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6 Important Pieces Of Financial Advice For Recent College Grads

student loan debtCongratulations! You’ve done it! Those four (or more) years of college are now in your rearview mirror. You’re excited and ready to start your new life. If you’re fortunate you already have a job or one lined up or maybe an internship. You’ll soon be making more money than ever before in your life. But before you charge off to start buying stuff it’s important to draft a financial plan. If you do this now you’ll have a much better chance of avoiding the common financial problems that plague many new graduates.

Following are six pieces of financial advice that can help smooth out your transition from college to the “real world.”

#1. Start saving

The first important tip in financial awdvice is to determine how you could live below your means. When you do this you will have extra money that you could set aside as an emergency fund. And trust us, you will ultimately have an emergency. This is even more crucial if you graduated owing on student loans. If so, this would at least put you in good company as roughly 69% of graduating college seniors in 2013 had student debt that averaged $28,400.

If you are now making a salary of, say, $2000 or $3000 a month your best move would be to try to live on $1000 a month and bank the rest. This would give you money you could use each month to pay off your debt. When you become debt-free you will have money you could save for retirement, to buy a house or to get a new car.

#2. Keep your spending to the minimum

It’s best to sit down, calculate your earnings and expenses and then put a limit on your spending. This is critical if you just snagged a new job. When you practice good financial habits now they will stand you in good stead the rest of your life. There are many smart phone apps available that would make it simple for you to do this. The best idea is to continue living as if you were still a broke college student. You survived on that tiny income for four years and there’s no reason why you couldn’t continue to do so for a couple more years and get a real head start on your savings or investing.

#3. Work on your money management skills

When you start your first job make sure to carefully review your employee benefits such as health insurance, retirement accounts, disability insurance and so on. You should also begin educating yourself on smart money management by reading a few books or even scheduling a one-on-one meeting with a financial planner. The important thing is to treat your finances as if they were yet another college course and do a lot of reading and research. The more you understand about personal finance the simpler and less stressful your financial life will be.

Girl looking at a laptop#4. Don’t forget those student loans

Don’t forget that if you have student loans your first payment or payments are due in October. If you fail to make a payment or if you are late in making one you will be in default and trust us that’s something you don’t want to happen. Technically you are in default on a student loan the day after you miss a payment. However, it will be 90 days before this will be reported to the credit bureaus and more than a year before your account might be turned over to a debt collection agency.

If you believe you’re going to have a tough time making your payments, go on the
U. S. Department of Education’s website and check out the repayment options available. There is one very popular plan called Graduated Repayment where your payments start low and then increase every two years. This can be an excellent choice if you have a job where you can see that your income will also increase in the years ahead. There are also three income-driven repayment plans. This is where your payments are tied directly to your income. The best of these is Pay As You Earn, which would cap your monthly payments at 15% of your adjusted earnings. This means that if you were out of work and earning nothing your monthly payments would be the same – nothing.

You should also contact your lender or loan servicer if you believe you’re not going to be able to make your payments. The sooner you make that call the sooner you will be able to get some help.

#5. Don’t fall prey to lifestyle inflation

When you get a big boost in your income it’s very tempting to go out and start buying things like a new car or to rent that two-bedroom luxury apartment. It can also be tempting to use your credit cards to pay for the furniture you’ll need for that apartment. Some people even take on credit card debt before their student loan repayments begin and then find that when they kick in they don’t even have enough money to buy groceries. This can lead to an endless cycle of default and deferment. And yes, it’s okay to upgrade your life somewhat after graduation so that you can say goodbye to those Ramen noodles but just don’t get carried away. Remember that those student loan repayments will soon come due and plan accordingly.

#6. Negotiate for a better salary

There’s nothing wrong with haggling over your salary and benefits – even when it’s your first job. For that matter, this demonstrates a sign of professionalism because even though you graduated recently you do understand how the working world works. You should, of course, express enthusiasm and appreciation for the job offer but remember that if you were able to negotiate just a small increase in your salary this will pay off in thousands of dollars over your working life. It’s also a good idea to practice your job offer conversation before you talk to that potential employer. Make sure to research your field so you will know what is a fair salary. If the salary is indeed fixed and you can’t negotiate anything better, focus on the other benefits, which can be worth as much as 33% of your salary. These are things that many first timers overlook. Make sure to ask about health care benefits, retirement accounts, vacation days, the flexibility to work at home and so forth. Just sit down, decide what’s important to you and then prepare for some professional haggling. You’ll probably find it just takes one round of negotiations.

Financial Therapist? I don’t Need No Financial Therapist

You’ve undoubtedly heard of financial counselors but did you know there are also financial therapists?Video thumbnail for youtube video Don’t Let The Ghosts Of Old Debt Hurt Your Credit Score

Unless you’re a member of that fortunate 1% you probably find yourself stressed out over money issues at least periodically. But for some people financial issues go way beyond this and become an essential psychological problem. And this is what financial therapists can help with.

A new field

As you might guess, this is a comparatively new field. According to the APA (American Psychological Association) money is the number one cause of stress in people’s lives. Given this it’s relatively surprising that the Financial Therapy Association didn’t come into existence until 2010. It currently has 250 members while there are 1100 accredited financial counselors.

What’s the difference between therapists and counselors?

The biggest difference between a financial counselor and a therapist is that the therapist focuses entirely on money. And while financial counselors are accredited financial therapists aren’t.

Why financial therapists?

People generally tend to seek out a counselor when they are having a financial emergency such as bankruptcy or a serious dispute between partners or spouses. In comparison, financial therapists are trained to help people – whether they are big spenders or thrift obsessive – develop financial well-being through an understanding of the cognitive, behavioral and emotional aspects of their financial problems.

In some cases, a financial therapist and counselor will work together in tandem to give a client a more holistic approach.

We know it but we don’t do

You already know you should be saving more money and spending less. However, the odds are that you aren’t. What financial therapists say is that reading more information about how you should spend your money is not going to help and that what needs to be addressed are the emotional issues underlying your problem.

man looking tired with workCommon money disorders

Financial therapists have identified five common money disorders. They are frugality, enabling, denial, dependency and rejection. How could you know if you’re suffering from one or more of these disorders? Here are the major red flags that say you might benefit from working with a financial therapist.

