Can I Get a Debt Consolidation Loan?
Do You Have to Have Good Credit to Get a Debt Consolidation Loan?
If you're struggling to pay off your debts and can't find a good way to increase your income, you may be thinking about finding relief by other means. As you probably know, there's an entire industry that's devoted to helping folks pay down their consumer debts in a timely fashion. A significant amount of the activity that occurs in this industry involves a practice known as debt consolidation lending.
Debt consolidation loans are large loans that may carry relatively low interest rates. They are ideal for borrowers who carry large amounts of credit card debt. Debt consolidation loans enable these borrowers to pay off their high-interest debts and may dramatically simplify their debt payments.debt consolidation loan application form.
True to the "consolidation" in their name, debt consolidation loans are designed to reduce the number of monthly debt payments that a struggling borrower must make. Instead of 12 outstanding credit card bills, a credit card consolidation borrower only has to worry about making a single larger payment to his or her lender.
If you're behind on your credit card payments, you may be wondering whether you have to have good credit to obtain a consolidation loan. Unless you've been very lucky, your credit score is probably not as solid as you would like it to be. You might have a justified worry that you'll be unable to secure approval for your loan.
It would be ironic if you were unable to secure a credit consolidation loan as a result of your poor credit profile. After all, consolidation loans are designed to help borrowers who struggle with large amounts of credit card debt. Most such borrowers have less-than-ideal credit scores. Debt consolidation lenders that adhered to strict credit-score standards when screening borrowers would be cutting out a significant portion of their "target" clientele.
For this reason, it's possible to get a debt consolidation loan with bad credit. Many debt consolidation lenders are willing to issue loans to distressed borrowers. Unfortunately, such loans typically come with some problematic drawbacks.
High interest rates are one of these drawbacks. Whereas "prime" borrowers may be able to secure low-interest consolidation loans, borrowers who have poor or mediocre credit may have to pay through the nose for their loans.
Even in this low-rate environment, it's not uncommon for lenders to charge annual interest rates of 15, 20 or even 25 percent on their sub-prime loans. This might substantially raise your borrowing costs and negate any of your loan's potential savings. If you can't save at least 5 percent on your outstanding debts with a consolidation loan, this course of action may not be worth the hassle.
The potential need to collateralize these loans is another serious drawback. Although each lender's policy is slightly different, many may require you to put up some collateral as a condition of your loan. This could take the form of a car, house or other valuable asset. If you become unable to make the payments on your loan, this asset could be subject to seizure.
The prospect of doing further credit-score damage is a final weakness. Since these credit facilities are so large, the monthly payments on credit card consolidation loans can be massive. If you fall behind on your loan or become unable to make your payments at all, you run the risk of a credit-damaging default.
Once you default on your loan, your credit score will drop precipitously. In turn, this will make it difficult for you to take out another loan. Even if you can find a lender that's willing to approve your application, your new loan would probably carry a far higher interest rate than your original credit facility.
Before you take out a debt consolidation loan, you'll want to consider all of the credit relief options available to you. Although you may be able to secure a loan with a poor credit score, there are certain risks associated with this course of action. In the end, you're the only person who's capable of determining how best to tackle your unsecured debt burden.
by Lacie Kehm
If there is one thing that many people do not love to be associated with, it has to be debts. Most often, you will run away from debts not thinking about how you can put it into good use to bring about improvement. Most people will stay away from loans because they probably lack the discipline of paying back a loan in time.
If you are a business person, then you must know the importance of loans. People use loans to grow their business, to start business among many other things. Only risk takers may be able to reason with me in this. Business people should always be risk takers. You need to be in a position to go out there and do whatever it takes to bring about progress to your business.
Most businesses will require you to take more than just one loan. In such a case, you will find yourself in multiple debts. This should not make you tremble thinking that you may be bankrupt. Instead, think debt consolidation. This would be the best way to settle your debts in the event that you are in multiple debts.
Debt consolidation is simply taking all your loans, putting them together then paying them off as one loan at a lower interest rate. A debt consolidation plan for your business would benefit you for many reasons. Some of them are:
- Pay off loans faster
It is only with a debt consolidation loan that you will be able to pay off your loans faster and more conveniently. This is because you will only need to pay to one account, which will then be responsible to pay your other creditors. You will not have to worry about paying money to several accounts every end of the month.
Had you not had a debt consolidation plan, you may not be able to follow with what loan you cleared and which is still pending, how much you have paid so far and what not.
- Enjoy reduced interest rates
You cannot compare the interest rates of 5 different loans being paid independently to that of one loan. Having your loans put together and paid off as one will get you to pay off your loans at an interest rate of even 10% or lower.
- Gives you an easy time with your business
You must be aware of the very many notifications that you get once you take up a loan and it is time for you to pay it back. With a debt consolidation plan, you will no longer be receiving those numerous mails every now and then reminding you to pay off your loans. Your lender will be the one to deal with that.
- No more loans until you are done
A good debt consolidation plan will instill in you the discipline of clearing one debt before you take up another. Most debt consolidation top debt consolidation companies will not allow you to take up another loan until you clear the existing one.
So, you have been saddled with huge credit card debts with high interest rates, making scenarios extremely critical. Well, there are better ways to repay the debts than you may have ever thought about. If you look into the market, there are several credit counseling agencies that offer zero-interest balance transfers to existing, as well as, new consumers, post the holiday season. Availing such schemes is beneficial for repaying the debts, without incurring any interest due to the availability of a grace period of 12-18 months. However, if the consumer fails to repay the balance, within the grace period, a higher interest rate will be levied on the existing amount. You may watch out for the balance transfer fees. Any typical credit card issue charges roughly a maximum 3% for transferring the balance. There is also a certain category of credit card companies offering zero-fee balance transfers, merely as a promotional scheme for branding purposes.
