Paying Off Debt

5 Things Keeping You From a Life of Financial Independence

Toni Husbands — Sat, 10 Oct 2020 17:32:44 +0000

Financial independence can mean different things to everyone. A 2013 survey from Capital One 360 found that 44 percent of American adults feel that financial independence means not having any debt, 26 percent said it means having an emergency savings fund, and 10 percent link financial independence with being able to retire early.

I define financial independence as the time in life when my assets produce enough income to cover a comfortable lifestyle. At that point, working a day job will be optional.

But what about the rest of America? How would you define financial independence? If freedom from debt is what you're seeking, here are five areas that could be holding you back.

1. Not having clear, financial goals

If you're not planning for financial independence, chances are you won't reach it. The future is full of unknowns, but having an idea of when you'd like to achieve financial freedom should be your first step.

Do you want to retire before you turn 65? Do you want to travel the world with your spouse once you reach early retirement? Both goals will require a significant amount of cash stashed away, so it's important to start saving ASAP to make those dreams come true. (See also: 15 Secrets of People Who Retire Early)

2. Not saving enough

It's important to identify how much you're currently saving, and how much you need to save in order to retire when you want to, or reach another major financial goal. Using a calculator like Networthify can help you play with various money-saving scenarios and make realistic projections about retirement.

Another way to make saving money easier is to automate it. Setting up an automatic weekly or monthly transfer from your checking account into your savings account will take the extra task off your already full plate. Even if it's as little as $5 a week, it's enough to start building that nest egg. (See also: 5 MicroSaving Tools to Help You Start Saving Now)

3. Not paying off consumer debt

If you're carrying a credit card balance each month, financing cars, or just paying the minimum on your student loans, compound interest is working against you. Creating an aggressive plan to pay off debt quickly should be a number one priority for anyone who is serious about achieving financial independence. Otherwise, your money is working for your creditors, not you.

If you prefer to tackle credit card debt first, there are several debt management methods you can try, including the Debt Snowball Method and the Debt Avalanche Method. The Debt Snowball Method has you paying off the card with the smallest balance first, working your way up to the card with the largest balance. The Debt Avalanche Method is similar, but here you would pay more than the monthly minimum on the card with the highest interest rate first, working towards paying off the card with the lowest interest rate. Both are highly effective methods, and choosing one really just depends on your preference.

4. Giving into lifestyle creep

A high income does not automatically make you wealthy. As you move up in your career, the temptation to upgrade your lifestyle to match your income will be ever-present. After all, you work hard, so why not reward yourself with the latest gadgets and toys?

However, if you continue to spend and live modestly, you can put more money away for travel or retirement with every pay raise you earn. Financial freedom will be just around the corner if you resist that temptation to upgrade your home, car, and electronics to match your income bracket. (See also: 9 Ways to Reverse Lifestyle Creep)

5. Being driven by FOMO

Fear Of Missing Out, aka FOMO, is the modern version of keeping up with the Joneses. Except now you have access to the Joneses' social media platforms, and they go on all kinds of fun adventures. Social media is a great tool for keeping in touch, but it can also make you want to spend all your money on lavish vacations, clothes, spa treatments, and other extravagent things. Resist that urge. And block the Joneses on social media if needed. (See also: Are You Letting FOMO Ruin Your Finances?)

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This article is from Toni Husbands of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How a Credit Card Can Actually Help You Get Out of Debt

Holly Johnson — Thu, 08 Oct 2020 17:32:44 +0000

If you have high-interest credit card debt, you may believe another credit card is the last thing you need. Another card would only leave you with more open credit after all, and that just means more temptation to spend and rack up even more debt.

But a certain type of credit card debt could help your situation — if you use it the right way. This type of card is a balance transfer card.

How balance transfer cards work

Each balance transfer credit card has its own unique introductory offer you can use to your advantage. Most offer 0% APR from 12 to 21 months, meaning you won't pay interest on transferred balances during that time. However, some balance transfer cards charge a balance transfer fee that typically works out to 3% or 5% of the balance you transfer over.

To illustrate, let's imagine for a moment that you have $10,000 in credit card debt at 19% APR and you're currently making a payment of 5% of your balance, or $500 per month. At this rate, it would take 25 months to pay off your debt, and you would fork over $2,120 in interest over that time.

Now, let's say you apply for a balance transfer card that gives you 0% APR for 21 months in exchange for a 5% balance transfer fee. Once you transferred your entire balance over and added in the fee, you would start repayment owing $10,500 ($10,000 plus a $500 balance transfer fee).

However, the fact that you're not paying interest means you could continue paying $500 per month and pay off your entire balance with zero interest in 21 months. In other words, your balance transfer card could shave four months off your repayment timeline and save you $2,120 in interest. (See also: Here's What a Balance Transfer Does to Your Credit)

Tips for a successful balance transfer

The example above shows why balance transfer cards are so popular. Sure, some of them charge balance transfer fees, but having 0% APR for anywhere from 12 to 21 months can help you get out of debt faster, and lead to thousands of dollars in savings.

According to estimates from Experian, Americans conduct $35 to $40 billion in balance transfer activity each year. This is good news for consumers who are taking advantage, but it's also troublesome since many people get stuck in a situation where they're transferring the same debts to new balance transfer cards every few years.

If your goal is using a balance transfer credit card to get out of debt and stay out of debt, you'll want to set yourself up for success. Here's how you can do that.

Compare offers

Because balance transfer cards each have their own introductory offers, you need to check out more than one. Ideally, you'll settle on a balance transfer credit card that grants you 0% APR for as long as you need to pay down all (or most) of your debt.

Other factors to consider with balance transfer cards include any fees they charge, consumer perks and protections, and rewards programs. However, beware of signing up for balance transfer cards with rewards programs if you worry they'll entice you to spend. The goal with a balance transfer card is paying down debt — not racking up more.

Look for cards that don't charge a balance transfer fee

Keep your eye out for balance transfer cards that don't charge a fee. While most charge a fee to transfer balances upfront, there are several that skip over this fee for balances transferred in the first 60 days. Avoiding this fee will normally save you 3% to 5% of your balance amount, which can help you start paying down your balances right away.

Stop using credit cards

No matter what you do, stop using credit cards once you've transferred your balances to a card that offers zero interest for a limited time. You won't want to use your new balance transfer card for purchases since the goal is paying off your debt, but you should also steer clear of using other credit cards since you could easily rack up more debt and eliminate any progress you've made.

While you're in debt-repayment mode, you should stick to a cash budget or use your debit card instead of credit. That way, you won't "accidentally" rack up new credit card balances you can't afford to repay.

Create a debt repayment plan

Finally, don't forget to create some sort of debt payoff plan for how you'll pay down debt during your card's introductory offer. You should estimate how much you can afford to pay each month and figure out how much debt you'll ultimately pay off if you stay on track. If you can manage to pay off your entire debt over your card's 0% APR offer with a specific payment amount, you should determine if that figure is possible with your monthly income and expenses. And using a good debt repayment calculator can help a lot.

You may also want to look for ways to cut your spending and bills so you can throw more money toward your credit card's balance each month. Start with the low-hanging fruit in your budget — things like grocery spending and dining out, entertainment spending, or regular trips to your favorite department store. Also consider uninstalling any apps on your phone that regularly cause you to spend money, whether it's Instacart, DoorDash, or Amazon. Make spending money more difficult and you're more likely to save over time. And those savings can be allocated toward your debts until they're paid off.

The bottom line

Another credit card may seem like the last thing you could possibly need if you're in debt, but a balance transfer card could help you save money with the right mindset. Consider a 0% Intro APR credit card to pay down debt faster, but don't forget that you'll have to change your spending if you want to get out — and stay out — of debt.

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This article is from Holly Johnson of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Why You Should Use a Personal Loan to Pay Down Debt

Holly Johnson — Wed, 02 Sep 2020 17:32:44 +0000

The average American with credit card debt carries a balance of approximately $6,354, according to USA Today. But the news is even worse in some states like Alaska, New Mexico, and Louisiana, according to an analysis of credit card debt from creditcards.com. Consumers in these three states carried an average of $10,685, $8,323, and $8,110 in credit card debt, respectively, as of 2017.

This is unfortunate, but it's not completely unexpected. It's easy to lean too hard on a credit card when you face a job loss or a loss in income, and high interest rates don't help matters much. The average credit card today carries an APR of well over 17%. With so much interest charged on revolving credit card debt, it's difficult to make a dent in the principal of your balance. This often leaves people languishing in debt for years, and even racking up more debt over time.

Consumers use many strategies to get out of debt, one of which involves applying for balance transfer cards. With a balance transfer card, you qualify for 0% APR for a limited time — usually 12 to 21 months. However, you're normally required to pay a balance transfer fee of 3% or 5% of your balance, and the introductory offer won't last forever.

Some people use balance transfer cards to successfully pay down debt at 0% APR, but others simply make the minimum payments and never make real progress against their debts. Those consumers usually end up exactly where they started once their card's introductory offer ends — with plenty of debt and a crushing APR.

There may be a better, more predictable way out of debt, however, and it involves a personal loan. (See also: 5 Times Personal Loans May Be Better than Credit Cards)

How a personal loan can help you climb out of debt

Applying for a new loan to work your way out of debt may go against the grain of common sense, but there are plenty of reasons a personal loan can work. For starters, personal loans come with low fixed interest rates that never change — even as low as 4.9% APR for consumers with good credit. Second, personal loans have fixed repayment schedules that tell you exactly when you'll become debt-free.

