Getting out of debt (and staying out of debt) requires a fundamental change in behavior and emotions. This post shares some strategies to help you do just that...
Category Archives for Get Out of Debt
How to Recover Financially from Medical Expenses
These ideas could help you owe less and/or pay off your medical debts faster. Read over each one carefully and see which ones might work for you...
Should You Take Out a Home Equity Loan to Pay Off Consumer Debt?
If you’re facing thousands of dollars in consumer debt, you might be wondering: Should I take out a home equity loan to pay it off? Here are some things to think about to help decide if taking out a home equity loan to pay off debt is the right choice for you...
What Is The Best Student and Home Mortgage Loan Payoff Strategy?
When my wife and I got married, one of the first things that we did was figure out how to join our finances. Along with assets, we also had to consider our various liability accounts. The loans that we're still paying off are the student loan and the home mortgage loan. So, what is the best strategy for student and home mortgage loan payoff?
How to Break the Yo-Yo Debting Cycle
If you are a yo-yo debtor, know first that you’re not alone. Second, know that there are steps you can take to get off the yo-yo debting cycle forever.....
Why a Debt Consolidation With Lending Club Can Make Sense
The following is a post by MPFJ staff writer, Kevin Mercadante, who is a freelance professional personal finance blogger for hire, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.
There’s been growing interest in borrowing through peer-to-peer (P2P) lending platforms in recent years. Lending Club, as the largest P2P lender, gets most of the attention. The amount of coverage the platform gets may not be an exaggeration, either. A debt consolidation with Lending Club can make sense – and a lot of sense at that.
It’s not always about getting a better interest rate. Lending Club claims that it’s borrowers reduce their interest rates by an average of 35% when consolidating debt or paying off high interest credit cards. But it’s not absolutely certain that this is true in all cases. After all, loan rate APRs on the platform range from 5.99% to 35.27%, so not everyone is necessarily getting a better rate on every loan.
Is it worth doing a debt consolidation with Lending Club, even if you aren’t getting a significantly lower interest rate?
Very often, the answer is yes, and here are the reasons why.
High Loan Amounts
If you have a large amount of debt to consolidate, Lending Club may be a better loan source since they make loans that are larger than what are typically available from other sources. Lending Club’s current maximum loan amount for personal loans is $40,000.
Unless you have a house that you can pledge as collateral for a home equity line of credit (HELOC), it is unlikely that you will be able to get a bank loan for nearly that much money.
And while credit card companies will periodically provide you with an opportunity to consolidate debt through a credit line – often with a 0% introductory rate – those credit lines rarely exceed $10,000.
If you have substantially more than $10,000 in credit card debt, neither a bank HELOC nor a credit card company credit line are likely to provide an opportunity to consolidate all of your debt.
But $40,000 borrowed through Lending Club will almost certainly enable you to consolidate several high interest rate credit cards, and maybe even a high interest rate car loan.
Loans Are Unsecured
Not only is $40,000 a very generous amount of money to borrow, but with Lending Club it’s also a completely unsecured line of credit. That means you don’t have to pledge important assets, like a house, a vehicle, business assets or a bank account in order to get the loan.
Try doing that with a bank loan that’s half that size!
Converting Revolving Debt to an Installment Loan
All loans taken through Lending Club are installment loans, for terms ranging from 24 months to 60 months. Both your interest rate and your monthly payment are fixed for the life of the loan, and the balance will be paid in full at the end of the term. At that point, you’ll be completely debt-free!
If you have a lot of revolving debt, converting it into an installment loan is the best way to make it finally go away. After all, revolving debt is set up that way precisely to keep you in debt forever. It’s the very definition of the word “revolving” – you keep circling around, always coming back to the same place. The entire arrangement is an intentional Catch-22.
But an installment loan can get you out of that debt trap.
You Can Apply Anonymously
It can be uncomfortable to sit through a face-to-face loan application with a bank. Not only does the banker know your name (and your face), but also the intimate details of your financial situation.
But if you apply for a loan through Lending Club, the entire process is done online – from the comfort of your home – and no one who invests in your loan ever actually knows who you are.
That will be a much more satisfactory situation for people who are deep in debt, and see themselves as somehow “impaired” as a result. It’s an embarrassment-free application process.
Near-Immediate Credit Score Improvement
Your credit utilization ratio represents 30% of your credit score calculation, and ranks second only to payment history (35%) as a factor in computing your score. Your credit utilization ratio can actually improve quickly after doing a debt consolidation loan.
