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Spending Confessions: Has Black Friday Ever Sent You Into Debt?

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Every year, Black Friday seems to convince us all that every incredible deal advertised is just too good to pass up. Whether you’re buying 6 pairs of your favorite jeans that are 75% off or indulging in an unanticipated buy-one-get-three-free deal, your finances may take a hit during this pseudo-holiday. Often what you thought was a good deal can end up staying on your credit card for months, racking up a ton of interest. In the long run, you might even end up paying more for the panini maker than its original price.  

Now that so much of Black Friday shopping happens online, our wallets aren’t even safe at home.  If you’re not careful, you may find yourself hanging out in your best pair of post-Thanksgiving pajamas, kissing your savings goodbye, one click at a time.

Worried about becoming the next victim of holiday spending downfall? The debt is in the details. According to a 2017 survey cited by CNN, American shoppers spent a record $5 billion on Black Friday last year. Since it seems like several of us went on a little spending binge last year, we asked our community to share some of the Black Friday shopping tales that put their finances in a major holiday spending coma.

Black Friday Craze

“I have never participated in Black Friday until last year. My entire family was in town and we decided to start a new tradition where we go to the mall bright and early at 3:00 am and wait in line for the deals to begin. I wasn’t thrilled about the idea, especially because I had rent due at the end of the month and not a whole lot of extra cash, but I decided that I would go just to spend time with my family and give them shopping advice on whatever they found. However, when I stepped in the first store, I got totally caught up in the Black Friday craze! By the third store we visited, I realized I was buying things I didn’t even need because I thought the sale prices were just so good. After a few new cute pairs of jeans, some new face wash, and a pair of winter boots, it added up to about $500 and left me short on rent for the month. I should have given myself the shopping advice to put back the boots.”  — Candice B.

The Sale of My Nightmares

“Last year, my favorite store decided to do a major sale in which all items ranged from 50-75% off (even the full priced items). With these major discounts in mind and my shopping list in hand, I was the first one at the door ready to get my discounted sweaters. But once the doors opened it was like the running of the bulls in Spain. People were extremely aggressive and frantic trying to grab the items they wanted. As I saw all of my wool sweaters being grabbed right before my eyes, I panicked and ended up spending almost twice what I anticipated before I started shopping just because I didn’t want to miss out on an item that someone else wanted. Now I have the same wool sweater in six different colors and I’m still paying them off… #regrets.” — Kendyll S.

Black Friday’s Hidden Costs

“My kids have always wanted a PS3, and last Black Friday, our gaming store was having a major sale, with certain models up to 40% off. Knowing that this meant a lot to my kids, I promised them that we would visit the store on Black Friday and find a cheaper model (fingers crossed). But when we got there, while the deals were great, I realized that buying the PS3 required extra things to make it usable, like games, controllers, and other accessories. And of course, none of these items were on sale. I knew I couldn’t break my promise, so we ended up leaving the store having spent way more than I bargained for. Be careful of Black Friday deals, because sometimes they’re attached to more expensive, full-price items!” — Brian G.

 

Don’t let Black Friday send you into the red this year. Before you make your list of the best sales this year, first take a holistic look at your finances and set a predetermined budget for yourself. This way you know exactly how much you can spend without going overboard. And think twice before you dive into that next deal — are these things you really need or are you just excited about the cheap price?

Do you have your own Black Friday spending confession? Tell us about it on Facebook, Twitter or Instagram using #RealMoneyTalk!

Spending Confessions: Has Black Friday Ever Sent You Into Debt?2019-02-17T08:19:08+00:00

How to Have the #RealMoneyTalk When You Go Home for the Holidays

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The holidays are rapidly approaching. Amongst all the merriment, gift giving and twinkly lights, no holiday trip home is complete without a couple awkward questions about your future. Sometimes it’s the less-than-tactful aunt who asks when you’re finally getting married and making your mom a grandmother already. Other times it’s your parents sitting you down and asking about your financial situation.

Before packing your bags this holiday season, here are four different money conversations you should prepare to have:

Are You Even Coming Home This Year?

It’s a potentially painful conversation, but you need to decide early if you’re even going to be joining in the family festivities this year or if a trip home is prohibitive for you. It’s understandable that your family wants and expects you to come to share in the merriment, but for those who live across the country or an expensive airplane ride away from loved ones, it may not be financially viable.

Have this #RealMoneyTalk early. Don’t leave your family on the hook until the last possible moment and be honest about the financial limitations. Explain that you love them and wish you could be there, but you just aren’t able to swing the cost of the travel. You can still FaceTime or Skype-in during family together times though. Having an idea of when you may be able to come to visit in the near future can also help offset some of the hurt because then you’re giving your parents something to look forward to. Another reason to be honest: you never know, they may be willing to help subsidize your travel expenses.

In the future, you can also start a holiday travel fund into which you put little bits of money aside out of every paycheck in order to have enough saved up when holiday travel rolls back around.