Because personal loans have fixed rates and fixed repayment terms, you also have a fixed monthly payment that stays the same. This is much different from the way credit cards work since your payment will change based on your APR and how much you owe.

With a personal loan to pay down debt, you know exactly what you're getting into. You know how much you'll need to pay each month, when your loan will be paid off, and what your interest rate will be the entire time. The best part is, a personal loan is not a line of credit you can borrow against. So once you use your loan proceeds to pay off and consolidate your credit card bills, you won't have the option to use your loan to rack up more debt. (See also: 10 Things You Need to Know Before Taking Out a Personal Loan)

How to do it the right way

If your goal is getting out of debt this year, a personal loan could be exactly what you need. But you'll be in the best position to help yourself if you go about repayment the right way.

Compare personal loan offers

Personal loans are offered by large financial institutions like banks and credit unions as well as several online lenders. Because there are so many options to get a personal loan, your first step is shopping around to compare offers in terms of their interest rates and fees.

The best personal loans come without an origination fee, any application fees, or hidden fees. If you want to shop around among multiple lenders in one place, you can also check out LendingTree. This website lets you fill out a single loan application and get offers from multiple banks and lenders in one place. (See also: 5 Personal Loan Fees You Should Never, Ever Pay)

Find your best match now with this handy comparison tool. Select the type of loan you’re looking for, the amount, your credit rating and state, to see the best options available for you.

Create a spending plan

Once you've shopped for a personal loan, you'll have an idea of your new monthly payment. At that point, it's crucial to create a monthly budget or spending plan to ensure you can stay on top of your new loan.

Sit down with your bank statements and figure out exactly how much you earn and how much you owe, including your new personal loan, housing costs, and other bills. From there, you should look for ways to reduce your spending. That may mean dining out less often, cutting cable for a while, or going on a spending freeze. Whatever you do, make sure you have a grasp on how much you can afford to spend each month while keeping up with all your expenses.

Stop using credit cards

Finally, don't forget that you have to stop using credit cards! The importance of this step cannot be overstated.

Paying off your credit card debt with a personal loan can put you in a precarious position where you're tempted to start using credit cards again. But if you start using credit, you'll likely rack up even more debt balances you'll have to pay off.

Your best bet is putting your credit cards away for safekeeping and sticking to cash or debit instead. To get out of debt — and stay out of debt — you must learn to live within your means. Not using credit cards is the only way to ensure you're living a lifestyle you can actually afford.

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This article is from Holly Johnson of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The 4 Worst Kinds of Debt to Have in 2019

Holly Johnson — Tue, 30 Jul 2019 08:00:07 +0000

Experts often say that debt can only be considered "good" if it's attached to an appreciating asset. Borrowing money to purchase a home that should rise in value over time is usually considered a smart move, for example. A business loan can also be a net positive provided the funds are used to help you become more profitable over the years.

On the flip side, there are plenty of kinds of debt that just aren't worth it — especially if the amount you owe is more than you can handle or your interest rate is absurdly high.

If your goal is building wealth and enjoying a life free of financial stress, your best bet is avoiding debts that make getting ahead harder than it has to be. Here are some of the worst offenders.

Student loans

Student loans can be a net positive for your life if you borrow as little as you can and parlay your degree into a profitable career. And since federal student loans tend to come with low fixed interest rates, student debt doesn't have to ruin your life.

But what happens if you overpay for school — or if you borrow a ton of money but never graduate?

Far too many students have found out the hard way just how unforgiving student debt can be. For starters, it's nearly impossible to discharge student loans in bankruptcy, so you're probably stuck with your student loans until you pay them off — no matter how long it takes.

The high cost of higher education also means students are stuck borrowing more and more for a basic college degree. A report from College Board noted that, on a national level, even a public, four-year degree cost students an average of $21,370 per year for the 2018-19 school year when you add in room and board. That means it costs nearly six figures to earn a Bachelor's degree — and that's if you choose an in-state, public school.

If you find yourself struggling with student loan debt, consider looking into alternative payment plans like income-driven plans or refinancing your student loans with a private lender. (See also: Should You Refinance Your Student Loans?)

Credit card debt

Credit card debt is another wealth killer that can make it significantly harder to get ahead in life. Not only is credit card debt unsecured by any sort of asset, but the average credit card interest rate is now over 17%. That means that, no matter what you purchased on your credit card or how unnecessary it was, you could be paying out the nose to carry that debt from year to year.

If you're struggling with credit card debt, the first thing you should do is stop using credit cards. Then create a plan to pay down debt, possibly using the debt snowball or debt avalanche method. You can also use a balance transfer credit card to secure 0% APR for a limited time, but this strategy only works if you have the discipline to quit using credit cards as a crutch. (See also: The Fastest Way to Pay Off $10,000 in Credit Card Debt)

Payday loan debt

Payday loans are meant to be short-term loans that help you get to the next payday, and they're mostly targeted at consumers with poor credit. But since they charge high fees and interest rates as high as 400%, these loans can trap you in a situation where you have to get one payday loan after another to pay your bills.

When it comes to payday loans, the best step you can take is to avoid them altogether. If you're stuck with payday loan debt or in a payday loan cycle that's hard to break, on the other hand, you'll have to find a different strategy.

Consider applying for a personal loan for bad credit that can help you pay off your payday loan and stay afloat until your next payday. Your interest rate may be high, but hopefully the pain will only be temporary.

Also, look for ways to cut your spending or earn more money so you can pay off your high-interest loans and keep more of your income for yourself. Sell items you don't need online, pick up an easy side hustle, or simply cut your bills for a few months, and you might buy enough time to get in a position where you no longer need payday loans just to get by.

Auto debt

According to the most recent report on the State of the Automotive Finance Market from Experian, the average new car payment worked out to $554 during Q1 of 2019 for buyers with all types of credit. Worse, the average new car loan worked out to $32,187 with an average loan term of more than 68 months.

Even if you need a car to get to work, there's just no excuse to borrow this much — or for so long. This is especially true if you're not saving enough money each month, you don't have an emergency fund, or your income isn't very high.

Remember that cars can easily lose 20% of their value during the first year of ownership. After that, they can lose up to 10% of their initial value for the next four years, according to CarFax. Unfortunately, far too many Americans just trade their cars in at that point, starting the process over again with a huge new loan on a depreciating asset.

You probably need a car to take care of your children and get to work, but you're better off if you borrow less and pay it off as fast as you can. Consider a used car with a much lower initial price, then choose a shorter repayment term so you can get out of debt faster. And once your car is paid off, keep it forever. (See also: 8 Questions to Ask When Buying a Used Car)

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This article is from Holly Johnson of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Questions to Ask Before Hiring a Credit Counselor

Holly Johnson — Thu, 26 Apr 2018 08:30:10 +0000

If you're struggling with debt and don't see a light at the end of the tunnel, working with a credit counselor may be your best move. Credit counselors are trained to help you manage your debt and understand credit, cash flow, and budgeting. They will take a holistic look at your financial situation, then help you craft a plan to get out of debt and handle your money problems once and for all.

While this may sound like exactly what you need, it's important to note that all credit counselors are not created equal. The Federal Trade Commission (FTC) says that most reputable credit counselors work for nonprofit firms. But it warns that "nonprofit" status doesn't guarantee that their services are "free, affordable, or even legitimate."

Some credit counseling organizations are known for charging high fees, which they try to hide with layers of complexity. The FTC also notes that credit counselors sometimes ask for voluntary contributions to their business, even if making those contributions would put you into more debt.

Obviously, you'll want to avoid credit counselors with high fees or shady practices. Before you choose a credit counselor, approach the situation with a list of questions to ask right away.

1. Is this a nonprofit credit counseling agency?

While this may seem like an obvious question, credit counselor Joseph Martin of Take Charge America, a national nonprofit credit counseling agency, says this question is crucial to ask right away. Because there are many different types of debt relief organizations with similar names and very different services, you should make sure you're speaking to a credit counselor instead of a different type of business, he says.

If you think you're speaking with a credit counselor but are instead speaking with a debt settlement company, for example, you could wind up receiving advice that doesn't help you reach your goals. Credit counselors offer budgeting and financial education services. They can also help you create a plan to get out of debt by paying off your debts, often at reduced interest rates, through a long-term debt management plan (DMP). Doing so will eventually help to rebuild your credit.

By contrast, for-profit debt settlement or debt relief companies focus on helping you negotiate a settlement for your debts that is less than what you owe, and this may cause your credit score to plummet. These are totally different services, and what works for one person may not work for another. (See also: 4 Ways to Negotiate Credit Card Debt)

Even though "nonprofit" credit counselors can charge hidden fees, you'll still want to know if you're working with a nonprofit organization, says Martin. Why? "The initial financial assessment, budget, and education are always free with a nonprofit," he says.