Taking a Personal Loan to Repay Existing Multiple Debts
There are several online lenders that offer debt consolidation loan schemes at lower interest rates. However, you need to be eligible for the part. Search online and you may just figure out online credit counseling agencies offering loans at a mere 7% interest rate. But, such loans are unsecured and, hence, the overall interest rates can be higher at times, due to the fluctuating nature. The best option is to go for personal loan-based consolidation schemes that allow you the option to consolidate your existing payments into one fixed payment option, while offering a period of 3-5 years to get the debt cleared off, under the smart EMI schemes.
Opting for Home Equity Option
The housing market has seen much improvement in the last couple of years. This has allowed banks to offer easy and smart home equity lines of credit than they used to do beforehand. The interest rates are on the lower side for home equity lines of credit. You can find home equity lines of credit at interest rates of 3% – 4%. But, then, mortgaging the assets is a bigger issue, with such options. Mortgaging your house can be a risky affair. Henceforth, such options can be only chosen during situations of large and unexpected expenses.
Many people think of debt consolidation as an easy step to repay the loans. While it can be beneficial or situations can worsen, in case you miss out on a single month’s pay. Yes, repaying the consolidation loan should be carried out properly while ensuring that not a single EMI amount is missed. You miss a month’s EMI and the interest rate grows up the ladder. Also, you should only opt for debt consolidation schemes, if you have the necessary financial support to repay a single loan amount, under Easy Monthly Installment scheme, without facing any critical consequences.
A debt consolidation loan is a loan that you take so as to pay off your accrued debts and loans. You may be wondering why you need to take a loan to pay off another loan. Simple; the consolidation loan provides a means for you to manage your debts because, once the loan is approved, you will have a single loan to service rather than the current multiple.
A big number of debts adds financial burden to your shoulders and it could be tough leading a comfortable life when you use your income to pay off debt then get into more debt to get by. Unfortunately, this is the situation with many people and this has resulted in the high consumer debt in the country.
A consolidation loan provides relief from creditors who pester you for non-payments. The loan is also an effective solution if you keep forgetting to repay all your bills and loans ending up with high late fees and penalties. However, it is important to note that this debt management process should only be pursued when one is certain that they are going to change their lifestyle to prevent accumulation of more debt.
If you are true to yourself and willing to cut down expenses on credit management consultancy, you are capable of taking the debt consolidation bull by the horns yourself.
Here are the main steps to a DIY debt consolidation process:
- Prioritize your debt
The first step to debt freedom is facing the problem head on. You have to know who you owe and how much they are owed. To do this, you should prepare a list of all your creditors. The best way to do this is to set up two columns in an Excel spreadsheet then list all your creditors and the amount you owe each one of them.
To do this well, calculate the total amount you owe including any fees or transaction charges plus the interest rate. There are many resources online to help you calculate loans or debt owed. Look up loan amortization calculators and general consolidation loan calculators to get the exact amount owed to creditors. Creditors aren’t very forgiving and you should have the exact digits to the cents.
Once you have the accurate figures, sort your creditors list in order of priority. By prioritizing and noting the creditor you owe the most, you will be able to visualize the seriousness of the problem and create stronger strategies.
- Get your credit score information
You will get lower interest rates on a debt consolidation loan if you have a good credit rating. Contact the relevant financial bodies for your credit history. While at it, verify the details in your credit history.
- Create a budget and calculate affordability
If you have one source of income, then you know exactly how much you have to spend. Having different sources of fluctuating income could be a challenge but still an important facet in planning.
To create a reasonable budget, stick to your Excel spreadsheet. Put down your total income against the debts above and all the utility and other living expenses. You will find that you have a negative balance but this is how you know just how much you owe and how much change is needed.
To create a more strategic budget, you should gather all your receipts and bank statements. Use these to know how you spend your money and how not to. You may find that you earn enough but you have many unexplained and unreasonable expenses. Cut these out of your budget. Find expenses that can be cut down. These will affect your lifestyle, but to lead a debt free life, such steps are crucial.
Once you have set these out, determine your debt repayment strategy. By saving using the watertight budget, you will find that you have extra money and you can pay a creditor more than you already do. How much can you afford now?
You should also calculate how much money you need to raise through the consolidation loan in order to repay all debts fully.
With a detailed plan on which debts you afford, you should be able to contact the creditors you have decided to pay first. Note that your creditor could have sold your debt to a collection agency and you may have to follow them up.
How to contact your creditors
- By now you have a contact list with a priority list for whom to contact first and last.
- Contact the creditor by phone, email, or letter. Whatever your means of communication, you should be polite even when the creditor is rude.
- Inform the creditor your reason for contacting them then give them details of your debt. Give reasons for being behind on the loan payment, your current income and obligations, your financial plan to get out of debt, and the amount you can afford to pay monthly. It is prudent to inform the creditor of all debts and creditors.
- Ask for your account details to verify your debt account status.
- Show them your budget and present the offer you have for them. Inform them that the offer will be implemented under a debt consolidation process. Note that complete honesty is important whether you are dealing with a creditor directly or a collection agency.
A debt consolidation company should only come in to the table in creditor negotiations when all your efforts fail. You should also negotiate with the debt consolidation company for a favorable rate on the loan.
- Debt validation
Your credit could have been turned over to the collection agency. Contact them and ask them to validate the loan before you start repayments.
