17 Ways to Dig Yourself Out of a Financial Hole

 At age 47 I was jobless, emotionally broken after an abusive marriage, and running through savings to keep a divorce attorney in my corner. Grieving my mother’s death and terrified that my disabled adult daughter and I would end up homeless, I couldn’t see any kind of future for myself.

Within five years I had earned a university degree on scholarship, found a new career as a personal finance writer, paid off divorce-related debt, and started rebuilding my cash reserves. In the next four years, I would open a Roth IRA and a SEP-IRA. I never was homeless, and I’ve never carried any debt since then.

Dig out of a financial hole

It’s possible to dig yourself out of a financial hole if you’re willing to do the work. But you can’t stop there. It’s absolutely crucial to establish smart money habits in order to build your financial future — and to keep from winding up back in the hole.

Maybe you’ve stalled financially because you never learned how to manage money. Or maybe you’re mired in debt due to circumstances beyond your control, such as job loss or serious illness.

It doesn’t matter how you got there. What matters is that you get yourself out. Use these basic tactics to get a handle on your finances.

The best time to have started getting your finances together was 20 years ago. The second-best time is right now.

If you’re in debt, quit adding to it. Easier said than done, I know: My divorce attorney charged by the minute, for heaven’s sake, yet I couldn’t do without representation.

What could I do without? Almost everything else. I’d always been fairly thrifty, so it wasn’t as hard for me as it might be for others. However, I hadn’t done such a deep dive into frugality since my single-mom days, when I did all the laundry (including diapers) on a scrub-board in the sink. Not everyone can (or wants to) go to the lengths I did, such as living mostly on dry beans and homemade soups, using coupon/rebate deals to stretch my budget, buying almost no new clothing for years, recycling cans picked up on walks around the neighborhood, looking for any possible side gig (babysitting, participating in medical studies, shoveling snow) to add a few dollars to debt payoff.

If you find it tough sledding at first, welcome to the club of being human. Then think about your spending in this way: Adding more debt doesn’t just mean paying extra interest, but also something called “opportunity cost.” Every dollar you spend is a dollar that can’t work for you any other way.

While you’re still in the hole, this means dollars that can’t help you dig your way back out. And once you’re debt-free? It means dollars that can’t help you meet new financial goals: retirement savings, paying off your mortgage, a trip to your family reunion, or whatever will make your life better.

To be clear: Your tolerance for frugal hacks is as unique as you are. I can’t force you to wash out Ziploc bags or to shovel snow for that matter. What I can do is urge you to adopt the main attitude that helped get me through those five years — something I call the Frugal Filter:

  • Do I really need this whatever-it-is?
  • Is there something I already have that might work?
  • If I absolutely must get this item, is there a way to do so for free (borrowing it from a friend, using Freecycle)? And if not, how can I make it as affordable as possible? (Some examples: thrift store, yard sale, cashing in rewards points for gift cards to pay for it.)

Start by adding up all your income sources. Next, list all your obligations, including but not limited to mortgage, minimum credit card payments, utilities, insurance car note, and legally mandated payments (e.g. alimony or child support).

Subtract the second number from the first. If your monthly expenses are lower than your current income, that’s a good sign. But keep in mind that these are your anticipated expenses. You’ll also need money for irregular expenses such as home repair or a replacement vehicle, as well as for vacations, gift-giving, and other things that make our lives richer.

Tracking spending means you’ll know where you stand. The next thing to do is look for the best ways to use your money.

A lot of people swear by the 50/30/20 plan: Spend no more than half your after-tax income on needs, 30% on things you want, and 20% on savings and debt repayment.

Arrange your current spending into those categories. If you’re spending more than you should in any given department, find ways to bring costs down. For example, you might be able to refinance the mortgage and cut grocery costs (more on that in a minute) to get your “needs” spending under 50% of your take-home pay.

The categories can be flexible, though. For example, if debt repayment is more important to you right now than going out to eat, you could use some of your “wants” dollars toward paying down your credit cards.

Speaking of which, you also need to…

Earlier you added up your basic monthly expenses. But what’s the total amount owed? A lot of people honestly don’t know, because they never added it up. Full disclosure: I still don’t know how much my divorce cost, because I don’t want to know. (Hint: It was a lot.)

Don’t be like me. Add up your credit card balances while seated, because the total might make you feel a little faint (especially when you consider how much interest you’re paying). Let that Big Number inspire you to get real about paying it off.

First: If you’re making extra payments on your current mortgage, stop for now and put that money against your credit card balance. Talk with a mortgage specialist about the possibility of refinancing; your loan would be longer, but the money you’d save each month can be used against higher-interest debt.

Next, call your credit card issuers and ask for lower interest rates. There’s no guarantee you’ll get them, but it can’t hurt to ask.

Some people swear by the “debt snowball.” You pay minimum payments on all your credit cards except for the one with the lowest balance (but not necessarily the lowest interest rate); for that one, make the biggest payment you can. Once it’s paid off, you attack the card with the next-lowest balance, and so on.

The theory is that paying one card off quickly encourages you to keep going. Then again, you’re paying more interest on the other cards. That’s why some suggest it’s better to pay off the cards with the highest interest rates first.

Do what works best for you. If you need that encouragement, go with the debt snowball.

Another option is a 0% balance transfer credit card: moving all your debt onto a new card that offers 0% interest for 12 to 18 months. You’ll pay a balance transfer fee, typically about 3% of the total debt. However, if you pay the card in full during the introductory period, you won’t owe any interest.

