Tag: Debt

 

6 Steps to Take As Soon As You Graduate With Student Loans

You did it: You graduated from college — a feat that only one-third of Americans have accomplished.

While that should make you proud, another statistic is probably hanging over your head: the fact that 69% of college students have taken out loans, graduating with an average debt of $29,800.

If you, too, are saddled with student loans, don’t panic. Tens of millions of young Americans have been in your shoes. The important thing is to learn as much as you can about the process — and then create a plan of attack.

So before you even clean out your dorm, accept a job, switch banks, or move to a new city, take these six steps to get your student loans under control.

1. Take Stock of Your Loans

How much do you owe? Who do you owe? Where do you pay your bills?

Every new grad faces these questions because, frankly, the system is more confusing than it should be. Even if all your loans are from the federal government, they’re managed by one or more of 10 “student loan servicers.”

To figure out where your loans are housed, pay a visit to the National Student Loan Data System, and then to each loan’s servicer’s site. To keep track of them all, create a spreadsheet that lists each loan’s servicer, type, amount, interest rate, and payment due date. You can also try a third-party tool like My LendingTree to compile the information in one place.

If you hold an array of loans from a handful of different servicers, you might want to look into consolidating your loans so you only have one monthly payment. Alternatively, you can consider refinancing your loans with a private lender. Just be warned: It can be difficult to qualify, and this may make you ineligible for certain federal loan protections. Read more about consolidating and refinancing here.

2. Pay Interest During Your Grace Period

Most loan servicers offer a six-month “grace period” between when you finish school and when your first payment is due. You should be aware, however, that most loans – other than subsidized or Perkins loans – accrue interest during this grace period. In fact, unsubsidized and private loans have been accruing interest since the moment they were disbursed.

At this point, there’s nothing you can do about the interest you’ve already accrued. But you can attempt to reduce the amount of interest that will be “capitalized.” This occurs when accumulated interest is added to your principal balance, essentially causing you to owe interest on your interest.

On unsubsidized and private loans, student loan interest is generally capitalized at the end of the grace period. To reduce the amount that gets added to your principal, you should strive to make interest payments on those loans over the next six months.

If you have subsidized loans, it’s safe to wait until the grace period ends because you typically aren’t accruing interest during this timeframe.

“I wish I’d known how quickly the interest adds up,” says Jen Smith of Modern Frugality.

“By the time I started making payments, my income was too low to make payments that could keep up with what interest was adding on every month,” says Smith.

3. Choose a Repayment Plan

When you graduate with federal loans, you’re automatically enrolled in the “standard repayment plan,” which spreads your monthly payments out over the next 10 years.

To see what you’ll owe each month, use this estimated repayment calculator from Federal Student Aid (FSA).

If the amount seems overwhelming, the FSA calculator will also display other repayment options, which include:

  • Extended repayment: If you have more than $30,000 in debt, you can extend your repayment period to 25 years. You can elect to have your payments remain the same, or to gradually increase, over time.
  • Graduated repayment: Under this 10-year repayment plan, your payments will start low and increase with time. But, since you’re not tackling much principal in the first few years, you’ll pay a lot more in interest.
  • Income-based repayment plans: Several plans cap your loan payments at a certain percentage of your income, and extend repayment over 20–25 years. If you want to pursue one of these plans, you’ll probably have to do your own research. As freelance writer Kat Tretina recalls, “I couldn’t afford my payments, but despite calling my loan servicers, (income-driven plans) were never mentioned as an option. I learned about them on my own years later.”

The important thing to note is that the longer your repayment period is, the more interest you’ll pay. So, when choosing your repayment plan, use a student loan calculator to see how much interest you’ll rack up over time. Although it might be tempting to have lower payments now, you might change your mind when confronted with the interest charges.

As an example, let’s say you have $30,000 of federal loans at a 5.05% interest rate.

  • With the 10-year standard repayment plan, you’ll pay $319 per month, and a total of $8,272 in interest.
  • With the 25-year extended repayment plan and non-graduating payments, you’ll pay $176 per month — and a total of $22,876 in interest.

Only you can determine whether paying more interest is worth it, and it’s up to you to decide how much you can afford each month. While we’d always recommend paying your debt off as quickly as you can, avoiding default is the most important factor. (If you have private loans, you’ll need to talk to your lender about repayment plans.)

4. Explore Student Loan Forgiveness

Student loans are extremely hard to discharge — even in bankruptcy. This is why some students have begun to rely on the idea of student loan forgiveness.

The most famous program is Public Service Loan Forgiveness (PSLF), which promises grads who work in public service (think: nonprofits, government, education) that their loans will be forgiven after 120 on-time payments.

Athena Lent, founder of Money Smart Latina, is pursuing PSLF.

“I’ve worked in the nonprofit sector my entire life — literally since age 17 — so I felt it was an appropriate option,” she says.

The only problem? PSLF has made headlines for, well, not forgiving many loans. So before embarking on this route, make sure you’ve read all the fine print, and have the right type of loan and payment plan.

“I’m hoping my loans will be forgiven,” Lent says, “but with today’s political climate, I am also working on a Plan B.”

5. Attack Your Loans

Once you’ve gotten your repayment plan lined up, sign up for automatic debits from your checking account to your loan servicers. Not only will that prevent you from missing payments, but it will usually snag you a .25% discount on your interest rate, too.

Now also might be a wise time to think about the possibility of paying off your loans early. Going back to that $30,000 loan at 5.05% interest, here’s how much you could save (based on this calculator):

  • By paying $100 extra each month, you’d pay off your loan almost three years early, and would save $2,496 in interest.
  • By paying $300 extra each month, you’d pay it off in less than five years and save $4,648 in interest.

To make it easier, you can sign up for an automatic savings program, and put the total toward your debt every few months. Or, you can try strategies like the debt snowball, which involves paying off your debts from smallest to largest, or the debt avalanche, which involves paying off your loans with the highest to lowest interest. You can also ask your employer if your company offers any student loan repayment assistance.