Your credit utilization ratio is the amount of credit you have outstanding, divided by the total amount of credit you have available. For example, if you have $10,000 in outstanding debt, and credit lines totaling $20,000, your credit utilization ratio is 50% ($10,000 divided by $20,000).
Generally speaking, a ratio of 30% or less is considered to be a positive factor. As you exceed this level, the negative effect on your credit score increases. At 80% or more, the ratio indicates increased potential for loan default, and has a very negative effect. This is a situation where you can have a fair credit score even if you have an excellent payment history.
When you do a debt consolidation, you are moving debt from several credit lines onto a single loan. The amount of debt that you owe is the same, but the amount of your credit lines has increased by the amount of the debt consolidation loan.
If you have available credit $30,000, and you owe $20,000, your credit utilization ratio is 67%. That’s probably having a negative effect on your credit score.
But if you secure a debt consolidation loan through Lending Club for $20,000 to consolidate your credit card debt, your total available credit expands the $50,000. Your credit utilization ratio then drops from 67% to 40% ($20,000 divided by $50,000).
In addition, if the $20,000 original debt was spread across five different credit lines, you will now have just a single credit line with a balance due. That means that you will have substantially reduced the number of credit lines with outstanding balances. That’s another positive factor in your FICO score calculation.
All of this will have a positive effect on your credit score. Though there will be a negative affect as a result of having a brand-new loan (no payment history) it will soon be offset by the lower credit utilization ratio and by the smaller number of credit lines with outstanding balances.
In this way, the debt consolidation loan improves your credit score, in addition to making your debt more manageable.
If you are carrying an uncomfortable level of debt, check out Lending Club and see if a debt consolidation loan can help your situation.
How about you all? Have you tried any debt consolidation loans with Lending Club or elsewhere? What has been your experience?
Share your experiences by commenting below!
****Photo courtesy https://www.flickr.com/photos/lendingmemo/9526218147/sizes/q/
How to Go to Grad School without Taking out Student Loans
The following post is by MPFJ staff writer, Chonce. You can read more articles by Chonce over at her personal blog, My Debt Epiphany. Enjoy!
Have you wanted to go to graduate school but put the idea off due to the cost? According to FinAid.org, the average cost of a master’s degree for students can cost anywhere between $30,000 to $120,000. With the average student loan debt balance from undergrad being $30,000 (sometimes more), it’s no wonder graduates don’t want to add to their burden even if more education could help their job prospects.
If you’re serious about pursuing a graduate degree and have a specific program and career path in mind, there are a few ways you can pay for your education without having to take out student loans.
Start Saving Up Ahead of Time
This method is simple. If you have a specific idea of which program you’d like to study and at which institution, you can estimate how much it will cost per semester and start saving up and preparing to pay for your education in cash.
It may take longer going this route but you won’t accumulate extra debt and you can go at your own pace. For example, if three classes cost $900 each, you can set aside $350 per month or whichever amount you feel comfortable with and enroll when you feel ready if you’re not in any rush.
You can also pick up an additional job to increase your savings so you can take courses at a faster rate.
See if Your Employer Offers Tuition Reimbursement
Some employers will actually pay for you to go back to school. This is common for MBA candidates and students who can earn their degree for little to no out of pocket expenses. There are a variety of programs your employer may help you pay for so your first step is to ask.
In order to receive the aid, you may need to meet certain requirements like having a high GPA, maintaining your status as a full-time employee, and agreeing to stay with the company for a certain amount of time after you complete your program.
While you’re more likely to receive assistance from your employer if your program of study directly relates to your job, up to $5,250 of funding they supply qualifies as a tax-free benefit.
Apply for an Assistantship or Work at the School
If you don’t have an employer who offers tuition reimbursement or assistance, you can try applying for a graduate assistantship or apply to any openings at the school if you are fine with working there. The typical GA works in a specific department of the school often doing work related to their program of study and they receive free tuition for the most part.
At my particular university, the GAs received free tuition as long as they were attending school at the main campus. If they decided to take a class at a different campus, they would have to pay an extra delivery fee that would not be covered by their tuition wavier. GAs also don’t earn much since the role is sort of a step up from an internship, but most do receive a stipend along with the tuition wavier so if you aren’t employed or are willing to try the position out in order to save money on your education costs it may be worth it.
If there aren’t any GA positions available, see if you can work in another department of the school as a regular employee. Employees often receive a tuition discount at minimum which can significantly cut the amount of money you’ll have to spend on classes.