Setting Gift Giving Limitations

One of the most critical parts of talking money at the holidays is setting guidelines on family and friend gift giving. Family expectations may be high and unrealistic with your budget, so clarify early if you’re interested in being a frugal Santa this season.

Here are some of the questions you want to answer:

  • How much are you spending on each other?
  • Are you buying a gift for each person in your family or can you do Secret Santa style?
  • If you’re in a relationship, are you also buying presents for your partner’s family?

Be honest with your loved ones if you are cash-strapped this holiday season. You can come up with creative, frugal gifts too (parents love the gift of quality time spent together!).

Do not ever go into debt for gift giving. One way I like to save up for holiday presents is with cash back rewards on credit cards. I earmark that money at the beginning of the year as part of my holiday budget – which provides a nice little sum to put toward gifts without blowing up my budget.

Another great strategy is to avoid procrastinating your gift giving and instead start really early, like August or September so you can manage your cash flow in getting one or two gifts at a time. That way it doesn’t feel like you’re spending a ton of money all at once in December, but rather, you’ve been spending in a comfortable way over the last several months.

Getting Off Parental Welfare

Are you currently still cashing checks at the Bank of Mom and Dad? The ultimately awkward #RealMoneyTalk during the holidays is being told your parents are pulling their financial support. It’s important you don’t get defensive and instead are thankful that your parents have helped bankroll you for all these years.

But now it’s also time for an action plan. Be sure to discuss:

  • Will there be a phase-out or is this a cold turkey cut off?
  • Realistically, can you cover the cost of your life without their support?
  • If no, what needs to be cut from your budget and how can you start earning more?
  • Can you stay on family plans and reimburse them? For example, it might be cheaper for you to keep your cell phone bill on the family plan – but you can pay back your parents each month for the cost of your line.

Talking About Your Parents’ Future

In some cases, you’re going home with the intention of giving your parents a stern talking to about finances. You need to know if they’re setting themselves up for a comfortable retirement or if it’s possible that you are the retirement plan.

It is not outside the realm of possibility that you will need to support your parents in some way. This could be financial assistance or having your parent move in with you. It’s also important for you to have at least a high-level overview of your parents’ financial situation. You need to know:

  • Do they have a will (if yes, where is it stored and who is the executor)?
  • Do they have a power of attorney/medical power of attorney designated?
  • Do both parents know how to pay all the household bills and where all the financial information is kept? It’s not uncommon for one person in a relationship to take lead, which could mean the other parent doesn’t know passwords to accounts or even which bills need to get paid monthly. You don’t want to be stressing about this while grieving.
  • Do they have long-term life insurance?
  • If your parents haven’t retired yet, do they have a date when that may happen or an idea of how much they need in order to retire comfortably?
  • What do they want their retirements to look like?

It’s not the most comfortable conversation, but if you don’t get to see your parents in person too often during the year, the holidays can be the ideal time to have this #RealMoneyTalk. Perhaps your parents won’t be ready to open up completely on the first attempt, but at least you’re laying the groundwork to continue the conversation.

This blog post does not constitute, and should not be considered a substitute for legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

How to Have the #RealMoneyTalk When You Go Home for the Holidays2018-11-19T18:00:04+00:00

Spooky Debt Stories That Can Actually Help You

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Halloween might be one of the spookiest days of the year, but there’s something worse lurking around you all year longdebt from purchases past.

As you’re debating the endless options of candy you could hand out this year or what costume will be the most exciting, you might be wondering how you’re going to afford all your holiday must-haves. With debt hanging over your head, you’re probably realizing all you can afford to do this year is to stay in and binge watch Halloweentown reruns. But don’t fret… You’re not alone.

According to an NBC News/GenForward survey from this year, a quarter of millennials — those 18 to 34 years old — are over $30,000 in debt. And whether it be student loans, credit card debt, a mortgage, or a home loan, debt can hold you back from both big and small life decisions. With that in mind, it’s not a surprise that your debt is spookier than the latest Paranormal Activity movie.

So in the spirit of Halloween, we asked people to recall some of their spookiest debt stories that might actually help you. Get ready for a dose of #RealMoneyTalk in hopes that these spine-chilling ghost stories will save you from conjuring up your own debt nightmares.

My Scary Ex-Ghoulfriend

“My ex-girlfriend and I had been together for 6 months when she started to open up to me about some of her financial troubles. She had been in-between jobs and was struggling to pay her rent, so I offered to loan her some money to help her get by. I ended up giving her access to my debit card and PIN number to allow her to withdraw some cash to cover the rest of her month’s rent. However, it wasn’t until a month later that I realized that she had been over-drafting my bank account, leaving me in over $3,000 in debt. I learned this lesson the hard way: NEVER share your personal bank information, even with your girlfriend or closest friends. If you’re going to loan someone money, do it in physical cash or Venmo, and keep your finances safe and sound!” —Evan C.