This could save you a ton of money. (Wish I’d known about it back when I was paying off my divorce debt.) However, you shouldn’t get a 0% balance transfer card unless you have an ironclad plan to pay it off. Otherwise, you’ll wind up paying a ton of interest anyway, in addition to the transfer fee.

Another credit card debt tactic is a personal loan, that is if you can get a decent rate. You’d need an ironclad payoff plan for this option, too. And no matter how you pay off your debt, you absolutely need a plan to keep you from running up the credit cards all over again.

Our consumerist culture tells us that if we want something, then we should have it. This is why some people shop for fun, I guess, even if they don’t technically need anything.

“Need” is the operative word. Food, shelter, basic clothing, and utilities are needs. Everything else is a parade of wants.

There’s nothing wrong with wanting things. But there’s a whole lot that’s wrong with buying things we can’t actually afford. So if you shop for fun, stop doing that. Stop it right now. Un-bookmark your favorite shopping sites. Avoid brick-and-mortar stores.

Delete your stored credit cards, and remember that “one-click” shopping is of the devil.

Sound harsh? Reframe that thought right now: This is prudence, not punishment. It’s part of your plan to meet financial goals, including getting out of debt.

Since we get a nice dopamine rush whenever we find that Really Good Deal, our brain will try to trick you into “just looking.” Look for other ways to feel good, whether that’s The New York Times crossword puzzle or bingeing your favorite shows on an affordable streaming service.

Find a friend who’s also trying to get out of the financial hole, and the two of you can support each other. (“I just saw the most amazing price on cheese straighteners and I really want to get one! Talk me out of it!”)

Here’s what worked for me: Thinking about what I did have, rather than obsessing about what I didn’t. Sounds corny, but hear me out. While living on about $1,000 a month (and still helping my daughter), I made an actual list of my advantages: decent health, a university scholarship, a library card, a part-time job, a 99-cent radio from the St. Vincent de Paul thrift shop, and the absolute conviction that I would one day be back in the black.

The only person who can help me is me,” I said out loud, more than once, developing a stoic pride in — once more! — making do on nothing. I was dirt-poor but I was not dirt. I had a plan. (I also still had the scrub-board, and even used it sometimes.)

Sure, sometimes I still wanted stuff I couldn’t afford. Most of the time, my attitude of gratitude helped me power through. After all, I had things that were important to me and I knew if I just kept working at it, my debt would be gone. It wasn’t easy. But as my dad used to say, “That’s why they call it ‘work.’ If it were fun, they’d call it ‘fun.’”

Be an adult. Own your mistakes or your misfortunes. And do the work.

Part of the reason I went broke was the financial support I gave to my daughter, whose disability benefit was minuscule. Ultimately she got married, found a job she could do from home, became self-sufficient, and moved to a different city. I kept giving, though: treating them to multiple meals out when I visited, sending numerous “just because” gift cards throughout the year, forgiving them a decent-sized loan (as a wedding gift).

Maybe you do this sort of thing, too. Keeping your grown kids on the family phone plan. Paying for their health insurance. Covering some (or all) of their rent. A financial planner told me some clients routinely buy extra stuff at Costco to bribe their children to drop by.

Perhaps your own kids don’t have to drop by because they’re already there: boomerang offspring who came back due to job issues, or who live with you so they can save up for their own homes. Or maybe your kids never launched in the first place — and why should they? Mom and Dad have a comfy home, a well-stocked fridge, and all the streaming platforms.

It’s natural to want to give our children the best. But here’s the thing: You cannot finance retirement. Your kids have many decades to build their financial lives. You, on the other hand, have a finite number of years to make the right money choices.

If you are in debt and/or have an underfunded retirement, do not set yourself on fire to keep someone else warm. Doing so could leave you out in the cold, financially speaking.

To be clear: I would have helped my daughter forever if necessary, but I’m very glad it wasn’t. Those dollars wound up going to retirement savings, my emergency fund (more on that below), and some cash reserves. I refuse to put my daughter in the position of having to support me if I run out of money in retirement. Don’t put that burden on your kids, either.

This may sound counterintuitive. Why save for retirement while I still have balances on 18% credit cards?

Because you can’t finance retirement, remember?

Retirement isn’t a question of simple-interest savings. It’s about growth, and growth takes time. The years you spend not contributing will be felt keenly when you retire — especially if you, like me, got something of a late start.

As noted, the 20% part of the 50/30/20 budget includes saving for the future. Ideally, you’ve already got some retirement savings from your current (or recent) job, and it will continue to grow as you figure things out. Resist the temptation to raid it early; the longer it stays there, the better your chances for its lasting throughout your retirement.

For some people, a 10% (or higher) contribution to their house of worship is absolute. If that’s you, know that it still may be possible to keep tithing at that level — but the money has to come from somewhere else in your budget. As noted above, you can find other ways to cut in order to keep the tithes coming.

If need be, talk to your religious leader about temporarily cutting back or even pausing your contribution. You could always promise to restart and to make up for the lost time.

Even when things were pretty dire for me I gave $20 a month to my church. Sure, that money could have gone toward my credit card debt. But giving to others got me out of my own head. That $240 a year reminded me that not only were my basics covered, I could even afford a little help for others who needed it. Never underestimate the satisfaction and peace this knowledge can bring.

I kept a certain amount of liquid cash while paying off the divorce-related debt. It was tempting to throw every dime I had toward the balance. But I also wanted cash on hand so I could pay for utilities, car insurance, and food in case my job went away.

