Tag: Debt

 

3 Ways to Get Out of Student Loan Default

If you’ve missed student loan payments and are in default, you know how horrible it is. Your credit score may be wrecked. Your loan servicer can garnish your wages. You may even be dealing with collection agencies. 

There’s no escaping the negative ramifications for not paying back your student loans – even if you switch banks. 

It’s easy to feel overwhelmed and defeated if you’re in default. Yet, you’re not alone. Student loan debt has become a national epidemic. According to the U.S. Department of Education, over 530,000 borrowers entered into default between October 2014 and September 2017. 

If you’re in student loan default, here’s what you need to know to get back on track and improve your finances.  

What is student loan default?

Student loan default is an official loan status that occurs when you miss a certain amount of payments. According to Federal Student Aid, your federal loans are in default once you miss your scheduled loan payments for 270 days or more. With private student loans, you’re in default as soon as you miss three months’ worth of payments. 

Entering into default is a serious problem. Take a look at what can happen

  • Lenders can garnish your wages, making it difficult to make ends meet.
  • The default will stay on your credit report for up to seven years. And, with a damaged credit report, you may have trouble getting approved for a car loan or a mortgage.
  • Late fees and interest will accrue, causing your loan balance to balloon.
  • Your professional license could be suspended, hurting your chances of finding work.

Three ways to end student loan default

If you have federal or private student loans in default, you have three options: 

1. Student loan rehabilitation

If you have federal student loans, one option to consider is student loan rehabilitation. With this approach, you work with your loan servicer to come up with a written agreement where you pledge to make nine voluntary and affordable monthly payments during a period of 10 consecutive months. 

Loan rehabilitation has several benefits. After completing the nine payments:

  • Your loans will no longer be in default.
  • The loan servicer will remove the record of default from your credit report.
  • Your loan holder will no longer garnish your wages or seize your tax refund. 
  • You’ll regain eligibility for benefits like loan deferment or forbearance and access to income-driven repayment plans.
  • You’ll be able to qualify for additional federal student aid.

Your payment is determined by your loan servicer, but it will be equal to 15 percent of your discretionary annual income, divided by 12. Your discretionary income is the amount of your adjusted gross income that exceeds 150 percent of the poverty guideline for your state and family size. Under a loan rehabilitation agreement, your payment could be substantially lower than it was under a standard repayment plan. 

For example, let’s say you’re single, live in one of the 48 contiguous states, and make $30,000 per year. According to the U.S. Department of Health and Human Services, the federal poverty guideline for you is $12,490. 

Your discretionary income is calculated by subtracting 150 percent of the poverty guideline — $18,735 — from your income. You’d subtract $18,735 from your income of $30,000 to get $11,265. 

Your payment under a loan rehabilitation agreement would be 15 percent of your annual discretionary income, divided by 12. To calculate your payment, you’d take 15 percent of $11,265, which is $1,689.75. Divide that number by 12 to get your monthly payment: $140.81. 

If you can’t afford the payment because of extenuating circumstances — such as higher than usual medical bills or housing expenses — you may be able to negotiate a lower payment. You’ll have to provide the loan servicer with documentation about your income and expenses. They’ll use that information to calculate a new payment after subtracting your necessary expenses from your income. 

If you decide that loan rehabilitation is right for you, contact your loan servicer directly to start the process. 

2. Federal loan consolidation

Another option to get out of loan default is federal loan consolidation. With this strategy, you consolidate your defaulted federal loans with a Direct Consolidation Loan. 

To qualify for loan consolidation for defaulted loans, you must agree to repay the new loan under an income-driven repayment plan and make three consecutive, voluntary, on-time monthly payments before you can consolidate. 

Once you consolidate your loan, your loan is no longer considered to be in default. You’ll regain eligibility for federal benefits like forbearance, deferment, and additional student aid. However, consolidating your debt doesn’t remove the record of the default from your credit report. 

While consolidation can be an effective strategy, it won’t work for everyone. If your defaulted loan is being collected through wage garnishment or in accordance with a court order, you can’t consolidate your loans until the wage garnishment order or the judgment is lifted. 

3. Student loan refinancing

If you have private student loans, you can’t qualify for loan rehabilitation or loan consolidation. Instead, your options are limited. 

In most cases, the only way to get out of default is to pay off your loan in full. But if you’re in default, you likely don’t have enough money in the bank to do that. This doesn’t mean you’re out of luck. It just means you may have to consider student loan refinancing. 