- Apply for the loan
With all your financial details at hand, your debt consolidation loan application should be approved within a short time.
- Consolidating credit card debt
If you need to consolidate your credit card debts, talk to the credit card company and ask for a balance transfer consolidation. This is an affordable debt management system for the high interest credit cards. Interest rates account for expensive loans and if the interest rate is lowered, you will be able to pay more monthly reducing your debt.
In conclusion, to get a debt consolidation loan, these steps will help. They will also help save money. Negotiating with creditors shows your genuineness and it helps in getting an affordable loan eventually.
Times are hard and with a sluggish global economy, the situation is expected to continue. In such an environment most household owners are deeply in debt. From credit card debt, car loans, mortgages, tax, among other pending bills, there are so many financial obligations and paying for them every month can get hectic. If you have multiple debts with different lenders you appreciate how frustrating it gets when the bills start coming in. This is where debt consolidation can help you.
What is Debt Consolidation?
While there are many ways to relieve the pressure off your multiple debts, consolidating your debt into a single loan still remains the most viable option. A debt consolidation loan basically pays off your small debts to allow you to make a single payment and avoid the hassle of organizing multiple loan repayments every month. These loans are offered by a third party which can be a financial company or a non-profit organization.
It is important to distinguish debt consolidation from debt management or settlement. With a debt consolidation loan there are no negotiations with your creditors because the payments are made directly and you now have a single loan with the lender. Your life becomes easier because you only plan for a single monthly payment. More importantly, you enjoy a lower interest rate because you are paying a single loan.
With a debt consolidation loan, you can also improve your credit rating because every loan repayment you make is recorded by the credit bureaus which will gradually improve your credit score. In essence, debt consolidation is an innovative way of getting back on your feet if you are struggling to juggle multiple debts.
Finding the Best Debt Consolidation Company
While there are so many debt consolidation firms out there you have to choose wisely. There have been many complaints about debt consolidation scams with many companies luring unsuspecting customers into debt settlement and management. If you are looking for a reliable debt consolidation company consider the following factors:
- Ask for References
You should talk to your friends and family before using any financial institution. With the increase in consumer debt, most people are using debt consolidation companies to alleviate the debt burden and you will thus find someone out there who has used one of these companies. You should also go online and check comparison websites to assess the reliability of different companies. Most customers will review the services they have used and it is easy to find such information online. Testimonials are also important when you are looking for a reliable lender.
- Try the Better Business Bureau (BBB)
When creating a shortlist of the debt consolidation companies make sure you check their name on the BBB website. A good lender should be accredited by the BBB because the program rates service providers based on the information they get from consumers. If the company is not even listed keep looking. BBB rates these companies depending on customer reviews which makes this a reliable yardstick when choosing a debt consolidation service.
Before using any debt consolidation program, check whether they are registered with the National Foundation of Credit Counseling (NFCC) or The Association of Independent Consumer Credit Counseling Agencies (AICCA). While it is not mandatory to register with these agencies, a reputable lender will go to such lengths to maintain high standards of service. By registering with these agencies the company is guided by a strict code of ethics and customers are better protected. Many debt programs have been delisted by these agencies due to consumer complaints and it is thus important to confirm that your debt consolidation company is registered.
- Customer Service
Use a company that guarantees prompt resolution to your issues. During the initial consultations, assess the quality of customer services as this helps you understand the quality of service you are going to expect in future. You can also try the company’s website to confirm what communication channels are provided. Look for live chat, email, social media networks and phone number, and try using them to see how reliable they are.
- Company Website
A good debt consolidation service should have a resourceful website where you can learn about their services. Any business that does not have an online presence in modern times is not credible enough. A business website is a sign of a serious debt consolidation service. What’s more, such a platform not only allows for easier interaction with customers but also provides important information about the services a customer should expect.
- Type of Services
It is important to confirm exactly what service you are getting to avoid falling for a scam. You should talk to a customer agent to confirm that the company is offering you a loan and not any other service. While many companies advertise themselves as debt consolidation services, they end up introducing debt negotiations, which is not the most effective way to manage your debts. With debt consolidation remember you are bundling all your small loans into a single package which basically means you are buying a new loan. With debt negotiation these companies promise to negotiate with your creditors to get lower rates or other favorable terms.
- Use a Non-profit Organization
There are different types of loan providers out there but if you want favorable terms it is advisable to try a non-profit organization. Such a company not only consolidates your loans but also gives advice on how to get out of your financial rut. They also offer better repayment rates to help you enjoy the benefits of debt consolidation.
If you are in over your head in debt, consolidation is the best option. There are many reputable debt consolidation companies out there and they are ready to offer good terms. With a single loan payment you are able to handle your finances much more easily. This is one of the best financial decisions you can make as it helps you track your finances much more easily.
There are a lot of triggers and factors for a person to become an impulsive shopper and in an economy driven by consumer spending – impulsive buying is not a great trait to have. As you go about your day, the factors around you are encouraging you to spend and the challenge lies on you to take control and moderate your spending.
As Census.gov shares, the estimated sales for retail e-commerce in the US from January to March of 2016 was at around $92.8 billion. This was almost 4% more than the last quarter of 2015 which basically paints a picture of increasing economic activity. But at the very core, it also suggests that people are buying more and more products.
This can mean that they are getting better in managing their finances or enjoying an increase in their income. But for those that are already having a hard time managing their expenses because of their impulsive behaviour, this can be a challenge. The lure to keep on buying and spending on things you do not actually need is there.