Student Loan Twilight Zone

“My student loans have been haunting me longer than my marriage, and to be honest they’re worse than an ex that won’t leave! While my husband and I both make good money, my student loans prohibit us from living the lifestyle we both want, and it impacts all of our financial decisions. Last year, we paid over $15,000 in interest alone! We can’t afford to go on vacations, buy new clothes, or even open a retirement account because most of our money just goes to paying off the loans. Both my husband and I are prisoners of my debt, and if I could do it all over again, I wish I would’ve learned more about my financial aid program. The one silver lining is that this year, we started refinancing my loans, which has allowed me to combine my existing federal and private student loans into a new, single student loan with a lower interest rate. While it will take a bit of time for us to save up for a trip to Cabo, it’s at least a step in the right direction. Ashley T.

Real Estate Purgatory

“When I bought my first home, I was 24. I was on top of the world, feeling invincible, and totally oblivious to the whole mortgage process. I couldn’t even tell you the definition of a mortgage. I simply signed on the dotted line and thought I had mastered adulting.  My naive self thought I had selected a loan with a fixed rate until I got a very large bill that informed me I selected an adjustable rate mortgage instead! In the past 5 years, the mortgage increased like crazy, and even though I make good money, I struggled to cover all my payments. My mortgage broker could have outlined the pros and cons of a fixed versus adjustable rate, but she definitely took advantage of how young I was at the time. Looking back, I should have educated myself on the whole process because now I’m dealing with the fallout of assuming another person had my best interests in mind. ”  Brandon S.

Cobweb of Credit Card Debt

“When I was 19, I signed up for my first credit card. I thought *cha-ching* I can finally afford that new fall wardrobe I had been eyeing. I had a part-time job, so I figured it would be okay to start building my credit and cover my bills at the end of each month. (What like adulting is hard?) But with all the hustle and bustle of college life, I would forget to pay my bill sometimes (okay a lot of times) and was only reminded by the large late fee alerts. $600 in late fees, one cute fall wardrobe, and a significantly lower credit score later, I realized — if you’re going to sign up for a credit card, make sure you always pay your bill on time!!” Ellen G.

 

Now that’s some #RealMoneyTalk on debt. Lesson learned: you aren’t alone in your debt! In fact, more millennials are struggling with debt than not. Use #RealMoneyTalk to share your own debt doomsday story using #RealMoneyTalk or learn from other people’s past mistakes.

Spooky Debt Stories That Can Actually Help You2018-11-18T08:00:10+00:00

Why Your Annual Check-Ups are Important for Your Financial Health

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Who knew that #selfcare could also be good for your finances? After all, facials and teeth cleanings may seem like pricey luxuries, but their benefits extend beyond just the physical. Annual checkups may bust your budget at the moment, but in terms of dollars and cents can help prevent even more expensive health emergencies in the future.

The exact financial advantages of your annual check-ups may seem hidden, but these end-of-the-year must-dos are actually among the most important steps to take for keeping your finances at their healthiest.

Going to the Dentist

While this isn’t a monthly occurrence, going to the dentist twice a year (you know, like you’re supposed to) is the adult equivalent of eating a vegetable at every meal as a kid. While few enjoy seeing the dentist, there are strong health (and financial) incentives at work by going to the dentist regularly. First, lowering the amount of disease present in your mouth with regular cleanings, checkups, and care is shown to decrease cardiovascular risk and help adults live longer.

Second, you might already be paying for dental insurance or receive dental coverage for free from your employer. In this case, skipping the dentist means you’re not fully utilizing what you paid for. And finally, regular dental care can help decrease the risk of more expensive dental procedures such as a cavity, root canal, or periodontal surgery, which can run up to $3,000.

The Annual Physical

Going to the doctor regularly (at least on an annual basis) can help mitigate long-term health risks, but also help you prepare financially in the event you’ll need additional medical care. Regular visits can also help you properly time your medical care (for example, a knee surgery) in order to maximize your healthcare benefits.

In terms of direct dollar savings, getting an annual physical may also help decrease health insurance premiums, both for employer-sponsored health care plans and for the self-employed.

Facials and Massage

Health Savings Plans (HSA) are amazing. Not only do these special saving accounts lower your taxable income (meaning you pay less in taxes while getting to save for medical costs), in many instances these funds can be used for services such as gym memberships, facials, physical therapy, or massage. Each plan dictates how the funds may be used, but it is worth investigating these health services to see if you can optimize both your healthcare regimen while lowering your overall amount of taxable income.

HSAs also roll over so even if you don’t use your full amount one year, you can continue to save for future expenses like a pregnancy or unexpected illness.

Annual Financial Checkup

The best part about maintaining a regular healthcare schedule is that it puts you in the habit of taking care of yourself on a regular schedule. Your finances need to undergo a “check up” on a regular schedule as well. Many like to review their spending on a monthly basis, but there are other, often overlooked financial to-do’s that are best looked at during year’s end.