1. You’re avoiding your financial problems

There are times when we all feel reluctant about opening a bill. However, if you let your bills just pile up on your desk or a table this could mean you’re suffering from financial denial. Almost all of us have a low level of anxiety over money but for “deniers” the anxiety is so overwhelming that they just basically check out.

Here are the warning signs that you might be a denier.

  • You borrow money constantly or are always getting new credit cards
  • You have no idea how much you’re in debt
  • You either can’t open your bills or just check out the minimum payments.
  • You continue to hold onto the idea that somehow things will just work out.
  • You either avoid talking about money with your spouse or partner or just tell her or him that everything is okay.

2. You’re obsessed with the idea of being frugal?

Of course, it’s good to be careful about how you spend your money but frugality can get out of hand. If you are chronically “underspending” and neglecting your needs it might be because it’s just too hard for you to part with the money. People who are severe underspenders tend to neglect basic taking care of themselves. For example, they won’t go to a doctor or dentist because they simply don’t want to spend the money. The warning signs that you may be frugal excessive are:

  • You just can’t bring yourself to pay for basic necessities like home repairs or the dentist
  • You have a healthy savings account and a minimal amount of debt but are still constantly worried about money
  • You avoid going to the doctor so that you won’t have to make small co-pay
  • You refuse to invest any of your money even in a low-risk option such as a CD.
  • You’re willing to take advantage of other people if it means you would be getting something free or saving money.

3. You enable an adult child

If you are a financial enabler you’re sharing your money in a way that keeps your child from taking responsibility or becoming independent. Financial therapists see this most often with the parents of adult children. And yes, it’s okay to provide some assistance to an adult child but too much can create problems for both the giver and the receiver. If this is true of you, you might think you’re being altruistic and helping your child but what you’re really doing is satisfying your own needs. Here are the red flags that you may be a financial enabler.

  • You give your child money even though you can’t really afford it
  • You have provided so much financial assistance to your child that he or she has stopped trying to be independent
  • You find yourself struggling with your finances but then watch your adult child go on a shopping spree – on your money
  • You feel resentful when your child asks for money but you just can’t imagine saying “no.”

4. Do you totally rely on someone else to handle your finances?

You could be a stay-at-home mom that lets your spouse or partner handle all of the family’s finances. However, there are situations where people become too dependent on that partner or spouse and much of this probably has to do with gender role problems. One therapist has reported that people who totally rely on someone else to handle their finances often have issues with drugs and alcohol or end up in abusive relationships. When a person has everything given to him or her and another person is managing the money, that person can end up with no self-esteem or a sense of self-worth. Here are the danger signs that you have become too dependent on your spouse or partner.

  • You’ve never supported yourself on your own
  • You resent the feeling that the money you’re given comes with strings attached
  • You have no basic financial knowledge
  • While your relationship is an unhappy one you’re scared of the idea of leaving and having to support yourself
  • You have little or no self-esteem
  • You have absolutely no idea as to how much debt or how much money you have

5. You are uncomfortable with the idea of accumulating money

If you have a serious aversion to the idea of accumulating wealth this can signal a serious disorder called financial rejection. This sometimes happens to people who’ve won a lottery or received a lot of money due from a settlement. Some people actually feel that earning big money is a sign that you’re either a bad person or exploiting others. The warning signs of this are:

  • You don’t feel entitled to money so you give it away
  • You turn down opportunities to increase your financial security or to get a promotion
  • You earn less money than you should given your skills and education
  • You either under charge for your services or work free
  • You feel virtuous about not having much money.

9 Ways To Earn Extra Money to Pay Down Debt You’ve Never Thought Of

College student catching money in the airWhen you think about earning extra money to pay down debt, what do you think of? Most people would think about things such as having a garage sale, selling stuff on eBay or horror of horrors, getting a second job. The problem with options like garage or estate sales or selling stuff on eBay is that you probably have a limited number of items available to sell. So what would you do when you run out of that stuff?

Getting a second job is one of the best ways to earn extra money to pay down debt but it just doesn’t work for everyone. We live pretty much in a 24/7 world now and the hours you’re working at your primary job just might preclude you from getting a second gig. For example, we know of tech support people that work shifts like 10 AM to 6 PM or even 10 PM to 6 AM. It’s just not possible for people like that to take on second jobs. Even if you have a traditional 8 AM to 5 PM job you might find that there are many days of the week when the job just doesn’t end at 5 PM.

So if you fall into one of these categories what could do to earn extra money?

#1. Put your car to work

If you own your car you could put it to work earning money for you. In today’s sharing economy there are numerous people looking to rent other people’s cars instead of purchasing their own. There are sites such as RelayRides and GetAround where you could connect with people that might be interested in renting your car by the day or even a week. If you’re not in a position where you could rent your car you could pick up extra money through Lyft or Uber where it’s possible to earn up to $35 an hour by taxiing people around. Plus, you get to set your own hours.

#2. Do mystery shopping

Here’s another part-time gig you could do where you get to choose your own hours. If you’re not familiar with mystery shopping it’s where you go into restaurants, stores and other places of business and then report on your experiences to help the companies determine how well they’re doing in customer service. You not only make your own schedule as a mystery shopper but you could take on as many or as few assignments as you chose. Some people who do mystery shopping take just a few assignments a week and make maybe $100. If you were to treat mystery shopping more like a full-time job you could earn up to $500 a week.

#3. Become an eBay drop shipper

If you don’t have stuff of your own to sell on eBay you could become a drop shipper or middleman. This can be a great gig because you don’t even have to ship stuff yourself. You find companies that are willing to use drop shippers and then list their products on eBay along with some good sales copy. When you make a sale, you notify the company that has the product and it ships it to your buyer for you. There is an online wholesale directory called SaleHoo that has listings for more than 8000 prescreened suppliers including companies like Playskool and Gap. Sign up for some of these companies and you would then become a storefront selling their products. The money you earn would be the difference between their wholesale prices and what ever it is you sell the merchandise for.