With student loan refinancing, you work with a private lender to take out a loan for the amount of your current debt, including the loans in default. You use the new loan to pay off the old ones, instantly ending the default. If your loans were in collections, all collections activity will end, and the lender will no longer be able to garnish your wages. 

However, there are some downsides to consider. Since your loans were in default, your credit score likely went down. This means you may not qualify for a refinancing loan on your own. 

Yet, you may get approved for a loan if you have a co-signer — a friend or relative with excellent credit and a steady income who signs the loan application with you. Because having a co-signer lessens the risk to the lender, you’re more likely to be approved. Keep in mind that if you fall behind on your payments, the co-signer is responsible for making them. 

Repaying your student loans

If your student loans are in default, your situation is serious. 

However, there are strategies you can use to get out of default and get your finances back on track. By following these tips, you can end the default and start saving money

 

The Real Life Impact of Overdraft Fees

When you’re low on funds and waiting on your direct deposit to hit your bank account, you’re in no place to pay a hefty overdraft fee. Yet, because many big banks charge an average of $35 per overdraft, a measly five dollar charge can easily balloon into $40. Yikes.

If you’ve had to pay overdraft fees, you’re not alone. According to the FDIC, big banks with over one billion dollars in assets collected more than $11.45 billion in overdraft and non-sufficient funds in 2017. 

To get a handle on how these fees can negatively impact your financial situation, we talked to several people who gave us the low-down. Read on to learn more. 

Unfortunate events happen in threes 

When a glitch caused Ruby Escalona’s credit card bill — which was set on autopay — to be paid twice, he was dinged with three $35 overdraft fees from his bank, totaling a whopping $105.

Because Escalona had put four airline tickets on that month’s cycle, to the tune of a few thousand dollars, those overdraft charges put his bank balance in the negative. Escalona called the bank and explained the situation. 

“While the bank still deemed it was ‘my fault’ for the IT issue, the bank did waive two other overdraft fees because of the debacle,” explains Escalona, who is the founder of A Journey We Love. 

When you don’t track your expenses 

When Jerry Brown was in college, he was terrible at managing his money. He was essentially living paycheck to paycheck.

“Since I didn’t keep track of my expenses, I ended up charging my card when I didn’t have the money in my account to cover the expense,” says Brown of Peerless Money Mentor. 

One semester it got so bad that he was dinged with $200 in overdraft fees. That was quite a bit for a struggling college student.

Now, however, he avoids overdraft fees by tracking his expenses (you can do so with a money app), and setting up an emergency fund. 

When three $5 items end up costing $120 

When Riley Adams and his brother were in college, they stopped by a fast food joint on their way to the movies. Adams’ brother initially didn’t want anything to eat, so Adams ordered a single combo meal for himself. Naturally, his brother got hungry and wanted to order something as well. So, they bought another combo meal. Next, the pair had a hankering for dessert. 

Talk about an avalanche of bank fees. Those three five dollar transactions each incurred a $40 overdraft fee, adding up to $120. As it turned out – due to a holiday – Adams’ paycheck hadn’t hit his bank account yet. The direct deposit went through the next day and the bank forgave the overdraft fees.

“We ended up having all the fees waived after contacting the bank and informing them of the situation,” says Adams, who is a 30-year-old financial analyst at Google and founder of Young and the Invested. 

To avoid this from happening again, Adams reached out to his bank to establish an overdraft protection line of credit. Anytime his checking account balance falls below a certain threshold, there’s an automatic transfer from his savings account. 

Note: If you’re a Chime Bank member, you can sign up for direct deposit and get paid up to two days early. 

When rent is due 

When Michael Lacy was living paycheck to paycheck, he wrote a check to cover his rent. But, he forgot about a few purchases he made the day before: filling up his tank with gas, renting a Redbox movie, buying a hoagie, and picking up a few things at the grocery store. The charges were still pending. 

His bank cleared his rent check first, but the other charges were all hit with overdraft fees. The total damage? A hefty $128. He had enough in his account to cover the smaller purchases, so if his bank cleared the transactions in the order they were made, he would’ve only incurred a single $32 overdraft fee for the rent check. 

These days, Lacy takes 30 minutes to plan all his spending at the beginning of each month.