Since a nonprofit credit counselor offers free advice that you can use even if you decide not to move forward with their services, seeking out a nonprofit is a solid first step. (See also: 8 Organizations That Really Can Help You With Your Debt)

2. Are you accredited?

A smart way to weed out unethical or substandard credit counselors is to find out if the credit counseling agency belongs to the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA). Members of these industry associations must be accredited by the Council on Accreditation and must "abide by specific guidelines, ensuring consumers receive a full, comprehensive guided session to identify individualized debt and budgeting solutions," says Martin. By choosing a credit counselor that is accredited, you'll be choosing the cream of the crop.

3. How much do your services cost?

If you're talking to an accredited nonprofit credit counseling organization, services like budgeting and receiving general financial advice should always be free. Your antenna should go up if a credit counselor wants you to pay anything for those services. "If an organization won't help you because you can't afford to pay, look elsewhere for help," the FTC writes on its website.

Entering a debt management plan will usually cost more. According to CreditCards.com, most counseling agencies collect monthly fees from people who enter DMPs — up to $50 a month. A DMP usually lasts three to five years, so that means you could end up paying as much as $1,800 to the credit counselor.

In addition to asking what recurring fees the agency charges, you should also ask whether there is an initial setup or consulting fee, says licensed insolvency trustee Michael Krieger of Krieger & Company in Toronto, Canada. If your credit counselor glosses over the topic of how they get paid, definitely dig deeper, says Krieger. Or just move on and find someone else to work with.

4. What services do you offer?

Here's another common sense question that should be asked right away. Before you decide to work with a credit counselor, make sure you know what services they offer and if they're services you actually want.

The FTC says you should look for an organization that offers several different services "including budget counseling, and savings and debt management classes." The FTC also says you should avoid organizations that only offer a debt management plan (DMP) or push a DMP without fully analyzing your situation.

"Individuals very quickly head down the wrong path from counselors and financial service providers without really looking at the value they are adding," says Krieger. "Those making promises that seem too good to be true usually are, yet people latch onto those promises."

Instead of believing promises such as, "everything will be okay" or "we'll get you out of debt," you need to find out exactly how the counselor plans to help you achieve your goals and what services they plan to use. (See also: Should You Sell Your Home to Pay Down Credit Card Debt?)

5. What is your monthly DMP dropout rate?

If you do decide to enter a DMP, go into it knowing that only about 25 percent of debtors complete their plans with a credit counselor, according to CreditCards.com. Another 25 percent report that they finish paying off their debts on their own. But that's hard to verify. So the question to ask a counselor whose advising a DMP is how many people drop out of the plans every month — 2 percent is low, 5 percent is high.

6. How will we meet?

Before you connect with a credit counselor, it's important to know exactly what you're getting into. Will you talk to them online using technology like Skype or Google Hangouts? Will you talk on the phone? Or will you meet in-person to go over your budget and financial situation?

If you believe meeting someone in-person would be the most helpful, then you should seek out local credit counselors that offer this option. If not, Krieger says you should decide if you're OK working via the internet or phone where your service may feel less personal overall.

7. Can I get my family involved?

Whether you're receiving credit counseling in-person or over the phone, Krieger says it should be a family affair. This means that, ideally, you'll be able to sit down with your credit counselor and your spouse or partner to go over the family's finances and debts and how everyone can be involved in the solution.

"Money problems start at home and both are influenced by and impact the entire family," he says. To solve your money problems or get on the right track regarding budgeting or debt, you have to get all adults in the family involved or it may not work. (See also: How One Couple Paid Off $147k of Debt, Even While Unemployed)

8. How will working with you help me in the long run?

The FTC says that you should ask any credit counselor you're thinking of working with how their advice will help you in the future. After all, you don't just want to get out of debt — you want to stay out of debt.

By asking your counselor about their methods, you may gain some insight into how they can prepare you for a financial future free from the debt and financial strain you're experiencing today.

And really, that should be the whole point. You want to get out of the mess you're in, but you should also strive to avoid more problems in the future. A nonprofit credit counselor should be able to help you with both goals, but you have to ask the right questions first. (See also: 3 Times When Filing for Bankruptcy Is the Right Move)

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This article is from Holly Johnson of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The 5 Best Debt Tracking Systems

Lindsay VanSomeren — Fri, 06 Apr 2018 08:30:05 +0000

"What gets measured gets managed" is an adage, and it's true. If you're in debt, one of the best ways to motivate yourself to get out of debt is by tracking it. Debt tracking websites and apps allow you to create debt payoff plans, calculate how much interest you'll pay in the process of becoming debt-free, and predict the all-holy debt-free date. Many even let you play around to see what the effect of extra monthly payments are.

There are a ton of free debt tracking tools, but which one is right for you? As a debt blogger, I've spent three years trying and reading extensively about various tools, and have come up with a list of five that I think are best.

1. Undebt.it

Undebt.it undoubtedly has the most features of any debt tracker out there. It's the Cadillac of debt-payoff trackers. This comes in especially handy for student loans and credit cards, many of which have helpful (but complicated) repayment schemes and promotional offers.

Undebt.it also has a number of options for calculating a debt-payoff plan. You can choose from the debt snowball method (lowest balance first), debt avalanche method (highest interest rate first), or even create a custom payoff plan. (See also: Snowballs or Avalanches: Which Debt Reduction Strategy Is Best for You?)

It even supports the debt snowflake method of making small, extra payments as you're able. And you can switch among all these plans whenever you want.

The only downside of Undebt.it is that it's a bit clunky until you get used to it. The full suite of free features is nice, but it does take a bit of time navigating the website to understand all the ins and outs.

2. Unbury.me

If Undebt.it seems too confusing, try Unbury.me. Its simple block-style layout is pleasing to the eye, and entering debts is a snap. It's almost too simple, which is why this debt tracker works best if your debts are relatively straightforward with no confusing, shifting APRs or payment schemes. Just remember to sign up for a free account after you enter your debt information to save your work, or it'll all be lost as soon as you leave the page!

3. Mint

You might be familiar with the popular budgeting software Mint, but did you know you can use it to track your debt as well? Using its Goals function, click on "Pay Off Loans" or "Pay Off Credit Card Debt." It'll automatically populate the screen with your loans or your credit cards, and ask you to input any missing information about your interest rates and minimum monthly payments.

By sliding the payment toggle, you can instantly see how much interest you'll save by raising or lowering your monthly payment amount, along with how long it'll take you to get out of debt. Select your payment amount, and follow Mint's instructions on where to send the extra payments.

The beauty of the Mint system is that it updates automatically, meaning you don't have to login and update your account every time you make a payment. Plus, you get all of Mint's extra budgeting tools.

4. Debt Payoff Assistant

The Debt Payoff Assistant app is the most basic, no-frills debt payoff tracker. It comes with three payoff plans to choose from: lowest balance first, highest balance first, and highest interest first. You can also come up with a custom plan if none of these work for you.

Debt Payoff Assistant doesn't really offer much in the way of visualization except for a pie chart that shows you what kinds of loans make up your total debt. If you really want a graph of your debt over time, try Undebt.it or Unbury.me.

5. Debt Payoff Planner Calculator

If your debt payoff scheme confuses you, consider going with the Debt Payoff Planner Calculator app. The strength of this app is that it shows you exactly how much money to send to each debt every month, with the amounts changing as you pay off certain debts. You can choose from three payoff plans: the debt snowball plan, the debt avalanche plan, or a custom plan.

Again, this app doesn't really show you a great visualization of your debt payoff progress. Choose another debt payoff tracker if that's important to you.

If you're not sure which tracker is right for you, choose a couple to try out for a month or two. The idea is to help you get clearer about what you owe, the best way to pay it off, and to help you stay motivated until your balances are cleared.

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This article is from Lindsay VanSomeren of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What Happens to Debt After Divorce?

Holly Johnson — Fri, 30 Mar 2018 09:30:19 +0000

When you consider that 40-50 percent of marriages in the U.S. end in divorce, it shouldn't surprise you that some marriages end in a financially messy way. Marriage typically involves the joint payment of debts just as it involves collecting joint assets, and everything — both assets and debts — must be distributed in some way when a couple calls it quits. (See also: How to Protect Yourself Financially During Divorce or Separation)

Community property vs. common law states

In a lot of ways, what happens to your debts and assets depends on where you live. If you reside in one of the nine community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin) or "opt in" for community property in the state of Alaska, then all debts accumulated during a marriage are the responsibility of both parties no matter how they were held. This means that if your spouse ran up a secret credit card balance during your marriage, that debt is your responsibility as well as theirs in a community property state.

If you live in one of the remaining states, then you live in an equitable distribution state (also known as a common law state). Typically, this means that debt incurred during a marriage is the responsibility of both parties, if both parties were joint owners of an account. If one spouse opens an account in their name only, on the other hand, that debt is their sole responsibility.

What happens to debt incurred during separation?

Note that debt incurred after a couple separates may be treated differently than debt incurred during a marriage. Your liability for such debt usually depends on your state, whether you took out the debt jointly or separately, and whether the debt was used for, say, a spending spree in Las Vegas or necessities for your children such as food and rent.

Since the moment of separation is figured differently in different states, the cutoff for new debt can also vary. In some states you need to legally separate while others consider the moment of separation as starting when you begin living apart. (See also: How to Manage Your Money During a Spousal Separation)

How are debts divided when you divorce?

