Headed in the Right Direction: Managing Debt for Millennials

June 12, 2019

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Scotty Byers

Scotty Byers

Financial Professional

2711 LBJ Freeway
Suite 300
Farmers Branch, Texas 75234

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March 25, 2019

Credit unions: What you should know

Credit unions: What you should know

If you’ve always used the services of a traditional bank, you might not know the ins and outs of credit unions and if using one might be better for your financial situation.

Credit unions are generally known for their customer-focused operations and friendliness. But the main difference between a bank and a credit union is that a credit union is a nonprofit organization that you have to be a member of to participate in its services. Credit unions may offer higher interest rates and lower fees than banks, but banks may provide more services and a greater range of products.[i]

Read on for some basics about what you should know before you join one.

Protection and insurance
Just like banks, your accounts at a credit union should be insured. The National Credit Union Share Insurance Fund (NCUSIF) functions to protect consumer deposits if the credit union becomes insolvent. The fund protects up to $250,000 per customer in deposits.[ii] Be sure the credit union you select is backed by the NCUSIF.

What credit union is best for you?
Today there are many credit unions available. Many now offer 100 percent online banking so you may never need to visit a branch at all.

The most important feature in selecting a credit union is to make sure they meet your personal banking needs and criteria. Here are a few things to consider:

  • Does the credit union offer the products and services you want? Can you live without the ones they don’t?
  • Do they have competitive interest rates when compared to banks?
  • Are the digital and online banking features useful?
  • What are the fee schedules?
  • What are the credit union membership requirements? Do you qualify for membership?

Take your time and do some research. Credit unions vary in the services provided as well as the fees for such services.

What to expect when opening a credit union account
Each credit union may have slightly different requirements when opening an account, but in general, you will most likely need a few things:

Expect to complete an application and sign documents. When opening a credit union account, you will likely have to fill out some forms and sign other paperwork. If you don’t understand something you are asked to sign, make sure you get clarification. Be prepared to show identification. You will likely be asked to show at least two forms of identification when opening an account. Your credit union will also probably ask for your social security number, date of birth, and physical address. Be prepared to show proof of your personal information.

Make the required opening deposit. On the day you open your credit union account, you’ll likely be asked to make an opening deposit. Each credit union may have a different minimum deposit required to open the account. It could be up to $100 (or more), but call the credit union to make sure.

Unique benefits
Credit union accounts offer some unique advantages for members. You may enjoy more comfortable access to personal loans or even auto financing and mortgages. Credit unions may offer other perks such as fee waivers, as well as discounts on other products and services that come from being a member.

If participating in a customer-owned bank sounds interesting to you, a credit union may be a good option. There are more credit unions available today than ever. Do your research. You may find an option that compares to your current bank, but offers some greater benefits that will make it worth the switch.

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This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you. Any examples used in this article are hypothetical. Before investing or enacting a savings or retirement strategy, seek the advice of a licensed financial professional, accountant, and/or tax expert to discuss your options.

[i] https://www.creditkarma.com/advice/i/difference-between-credit-union-and-bank/
[ii] https://www.ncua.gov/support-services/share-insurance-fund

February 27, 2019

Why do banks pay interest?

Why do banks pay interest?

When you deposit money into certain bank accounts, they’ll pay you interest.

Have you ever wondered why they do this? Banks perform lots of services. They’re holding your money for you, making it accessible at tens of thousands of points across the globe, facilitating purchases from e-commerce sites, processing automatic payments, etc. Oftentimes this is done for free or for a small fee. So why would they pay interest on top of all this?

Let’s find out.

Banks play both sides
We need a place to store our money. Some people might not like the idea of handing over their hard-earned cash to a financial institution, but storing their savings under the mattress might make it difficult to perform many transactions, especially online. Banks perform the essential service of giving much of the population a place to store their money while simultaneously facilitating payments between different participants.

Modern economies function on debt (so not all debt is necessarily bad). Corporate debt owed to a bank might be used to grow a business quickly by taking advantage of a great business opportunity.

People don’t always have the entire amount of money all at once to buy something very costly like a house, so banks can help out by lending them the money. To collect the money to lend out, banks receive deposits from other customers.

Thus banks play a fundamental role in the economy, but why do they pay interest? They obviously receive interest on loans, but on the other side, they already offer several free services, like facilitating payments and helping to safeguard cash. Why would they pay people to give them money?

Banks need depositors
Similar to other industries, the banking industry needs customers. This is not only true on the lending side, though. Banks also need customers on the depositing side, because they need to get their money for lending from somewhere. The more customers they have, the more money they can lend out, in turn generating more income.

Since banks compete with each other just like members of any industry, they need a way to attract customers. Sometimes they may offer more features for an account or more free services, but the most enticing incentive is usually the interest rate. And that is the simple idea behind why banks pay interest: zero interest in theory would attract zero customers.

Why more interest for longer deposit periods?
It seems like savings accounts usually pay better interest rates than checking accounts. Why is that? A person probably opens a savings account with the intention of storing their money over a relatively long period of time. The expectation is that the money wouldn’t frequently be removed from that account.

So why do banks generally pay more interest if they believe you’ll leave money untouched for longer? Here’s why. The money you deposit with a bank doesn’t sit idle. It’s lent out to other individuals and businesses in the form of loans. But every bank must abide by minimum reserve requirements[i], and if they fall below the threshold, they can face serious consequences. Thus they are motivated to have their customers park their money for longer periods of time, and savings accounts are intended for just that purpose. The longer a customer intends to leave their money untouched at a bank, the more the bank might be willing to pay in interest.