#4. Do affiliate marketing

Many different companies including well-known ones such as Amazon and Starbucks are looking for new customers and are willing to pay to get them. The way affiliate marketing works is that you promote a company’s’ products or services using a unique URL. When a person uses that link to buy the company’s products, you get a commission. Sites such as Share a Sale and Rakuten Affiliate Network are affiliate consolidators where you can find many different companies willing to pay you a commission to help sell their products or services. If you’d like to know more about affiliate marketing, go to the website Affilorama where you’ll find training information that could help you be successful.

#5. Become a direct seller

Thousands of people make extra money by direct selling for companies such as Avon and Mary Kay. Direct selling has earned a sort of poor reputation but does offer the opportunity to make an enviable amount of money while still working a full-time job. Direct selling isn’t just about cosmetics, either. You could earn a nice extra piece of change selling wellness products like Advocare, pet products, Tupperware or accessories.

#6. Join focus groups

Companies that would like to improve their marketing and advertising periodically conduct focus groups consisting of potential customers to help them understand what’s working and what’s not working. If you have the time necessary to participate it’s a good way to earn extra money. There are many companies that are actually anxious to pay you for your insights as a consumer and in some cases they’ll even come to your home. One company recently held a focus group that lasted two hours and consisted of talking with just several people about snack foods and tasting some cookies. The person hosting this group earned $250. The website FindFocusGroups.com has listings of companies looking for people that would like to participate in focus groups. Alternately you might search Craigslist using keywords like “paid study,” “market research” or “surveys.”

#7. Become a consultant

Many small companies need help but can’t afford to work with one of the big, well-known consulting groups. Instead, they look for individuals like maybe you where they can get the same skills cheaper and on an ala Carte basis. For example, HourlyNerd connects well-educated professionals with small companies that need consulting help. If you have skills in areas such as marketing, social networking, search engine optimization or program management you could pick up a nice bit of change by consulting with companies that need these types of skills.

#8. Be an online jurist

There are trial attorneys that look for people to judge cases that haven’t gone to court yet. They use online jurors to help figure out what an average group of people might think about the merits of their cases or how they might respond to the attorney’s concepts or tactics. Companies such as Online Verdict enable attorneys to access regular people to serve as online jurors. If you meet the criteria to sit on one of these juries you would likely earn between $10 and $60 for your time.

#9. Rent out a room or your househouse with cash in it

If you have a spare room in your house why not rent it out using a site like Airbnb that connects travelers with people that are willing to rent out a room or an entire house. There are also sites such as the VRBO (Vacation Rentals by Owner) and HomeAway where you could rent your house to paying guests when you’re away from home. In the event you have a friend that would let you sleep on his or her couch you could rent your house for a period of time without even leaving town.

The Things You Should And Shouldn’t Put On A Credit Card

A credit card just might be the ultimate frenemy. Depending on how you use it, that little piece of plastic could be a good friend or an awful enemy. There are really only two secrets to keeping that credit card a good friend. The first is to use it sensibly. The second is knowing what and what not to put on it.

Using a credit card sensiblyman holding multiple credit cards

This is relatively easy. If you want to use that credit card sensibly you need to keep the balance low and pay it off at the end of every month. What’s a low balance? That’s pretty simple, too. It’s whatever amount of money you have to pay off your card when you get your statement. How much is that? This is question that only you can answer, which means doing a little budgeting. Sit down with a spreadsheet program or a pencil and a piece of paper and list all of your expenses – both fixed and variable. Your fixed expenses would be things like your rent or mortgage payment, car payment and insurance. Your utility bill, transportation costs, clothing and entertainment would be variable expenses. When you finish your list add up everything and subtract this number from your monthly take-home pay. If you have money left over, which we hope you do, you should save some of it and then budget the rest for your credit card. Let’s say, for the sake of the example, that after you subtract your fixed and variable expenses and the money you’ve earmarked for saving you have $100 left over. This then is the balance you could afford to carry on a credit card because you would know you would be able to pay it off at the end of the month.

The danger of carrying balances forward

Why you don’t want to carry a balance forward from month-to-month is because of the power of compounding interest. This is something else that can be either a friend or an enemy. It can be your friend when you’re saving money but an enemy when you create debt. The way it works with a credit card is that once you carry a balance forward you’ll be charged interest on it, which will be carried forward to the next month where you will again be charged interest. This means you are now paying interest on interest. That’s compounding. And it can get ugly. If you were to run up a $5000 balance on your credit card at 15% and made only a minimum payment of $112.50 it would take you 266 months to be rid of that debt and would cost you $5,729.21 in interest – or more than that original balance.

What to put on a credit card

You’ve already seen the real answer to that question, which is to put no more on that credit card than you can pay off when you get your statement. So long as you know what that number is you can put anything on that card and you should probably charge as much as possible as this then becomes a record of your spending, which you could use in your budgeting.

The one exception

The one exception to this rule of charging only what you can afford is major purchases like a washer-dryer or refrigerator. If you need to buy one of these big-ticket items and don’t have the cash available it could be okay to put it on a credit card. Just keep in mind that you will need to pay back the money, which means budgeting for it. If you were to put a $1000 item on that credit card you should budget an extra $100 or $200 a month to pay it off as quickly as possible and keep from falling victim to that old devil of compound interest.

What not to put on a credit cardWoman depressed over bills

It’s important to remember that credit card debt is unsecured debt. Many experts believe that it’s the worst way to borrow money because it typically carries a very high interest rate – much higher than a car or home loan. Plus, credit card debt is never tax deductible as is the interest you pay on a home mortgage or student loan. Given this, there are five things you should never put on a credit card.

The first is college tuition. There are literally millions of American adults who are still paying for their college educations years after they left school. In many cases they haven’t even been able to find work in their fields of study – leaving them members of what’s now called the “underemployed.”