Sally Boyle, a certified divorce financial analyst and author of Deconstructing Divorce, says that no matter whether you live in a community property or equitable distribution state, debts are divided along with assets during a divorce. This means the court system that handles your divorce will help you figure out ways to split your debts equally and fairly. (See also: 5 Money Moves to Make the Moment You Decide to Get Divorced)

Credit card debt

If a couple has credit card debt that is jointly held, for example, both spouses can try to move the debt into two separate accounts.

"The challenge with joint debt is going back to the lender to split the debt up," says Boyle. It's possible your credit card issuer may not want to help you move part of the debt into a new account in one spouse's name, although they will usually cooperate if both spouses have good enough credit to qualify for an account on their own.

As an alternative, Boyle says a balance transfer card can be a good way to split up credit card debt if at least one spouse can get approved. "It all comes down to whether the card issuer approves or not," says Boyle. (See also: How to Divide Rewards and Keep Your Sanity in Divorce)

Mortgage debt

Mortgage debt is handled similarly to credit card debt, except that there is an asset involved, since mortgage debt is secured by your home. If you own a home together and the debt is in both of your names but you get divorced, then it's possible that one spouse can keep the home. In that case, Boyle says most couples go to their mortgage company and ask it to approve the remaining spouse to refinance the home in their name only.

If there is equity in the home, there are several ways to split it. If one party keeps the house, they could "buy out" the other person with cash. "You could also refinance the home for what it's worth and get cash out," says Boyle.

Another option is for the remaining spouse to get a home-equity loan and use some of the cash to give the other spouse their share of the equity. A final option is to just sell the house and split the proceeds, notes Boyle.

Auto loans

What about cars? Auto loans can work a number of different ways. Many times, each spouse will keep the car they drive and take over the payments even if both spouses are on the loan. However, it often makes sense for each spouse to refinance the car loan into their own names when they don't want to continue sharing a joint debt after divorce.

Student loans

Then there are student loans to contend with. Boyle says that since student loans are taken out by only one spouse most of the time, the debt is often retained by the borrower. However, there are some exceptions.

"I've had situations where a spouse might pay off the other spouse's student loans as part of a broader divorce settlement," she says. "Maybe they were the breadwinner or they had more assets."

Why couples typically split up debts during divorce

Attorney Nicholas Dowgul of Felton Banks in Raleigh, North Carolina says couples there occasionally continue holding debt together after divorce.

Basically, if the parties get a divorce and no equitable distribution action is filed, then equitable distribution (property settlement) is waived by both parties and the debt remains in whomever's name it was, says Dowgul. But if it's joint debt, then it remains the obligation of both spouses.

However, the problem with joint debt after divorce is that one spouse may not stick to the agreement. In that case, the creditor would likely go after both spouses for repayment, regardless of their agreement to remain jointly liable. (See also: What You Need to Know About Divorce and Credit)

For example, imagine there's a court order from a North Carolina court that says the husband is required to pay the credit card held jointly by the parties, but he stops paying his part of the bill. The card issuer will hold both spouses liable for the debt and repayment, meaning the bank will come after the wife as well, even though, according to the divorce decree, she's not responsible for paying that credit card bill.

This doesn't mean that the husband would be off the hook, however. If he agreed to hold the debt jointly during the divorce settlement, then he could be held in contempt of court unless he pays what was ordered, notes Dowgul. (See also: 4 Myths About Divorce and Money Debunked)

To avoid situations like this one where one spouse stops paying their share, many couples opt to pay off joint debts and close all joint accounts, then refinance remaining debts in one or the other's name only. It's just too risky to remain in an account with an ex-spouse, especially if you can avoid the situation altogether by moving debts into separate accounts.

What can you do to ensure debt is distributed fairly when you divorce?

While Dowgul only practices law in North Carolina and believes people in other states should consult a local divorce lawyer for specific advice, he says he recommends his clients write up a separation agreement once they decide they are going to divorce. A separation agreement should include a basic understanding of who gets what after the divorce, including which person is responsible for each debt accrued up to that point.

In the state of North Carolina, couples have to be separated a year and a day before a divorce is granted, he says. While there's no requirement in his state that couples get their separation in writing, it makes things easier if the parties can at least agree on matters involving debt and assets upfront.

Finally, hire a divorce lawyer who can represent you and ensure you're left with a fair number of assets and no more than your share of the debts once your divorce is final. "The goal of divorce is for each spouse to end with assets of similar value," says Boyle. "It's not always a 50/50 split, but it needs to be a fair split."

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This article is from Holly Johnson of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

2-Minute Guide: How to Use Balance Transfers to Pay Off Credit Card Debt

Holly Johnson — Mon, 26 Mar 2018 09:30:23 +0000

Balance transfer credit cards can help you get out of debt, once you know a few things. Take a couple of minutes to learn the basics about what they are and how to use them.

What is a balance transfer credit card?

A balance transfer card has a low interest rate or none at all for an introductory period — typically six to 21 months. You move your debt from high-interest cards to the balance transfer card and get a low- or no-interest period in which to clear your debt.

Who qualifies for a balance transfer card?

To get the best terms, you'll need excellent credit. There are balance transfer cards for people with fair credit, but they may have shorter introductory periods and higher interest rates.

How do balance transfers work?

Once you're approved for a balance transfer card, you'll use it to pay off the balances from your old cards, usually over the phone or via the web. Then you can pay down the debt on the balance transfer card during the promotional period without any interest added to your payments. Every penny you pay toward your debt comes directly off your credit card balance. (See also: Step-by-Step Guide to Balance Transfers)

What are the costs?

Most of these cards charge a balance transfer fee of 3%–5% of your balance upfront (though a handful do not). You'll need to do the math to make sure you still come out ahead by transferring the balance.

What are the dangers?

If you fail to pay off your balance before the introductory period ends, whatever debt is left will be subject to interest rates, which can be higher than the rate you were paying previously.
If you pay late or fail to make your minimum payment, you could lose your introductory offer and be hit with a higher interest rate right away.
Once you transfer a balance, it may be tempting to start running a balance on the old card again. That could put you in a worse situation than when you started. (See also: 6 Hidden Dangers of Balance Transfers)

5 tips for balance transfer success

Look for a card that doesn't charge a balance transfer fee.
Create a plan to pay off your debt during your card's introductory offer.
Don't use your balance transfer card for purchases. It will keep you in debt longer, and you'll forgo your grace period on new purchases as long as you carry a balance.
Don't quit making payments on your old cards until you know your balances have been transferred. Missing a payment or paying late can damage your credit score.
Keep old cards open. Closing credit cards can also lower your credit score. (See also: Comprehensive Checklist for Successful Balance Transfers)

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This article is from Holly Johnson of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Ways to Make Debt Repayment Fun

Emily Guy Birken — Fri, 19 Jan 2018 09:39:08 +0000

When my husband and I were first married, we used to race home on the 15th of each month, each one of us hoping to be the first to get the mail out of the mailbox. Our highly anticipated mail was not our favorite magazine, or the cheese of the month club, or even the newest Netflix DVD (remember those?).

No, we were hurrying home to be the first to open up the monthly statement for our home equity loan, which we were in the long process of paying off. Whoever reached the house first got to see the official tally for our previous month's payment, and color in the next chunk of the debt-payoff thermometer we had posted in the kitchen.

We're not the most boring people on the planet, despite what our kids might say. Our anticipation of the home equity loan statement just showed that we had found a way to make the long slog of debt repayment not only tolerable, but actually enjoyable.

Before you decide that "fun debt repayment" is an oxymoron, consider how getting out of debt can be improved by making it more like a game. (See also: 6 Surprisingly Simple Ways to Motivate Yourself)

Gamify your debt payoff

Games offer both intrinsic and extrinsic motivation to keep you playing. Intrinsic motivation refers to the internal or personal satisfaction you might feel for completing a task, while extrinsic motivation is the reward something else gives you for completing a task.

For instance, you might spend an afternoon playing Call of Duty both because of the game's extrinsic motivation of rewarding you for completing the missions, and because of your intrinsic motivation to have some fun shooting digital Nazis in the face.

Understanding how games tap into both extrinsic and intrinsic motivation can help you figure out how to gamify something as traditionally "unfun" as debt payoff. In particular, arranging for extrinsic motivators to keep you on the straight-and-narrow of debt payoff can help make the "game" of getting your balance down to zero an intrinsic reward.

Here's what you need to do to create your debt payoff game.

1. Choose the levels in your game

A game is not designed as a single huge step to overcome in order to win. It's broken down into achievable levels that allow you to enjoy your progress without feeling like you'll never reach the end. Video games generally make the first level an "easy win" in order to get you hooked on the game. As your competence at the game increases, the levels become more challenging.

You can do the same thing with planning your debt payoff "game." Start by determining exactly how much you need to pay off, and figure out how much extra you can send to your creditors each month.

For instance, let's say you have $25,000 in credit card debt. You're currently sending the minimum payment of $625 each month, and that is already a big bite out of your monthly budget. You might decide that your first "level" will be sending an additional $100 to the credit card this month. An extra Benjamin a month is achievable but feels like an accomplishment if you're already struggling to pay the minimum — and this is why it's a good first level.