  • Check in on your emergency fund – Do you have 6 months set aside?
  • Check in on any debt repayment or credit card spending – make a plan if the debt has significantly increased in the last year.
  • Review healthcare and insurance policies and see if any coverages need an adjustment.
  • Review investment accounts – How are your retirement or brokerage accounts performing? Are you optimizing for taxes in your retirement?
  • Check your tax liability for the end of the year and see if there is anything you can do to lower the amount you owe before December 31st.

Each year feels faster than the last, which is why it is so important to maintain an annual “check-up” schedule for two important items that cannot be ignored: your health and your money. Once these items are reviewed, feel free to sit back and enjoy the holiday season stress-free, knowing you’re ready for the healthiest, wealthiest year yet.

This blog post does not constitute, and should not be considered a substitute for legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

Why Your Annual Check-Ups are Important for Your Financial Health2018-11-18T04:00:08+00:00

How to Handle Financial Stress

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When I was a kid growing up in New York City, I would go to the candy store after school. More times than not, I’d end up running out of money before the end of the week and would be the only kid with no snacks for the train ride home. And worse, I knew there was no way out of my predicament because asking my mom for more money would only gain me a stern look and a reminder that “money doesn’t grow on trees.”

Back then I thought the frustration I felt towards my classmates and their junk food boon was just a matter of being jealous that I couldn’t have what I wanted. Now, as an adult, I recognize what I was feeling then as something very much akin to financial stress–a feeling of anxiety and worry caused by our finances.

According to American Psychology Association’s 2017 Stress in America survey, 62% of Americans said that money is one of the top sources of stress in their lives and that they feel stressed about money all or most of the time. In fact, money has been at or near the top of the list since the survey was first created in 2007.

There are a lot of moving parts when it comes to personal finance, which can be incredibly stressful. Then when you add in the financial upheavals that are sometimes just a part of life, the potential stress only compounds. But there are strategies that you can use to help handle financial stress so that you can focus on moving your finances forward.

Identify the Parts of Your Finances That Are Causing You Stress

The first step in improving any situation is to figure out what’s causing the problem. If you are feeling financial stress, try to think about where it is coming from. The stress may be a symptom of something else–some larger concern that you have about your finances.

Keep in mind that the underlying cause may not necessarily be obvious. Sure, you’d know what was causing your stress if you suddenly lost your job or your car needed a new transmission. But it could also be something that’s more subtle, like the nagging guilt that can come along with overspending.

By identifying and focusing on that hidden concern, you can create strategies to help you work through the issue and prevent those stressful feelings in the future. Once you have a plan to address the financial concern that’s causing your stress, your stress level will go down too.

Focus On Just One Thing At a Time

To put it mildly, personal finance has a lot of layers. This can easily lead to stress-inducing overwhelm. There’s the day to day of earning money and paying bills. Then there are the intermediate goals like having a wedding, buying a home, and maybe even having kids one day. And then there’s retirement planning. It’s not surprising that trying to navigate through all that can cause some internal tension and analysis paralysis.

Instead of thinking of all of the things that you need to do and becoming overwhelmed, focus on just one thing at a time. Pay one parking ticket. Open that new savings account for your home buying fund.  Use Turbo to check your credit score and see where you stand financially.

Just pick one thing and do it. Making one financial decision at a time helps to reduce decision fatigue. And breaking down your financial concerns into smaller tasks makes big financial hurdles feel so much easier to handle.

Get to Know Your Finances and Make a Plan

When your finances feel like they are out of control, it can be tempting to just avoid the problem. But burying the problem is not the same as solving it. Not knowing exactly where your finances stand will only add to your stress level in the long run.

The more you know about your finances, the easier it will be for you to create a workable plan to help you get where you want to be.

The first step to creating a workable plan is to figure out where you are. So start by gathering all of your financial records including pay stubs, bills, and credit card statements. Then create a budget, if you haven’t already. If you have a significant other, sit down and have a #RealMoneyTalk with them so that you can both be on the same financial page going forward.

With your budget in hand, you’ll know how much money you have to work with every month. Then you can create a realistic plan that helps you take control of your finances.

Check in with a Money Buddy or Financial Professional

Personal finance is personal, but that doesn’t mean that you have to go it alone. If you are feeling stressed about money, having a heart to heart chat with a trusted friend can help. Friends can offer much needed moral support and encouragement.

In addition to talking with friends, you can also reach out to a financial professional for help.  Your financial situation might be challenging for you to navigate, but a good financial advisor can help you plan a way forward and then keep you clear of issues in the future.

Celebrate the Small Wins!

Most of us have a tendency to only celebrate when we actually hit our goals. Like finally saving up that three-month emergency fund or buying our house. But the truth is that it takes many small victories over time to add up to those larger accomplishments.

Instead of waiting to celebrate when you hit that future target, take time to celebrate the smaller milestones along the way. These mini self-pats on the back will shift the focus away from how far you still have to go–which could contribute to feelings of stress and overwhelm–and help you to appreciate how far you’ve already come.

