Personal Finance

Tackling Your Debt – Part 2

In the last issue we talked about paying off your debt with some methods that you could do on your own. Let’s talk bout other options to payoff your debt, that you will need to consult a professional and make some tough choices before moving forward.

A Home Equity Line of Credit or Home Equity Loan: this is a mortgage against the equity in your home. This is similar to debt consolidation except for using your home as collateral. While this can be a much lower interest rate (and may be tax deductible), you are taking possibly unsecured debt and securing it with your home. In addition, there may be closing costs, attorney fees, etc. involved with the mortgage process. And if you cannot make the monthly payment, there can be substantial consequences involved up to and including the loss of your home.

Debt Settlement sound like a great option to settle your debt for a lesser amount. You would be paying a smaller agreed upon amount to pay off your debt. While it sounds good, first do you have the cash to do this? Second, there could be tax implications on the amount you save (the IRS can consider this taxable income). In addition, this will be a negative factor on your credit report / score.

Bankruptcy, this is typically the last resort. The is a legal / financial decision that you will need to discuss with your professionals (lawyer, tac preparer, etc.) before moving forward. There are two types of bankruptcy. One you will enter a payment plan to payoff your debt for a fixed period of time. The other option, you will eliminate your debt entirely. But you need to think about what is involved in the big picture – your will have legal fees that will need to be paid, your credit will most certainly be affected, and your will have difficulty receiving new credit at a reasonable interest rate for a period of time. You will be able to get credit but at a much higher interest rate initially. Until your credit is reestablished.

One tool that I find useful is a financial calculator and BankRate.com is one of my favorite websites that offer a variety of calculators to help you make a decision that is right for you. https://www.bankrate.com/calculators/index-of-credit-card-calculators.aspx

Now that you have several options, make the choice that is right for you and your situation. Talk to your professionals to get their option. Then consider the benefits and costs involved. These are not easy choices, but one that you need to make if you have substantial debt that you want to payoff once and for all.

Tackling Your Debt – Part 1

Now if you are someone who has accumulated debt in 2020 (or previously), lets talk about ways to payoff your debt. You have heard the ads on the radio and see the commercials on TV, but are they legit? Maybe, but do you want to try and find out you have been scammed?

Here are some of the ways that you can payoff your debt by yourself:

There is the snowball way: Here is an example: you have a $500 medical bill, a $2,000 credit card balance and a $10,000 car loan. You would make the minimum payments to the credit card balance and the monthly payment to the car loan, while paying as much as you can to the medical debt. Once the medical debt is paid off, you would start to pay off the credit card debt. You payoff your debt by paying the smallest balance first and moving to the next smallest debt and so on.

The avalanche way: In this scenario you will pay the minimum payments to all your debt except the one with the largest balance. Here is an example: you have a $7,500 credit card balance on one card, $9,000 on another and $1,000 balance on a personal loan. With this method, you would pay the minimum amount due each month on the $1,000 loan and the $7,500 credit card. You would pay as much as you can (more than the minimum due) on the $9,000 credit card to pay this off faster. Once this is paid off, you would move to the next largest balance and so on.

Debt consolidation is another option: You would apply for an unsecured loan and consolidate all your debt into one loan and have one monthly payment to deal with. Depending on what type of debt you are consolidating, you may have a lower interest rate. Typically, this would be lower than credit card rates, but may be higher than student loan debt. You would need to compare terms and costs to see if this method is right for you.

A Balance Transfer can be an option: With either your current credit card or opening a new one, you can transfer your debt to this credit card with zero percent interest for a fixed term. A few cautionary notes: look at what fees might be involved for your situation. Also, if you chose this option on a credit card that you have a balance on, your payments will be applied to the highest interest balance first. Meaning you are not paying down the zero percent balance until the higher interest rate balance is paid. This might take longer than the zero percent offer is good for. If you do this, plan your payments wisely. Take the balance and divide it by the number of payments during the zero payment term. This is the amount you will be nee to be able to pay every month to pay this balance off. If you fail to payoff the balance during the zero interest period, you will owe the remining balance with the new interest rate back from the date of the transfer.

Next issue, we will discuss other options that are available, that you will need to think about before moving forward. Remember that debt is your financial enemy, so make a plan to tackle your debt now rather than later.