Apply for Scholarships
Finally, you can apply for scholarships. This is something I wish I would have done more of in undergrad. If you want to avoid student loans and the negative affect they can have on your finances, it’s worth it to go the extra mile and submit a few essays and applications in order to get some scholarships. You just need to know where to look.
There are many scholarships available just for graduate students and you can start your search by looking on your college’s website or seeing if they have a scholarship office. There may be a few opportunities you qualify for based on your grades or program of study. You can also search for private scholarships online on sites like Scholarships.com, Petersons.com, DoSomething.org, FastWeb, and CollegeBoard.
If you’d like to take your search a step further, reach out to your employer or private organizations in your area to see if they offer any scholarships for graduate students. If your employer doesn’t offer tuition reimbursement, they may be willing to offer you a scholarship instead. The more scholarships you apply for, the better the outcome will be.
Explore All your Options
Student loan debt can be a hassle to pay back. Therefore, your best option is to avoid it at all costs. If you are eager to go back to school, set a timeline detailing when you’d like to enroll in classes, explore all your options to save money on tuition, and start setting aside money now.
How about you all? Have you gone to graduate school? How did you pay for it?
Share your experiences by commenting below!
***Photo courtesy https://www.flickr.com/photos/donkeyhotey/6304808136/
How to Help Your Children Cut College Costs
The following post is by MPFJ staff writer, Laurie Blank. Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.
Does the idea of helping your children with their college expenses bring thoughts of fear and intimidation?
If it does, you’re not alone. According to this Gallup poll, college funding worries were parents’ top money concern in 2015, with a staggering 73% of parents admitting the fact that they are indeed concerned about how they’re going to help their children pay for college.
College funding is a serious issue these days. This Forbes article tells us that the average cost for a 4-year public college is $28,000 a year.
Got your sights set on a private school? If so, you can plan on spending an average of $59,000 per year for your child to attend.
So how can parents help ease the burden of college costs for their children? Here are some ideas that can help parents contribute to their kids’ post-secondary education without compromising their own financial futures.
Enroll Your High-Schooler in a Dual Enrollment Program
Many states offer dual enrollment programs for high school students. Dual enrollment programs allow high school students – generally juniors and seniors – to take college courses as a replacement for similar high school level courses.
These courses help students earn college credits during their high school years. The best part about these programs is that the courses are usually paid for by the state in which the student resides.
Taking advantage of dual enrollment courses can help your child to cut down significantly on college costs and graduate with completed college courses already under their belt.
For more information on dual enrollment courses in your state, check out this website.
Utilize a Community College
Many students these days are completing their first two years of college at a local community college. This allows them to get a couple of years of college completed at a lower cost, while still graduating from the public or private college of their choice.
Here’s a tuition cost comparison in our state (Minnesota) for community, public and private colleges:
- Community College: $179.71 per credit
- Public/State School: $470.77 per credit (for residents)
- Private College: $1,195 per credit
As you can see, the costs to go to a public or private college in comparison to a community college can vary greatly.
Therefore it’s easy to see that thousands of dollar per year can be saved for those who choose to complete their general courses at a community college and then transfer over to a public or private college for the remainder of their college education.
*Note: It’s important to remember that not all community college credits transfer to all public and private colleges. Therefore parents and students should research the transferability of community college credits to the public or private college of their choice before enrolling in a community college for completion of their general courses.
Get Educated on Financial Aid Options
There are thousands of financial aid and scholarship options available for students eager to earn a college degree.
Most colleges have departments specifically devoted to helping students track down financial aid options and scholarship options, however it’s important that parents and students do some research on their own as well.
This U.S. News article shares the 5 best places to find college scholarships and grants.
Let Your Kids Live at Home During the College Years
By offering to let your kids live at home rent-free during the college years, you open up a world of money-saving options for them.
First, they can avoid the heavy cost of dorm fees or housing rental. Second, they’ll have on-site meals available free of charge.
Third, they can take online courses from home that are generally much less expensive than on-site courses.
“But what about the ‘college experience’?” you might ask. Although the college years can be great years for personal growth on-campus, you can also help your child to grow personally when they live at home during the college years.
By making house rules clear (even dorms have house rules) but allowing your child some personal and financial independence and responsibility, you can ensure they experience personal growth even while living at home.
By taking advantage of the four options above, you can work with your children to get creative about reducing the college cost burden yet still give them the benefit that a college degree brings to their working world.
How about you all? What are your tips for reducing college costs?
Share your experiences by commenting below!