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[i] https://www.investopedia.com/terms/r/requiredreserves.asp

February 25, 2019

The dangers of payday loans and cash advances

The dangers of payday loans and cash advances

If you’ve ever been in a pinch and needed cash fast, you may have considered taking out a payday loan.

It may make sense on some level. Payday loans can be readily accessible, usually have minimal requirements[i], and put money in your hand fast.

But before you sign on the dotted line at your corner payday lender, read on for some of the downsides and dangers that may come along with a payday loan.

What is a payday loan?
Let’s start with a clear definition of what a payday loan actually is. A payday loan is an advance against your paycheck. Typically, you show the payday loan clerk your work pay stub, and they extend a loan based on your pay. The repayment terms are calculated based on when you receive your next paycheck. At the agreed repayment date, you pay back what you borrowed as well as any fees due.

Usually all you need is a job and a bank account to deposit the borrowed money. So it may seem like a payday loan is an easy way to get some quick cash.

Why a payday loan can be a problem
Payday loans can quickly become a problem. If on the date you’re scheduled to repay, and you’re coming up short, you can extend the payday loan – but will incur more fees. This cycle of extending the loan means you are now living on borrowed money from the payday lender. Meanwhile, the costs keep adding up.

Defaulting on the loan may land you in some trouble as well. A payday loan company may file charges and begin other collection proceedings if you don’t pay the loan back at the agreed upon time.

Easy money isn’t easy
While a payday loan can be a fast and convenient way to make ends meet when you’re short on a paycheck, the consequences can be dangerous. Remember, easy money isn’t always easy. Payday loan companies charge very high fees. You could end up with fees ranging from 15 percent or more than 30 percent on what you borrow. Those fees could be much higher than any interest rate you may see on a credit card.

Alternatives to payday loans
As stated, payday loans may seem like quick and easy money, but in the long run, they may do significant damage. If you end up short and need some quick cash, try these alternatives:

Ask a friend: Asking a friend or relative for a loan isn’t easy, but if they are willing to help you out it may save you from getting stuck in a payday loan cycle and paying exorbitant fees.
Use a credit card: Putting ordinary expenses on a credit card may not be something you want to get in the habit of doing, but if given a choice between using credit and securing a payday loan, a credit card may be a better option. Payday loan fees can translate into much higher interest rates than you might see on a credit card.
Talk to your employer: Talk to your employer about a pay advance. This may be uncomfortable, but many employers might be sympathetic. A pay advance form an employer may save you from payday loan fees and falling into a debt cycle.

If possible, a payday loan should probably be avoided. If you absolutely must secure a payday loan, be prepared to pay it back – along with the fees – at the agreed upon date. If not, you may end up stuck in a payday loan cycle where you are always living on borrowed money, and the fees are adding up.

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This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies that may be available to you. Before taking out any loan or enacting a funding strategy, seek the advice of a financial professional, accountant, and/or tax expert to discuss your options.

[i] https://www.speedycash.com/faqs/payday-loans/requirements/

January 28, 2019

Renting vs. buying a home: Which is right for you?

Renting vs. buying a home: Which is right for you?

100 million Americans live in homes they or their families rent.

Which means about 250 million live in homes that are owned by themselves or their families.[i]

What about you? Are you a renter or an owner? If you’re thinking about making a change, take a look at these important factors when deciding to rent or own.

The Case for Ownership
One very oft-cited benefit of owning over renting is building up equity. When one rents, the entire rent payment goes to the landlord, and the tenant does not own any part of the dwelling at all. With a mortgage, on the other hand, the payer receives some percentage of ownership after every payment (assuming the payment is going towards the principal rather than interest alone), eventually leading to full ownership of the property.

For those with enough capital to outright purchase a property, ownership is almost certainly the best decision financially: no money is paid to a landlord for a service that is consumed but non-saleable in the future. Even for those without sufficient capital, mortgages tend to offer low interest rates (compared to other loan products), and the buyer can usually justify the mortgage interest in return for eventual full ownership. Even if the owner decides to move before the mortgage is completely paid off, the equity that was built thus far can be recouped and used later.

Other reasons to own may include more privacy and greater ability to customize the property. There is also the feeling of stability that you won’t have to renew a contract or potentially pay higher rent during the next cycle when your lease renews.

One of the biggest drawbacks of ownership is the potential that the property value may decline, particularly when still under mortgage. If the value of the property goes down – possibly due to a natural disaster or a lot of foreclosures in your neighborhood [ii] – the equity that was built by the owner may decline, not the amount owed on the loan. Thus a substantial decrease in prices as happened in the late 2000s, could cause an owner to be in the same position financially as a renter – that is, with no equity to speak of.

The Case for Rentership
For those who cannot meet ownership’s capital requirements, renting is not a choice – it’s a necessity. However, even those who would qualify for a mortgage may be better off renting, especially if they insist on flexibility. Selling a property is an involved, complex financial transaction that may take many months to complete. If you’re renting and you need to move, finding a subletter (if allowed) is a possibility, and even when not, a standard rental agreement usually only lasts one year, after which the renter may decline to renew. Thus flexibility is one of the most important factors for those who wish to rent.

And while there is usually much less customization allowable at rental properties, there may be significant benefits included in rent with utilities paid, maintenance performed, and communal facilities like gyms, pools, or laundry facilities available. For owners, maintenance, utilities, and tax bills are solely the responsibility of the owner, whereas for renters, these may be paid in part or in full by the landlord. Regarding the investment side, renters do not own the property, so they do not have to worry about losing equity if the property market decreases in value.