If the interest on your loans is fairly low, it might be wiser to invest your extra money than pay off your student loans early. That’s because you could earn more in the stock market than you’d save in interest. Here’s a calculator that will help you crunch the numbers.

6. Pay Your Loans Every Single Month

Whatever path you choose, make sure you pay your loans every single month. The worst thing for your finances and credit scores is to ignore your loans — as much as you might wish, they’re not going away.

One Twitter user told me they wished they’d known collections can start as soon as you graduate, and eventually lead to garnishment of wages or tax returns. Defaulting on your loans will also harm your credit, which will affect your ability to get an apartment, job, car loan, or mortgage.

The point here: If you’re having difficulty making payments, talk to your loan servicer. If you’re experiencing hardship, you could even consider applying for deferment or forbearance. Just note you may be on the hook for any interest that accrues during this period.

Take a Deep Breath

While student loans can be frustrating, infuriating, confusing, and overwhelming, sticking your head in the sand is not the solution. Do your research, create a plan, and slowly tackle your student loans — but first, take a deep breath.

“When I graduated I looked at my student loans and thought I’d have them forever,” says Smith.

“They gave me so much anxiety. I wish I could go back and reassure myself that student loans are not the end of the world and you will pay them off.”

 

Are Alternative Education Programs Worth the Investment?

The numbers aren’t pretty. In 2017, the average college graduate had an average monthly student loan payment of $393. In 2018, outstanding student loan debt among all Americans stood at $1.44 trillion, and 12% of that debt was at least 90 days past-due.

With numbers like that, it’s no wonder you might be rethinking getting a four-year degree. After all, it’s not uncommon to hear about people taking out crippling student loans only to go right back to working at Starbucks.

Yet, there is another option — alternative education programs. These can be trickier to cobble together since you may not have access to an easy pipeline of federal student loans (for better or for worse), but it can be done. We’ll give you the scoop on some common programs, and how you can make them work for you and your bank account.

Coding Bootcamps

Have you heard of coding “bootcamps”? These programs are designed to fast-track you to an entirely new career in the tech industry in as little as three months. And, did you know that these bootcamps offer the potential of making a six-figure salary right out of the gate. (It’s true: my husband just got a high salary offer after finishing a General Assembly coding bootcamp.)

Coding bootcamps aren’t without their risks, however. They’re generally expensive. For example, Full Stack Academy costs up to $17,910 for a 13-week program, and General Assembly charges up to $13,950 for its program. These courses may offer pay-in-full discounts, scholarships, income sharing agreements, or personal loans as a way to pay the tuition bill if you can’t pony up the cash on your own.

It’s important to thoroughly vet these programs before you attend, and don’t just trust the statistics that the companies publicize. Instead, ask to speak with real graduates who’ve gotten jobs, and ask about the outcomes of their classmates as well to get a more realistic view of what you can — or cannot — expect.

Start a Business

Sure, your grandpa may have told you to start your own business like he did instead of going to college. These days, however, you don’t necessarily have to go it alone.

There are many programs out there dedicated to helping budding entrepreneurs launch startups. These outfits — including accelerators, incubators or startup accelerators – can provide the technical expertise, coaching, office space, and even funding to launch your business successfully.

Typically, you apply for these programs, and need to be accepted to get in. Some are run by universities (meaning one or more people on the team need to be an enrolled student), and others are private groups. Accelerators typically make money by taking a stake in your business (i.e., equity), so they have a vested interest in helping your company succeed.

Associate Degrees or Certificates

Who said you need a four-year degree to succeed? Maybe you only need two years of college, or less. The reality is that many professions only require a couple years or less of coursework, including:

  • Radiation therapist
  • Physical therapist assistant
  • Dental hygienist
  • Emergency medical technician (EMT)
  • HVAC technician

The advantage of these career prep programs is that they’re often in high demand, meaning your odds are good for getting a job. You can also use student loans to pay for your education, but you won’t have nearly as much debt coming out of school as you would if you graduate from a four-year-degree program.

Join the Military

It’s true — Uncle Sam wants you. Yet, careers in the military can come at a high personal cost. Depending on your MOS (Military Occupation Specialty — i.e. your job within the military), you may see active combat in war zones and be deployed away from your family for long periods of time. You may also not get to choose where you live — the military will decide for you. You could end up living in a exotic location abroad, or in a cornfield in Iowa.

The rewards, however, are equally as great. You’ll be paid for the entire duration you’re in the military, including while you’re in training (and you can even take these skills with you to new jobs if you leave the military.)

You can earn extra pay in the way of signing bonuses if you choose certain specialties that may require you to be in a combat zone, a high cost-of-living area, or outside the continental U.S. The military may also provide housing and health care for you and your family, GI Bill benefits, subsidized housing, and retirement benefits.

Trade Apprenticeships

Since so many people are being pushed to go to college these days, there’s actually a serious shortage of jobs in the trades. This includes construction workers, plumbers, electricians, pipefitters, factory workers, and other physical jobs. From 2016-2026, the Bureau of Labor Statistics expects openings for another 180,500 construction workers.

This leaves a wide-open opportunity for you: Jobs are in high demand and salaries are equally high to match. Even better, many trade unions offer apprenticeship trainings for an affordable price or even for free. You may not be paid while you’re actually in class (which generally lasts for a short time), but you’ll be paid while you’re learning on the job.

You Don’t Necessarily Need a Four-Year Degree

Don’t let anyone push you into a four-year degree if that’s not what you want. The truth is that there are plenty of other options out there these days, and more are springing up each year.

College used to be a guaranteed way to get a leg up. But unless you have a concrete plan or know exactly what you want to do, it can also be a liability, especially if you have to balance savings with debt payments. Instead, set your sights on what matters most to you in your career — whether that includes college or not.

 

Overdraft Protection: What to Know & How to Avoid Fees

Have you ever swiped your debit card and worried that you might not have enough money in your account? If this sounds like you, you might consider overdraft protection to save you from such a predicament.