Some money experts suggest having a year’s worth of expenses banked. Others say that amount discourages people from even trying to save. Instead, they suggest one to three months’ worth as an initial goal, with additional contributions when possible.

I’m in the latter camp. Rather than pressuring yourself to come up with tens of thousands of dollars, aim for a single month’s worth. Go back to that household budget and look for places to cut. Canceling a subscription box you’ve stopped being thrilled by, skipping that automobile detailing you normally get every couple of months, dropping the gym membership that you haven’t been using anyway — these and other budget trims can help plump up the EF faster than you would have thought possible.

Food is the budget category with the most flexibility. You probably can’t negotiate your car payment or your son’s college tuition, but you can cut down on meals outside the home and be choosier about shopping.

Accustomed to stores like Whole Foods and Sprouts? You might be surprised by the organic options available at regular grocers and even discount markets. Take an hour a week to browse different stores, and plan future shopping accordingly.

If you eat most of your meals away from home, gradually change your ways. Buy good-quality coffee and breakfast ingredients so you aren’t tempted to grab takeout every morning. Batch-cook and freeze breakfast sandwiches on weekends, or buy premade ones from a warehouse club (still more affordable than breakfast out).

Carrying your lunch just one day a week could likely save you $10 to $20, or $520 to $1,040 a year. Over time, work your way up to brown-bagging it at least three times a week, and put the thousands of dollars you save toward some other financial goal. In the four years it took to get my degree, I never once bought a single meal at school. An occasional snack or drink, maybe, but I carried all my meals. Again, I’m hardcore and looked at lunch as the fuel I needed to get through the day. Your mileage may vary. Just make sure it’s something you actually like to eat — and again, start slowly so that you don’t set yourself up to fail.

Dinners can be tough since most people arrive home as tired as they are hungry. A little weekend planning or some monthly batch cooking — especially with an Instant Pot — can change the way you eat, and will certainly change how much you spend.

Don’t know how to cook much, or at all? Do an online search for “easy affordable recipes with [your favorite ingredients].” Remember, you didn’t know how to use a smartphone until you made it your business to learn. The same is true of cooking.

It is worth it to shop around for something like car insurance.

Ask me how I know. When I arrived in Seattle, fresh out of my horrible marriage, I used the insurance agent a relative recommended. And wound up paying about $700 more a year than I needed to, for five years. Still shake my head sometimes about that $3,500 worth of opportunity cost, but I didn’t know what I didn’t know.

Look for better deals on Internet, phone, and cable service, too. This can save you some serious bucks, especially if you bundle services.

Note: Many people have ditched cable entirely in favor of streaming services. If you haven’t investigated these lately, you’ll be surprised by the options — and the potential savings.

All of it. You won’t get out of the financial hole overnight, so it’s essential to note individual steps along the way. For some, a spreadsheet makes things easier.

Or use my daughter’s method, which is to list debts on a whiteboard. Each time you make a payment, you get to amend the total to reflect the change — and oh, my, how satisfying it is to literally wipe the debt off the board.

Once you’re back in the black, keep those savvy money moves in place. Spend less than you earn. Contribute to retirement regularly. Build an emergency fund to guard against the unexpected.

Source: newretirement.com

Study: Credit Cards Hijack Your Brain, Leading to More Spending

Excited woman with credit card
Photo by Roman Samborskyi / Shutterstock.com

Credit cards get you to spend by creating a “purchase craving” in your brain, according to a new study out of the MIT Sloan School of Management.

Researchers say the study is the first to show evidence that a consumer’s choice of payment method can trigger different types of brain activation.

In the words of two of the study authors — Drazen Prelec of MIT and Sachin Banker of the University of Utah — when you use a credit card instead of cash, it serves to “step on the gas,” driving more spending “by putting costs out-of-mind regardless of the price of the product.”

In a press announcement from the MIT Sloan School of Management, Prelec says:

“Prior studies have shown that credit cards have a different effect on consumers than cash and are often blamed for overspending and household debt. But it is unclear from standard research tools whether credit cards ‘release the brakes’ by removing the pain of payment or ‘step on the gas’ by creating a craving to spend.”

The study found that paying with a credit card sensitizes reward networks in the brain. The process involves the striatum, a dopaminergic reward center that drugs like cocaine and amphetamines exploit.

Once these reward networks are sensitized, credit card use drives an increase in purchases.

As Prelec says:

“The reward networks in the brain that are activated by all kinds of rewards are activated by a credit card purchase. The act of putting that plastic credit card in your hand is associated with enjoyable purchases.”

The study also found that different types of cards — and the way they are used — elicit different types of spending. So, a card used at a restaurant or during a vacation spurs a different appetite for spending than a card used to fill up your gas tank, for example.

Looking for a new credit card — hopefully one that will not make you spend more? Stop by Money Talks News’ Solutions Center and search for the perfect credit card for you.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

13 Ways to Get Out of Debt

Stressed businessman looking at laptop
GaudiLab / Shutterstock.com

This story originally appeared on NewRetirement.

In 2020, Fidelity reported that the majority of people who were making financial resolutions for the new year wanted to achieve a debt-free life. While fortunes have shifted during the coronavirus pandemic, it is still a very worthy goal.

Not sure how to get out of debt? You have options.

Don’t play tug of war with your money. Get out of debt and align your finances on your side!

Based on my experience, there are quite a few methods for getting out of debt. Some require brute force, others discipline and there are even methods that are fairly passive and pain-free.

Find the right way for you to get out of debt.