From there, you might make the next levels when your balance has gone down by $500, and then $1,000, then $2,000, and so on. Once you've knocked $5,000 off the balance, make your levels a little further apart, so they occur every time $2,500 of balance is wiped out, or every $5,000. (See also: The Fastest Way to Pay Off $10,000 in Credit Card Debt)

2. Decide on your extrinsic motivations per each level

Now that you have chosen levels for your debt payoff game, figure out how you can reward yourself for reaching them. Eventually, just reaching these levels will feel pretty great. But at the start of a debt payoff plan, it's a good idea to also build in the extrinsic motivations that will spur you to think of your debt payoff first when you're tempted to spend money.

This is where you brainstorm ways to celebrate reaching the various levels you've chosen in your game — without spending money. Find rewards that cost nothing but still make you feel great. You might consider the following "level up" rewards:

Movie night at home.
A nap in the middle of the day.
An at-home pedicure.
An entire Saturday afternoon playing your favorite video games.

The trick is to think about the things you normally don't allow yourself and pick out the ones that require no (or very minimal) cash outlay. Assign different rewards to different levels. (See also: 20 Free and Fun Ways to Reward Yourself)

3. Create a game visual

It's a lot more fun to play a game with good graphics or good design, and that's no different with your debt payoff game. Once you've determined the levels and rewards of your debt payoff, it's time to find a way to render them visually so that you can both keep track of your progress and enjoy the anticipation of getting closer to each reward level — and your overall goal.

Debt payoff thermometers are a common method of creating a visual for your repayment plan. These are great for a couple of reasons: Anyone can easily draw a thermometer and label various levels on it, it makes for a motivating visual, and it can be a lot of fun to color in the thermometer as you go.

However, that's not the only way to visualize your debt payoff game. Using a spreadsheet or other digital tracker can help you see your progress over time. In addition, if you are motivated by coloring or other artistic endeavors, you could create a beautiful visual of your debt payoff journey that you color in as you make progress. Or, if board games are your jam, consider creating a game board of paying off your debt. You can have fun with figuring out what your board will look like, and how you will represent each level.

Making your game visual means that you can be creative about finding a system that will give you extrinsic motivation to pay off your debt.

4. Watch your extrinsic motivation become intrinsic

As you work through your debt payoff game, you'll find something strange happens: Figuring out ways to save money so that you can send more to your creditors goes from being a drag to being fun. That's because you'll find yourself wanting to color in the next level on your game board or reach the next level of reward, and so you stop thinking of paying off debt as a horrible slog. Instead, each step allows you to do something you enjoy (coloring in your debt thermometer or your game board) and also brings you closer to a reward you want.

Once you get used to thinking of sending more money to your creditor as fun, it will become fun in its own right, without needing the game to make things enjoyable — although there's nothing wrong with continuing to treat it like a game.

A spoonful of sugar

Mary Poppins had it right when she sang, "In every job that must be done, there is an element of fun." It might seem impossible that paying your credit cards, student loans, or other debt could be the thing you most look forward to each month — but the spoonful of sugar that you add by gamifying your debt payoff may just make you rush home in joyful anticipation on the day you receive your monthly statement.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

We Do the Math: Save for Retirement or Pay Off Credit Card Debt?

Julie Rains — Thu, 18 May 2017 08:30:15 +0000

Should you save for retirement or pay off credit card debt? If you're carrying a card balance, you may be wrestling with whether to put all your resources into attacking the debt, or start building your retirement nest egg while you slowly pay off debt.

Which one will give you a better net worth? There's no simple answer. For some people the situation may warrant clearing credit card debt first; for others, it's better to start investing right away. To figure out which scenario is better in a given situation, we'll need to do some math. Don't worry, we'll show you how to do it in a few easy steps.

Step 1: Gather important numbers about your debt and your retirement plan

First, look through your credit card statements and accompanying information to pull up the following numbers:

Credit card debt. You'll find this on the front of your credit card statement.
Credit card interest rate, or APR (Annual Percentage Rate). You'll find this further down on your statement, in a section labeled "Interest Charged" or something similar.
Minimum payment. You'll find this in your card's terms and conditions, under a discussion about how minimum payments are calculated. It will probably be a percentage, but there may also be a flat sum.

Next, consider any retirement plan you are enrolled in or have available. What is the average annual return? You can identify past returns by reviewing your retirement account statements. For example, your 401(k) plan account may list your annual return. Note that past returns don't guarantee or predict future returns, but we'll use the average annual return as a proxy for future returns in this case, knowing that if our portfolio takes a long-term downward turn, our calculations will change.

Finally, how much extra do you have in your monthly budget that you could put toward credit card payments, retirement investments, or both?

Follow along as we consider a hypothetical debt situation and retirement opportunity. Let's say there's $500 in our monthly budget, which equals $6,000 annually ($500 x 12 months = $6,000) to put toward debt or retirement.

Currently, the balance on our credit card is $5,000. Our APR is 22%. Our minimum monthly payment is 3% of our outstanding balance or $25, whichever is greater.

Our employer offers a 401(k) plan. For the sake of keeping this illustration simple, we'll say our employer doesn't match employee contributions and we choose to make taxable contributions with a Roth designated account within the 401(k).

In reality, you might choose instead to make tax-deductible contributions to a traditional retirement account. With a Roth 401(k) there are no immediate tax benefits, which makes our calculations simpler and therefore better suited for this purpose.

We'll say the default investment in our 401(k) is a target-date mutual fund with an average annual return of 6.3% since its inception. We know that future performance is unpredictable. But to run the numbers for the retirement vs. debt decision, we'll apply an annual return of 6% to our retirement account.

We'll look at the retirement account and credit card balance after five years to compare the two choices: 1) making minimum payments on our card balance so we can start investing right away, or 2) putting all our extra money toward our credit card debt before we consider retirement investing.

In both scenarios, we'll assume that we won't make additional charges on our credit card. In addition, we'll contribute to our retirement account when we have money available to invest.

Step 2: Calculate net worth if you prioritize retirement savings over paying off credit card debt quickly

In this scenario, we'll see what happens if we only make minimum payments on our credit card so that we can get started investing for retirement right away. Your credit card statement should state very clearly how long it will take to pay off your balance if you make minimum payments.

You can also find an online calculator to help you with these calculations. Here's the information we'll enter for our example (you can put in your own numbers from your real-life situation):

Current credit card balance: $5,000
Annual percentage rate: 22%
Proposed additional monthly payment: $0
Minimum payment percentage: 3%
Minimum payment amount: $25
Skip December payment when offered? No

Results indicate that we'll carry this debt for more than 17 years (205 months) and pay more than $7,000 in interest during this time. Click the button that says "Detailed Results" to see a breakdown of the payments. Make sure that under the Assumptions tab, you've asked for a monthly table display.

In the first month, our payment is $150 and this amount slowly diminishes until we're paying the minimum amount of $25 for the last several years.

Since we're making minimum payments on the credit card, we'll be able to put $350 of our total available $500 toward retirement in the first month ($500 - $150 = $350). The second month and subsequent months, we'll be able to increase the amount we invest, as our credit card balance dwindles. Every month we also earn some interest (6%/12 months), so our retirement account balance grows in that way, too.

After five years (60 months), our credit card balance will be trimmed to less than $2,500.

At the end of five years, our retirement account grows to just over $27,300. Considering our debt and retirement balances, our net worth is $24,800 ($27,300 in assets and $2,500 in liabilities). Note that investment returns are not guaranteed; the 6% rate is for illustration purposes only.

You can download the spreadsheet with these calculations.

Step 3: Calculate net worth if you pay off credit card debt completely before investing for retirement

In this scenario, we'll apply all of our extra income to credit card debt first. When the debt is paid in full, we'll begin to contribute to the retirement account.

We enter this information to learn how quickly we'll pay off the debt with $500 per month (again, enter your own information to get personalized results):

Current credit card balance: $5,000
Annual percentage rate: 22%
Minimum payment percentage: 0%
Minimum payment amount: $0
Proposed additional monthly payment: $500
Skip December payment when offered? No

To keep the credit card payment at $500 per month (and pay off credit card debt first), we'll enter the minimum payment percentage as 0% and the minimum payment amount as $0 — even though the actual terms of the credit card agreement will most likely specify a percentage of 2% or more and a minimum payment of $10 or more. When we view the results, we find that the payoff happens in 12 months. We'll make 11 payments of $500 and one payment of $74.

After we finish paying off the credit card debt, we can begin investing. We'll invest $426 in the twelfth month ($500–$74) and $500 in subsequent months. Consider using a Future Value calculator, to determine how much your retirement account will be worth at the end of five years.

Here's the information we entered into the Future Value calculator:

Number of periods: 48. (We'll invest for four years, or 48 months.)
Start amount: $426. (We'll start with the first month's contribution as the balance in our account.)
Interest rate: 0.5% (6% annual rate divided by 12 months).
Periodic deposit: $500.
Deposit made at the beginning or end of the period: End.

If we earn 6% annually on our investments, our retirement account grows to $27,590 in five years. In addition, our credit card debt is paid off. Our net worth is $27,590 — that's $2,790 more than if we had prioritized retirement savings first and stuck with only paying the minimum on our credit card debt each month.

What else to consider

These calculations are a starting place. Your situation may be similar to this scenario, but it might not be. For instance, if your APR is considerably lower and your retirement returns higher than in the scenarios above, you may very well find that you're better off investing in the market while reducing your credit card debt slowly. Changes in one or several of these factors could alter results:

Larger or smaller credit card balances;
Higher or lower credit card APRs;
Better or worse investment performance;
Availability of a company match on your 401(k);
Administrative fees associated with your 401(k);
Choosing to invest in a traditional 401(k).