But is it worth it? Read on to learn all about overdraft protection and overdraft fees.

What is overdraft protection and how does it work?

In general, if you make a purchase with your debit card and don’t have enough funds in your account, the purchase won’t go through. This is typically called an overdraft — which is when you go below your account balance and dip into the negative territory. This situation can be awkward for you and the person behind the cash register. It also can be highly inconvenient if you need whatever you’re purchasing like now.

This is where overdraft protection comes in. Overdraft protection essentially protects you from overdrafting. So, instead of getting your card declined and leading to an uncomfortable situation, your card will go through like normal – even if you don’t have enough money in your account to cover that purchase.

But overdraft protection comes at a price, in the form of overdraft fees which can add up (more on that later). So, while overdraft protection, on the surface, can seem like a great solution to a temporary problem, it’s not all it’s cracked up to be.

So, what does overdraft protection do?

Overdraft protection is a safety net that helps you avoid overdrawing your account. In short, it’s a type of financial protection that will help float you money if you have insufficient funds. So if you swipe your debit card or try to get cash out of an ATM, you may be able to do so even if you technically don’t have enough money in your account.

If interested in this protection, you’d want to talk to your bank and enroll in the program. Additionally, it’s important to know all the upfront costs such as overdraft fees, credit line limits, etc.

Pros of overdraft protection

The main pro of overdraft protection is convenience. Overdraft protection allows purchases to go through, even if you don’t have enough funds in your account. This can save you embarrassment, inconvenience and time. You don’t have to deal with your card getting declined in public or being unable to access cash when you really need it.

How do I use my overdraft protection?

If you want to use overdraft protection, first make sure it’s something you’re signed up for. As noted above, your bank must get consent from you first to enroll you in overdraft protection.

Once you are enrolled, see if you have to link another account or a credit card to complete the process. Each bank may have different policies and procedures.

When it’s set up, overdraft protection will be in place if you overdraw your account. But remember: The hope is that you never have to use it! If you do, this means you’ve run out of money in your account, which is no fun.

Cons of overdraft protection

Overdraft protection seems good in theory but it can cost you in the long run. The fees can vary from bank to bank and your financial institution can decide what to charge. And it’s not just one charge either. You can continue getting hit with overdraft fees if your account is overdrawn.

We found that consumers can get hit with four to six overdraft fees per day. In some cases, that number can be as high as 12. What’s more: Consumers who frequently overdraft end up paying more fees than those who do not opt into overdraft protection. In fact, The Consumer Financial Protection Bureau (CFPB) found that frequent overdrafters who opt into this coverage pay nearly $450 more in fees.

On top of that, if you accrue enough overdraft fees and stay in the negative, you’re at risk of your account being closed. Having your account closed by your bank is more than just a pain, but a major inconvenience on your financial life. Just think about all the bills that are connected to that account, or not having access to your money for a period of time.

All of these are major cons of overdraft protection and should be considered carefully.

The reality of overdraft fees

Overdraft fees – by and large – are big business for many banks. In fact, the average overdraft fee is around $35. In 2017, consumers paid 34.3 billion dollars in overdraft fees in 2017, a number which has been on the rise since the Great Recession.

Even credit unions, which are often thought of as more community-minded and consumer friendly have jumped on the overdraft fee bandwagon. Overdraft fees at credit unions have nearly doubled from $15 in 2000 to $29 in 2017.

In short, overdraft fees are the bread and butter for many financial institutions. They give banks a way to make money off consumers by positioning overdraft protection as a useful service.

What does overdraft protection mean for your credit?

As noted above, in some cases your bank may offer you a line of credit or link your overdraft protection to a credit card. If linked to a credit card, you could end up paying more. Why? Because some card issuers might consider the overdraft a form of “cash advance,” which has its own set of fees, not to mention higher interest rates.

Can you overdraft if you have no money?

To get overdraft protection, your bank will typically connect a savings account and move over funds to cover the overdraft. If you don’t have any money in savings, the protection may not work.

However, other banks have overdraft lines of credit. If eligible, the bank will loan you a line of credit so that your purchases are covered, even if you don’t have enough money in your account. Of course, you will still have to pay it back, with interest, like any other line of credit.

Can you withdraw money from an ATM if you have a negative balance?

If you’re headed to the ATM to get cash, and end up taking out more than you have in your account, you will overdraft. The overdraft definition means that you “overdraw” on your account, which means taking more than you have available.

If you have overdraft protection, you will likely be able to withdraw money from your account and you’d have a negative balance.

But of course, there will be an overdraft fee attached. So while you may get the cash you need, if you don’t have the funds in your account, it will cost more in the long-run.

How can I avoid overdraft protection?

Before 2010, many consumers were unaware that they were being “opted in” to overdraft protection programs. However, starting in 2010, federal regulations shifted and required that banks get consumers’ consent to opt into overdraft protection.

To make things simple, however, you can avoid overdraft protection by not signing up for it with your bank. If you’re currently enrolled in this service, you can cancel it. This way, if you don’t have enough in your account, your purchase or transaction will get declined. While you won’t be able to make the purchase, you also won’t be hit you with an overdraft fee.

Another option is to open a bank account at Chime, which has no overdraft fees.

Lastly, to avoid this problem altogether, keep a buffer of money in your checking account. This can help you avoid dipping into the negative. Check your account balances daily and monitor your bill due dates and auto-drafts. This way you’ll know when money is coming out of your account.

Final word

There are certainly pros and cons with overdraft protection.

It can be convenient, yet costly. It can save you embarrassment and time, but also take a bite out of your hard-earned money. So, weigh these pros and cons carefully.

Final tip: If you never want to worry about an overdraft fee again, consider switching to a no-fee bank account.

 

How to Get Ahead If You’re Behind on Your Car Payments

Buying your first car is almost like a rite of passage. You’re officially an adult!