1. The Debt Snowball

Studio Peace / Shutterstock.com

Endorsed by Dave Ramsey and many other personal finance gurus, this works.

What is it? It is a debt snowball!

Start with your smallest debt and pay it off as quickly as possible, all while making the minimum payments on all the other debts.

When your first debt is gone, apply that usual payment amount to the payments you make on your next-largest debt. Follow this pattern until you’ve officially slain the dragon and all debts are paid.

Why is this my favorite? Because people stick with it.

When you pay off a debt and strike it off your list, something inside you just goes berserk with enthusiasm. You want to do it again! “What’s the next debt? Let’s kill that one too!” And you just go absolutely nuts until all the debts are completely gone.

2. The Debt Avalanche

Man with sledgehammer hitting "Debt" ball
BsWei / Shutterstock.com

What does the debt avalanche do that the debt snowball doesn’t?

It considers the interest on your loans.

The debt avalanche applies a different methodology for how to get out of debt.

Instead of ordering your smallest debts to your largest, you pay them off from the largest interest rate to the smallest. Maggie McGrath did some great analysis on Forbes if you’re interested in the math and want to get your nerd on, but apples to apples, the avalanche does pay off debts faster than the debt snowball.

However, fewer people make it through this plan because you don’t get to see immediate wins to keep you motivated.

If your highest interest loan is your $20,000 maxed-out credit card, it might take you a full year to pay it off. By that point, most people have lost motivation and moved onto the next shiny object of life.

If you’re super nerdy and determined to get rid of your debt, however, the avalanche will probably work for you. If you need the small wins to pep you up and put that spring in your step, use the debt snowball.

3. Loan Consolidation

Couple meeting with loan officer
megaflopp / Shutterstock.com

If you have a few debts that have a high interest rate, and if you’re more passive about getting rid of them, then setting up a simple loan consolidation might be your best bet.

Set up the term length, negotiate the new, lower interest rate, and you’ll get rid of your debts at a pre-determined time — hopefully long before your retirement date. It’s not the most effective way to pay off your debts, but it is better than ignoring your debts entirely.

4. Transfer Balance to a Low- or Zero-Interest Credit Card

couple earning cash back while shopping online
Prostock-studio / Shutterstock.com

Depending on your credit score and debt burden, you may be able to transfer your debts onto a zero-interest credit card and really focus on paying down the balance as quickly as possible — preferably before that introductory interest rate resets to a higher one.

This is great if you are committed to truly getting rid of the debt.

5. Talk to Your Creditors About a Lower Interest Rate

A woman with a smartphone and credit card is taken by surprise
garetsworkshop / Shutterstock.com

Particularly with credit card debt, you may be able to talk with your creditors and ask them for an interest rate deduction.

The worst they can say is no. And, it doesn’t hurt to ask.

6. Try Negotiating a Settlement

Two pair of clasped hands on a conference table.
vchal / Shutterstock.com

Your creditors want you to succeed. They make money when you are able to pay back the loan.

If they think that you won’t be able to pay back the money you owe them or if they think they can get their money back faster, then they may be willing to make it easier for you.

Before negotiating, make sure you know exactly how much you can pay back and in what time frame. Be prepared to demonstrate to the creditor how exactly you are going to be successful. Prepare a compelling argument for why they should reduce the total amount of what you owe.

7. Refinance Your Mortgage

buying a home
ShutterOK / Shutterstock.com

Interest rates are near an all-time low right now.

If you have a mortgage, it may be incredibly profitable for you to refinance into a lower interest rate.

Just be sure to consider closing costs.

8. Refinance Your Home and Consolidate Other Loans Into Your Mortgage

Coins and Monopoly hotels and houses
igorstevanovic / Shutterstock.com

If you have a mortgage and additional debts, you can really take advantage of low interest rates by refinancing your mortgage and securing a home equity line of credit (HELOC) at the same time.

The refinancing can lower the interest rate on your mortgage. Assuming the HELOC is at a lower rate than your other debt, you can your HELOC funds to pay off other higher interest loans.

9. Ramp Up Your Earnings

Winking woman with money
Alliance Images / Shutterstock.com

Being in debt can be a great motivator to find ways to earn more money.

The extra cash from a side gig or a raise can help you pay off your debt. And, bonus, when you no longer have those payments, it will be easier for you to save for retirement!

10. Cut Existing Expenses

Woman with piggy bank
Jason Stitt / Shutterstock.com

If ramping up your earnings does not seem to be an option, but you really want to accelerate your debt payments, you should consider cutting existing expenses and using those savings toward your debt.

It is not exciting or tricky, just the old-fashioned, tried-but-true method of eliminating debt.

11. Commit to Getting Out of Debt

Woman looking in the mirror while trying on new clothes
immfocus studio / Shutterstock.com

How do you get out of debt? You simply commit to getting out of debt! As your mom might have told you: Where there is a will, there is a way.

12. Stop Saving and Pay Off the Debt

Senior man gesturing stop to protect his money
Krakenimages.com / Shutterstock.com

Yes, you need to be saving money. You definitely need to save and invest those savings.

However, it may be a better short-term financial decision to stop saving and use the funds that you would otherwise be socking away to pay off your debt.

This is a good strategy if you have debt with high interest rates.

You may want to compare the interest rate on your debt with the rate of return you could earn on savings for a quick assessment of where to put your money. Put your finances toward the higher rate.