You will need to check with the appropriate professionals to discuss the pluses and minuses of each option before you make a choice.

2020 A Year For The Records Books – Part 2

This is part 2 of 2020 A Year For the Record Books – click the link to read part 1.

We must learn to adapt our finances to changing times.If you live in the tri-state areas, we had a hurricane Esaias. Many people had damage to their homes / property and lost power for days. Having to replace all the food in your fridge and freezer is a huge expense, that you probably weren’t expecting. Look into reimbursement from your renter’s / homeowner’s insurance (and possibly the power company) to ease your budget.

Spending more than you have. With more time at home and less going out, did you find yourself spending more online than your budget allows? Just because something is a good deal, doesn’t mean you need to purchase it. As they say, you don’t need to keep you with the Jones’s.

Credit card debt. You know that debt is the enemy of your budget, so carry a balance month to month on your credit card in not good. Yes, I know that right now creditors are working with you if you are having trouble payment your debt. But think long term, what is it costing you? Make a plan to payoff your debt in full each and every month, so this won’t be an issue with your finances.

With the holidays just around the corner, that will be another big expense for many. Think about what your plans are and how they may need to be adapted to fit your finances. Another words, don’t overdue it. Now is the time to make a plan and stick to it.

Now that I have shared with you some of the ways you might be accumulating debt, what are you planning on doing (or have done) to stop debt from accumulating?

2020 A Year For The Records Books – Part 1

2020 has been a year unlike any other – from job loss / furloughs to pandemics to hurricanes. All of this has signaled changes in our lives, not only in what we do (or don’t do), how we live and how it affects our finances. We must learn to adapt our finances to changing times.

For many this is a year that you started (or continue) to accumulate debt. Not a good thing!

Let’s first talk about all the ways that you may be accumulating debt:

Not having an emergency fund. You have heard me preach over the years about having a savings account for life’s what ifs. This was the year that many of us needed to fall back on our emergency savings as jobs were lost / furloughed and the unemployment system was overwhelmed, and payment were delayed. Your emergency savings was the way to get you through in these uncertain times.

Adapting to change (the new normal). As your life changes, so should your finances. Meaning that if you have job loss / less income coming in, you need to tighten your belt and cutback on your expenses. Answer these two questions. Think what can I get for free that I have been paying for? Think what can I reduce or eliminate in my monthly expenses? Want more information, check out my past newsletter, Budgeting By The Numbers.

Eating out / take out. Food is one of the biggest expenses in a family’s budget. Typically, when I coach a family, it the food that is an issue with their spending. How much is it costing you to eat out, pick up take out, grab a beverage versus bringing and cooking at home? Track this and see where your family stands.

Reimbursable costs. In these uncertain times, you may have more medical than other years. Make sure to utilize all your options such as FSA and HSA accounts, in network providers, etc. I was speaking with someone who hadn’t submitted any expenses to her FSA account. She potentially could be leaving a lot of money on the table by not timely submitting her expenses for reimbursement.

Check out next week’s newsletter for part 2.

Decluttering Your Financial Records

Since we have all been at home for months and doing things around the home, I thought I would rerun this appropriate newsletter about what you need to keep and toss for your financial records.

Here is what you can get rid of:

Paystubs – Do you have a stack of them? You can get rid of last year’s because you have a W-2 that summarizes what you’ve earned. Keep the W-2. Make sure they match before shredding.

Bank Statements – If your bank gives you an annual summary or statement, then you can get rid of all the monthly or quarterly statements, but keep the annual summary / statement.

Tax Returns – Generally, you can get rid of tax returns that are seven years old or more (2013 and older) along with the supporting documentation. However, you will want to check with your tax preparer if you:

bought, sold, and/or own a home
hold certain investments
received certain gifts
have any other special circumstance that requires you to keep related paperwork indefinitely.

In other words, check with your tax preparer before shredding your returns.

An alternative to paper files

Keeping your records on your computer is a great alternative to paper files. We had a lot of paper clutter hanging around, so I started the process of scanning my records as pdfs. If you need a piece of documentation, it’s much easier to locate and open a single pdf than it is to search through a big, cluttered file full of paper. The best part is, that you don’t have to refile the pdf after you’re done looking at it. It’s also easier to fax or email a pdf if needed. Think of all the times you’ve needed to share information about insurances, taxes or rebates. Computer files are great to work with. Remember to keep a back up of your files. You wouldn’t want to lose them if your computer crashes.