Impulsive buying habits will wreck your household budget, keep you away from whatever financial goals you have for the future and even put a dent in relationships that matter to you. It might not be evident at first but as you chip away and spend mindlessly, you will feel how that ripples out to other areas of your life.
How to Budget If You’re an Impulsive Shopper
If you know by heart that you have a problem with your impulse buying behaviour, here are a few things that can help you in your journey. This can help
- Stay away from credit cards. If you already know that you have a hard time curbing your shopping desires, the last thing you need is a credit card that will give into your every desire. The credit limit is your only hurdle and as soon as you reach that with impulsive purchases, you are already in trouble. This is not to say that you get all your credit cards and start cutting them up one after the other. This can also have an adverse effect on your credit score. What you can do leave your cards at home and just carry one but only for emergencies. This helps you manage the way you use your cards and keep you out of financial trouble.
- Explore using a prepaid card. One way you can manage the amount you spend on shopping is to use a prepaid card. Nasdaq.com shares that at around 2014, more than 50% of American adults have some form of prepaid card with them. It is not as sexy as a credit card but when your financial future is on the line, sexiness and how other people perceive you should be the last thing on your mind. One thing prepaid cards have going for them when helping an impulsive shopper like you is that when there is no more balance on the card, you cannot simply charge the item. It forces you to budget and be more aware of the items you are buying. This is putting your shopping cash money in a card and sticking to that amount.
- Enroll recurring bills and expenses in auto debit. You can also do this with target savings every month such as the ones for your reserve funds or even your retirement fund. The idea here is to get as much of what you need out of your account even before you get any ideas on using them as shopping money. This way, when you look at it, you will only see what is really leftover and it forces your hand to budget what you have.
- Have a separate account for your shopping needs. This is one way to put a cap on= being an impulsive shopper because you literally have a limited amount you can use in shopping. The problem is when you use your card, you might not stop until you max it out and there might be times this is not enough to stop you. If you use an account connected to you savings account, you might just be surprised that you burned through years of savings with just a few hours in the mall. If you separate the account you use for shopping and put only a certain amount every month, you force yourself to budget and work around what you have.
- Find a different hobby. This might not necessarily be a budgeting tip but it can help you draw your attention away from mindlessly shopping for things you might not need the next day. You can try low-cost activities like engaging in exercise activities. You would only need a nice pair of running shoes when you decide to take up running. You probably already have one lying around the house. You might also want to take up baking or photography where over time, you can even earn from these activities. Rather than waste money as an impulsive shopper, you get to add more to your budget.
Here is a tip from a recovering spender:
Situations where you need to walk away
As you try and work on improving your finances and turning a new leaf from being an impulsive shopper to an thinking consumers, here are a few scenarios you need to keep a close eye on. These will put your back against the wall and make it harder for you to get a grip on your finances.
- Emotional purchases. When you already know that you are an impulsive shopper, it is not a good idea to go out with credit card on hand and start shopping when you are in an emotional high. This means that you are either you are too happy or sad because these can muddle your judgement. This can make you feel like you can buy anything and your emotional character will make you spend than what you can afford. Be on guard in mixing your emotions with your purchase decisions.
- Being in the company of impulsive buyers. It would not help your case if you know within yourself that you are an impulsive shopper and you still surround yourself with people who has the same disposition in life. The last thing you need is people telling you that it is okay to buy that new dress or shoes even if you do not need it. You need to surround yourself with people who can help you curb your desire to spend and remind you of your goal to manage your finances better.
- Lowering your standards. When you start lowering your standards and compromising on what you can and cannot buy, things will start going south. If you already have a guideline on what constitutes an emergency purchase on your card but you see that new sneakers in the window display, start to convince yourself that it is an emergency. It is an emergency that you need to have it to look good when you are with your friends. You need to keep yourself in check and make sure that you are upholding your own standards.
It is hard to manage your finances when you know that you are an impulsive shopper. There are ways to address this and situations to be aware of but the real solution starts from within yourself. You need to have the desire to change your ways and build a better financial future for you and your family.
The last thing you need is ending up spending more when you are actually trying to put in efforts to save money. It is like dieting for weeks and once you step on the weighing scale, you find out that you actually gained more pounds than the first time you started with your food plan. It can also be likened to working on a specific project for weeks on end only to find out that you are no closer to your goal than from the first day you started.
This can be discouraging and disappointing for a lot of people because you might not even know what you are doing wrong. For a lot of people, the same can be said about their finances. There are those that are trying to save or for months and when they look at their accounts, they really have not put in that much.
In fact, Marketwatch.com explains that a lot of Americans actually have less than a $1,000 in savings. There might be a lot of factors surrounding this like the money could be in stocks on tied to assets but for the most part, this is scary. If they really have just this much in savings, they are an emergency away from being in deep debt.
When you are trying to save money, you want that the amount you get to save at the end is commensurate to the effort and hard work you have put in. It is rather disappointing to see your account go up only a few dollars when you have been trying to save up for months. You might even be skipping some activities just to save money and yet you still do not have much.
One thing you might be forgetting is that as much as the effort you put in to save is important, the same is needed to keep the money there. You need to be conscious not only with the amount that you are saving but how you are able to keep the money there or even how you will grow and increase that amount. You might have been too focused on saving and have overlooked your spending and other expenses.
Activities where you can end up spending more
If you want to find out how you can keep you savings growing bigger, here are a few activities that might actually be culprits and making you spend more than what you want. The hard part is that these activities might make you believe you are saving money but in reality, you are already putting out more money than you have originally thought of.