13. Run Scenarios and Compare!

Man using too much data on his phone, tablet and laptop
Bacho / Shutterstock.com

Not sure paying off your debt will really make a big difference to your financial life? Try it out.

The NewRetirement Retirement Planner is a really detailed and powerful DIY financial planning tool.

After configuring the system with your personalized profile, you can try different scenarios. See what happens if you:

  • Use the debt snowball or debt avalanche techniques.
  • Pay off all your credit cards in the next year or two.
  • Pay off your mortgage before retirement.
  • Downsize and eliminate your existing mortgage.
  • Consolidate all debts into a lower interest rate.

Once you see how accelerating your debt payoff can impact your finances (now and into the future), you may have the motivation you need to get rid of debt.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

5 Tips for Breaking the Payday Loan Cycle

An Amscot store, which provides payday loans, is pictured in Orlando, Fla., on Friday, July 19, 2017.

An Amscot store, which provides payday loans, is pictured in Orlando, Fla., on Friday, July 19, 2017. Tina Russell/The Penny Hoarder

A payday loan can offer a quick reprieve from unexpected expenses or a spell of tough luck.

But if you don’t have enough money to pay back the loan on your next payday, you may need to take out another loan — or roll your balance into a new loan with interest rates that can be well over 300%.

Almost 70% of payday loan borrowers take out a second payday loan within one month. And according to the Consumer Protection Financial Bureau, 1 in 5 new borrowers end up taking out at least 10 payday loans.

This payday loan cycle can turn a short-term loan of a few hundred dollars into a growing mountain of debt totaling thousands of dollars. The average repeat borrower pays $458 in fees on top of their principal over the course of a year.

And when you’re that far behind, it’s hard to ever get ahead.

If this sounds familiar, read on for practical tips for getting payday loan relief.

Tips to Stop the Pay Day Loans Cycle
Kristy Gaunt – The Penny Hoarder

1. Cut Your Costs

Reducing your expenses can be one of the toughest ways to get out of the payday loan cycle if you’re already living on a tight budget and struggle to find ways to save. If you can’t cut costs, you may need to ask for help to defray some of your costs temporarily.

Asking for help takes strength, but it might make it easier to find extra money in your budget, even if just for a month or two. You may be able to access free meals for your school-age children or visit a local food pantry to get by on a lower grocery budget. College students may be able to request help from an emergency financial assistance fund.

Your church or local community groups may be able to get you temporary help. You can also call 211, the United Way’s health and human services referral line, which can direct you to services in your area, or visit 211.org to locate resources.

2. Earn More Income

Kisha Howard of Orlando stands in front of the Amscot store she used to borrow money from after her mother suffered from a stroke.
Kisha Howard of Orlando stands in front of the Amscot she used to borrow money from after her mother suffered from a stroke. Tina Russell/The Penny Hoarder

Kisha Howard of Orlando, Florida turned to payday loans when she felt like she was out of options to make ends meet. “At the end of the day, if you didn’t have the money in the first place, you still won’t have it,” she warns.

To overcome her financial gap, she worked as much overtime as she could to boost her income. “Each pay period, I decreased the amount of the loan needed until I no longer needed the additional funds and was able to cover the bills with my income,” she says.

If you have any spare time and energy, it might be worth it to pick up a side gig. Think about selling your services as a pet sitter, weed puller or errand runner — these side hustles don’t require much in the way of startup costs.

3. Use a Windfall for Payday Loan Relief

Lisa Servon, a professor at the University of Pennsylvania, has studied the payday loan landscape for years, talking to hundreds of borrowers about their experiences.

She said getting out of the payday loan cycle often requires some sort of windfall, recalling one woman she interviewed who used her tax refund to pay off her loan. “She really targeted her tax refund from the earned income tax credit, paid off the loans and then really cut back on spending and watched her expenses,” Servon says.

Getting a huge tax refund isn’t ideal, but if you expect to get a little bit back from Uncle Sam, it can help get you out of that payday loan hole.

4. Ask for Payment Arrangements

Looking back at her payday loan experience, Howard regards it as “a very expensive shortcut.” She says it’s “better to budget accordingly and request arrangements for bills when necessary. Companies work with you when you communicate.”

You may be able to negotiate lower bills on essentials like utilities or set up an interest-free payment plan to make larger bills more manageable.

5. Talk About it

“Advocacy and organizing is the way out,” says Maurice BP-Weeks, co-director of Action Center on Race & the Economy.

He compares the payday lending landscape to the housing crisis of the recession. “If you’ve gotten into the spiral, it’s really not your fault,” he says. “Contact the CFPB or your local representative and explain your situation. This is not fair. Companies shouldn’t be allowed to peddle these products.”

Similarly, it can help to be open about your situation with friends and family. You may be able to provide valuable advice before someone you know turns to payday loans in a time of need.

More than a dozen states have banned high-interest, short-term loans, but it’s still easy to get a payday loan — and get trapped in the debt cycle — in three-quarters of the country.

Lisa Rowan is a writer and producer at The Penny Hoarder.

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Source: thepennyhoarder.com

Senior Home Equity Booms: Should You Get a Reverse Mortgage?

Senior couple at home
Photo by wavebreakmedia / Shutterstock.com

Homeowners who are 62 or older are sitting on a record amount of home equity, according to new figures from the National Reverse Mortgage Lenders Association.

From the first quarter of this year to the second quarter, housing wealth among those 62 and older grew by 1.8% — or $134 billion — and now totals $7.7 trillion.

All of that locked-up wealth may tempt some seniors into considering a reverse mortgage, particularly during these tough times brought on by the coronavirus pandemic.