Remember That Net Worth Does Not Equate to Self-worth

It can be really easy to fall into the trap of measuring your overall success or hinging your happiness on the amount of money you make or how much you have in the bank. Though keeping track of your net worth can be a great motivational tool to help you reach your financial goals, remember that there are many ways to measure what a successful and happy life looks like for you.

Financial surprises happen in everyone’s life and it is important to know how to cope if you’re feeling stress from the situation.  Stay positive and focus on planning your way to your future goals, one small step at a time, to keep financial stress under control.

The views and opinions expressed in this content are those of the author and do not necessarily reflect the opinion or view of Intuit Inc, Mint or any affiliated organization. This blog post does not constitute, and should not be considered a substitute for legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

How to Handle Financial Stress2018-11-18T00:00:06+00:00

Net Operating Income: Why and When You Need It

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Looking at the net operating income of your real estate investment helps you compare your regular, recurring costs with the income you’re receiving. In general, your operating expenses should be much less than the revenue you’re bringing in.

In many ways, your net operating income acts as an important valuation of your business. It provides several key indications such as:

  • How much you can pay yourself initially or in the long run as an owner
  • Whether you can make mortgage payments using the excess from your operating income or if you’ll need other funds to pay the principal and interest
  • Whether your net operating income provides ability to save for larger repairs, like a new roof or an update to the kitchen
  • If you should make adjustments to your business operating model. For example, do you need to lower your operating costs or increase the price of your monthly rent?

So, whether you’re new to real estate or a seasoned veteran, this guide will help you understand net operating income, what it means, and how to calculate it. Being knowledgeable about your net operating income and the health of your business directly impacts your personal finances. With the right knowledge, you’ll be a more savvy and prosperous investor.

What Is Net Operating Income for Real Estate Investing?

Net operating income is a valuation method utilized by real estate owners to evaluate their operating income against their operating expenses. This number is often reported on a business’s income and cash flow statements.

Your net operating income is an important indicator of the profitability of a real estate investment — whether it’s a rental or commercial property. The higher the net operating income, the more valuable the real estate investment is.

By evaluating net operating income, you can better determine if you’d like to purchase a property, sell a property, or adjust the business’s income and expenses. A net operating income may even dictate whether or not a lender will approve a loan. Your bank or financial institution will likely consider this number among other valuation methods.

How to Calculate Net Operating Income for Real Estate Investing

To determine your own net operating income, look at the remaining dollar amount after subtracting your operating expenses from the operating income in a given accounting period.

When it comes to operating costs, here are common expenses to include:

  • Repairs to the building and grounds
  • Property insurance
  • Maintenance (such as snow removal, lawn care, and janitorial services)
  • Landscaping
  • Property taxes
  • Staff salaries
  • Property management costs
  • Utilities not covered by tenants such as trash, recycling service, or heat

For income, be sure to include the following revenue streams:

  • Rent from tenants (business or residential)
  • Laundry income (such as from coin-operated machines)
  • Vending machine income
  • Parking fees or permits
  • Revenue from cell phone tower if it’s stationed on your property
  • Billboard advertisements if located on property

A net operating income equation doesn’t include principal payments, interest payments, or interest revenue.

Net Operating Income Formula

The simplest way to calculate your net operating income is to utilize the following formula. By entering in the values for each component, you’ll have a clear number to consider in your business decision making.

Formula: Net Operating Income = Gross Operating Income – Operating Expenses

To see this formula in action, we’ll use a concrete example. If Sarah owns a rental property, she’ll need to consider her operating expenses and her gross operating income.

In this example, Sarah’s net operating income is substantially positive. It demonstrates that her real estate property, in one year’s time frame, has an operating income that exceeds her operating expenditures by $22,164. With this excess, Sarah can put the funds toward her mortgage and interest payments. She can also save part of her net operating income for future upgrades and capital investments if desired.

Operating Income vs. Net Income

While net income and operating income both show revenue, the two represent distinct financial indicators. By looking at both numbers, business owners can better understand where exactly a company earned a profit or where they suffered a loss.

Operating income refers to the profit that’s remaining after subtracting operating expenses such as property management fees and depreciation and amortization. Operating income includes income like rent and laundry fees but excludes taxes and interest expenses.

Net income, on the other hand, is a company’s earnings or profits. The income remaining after factoring in all expenses, including taxes and interest, is considered the net income or the bottom line. Once all expenses have been subtracted from all revenues, the net income is found.

Again, net income and operating income carry valuable information for the business owner. They should both be considered when evaluating a real estate investment or business opportunity.

Overall, understanding your net operating income allows you to evaluate a real estate property. By looking at your operating expenses compared to your gross operating income, you can gauge the overall health of your business. From there, you can determine if you want to reduce your operating expenses, raise your rent, or add additional streams of income such as having tenants pay for parking space.

As a more informed business owner, you’re able to make decisions that will help improve your financial standing. You can design a business that increases the value of your investments — as you continue to live a life of prosperity.