There are two big reasons why you should never put college tuition on a credit card. The first is the aforementioned compounding interest. The second is that it’s better to fund your education with low-interest student loans, grants, part-time jobs and scholarships as this would save you thousands of dollars over the long term.

Second, don’t put your income taxes on a credit card. Even if you find yourself hit with a big tax liability, don’t charge it. While the IRS makes it easy to make your payments with a credit card there are several reasons to not do this. First, the payment processing company will assess a fee of 1.88% to 2.35% and this will only add to the burden you’re already facing. In addition, the IRS will let you set up a payment plan with a much better interest rate. As of this writing its underpayment interest rate charge for each quarter is just 3%, which is much better than you would get with any credit card.

A third thing you shouldn’t put on a credit card is a vacation. While getting away from the stress of everyday life can feel really good don’t finance that trip with a credit card. If you do this you’ll only be coming home to the problems caused by that debt. A better solution is to plan a vacation that fits within your means such as camping, staying at hostels or visiting friends and family members. You say that’s not your idea of a dream vacation? Then set up a vacation fund, contribute to it every month and you will eventually have the money in hand to finance your dream vacation.

You should also never put a big wedding on a credit card. You might be tempted to have a really lavish event but just as with a vacation, you need to plan a wedding that will fit within your means and avoid creating credit card debt. We know that this will be a very special day for the two of you but it’s not worth it if you have to begin your lives together laboring underneath a huge pile of debt.

Last but not least, don’t put medical bills on a credit card. These bills can be staggering but if you talk with your healthcare providers you should be able to get payment plans that have little or no interest and payments you could actually afford. It’s possible that you could also tap into a charitable organization for financial help. But once you put those bills on a credit card that’s it. You ‘re stuck with that debt and with a big monthly payment probably for years to come.

How To Rebuild Your Credit After Divorce

man jumping with a chart behind himGetting divorced can be one of the most stressful things you’ll ever have to endure. If you have children there’ll be the issues of who has custody and maybe visiting rights. You or your attorneys will need to determine how to split your finances as well as your furniture and personal possessions. And, of course, the more stuff you have and the more you and your spouse earn, the more complicated things will be. But there is one piece that’s easy to overlook and that’s your credit score.

Why your credit score will take a hit

Despite what many people think a divorce per se will not damage your credit score. This is because your credit score and your spouse’s credit score are different. It’s not like you had a joint credit score and getting divorced will cut your score by 50%. However, there are several reasons why a divorce will damage your credit score. First, your expenses will likely go up since you’re no longer splitting them. This will make it more difficult for you to keep up with your bills. Second, it’s likely that you and your spouse had some debts when you divorced. If they are not paid off immediately they will end up being the responsibility of one of you. If that person doesn’t pay them off then both your credit reports and ultimately your credit scores will be damaged. And third, the harsh truth is that there can be identity theft. It’s unfortunately very common for one spouse to “borrow” the ex’s personal information to get new utility services, new credit cards, an auto loan, etc.

Divorce can lead to bankruptcy

It’s also sad but true that a divorce can lead to bankruptcy. If this happens to you it might be because your finances just got stretched over the limit, as you’re now required to pay for new expenses such as alimony or childcare. But some people are actually pushed into filing for bankruptcy by his or her former spouse. As an example of this let’s suppose that you owned a house with your ex spouse but you can’t sell it because it’s upside down. Your ex agrees to pay the mortgage but then doesn’t do so. If you want to keep the house you could end up having to file for bankruptcy in order to save it. Or just to get rid of the responsibility of having to pay on it.

Making your credit score a priority

There are numerous things that need to be taken care of as the result of a divorce. This could make it easy for you to miss paying a bill. And believe it or not just one late or missed payment could cause what would otherwise be your excellent credit score to fall by 50, 75 points or more. After your divorce you will need good credit to get a place to live and to get new utility service without having to make a deposit. Plus, the stain on your credit report of having missed a payment can come back to haunt you as it will stay in your credit reports for seven years.

Get your credit reportsmagnifying glass on credit report

One of the most important things you should do post-divorce is to get your credit reports. They are available free from the three credit reporting bureaus – Experian, TransUnion and Equifax. They are also available free on the website www.annualcreditreport.com. While this site makes it possible to get all three of your credit reports simultaneously most financial experts say it’s better to get them one at a time every four months. This becomes a way to monitor your credit year round without having to pay a credit monitoring service.

There are several reasons why you should be getting your credit reports. First, it’s so you can see all your debts. Any debts that were the joint responsibility of the two of you should be paid off as quickly as possible. This is because you are legally responsible for paying off any joint debts and getting divorced doesn’t change that.

It’s also possible that there are errors in your credit reports that are dragging down your credit score. When you review your credit reports look for purchases you don’t remember making or companies you don’t remember having done business with. If you find errors be sure to dispute them with the appropriate credit bureau. You should do this in writing so that you will have a paper trail. If you are able to get erroneous items removed from your credit reports your credit score should get a nice bounce.

Rebuilding your credit

If your credit was damaged due to the divorce, take heart. While you can’t change the past, you can make sure that you pay all your bills on time going forward. Recent information about how you handle your credit tends to have a greater impact on your score then older information. This means that paying your bills on time should ultimately lead to a significant improvement in your credit score. If you lost your credit cards for some reason or just don’t have one then get a new, secured credit card. This is where you deposit money at a bank or credit union and then can use the card so long as you have a balance. If you do get one of these cards make sure that if you use it sensibly this will be reported to the three credit bureaus, as you need this in order to rebuild your credit score. You might also be able to get a personal line of credit secured by a savings account. This would be yet another step in rebuilding your credit.

If your financial circumstances are really bad

If you have a 401(k) and are in dire financial circumstances you could borrow from it to clear up your debts and get a jump in your credit score. While this is never an ideal solution it’s better than cashing in your retirement account early, which would mean having to pay taxes and penalties. There is also a relatively new way to borrow money that could help. It’s called peer-to-peer lending. Two of the most popular sites that offer these loans are Lending Club and Prosper. The way this works is that you fill out and submit an application with your name, Social Security number, address and the amount of money you need and why you need it. Once your application has been verified, your request will be put online for lenders to review. If you write a good enough “pitch” or reason why you need the money a lender or group of lenders might decide to take a chance on you and fund your loan even though you have a poor credit score.