What is a reverse mortgage?

A reverse mortgage is like the home loans we all are familiar with, but with an important twist. With this type of mortgage, you borrow money against your house and get cash every month.

Other types of reverse mortgages give you money as a lump sum or let you use the mortgage to establish a line of credit.

To get a reverse mortgage, you must be 62 or older. But is a reverse mortgage a good idea?

Advantages of reverse mortgages

Money Talks News founder Stacy Johnson says reverse mortgages can make sense for some homeowners. As he has written:

“If you’ve got a lot of equity in your house and Social Security just isn’t doing it for you, well, maybe this is a great way for you to increase your monthly income by tapping your home equity without leaving your home.”

Stacy notes that people who take out reverse mortgages generally plan to stay in their homes until they die. After a homeowner with a reverse mortgage dies, the home is sold to pay off the loan, or simply turned over to the lender.

Drawbacks of reverse mortgages

A reverse mortgage does not always make sense. That is especially true if you have heirs who would like to own your home after you die. As Stacy explains:

“Remember, the mortgage is getting bigger and bigger. When you die, or when you move to a nursing home, etc., someone will have to pay off that mortgage if you want to keep the house in the family.”

Should you get a reverse mortgage?

It can be difficult to decide whether a reverse mortgage is right for you.

Stacy recommends sitting down with an expert at a nonprofit credit counseling agency and discussing your options. Such counseling is not free — Stacy estimates it will cost between $100 and $125. However, paying that fee is a lot less costly than making a big mistake.

Additionally, counseling is required before you can close on a reverse mortgage. So, even if you decide to go ahead with a reverse mortgage, the counseling cost will not be money wasted.

If you decide a reverse mortgage is not right for you, consider any of the “10 Alternatives to a Reverse Mortgage.”

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

The Fastest Proven Ways to Destroy Debt

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Ever since I wrote my first book, “Life or Debt,” nearly 20 years ago, I’ve been trying to guide readers and viewers to a debt-free life. Why? Because debt is like a cancer that eats away at your financial future.

The money you pay to use other people’s money — aka, interest — is money that’s not around to help you reach your financial goals.

Destroying debt is easier said than done, but whether you carry a small balance on your credit card or have a million-dollar mortgage, there are specific steps you can take to become debt-free at the earliest possible moment.

In this week’s “Money!” podcast, we’re going to find out what they are. As usual, my co-hosts will be financial journalist Miranda Marquit and producer Aaron Freeman.

Sit back, relax and listen to this week’s “Money!” podcast:

Not familiar with podcasts?

A podcast is basically a radio show you can listen to anytime, either by downloading it to your smartphone or other device, or by listening online.

They’re totally free. They can be any length (ours are typically about a half-hour), feature any number of people and cover any topic you can possibly think of. You can listen at home, in the car, while jogging or, if you’re like me, when riding your bike.

You can listen to our latest podcasts here or download them to your phone from any number of places, including Apple, Spotify, RadioPublic, Stitcher and RSS.

If you haven’t listened to a podcast yet, give it a try, then subscribe to ours. You’ll be glad you did!

Show notes

Want more information? Check out these resources:

About me

I founded Money Talks News in 1991. I’m a CPA, and I have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

Cut These 11 Expenses Now If You Hope to Retire Early

Early retiree
Maridav / Shutterstock.com

Many people dream of retiring early. In fact, there’s even a movement these days, called FIRE, that offers the hope of financial independence (“FI”) and the ability to retire early (“RE”) from the grind.

However, it’s important to note that in many cases, FIRE requires a great deal of planning — and sacrifice. You might need to reduce or eliminate some spending to set aside enough money to reach your FIRE goals.

Let’s take a look at some of the expenditures common to U.S. households, according to the Bureau of Labor Statistics (BLS). Then, we’ll look at ways to reduce spending so that you’re more likely to reach FIRE status.

Note: The following costs from the BLS are for households of all ages and many sizes, including families, single people and more than two people living together.

1. Shelter

Monkey Business Images / Shutterstock.com

The average spent on shelter by U.S. households in 2019: $12,190

Want to reduce your housing costs? Consider getting a roommate or downsizing. You could even move in with relatives for a time.

However, if you prefer to maintain your own home, you can turn it into a moneymaker. Rent out a room through a vacation rental website like Airbnb or VRBO, rent out your whole home when you’re not there, or explore the other options we detail in “8 Ways to Earn Extra Income With Your Home.”

You’ll pay off your mortgage faster, reducing your costs and providing a place to live debt-free after you retire.

2. Groceries

Dragon Images / Shutterstock.com

The average spent on groceries by U.S. households in 2019: $4,643

Looking to cut your food bill? While coupons can help, there are other ways to reduce what you spend each week — from buying bread at bakery outlets to learning to make your groceries last longer.

On top of that, if you want to make some extra money, there are ways to earn cash delivering groceries. A little extra, set aside from your gig, can get you to FIRE status that much faster.

3. Vehicle purchases

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The average spent on vehicle purchases by U.S. households in 2019: $4,394

If you want to avoid this cost, one way is to get your car to last a little longer to eliminate the need to buy something else.

If you do make a vehicle purchase, consider buying a late-model used car. Some gently used models can save you as much as 56% compared with the price of a new model.

4. Eating out

Monkey Business Images / Shutterstock.com

The average spent on eating out by U.S. households in 2019: $3,526

Maybe it even makes sense to spend more on groceries while spending less on eating out. Cooking at home is usually a lot cheaper than getting take-out or using meal kits. It certainly costs less than eating at a restaurant.