But then reality sets in. Having a car payment is a big responsibility and, with your other financial burdens (AKA student loans), things can get stressful  – fast. In fact, you may find that you are falling behind on your car payments.

This can be especially frightening because if you can’t make your payments, you run the risk of your car being repossessed by the lender. And, this can seriously hurt your credit.

So, what should you do if you find yourself struggling to make your car payments? We spoke to two experts who shared their tips for getting back on track financially. Read on to learn more.

What to Do If You’re Temporarily Behind on Car Payments

If you’ve recently faced tough times financially but expect to be back on your feet within a month or two, then your best bet is to negotiate with your lender. Kristy Runzer, CFP® and Founder of OnRoute Financial says it’s important to explain your situation in a clear and succinct way.

“Let them know you want to pay this loan back and that you would like to work together to find a solution. This will show lenders you’re serious and not trying to just skip out on the loan,” says Runzer.

After all, the last thing any lender wants is to spend time and resources to repossess your car. This is a lose-lose situation for both you and the lender. Runzer explains that by being proactive, you may be able to negotiate with your lender to extend your payment due date or extend the life of the loan to lower your monthly payment amount.

“Don’t be afraid to ask for what you want. The worst case scenario is that they say no to your request, but they will usually be able to offer some alternative solutions,” says Runzer.

What to Do If You Can’t Afford Your Payment for the Foreseeable Future?

If you’ve found yourself in a situation where it’s going to be tough to make your monthly payment, Bola Sokunbi, CEO and founder of Clever Girl Finance, says to consider one of these options:

  • Trade in your car for a cheaper model.

If you have too much car for your budget, you may be able to downsize for a more affordable model. However, be sure to check if the trade-in value of your car will be enough to cover the full amount of the original loan. If the value isn’t enough, you may be on the hook for extra payments on the original amount. This is why it’s so important to read the fine print and crunch the numbers before you agree to any new terms.

  • Consider going without a car…at least temporarily. “Take a full assessment of where you live. You may be able to get rid of your car altogether [if you are not upside down on your loan] and leverage public transportation,” says Sokunbi, also a certified financial education instructor. Other options include biking to work or carpooling with your co-workers. In fact, some companies may offer incentives for employees who walk, bike or take public transportation to work.
  • Buy a cheaper car for cash. Sokunbi says that you can “absolutely find a reliable enough vehicle for between $3,000 and $5,000 that will get you from point A to point B.”

It may take you a few months to save up to make this purchase, but then you will only have to worry about your auto insurance payment instead of a hefty car payment as well. Plus you’ll benefit from having peace of mind — and you can’t put a price-tag on that.

Genius tip: Find a side hustle to accelerate your savings goal. There are so many options out there from selling plasma to teaching English online to turning your spare bedroom into an Airbnb. Just a few hours a week could totally transform your finances within a few short months!

Improve Your Credit

Sokunbi explains that a lack of credit history is a contributing factor of high car payments for some millennials. However, by taking steps to build up your credit score, you’ll have a lot more options to choose from that will be easier on your pockets.

“With an improved credit score, you can expect to benefit from a better interest rate which will save hundreds or even thousands of dollars over the life of your car loan,” says Sokunbi.

This option worked well for me a few years ago. When I bought my first car in 2013, my car payment was $405 per month. Although I earned a relatively good salary at the time, when coupled with my student loan payment and rent, I didn’t have much of a disposable income at the end of each month. It took me about six months to build up my credit score by strategically opening a few credit cards and keeping my credit card utilization ratio below 10 percent. After that, I was able to work with my lender to reduce my payments to $300 based on my improved credit score. This, in turn, gave me much more wiggle room in my budget.

Next Steps: Steer Your Finances in the Right Direction

Once you get a handle on your car situation, then it’s time to take control over the rest of your finances. An excellent starting point is to pay yourself first. This means you pay yourself each time you get a paycheck  – even before you pay your bills. It might sound like a strange concept but it’s a huge game changer for anyone who wants to get ahead with their money. Paying yourself first helps you prioritize your financial goals so that you can get on a path to financial security!

 

How to Be Prepared for a Market Downturn in 2019

If you had money invested in the stock market in 2018, you may be feeling a tad bit of anxiety. Well, maybe a whole lot of anxiety. That’s because last year was the worst year for stocks in a decade, with the S&P 500 down 6.2%, the Dow falling 5.6%, and the Nasdaq dropping four percent. Yikes.

As we move into 2019, you may be wondering if the stock market will continue to decline or whether it will rise. While no one has a crystal ball to see into the future, some financial experts believe a period of slowed economic growth is headed our way, according to Investor’s Business Daily. So, what can you do to prepare for a potential market downturn in 2019?

There are many steps you can take to protect your finances and stay ahead in the event that we head into a period of financial decline. Take a look at these four tips from financial experts:

1. Set expectations for your money

First things first: Figure out your money goals. For example, if you need cash for short-term goals, like living expenses and paying off debts, this money should ideally be held in an emergency fund or another savings account that isn’t subject to stock market fluctuations, says Ellen Duffy, CFP and owner of Parkway Wealth Management in Boston. Parkway’s services are provided through Aevitas Wealth Management, Inc., a registered investment advisor.

According to Duffy, you should keep three to six months worth of expenses in an emergency fund. This way the cash is available if you should need it for any unforeseen reason, like a job layoff or major car repairs.

Also, consider life cycle changes happening in your life now or in the near future. For example, are you expecting a baby, planning to buy a home or considering leaving your job to start a business? If these or other life changes are on your horizon, you’ll want to beef up your cash reserves – regardless of which direction the stock market goes.

“Understanding that you have ample cash on hand can a great tool for being patient during periods of market fluctuation,” says Duffy.

2. Understand that market fluctuation is part of investing

Here’s a fact: Market declines are part of investing.

“They occur regularly and are difficult to predict,” says Duffy.

So, why do we feel nervous and emotional when the stock market declines?

“Because we are human! It is natural to feel uneasy during periods of market volatility,” she says.