True Or False – You Should Auto Pay All Your Bills?

If your goal is to simplify your finances one thing the experts tell you to auto pay all your bills. That way you’ll never have to remember your payment due dates, never have to mail a check and never have to remember whether you paid that utility bill or not. If you have online banking then putting your bills on auto pay should be a real snap. You might even be able to have your statements sent to you electronically so you would never again have to worry about filing them or ultimately shredding them. Putting your bills on auto pay would certainly help simplify your finances but should you really put all of them on auto pay?Manager working diligently on the computer

The pros

The biggest pro of putting your bills on auto pay is, of course, convenience. As noted above when your bills are on auto pay you’ll never have to wonder whether or not you’re late on a payment or when your bills are due. When you fully automate your bill paying you’ll had made sure that your bills will be paid when they’re due and in full – assuming, of course, that you have a sufficient amount of money in your checking account to cover them.

You might also earn some nice incentives by signing up for auto pay. This is because there are companies that will reward you for paying them automatically. As an example of this, Nelnet will cut the interest rate on your loans by 0.25% when you agree to pay it automatically. This may not seem like a lot but could actually add up to many thousands of dollars over the life of your loan.

Third, paying your bills automatically can help your credit score because it should mean you never miss a payment. And missed payments can hurt your credit score fairly seriously. In fact, missing a single payment could ding your credit score by 60 points. Miss two and your credit score could be reduced by 120 points, which could drop you from having a good credit score to a poor score. In either event this would ultimately cost you money because you’d end up paying higher interest rates. This might even increase the cost of your auto insurance premiums.

The cons

There’s no question but that automatic bill pay can make your financial life simpler. However, there are times when it might not make good sense.

One of these is if you need tight control over your monthly spending. If you’re living from paycheck to paycheck then paying your bills manually could make better sense as this would give you greater control over how you allocate your funds and keep you from going into overdraft in a tough month. This would also help you keep money available for crucial expenses such as food and rent.

A second type of bill you might not want to put on auto pay is one that varies monthly. An example of this might be your utility bill, which could vary considerably between winter and summer – especially if you have air conditioning. If you were to put it on auto pay and had a very hot June or July this could substantially mess up your monthly finances. On the other hand, if you have bills such as a cell phone bill or your rent that remain the same from month-to-month they would be great candidates for auto pay.

A third consideration is that if you’re not careful you could end up paying for things you didn’t intend to buy. For example, it’s never a good idea to set up auto pay for temporary services or memberships. There are instances where if you were to try to cancel or change the service you could end up in customer service hell. Suppose you were to sign up to try Amazon’s Prime Service free for a month. If you forget to cancel you could find yourself hit with an unpleasant surprise – a $99 yearly fee.

Some other things to consider

When you sign up with a company for auto-pay this tells your bank to automatically approve requests to withdraw money for that company. The Federal Trade Commission says that you should only do this with those companies you trust and know. If not, you could wind up paying for stuff you didn’t want. It’s also possible that automatically paying your bills would make you more susceptible to having your identity stolen. While this may or may not be true it’s always a good idea to carefully read the company’s privacy policy and make sure that it will encrypt all of your transactions digitally.

As we have seen from the data breaches that recently hit Anthem Blue Cross/Blue Shield and Target there is no such thing as a totally safe website. However, automatic bill payment is usually much safer than mailing your payments physically. This is due to the fact that the postal system is more vulnerable to tampering and interception.

Video thumbnail for youtube video 6 Tips For Simplifying Your Financial LifeThe net/net

Automatic bill payment may not be for everybody but it is a very convenient way to pay bills for many consumers – making sure their bills are paid in full and on time. It can save money as well as time. But most banks now allow you to set up your bills to be paid online but not automatically. While this puts the burden of paying your bills back on your shoulders it does provide the convenience of paying your bills electronically but allows you to keep control of how much money goes out of your of your account each month. We have a number of bills that vary from month to month. We have it set up with our bank so that we can pay them online. When one of these bills arrives in the mail we note its due date and then immediately go online to our checking account and arrange to pay the bill on that date. This eliminates the need for us to remember to make the payment as well as the annoyances of having to find a stamp and to get the bill in the mail in enough time for it to make its due date. We view this as sort of the best of both worlds.

Automate your saving, too

In addition to putting your bills on auto pay it’s also a good idea to automate your saving. This short video explains how to do this and why it makes really good sense.

Simple Tricks For Cutting Costs And Fattening Up Your Piggy Bank

woman with a full grocery shopping bagWe’ve always find it ironic that when the government reports that the cost of living or Consumer Price Index has increased only +0.4% (Feb 2015) that this does not include the cost of gas or food. And while the cost of gas has dropped recently, the cost of food continues to increase every month. If yours is a typical family you’ve probably also seen increases in the cost of your cable or satellite service and your utilities. It’s tough these days to just stay even let alone save money. Fortunately there are some simple tricks that you could use to cut your everyday costs and fatten up your piggy bank.

Let’s work on that grocery bill

If you grow pale and faint when you see the total amount you’ve just spent on a week’s groceries, take heart. There are some simple things you could do to cut down the cost of your groceries. It begins with making a grocery list. The simple fact is that you should never go to the grocery store without a list. This accomplishes two things. First, it ensures that you’ll get everything you need, which will cut down on those trips you have to make to get the stuff you forgot. Second, having a grocery list will keep you from spending money on all those tempting things you see at those aisle-and displays.

Next, become an avid coupon clipper. You’ll find them in your newspaper – probably on Wednesday — as this is normally food day. If you don’t get a newspaper go online and sign up for your favorite supermarket’s newsletter. There are also tons of websites that offer coupons, many of which are printable. Some of the best include Shopathome.com, Thecrazycouponlady.com and, of course, Coupons.com. Always look for stores that offer double coupons on the stuff you need and for coupons that align with sales that are going on at your supermarket. And, finally, try to buy as many store brand items as you can, as this should save you up to 25% vs. brand name items.