If you opt for a traditional 401(k), your contributions come out of your pretax income, thereby reducing your taxable income, which could result in a lower tax liability and a higher tax refund. A tax refund could be applied to your credit card balance, allowing you to more easily pay off debt while also saving for retirement.

To calculate the immediate tax benefit of saving within a traditional 401(k) account, multiply the contribution amount by your marginal tax rate. In addition, you could be eligible for a saver's credit, which further increases the benefit of retirement savings.

How to get started with either scenario

Whatever path you choose, you may need help taking first steps. Consider these ways to get started:

Debt payoff

Consider transferring or consolidating your balances on a 0% balance transfer card.
Consider a no-spend week or month in which you don't spend on anything except essentials.
Apply cash gifts from family to credit card balances.
Work a part-time job to pay down balances.
Find ways to spend less on everyday expenditures and apply savings to debt payoff.

Retirement saving

Consider enrolling in your employer's retirement plan, if offered. You may have the opportunity to contribute to a 401(k) or 403(b) account, for example.
Set up an IRA with a brokerage account or robo-adviser.
Start an SEP-IRA if you have self-employment income.

When considering your choices, keep in mind that credit card interest rates are relatively fixed, whereas investment returns tend to be much more variable. The main instances in which credit card rates fluctuate these days are when the Federal Reserve raises the federal funds rate, or when you make late payments and are charged a penalty interest rate.

The point is, if your card's APR is 22%, you could be certain to save at least 22% of your balance by paying off credit card interest early. In contrast, the precise benefit of early investing is less certain.

Should you save for retirement or pay off credit card debt? Doing the math can help you make a decision.

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This article is from Julie Rains of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Money Moves to Make Before You Start Investing

Mikey Rox — Wed, 17 Aug 2016 09:00:08 +0000

I'm a staunch advocate for investing — especially if the alternative is piling up money in a savings account just to have "savings." Savings are great, but you only need so much in that offensively low-interest account. Put the excess to work, hopefully making even more money out of your investment. Before you take that plunge, however, there are a few financial matters you need to mind.

1. Organize Your Budget and Expenses

If you're considering making an investment — whatever it may be — you should have a solid handle on how much money is coming in and going out on a monthly basis. You want to make sure you can afford the investment without teetering on the edge of debt, but this also is a good time to find any weak spots in your budget so you can address them accordingly. Online money-tracking services like Mint.com can make this task much easier on you, and help you stay on track over the long term.

"When you know where your money goes, you are in control and can be thoughtful about aligning spending with priorities," says Carla Dearing CEO of SUM180, an online financial planning service. "Mint, for example, gives you complete access to your data through the website and your mobile device, whether you use iOS or Android. Better yet, Mint keeps an eye on your money for you. It even sends alerts to remind you to pay your bills or when you go over budget."

2. Get That Emergency Fund in Order — Stat!

In almost every "money moves" article I write, the "emergency fund" usually pops up somewhere. That's because it's a critical and indispensable part of your overall financial picture. You should have a sizable cushion in the bank to cover life's little mishaps, and that "should" becomes a "must" when you add investing to the equation. If you don't have an emergency fund, you have no business investing — bottom line.

Just how much dough are we talking for an emergency fund to be considered satisfactory? Six times your monthly expenses, according to Dearing.

"Be disciplined about saving a little every month until your emergency fund is where it needs to be, even if it means sacrificing little luxuries once in a while," she says. "Remember to replenish the account every time you use it. Having your cushion ready whenever you need it will give you a great sense of security and freedom. It will also free you up to work on other savings goals without getting derailed by unexpected expenses."

3. Pay Off Your High-Interest Debts

You don't need to be completely out of debt before you start investing. Many financial advisers argue that you should be debt free before you start investing, but that's just not true. Most people don't pay off their homes for up to 30 years, and you wouldn't want to wait that long before you start a retirement fund.

You should, however, pay off your high-interest debts. They'll drag you down faster than the Titanic.

"Whether it's a credit card or student loan, it doesn't make any sense to invest and make a market average return of 7% annually while you're paying 20% on credit debt," says Nick Braun, founder of a pet insurance company. "Pay off your high-interest debts first, then start using excess income to save for the future."

4. Contribute to Your Retirement Savings

Retirement savings is an investment. It may not seem like it now, because what you're funding seems so far away — but you'll see it as such when you reach retirement age. Which is why, before you start throwing money at other investment opportunities, you need to invest in yourself. If you don't have a retirement account set up yet, make that a priority. If you have one currently, like a 401K, for instance, take advantage of free, pretax contribution opportunities where available, like matching funds from your employer. Then max those contributions out so you don't miss a single cent.

5. Contribute to an HSA

If you have a health insurance policy that comes with a qualifying Health Savings Account, take full advantage of it and fully fund it.

"Most contributions are tax-deductible, and withdrawals to pay qualifying medical expenses — at any time in life — are tax-free," explains Kevin Gallegos, vice president of Freedom Financial Network in Phoenix. "These accounts are essentially emergency funds devoted to health care costs, and so savings have a double benefit of tax relief and savings."

6. Refinance Your Student Loans

Are student loans holding you back from building your savings or investment accounts or from making other types of investments? Free up some of your budget by refinancing your loans for a lower monthly payment.

"The average Class of 2016 graduate owes more than $37,000 in student loan debt," says financial expert Michael Blattman, professor at University of Maryland. "With 43 million borrowers nationwide, Americans owe nearly $1.3 trillion in student loan debt. Individually, this crushing debt delays borrowers' life decisions, such as getting married, investing in the stock market, buying a house, or having children. Collectively, it's hampering the U.S. economy."

You don't, however, have to be part of these statistics. Take back some of your financial freedom by making a call to your loan provider(s) to discuss refinance options that are right for you.

7. Get Started on a Taxable Investment Portfolio

After you've maxed out your retirement accounts, Dearing suggests starting a taxable investment portfolio. You can get started investing with just a few simple steps.

To get set up, call one of the high-quality, low-fee money management companies, like Vanguard, Fidelity, or T. Rowe Price, tell them about yourself, and ask them to tell you what type of account or fund you need, and what minimum investment requirements apply. These companies, which are the gold standard in the financial services industry, are extremely knowledgeable and committed to serving their clients (who, in the case of Vanguard, are also their shareholders).

"Companies like this get you started with a comprehensive, diversified, low-cost fund that will serve you well as a beginning investor," says Dearing. "Follow their recommendations and you won't go wrong."

8. Set Savings Goals for Your Taxable Investment Portfolio

Once you have your taxable investment portfolio established, set goals — $10,000, then $25,000 and, eventually, $100,000.

"When you are just starting out, choose one or two tax-advantaged funds, like the Vanguard Total Stock Market ETF or the Vanguard Small Cap Index ETF, or similar index funds," Dearing suggests. "These passively managed funds do a minimum amount of buying and selling — what the industry calls 'churning' — which translates into significantly less taxable investment income for you to deal with each year. They also tend to outperform most actively managed mutual funds over time."

Revisiting the goal aspect of this equation, it helps to have a contribution target in place so you have a solid idea of what you're trying to achieve. Likewise, make sure that it's a goal that you can achieve. $10,000 may take a while to reach, but you can do it. If that goal is too steep for you right now, start smaller. There's no harm in that. The most important part of this is that you set the bar just high enough to accomplish it and be motivated by your success to continuing striving further.

Do you have additional suggestions on money moves to make before investing? I'd love to hear your thoughts in the comments below.

This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Think Like an Olympian to Master Your Money

Mikey Rox — Mon, 08 Aug 2016 10:00:12 +0000

You may not think you have much in common with an Olympian, but when you put these world-class athletes' level of commitment, perseverance, and practice in the context of your own finances, you might be surprised at just how alike you are — or, at least, how alike you can be.

Start looking at the bigger picture and keep your eye on the prize with these ways to think like an Olympian and master your money.

1. Commit to a Goal — Or Goals

The ultimate goal of an Olympian is to take home the coveted gold medal in their discipline. Your goals, with regards to your money, may vary. Perhaps you want to pay off your consumer debts or school loans, establish a sizable emergency fund, or start making investments. Whatever it may be, you have to set your sights and focus on achieving that goal by contributing to it as best you can. An important part of that process is holding yourself accountable by tracking your spending and saving habits and monitoring progress toward your ultimate goal — and that often starts with budgeting.

"Olympians set goals — ranging from hitting a turn better in swim practice to winning a medal — and then devising a training program around the goals," offers Kevin Gallegos, vice president of Freedom Financial Network in Phoenix. "In personal finance, the idea is to look at what you want to do in life, set goals, and then put together a budget that will help you achieve those goals. Along the way, you may need to modify the goals or the 'training program' that gets you there — just as an Olympian would."

2. Put Those Goals in Places of Visibility

Keep track of your goals and put them in places of visibility. Whether it's a dream board with your endgame (i.e. a gold medal) or a cheat sheet of stats, many Olympians visualize the end in mind.

Personal finance expert and blogger Cherie Lowe did just when she and her husband committed to paying off $127,000 in debt.