But, here’s the good news: Declines don’t last forever and generally speaking – while past performance does not predict the future – markets do go up over long periods of time  – “they just don’t go up in a straight line,” says Duffy.

The best thing you can do if you’re worried about the volatility of the stock market is to educate yourself on the fluctuations over time, prepare for this and ride it out. Remember: What goes down, will come back up.

According to Fidelity, it’s impossible to predict when the good and bad days will happen. If you miss even a few of the best days, it can have a lingering effect on your portfolio. For this reason, it’s best to stay the course. 

Adds Duffy, “try to avoid making emotional decisions or trying to time the market – both actions can be harmful to investment performance.”

Here’s another tip: A market decline can be a good time to add to your investments – that is, if you have ample cash on hand, are prepared to invest long-term, and can handle potential volatility. Think of this like getting a great deal on a vacation or new car.

“People love to buy clothes, cars, airline tickets etc. when they are available at a reduced price… yet this premise often doesn’t translate to some investors,” says Duffy.

When stock prices fall, this may benefit you as you may be able to buy more shares or spend less money per share. Case in point: The worst times to jump into the market may actually turn out to be the best. For example, the best 5-year return in the U.S. stock market began in May 1932—in the midst of the Great Depression, according to Fidelity.

3. Don’t put all your eggs in one basket

Ok, this may seem cliche but this major premise in investing is also called “diversification.”

“Downside risk and performance can be amplified if you are invested in a single asset class or single stock – also referred to as ‘concentrated position risk’,” says Duffy.

Instead, you should consider investing in multiple asset classes, including: large cap stocks,  growth or value stocks, and small cap stocks. You may also want to consider investing in international stocks, emerging markets, commodities, real estate, and multiple categories of fixed income securities.

“Each asset class has its own attributes and over time may outperform or underperform for any given period ..and no one particular asset class has been the top performer year over year.”

If this information seems too high-brow, let’s boil it down this way: Diversifying, or spreading your investments across various asset classes, may help lower the fluctuation in your portfolio. To create a diversified portfolio, it’s important that you also understand your risk tolerance, as well as your timeline and goals for investing.

4. Save money automatically

Regardless of whether you have a lot, a little or no money in the stock market, it’s important that you save money. This can help you during a time of financial uncertainty (see #1). It can also help you reach your financial goals regardless of whether the market goes up or down.

A good way to stash away more money is to automate your savings. If you open a no-fee Chime Bank account, you can start saving more money right away. How? You’ll get a Chime Visa Debit card and every time you use your card, Chime will round up your transaction to the nearest dollar and deposit that change into your Chime Savings Account. Those pennies add up – fast. For example, if you use your Chime card twice a day on average, you’ll save more than $300 a year – without even thinking about it.

Stay the course

We get it: A potential stock market downturn may cause you to feel stressed out. But, if you use the four tips above, you’ll be more apt to weather a financial storm.

With that in mind, here’s a final pro tip: If you want or need more expertise on how to best manage your money, it’s a wise idea to seek help from an investment professional or financial advisor. This way you’ll have an expert who can help guide you through market ups and downs, as well as help hold you accountable to your money goals.

 

What to Do If the Stock Market Crashes

If you’ve seen the recent headlines, it seems that the next stock market crash could be around the corner. The housing market has stalled and, in December 2018, the Dow had the worst December performance since the Great Depression. All of these signs can be disconcerting, especially when you’re considering the impact to your own finances.

While this doom and gloom may make you feel as uneasy as the recession of 2008, there are some ways you can prepare yourself for a worst case scenario. Check out this guide to help you out if the stock market crashes.

Don’t panic

First things first: Do not panic. While you may freak out and consider taking all of your money out of your bank and hiding it under your mattress, this likely isn’t the wisest idea. Likewise, neither is immediately selling off your investments to avoid the volatility of the market. Why? Because if the market can crash, it can go up again.

According CNBC, if you invested in 2008 — instead of panicking — you’d be doing fairly well right now. The CNBC article states:

“In the 10 years since the crisis got rolling, the Standard & Poor’s 500 index has returned 7.8 percent, annualized, including dividends. That’s not far below the very long-term average yearly return of just under 10 percent. So a very unlucky investor who climbed into equities as they were about to careen off a cliff hasn’t been hurt too badly. A standard portfolio mix of stocks and bonds, as reflected in the Vanguard Balanced Index Fund, has returned a decent 6.8 percent over the same span, with roughly half the downside volatility experienced by the S&P 500. Clearly, the passage of time in the markets can help make up for bad timing.”

Cut back on spending

How much do you really need to live off of?

Look at your budget and evaluate areas where you can cut back. You can figure out where you can do this by looking at your bare-bones budget.

Why do this? Because if the stock market crashes, you may need to be a bit more frugal while you wait for a rebound. So, try not going out for coffee every day, but maybe only splurge for those lattes once a week. And, here’s a pro tip: Figure out how much money you need in order to pay all your bills. Once you have your budget set (rent/mortgage, food, transportation, etc.), you can look at the areas that aren’t essential and start to cut back. From there, you can figure out how much you’ve got to spend and how much you can save.

Boost your savings rate

A stock market crash can have a ripple effect on other areas of your life. For example, you may get laid off from your job, have limited access to credit or have a tough time getting clients for your side hustle. For these reasons and more, it’s important to be prepared and have cash saved up.

Experts recommend saving three to six months of expenses in an emergency fund, but you might want to boost that up to 12 months. While this may take some time, there’s no harm in starting to save more as soon as you can.

With beefed up savings, this will help you weather a storm if the stock market should crash.

Assess your risk tolerance

Investing is never a risk-free endeavor. When you’re just starting out, it’s important to determine your risk tolerance, as well as a strategy to grow your money over time.

What’s risk tolerance? Risk tolerance is how much risk you’re willing to deal with when investing. So, ask yourself this question: Are you an aggressive or conservative investor?