Some drawbacks of renting may be less privacy, not being able to build equity, and the uncertainty of future rental prices or even availability. Of course, if the rent increases too much, the renter has the flexibility to leave the property at the next cycle.

So whether you’re thinking of renting or buying, before you sign on the dotted line, examine your short and long term goals, the risks you’re willing to take, and your budget.

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[i] https://www.citylab.com/life/2018/08/who-rents-their-home-heres-what-the-data-says/566933/
[ii] https://www.thebalancesmb.com/causes-of-property-value-decrease-2124863

January 28, 2019

Your credit score – 4 things you need to know

Your credit score – 4 things you need to know

You’re probably aware that your credit score is usually accessed when you apply for new credit, such as a credit card or an auto loan.

But you may not know it might also be requested by landlords, employers, and even romantic partners.[i]

So what are your credit score and report, what are the factors that determine them, and why do so many diverse parties request to see them?

What is a credit score and what is a credit report?
Your credit score is simply a number that encapsulates your ability to repay debt. It isn’t the only way interested parties can assess your creditworthiness, but it’s certainly often used as a preliminary factor. Having a higher score may lead to lower interest rates, more successful credit applications, and possibly more trust in general.

Your credit report is much more comprehensive and shows your outstanding debts, how well you pay them, the age of the accounts, and so forth. A single bad account on your credit report might damage your score, but your counterparty may be willing to work with you if you can show a strong history with your other accounts – and can justify the problem account.

What constitutes your credit score?
Credit reports are maintained by the three main credit reporting agencies: TransUnion, Equifax, and Experian. A credit score is generated by FICO, VantageScore, and some financial institutions may have their own proprietary algorithms to determine their own scores.

In general, scores are determined by the variously-weighted categories of payment history, the amount owed (credit utilization), the age of the accounts, how much new credit you’ve requested recently, and the types of accounts (revolving, mortgage, student loans, etc.).[ii] Of course proprietary scores may take many other factors into consideration.

Who wants to see your credit score?
Lenders may screen you based on your credit score, then use other factors to determine if they’ll give you a loan. Instant-approval lenders, like credit card companies, may just use your credit score to determine your creditworthiness. For large, long-term loans, like mortgages, you can expect to have to turn over your credit report as well.

Landlords may ask for a report, but might also request your credit score as well. They have the obvious financial interest in relying on you to pay your rent from month to month, but they also may have in mind that if you’re responsible with your money, perhaps you’ll also be responsible to take care of your rented living quarters.

Employers may ask to see your credit report. They may make hiring decisions based on the report, but some states have disallowed the practice.[iii] The chance that financial hardship may prompt employee theft is one reason they may ask, as well as wanting to see your consistency in paying debts over time, which may correlate with your punctuality and persistence at work.

How to improve your score
Those with poor credit may want to improve their credit history, which may in turn improve their credit scores. Payment history makes up 35% of the FICO scoring factors, and this will take time to improve. However, 30% of the score is determined by how much you owe, which can quickly be improved by paying down your debt. The 15% determinant that is credit age can, of course, only improve with time, but the 10% of your score attributed to new requests and 10% to types of credit can be managed in a short timeframe, too; try to avoid applying for a lot of new credit and, when you do, try to get different types of credit.[iv]

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[i] https://www.businessinsider.com/good-credit-score-can-help-you-get-a-date-2018-2
[ii] https://www.thebalance.com/fico-credit-score-315552
[iii] https://www.thebalancecareers.com/why-do-employers-check-credit-history-2059598
[iv] http://money.com/money/collection-post/2791957/what-is-my-credit-score/

January 21, 2019

Preparing to buy your first home

Preparing to buy your first home

Home buying can be both very exciting and very stressful.

Picking out your dream home is thrilling, but credit scores, applications, and mortgage underwriting requirements? Well, not so much. Don’t let yourself be deterred. Here are a few moves to make before you amp up your home buying search that will help increase the fun and decrease the stress.

Know what you can afford
One of the first steps to home buying is knowing how much you can afford. Some experts advise that a monthly mortgage payment should be no more than 30% of your monthly take-home pay. Some say no more than 25%. If you stretch past that you could become “mortgage poor”. Consider this carefully. You might not want to be in your dream house and struggling to pay the utility bills, grocery bills, etc., or find yourself in a financial jam if an emergency comes up.

Get your finances ready for home buying
If you’re scouring listings, hunting for your dream home, but you’re not sure what your credit score is – stop. There are few things more disappointing than finally finding your dream home and then not having the financial chops to purchase it. You’ll need to get your finances in order and then start shopping. Focus on these areas:

Credit score: Your credit score is something you should know regardless of whether you’re home shopping. Usually, to get the best mortgage rates, you’ll want a score in the good to excellent range. If you’re not quite there, don’t despair. If you make payments toward your other obligations on time and pay off any debt you’re carrying, your credit score should respond accordingly.

Down payment: A conventional mortgage usually requires a 20 percent down payment. That may seem like a lot of money to come up with, but in turn, you may get the best interest rates, which can save you a significant amount over the life of the mortgage. Also, anything less than 20 percent down and you may have to purchase Private Mortgage Insurance – it’s a type of insurance that protects the lender if you default. Try to avoid it if you can.