Small changes can mean a lot

As an example of this the stuff that you drink can really add up. If you’re using bottled water, stop it. Those bottles are not only costing you money but they’re not good for the environment. Buy one of those bottles that filters water and then just fill it up with tap water. Believe it or not this can save you hundreds of dollars over the course of a year. Also, stop buying those lattes and brew your coffee at home. This alone could save you more than $700 a year. If you eat out a lot you can save big money by not doing it. Half of the average American’s budget goes to eating meals out of the home. If that’s typical of you just think how much you could do in cutting costs simply by eating at home instead of going to restaurants or getting takeout.

money and measuring tape

Slash your cable bill

Did you know that the average American spends $86 a month on cable or $1032 a year? If you have a digital TV you could buy an antenna for $30 or less which would get you all your local channels free. If your TV is analog all you would need to do is buy a cheap converter. We have a small antenna next to one of our digital TVs and we get more than 30 local channels. Not all of these are ones you would watch on a regular basis but we were surprised at what’s available and you might be, too.

If you do decide to ditch cable or satellite TV you could get movies through a subscription service such as Netflix or at one of those kiosks at your supermarket. You say you just can’t give up cable entirely? Then call your cable company and see if you couldn’t negotiate a better deal. Most of these companies will offer you a nice discount if you bundle, which means getting television, Internet and phone service all together. Or go online and check to see what packages your cable provider has available, as you might be able to save money by downgrading to fewer channels.

You can also save money by changing your movie going habits. Matinees and early shows always cost less than if you were to go to the same film at night. And the same holds true of restaurant meals. When there’s a hot new restaurant in town that you would like to sample, have lunch there instead of dinner.

Chop down that energy bill

If you’re like the average family you spend $1900 a year on energy. You could knock that down a few dollars simply by shutting off the lights in rooms you’re not using. If you don’t have a programmable thermostat you should certainly get one. It shouldn’t cost you more than $60 and will pay for itself in just a few months by automatically turning down the temperature during those times of the day that you’re not there. You might also do a home energy audit. The Environmental Protection Agency has a free calculator that would help you see where you could achieve some savings. It’s available at EnergyStar.gov.

For that matter, this short video show how you could actually cut your electric bill in half and just think how much that could save you …

Do you commute to work?

Another great way to save money if you commute to work is by getting into or forming a carpool or by taking public transportation. This would not only cut your gas costs but also the wear and tear on your car.

The big stuff

There are some changes you could make that would result in some really big savings. If you have a mortgage, think about refinancing your home. Last week we heard that one of our local mortgage brokers was offering fixed rate mortgages at less than 4%. If you have a mortgage at 5% or higher and you were to refinance you could put a couple hundred dollars a month in your pocket. If you rent try negotiating with your landlord for a cheaper rent when you next sign a lease or offer to sign a longer one in return for a discount.

Get creative

If you stop to think about it there are probably dozens of other ways you could cut your spending. Just get creative. And be sure to get your entire family involved. We know of families that have a meeting once a month where everyone contributes their ideas for saving money with a prize to the person that comes up with the best suggestion. Be sure to make a budget so that you can keep track of your spending, as you might be amazed at how little changes along the way have helped fatten up your piggy bank. And when it gets right down to it, what’s better than a fat, happy piggy bank?

Advice About Low Interest Credit Cards That May Totally Shock You

Here’s a piece of advice you likely won’t read anywhere else except in this article – you may not want to get a low interest credit card. Despite what you may have been told or read getting a low-interest credit card is not necessarily your best option. This is not to say that you should rush to apply for a credit card with a high interest rate but there are reasons why this sometimes makes sense. Of course, if you pay off the balance on your credit card every month it probably doesn’t make any difference whether it has a high or low interest rate because you’re not paying any interest anyway. But there is a case to be made for passing on those low interest credit cards and here it is.Multiple credit cards in one hand

1. Low interest credit cards offer fewer benefits

A good rule of thumb is that credit cards with low interest rates generally offer fewer benefits than those with higher interest rates. As an example of this, airline rewards cards that have high interest rates not only come with frequent flyer miles but they often have other perks such as priority service, checked baggage fee waivers and even an airport lounge membership. Of course, you could always have one of these cards for its benefits but then charge most of your purchases to a low-interest credit card, which would give you the best of both possible worlds.

2. Low interest credit cards offer no rewards

If you choose a credit card that offers no rewards you will have a lower interest rate than other cards that offer miles, points or cash back. This means that if you generally carry a balance forward from month-to-month then a low interest card might make better sense. On the other hand if you hardly ever carry a balance, and rarely have to pay any interest charges, you might be better off with a higher interest rate credit card they would offer you a return on your spending.

3. You may not qualify for the lowest possible rate

A lot of credit cards have a range of interest rates and the one that you get will depend on your creditworthiness. When you see an offer with a very low interest rate this might actually apply only if you have excellent credit. If not, your rate won’t be that low. If you don’t know your credit score make sure that you get it before you apply for a new credit card. The three credit reporting bureaus – Experian, Equifax and TransUnion – will give you your credit score free though you may have to jump through some hoops to get it. There are also websites such as Credit.com and CreditSesame where you can get your score free.

4. You’ll miss out on any sign-up bonuses

The credit card business is very competitive. Banks often offer new customers hundreds of dollars in miles or points just for signing up. However, when you choose a low-interest credit card you probably won’t get one of these generous offers. This is because if the bank knows you won’t be paying much interest every year, there’s no incentive for it to offer you a big sign up bonus because you will never be paying enough interest to offset the cost of the promotional offer.

5. You won’t get 0% interest

It doesn’t take a mathematical genius to realize that a card with 0% interest is better than even a very low interest credit card. Many of the higher interest credit cards offer interest free financing on both balance transfers and purchases. While there are cases where these cards might also offer a low interest rate, those that have the very lowest interest rates generally do not offer this type of promotional financing.