You may also want to consider any lifestyle changes that may affect the amount of risk you can take on. For example, are you preparing to have a baby, get married, go back to school or  going through a divorce? Perhaps you’re dealing with a layoff or you switched jobs and took a pay cut?

Your risk tolerance, as well as these lifestyle factors, should be considered and you can adjust your investing strategy accordingly. For example, perhaps you can move away from a stock-heavy portfolio if having too many stocks makes you skittish. Or, perhaps you can put more of your money into savings. The key is to be diversified in a way that makes sense for you – given your risk tolerance, lifestyles and goals.

Buy and hold

A good strategy in an uncertain market is to buy and hold.

So what exactly is that? Buy and hold is when you buy stocks and just hold onto them. You don’t try to play games or get into a situation you’re not well-equipped to deal with – such as trying to time the stock market.

The ultimate goal with investing is to build wealth, and this takes time. Think of your investments as a long-term play and this way you won’t be so stressed about the possible day-to-day volatility.

Think of it as a sale

Scarcity mindset, or a survival mindset — where you think resources are scarce — can be set off with a stock market crash. You might feel scared about your money, like there will never be enough.

Instead of living in fear and holding onto your money so tightly, you may benefit from a perspective shift. Consider a market crash as a ‘sale’ and invest more. If you feel comfortable, you can use this time to invest on the cheap and reap the benefits in the long term.

Keep your options open if the worst should happen

You’ll want to have a contingency plan if the sh*&^ hits the fan.

So, think about the skills you have in case you have to take a different type of job or start a new side hustle to earn extra income.

Here are some other tips: Check into whether your loans have better payment options available. For example, federal student loan borrowers can pay zero dollars on an income-driven repayment plan if your income is at a very low level.

Final word

The financial headlines can be scary. Yet, you can take steps now to be proactive if the stock market crashes. If it does take a tumble, remember not to panic and think long-term. This way your can stay the course and keep your finances in order during the short-term.

 

9 Ways to Pay off Your Debt in 30 Days

Paying off large debts usually requires a long-term game plan. But just a couple of easy steps can help you pay off your smaller debts in a short time frame. Want to buckle down and eliminate debt quickly? Here are nine ways to pay off your debt in 30 days or less.

1. Set a realistic goal

Most people can’t reasonably expect to quickly pay off a mortgage or new car loan. To eliminate a debt in 30 days, you’ll need to pick one you can realistically pay off. Look for a small credit card balance or a loan that’s approaching a zero balance.

2. Use the ‘snowball method’

With the snowball method of debt repayment, you focus on paying off your smallest loans first, working in order of smallest to largest. You make minimum payments on your other debts, and make larger payments on the smallest debt until it’s paid off. Successfully paying off a smaller debt will provide you with a psychological boost and free up a little extra monthly cash to put toward the next smallest debt.

Another strategy is to focus on debts with the highest interest rates first, as that will save you more money in the long run — though this strategy is a longer-term debt repayment method.

3. Go on a 30 day spending diet

Just like extreme food diets, spending diets are tough to maintain for a long time. But slashing your spending for 30 days is achievable, and you’ll free up extra cash to put toward your debt.

Analyze your current budget and spending habits, and look for every opportunity to cut expenses. You could cook all your meals at home instead of dining out, watch Netflix instead of going to the movies or take public transportation instead of driving or hailing cabs. At the end of the 30 day period, all the money you saved should be put toward your debt.

4. Stop using your credit card

If you’re trying to pay off a credit card balance in 30 days, it’s common sense to temporarily stop using it. But you should avoid making too many purchases on any other credit cards you own, or you’ll end up with a different credit card balance to pay down. This philosophy applies to other debts, too.

Once your credit card is paid off, you may be tempted to close it. But unless you can’t trust yourself to responsibly manage your credit card, you’re better off leaving it open to boost your credit score. (Here are 7 other credit myths, debunked.)

Remember, the best way to use a credit card is to only make purchases you can afford to pay off in full each month.

5. Find extra sources of income

Finding an extra source of income for at least 30 days can help you earn cash for debt repayment. You could teach music lessons, tutor kids, mow lawns or drive for Uber. All the extra income you earn should go directly to your debt.

Looking for some extra income ideas? Check out our list of side hustles that cost nothing to start.

6. Redeem your cash back

If you have a stack of points or cash back rewards in your credit card account, now could be the right time to redeem them. You may be able to put your rewards directly toward your credit card balance, or cash out the rewards and use the funds for debt repayment.

7. Make extra payments

This may sound obvious, but you should consider making extra payments throughout the 30 day time period as cash flow allows. Saving up your extra cash for 30 days for a one-time payment leaves you at risk of spending it elsewhere. Instead, make payments as soon as extra cash comes in.

8. Get a debt consolidation loan

Debt consolidation loans can help you roll multiple debts into a single, manageable loan with a potentially lower interest rate. It’s a good strategy if you have trouble keeping track of your payments, or have several high-interest debts. This may not help you pay off your debt in 30 days, but you could get a lower interest rate and zero out your balance with your current creditors.

9. Open a balance transfer card

If your current credit card’s interest rate is making it difficult to pay off, you may want to consider a balance transfer card. Balance transfer cards will let you transfer your existing credit card balances to a new card with a lower interest rate – many cards offer 0% APR for introductory periods of 12 months or more. This strategy also might not allow you to pay off your debt quickly, but you will eliminate the balance on your high-interest cards.

Want more ways to save up to pay off those debts? Here’s 25 ways you can start saving right now.


This article originally appeared on Policygenius.com.

 

Chime’s Ultimate Guide to Building Credit

Your financial health is like a puzzle, with different pieces that fit together to create a complete picture.

One of the most important pieces is your credit history and of course, your credit score. (That’s the three-digit number lenders use to determine how likely you are to repay your debts.) FICO scores, the most widely used credit scoring model in the U.S., range from 300 to 850. The average FICO score recently hit an all-time high of 704.