“Every dollar has a destination, whether that’s spending, saving, or investing,” says Lacy, a personal wealth coach and founder of Winning to Wealth

Working for a big bank

When GP (that’s her pen name) worked at a national bank right after college, she witnessed some customers who were regularly racking up overdraft fees, while others would get dinged for an occasional one. 

The worst case? When a regular customer came in to the branch to see what could be done about her overdraft fees. When GP pulled up her account, the balance was negative, and there were tons of overdraft charges.  

“At the time it happened, the bank would process large transactions first — with the thought that it would ensure mortgage and car payments had priority,” says GP, who blogs at Entirely Money

“The only problem with this is that all the subsequent small transactions would then each be hit with an overdraft fee.”

In total, the overdraft fees that hit this customer’s account added up to over $200. As the bank manager would only give a one-time courtesy credit for a few of the fees, the customer was still stuck with more than $100 in overdraft fees. 

A cluster of ill-timed events

When an overpayment and a direct deposit issue happened at the same time, Jason Vitug’s funds dropped lower than the automatic bill payment that hit the account. 

What’s more, because his bank overdrew his account with the largest amount first, it caused the three smaller payments to be overdrawn. He ended up paying $120 for four overdraft fees. 

“Basically, the bank stated I overdrew my account four times in one day, even though three of those withdrawals would’ve been covered,” says Vitug, founder of Phroogal

To avoid this from happening, Vitug suggests attaching a savings account or line of credit for overdraft protection. Or just stop banking with that bank. 

“Simply choose a bank that won’t overdraft your account, and just refuse payment,” says Vitug. 

To avoid these headache-inducing, frustrating scenarios, avoid bank fees altogether. FYI: Chime never charges fees of any kind. Never ever. 

 

How to Pay Off Debt in Collection: A Guide to Saying Goodbye to Credit Collectors

You’re in debt and you have no idea how you’re going to pay it off. 

The due date passes by. You want to pretend your debt doesn’t exist. As the days and months go on, you’re delinquent on your loans and they end up in collections. Your credit is shot. The menacing calls begin and all you want is for them to stop. 

Yet, while this is indeed a difficult situation, it’s one you can take control of and fix with the right actions. In this guide, we offer up ways you can pay off debt in collections. Take a look.

What is a Collection Agency and Why are Debt Collectors Calling?

First, let’s discuss the cast of characters involved with debt collections. 

There is the collection agency or credit collection service, which is a third-party company hired by a lender to collect an outstanding balance from a borrower. The collection agency then hires debt collectors, who are the actual people doing the dirty work and calling borrowers to get the money back

Credit card debt, student loans, medical bills, utility bills and more can all go to collections. Business debt isn’t eligible for debt collections. 

While debt collectors can take certain actions like call you at work, there are restrictions so that the hounding doesn’t become an abusive practice. For example, debt collectors can only call you during certain hours, in many cases between 8am-9pm.

How to Find out Which Debt Collection Agency You Owe Money to 

If you want to get out of debt collections, you need to pay money to the credit collection services agency. 

But how do you know exactly who to pay and who the debt collection agency is? In some cases it might be clear but if not, here are ways to find out which debt collection agency you owe money to: 

  • Contact the Original Creditor 

If you know what bill is in collections, contact the original creditor for more information about your collections account. You can then ask which debt collection agency they are using and get the contact information. Then, contact the debt collection agency and ask how to proceed to get your payment in good standing. 

  • Check Your Credit Report 

If you know you’re in debt collections but are unsure of which loans are not in good standing, you’ll want to get your credit report. Your credit report is a document that contains your full credit history, including outstanding loans that may be in debt collections. 

Many debt collection agencies report to the three major credit bureaus — Experian, TransUnion and Equifax. You can access all three of your credit reports once a year at AnnualCreditReport.com

Make sure you check all three as some debt collection agencies only report to one credit bureau, not all of them. 

  • Answer the Phone When Bill Collectors Call You

In some cases, your debt collection fees won’t appear on your credit report. And sometimes, the debt can be passed onto other debt collection agencies, leaving you wondering who to contact.

In this case, you will likely have to wait until the debt collector calls you to get more information. It’s not fun and no one wants to deal with debt collectors on the phone. But if you’re unsure of who the debt collection agency is, answer the phone, get the information and ask how to get your loan in good standing. You’ll also want to get a debt verification letter and check your records to make sure you’re not overpaying as debt collectors can make mistakes too.