Get pre-qualified before you shop for a home
Once you have your credit score and down payment in order, it’s time to get pre-qualified for a mortgage. A prequalification presents you as a serious buyer when you make offers on houses. Mortgage pre-approval doesn’t cost you anything, and it doesn’t make you obligated to any one house or mortgage. It’s just a piece of paper that says a bank trusts you to pay back the loan.

If you go shopping without a pre-approval, expect to get overlooked if there are other bidders. A seller will likely go with the buyer who has been pre-approved for a mortgage.

Prepare your paperwork
Getting approved for a mortgage is going to require you to do a little legwork. The bank will want to see documentation to substantiate your income and lifestyle expenses. Be prepared to cough up income tax documents such as W-2’s, paystubs, and bank statements. The sooner you get the paperwork together, the easier it will be to complete the mortgage application.

Shop for the best mortgage
Mortgage rates differ slightly depending on the lender, so shop for the lowest possible rate you can get. You may wish to use a mortgage broker to help. Also, get familiar with mortgage terms. The most common household mortgages are a 30-year term with a fixed rate, but there are 15-year terms, and mortgages with variable interest rates too.

Do your pre-home-buying homework
With a little legwork early on, home buying can be fun and exciting. Get your finances in order and educate yourself about mortgage options and you’ll be decorating your dream home in no time.

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This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies that may be available to you. Before taking out any loan or enacting a funding strategy, seek the advice of a financial professional, accountant, and/or tax expert to discuss your options.

January 14, 2019

Should I pay off my car or my credit cards?

Should I pay off my car or my credit cards?

Credit card statements and auto loan statements are often among the bigger bills the mail carrier brings.

Wouldn’t it be great to just pay them off and then use those monthly payments for something else, like building your savings and giving yourself a bit of breathing room for a treat now and then?

Paying extra money on your credit card bills and your car loan at the same time may not be an option, so which is better to pay off first?

In most cases, paying down credit cards might be a better strategy. But the reasons for paying off your credit cards first are numerous. Let’s look at why that usually may make more sense.

  • Credit cards have high interest rates. When you look at the balances for your auto loan vs. your credit card, the larger amount may often be the auto loan. Big balances can be unnerving, so your inclination may be to pay that down first. However, auto loans usually have a relatively low interest rate, so if you have an extra $100 or $200 per month to put toward debt, credit cards make a better choice. The average credit card interest rate is about 15%, whereas the average auto loan rate is usually under 7%, if you have good credit.[i]

  • Credit cards charge compound interest. Most auto loans are simple-interest loans, which means you only pay interest on the principal. Credit cards, however, charge compound interest, which means any interest that accrues on your account can generate interest of its own. Yikes!

  • You’ll lower your credit utilization. Part of your credit score is based on your credit utilization, which specifically refers to how much of your revolving credit you use. As you pay down your balance, you’ll not only pay less in interest, you may also give your credit score a boost by reducing your credit utilization.

The numbers don’t lie
Let’s say you have a 5-year auto loan for $30,000 at 7% interest. You also have an extra $100 per month you’d like to use to pay down debt. By adding that 100 bucks to your car payments, over the course of the loan you can cut your loan length by 10 months and save $972.32.[ii] Impressive.

Let’s look at a credit card balance. Maybe the credit card interest rate is higher than the car loan, but hopefully the balance is lower. Let’s assume a balance of only $10,000 and an interest rate of 15%. With your minimum payment, you’d probably pay about $225 monthly. Putting the extra $100 per month toward the credit card balance and paying $325 shortens the payment length for the card balance by 26 months and saves $1,986 in interest expense.[iii] Wow!

The math tells the truth. In the above hypothetical scenarios, even though the balance on the credit card is one-third that of the total owed for the car, you would save more money by paying off the credit card balance first.

Financial strategy isn’t just about paying down debt though. As you go, be sure you’re saving as well. You’ll need an emergency fund and you’ll need to invest for your retirement. Let’s talk. I have some ideas that can help you build toward your goals for your future.

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[i] https://www.valuepenguin.com/auto-loans/average-auto-loan-interest-rates
[ii] https://www.bankrate.com/calculators/auto/early-payment-payoff-calculator.aspx
[iii] https://www.bankrate.com/calculators/credit-cards/credit-card-payoff-calculator.aspx

December 31, 2018

Considering a home equity loan?

Considering a home equity loan?

Home prices may be leveling off in some areas but they’ve had a healthy recovery nationwide, leading to massive amounts of untapped equity.

According to a recent report, the average homeowner gained nearly $15,000 in equity in the past year and has nearly $115,000 available to draw.[i]

This can be good news if you need to increase your cash flow to pay for a special project or unusual expense.

Home equity risks
It might be obvious, but a home equity loan is secured by your home, based on the equity you’ve built. Your eligibility for a home equity loan involves several factors, but a primary consideration is going to be the difference between your home’s market value and the remaining balance on the mortgage. Keep in mind that missed payments due to a job loss, illness, or another financial setback may put your home at risk from two loans – the original mortgage and the home equity loan. Before you take out this type of loan, make sure you have a solid strategy in place for repayment.

Home equity loan costs
Funds acquired through a home equity loan can feel like found money, but keep in mind that a home equity loan takes an asset and converts it to debt – often for up to 30 years. As such, you’ll be paying certain fees to use the money.