This in-depth guide breaks down everything you need to know about engineering a better credit rating.

Where credit scores come from

Before you can have a credit score, you first need to have a credit report. This is a collection of information about your credit accounts, including who you owe money to, how much you owe, your minimum payments and how long you’ve been using credit.

FICO scores focus on five specific factors to calculate your credit score:

  • 35% of your score is based on payment history
  • 30% is based on your amounts owed
  • 15% is based on the length of your credit history
  • 10% is based on inquiries for new credit
  • 10% is based on the types of credit you’re using (i.e. loans and credit cards)

Knowing what affects your score can help you adopt the habits that you’ll need to build good credit. But what if you’re one of the 62 million Americans with a thin credit file?

“A thin credit file just means that you don’t have an established credit history,” says personal finance expert and Money Crashers contributor David Bakke.

“Maybe you’re younger and just have never had a need for credit, or possibly in general you’ve never signed up for credit cards or taken out a car loan or a home mortgage,” says Bakke.

With a thin credit file, you may not have enough credit history to generate a credit score. Fortunately, that’s a situation you can remedy. Opening a bank account is a good first step. You can use your account to get a handle on your spending, keep track of bills and start growing your savings. Once you begin using credit, you’ll already be in the habit of keeping your spending in check and paying your bills on time. Both of these positive habits can help your score.

How to build credit from scratch

If you’re starting from square one with building credit, there are a few different routes you can take. Here’s a look at some of the most common ways you can build credit as a beginner:

Secured credit cards

Opening a secured credit card can be a great option to build credit for someone who’s new to credit or has a thin credit file, says Steven Millstein, a certified credit counselor and editor of CreditRepairExpert.

“Unlike other credit cards, a secured credit card requires that you make a cash deposit upfront. This deposit will usually be your credit card limit, which serves as collateral if you fail to make payments,” Millstein says.

The major pro of a secured credit card is that your payment history and spending can help to establish your credit history. That’s because many secured card issuers report your activity to the credit reporting bureaus. With a card limit of only a few hundred dollars, this can keep you from racking up debt.

Credit builder and savings secured loans

Credit builder and savings secured loans offer a slightly different take on building credit.

“These are basically small installment loans where the loan is secured by a certificate of deposit or a savings account,” says Jeff Smith, vice president of marketing for Self Lender, which offers credit builder loans.

“As the person repays the loan, the payments are reported to the credit bureaus so they can impact the credit history. At the end of the term, the CD or savings are unlocked and returned to the account-holder.”

Essentially, you’re repaying a loan to build credit, but you don’t get the proceeds of the loan until it’s paid in full. That’s a reversal from how loans usually work, where you get the money upfront.

There are also other drawbacks to credit builder loans. For example, you may not get immediate funds to make a purchase. On the other hand, this may not matter if your main objective is to build credit.

Become an authorized user

Instead of getting a credit card in your name, you can ask a friend or family member to add you to one of their cards as an authorized user.

“The implication is that their (the main card holders) good credit practices will start to build your credit,” Millstein says.

According to Equifax, being an authorized user allows you to make purchases with the card and have the account’s activity show up on your credit report. Yet, you’re not the one liable for the card’s balance. If the primary card holder practices good credit habits, those habits would be reflected in your credit report and score.

There’s a catch, however. If the primary card holder falls behind on payments or maxes the card out, this can hurt your credit.

Ask someone to co-sign a loan with you

Co-signing on a personal, student or auto loan is another way to build credit. Unlike being an authorized user, however, you share responsibility for the debt with your co-signer.

Asking someone to co-sign can help you qualify for a loan that you may not be able to obtain on your own. Once you’re approved, you can work on repaying the loan and building credit history.

But there is some risk involved. If you default on the loan, both your credit history and that of your co-signer can be damaged. And, this can potentially ruin your relationship, Millstein says.

How long will does it take to build credit?

“Building good credit is probably not going to happen overnight and getting a solid credit score as well isn’t going to happen immediately,” Bakke says.

So, just how soon can you expect to see results?

According to Experian, it can take between three and six months of activity to get enough history on your credit report to calculate a credit score. Millstein says it can take about 12 months to grow a fair credit score, which is in the 580 to 669 range for FICO scores. He says working towards a perfect 850 score, on the other hand, can take several years.

Bottom line? You’ll need to be patient and give your good credit habits time to pay off.

Check in with your credit regularly

If you’re hard at work on building credit, don’t forget to track your progress. You can get your credit report three times a year for free through AnnualCreditReport.com. Free credit monitoring services help you track your score month to month.

In the meantime, set up alerts for your bills and schedule automatic payments through your mobile banking app so you never miss a due date. When you make payments on time and keep your balances low, your credit will eventually improve!

 

22% of This Age Group Thinks It’s Impossible to Get out of Debt

Debt can easily turn into a massive money problem — a problem millions of Americans struggle with. More than 80% of Americans consumers consider debt a financial priority. Debt can affect anyone, but there’s one age group that faces the biggest debt burden.

survey by LightStream found Gen Xers — those born between 1965 and 1979 — have accumulated the most debt. And as they head into what should be their highest earning years, they’re not feeling very optimistic of their ability to rid themselves of debt: 22% say they don’t see a way out.

While eliminating debt takes effort, patience and sometimes years of dedication, it certainly shouldn’t be viewed as impossible, say experts. Here are some quick tips to turn your debt around.

1. Take action

A person can wander into debt, but they can’t simply wander out, said financial author Dave Ramsey. You must become fed up enough with your situation that you decide to change.

Ramsey describes personal finance as “80% behavior and 20% head knowledge.” He said you need to start by getting to a point where you are mad enough to take action.

2. Cut back on credit cards

Break the credit card habit. If you want to get out of debt, you should work to stop accumulating more. Credit cards are only a convenience, says Michael Gerstman, CEO of Gerstman Financial Group.

“If you must use a credit card, then it needs to be treated like a debit card with all new purchases paid off weekly,” said Gerstman.