That doesn’t mean that you can’t go out. With a little planning, it’s possible to slash your restaurant costs, as we detail in “A Former Restaurant Critic Shares Her 11 Best Tips for Dining Out Cheaply but Well.” All your savings can be put into an account designed to help you reach FIRE goals.

5. Gas and motor oil

Man pumping gas
Monkey Business Images / Shutterstock.com

The average spent on gas by U.S. households in 2019: $2,094

Keeping your car running can be costly. There are ways to save at the pump, though. Taking the time to reduce what you spend on gas can pay off in the end.

Another way to save money on gas is to use public transit if it’s available and reliable. Plus, if you’re not using your car, you can make extra money by renting it out. That can offset some of your costs and even increase the capital you end up with, helping you get to FIRE.

6. Clothing and footwear

Woman looking in the mirror while trying on new clothes
immfocus studio / Shutterstock.com

The average spent on clothing by U.S. households in 2019: $1,883

One of the best ways to save on clothing is to shop at thrift stores or secondhand shops. For pointers from a veteran thrift store shopper, check out “11 Secrets to Finding Quality Clothing at Thrift Shops.”

There are also plenty of online sites offering gently used clothing, including brand-name and designer clothing. You can even make money off the clothes you no longer wear by selling them online using a service like thredUP.

7. Cellphone service

Oleksii Didok / Shutterstock.com

The average spent on cellphone service by U.S. households in 2019: $1,218

Looking to save hundreds of dollars a year on cellphone service? Consider switching carriers, joining a family plan or buying your phone outright instead of buying it on a payment plan. With a little planning and creativity, you can get the connectivity you crave for less.

For help finding cheaper service or a cheaper phone, stop by our Solutions Center and check out Money Talks News’ phone and plan comparison tool.

8. Car insurance

Couple looking at computer and bill.
bbernard / Shutterstock.com

The average spent on car insurance by U.S. households in 2019: $1,545

Take the time to shop around for car insurance each time your policy is up for renewal, and you could save money each month. If you don’t have time or don’t want to comparison shop, a third-party service like The Zebra or Gabi can do it for you and give you quotes to choose from.

Or, avoid the need for car insurance completely by using public transportation.

9. Alcoholic drinks

YAKOBCHUK VIACHESLAV / Shutterstock.com

The average spent on alcoholic drinks by U.S. households in 2019: $579

Want to reduce your drinking bill? The best way to save is to give it up. If that’s not your style, consider buying alcohol at a warehouse club. You can get a lower price, and those savings can fuel your FIRE effort.

Not a warehouse club member? That’s not a problem for some chains, including Sam’s Club — you can buy wine, beer and spirits there without a membership.

10. Prescription drugs, over-the-counter drugs and vitamins

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The average spent on drugs and vitamins by U.S. households in 2019: $486

You can slash prescription drug costs by as much as 50% by using tips such as paying with a discounted gift card or even paying out of pocket for some medications, as we detail in “5 Ways I Slashed My Drug Costs up to 50%.”

Take the time to shop around and compare prices, too. There are free websites that make this easy, and you might be surprised at how much you can save.

11. Cleaning supplies

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The average spent on cleaning supplies by U.S. households in 2019: $185

This category includes laundry detergent, which can be expensive. You might be surprised to learn that you might not need laundry detergent at all on lightly soiled clothes. But if you do need detergent, it’s relatively easy and inexpensive to make. See “3 Easy Ways to Get Laundry Soap for Nearly Nothing.”

Other cleaning supplies are just as easy and cheap to make on your own, as we detail in “Never Buy These 7 Overpriced Cleaning Products Again.” There’s no reason to spend a lot on cleaning supplies.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

10 Mistakes That Cost You Money at Warehouse Stores

Unhappy shoppers
Pressmaster / Shutterstock.com

Being a member of Costco, Sam’s Club or BJ’s might seem like a steal when you find great deals. But there’s a chance you’re wasting more money than you’re saving.

Sure, deals abound at warehouse stores. However, if you’re not approaching shopping trips smartly, you could be throwing money away, regardless of which warehouse store you go to.

Following are some key ways you might be overspending at these membership clubs — likely without even realizing it.

1. Not earning cash back

grocery shopping
Stokkete / Shutterstock.com

Hopefully, you already know there are multiple ways to earn cash back when shopping online — including on wholesale clubs’ websites. But you’re leaving money on the table if you aren’t also earning cash back every time you shop at a Costco, Sam’s Club or BJ’s store.

A free app called Ibotta routinely offers cash rebates on purchases from these three chains’ brick-and-mortar stores — among many other retailers’ stores.

To start using Ibotta, sign up for an account, which is free. Then, download the app and launch it. From there, you can select Costco, Sam’s Club or BJ’s from the list of retailers to see what cash rebates Ibotta is currently offering for purchases from those wholesale clubs.

Of course, you can also always earn cash back by paying with a cash-back credit card. Go to our Solutions Center to find the right credit card for your needs.

2. Assuming that you need a membership

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There is a lot you can buy at a wholesale club without a membership, especially if you’re open to buying items online or shopping with a friend or relative who has a membership to the store.

In fact, some people will save money overall by paying nonmember surcharges instead of an annual membership fee.

Let’s take Costco, for example. Becoming a member will cost you at least $60 a year, while not joining means you will pay a 5% nonmember surcharge on most purchases.