"While we were paying off debt, a running tally hung on our refrigerator (four years later, it's still there), reminding us where we've been and where we were headed at the time," she says.

This strategy can work for you, too. Monitoring your progress — so you can visually assess your small successes — will provide the stamina and drive you'll need to make it through the long haul.

3. Recognize the Necessary Sacrifices

Nobody likes to make sacrifices — least of all Olympians who need to stay on the straight-and-narrow if they're to be the best of the best (so long, junk food and booze!). But if you're in a financial pickle, sacrifices are likely in order.

These sacrifices will depend on your lifestyle. I don't know what your personal vices are, but when you identify these monetary distractions, it's wise to devise a plan to nip them in the bud, or at least lay off them as you get your situation under control. You won't get very far in achieving your goals if you're constantly sidetracked or diverted by these things that expressly prevent you from your own success. You'll soon realize they're not worth the negative impact they have on you, and you may even feel better than you thought you would without them.

4. Practice, Practice, Practice

Athletes show up to practice every day and continue to perfect their skill. This is according to four-time real-life Olympian Lauryn Williams, who has started a financial planning firm that serves professional athletes and young professionals.

"Practice is about working on your weaknesses until they become skills," she says. "Saving may be something you don't do well, but you show up and practice and sometimes you save a little and others times you save a lot, but to create the habit of saving you must consistently practice it."

Money-saving expert Andrea Woroch echoes that sentiment.

"As the popular saying goes, 'practice makes perfect,' and this applies to both athletes striving to be the top talents in their sport and individuals who want to effectively manage their finances," she says. "Tasks like investing and saving money take practice; proficiency in these areas is not achieved overnight and requires the same tireless pursuit employed by Olympians seeking gold in the games. Do the same thing everyday as it relates to your money, whether that's reviewing your bank and credit card statements or tracking your goal. And when you perfect your process, keep going and never stop."

5. Show Up Every Day — Whether You Want to or Not

No matter how tired you are, or beat down, or how woe-is-me you're feeling about your finances, keep pushing every day. Olympians don't skip the gym. They pay attention to their training daily. In the same way, if you're reaching for a financial goal you have to be willing to show up and put in the hard work, even when you don't feel like it. This means balancing the checkbook, working extra hours, and being an active participant in your money goals.

6. Overcome Setbacks

In your pursuit of sound money-management, there will always be setbacks, whether it's a drop in the market or an impulse buy made in a moment of weakness. But you will bounce back — and you'll be better for it.

Let's use a self-imposed moratorium on clothes shopping as an example. You want to commit to your savings goals full force, and eliminating clothing purchases (or at least for a while) are necessary to achieve that goal. Alas, sometimes life gets in the way, but that doesn't mean that all your hard work to this point has to go up in flames.

"When you're trying to cut back on spending, but back-to-school season is demanding your funds, for instance, download apps like ShopSavvy to compare prices or Coupon Sherpa for such in-store savings as $10 off $40 or more with a Kohl's coupon," Woroch says. "Recovering from these mishaps quickly and continuing to practice good financial habits is key to your ultimate success."

7. Cultivate Self-Discipline

Reaching that podium as a medalist isn't a cakewalk for an Olympian, and neither will be achieving your financial goals. Which is why self-discipline is required, especially if you're going this alone.

"It takes discipline to train for hours every day leading up to the Olympic Games and it takes this same kind of strong will to reach your financial goals," says Woroch. "After all, it's much more fun to spend money on vacations and the latest gadget than it is to put money toward your savings goal or debt payoff plan. Having the control to forgo wants and focus only on your needs is a challenge, but it's a worthwhile pursuit, whether you're striving for gold or financial freedom."

8. Strive for Consistency

Consistency is key if you want to achieve any kind of goal, whether it's related to fitness or finances. Olympians must be consistent with their training, both mental and physical, to qualify for the games and compete with other top athletes in their sport. Similarly, consumers must be consistent with their savings goals and spending behaviors to stay on track financially. Digital tools like Mint can help you track your spending and keep an eye on your investment portfolio, while the Digit app automates savings and transfers unused funds from your checking account to your savings account.

9. Stay Positive

There will be days along this journey that you'll want to give up, throw in the towel, close the blinds and hide under the covers. We all get that way sometimes, but it's true what they say — only the strong will survive. Stay focused and maintain a positive outlook, and you'll come out the other end victorious, just like a U.S. Olympian.

Woroch notes, "To compete, Olympians must remain positive through arduous training and in the face of fierce competition. It's easy to feel defeated both as an athlete and as someone pursuing a financial goal. However, positivity can help you endure the low moments and keep your sights set on your goal. This is especially true when the stock market drops and your net worth suddenly takes a dive along with it."

Are you an Olympian when it comes to your finances?

This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What You Can Buy With $5,000

Carrie Kirby — Wed, 18 May 2016 09:30:22 +0000

If I had a million dollars…

So the song by Canadian alt rockers Barenaked Ladies goes. While it may be fun to imagine what you would spend a cool mill on, it's a lot more realistic to imagine that you may find yourself with $5K to dispose of as you wish. Maybe you got a big tax refund this year, or an unknown uncle left you a little something.

Whatever the backstory, here are 11 fun and/or responsible things you could do with $5,000.

1. Pay Off Credit Card Debt

The average American household with credit card debt owes about $15,000. If this is you, making only the monthly minimum payment at a very typical 15% annual interest rate, it could take you seven years to pay off — and you'd end up wasting $8,000 to $9,000 on interest.

Pay down $5,000 of that debt now, and you could finish paying the rest in half the time, for only about $3,000 total interest. (See also: Use a Balance Transfer to Pay Off Debt Faster)

2. Get a Cat

Half leopard, half house cat, the Bengal is a beautiful animal and can be yours for just about $5,000.

If being ignored by one feline doesn't cut it for you, you can get more cat for your cash by adopting. With an average fee of around $100, you could bring home 50 felines for $5,000. Then again, maybe you'll need to save some money for litter and food — and a really good vacuum cleaner.

3. Start a Business

There are a number of low-overhead businesses you could start with a $5,000 or smaller investment, many of them work-from-home gigs such as being a virtual assistant (expenses include computer, phone, Internet, and possibly training and marketing). You could also buy a small franchise, such as a hot dog cart, for $5,000 or less.

4. Take Your Inner Geek on a Vacation of a Lifetime

For about $5,000, you can take the Lord of The Rings New Zealand Tour. The trip includes staying at the adorable Hobbit Hotel — but second breakfasts and elevenses are on you.

5. Bank It

Interest rates are still low, but you can get some return on your money if you deposit it.

EverBank currently pays 0.61% on its money market accounts and compounds interest daily, so after five years of compounding interest, you would have $5,154. So basically, after five years of saving, you'll have earned enough interest to buy a scooter or have your house cleaned once.

4. Give It to an Old Person: Future You

If you're not regularly depositing money in an IRA from your paycheck, you can meet almost the entire year's maximum deposit with a $5,000 lump sum contribution.

Because traditional IRAs grow tax-free, you might be amazed at how much your $5,000 deposit could blossom into by the time you retire. Assuming a 7% annual return, if you deposit $5,000 at age 20, you could have more than $50,000 by age 65. Not bad!

5. Indulge Yourself for a Year

For $5,000, you could get a one-year subscription to a whiskey club ($600), a Kobi beef of the month club ($1,250), a seafood of the month club (about $1,660), a candy of the month club (about $300), and order one in-home massage per month ($1,200). A great deal for xenophobes, freelance writers, or folks on house arrest!

6. Donate to Charity

It will make you feel great, and you can deduct your gift from your taxable income. Make sure your recipient is a qualified nonprofit — you can look it up on the IRS website — and remember that you need a letter of verification from the charity for all donations over $250.

9. Eat a Burger

The Fleurburger 5000, served at Hubert Keller's Fleur eatery in Las Vegas, is made with Wagyu beef, foie gras, shaved black truffles, and truffle oil. It comes with a bottle of fine wine — and fries.

10. Grill Your Own Burgers In an Outdoor Kitchen

While you can flip burgers on the most inexpensive hibachi, making your yard into a plein air living space where you can comfortably cook starts around $5,000 for a decent grill, an island with a built-in refrigerator, and a dining set.

11. Skip Waiting in Lines for a Year

Estimates for how much time Americans spend waiting in line in a lifetime vary from two to five years. That boils down to hundreds of hours per year! You can pay line waiters about $25 per hour on TaskRabbit or through local services. So for $5,000, you can get out of 200 hours of line waiting. Pro tip: Don't blow it all on one phone.

What would you do with $5000?

This article is from Carrie Kirby of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Manage Debt While Unemployed

Andrea Cannon — Mon, 02 May 2016 10:00:11 +0000

When you're unemployed, it can be harder than ever to manage your debt. But with the right strategy, you can stop worrying about debt and start focusing on finding a new job. Here's how to get a handle on your debt during unemployment:

Assess Your Assets

First consider all assets and possible sources of income available to you. Can you accept part-time work, sell belongings on eBay, or take a local babysitting gig to make a little extra cash for the necessities? This can make it easier to stay afloat and make your minimum monthly payments on-time. And if you haven't already done so, visit the U.S. Department of Labor to apply for unemployment benefits.