Home equity loans often have closing costs of 2% to 5% of the loan amount.[ii] It might be worth it to shop around, however, to see if you can find a lender who won’t bury you in fees and loan charges. Interest rates may vary depending on your credit rating and other factors, but you can expect to pay about 6% or higher. If you were to borrow $100,000 of the $115,000 the average homeowner now has in equity, the interest costs over 30 years would be $115,000 – $15,000 more than you borrowed. If you can manage a 15-year term instead, this would drop the interest costs down to about $52,000.[iii] Carefully consider what you’ll use the funds to purchase. A new patio addition to your home or a pool with a deck may not add enough value to your home to offset the interest costs.

Tax benefits
Once upon a time, the interest for a home equity loan was tax deductible, much like the interest on a primary mortgage. Now, there are some rules attached to the tax benefit. If you use the loan funds to make improvements to the home you’re borrowing against, you can usually deduct the interest. In the past, the tax benefit didn’t consider how the funds were used.[iv]

Home equity loans can be a powerful financial tool. But as with many tools, it’s important to exercise caution. Before signing on the dotted line, be sure you understand the long-term cost of the loan. With interest rates climbing, a home equity loan isn’t as attractive a source of funding as it once was.

Depending on how the funds are used, a home equity loan can make sense. If you’re buried in high-interest debt, like credit cards, the math might work to your favor. However, if the money is spent on a shiny, red sports car and a trip to Vegas, it might be tough to make a financial argument for that – unless you win big.

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This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies that may be available to you. Before taking out any loan or enacting a funding strategy, seek the advice of a financial professional, accountant, and/or tax expert to discuss your options.

[i] https://www.cnbc.com/2018/07/09/homeowners-sitting-on-record-amount-of-cash-and-not-tapping-it.html
[ii] https://www.lendingtree.com/home/home-equity/home-equity-loan-closing-costs/
[iii] https://www.mortgageloan.com/calculator/loan-line-payment-calculator
[iv] https://www.cnbc.com/2018/05/21/5-things-to-know-before-taking-out-a-home-equity-loan.html

December 10, 2018

Savings accounts vs. CDs – which is better?

Savings accounts vs. CDs – which is better?

Interest rates are on the rise, which might not be great news if you carry revolving debt.

But savings accounts and certificates of deposit (CDs) might start looking more attractive as places to put your money. Currently, both savings accounts and CDs might be good options, so which is better? In large part, whether a savings account or a CD is the better tool for saving depends on your savings goal.

Access to funds
Savings accounts offer more flexibility than CDs if you need to withdraw your money. However, be aware that many banks charge a fee if your balance falls below a certain threshold. Some banks don’t have a minimum balance requirement, and some credit unions have minimum balance requirements as low as a penny. It could be worth it to shop around if you think you might need to draw down the account at any moment.

CDs, on the other hand, have a maturity date. If you need access to your funds before the maturity date, which might range from six months to up to five years depending on which CD you choose, expect to sacrifice some interest or pay a penalty. Accessing funds held in a standard CD before its maturity date is called “breaking the CD”.

“Liquid CDs” allow you to withdraw without penalty, but typically pay a lower interest rate than standard CDs.

Interest rates
CDs are historically known for paying higher interest rates than savings accounts, but this isn’t always the case. Interest rates for both types of accounts are still hovering near their lows. Depending on your situation, it might be better to choose an account type based on convenience. If interest rates continue upward, CDs may become more attractive.

In a higher interest rate environment, CDs might be a great tool for saving if you know when you’ll need the money. Let’s say you have a bill for college that will be due in thirteen months. If you won’t need the money for anything else in the meantime, a twelve-month CD might be a fit because the CD will mature before the bill is due, so the money can be withdrawn without penalty.

If your goal is to establish an emergency fund, however, a CD might not be the best option because you don’t know when you’re going to need the money. If an emergency comes your way, you won’t want to pay a penalty to access your savings. Keep an eye on current rates, and if CD interest rates start to increase, then you might consider them for longer-term savings if you won’t need the funds until a fixed date in the future. For emergency savings, consider a savings account that keeps your money separate from your checking account but still provides easy access if you need it.

Depending on your situation, a CD or a savings account may be the better fit. Shop around for the best rates you can find, and make sure you understand any penalties or fees you might incur for withdrawing funds.

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This article is for informational purposes only and is not intended to promote any certain products, plans, or strategies for saving and/or investing that may be available to you. Market performance is based on many factors and cannot be predicted. Before investing or enacting a savings or retirement strategy, seek the advice of a financial professional, accountant, and/or tax expert to discuss your options.

November 26, 2018

Dig yourself out of debt

Dig yourself out of debt

I hate to break it to you, but no matter what generation you are – Baby Boomer, Generation X, or Millennial – you’re probably in debt.

If you’re not – good on you! Keep doing what you’re doing.

But if you are in debt, you’re not alone. A study[i] by the financial organization, Comet, found:

  • 80.9 percent of Baby Boomers are in debt
  • 79.9 percent of Generation X is in debt
  • 81.5 percent of Millennials are in debt

There are some folks whose goal is to eliminate all debt – and if that’s yours, great! But one thing to keep in mind while you’re working towards that finish line is that not all debt is created equal. Carrying a mortgage, for example, may be considered a “healthy” debt. Student loan debt may feel like an encumbrance, but hopefully, your education has given you more earning power in the workforce. A car loan may even be considered a healthy debt. So, there are some types of debt that may offer you advantages.

Any credit card debt you have, however, should be dealt with asap. Credit card debt can cost money every month in the form of interest, and it gives you nothing in return – no equity, no education, no increase in earning potential. It’s like throwing money down the drain.

So, let’s get to work and look at some of the best tips for paying down credit card debt.