Sources: BusinessDictionary | Investopedia | Investopedia | Investopedia | The Motley Fool

Net Operating Income: Why and When You Need It2018-11-17T22:00:05+00:00

How Much of My Student Loans Should I Pay Down Before the End of the Year?

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The New Year is almost here! When the end of December finally rolls around, you’ll look back at your year and hopefully, feel like you’ve accomplished something significant – like paying down your student loan debt. But beyond that sense of satisfaction, does it really matter how much of your student loans you pay back before the end of the year?

It depends. To start, consider…

What Are the Details of Your Student Debt?

Every person’s financial situation is different. To understand the best course of action for your debt repayment, you need to know the details of your debt. Start by making a list of your outstanding loan balances, monthly minimum payments and the interest rates for each.  

If you have student loans with a high-interest rate, (think six percent or more), your debt is likely to cost you more than you might earn by investing extra payments. In which case, paying off your high-interest debt as quickly as possible might be your best bet.

If you have lower interest debt, it might make sense to stick to making minimum payments on your loans while investing in vehicles like your retirement account to maximize your returns.

Can You Deduct Your Student Loan Interest?

You may be able to deduct up to $2,500 in student loan interest on your tax return.

But there are a couple of caveats.

First, you will need to know your income, adjusted gross income and your student loan payment history for the year. In order to qualify for the full deduction, you need to be making less than $65,000 as a single filer, or less than $135,000 if you’re married filing jointly.  The IRS has a quick quiz that can help you determine if you qualify.

Note, if you have refinanced your student loan for more than the original amount and used the excess for anything other than educational purposes, you won’t be able to deduct the student loan interest.

Are You in a Position to Pay Off More of Your Student Loans Right Now?

Take a look at your current monthly expenses and what you have set aside in an emergency fund.

If you’re living paycheck to paycheck and don’t have an emergency fund, be wary of going all in on paying off your student loans.

You’ll need some emergency cash set aside for unexpected expenses to help avoid taking on high-interest credit card debt if and when something happens, like a medical emergency or your car breaking down, (and trust me, something always happens).

You Should Always Be Making (at least) the Minimum Payments

In most cases, student loans cannot be discharged in bankruptcy. And ignoring them will only hurt your credit and balloon your balance with added fees and interest. Avoid delinquency and long-term money regrets by making on-time payments now!

Go Ahead and Pay ‘em Down!

Once you’ve considered all of the factors above, you can decide how aggressively you want to pay down your remaining student loan debt. If what you really need is a little more motivation to help you follow through, imagine what your life will be like once you become debt free.

Imagine how you’ll feel and how your life might actually change. Will you be able to finally take that trip you’ve been planning or apply for the mortgage on your first home or just be able to sleep better at night?

When you start to lose focus and purpose while working through your debt pay off journey, remember to reconnect with those things – all the things you stand to gain once you become debt free and the feelings of achieving them!

This blog post does not constitute, and should not be considered a substitute for legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

How Much of My Student Loans Should I Pay Down Before the End of the Year?2018-11-17T20:00:07+00:00

What Is Credit Card Churning?

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Credit card churning is the practice of applying for many different credit cards for the sole purpose of earning rewards. Typically, credit card companies will offer enticing rewards to sweeten the offer for potential account holders. While most people sign up for one or two credit cards at a time and earn one-time rewards, churners open and close accounts strategically.

Deliberately timing when they apply for and close accounts allows churners to take advantage of offers, like airline miles and rewards points, over and over again. Many times churners are aiming to travel for free or rack up massive amounts of reward points. While the rewards for credit card churning seem great — so are the risks.

Does Credit Card Churning Affect Credit?

Only people with exceptional credit can pull of credit card churning. Those with average or low scores risk seriously damaging their score. Credit card churning can affect credit in a number of ways. Here’s how it impacts the factors that make up a FICO credit score:

Number of Hard Inquiries (10%)

Applying for a credit card is often considered a ‘hard inquiry’ since credit card companies have to verify qualification before issuing a card. Allowing several hard inquiries within a short period of time can negatively affect credit for up to a year. The number of hard inquiries you have counts for 10 percent of your overall FICO credit score.

Utilization Ratio (30%)

chart of credit utilization

Credit reporting agencies look at the amount of credit a person has available as well as how much of it they are currently using. Opening a new account can actually lower that utilization ratio, causing credit scores to go up. Closing an account can have the opposite effect. If all cards are kept paid up, the utilization ratio is unlikely to affect a credit score either way. Your utilization ratio counts for 30 percent of your credit score.

Average Age of Credit Cards (15%)

Credit bureaus look at how long credit accounts have been open and reward borrowers for having long-standing relationships with credit card companies. Closing a card that has been open for many years can lower the average credit card age, dropping the credit score. The average age of your credit cards counts for 15 percent of your overall credit score.

The other 45 percent of a credit score is made up of payment history, types of credit accounts that are open, and new credit. As long as accounts are paid on time and debt is not accumulated, credit card churning should not affect these factors much. Always thoroughly research and/or check with a financial advisor before deciding to pursue credit card churning.