6. You could end up carrying a balance

If you were able to get a credit card with a very low interest rate this could encourage you to start carrying a balance. Of course, you’ll always save money if you pay your statement balance in full every month. But if you get a low-interest card and feel that it’s now okay to carry a balance forward, then the card probably isn’t worth it.

7. You could get hit with a penalty interest rate

If you fail to make a payment on time you could get hit with a high interest rate even if the card has a low interest rate. This is called a penalty interest rate and it can be as much as three times higher than your normal interest rate meaning that this could end up being incredibly costly. Fortunately, there are some credit cards that have no penalty interest rates such as Citi Simplicity and the Discover it Card. While these cards have competitive interest rates, they may not be the lowest you could find.

man jumping with chart behindWhat’s the difference between a good and bad credit score?

As mentioned previously if you do want a credit card with a very low interest rate you must have a very good credit score. But what is a good credit score? Lenders often look at credit scores as follows.

• Between 700 and 850 – Very good or excellent credit score
• Between 680 and 699 – Good credit score
• Between 620 and 679 – Average or OK score
• Between 580 and 619 – Low credit score
• Between 500 and 579 – Poor credit score
• Between 300 and 499 – Bad credit score

What this translates into is that if you have a credit score of 620 or higher you should be able to get whatever credit you apply for. However, to get the very lowest interest rate you would need to have a credit score above 700. And, of course, the higher the score the better. The overwhelming percentage of lenders use what’s called your FICO score. It’s available only on the site www.myfico.com. However, it would cost you $24.95 a month to get your FICO score monthly as well as your credit reports from the three credit- reporting bureaus. As mentioned previously, you can get your credit score free from a variety of sources and while it might not be your true FICO score it should be close enough that you would be able to see how creditworthy you are. It should also tell you whether or not you would be able to qualify for a very low interest credit card.

The net/net

If you’re in a financial position where you need to carry a balance forward from month-to-month then a low interest credit card might be your best bet, as it would save you the most money. Conversely, if you never or rarely carry a balance forward you might be better served getting a higher interest rate credit card that comes with perks such as cash back, airline miles or points. We know of people that will put a big ticket item on their credit cards to earn cash back but then turn around the next day and send a payment to the credit card issuer to cover the cost of the item to avoid having to pay any interest. If you could afford to do this then a higher interest rate might be a better deal than a credit card with a very low interest rate.

Let One Of These Free Personal Finance Software Programs Simplify Your Financial Life

Manager working diligently on the computerAs my father used to say, free is tough to beat. And the following seven personal finance software are not only for either very powerful. Yes, we’re familiar with the old saying that “there is no such thing as a free lunch” but the Internet has amended that to “there can be such a thing as a free lunch.” There is a huge amount of free or open source software available on the Internet and personal finance software is no exception. In fact, when it comes to personal financial software there is almost a banquet table full. However, these are the ones considered to be best by the site Gizmo’s software.

GnuCash

Does a fast education in accounting appeal to you. Then this would be a good choice. It will teach you about how assets equal liabilities plus equity, It will also allow you to manage your budget without having to use all those categories that are usually found in commercially available personal finance programs. GnuCash permits you to easily have as many accounts as you would want under each of your categories. It has the ability to do graphing and reporting into the program that can generate a complete group of customizable and standard reports. The program includes profit and loss, a balance sheet, portfolio valuation and so forth. The one negative of GnuCash is that won’t automatically track the movements stock prices and there are brokers that don’t support file downloads unless they are compatible with Quicken.

HomeBank

HomeBank is very feature-rich and enables you to keep track of detailed expenses including assets, income as well your categories for your budget. It offers many different report generating options plus the capability to import information related to Amiga.

GFP

This program is also very feature rich and offers numerous transaction report categories. It also supports many different edit and settings for all transactions and reports. GFP is simple to use as it has a exhaustive help file that offers clear guidance. The program has a gentle learning curve and is great for both novices and even professionals. GFB is open source and built on the GNU license model.

Money Manager EX

This is also an excellent program. It would allow you to create numerous accounts , reports, transactions and categories. It is described as relatively simple to use as it has a large help file you could use to learn how to use its many features and options. The program can be used with practically all computer OSs (operating systems) and would be a good choice for both beginners and personal finance wizards. Unfortunately, you must do data entries manually as this application seriously lacks real-time download and fiscal tracking capabilities.

Grisbi

This is also a GNU open-source program that also offers numerous features. You can use it to create an endless number of, categories, accounts and reports. Its GUI (graphic user interface) is attractive and easily understandable. However, Grisbi
lacks a built-in help file giving it a steeper learning curve. While Grisbi is an excellent program overall you would make sure that you never forget your password as this would mean you would lose all of your financial data.

Metalogic Finance Explorer

This is a very straightforward but powerful, program for budgeting that offers two big advantages over other similar programs. First, it allows you to automatically upload data from your bank and second it will import financial data in all formats in from all possible sources via the OFE (Open Financial Exchange) protocol. You can also use MetaLogic Finance Explorer to import stock market data and print its financial information. Unfortunately, the program doesn’t have much built in Help. The good news is that there is a more comprehensive help file available online. With this translates into is that you will need to fiddle around with it to learn how to use all its many features.

AceMoney Lite

This is a “light” version of AceMoney in that it allows only two accounts compared with its big brother which will handle an unlimited number of accounts. This program enables you to keep track of all your expenses and provides numerous options to generate reports by various categories, subcategories and even functions. One definite plus of AceMoney Lite is that it offers password protection, which is good for security purposes. It has a currency converter and includes a complete and very detailed local help file. The program is fairly easy to use with a gentle learning curve making it good for both experts and novices.

couple looking at a laptopMint.com

This is not like the other free software programs described in this article because it is available only online. However, Mint.com may just be the most popular way to manage personal finances because it’s sort of the Swiss Army knife of online options. To use this program you will need to make an account and then input information about your credit cards, home loans, banks and brokerage accounts. The people behind Mint say it doesn’t require any information that would be personally identifiable. The account is basically anonymous. All that’s required is that you set it up using an email, a password and your ZIP Code. Mint never knows your name, Social Security number, address, account number or your PINs. It will track your spending and makes it easy to set up budget categories. Once you set up your categories and assigned spending limits to them it will send you an email alert if you are exceeding any of your limits. Mint will also send you an email alert if it finds any financial product better than one you’re currently using.