1. Get to know your debt
Make a commitment to be honest with yourself. If you’re in denial, it’s going to be hard to make positive changes. So take a good, hard look at your debt. Examine your credit card statements and note balances, interest rates, minimum monthly payment amounts, and due dates. Once you have this information down in black and white you can start to create a repayment strategy.

2. Get motivated
Taking on your debt isn’t easy. Most of us would rather not confront it. We may make half-hearted attempts to pay it off but never truly get anywhere. Need a little motivation? Getting rid of your credit card debt may make you happier. The Comet study asked respondents to rate their happiness on a scale of one to seven.[ii] It turns out that those who selected the lowest rating also carried the highest amounts of credit card debt. Want to be happier? It seems like paying off your credit card debt may help!

3. Develop your strategy
There are many strategies for paying off your credit card debt. Once you understand all your debt and have found your motivation, it’s time to pick a strategy. There are two main strategies for debt repayment. One focuses on knocking out the highest interest debt first, and the other method begins with tackling the smallest principal balances first. Here’s how they work:

  • Start with the highest interest rate: One of the items you should have noted when you did your debt overview is the interest rate for each account. With this method, you’ll throw the largest payment you can at your highest interest rate debt every month, while paying the minimum payments on your other debts. Utilizing this method may help you pay less interest over time.

  • Start with the smallest balance: As opposed to comparing interest rates, this method requires you to look at your balances. With this strategy, you’ll begin paying the smallest balance off first. Continue to make the minimum payments on your other accounts and put as much money as you can towards the smallest balance. Once you have that one paid off, combine the amount you were paying on that balance with the minimum you were paying on your next smallest balance, and so on. This strategy can help keep you motivated and encouraged since you should start to see some results right away.

Either strategy can work well. Pick the one that seems best for you, execute, and most importantly – don’t give up!

4. Live by a budget
As you begin chipping away at your credit card debt, it’s important to watch your spending. If you continue to charge purchases, you won’t see the progress you’re making, so watch your spending closely. If you don’t have a budget already, now would be a good time to create one.

5. Think extra payments
Once you are committed to paying off your debt and have developed your strategy, keep it top of mind. Make it your number one financial priority. So when you come across “found” money – like work bonuses or gifts – see it as an opportunity to make an extra credit card payment. The more of those little extra payments you make, the better. Make them while the cash is in hand, so you aren’t tempted to spend it on something else.

6. Celebrate your victories
Living on a budget and paying off debt can feel tedious. Paying off debt takes time. Don’t forget to take pride in what you’re trying to accomplish. Celebrate your milestones. Do something special when you get that first small balance paid off, but try to make the occasion free or at least cheap! The point is to reward yourself for your hard financial work. (Hint: Try putting up a chart or calendar in your kitchen and marking off your progress as you go!)

Reward yourself with a debt-free life Getting out of debt is a great reward in and of itself. It takes discipline, persistence, and patience, but it can be done. Come to terms with your debt, formulate a strategy, and stick to it. Your financial future will thank you!

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[i] & [ii] https://www.cometfi.com/details-of-debt

October 15, 2018

The More You Know! Building a Financial Vocabulary

The More You Know! Building a Financial Vocabulary

Part of gaining financial literacy is becoming familiar with the lingo.

Like all subjects, finance has its own terms, acronyms, abbreviations, and slang.

If you’re just beginning to dip your toe into the pool of personal financial planning, here’s a handy guide to some terms that are likely to come up when learning about finance and investments.

ROI: ROI stands for Return on Investment. It’s an acronym usually used when referring to the performance of a stock. ROI can also refer to the performance of other investments, including real estate and currencies. In short, the term describes how much bang you get for your investment buck.

Compound Interest: Compound interest refers to the instance of interest collecting on interest. The best way to understand compound interest is with an example. Let’s say you invest $1,000 in a high interest bearing account. Over the course of one year, your savings collects $100.00 in interest. The next year you’ll earn interest on $1,100.00, and so forth.

Money Market Account: You may hear about money market accounts if you’re shopping for a savings account. A money market account is like a savings account, but it may earn higher interest rates – making it a better choice for some.

There are money market accounts that come with checks or a debit card, so your funds are easily accessible. If you’re planning on opening a money market account to hold your savings or emergency fund, pay attention to any minimum balance requirements and fees.

Liquidity: Liquidity refers to how easy it is for an asset to convert to cash. You can think of it as an investment’s ability to “liquidate” into cash. For example, real estate investments may offer great returns over time, but they aren’t considered liquid assets because they are not easily turned into cash.

A stock or bond, on the other hand, has high liquidity because you can sell a stock and have access to its cash value quickly.

Roth IRA: A Roth IRA is a retirement savings account. IRA stands for “Individual Retirement Account”. A Roth IRA allows you to make contributions or deposits to fund your retirement. The contributions are made with taxed income, but when you take deposits from the account in retirement, the income is not taxed.

A few characteristics of a Roth IRA:

  • Your contribution is always accessible, tax and penalty-free at any time
  • It can help keep you in a lower taxable income bracket during retirement
  • You can contribute to a Roth IRA at any time if you have a job

Bear Market: A Bear Market is a term used to refer to the stock market while there are certain characteristics present. Those characteristics include falling stock prices and low investor confidence.

The term is said to originate from the way a bear attacks – swiping its arm downward on its prey. The downward motion illustrates falling stock prices as investors lose confidence, become pessimistic about the market, and they may begin to sell their stocks to try to prevent further losses.

Bull Market: A Bull Market is a period in which stock prices are increasing and investor confidence is high. A Bull Market mostly refers to stocks, but it can also be used to describe real estate, currencies, and other types of markets.

This term may come from the action of how a bull attacks, by swiping its horns upward.

Finance lingo is for everyone
No matter where you are on the personal finance spectrum – just beginning to create a budget with your first job or preparing to retire – there are special terms to describe financial phenomena, tools, and features. Learning some of the lingo is a great first step toward taking charge of your financial life!

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October 1, 2018

Consumer Debt: How it helps and how it hurts

Consumer Debt: How it helps and how it hurts

What exactly is consumer debt? It’s “We the People” debt, as opposed to government or business debt.

Consumer debt is our debt. And we, the people, have a lot of it – it’s record-breaking in fact. In May of 2018, U.S. consumer debt was projected to exceed $4 trillion by the end of 2018[i].

That’s a lot of zeros. So, in case you’re wondering, what makes up consumer debt?

Consumer debt consists of credit card debt and non-revolving loans – like automobile financing or a student loan. (Mortgages aren’t considered consumer debt – they’re classified under real estate investments.)

So, how did we get buried under all this debt?
There are a few reasons consumer debt is so high – some of them not entirely in our control. The rise of student loan debt: Most consumer debt consists of school loans. During the recession, many Americans returned to school to re-train or to pursue graduate degrees to increase their competitiveness in a tough job market.

Bankruptcy: Changing bankruptcy laws under the Credit Card Protection Act of 2005 made it harder for Americans to file for bankruptcy. This led to consumer credit card debt climbing to a record high of $1.028 trillion in 2008[ii].

Good auto loan rates: The number of auto loans has skyrocketed due to attractive interest rates. After the recession, the federal government lowered interest rates to spur spending and help lift the country out of the recession. Americans responded by financing more automobiles, which added to the consumer debt total.

Is all this consumer debt a bad thing?
Not all consumer debt is bad debt. And there are ways that it helps the economy – both personal and shared. A student loan for example – particularly a government-backed student loan – can offer a borrower a low-interest rate, deferred repayment, and of course, the benefit of gaining a higher education which may bring a higher salary. A college graduate earns 56 percent more than a high school graduate over their lifetime, according to the Economic Policy Institute. So, getting a student loan may make good economic sense.

Credit card debt that won’t go away
Credit card debt is a different story. According to the National Foundation for Credit Counseling (NFCC), 61 percent of U.S. adults have had credit card debt in the past 12 months. Nearly two in five carry debt from month-to-month.

Still, the amount of credit card debt Americans carry has been on the decline, with the average carried per adult a little more than $3,000.

Credit card debt won’t hurt you with interest charges if you pay off the balance monthly. Some households prefer to conduct their spending this way to take advantage of cashback purchases or airline points. As always, make sure spending with credit works within your budget.

If you’re carrying a balance from month to month on your credit cards, however, there is going to be a negative impact in the form of interest payments. Avoid doing this whenever possible.

Stay on the good side of consumer debt
Consumer debt is a mixed bag. Staying on the good side of consumer debt may pay off for you in the long run if you’re conscientious about borrowing money, plan your budget carefully, and always seek to live within your means.

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[i] https://www.lendingtree.com/finance/consumer-debt-report-may-2018/
[ii] https://www.creditcards.com/credit-card-news/up-g19-federal-reserve-credit-debt-02072018.php

September 17, 2018

Getting the Most Bang for Your Savings Buck

Getting the Most Bang for Your Savings Buck

Savvy savers know that if they look after their pennies, the dollars will take care of themselves.

So, if you’re looking for places to gain a few extra pennies, why not start by maximizing your savings account?

Granted, a savings account might not be a flashy investment opportunity with a high return. But most of us use one as a place to park our emergency fund or the dream car fund. So, if you’re going to put your money somewhere other than under your mattress, why not put it in the place that gets the best return? Here are some tips for getting the most out of your savings account.

Try an Online-only Account
Your corner bank branch isn’t the only option for a savings account. Why not try an online account? As of September 2018, several well-known banks are offering online savings accounts with rates of 1.85 (some even higher).[i]

With the help of technology, you can link one of these high-interest savings accounts directly to your checking account, making moving money a breeze. Say goodbye to the brick and mortar bank, and hello to some extra cash in your pocket!

Check Out Your Local Credit Union
A credit union offers savers some unique benefits. They differ from a traditional bank as they are usually not for profit. They function more like a cooperative – even paying dividends back to members periodically.

A credit union can also be beneficial as they typically offer a higher interest rate than your everyday bank. Membership in a credit union may also have other perks, such as low-interest rates on personal loans as well as exceptional customer service.

Money Market Accounts
A money market account is like a savings account except it’s tied to bonds and other low-risk investments. A money market can deliver the goods by giving you more for your savings, but there are often account minimums and fees. Before putting your savings into a money market account, check the fees and account minimums to make sure they’ll coincide with your needs.

Don’t Use a Parking Place When You Need a Garage
A savings account is a like a good parking place for cash. Its usefulness is in its ease of access and flexibility.

This makes it a great place to keep savings that you may need to access in the short term – say, within the next 12 months.

For long-term saving (like for retirement), it’s generally not a good idea to rely on a savings account alone. Retirement savings doesn’t belong in a parking place. For that, you need a garage. Talk to your financial professional today about a savings strategy for retirement, and the options that are available for you.

Shopping for a Savings Account
Just because a savings account doesn’t offer high yields, doesn’t mean you shouldn’t consider it carefully. To get the most bang for your savings buck, search out the highest interest possible (which might be online), be aware of fees and penalties, and remember – any saving is better than not saving at all!

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[i] https://www.magnifymoney.com/blog/earning-interest/best-online-savings-accounts275921001/

September 3, 2018

Retiring Boomers: Can You Afford the Long Life You’ve Been Hoping For?

Retiring Boomers: Can You Afford the Long Life You’ve Been Hoping For?

As Baby Boomers retire or prepare to retire, there’s good news and bad news. The good news is Baby Boomers are living much longer – into their 80s. The bad news is that many aren’t financially prepared to handle the gift of a long life.

Can You Afford the Long Life You’ve Been Hoping For?
In 1900 the average lifespan was 47 years – nowadays, that’s just about midlife. The average life expectancy in 2018 is about 80. This means if you’re planning on retiring at 65, you may have another two decades to go. And that means you must have another two decades of income.

A long life is a blessing, but a long life without enough money? That might be a curse.

Baby Boomer Retirement by the Numbers
According to a study by the Insured Retirement Institute – a trade association for the retirement income industry – surprisingly, many Boomers are not financially prepared for retirement.

  • 24 percent of Boomers have no retirement savings
  • 55 percent have some retirement savings
  • 42 percent of those with some retirement savings have less than $100,000

There are a few reasons Baby Boomers are coming up short on retirement savings. Many were heavily invested during the 2008 crash and never fully recovered. Boomers were also the first generation to be tasked with saving for retirement largely on their own. Company pensions were already declining, and the rise of the 401(k) plan was underway.

Also, wages have stagnated, and interest rates have declined. Add to this a relaxed approach to retirement savings and it’s no wonder Baby Boomers are struggling with their retirement funds.

Creative Ways Boomers are Boosting Retirement Savings
Baby Boomers are nothing if not self-reliant, and many are handling their retirement dilemma in some creative ways…

  • Staying in the workforce: Some Boomers keep working for the extra income, while others enjoy their work and aren’t ready to give it up entirely.
  • Side gigs: Boomers are taking on the gig economy – earning extra cash by working part-time or through contract.
  • Alternative lifestyles: Some Boomers have decided to stretch their retirement dollars by living in another country where the dollar goes further. Others are forgoing the expense of homeownership for full-time RV travel or living on a sailboat.

Good Planning Gives You Good Options
Whatever you decide to do during your retirement years, the better prepared you are the more choices you’ll have. Whether you’re a young Boomer still in the workforce, or if you’re already living off your retirement savings, financial planning is key.

Contact a professional today to make sure you’re getting the most out of your retirement.

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July 2, 2018

Making Money Goals That Get You There

Making Money Goals That Get You There

Setting financial goals is like hanging a map on your wall to inspire and motivate you to accomplish your travel bucket list.

Your map might have your future adventures outlined with tacks and twine. It may be patched with pictures snipped from travel magazines. You would know every twist and turn by heart. But to get where you want to go, you still have to make a few real-life moves toward your destination.

Here are 5 tips for making money goals that may help you get closer to your financial goals:

1. Figure out what’s motivating your financial decisions. Deciding on your “why” is a great way to start moving in the right direction. Goals like saving for an early retirement, paying off your house or car, or even taking a second honeymoon in Hawaii may leap to mind. Take some time to evaluate your priorities and how they relate to each other. This may help you focus on your financial destination.

2. Control Your Money. This doesn’t mean you need to get an MBA in finance. Controlling your money may be as simple as dividing your money into designated accounts, and organizing the documents and details related to your money. Account statements, insurance policies, tax returns, wills – important papers like these need to be as well-managed as your incoming paycheck. A large part of working towards your financial destination is knowing where to find a document when you need it.

3. Track Your Money. After your money comes in, where does it go out? Track your spending habits for a month and the answer may surprise you. There are a plethora of apps to link to your bank account to see where things are actually going. Some questions to ask yourself: Are you a stress buyer, usually good with your money until it’s the only thing within your control? Or do you spend, spend, spend as soon as your paycheck hits, then transform into the most frugal individual on the planet… until the next direct deposit? Monitor your spending for a few weeks, and you may find a pattern that will be good to keep in mind (or avoid) as you trek toward your financial destination.

4. Keep an Eye on Your Credit. Building a strong credit report may assist in reaching some of your future financial goals. You can help build your good credit rating by making loan payments on time and reducing debt. If you neglect either of those, you could be denied for mortgages or loans, endure higher interest rates, and potentially difficulty getting approved for things like cell phone contracts or rental agreements which all hold you back from your financial destination. There are multiple programs that can let you know where you stand and help to keep track of your credit score.

5. Know Your Number. This is the ultimate financial destination – the amount of money you are trying to save. Retiring at age 65 is a great goal. But without an actual number to work towards, you might hit 65 and find you need to stay in the workforce to cover bills, mortgage payments, or provide help supporting your family. Paying off your car or your student loans has to happen, but if you’d like to do it on time – or maybe even pay them off sooner – you need to know a specific amount to set aside each month. And that second honeymoon to Hawaii? Even this one needs a number attached to it!

What plans do you already have for your journey to your financial destination? Do you know how much you can set aside for retirement and still have something left over for that Hawaii trip? And do you have any ideas about how to raise that credit score? Looking at where you are and figuring out what you need to do to get where you want to go can be easier with help. Plus, what’s a road trip without a buddy? Call me anytime!

… All right, all right. You can pick the travel tunes first.

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