What Are the Risks and Rewards of Credit Card Churning?

man on the phone with a credit card in hand

Credit card churning is a game with high stakes. Successful credit card churners can reap rewards like free travel and luxury items, while unsuccessful churners risk digging themselves into a hole of debt.

Risks

Credit card companies make their money by charging interest on purchases made with their cards. While they don’t charge interest on charges that are paid in full each month, they can charge from 16 to 30 percent on any amount that is not.

To claim rewards on new credit cards borrowers typically need to spend a minimum amount over a certain period of time. This might tempt the borrower to spend beyond their means in order to reach this goal and buy things they otherwise wouldn’t have. It’s easy to see how a person could fall into debt if they aren’t careful.

Credit card churners need to stay on top of their payments, annual credit card fees, and any special rules credit card companies may have. Failure to do so could land them in a much worse place than they started.

Rewards

While the risks can be devastating, the perks of credit card churning are enticing to some. Savvy churners earn rewards on money they were already planning to spend, which means they are essentially earning free money.

If borrowers can pay their credit cards in full each month churning can result in free vacations, discounted hotel rooms, free swag, and more. A quick Google search will show plenty of success stories in which credit card rewards have allowed churners to travel the world for free, although it’s important to be mindful this isn’t the case for most.

What Makes a Successful Churner?

woman on computer with a credit card in hand

The makings of a successful credit card churner includes self-control, vigilance and clear goals. It can be tricky to stay on top of that many credit cards at once, making it important to stay organized. A successful churner should have:

High Spending Habits

The only way borrowers can really benefit from credit card churning is if they ensure their balances are paid in full each month. With the high monthly purchase minimums required to earn most credit rewards, successful churners should already have high spending habits and the ability to pay this money back immediately.

Self-control

Successful churners possess the self-control to spend only the required amount to earn rewards and ensure that money is paid off in full each month. They should already have high enough monthly spending habits that they can simply filter their purchases through a credit card and pay them off immediately. Debt can accumulate quickly if churners don’t practice restraint.  

Great Credit

Those who have mediocre or bad credit are not likely to benefit from credit card churning. The cards with the best rewards are only available to those with high credit. Most people believe that taking on the risk associated with churning isn’t worth it for the lower-tier rewards offered to those with less than excellent credit.

Organizational Skills

Balancing several credit cards means churners must be exceptionally organized. They should have the ability to keep detailed records of how many cards they have, how long these cards have been open, fees associated with these cards, rewards earned, and any special rules the specific cards might have.

A Rewards Goal

Most churners have the end goal of traveling for free or very cheap. Successful credit card churners often have a specific goal in mind, like a destination. Knowing exactly how many points or miles they need and knowing what airline these miles are associated with can help them stay on track and pause to let their credit recover once they’ve reached their goal. Having a large purchase they would like to buy with their points can also be a great reference point.

Who Should Avoid Credit Card Churning?

couple worrying about credit card debt

Most people are not great candidates for credit card churning. Even possessing some of the above attributes does not mean a person will be successful and it’s always best to chat with a financial expert before engaging in this practice. There are a few warning signs, however, that show it’s an especially bad idea to churn credit cards. People that have the following should avoid churning:

Less Than Great Credit

Anyone who does not have excellent credit should avoid credit card churning. The risk simply isn’t worth the reward. Those who are teetering on the edge between good and bad credit should be especially wary since a slip up would be much harder to recover from. Mistakes made while attempting to practice credit card churning could impact their credit for the long term.

A Large Purchase in the Near Future

Anyone who is hoping to secure a mortgage, auto loan, or any other large purchase in the next couple of years should avoid credit card churning. A number of opened and closed credit cards is a huge red flag for lenders and churners are likely to get denied for large purchases.

A Low Income or Spending Habits

Churners should only be spending money they have already planned to spend. The minimum amount of money that needs to be spent to earn the best rewards is usually thousands of dollars. Anyone who can’t pay this off in full immediately after swiping their card should steer clear of churning.

A History of Credit Card Debt

People who have gotten themselves into trouble with credit card debt before are more likely to allow it to happen again. Anyone who has gotten into significant credit card debt and been unable to pay it off should probably avoid credit card churning.

Inexperience with Credit Cards

Those who are opening their first card or don’t have much experience with credit cards should avoid credit card churning. Lack of experience could mean that these people don’t understand how quickly debt can add up or the serious trouble they can get into by letting payments slip.

Credit card churning can be exciting and offer enticing rewards. However, the practice can also land borrowers in massive debt and destroy their credit if they aren’t careful. Only those who are willing to commit to the hassle, effort, and risks will have a chance at successful churning. Even if fully equipped with successful churning traits, anyone considering credit card churning should think long and hard to determine if it’s a good fit for their situation before proceeding.