So, technically, if you spend less than $1,200 per year at Costco, you save money by paying the surcharge instead of the membership fee.

To learn more, check out:

3. Not planning your meals

Woman in pantry
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Large packages of cheap goods such as rice and pasta make bulk shopping seem enticing. And for families who go through such items quickly, they’re a great investment. But if your family seldom uses these things, you’ll only end up with a lot of food going to waste.

Before you hit the warehouse store, plan meals for the next few weeks so you know what to buy.

If you’re new to the concept of meal planning, check out our primer, “This Habit Saves Me Money and Stress All Week Long.”

4. Not reviewing the ads and deals

working from home
Monkey Business Images / Shutterstock.com

Warehouse stores already have good prices on a lot of things compared with regular stores. But most warehouse clubs give even deeper discounts.

To find them, check the ads and fliers just like you would at a regular grocery store.

I tend to check the Costco app to see what offers are coming up. You can also find Costco’s periodic discounts on its Warehouse Savings webpage. Meanwhile, Sam’s Club’s periodic discounts are on its Instant Savings Book webpage.

5. Not figuring what you actually need

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If you’re going to buy that big pack of batteries, make sure you’re prepared to use them all before the expiration date. Just like many items sold in bulk, batteries have a shelf life.

Before you make this kind of purchase at a warehouse store, ask yourself how many of the items you actually will use. If they go bad before you expect to use them all up, the bulk package isn’t the deal it might seem to be.

6. Keeping things you don’t need

return policy
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Have you ever bought something that you later realized you didn’t need, want or like? Have you held on to it or thrown it away — barely used — because you didn’t think you could return it?

Before stashing or trashing it, check the return policy of the store where you bought it.

For example, Costco has one of the best return policies for both online and in-store purchases. Some things do have a return window — like 90 days for many electronics — but you can return most things at any time.

7. Not splitting what you can

coffee
idelem / Shutterstock.com

In my household of three, we know there are plenty of things bought in bulk that we won’t go through. So, if there’s a sale on something we want but we know it’s too much for just us, we try to split it with someone else. Such things might be food, paper goods or coffee. If it’s a great deal, we find a way to make it work.

Consider shopping with a friend or family member and splitting some of your purchases. What might be too much for one household can be perfect when it gets broken up for two.

8. Ignoring your household size

single life
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Bulk goods are meant to feed and care for a lot of people. So, determine which products best fit your household.

If you’ve got kids at home or your parents live with you, it’s easier to justify larger quantities. But if it’s just you and your partner, reconsider some purchases — or split them with another household.

9. Forgetting your home’s space limits

small bathroom
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You might think that buying toilet paper in bulk will save you a few dollars — and it might. But do you have a place to put all those extra rolls?

Larger bulk items are not worth buying if you don’t have a spot to store the excess. So, evaluate your home’s space before splurging on larger quantities.

10. Not being flexible about your shopping list

free samples
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Sure, eating the samples at a warehouse store is like having an extra lunch. But they could help you make better shopping decisions, too.

Wouldn’t you rather buy something that you know is good than buy something blindly? That’s why samples exist — to give you the chance to try something you wouldn’t otherwise eat. Sure, warehouse stores know you’re likely to buy the food you sampled — that’s why they have samples.

It’s OK to change up your shopping list if you taste something you’d like to cook soon. And it’s even better if it’s on sale.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

Why Baby Boomers Still Have So Much Student Loan Debt

Student loan debt
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Americans are drowning in student debt, with more than 44 million of us owing an estimated $1.67 trillion. But an unlikely group has more student debt than any other: baby boomers.

That surprising finding is part of Fidelity Investments’ 2020 Student Debt Snapshot, which analyzed data from more than 250,000 loans reported using Fidelity’s Student Debt Tool.

Baby boomers have an average monthly student loan payment of $722. That compares with $623 for members of Generation X and $558 for millennials.

Meanwhile, boomers have an average student loan balance of $75,000, compared with $69,000 for Generation Xers and $52,000 for millennials.

While it may seem strange that a group so far removed from their college years carries so much debt, Fidelity notes that it’s partially because of parent PLUS loans they secured for their children. These are a type of federal loan for parents of undergraduate students to help pay for college or career school.

Co-signing loans is something Money Talks News founder Stacy Johnson has been cautioning consumers about for years. As we explain in “What’s Your Debt IQ? Take This Quiz to Find Out“:

“Co-signing on a loan is the same as taking out the loan yourself. If your son — or whomever you were trying to help — stops paying, it can do a real number on your credit score. Even worse, a creditor can come after you for payment, and you could find yourself on the receiving end of collection calls or, worse, a garnishment order.”

If you are going to co-sign anyway, at least be smart about it. Stacy details this process in “If I Co-Sign a Loan, Can I Protect Myself?”

How to erase student loan debt

Clearly, student loan debt is a major problem facing Americans of all ages. And those obligations come with a very high financial and emotional cost. As Asha Srikantiah, head of Fidelity Investments’ student debt program, notes:

“Fidelity’s research shows when it comes to financial wellness, taking on debt is one of the most negative events. Conversely, paying off debt is one of the most positive — financially, as well as with health, work and life overall.”

If student debt is overwhelming you, take a look at our story “Student Debt Soars: 5 Ways to Pay Off Your Loans Faster.”

Or, if you feel you need outside help, stop by Money Talks News’ Solutions Center to find expert help with student debt. The right expert can help lower your interest rates, find forgiveness programs and stop wage garnishment and tax liens.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com