Make sure to shred

Remember when I say “get rid of”, I mean for you to shred each and every document that has your personal information on it before throwing it away. You don’t want to offer dumpster divers an opportunity to steal your identity.

Call your tax preparer to see what you need to keep and start to go through your paperwork to eliminate what you don’t need. Happy Shredding!

Simplifying By Doing It Ourselves

We have made choices in our lives to do things ourselves and not pay for the service. It’s a personal choice that we are happy with.

With that in mind, I want to share with you what we personally don’t spend money or reduce our spending on in our household.

Our Home:

Yard work
Spring and fall yard clean up
Snow shoveling
Gutter cleaning
Power washing
Trash / recycle – would have to ay a trash hauler as our town doesn’t provide this service
Rain barrel – we collect rain water and use this to water the garden and plants
Compost Bin – our town has a goal to go waste free, so we are able to take our food waste to the town for compositing

By doing these things ourselves, we save money each and every month that we can use in a variety of ways (reduce debt, increase savings).

Simplifying Home Improvements

If you have followed my blog, you know that we do projects around our home all the time. We typically a yearly list to do.

With more time on our hands and being a homeowner, means there is always a project / improvement that needs to be done, some by us and others by professionals.

Our first project this year was to replace the grass between the road and sidewalk with plants. Delivery trucks parking on the sidewalk and the salt from the winter storms always made this grassy area a mess. Our hosta plants needed to be split, so this solved the problem. We removed the grass and placed weed block down, added the plants and completed it with mulch. No cost to us, just labor over two weekends.

Next, we starting to replace fence panels. We are still doing this ourselves, by replacing a panels or two when we have a few hours and the weather cooperates. We’ll do what we can and at a slow pace. It sounds easier than it is, because it’s not only replacing the panel, we need to breakdown and transport the old panel to the town’s transfer waste station.

As you know, home improvement projects and maintenance are easier to do now versus having a major emergency home improvement project later.

Simplifying By Reducing Paper

Do you find yourself swimming in paper? We did.

There are things you need to keep (tax records, purchase receipts, home expenses and more), but there are the other things that we seemed to keep as well. So much so that we had several files cabinets worth.

Over the past few years, our goal was to simplify and reduce the paper files we kept. This is what we did:

Scanned and digitized the family photos, slides and movies – this was a huge project
Scanned bank / credit card and investment statements
Eliminated manuals – we can look it up if we need to refer to this online
Scanned income tax returns
Scanned medical records
Scanned and organized recipes – this eliminated all the recipe cards from my mother and many cook books too

Now most files are scanned and backed up and the paper is eliminated. It’s such a great feeling when there is less paper. As an added bonus, we are down to one file cabinet. We sold the other file cabinets for some extra cash.

Remember to check to find out what you are required to keep and for how long before getting rid of your paper.

Simplifying By Opting Out Of Emails

Are you overwhelmed by all your emails in your inbox? I was!

Having several email addresses and tons of emails was too much for me.

I took the time to opt out of many emails. First, I eliminated emails that I never subscribed to. There was a lot of those.

Next, I made some conscious choices about others. There were some that were no longer relevant to me. Some that I never got around to reading. Some that I subscribed to because I made a purchase(s).

Less in my inbox is a relaxing feeling for me. I don’t feel pressured by another to-do in my life.

I also eliminated so email accounts to have less to go through each and every day. For me less is better and saves me time and money.

Simplified My Exercise Routine

Along with a healthy eating, for us comes exercise. Since the stay-at-home orders in early March, we changed our exercise to walking in the neighborhood. We walk difference ways, sometimes along the water, sometimes in the area, sometimes on a trail all within walking distance from our home – no car / gas needed.

It’s been almost four months of daily walking, regardless of the weather we walk and walk. One thing we have done is to combine exercise with errands. We are fortunate to live close enough to town and we do errands on some walks. It could be to the Post Office or the bank or the drug store and many more. But about once a week, our walk includes errands. It’s fun, gets things done and no need to use the car or pay for a gym membership. And as a bonus, we have met people along the way that we never knew before.

We get our exercise in and save money. I wouldn’t trade this for the world.