Three Ways to Pay Off Debt Collectors 

If you want to get out of collections and repay your debt, there are a number of routes you can take. Some of them may require negotiation and whatever you do, get everything in writing. Here are three ways to pay off debt collectors:

1. Negotiate a Settlement With Your Debt Collector

In some cases, you may be able to negotiate a settlement with your debt collector. A settlement is typically less than the amount owed and is used in exchange for deleting the account from your credit report. 

You’ll need to get a letter in writing about the settlement terms before making your first payment. Make sure you understand your rights and responsibilities, and that you know the terms of the settlement. 

2. Pay Off the Debt In Full 

If you have a small bill that is outstanding and in collections, you can choose to pay off the debt in full. Under this option, the good news is that your debt will be paid off. The bad news is that the collection account will remain on your credit report. 

3. Create a Debt Repayment Plan

If you can’t negotiate a settlement or pay the debt in full, you can talk to the debt collection agency about a debt repayment plan. 

In this case, it’s important to make all of your payments on time and in full to get your loan in good standing. 

What Happens if You Don’t Pay a Collections Agency?

If you have debt collectors hounding you, you might want to bury your head in the sand. Unfortunately, if you aren’t paying off collections, your problems will only get worse. Here’s why:

  • Your Credit Score Will Take a Hit 

The debt collection agencies report to the major credit bureaus. So, if you ignore them, your credit score may go down. This can make it more difficult to get approved for loans and may result in higher interest rates if you do get approved. 

In some cases, you may be able to negotiate the mark off your credit report. If not, the negative entry will remain on your credit report for seven years. And remember: This can have a sweeping impact on every area of your financial life. 

  • You May Have Late Fees, Making the Debt Harder to Pay Off

If your debt is in collections, it’s not just the outstanding balance you have to worry about. There could be additional late fees tacked onto your balance. All of the extra fees can add to the total cost of your loan, making it even harder to pay back. 

Deal with Your Debt

Debt collectors have one job — to collect your debt. In order to do that, they will call you many times until they reach you. This can be stressful and annoying.

So, answer the phone and face the issue head on. Talk to your debt collector about your options, whether that’s a settlement, payment plan or paying it off in full. Make sure you get everything in writing.

It’s not fun and can be tough to deal with, but getting out of collections will help you breathe easier and free up stress. Once you do this, you’ll be able to focus on other financial goals like saving money and investing. 

 

4 Things You Could Afford If You Didn’t Have to Pay Bank Fees

As consumers, we accept pesky — and exorbitant — bank fees as a regular part of our everyday lives. To many of you, these fees are as commonplace as paying “service” fees when purchasing concert tickets.

So, why exactly do big banks charge fees? Besides trying to turn a major profit, banks charge fees to cover operating expenses — paying employees, developing technology, and covering other overhead costs. Yet, here’s a truth bomb: While bank fees are oftentimes considered the cost of doing business, big banks are profiting big-time off these fees. In fact, according to a 2017 analysis by CNNMoney, the three biggest banks — Wells Fargo, Bank of America and JP Morgan Chase — earned more than $6.4 billion in ATM and overdraft fees. Another sad truth: It turns out that eight percent of customers pay 75% of overdraft fees, per the Consumer Financial Protection Bureau

Just imagine what you could do with your hard-earned money if you didn’t have to pay bank fees. But first, let’s take a closer look at exactly how much the big banks are raking in. From there, we’ll look at all the awesome, amazing things you could do with that staggering sum instead.  

The Top 10 Biggest Banks in the U.S.

While there are about 5,800 banks in America, just 0.2% hold more than two-thirds of the industry’s assets

Ready for another jaw-dropping statistic? The 15 largest banks collectively hold a total of 13.7 trillion in assets. Here’s the breakdown

  1. JPMorgan Chase & Co.: $2.53 – $2.62 trillion in assets 
  2. Bank of America Corp.: $2.28 – $2.34 trillion in assets 
  3. Wells Fargo & Co.: $1.87 – $1.95 trillion in assets 
  4. Citigroup Inc.: $1.84 – $1.93 trillion in assets 
  5. Goldman Sachs Group Inc.: $917 – $957.19 billion
  6. Morgan Stanley: $852.86 – $865.52 billion
  7. U.S. Bancorp: $462.04 – $464.61 billion
  8. TD Group US Holdings LLC: $380.65 – $380.91 billion
  9. PNC Financial Services Group Inc.: $380.08 – $380.77 billion
  10. Capital One Financial Corp.: $362.91 – $365.69 billion

What Kinds of Fees Do Big Banks Charge Consumers?

While you most likely are familiar with ATM and overdraft fees, you might find it surprising to know that you could get dinged with other kinds of bank fees. Lest you get blindsided, here are 10 ways banks make money off you: 

1. Overdraft fees

You’re charged an overdraft fee when the amount of your transaction is greater than your bank balance. When you have overdraft protection, the bank will cover the shortfall, and charge you a fee for doing so. The most common amount for an overdraft fee is $35. 

FYI: The US Bank overdraft fee is $36 if the amount of the overdraft is greater than five dollars. The Wells Fargo overdraft fee is $35 per transaction, and you can be charged up to three times a day. Yikes.

2. ATM fees

This is a fee that banks charge for using an ATM. For example, your bank might charge you a fee if you use an out-of-network ATM. This fee can be anywhere from two dollars on up to six dollars if you’re making a withdrawal from a non-network international ATM.

Here’s a closer look at what the big banks are charging: Bank of America’s ATM fees are $2.50 and five dollars for international transactions, while Chase ATM fees are also $2.50 and five dollars respectively. Wells Fargo ATM fees are $2.50 for non-network withdrawals in the U.S., and five dollars for international ATMs. 

3. Maintenance fees

A bank might charge you a monthly fee if you don’t meet certain criteria. For instance, some banks charge fees if your bank balance drops below an amount or you fail to make the minimum number of transactions on your debit card. Bank of America and Chase both have a monthly maintenance fee of $12. In 2017, Americans spent 3.5 billion in monthly maintenance fees alone. 

4. Returned deposit charge

If there’s not enough money in your account to cover a transaction, the bank might “return” the item — usually a check — and you’ll in turn be dinged with what’s known as a returned deposit charge. The average charge is $35 per item. 

5. Lost card fee

Misplace your debit card? You might need to pay a fee to get it replaced. For instance, Bank of America charges its customers five dollars to get a replacement card, and $15 if you’d like it rushed.  

6. Minimum balance charge

If your type of bank account requires a minimum balance and you don’t meet the threshold, you could end up paying a fee. Wells Fargo charges a $10 monthly fee if you don’t keep a minimum of $1,500 in your account. 

7. Foreign transaction charge

If you’re traveling out of the country and swipe your debit card, there might be a foreign transaction charge. 

8. Inactivity fee

If your account is idle for a set amount of time (i.e., you haven’t made any deposits, withdrawals or transactions), you might need to pony up a monthly inactivity fee.  

9. Paper statement fee

If you prefer to get paper statements, you may need to pay a monthly fee. US Bank charges two dollars a month to receive statements via snail mail. IMHO, this feels like a trap. Many people are cool with receiving digital statements. They just don’t know about the paper statement fee, or forget to opt out.

10. Account closing fee

If you’re over your bank and want to close out your account, you might be dinged a fee. 

4 Things You Could Buy With Fees Instead of Paying Big Banks  

Here’s the fun part: Imagine what you could buy with the crazy high amount big banks rake in from bank fees. 

To keep things simple, let’s play around with the $64 billion that big banks made in ATM fees alone. These fees could fund a number of extravagant purchases, solve national debt problems, and achieve the unachievable. 

Here are a few examples: 

1. Student Loan Debt

According to the Federal Reserve Bank of New York, as many as 44.7 million Americans are burdened with student debt. That’s one in five Americans. As of the end of 2018, the student loan debt had climbed to a staggering $1.47 trillion. 

That cool $64 billion that banks make in ATM fees could handle 43% of the student debt crisis. 

2. Household Incomes

Per the U.S. Census Bureau, the median yearly household income in 2017 was $61,372. With those $64 billion in ATM fees, you can cover the annual income of 104,282 households in America. 

3. Avocado Toast 

We wanted to point out that millennials can have their toast and, well, save on bank fees too. Avocado toast is the latest “whipping boy” as to why millennials don’t have as much in savings and retirement as they should.

Let’s throw it back to whoever came up with this ludicrous statement, shall we? If the average cost of avocado toast is $12, ATM bank fees can pay for $5.3 million plates of avocado toast. 