Money Strands

This is also an online-based service that’s 100% free. It’s set up so that you can import your bank data automatically and it will automatically classify your financial data into meaningful categories based on the information you provide. If you find that your bank does not support Money Strands you can’t provide its name to the site’s owners and it will attempt to get the bank to link with the program.

Rudder

This is also an email-based system but does have some privacy issues. It puts all your accounts together in one place, provides bill reminders, allows you to create a budget and control your cash flow. According to Gizmo’s freeware site it is not possible to know if your personal details would be totally protected. “I need a credible guarantee that if my ID, password, account numbers and credit card numbers are somehow compromised through their service that they will make me whole.” The people behind this site also wonder if they were ever to close their accounts would they be able to know that their data has been securely erased.

5 Financial Loopholes Guaranteed To Make Your A Smarter Money Manager

Happy BusinessmanWe would never suggest that you do anything illegal with your money but there are some financial loopholes you could take advantage of even if you’re not a member of that wealthy 1%. There are tips or “hacks” that could help you get the most out of your money and here are five of them.

#1. Get rid of your debts with a 0% interest credit card

Would you be surprised to learn there are credit cards that have 0% interest? These are generally called 0% interest balance transfer cards and their purpose is to entice you to transfer your balances on other credit cards to that new card. Of course, this loophole is available only to those that have a fairly good credit score. But if you do and you shop carefully you should be able to find a card that offers 18 months interest-free. If you’re carrying a sizable amount of debt on a credit card or multiple credit cards with an interest rate of 15% or higher you should definitely look into a balance transfer. However, you do need to be able to pay off that new balance before the interest-free promotional period ends as once it does your interest rate could jump to 19% or higher – leaving you right back where you began. There will be a balance transfer fee, which is generally around 3% of the amount that you’re transferring. This means if you only have a small balance on one card this may not be right for you. If you’re uncertain as to whether or not you could save enough money to warrant transferring your balances to a new card, you can figure things out by using a credit card balance calculator.

Be aware that when you open a new card your credit score will get dinged because you’ve changed your credit utilization rate, which makes up 30% of your credit score. However, in the big scheme of things this won’t compare to the damage that major credit card debt could do to your life.

#2. Save for your kid’s college with a Roth IRA

If you’re saving for your child’s college with a 529 account you know that it has some limitations. The way to get around this is with a Roth IRA – assuming your adjusted gross income is less than $112,000 if you’re single or $112,000 if you’re filing jointly. As you may already know a 529 plan is generally not federal income tax deductible. In addition, when you fill out the required FAFSA form (Free Application for Federal Student Aid) the money in your 529 account will be considered as part of your family’s assets.

If you have a Roth IRA and are saving for retirement we don’t generally recommend that you withdraw money from it. However, money saved in a retirement account won’t count towards your assets when you fill out the FAFSA. What this means is that you can save money for your child’s college in a Roth IRA and maybe still get financial aid because you won’t have to declare it as an asset. You would then withdraw money from the Roth IRA when it came time to pay for college. If the two of you each contributes $5500 a year or a total of $11,000 then in 15 years you would have $82,500, which you could then withdraw to pay for your child’s college and without any sort of a penalty. Plus, retirement accounts are generally protected from your creditors so they could not be seized in the event you go into a real financial jam.

#3. Use the equity you have in your houseHouse with cash on the roof

If you are not familiar with the term equity it’s the difference between the total amount you owe on your mortgage and your home’s appraised value. If you have some equity in your home you might want to borrow against it instead of getting a bank loan. There are two benefits to this. First, getting a home equity loan will be less complicated since you’ve already been approved for a mortgage. While you will need to get your home appraised, your lender should be able to help you through the process. Second, and equally important, the interest payments you make on a home equity loan are generally tax deductible – unlike the interest you would pay on a personal loan.

Don’t count on lenders loaning you an amount equal to the total amount of equity you have in your house. At the most you’ll probably get 75%. Let’s say you have $100,000 in equity. This means you should be able to borrow up to $75,000. This can be a very good deal if you plan on staying in your home for some time or if your home is worth a good deal more than you paid for it. Of course, if you don’t have much equity in your home or if you think you’ll be moving in just a year or two, this tip is likely not for you. And you will need to be sure you make all the payments on your home equity loan on time as you’re borrowing against your house so if you were to fall behind you could actually lose your home.

#4. Pay your insurance premiums once a year

Do you have an insurance policy that you plan on keeping for at least a year? Then this tip could help you save some money. You’re probably now making payments monthly on your life insurance and auto insurance. However, you don’t have to do this. In fact, insurance companies would rather that you pay in one lump sum annually. That way they know that the policy is paid up for the next year. They allow you to pay monthly as a courtesy but they do charge you for this by multiplying each of your month’ payments by .08 to. 09%. While this may not seem like much let’s say that the total premium on your life insurance is $400 a year. When you pay this monthly, it will cost you $36. If you multiply that by 12 months you’ll see that you’ll be paying $430 for the year. That’s an extra 8% or $32. Of course, to pay in one lump sum means you need to have the money available. One way to do this is by setting up a separate savings account specifically to cover your annual insurance payments and then auto-contribute a little to it each month.

#5. Auto-draft your investing

If you are investing for your retirement, as we hope you are, you’re undoubtedly paying a commission or fee every time you make a trade. However, most brokerages will drop this if you create an auto-draft where you’re automatically contributing an amount to your account every month. The reason they are willing to do this is because it ensures that you’ll be paying them every month instead of just occasionally when you make a trade. Do be sure to ask your broker if it would be willing to waive its commissions before you create that auto-draft.

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