Bulk buying just to save money
This is a strategy a lot of people are using for the simple fact that they are able to save the more they buy. It is one of the marketing strategies used by sellers and one that actually has some economic truths to it. The more you buy of a single product, the seller is able to give it to you at a lower price. But the problem is that if you are buying more just to save and not thinking if you really need it, you are in for a surprise. If you factor int what Stgist.com says about American consumers eating a lot and throwing a lot of food as well and connect that with bulk buying, you might have an idea how you are wasting money rather than saving it. One is stocking up on perishable items and having to throw some of them away because they have already turned bad. The amount of food you had to throw away could be more that the amount that you saved from buying in bulk.
Falling victim to BOGO offers
Quality should always be more important than quantity and this is something you need to consider when faced with buy one, get one or BOGO offers. You want to buy a specific item only because you get to have two of them. That is a big deal breaker but you need to think things through. Do you really need two of something you do not actually need or just one of a specific item that you need. When you need to buy a black pen and you see a buy one, get one offer on a blue pen, you might pick up a black pen and those blue pens because you get to have two of them. But you need to remember that you are actually spending more because you are buying things you do not actually need. This can be one of the problem areas when it comes to your budgeting and money management task.
Not accounting for your fuel expense when searching for deals
It might be a fun activity to find deals within and around your area because you get to save on what could otherwise be a costly purchase. You might find out that the item you have been saving up for is being sold at a discounted price at a store in another city. You might also find a particular second-hand item you need around the house is at a garage sale over at the next town. You hurriedly drive down to those places just to get the best deal on your money. But did you really get to save money with that trip? If you start to account for other things that come into play particularly your fuel expense, was the trip worth it? The savings you got might actually be negated with the amount you have to pay for fuel because of the additional trip. Not to mention the add on wear and tear on your vehicle and even losing time that you could have otherwise used for other activities.
Getting that free shipping on your orders
Spending more on an item seems to be improbable when you throw in the word “free” into the mix. This is what most people think when they look at free shipping for their purchases most especially online. But the way this works is that most sellers would ship your item for free if your orders reach a specific amount. This is actually a great deal when you meet that minimum amount but the tricky part comes in when you fall short of it. At this point, you have two options – leave it be and pay for shipping or cart something else just so you reach the minimum amount. Chances are you would be lured in by the “free” shipping and look for an item to fill in the cost. You need to look at the amount of additional expense you are putting in versus the shipping cost. You might be spending more for that item rather than just paying for shipping.
Put in financial safeguards
There are a couple of ways you can look into to help you secure your spending in order to make sure that you are actually saving money and not spending more of it. Here are some of them you can consider.
- Always have a budget. This is one of the first things you need to have to help guide you and give you an idea what you can and cannot afford. But the buck does not stop here because if you have a list, you need to make sure you follow it. It is not enough that you carry a list with you because that does not amount to anything if you do not follow it.
- Know that the decision is yours to make. When managing your finances, you need to make sure that you understand the concept of accountability. The decisions you make with your money is yours and yours alone. Of course, this can be a little different when you are married and manage it with your husband or wife but the idea still remains the same. You cannot blame the store for holding a discount weekend or blame an officemate for having new shoes prompting you to buy a new pair as well. You cannot blame your parents also for not teaching you how to manage your finances because they can only do so much and it is up to you to make decisions when you get older.
It is discouraging to find out that you have actually been spending more when you were trying to save money all along. But the good thing is that you found out and that you can actually make things better by making some financial adjustments.
Money talks at home may not be the sexiest of topics but it does bring some unique benefits for you and your family. It could be far down your list and come next after talking about who will clean the basement but it is an important one nonetheless. You need to make sure that you incorporate this in your daily discussions within the family.
USNews.com recently shared a list of some technological applications that you can use to teach your kids about personal finances. This is a great idea because it is in tune with what the younger generation knows and understands but this should not take away your participation in the subject matter. As you prepare your children to handle finances on their own, you need to start talking about money with your kids around.
This does not mean that you ask them when you are trying to weigh in offers from different lenders for your mortgage loan and ask about closing costs. Neither should you ask them about the different offers card lenders are giving you in the mail. There are age-appropriate topics you can include them in to start training them with how to handle money.
There are even some parents who believe that decluttering at home and getting their kids to participate in the process helps teach them about finances. There are some who gets their children to decide how they get to spend their allowance money guiding them how much to save, how much to donate and even how much to give to the church.
Here is a helpful video explaining some tips on how to teach children about money:
Why you need to have money talks at home
If you are a parent and trying to decide on whether it is a smart idea to include the children with money talks at home, here are a few ideas to ponder on. These might help you make a decision that ultimately benefits your children’s financial education.
- The children will grow up comfortable around the topic. A lot of experts are encouraging parents to teach their kids about finances as early as possible and talking about money at home is one of the most effective ways to do this. Exposing them to how you make money decisions at home can help them with the way they do theirs when they grow up. You can include them and even get them to make decisions on small things. It could be dinner or where to go to for the usual weekend bonding with the whole family. It can even be what to watch and whether to go to the movies or just stay in the house and stream the movie online. As a parent, you can even show them some credit card mistakes adults make which often leads to trouble.
- You get to tap into your family’s ideas. Two heads are better than one and when you start including your whole family into your financial decisions, you might just be surprised with the ideas that will come in. Your children might have a few ideas up their sleeves that you might not have thought possible. When trying to decide where to go to for the next vacation, they might be able to find the rates online that covers the whole trip. They might even know of ways on how to look for discounts or check out less-expensive options. This trains them to look for options and alternatives especially when money is involved.