Create a Survival Budget

Determine what your basic living expenses are, such as food, mortgage, utilities, transportation, insurance, and medical costs. Create a budget that details every single dime you spend each month so that you can determine what can be cut during this time. Once you find new employment, try to stick to this survival budget so that you have extra funds available to pay down debt or invest in an emergency savings fund.

Assess your remaining costs to determine if there is anything that can be cut. For instance, try reducing your credit card and cable bills, forego the land line, cancel any magazine subscriptions, cut back on entertainment expenses and streaming services, and reduce or eliminate costly habits (such as drinking, smoking, and eating out). Look for other creative ways to save money, such as relying on public transportation and finding easy ways to cut back on utilities. (See also: 10 Ways to Save Money When You Are Unemployed)

Set Priorities

Prioritize your debts. Determine which bills need to be paid first, once your basic living expenses are taken care of. Secured credit accounts, like credit cards, loans, and car payments should be paid next.

The goal is to preserve your savings, so don't try paying off any debts early at this point. Make only the minimum payments on your credit cards and avoid using any sort of credit for as long as possible. Once you find new employment, you can start working on paying down your debts as quickly and efficiently as possible.

If you have a federally-backed student loan, there are a number of payment options available during tough times. Often, the loans can be deferred until you find work again. Check with the U.S. Department of Education for more information.

Negotiate With Creditors

Speak with your mortgage lender and credit card issuers at the first sign of trouble. If you wait to contact them until after you've already missed a payment, it's less likely creditors will work with you to find a reasonable solution.

Your creditors may be able to help you ease loan terms, reduce your monthly payments, or even put your payments on hold for a short period of time. While there are no guarantees that they will work out an arrangement with you, it's worth a shot.

Pursue Alternatives

There are alternative options, such as debt management, debt settlement, debt consolidation loans, and bankruptcy. Speaking with a credit counselor can provide you with precise information on the options available to you. (See also: 11 Steps to Take When Bankruptcy Is Your Only Option)

Do you have other tips for dealing with debt when you're unemployed? Please share your thoughts in the comments!

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This article is from Andrea Cannon of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Should You Pay Down Debt First or Invest?

Dr Penny Pincher — Thu, 24 Mar 2016 09:30:23 +0000

Should you pay down your debt before you focus on investing? This is one of the most important questions in personal finance, and the decisions you make now can greatly impact your financial future.

The sooner you start investing, the more time your investments have to grow. The effect of compound interest creates a big incentive to start investing as soon as possible. Compound interest is responsible for the "snowball effect" that grows your small investment into a substantial sum over time.

But what about paying off debt? Debt grows through the same effect of compound interest that fuels investment growth. The longer you take to pay off debt, the more it costs you due to compound interest. High interest credit cards have interest rates that likely exceed the best returns you will get in the stock market. (See also: Credit Cards with the Lowest Interest Rates)

So what is the best money move — pay off debt or invest?

The Simple Answer

Mathematically, the best choice is to put your money where it gets the best return on investment. For example, if you have credit card debt at 12.9% interest and your stock market investment account that grows at 8%, then you are better off putting as much money as you can toward the higher interest opportunity — paying off your credit card in this example. (See also: How to Save Money on Credit Card Interest with a Balance Transfer)

However, there is a complication with this simple answer right off the bat. There is no way to know the rate of return from your investment accounts ahead of time! You could get huge investment returns, even higher than your credit card interest rate, or you could even lose money in the stock market and get negative returns.

You have to make an assumption about your rate of return to decide where to put your money. The long-term historical average return from the stock market is around 8% including booms, recessions, and even the Great Depression. No one knows what is going to happen in the stock market, so a reasonable assumption is that you will get returns consistent with the long-term average over the long run.

So if the interest rate on your debts is higher than about 8%, you are better off paying debts down first rather than investing. If you have low interest debts such as a mortgage or student loans, you are better off making minimum payments on your debts and investing as much as possible to get the maximum return on your money.

As I said, this is the simple answer. There are a few details that make the decision of whether to pay debt or invest a little more complicated. Let's look at some of them.

The “Life Isn't Simple” Answers

Even with the simple assumption that the long-term historical stock market return of around 8% will continue into the future, there are other complexities to consider in the decision between paying off debts or investing.

Incentives to Pay Down Debt

There are negative consequences of carrying debt that go beyond mathematical calculations of return on investment. Carrying debt is stressful. You have payments to make every month and face immediate severe consequences if you can't make them. If your source of income is disrupted while you have a lot of debt, you can lose everything quickly. Paying off your debts can take this sort of risk off the table.

There are other advantages to paying off debt as quickly as possible before focusing on investment. For one thing, focusing on paying off debts is a good deterrent to borrowing more money. If you have investments that are growing, you might be more likely to take on additional debt if you have debt already and are not focusing on paying it off quickly. Paying down debt can be a good way to focus on your financial health and develop sustainable spending habits.

So the risk of carrying debt tips the decision toward paying down debt first, but as I mentioned, life isn't simple.

Incentives to Invest

If your employer offers a 401K retirement account matching funds program, the balance tips toward investing. Many companies will match employee retirement contributions with 50% matching funds. This is free money! For example, if you contribute $500 to your retirement fund and your company has a 50% matching program, the company will add $250 to your retirement account. This can tip the balance in favor of investing. If you have $500 available per month, the choice effectively becomes $500 for debt payments or $750 for retirement contributions. This makes investing hard to beat.

Let's not forget about taxes. Another advantage of investing in a retirement account is that you can invest pre-tax dollars in an investment program such as a 401K. When you pay debt, you are paying it with post-tax dollars. The impact of pre-tax vs. post-tax dollars is that you can effectively put more money in your retirement account at the same cost to you. For example, you could invest $665 before taxes or pay down a debt with the $500 you get after taxes. This results in an advantage for investing instead of paying off debt.

It is true that some types of debt such as mortgages and student loans have tax advantages. You can get a tax deduction for mortgage and student loan interest, but this benefit is small compared with the tax advantages offered as incentives to fund retirement accounts.

Another variable that you may be able to change to tip the decision toward investing is the interest rate on your debt. If you can refinance your high interest debt with a debt consolidation loan or a balance transfer, you will save money on interest — and investing before paying off your debt may make sense if your interest rate is lower than your investment returns.

Example Scenarios: Pay Off Debt vs. Investing

Let's say you have $20,000 of credit card debt at 12.9% interest. Are you better off paying off that debt first as fast as possible before investing, or should you pay the minimum balance on the debt so you can start investing as much as possible right away?

If you wait to start investing until you have the debt paid off, you will miss out on years of growth of your investment account. However, the longer you leave the high interest debt around, the more it will cost you to pay back. What should you do in this scenario?

Let's say you have $535 per month that you can use to pay a credit card debt or invest for a term of 25 years.

Option 1: Pay Off Debt First

A monthly payment of $535 per month will pay off the $20,000 credit card debt at 12.9% interest in 48 months, or four years. The total cost of paying it off is $25,700 due to compound interest.

Now, after four years, you start investing the $535 per month. It grows at the historical average return of 8% for 21 years. You end up with $348,000 in your retirement account. That's pretty good!

Option 2: Make Minimum Payments On Debt, Start Investing Now

In this scenario, we will make a smaller payment on the credit card of $297 so we will be able to invest the rest of the $535 per month that we have available, or $238 per month.

With our minimum credit card payment, it will take 10 years to pay off the credit card balance at a total cost of $35,800. It takes much longer to pay off the credit card by making smaller payments, but this move allows us to start investing right away.

Our 10 years of investing $238 at the historical average 8% return gets us $43,500 in our investment account. We'll start with this balance and invest the full $535 per month for 15 more years. The final balance: $329,000.

In this scenario, the high interest rate on the credit card debt still outweighs the lower rate of return from the investment account. With high interest debt, the best move is to pay it off before starting to invest.

Consider 401K Match, Pre-Tax Investment Dollars

The result above does not include the 401K company match or the use of pre-tax funds. Considering these investment incentives, the balance at the end of 25 years improves, but the choice between investing vs. paying off debt first does not change.

Pay Off Debt First: $650,000
Minimum Debt Payment, Start Investing: $630,000

Without the Debt, You Would Almost Be a Millionaire!

So what is the effect of having $20,000 of debt to pay off early in your investment cycle? If you didn't have debt and started investing right away, you would have $951,000 at the end of 25 years!

Final Answer: Should You Pay Off Debt or Invest?

The basic principle of putting your money into the option that gives the best rate of return leads to the best financial results. If your investments yield a higher return than the interest on your debts, then you'll be better off investing right away and making minimum payments on your debts.

However, if the interest rate on your debt is higher than the rate of return from your investments, then you should pay off your debt first before investing. The example calculations showed results for a scenario where it would definitely be better to pay off high interest debt before starting to fund an investment account.

One big conclusion from this analysis is how much debt impacts your investment growth. In our 25 year investment example, you could have about $300K more in your retirement account if you didn't start with $20K credit card debt. If you have high interest debt, look for opportunities to consolidate the debt or get a balance transfer and end up with a much lower interest rate.

Ultimately the choice of whether to pay off debts before starting to invest depends on your tolerance for risk and your assessment of potential rate of return from investments in comparison with the interest rates on your debt.

Are you investing or paying off debt?

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This article is from Dr Penny Pincher of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: