. Schools may also use the FAFSA to determine institutional aid, awarding some scholarships and grants based on financial need.

Student income protection

Penalizing working students may sound unfair, but annual earnings are excluded from the financial aid formula — to a point.

For dependent students, “The FAFSA wipes out any income earned at $6,660 or below,” says MorraLee Keller, director of technical assistance for the National College Access Network, a nonprofit organization in Washington, D.C. If you exceed the maximum, the formula counts half the excess earnings.

For example, say you worked at an ice cream shop earning $10.45 an hour, the median for food service workers according to the Bureau of Labor Statistics. You’d have to work more than 630 hours to hit the income maximum.

That’s not likely over the summer, but you could earn more than $10,600 by working 20 hours a week at that salary for the entire year. In that instance, the FAFSA would ignore $6,600, and $2,000 of the remaining $4,000 would affect your EFC.

It’s tough to say how much need-based aid that $2,000 could cost you — it would depend on your entire financial picture — but Pell Grant amounts and EFC are directly correlated.

Currently, if you attend college full time and have an EFC of $3,000, you’d qualify for a Pell Grant of $3,245, provided the school’s cost of attendance exceeds $6,195. If your EFC increased to $5,000, your grant would decrease to $1,245.

You can estimate this potential effect on your situation with the U.S. Education Department’s FAFSA4Caster.

Details to know

If you make a lot of money, you’ll want to understand the school year those earnings affect because the FAFSA uses income information from two years ago.

“For a student who’s an incoming freshman, calendar year 2017 is what is being taken into account on their FAFSA,” Keller says.

This wrinkle means college students close to graduating who land high-paying jobs or internships would likely finish school before that money counts toward their EFC.

Work-study jobs also don’t count toward the amount of income students can earn. You could make $3,000 from a work-study job and $4,000 from a summer job, but only the latter would go into the EFC calculation — keeping you below $6,660.

These details mean the benefits of working likely outweigh the risks.

“I think that students need to work when they’re in college,” says Jodi Okun, founder of College Financial Aid Advisors, which helps families understand the financial aid process. “It’s going to help them get employed faster.”

Independent students can earn more

Independent students, who don’t provide parent information on the FAFSA, can earn more before affecting their financial aid — $10,360 for single students and up to $16,620 for married students.

However, independent students might easily surpass those limits. They are typically older and may be working their way through school.

Okun advises these students to “do what you need to do, and try to stay away from worrying about income protection.” She says colleges will analyze these students’ situations differently when calculating financial aid.

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Photo ID: 41986880

The article Will a Summer Job Burn Your Financial Aid for College? originally appeared on NerdWallet.

What College Students Need to Know About Driving for Uber, Lyft

Posted on by Teddy Nykiel

Rideshare companies promise ultimate flexibility for drivers: Set your own schedule, earn more during busy times, get paid quickly. It seems ideal for college students looking to earn summer cash.

But driving for Uber, Lyft or other rideshare services requires more than simply downloading the app and filling up your gas tank.

Here’s what to know before signing up to be a driver this summer.

Age requirements

Rideshare driving may not be an option for undergraduate freshmen and sophomores due to age requirements.

  • Uber: You must meet your city’s minimum driving age requirements and have at least one year of licensed driving experience in the U.S. Drivers younger than 23 must have three years of licensed driving experience.
  • Lyft: You must be 21 or older. The exception: Drivers can be 18 years old in New York City.

If you’re too young for Uber or Lyft, other options include driving for a takeout or grocery delivery service. The age requirement for DoorDash and Instacart is 18. With Uber Eats, you must meet the minimum age to drive in your city and have at least one year of driving experience.

Insurance coverage

For both Uber and Lyft, drivers must have a valid U.S. driver’s license and provide proof of insurance with their name on the policy. Drivers should inform their insurer that they’re driving for a ridesharing service, or they could risk getting dropped.

But personal auto insurance likely won’t cover drivers when a rideshare app is open. Insurance companies want you to purchase commercial insurance if you’re using your car to make money.

To help solve this, Uber and Lyft insure drivers while they’re en route to pick up passengers and when passengers are in the car. However, coverage is limited when the app is on and drivers are waiting for a ride request. To cover yourself during those gaps, consider purchasing rideshare insurance.

Financial aid impact

Need-based financial aid is determined with tax information from two years prior. In other words, money earned in summer 2019 may reduce the amount of need-based aid a student receives for the 2021-22 school year. But if you expect to graduate within two years, this summer’s earnings won’t impact future financial aid.

Students can earn up to a certain amount before it counts against them for need-based financial aid. The income protection allowance for dependent students is $6,660 for the 2019-20 school year. The allowance is higher for independent students and parents.

If a summer job as a rideshare driver pushes your annual earnings above the income allowance, you could be eligible for less need-based financial aid in the future.

However, students working as independent contractors — as rideshare drivers do — have the “unique ability” to deduct certain expenses from their income and potentially keep their income under the allowance, says Billie Jo Weis, a client service manager at My College Planning Team, a financial aid advising firm in the Chicago area.

Tax implications

Rideshare companies don’t withhold taxes from drivers’ paychecks. Instead, you’re responsible for paying taxes on income earned through the app. You may be able to reduce your taxable income — therefore potentially increasing access to need-based financial aid — by deducting driving-related expenses including gas, tolls and repairs.

Keep track of your car- and driving-related expenses, including your mileage with the app on. The IRS allows drivers to deduct a set amount — 54.5 cents per mile in 2018 and 58 cents in 2019 — for every mile driven for business purposes. Uber and Lyft provide annual reports to each driver that include total mileage and earnings.

Potential perks

Between insurance, financial aid and tax considerations, being a rideshare driver may sound like more of a headache than it’s worth.

But you may have the opportunity to earn more than just cash.

For instance, Uber is piloting a program that offers free tuition for undergraduate degrees online through Arizona State University. It’s available to drivers in more than two dozen cities who have completed 3,000 rides and have gold, platinum or diamond status on Uber Pro, the company’s rewards system.

Emily Kuckelman, 28, of Denver is participating in the program by taking classes in graphic information technology online at ASU while driving 30 to 35 hours a week for Uber. The former teacher estimates that she earns $13,000 to $17,000 more annually than in her previous career. Plus, it’s flexible with her class schedule, she says.

“If I can afford to not drive, I don’t have to,” says Kuckelman, who works during peak hours to take advantage of Uber’s in-app promotions for drivers. “I want to make the most amount of money in the least amount of time.”

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The article What College Students Need to Know About Driving for Uber, Lyft originally appeared on NerdWallet.