- It gets everyone involved and informed. Getting your whole family involved with money talks at home can be a beneficial exercise for everyone. It helps you let the whole family know of your financial plans whether it is to save up for a new tv or get the garage door repaired. If your children know that you are trying to save up for their college fund, it can also encourage them to do the same with summer jobs or even lemonade stands. The idea is not to match what you are putting in but more of understanding that it takes hard work to reach their dreams.
- It helps in deciding with big ticket items. As Investopedia.com explains it, these big ticket items are usually the expensive items around the house. It can be furniture to gadgets to big items like a car. When you discuss money matters at home, you get to include everyone in the decision process. It might be too much for children to process the idea of credit scores and interest rates when buying a car but what you can do is let them know that everyone has to save up for the car. It can mean being a little more conscious of utilities like electricity and water consumption or putting off buying toys for the meantime. You can even get their suggestions on how they can help the family save up for the car.
- It lowers down your stress level. When you know that there are other people behind you who wants you to succeed and has got your back, it lowers down your stress level. You family can be this support system even if it is just as little as letting them know that the electricity bill increased for the month and that the children might want to schedule their use of the tv or computers. It lowers down your stress level because there are other people sharing the load with you and helping you look for a solution.
Benefits of having early exposure to money management
Here are a few more financial benefits children can get out of being exposed to money talks at home at a young age.
- The process becomes clearer. It helps develop a specific style of managing money because they see the way you handle specific situations. Think of it as an on-the-job training for children because they get to see the experience firsthand from you. They can either choose to follow your financial strategy or get to develop one of their own.
- They get to see the challenges. Your children get to the habit of being able to identify financial challenges the same way you do with your own finances. As you try and anticipate what could happen with every decision you make, your children understand the importance of weighing all the potential outcome and being prepared as much as possible for any eventuality. This can be a big help when it is their turn to manage their own finances.
- They get to be more observant. Your children also get to be more observant as are you when it comes to income and expenses or even your budget in general. As you manage your finances and try to budget household expenses with the income that is coming in, this can rub off on your children and they get to do the same with theirs when they get older.
Money talks at home can help you just as much as it can help you children prepare for financial management when they grow up. There are a lot of classes they can take, videos they can watch and people to ask but nothing beats experience. They can get that at home with you as you openly talk about money and other financial matters in front of them.
Retirement planning is not one sexy topic partly because people nowadays have a “live in the moment” mentality. The idea is that they want to enjoy what they have now which does not leave much room for future planning. This has an adverse affect on how they view and prepare for their inevitable retirement a few decades down the line.
It might be true, most especially with the younger generation that retirement is still a good 40 to 50 years into the future, it is important that they understand how important planning for retirement is. One thing that could help is the fact that sooner or later, it will happen. It is not a question of “if” but of “when” it will come. There are those that are able to retire at a young age while some are forced to work until old age.
In fact, according to Nerdwallet.com, because of the increasing student loan amount, the property market and the way millennials view investments – they are on track to a retirement age of 75 years old. There is no question that this is too old and a lot of people would prefer hanging up their corporate jersey, so to speak at an earlier age than that.
Planning for retirement can be an anxious time for some people that is why they prefer to just postpone it and put it off for another time. But as this happens and retirement planning is put off, it becomes harder to reach their specific goal. What could have been earning compound interest is lost and the chance to retire early is compromised.
Planning for retirement
If you are already serious in planning for retirement, here are a few things you might want to look into to help you plan better.
- You can get professional help. Marketwatch.com explains that professional help with retirement planning should could cover maximizing returns on investment strategies but it should be more than this. At this point, you might already be scratching your head with this so imagine how you would feel if you dig deeper into details. This is one of the reasons why you might want to hire professional help at the onset so you can understand the process better. No one was born an expert and you need to learn the basics just like learning how to walk before running. A professional can set you off on the right track.
- The sooner you start, the faster you finish. There are times when retirement is a matter of wanting to retire at a certain age and needing to retire at a certain point in your life. The difference is between how early you start and how consistent you are in reaching your goal. The earlier you start saving up for retirement, the earlier you can retire at an age that you want. The problem with some older consumers is that they are forced to work for a longer time because they still do not have enough for their retirement. It is always better to retire when you want and not be forced to work for a longer time than you want.
- Keep yourself healthy. Your health is a financial investment and this could not be more evident when you hit retirement and your body starts to collect on all those years of neglect and poor health habits. You would have an easier time enjoying your retirement if you are not going in and out of the hospitals. It would be a more enjoyable cruise if you were not at the doctor’s clinic most of the time. You would also have an easier time budgeting your money for retirement if you did not have to keep buying medicines. The bottom line is that keeping yourself healthy at present is a great investment when you get older. You get to enjoy life more at old age.
- Pay down your debt. Another thing that can help in retirement planning is managing your debt payments and making sure that you are able to pay off most, if not all of them before you hit retirement. By that time, it is ideal that your expenses would only revolve around your basic needs. Plan to pay off most of your debt accounts such as your student loans, credit card debt, auto loans and especially your mortgage loan.
- Find something to do. One of the things that most retirees forget is that retirement does not equate to lack of activity. This is one sure fire way of losing a grip on interests and hobbies and has an adverse effect on a person. This is similar to going cold turkey for people who are smokers. It is hard to just abruptly stop and simply stay at home.
How to get in trouble with your retirement planning
One of the quickest ways to have problems with your retirement fund is not having any to speak of. According to Statisticbrain.com, about 38% of consumers do not even save any funds which they can use when they retire. Here are a few more situations which can also do a number on your retirement fund.