***Photo courtesy https://www.flickr.com/photos/76657755@N04/7027599019/
Options for Out of Control Student Loans
The following is a guest post by Paul Smith. He is an attorney with an interest in personal finance. He blogs at insideconsumerfinance.blogspot.com.
Are your student loans out of control? If so, you have a number of options to assist you in getting your student loans back under control. Some involve taking advantage of some repayment options that many people are not aware of, while others involve temporarily suspending your obligation to make payments to allow you to get your personal financial circumstances under control. Finally, simply communicating your situation, particularly if you are having financial difficulties, to your loan servicer will also often go further than you think.
Are You Taking Advantage of all Available Repayment Options?
The first and most important question to ask if your student loans are out of control is whether you are taking advantage of all of your potential repayment options. All federal student loans offer a variety of repayment plan offers, including what are called income based or income contingent repayment. Income based repayment (IBR) is a program in which your required payments are pegged to your income; payments cannot constitute more than 15% of your discretionary income based upon the amount you owe, your monthly income and your family size. (The rate is 10% for those who first borrowed after July 1, 2014). The one drawback to IBR is that your payment is readjusted every year based upon your income as reported on your previous year’s taxes. Income contingent repayment plans are also based upon your total student loan debt, family size and income. With income contingent repayment plans, the maximum payment is 20% of your discretionary income or the amount you would pay over a 12 year loan term, whichever is lower.
Contact your loan servicer for further information and they will provide you with the necessary forms to apply for these three repayment programs.
Forbearance or Deferment May Be Appropriate for You
Most federal student loans also offer options for either forbearance or deferment. Forbearance means that your obligation to make payments is suspended for a certain period of time. One caveat to forbearance, however: interest does accumulate during any period during which you are on forbearance and most loans, including federal student loans, provide that all accumulated interest will be capitalized (i.e. added into principal) at the time that you are taken out of forbearance and put back on a payment plan. Forbearance is not automatic, but lenders are often happy to work with you in order to keep your loans current. Deferment is similar to forbearance but is available for specific enumerated circumstances, such as if you are experiencing financial hardship or are unemployed/unable to find employment, whereas forbearance is at the discretion of the lender and can be for any reason. Interest is also capitalized at the end of a deferment period. Deferment can extend no more than 3 years, while forbearance cannot extend more than 12 months at any time.
If your student loans are private, your options are more limited. Very few private student loans offer the type of flexible repayment options such as IBR or ICR that are available to those with federal student loans. In addition, not all private student loans offer forbearance or deferment for borrowers either. To the extent that forbearance is available under your private student loan, there may be fees or penalties associated with having your loans placed in forbearance status.
Private Loan Borrowers Have Much Fewer Options, Unfortunately
If you do have private loans, your best bet is to contact your servicer to explain your situation. Servicers are often extremely willing to work with you because, even if you cannot make your required payment, something is better than nothing from their perspective. It costs them money to place you into collections and they will generally do everything they can to avoid having to do that. And if they decide to sell your debt completely to a debt collector, it will be for less than the face value of the debt, so it is in their interest to keep you from defaulting on your student loans.
To the extent your payments are completely unaffordable, you may also consider whether refinancing might make sense. Both federal student loans and private student loans can be consolidated, although private student loans cannot be consolidated into any federal consolidation loan.
Finally, failing all the above, it is always worth a telephone call to your servicer to explain your situation and see if they will work with you.
Need Further Information?
If you need more information, there are some wonderful organizations out there which assist borrowers who are having difficulty with loans or whose loans are in default. Student Loan Borrower Assistance at www.studentloanborrowerassistance.org, which is a resource offered by public interest law firm the National Consumer Law Center, and American Student Assistance www.asa.org, a non-profit organization which provides information on managing your student loans, including all of your available options in the event you run into trouble with your loans.
How about you all? Are your student loans out of control? How have you been able to get a handle on them?
Share your experiences by commenting below!
***Photo courtesy https://www.flickr.com/photos/jakerust/16608691510/
Cash – Your Secret Weapon Against Debt
The following is a post by MPFJ staff writer, Kevin Mercadante, who is a freelance professional personal finance blogger for hire, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.
Is there a responsible way to use credit cards? Absolutely! All you have to do is make sure that you pay off your entire balance in full each month – and on time. If you do, you will never incur any interest charges or late fees. And if you have rewards with your credit card, you can even make a little bit extra on your purchases. Good deal? Certainly.