But the best way to cut out credit is by ditching it altogether. Here are some easy tips on going cash-only.

3. Track your expenses

At the beginning of each month, take five minutes to write down everything you are earning and spending, said Ramsey. In addition, go through all your credit card and bank statements to weed out unnecessary spending.

“This may sound difficult, but many people don’t realize how much they’re spending on things like cable television, landline phones, and coffee drinks,” says Marc Diana, CEO on MoneyTips.

Staying on top of your tracking will put you in control of how much you have left. Keeping a tight budget can help you pull in spending and understand where your money is going.

Here’s an easy budgeting spreadsheet to get you started.

4. Adopt a positive mindset

The human mind can be a very powerful thing, said Tiffany Welka, the vice president of VFG Associates. Having the positive mindset that you can tackle your debt often translates to real-life financial success.

“Cultivating a growth mindset will improve your ability to succeed in all areas of your life, not just your financial world,” she said.

Looking for more ways to get out of debt? Here are 9 ways to pay it off in 30 days (or less).


This article originally appeared on Policygenius.com.

 

Good Credit Scores vs. Bad Credit Scores

Your credit score is a huge indication of your financial health. In fact, your credit is so important that lenders refer to it when you apply for a line of credit, a home mortgage, a car loan or even a new credit card.

But, in order to be approved for loans and credit cards you often need a “good” credit score. That begs the next question: What makes a good score vs. a bad score? Before we jump in, let’s go over the basics.

What is Credit and How is Your Score Calculated

Your credit score is a three digit number that helps lenders determine how credit worthy you really are. In other words, it’s a tool lenders use to determine if you are a good borrower and thus most likely to pay off your loans.

The three major credit bureaus – Equifax, Experian and TransUnion – collect information on you to help determine your credit score. For instance, whenever you open a new account via a loan or line of credit, this information gets reported to the three bureaus.

The bureaus then use a credit scoring model to determine what your score is. The two most popular credit scoring models are FICO and Vantage. FICO is used widely by lenders, but you’ll want to aim for a high credit score no matter which scoring model is being used.

What Makes a Good Credit Score?

There are a few important factors that help contribute to your credit score. These factors include your payment history, amounts owed, length of credit history, credit mix (how many different types of account you have,) and new credit.

Credit scores range from 300 to 850. Good credit scores fall in the 670 to 850 range. Anything below 670 is either considered a fair or bad credit score, according to FICO.

If you want to raise your credit score, it’s important to prove that you’re a responsible borrower and not a risk to the lender. Why? Lenders don’t want to give money to people who won’t pay them back. This is why the most crucial things you can to do improve your credit are:

 

  • Pay your bills on time
  • Keep credit card balances low

To help you do this, you can create a detailed budget and set up reminders or automatic withdrawals to ensure you pay bills on time. The longer you keep up with this habit, the better your score will get. For example, say you have a student loan with a 10-year term. You’ve made on time payments for about eight years so far. Good for you! This will improve your credit and show lenders that you can be trusted to pay back a sum of money over time.

Here’s another pro tip: When it comes to credit cards, never spend more than 30% of your credit limit. Remember, credit is a tool, and it will not help your score if you max out your credit cards. So, if your limit is $2,000, only spend 30% of that limit, or $600. Then, pay the bill on time. If you continue this habit, your credit score should improve.

What Makes a Bad Credit Score

There are a few things you can do that will result in a bad credit score. They include:

  • Not paying your bills and loan payments on time
  • Not paying your loans at all
  • Keeping a high balance on your credit card
  • Applying for multiple credit accounts regularly

For example, let’s take a look at your bills. If you don’t pay your bills on time, companies can report you to the major credit bureaus and this will result in a negative mark on your credit report. Keep in mind that this can happen for medical bills, utility bills, and even your phone bill. If you just stop paying altogether, this is even worse. Your account will become delinquent and it will reflect poorly on your credit reports.

Keeping a high balance on your credit cards is another common mistake that indicates you may not be able to pay back what you borrowed. The takeaway: Borrow only what you can afford to repay in a timely manner.

Ways to Improve Your Credit

If you want to improve your credit, focus on improving your standing with each of the five factors that impact your credit score. Here’s a breakdown of those factors and how much each one contributes to your score:

Payment history: 35%

Amounts owed: 30%

Length of credit history: 15%

New credit: 10%

Credit mix: 10%

Ideally, you’ll want to focus on improving your finances in the two areas that hold the most weight. This means you should pay bills on time and keep your balances around 30% (or lower) of your overall limit.

You should also avoid applying for new credit too often. Each time you apply for credit, it adds an inquiry to your report. Too many inquiries can hurt your score.

Over time, your credit history length will increase as long as you keep accounts open. If you close an account, your credit history will die with it. This is why it’s better to keep credit card accounts open even if you aren’t using them regularly.

Here are some other tips: If you have existing debt, you can boost your credit by paying it off. You can also establish positive borrowing history by getting a secured credit card and paying off the balance in full each month. With this type of credit card, you have to put money down first to establish your credit limit. Then, you borrow against it and repay it responsibly.

Lastly, consider establishing a no-fee bank account and emergency fund so you won’t be tempted to use credit to help you cover unexpected expenses that you can’t afford.

Know the Difference and Protect Your Score

In order to improve your credit history, you’ve got to start somewhere. A good place to begin is to know what makes a good credit score and a bad credit score. Ultimately, improving your credit score boils down to your spending and money management habits.

Are you ready to develop better money habits? Follow this guide and over time you will watch your credit score move into the “good” range.

Banking Services provided by The Bancorp Bank, Member FDIC. The Chime Visa® Debit Card is issued by The Bancorp Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa debit cards are accepted. Chime and The Bancorp Bank, neither endorse nor guarantee any of the information, recommendations, optional programs, products, or services advertised, offered by, or made available through the external website ("Products and Services") and disclaim any liability for any failure of the Products and Services.

© 2013-2019 Chime. All Rights Reserved.