- Thinking that retirement is too far in the future. This is a common problem for consumers which leads to starting too late in their career to plan for retirement. What happens is that for a fact, retirement will come around age 60s to 70s so for a young consumer, this is still decades into the future. They would feel they have a lot of time on their hands and this can give them a false sense of security. When it comes to retirement, it is better to start earlier and reach your goal at a time when you still have the energy to enjoy life.
- Relying only on one source of fund in retirement. Your social social security is a great source of money during retirement but solely relying on this can land you in trouble. This is the proverbial eggs in one basket. It is always better to have multiple sources of funds especially when you are already retired. Diversifying your money can help ensure that you have a steady flow of cash at a time when you are no longer employed full time. This can also help you weather financial trouble at an old age. It might be a good idea to have some other investments that can give you decent returns during retirement. You might even pursue that photography hobby and earn something on the side as you do something you love.
- Using your children as your retirement plan. This should not happen and should never be used as retirement strategy. You have a responsibility to your children in molding them up to be responsible adults so they can take care of themselves when they grow up just as you should as a grown up. They can give and share with you their success but it should never be compulsory on their end.
Retirement planning is a long process and what you need to remember is that the earlier you get started with it, the faster you can reach your goal. It also gives you enough time to get back up on your feet in case you make some wrong decisions along the way because once you make costly mistakes near retirement, you are putting your fund in jeopardy.
You might be one of those people who are trying to find a way to make your finances recession proof especially after what happened in 2008. That year saw the housing bubble burst that had ripple effects reaching individual consumers. There were a lot of people who were out of jobs and companies were not hiring.
No one wants to experience that again and fortunately, the economy has been able to reel from that economic nightmare. But history has a way of repeating itself and if the Fortune.com article has any foreboding effect, people have to start paying close attention to the economy once again because there might be another one coming.
The article points out that Deutsche Bank analysts has reason to believe that the US has a 60% of experiencing another recession in the coming 12 months. This is an interesting development and could be used to start looking at the economy a little more closely. Consumers can also use this opportunity in making sure their finances are recession proof. It might be a difficult task but at the very least, you can improve your finances this way.
There are decisions in life that can lead to financial trouble and if there are economic factors to consider, things get a little more complicated. By your own, you can get into a multitude of financial problems without any economic problems as a factor. It would be nice to try and get your financial affairs in order so you are always ready to face problems head on.
Trying to get your finances recession proof
As you read through and decide that you want to proactively try and recession proof your finances or at least get them in order, here are a few things you can do. These can help you prepare for another economic slowdown and strengthen your finances as well.
- Strengthen your reserve funds. You never know what will happen in the future and what financial emergencies will present itself in your household. Add the fact that economic factors might make it harder than it should be for your and your family. One way to prepare for this is to strengthen your emergency reserves to be able to face any financial needs in the future. If you suddenly find yourself out of a job, you have your emergency fund to cover your expenses until you get to find another one. If there are looming news about an economic slowdown, you might want to increase your reserve funds just in case you have a harder time looking for another job.
- Start living a frugal lifestyle. One of the quickest things you can do to help your finances is to start taking on a frugal lifestyle. This can drastically lower down your expenses and help you save more from your income. Another advantage it has is that over time, you get used to living below your means and it comes naturally as you make financial decisions. You are able to be more discerning with your expenses and in the process, be a little wiser with your financial decisions. This is a big factor when you are trying to weather financial problems that is caused by either personal mistakes or economic challenges.
- Diversify your income. Another thing you can look into to help you prepare your finances for worst-case scenarios like a recession is to diversify your income. It simply means that you have to aggressively look for other sources of funds which can complement the existing ones. Initially, this will be a big boost and help you increase the fund coming in. It can be a great tool in increasing your reserve funds and paying your debts. But if another recession does come around and you get hit by losing your job, you are not too affected because you have other sources of income. It can be your passion for baking and how you are able to sell online and even within your community. It can also be your photography hobby and how you are able to sell prints off the events you are covering. You might even be able to live off being a graphic or web designer while money is tight. The important thing is to look for ways to diversify and increase your sources of income.
Here is a video that gives you ideas on how to earn extra cash on the side:
- Be aggressive with debt payments. This is another thing you can do and it can be easier when you are living a frugal lifestyle and adding more channels in your revenue sources. This is more important as Nerdwallet.com shares that an average American household has over $130,000 in debt that covers most types of financial obligations such as mortgage loan, credit card debt, and even student loans. In times of financial emergencies, most people would have a challenging time meeting all their payment obligations. This is because everyone would be concentrating on the basic needs such as food, clothing and shelter. All others would be lower down the priority list and could be earning fees, penalties and interest as you miss the payments. This is one reason why it is a good idea to be aggressive in paying them down especially if you have some extra funds in your budget.
- Think twice about major purchases. If you are trying to build a recession proof plan for your finances, there would be a few things that would have to go and one of them would be your major purchases. You do not have to put them all in hold altogether but you just need to think twice before committing to that expense. Try to find out first if it is a need or want and you can go from there. If it is a want then you might be able to bump it further down your priority list. If it is a need such as a new camera body for your income-generating hobby then save up for it and buy it. You can recoup that expense anyway with the income from your photography gig.
How to get further down the debt hole
It is always easier to increase your debt amount rather than cut them down. Just like it is easier to eat whatever you want and gain a few pounds rather than hitting the gym and sweating it out. But if you are trying to look at a recession proof budget, you are better off being proactive in keeping debt at bay. Here are a few things you might want to watch out for to help keep away from more payments.