But what if you’re one of the many millions of credit card users who don’t pay off their balance in full each month? And what if you are one of the many billions of credit card users who have accumulated many thousands of dollars in credit card debt?
You’ll need a different strategy. And perhaps the best strategy – as well as the simplest – is to stop using your credit cards and become an all-cash buyer. When we refer to cash, we’re not just talking about the currency in your wallet, but also about using checks and your debit card, since both function effectively as cash.
If you want to get out of debt, going to cash is an outstanding way to do it. Why?
You’ll Never Spend More Than You Have
When you limit yourself to spending only with cash, you can never spend more than the amount of money that you have in your bank account or your wallet. That fact alone will keep you from adding more debt to your current load, and that will hasten the day when you will finally be debt free.
There is one caveat here, and that is overdraft protection. If that in any way, shape or form translates a cash shortage in your bank account into some sort of debt arrangement – such as shifting the shortage over to a credit card account – you’re probably playing with fire. That’s just a backdoor way to spend money using a credit card or some other form of debt.
You Won’t Be Paying For Last Month’s Expenses This Month
One of the biggest reasons why people can’t get out of debt is because they’re always paying for yesterday’s debts. But when you pay by cash, you will put an end to that cycle. If you are already in debt, you have your hands full just paying this month’s expenses – adding last month’s expenses to the list will only put you little bit deeper in the hole.
You’ll Buy Less Because There’s No “Fudge”
One of the inherent problems of spending with credit cards – at least for the undisciplined – is that it is an open invitation to buy more than you can afford. In many cases, people are deep in debt because they have had far too many months in which they spent more money than they had. It’s too easy to add a few extras to the shopping cart, or to trade up on an important purchase, when you know that the extra cost will be covered by your credit card.
No Incentives to Spend
As I mentioned at the beginning, having credit card rewards can be an excellent option to have, but only if you’re paying off your balance each month.
If you aren’t, the rewards are probably functioning as little more than an incentive to spend even more money. This is the entire reason why credit card companies offer rewards programs. They’re betting that you’re going to spend more money on their credit card based on the rewards that they’re providing. In the process, you are far more likely to run up a large balance that will be subject to ongoing interest – which is the life’s blood of all credit card companies.
In short, credit card rewards are a blessing to people who pay their balance off each month, but a curse to people who carry balances.
You Won’t “Pay Extra” For Everything
This gets to the heart of the interest rate issue: when you pay by credit card – and you carry a balance forward – you’re always paying more for everything that you buy because of interest expense. Unless you can pay off your balance in full each month, you will be participating in a financial game that can only work against you, and always will.
As an example, let’s say that you buy a computer for $1,000 and you use your credit card because they are offering 2% cash back. You take the computer, and your cash reward, which means you’ve only paid $980 for the computer. So far, so good.
But if you carry that balance over the next 12 months, and your credit card charges you 15% interest, that will add $147 in interest expense to the cost of your purchase. Instead of paying $980 for the computer, you will actually pay $1,127. And that assumes that you will pay off the credit card balance in one year. If you don’t, you will incur perpetual interest charges on top of your initial purchase.
If you repeat this process many times during the year, you’ll pay more for everything that you bought with your credit card – which is exactly why credit card companies like to offer rewards.
You Won’t Be Increasing Your Debt
No matter what, if you make your purchases in cash, you will not be adding to your existing debt balance. This is critical – if you want to get out of debt, the first step is to stop adding to it. Until you win that battle, any effort that you make to get out of debt will be a losing proposition.
With Cash Your Debt Will Go Away – Eventually
Why is it so important to stop adding to your debt? Apart from the fact that you want to keep your debt from growing, you can eventually get out of debt simply by making your regularly scheduled monthly payments. That can only work if you’re not adding to your existing debt.
Credit card statements typically provide you with information telling you how long it will take pay off your balance using the minimum monthly payment. It may take 10 or 12 years, but if you make those payments and don’t add any fresh debt, you will eventually be debt free.
As those balances decrease, you’ll have room in your budget to make additional principal payments, that will shorten the time that it will take to pay off your balance. But that can only happen if you put a stop to adding new debt. And you can only do that by spending with cash.
If you’re serious about getting out of debt, it’s close to impossible to imagine doing it without becoming a cash buyer.
How about you all? Have you found this to be true? Have you or someone you know been successful in using cash to help you reduce or eliminate your debt?
Share your experiences by commenting below!
***Photo courtesy https://www.flickr.com/photos/stevendepolo/5437288053/sizes/q/