4. Lattes 

Who doesn’t like a sweet beverage from Starbucks? With the average cost of a Starbucks latte at $3.45, you can buy more than 18.5 billion lattes. With 7.7 billion humans on planet earth, you can pay for each person — man, woman, and child — to enjoy 2.4 lattes. 

How Much Can You Save When You Switch to a Bank With No Fees?  

Let’s say your bank charges a monthly maintenance fee of $15, and you get dinged with an overdraft fee three times a year at $35 each. This tallies up to $285 a year. 

Here’s the good news: There are banks that don’t charge fees. That’s right. No monthly bank fees. Zip. Zilch. Nada. 

With your saved $285, you could pay off credit card debt, stash it toward an emergency fund, or put it toward something you really want.

No-Fee Banking When You Switch to Chime 

Here’s a side-by-side glance at how much fees can cost at some of the big banks:

Chime  JP Morgan Chase Wells Fargo  Bank of America 
Minimum balance requirement (to waive the monthly maintenance fee)  $0.00 $1,500  $1,500  $1,500 
Monthly maintenance fee $0.00 $12  $10 $12
Overdraft fee  $0.00 $34 $35 $35 
ATM fee (non-network, within the U.S.)  $0.00 $2.50  $2.50  $2.50 

When you bank with Chime, you’ll be a member of a bank with no fees. What’s more, we offer a handful of nifty features to help you save money. No, we’re not a unicorn bank. We’re just doing what we think should be the status quo, not the exception. 

 

Paying Off Student Loans? Take These 6 Steps Now

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: that 69% of college students who graduated in 2018 took out student loans along the way, graduating with an average debt of $29,800.

If you, too, are saddled with debit in the form of 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 & Consolidate Your Student Loans

How much money do you owe? Who do you owe? Where do you pay your bills? What are your student loan interest rates?

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, the type of student loan, 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 student 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 begin accruing interest since the moment they’re 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 don’t accrue 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 Student Loan Repayment Plan

When you graduate with federal student 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.

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 in federal student 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. See if You Qualify for 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 loan forgiveness to grads working in public service (think: nonprofits, government, education) after they make 120 on-time payments.

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.

5. Beyond the Repayment Plan: Find Other Strategies to Pay Down 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. Make Your Student Loan Payments Every Month

Whatever path you choose, make sure you pay against your student 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.

Worse yet, the collections process 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: Always make your student loan payments on time. If you’re having difficulty making payments on time, talk to your loan servicer. If you’re experiencing more general 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.

Relax: You CAN Pay Off Your Student Loans

While student loans can be frustrating, infuriating, confusing, and overwhelming, don’t stick your head in the sand. 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 bank account? If this sounds like you, you might want to consider signing up for overdraft protection to save you from such a predicament.

On the surface, overdraft protection may seem like the perfect solution, but the details and reality of the optional banking services leave many banking customers wondering if it’s actually worth it. Explore our handy guide to learn all about overdraft protection, and overdraft fees, and how you can clean up your finances to avoid them altogether.

What is overdraft protection and how does it work?

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 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. It does this by pulling in money or credit from the account that you linked to your checking account when you set up overdraft protection with your bank.

Generally, if you make a purchase with your debit card and don’t have enough funds in your checking account, the purchase won’t go through. This is typically called an overdraft, and signifies that your account balance has dipped below zero and into negative territory. This situation can be embarrassing for you, as well as awkward for the person behind the cash register. It also can be highly inconvenient if you need whatever you’re purchasing 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, specifically, in the form of overdraft protection transfer which can add up quick. So, while overdraft protection, on the surface, can seem like a great solution to a temporary problem, it’s not always all it’s cracked up to be.

If you are interested in this protection, you’ll 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 & Cons 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 checking 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.

However good overdraft protection seems in theory, it can cost you in the long run. The fees can vary from bank to bank and your financial institution decide what to charge, and you’re usually hit with more than one charge. You can continue getting hit with overdraft fees if your account is overdrawn for an extended period of time. These new fees are called extended overdraft fees and some are charged daily.

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, : C 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 account closure. Having your account closed by your bank is a major inconvenience. 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.

How Do You Use 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.

Overdraft Fees Are Costing Americans Big Time

Overdraft fees – by and large – are a 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.

Does Overdraft Protection Hurt 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.

How Do You 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 bank that offers fee-free overdraft.

 

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.

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