- Failing to appreciate your present job. Thinking it will always be there and that income will constantly be trickling in every month because of your current job can be a problem. You might come to a false sense of security and become lax and passive. You need to make sure that you are always learning and contributing to make yourself relevant in the office.
- Mindless credit card purchases. One of sure fire things you can do to increase your credit card debt is to aimlessly make purchases by charging expenses to your heart’s content. Keep your impulsive nature in check especially if you have your credit cards with you.
- Missing due dates. NFCC.org shares that about 25% of consumers do not pay their bills when they come. This can lead to a lot of money lost on interest and totally avoidable fees and charges on your account. Make sure that you are on top of your payment schedules so you do not miss anything.
It is a challenging task to try and make your finances recession proof especially if you are struggling with a lot of debt payments in your budget but it is not totally impossible. Some people might point out that there is really no way to make any budget recession proof and there could be an argument to make with that statement. But when you try and do your best, you at least strengthen your finances in case of unexpected economic downturns.
It is always scary for people when they are faced with new things in life and that includes first job finances for the young graduates. You might have experience with some summer jobs or side jobs during college meant to help you pay for school. You might also have had the chance to work in your family’s business in the past. But when you are already on your own with your first job after college, things are a little bit different.
For one thing, you need to understand that this is not just a simple means to an end like your summer job. In the past, you would take up whatever job you can get your hands on to save up for a console game or a comic book. You might even be putting the money aside to help you buy books and pay down interest on some student loans.
But those are mostly short term goals and when you take up a job after graduating from school, this is a start of a long journey and first job finances comes into play. Even before you think about earning extra income or getting chasing your hobby and turning it into a money-generating passion, you need to get your finances straight first.
This should be the sentiment of young graduates especially as CNBC.com shared that there are almost 2 million graduates in 2016 looking for a job. Although the prospects are bright where companies are heard to be hiring more than what they took in last year, it is still about managing the money that comes into play. That first job will be worth nothing if you cannot handle your finances properly like an adult.
Tips on first job finances
If you are all set to report for your first day on the job or you just received an offer, here are a few things you can look at to help you plan your finances. Just like in your freshmen year where you really did not know what you were doing the first few times out, the same can be said when you get your first job. But you need to understand that the stakes are higher so it is better that you get all the help you can get. Here are some of them.
- Audit your student loans. Student loans is something a lot of people have first hand experience in. There are some older consumers who are still making payments on their own student loans. WSJ.com said that the average debt amount for a 2016 graduating student would be at about $37,000. This is a big amount considering you have yet to get your first paycheck. But you need to face this head on especially now that you have the ability to ship away on it. You need to audit all your student loan accounts to have an idea how much it is and who your lenders are. You can make repayment easy through debt consolidation but you need to closely understand the different options you have with your federal and private student loans.
- Keep tabs on your credit card. At this point, you might already have a credit card that you have been using since college. In fact, you might have more than one in your possession. As you are now trying to manage your first job finances, you also need to keep an eye out on your card usage. You might still have your old mentality in school where your card serves as your emergency stash that you use in cases where you really need to buy something but you are short on cash. You now need to view your card as a tool to help you manage your finances and improve your score.
- Check your credit score. When you are starting to take notice the need to manage your finances better, you will come across the importance of your credit score. This is basically how lenders see and view you as a consumer with regards to your financial obligations. The lower your score, the riskier it is to lend to you. And the higher your score is, the easier it would be to be approved for loans in the future like a car or mortgage loan. You can check your score with free tools from the credit reporting bureaus to be on top of those numbers.
- Prepare your budget as you go along. One of the most crucial building blocks of your first job finances is your budget. The fact that you could be doing this for the first time might intimidate you but you just have to look at the bright side – it is your first time so you can do it as simple as you want. You just have to keep in mind that this will mostly be a trial and error especially in the beginning as you try to get a grip on your expenses. But there is no need for those complex and hard to understand charts or formulas. Just look at the income that will be coming in from your first job and any other sources of funds. You then list down all your expenses you have as well as other funds that you need to build up. Then take a look if you have enough coming in to cover all your financial needs. You can tweak your list until you find one that you are most comfortable working with.
- Set up your financial accounts. One other thing you need to do is to have your financial accounts in order. Think of it as having different envelopes so you can slowly save up money for various expenses. You can talk to your bank to have an idea what accounts you can open such as a savings account or a checking account or both. You can manage first job finances better when you have specific accounts to use for specific occasions such as paying for utilities or setting aside reserve funds.
Things to avoid when managing your finances
As you move forward and manage your finances with your first job, it is ideal to have an idea on some of the common problems others have had to go through. This can help you prepare and plan your financial steps as you reach for your goals.
- Getting too many credit cards. Creditcards.com shares that on an average, consumers carry with them about 2 to 3 credit cards. This can be used to separate one for utilities, grocery and gas money. But one of the pitfalls of first job finances is taking in as many credit cards as you can. These can be offers or even card applications which can even lower down your score with multiple hard pulls on your score. But more than the credit score, having too many cards can give you a false sense of security with your finances and you might end up using more than what you can pay off at the end of the month.
- Not understanding your job offer. You might be too excited that you just scanned through your job offer and signed along the dotted line. You need to put time and effort in understanding your job details and in reading between the lines. You need to be aware of the contents of your offer and not just your salary.
- Spending more than what you are earning. This can happen when you have too many credit cards or when you do not have any budget list to speak of. You tend to spend more than what you have and put your finances on jeopardy. You need to be mindful of your spending and keep it under control.
First job finances can be intimidating at times because compared to how you manage your money in the past, this is a more serious approach which has long-term repercussions. You just have to start small and build up from there as you go along.
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