Sources: CNBC | The Simple Dollar | US News

What Is Credit Card Churning?2018-11-17T18:00:04+00:00

7 Steps to Cancel a Credit Card Without Hurting Your Score

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With banks, grocery stores, credit unions, and department stores all offering lines of credit, it can be all too easy to have a collection of credit cards. When each card offers unique travel and cash back rewards designed to motivate you to spend, the situation can quickly get out of control. The average American cardholder has 3.7 credit cards, so if you find you have too much plastic in your pocket, you may be wondering how to cancel a credit card to get control of your finances.

First, it is essential to consider if canceling your credit card if the right choice for you. Canceling your credit card is a simple solution to a complex problem, and there may be repercussions that affect your credit score or ability to qualify for loans. In addition, if you’re like most Americans with an average of $6,375 of credit card debt, you likely have unhealthy spending habits that may cause you to further into debt even if you do cancel a card. Before making a decision, you’ll want to weigh the pros and cons of canceling your credit card and make sure you’re not deactivating your credit card for the wrong reasons.

If you feel confident about your decision to cancel your credit card and you have talked to a financial advisor, keep reading below to learn how to cancel a credit it card:

1. Consider the Timing and Impact on Your Credit

When you close a credit card, your credit score may be affected. It’s helpful to understand that a part of how your credit score is calculated is the length of your accounts and your credit utilization. Your score goes up the more unused credit you have available compared to the debt you have used. When you cancel a card, your available credit goes down, worsening your credit utilization ratio. While this may help you avoid the temptation to overspend or help simplify your bills, you should still keep in mind that this may make it more difficult for you to find financing on large purchases like a car or home. Talk to a financial advisor if you are uncertain about whether you should cancel your card.

2. Pay Down the Balance

While you can ask to have a credit card closed to new transactions, the account will not fully close until the entire balance is paid. If you have multiple cards to pay each month, some experts recommend the snowball method. With this tactic, you focus on paying off the smallest debts first and then use the extra money to tackle larger bills.

3. Remember to Redeem Any Rewards

Rewards on cards that offer perks like travel credit or cash back don’t have to be forfeited entirely when you close your card. Look at the requirements on your rewards to see if there are any thresholds you are close to reaching. You may only be a few miles from a plane ticket or a couple of dollars from the cashout minimum. Talk to your credit card company as some offer a statement credit in exchange for your accumulated miles.

4. Contact Your Bank to Cancel

Call or go into your credit provider and let them know that you wish to cancel your credit card. You’ll need to confirm that your balance is actually zero, as there is sometimes a small residual interest that may accrue after your last bill. Once you have ensured you don’t owe anything, closing your account may take some effort, and the person you speak to may even offer you a new rate or rewards in an effort to keep you.

5. Don’t Accept Their Offers

Remember that credit card companies expect to make their money back on any bonuses they offer in the form of interest paid in the future. The best reason to keep a credit card is to build credit, as they aren’t designed to save you money primarily. A Scenario where you might want to consider their offers may be if you have multiple cards, and the new offer from the credit card company makes keeping the card open a better deal than another card.

6. Write a Letter for Your Records

To cover all your bases, it can be a good idea to have a form of written proof that you requested the account be closed and when you closed it. Because your credit score is so important and hard to build, having written proof leaves little room for error that could have negative repercussions. You may even enclose a check for the last payment on the card. Send the letter via certified mail or request a receipt to prove that the bank received it.

7. Check Your Credit Report to Ensure the Account Is Closed

You may want to get a free copy of your credit report to make sure the account is marked closed. It will take seven years for any late payments or delinquencies associated with that account to disappear from a credit report. The good news is that good credit history will remain on your credit report longer. A closed account that was in good standing will remain on your credit report for ten years. This will help shift the majority of your credit information to positive as time passes.

Can Canceling Your Card Hurt Your Credit Score?

It is possible that canceling your credit card may lower your credit score. Because credit is essential for establishing financial responsibility to lenders, renters, and creditors,  maintaining a good credit score is essential. A good credit score is generally considered to be anything above 700. If you have a good credit score, you may not need to worry as much about closing a card. However, many factors affect a credit card score and everyone’s financial situation is different, so consider the length of your account history, your credit utilization ratio, and any upcoming purchases that will require a good score before canceling a card. Here’s a more in-depth list of things to consider before canceling your credit card.

The Pros of Closing a Credit Card

Prevents Extra Expenses

Many people cancel their credit cards to keep themselves from spending excessively. If you know that you’re more likely to spend up to your limit just because you can, it may be best to remove the temptation altogether to prevent yourself from accruing unmanageable debt.

Decreases Your Chances of Identity Theft

While only 6.7 percent of Americans will fall victim to identity theft each year, your personal risk increases with additional cards. Additionally, if some of your cards go unused and unchecked, it may take longer for you to recognize the theft, enabling more damage to be done.

Keeps Payment History

When you close your account it won’t be completely wiped from your credit records. While negative credit stays on your report for seven years, an account closed in good standing can benefit your credit history and add to the variety of sources on your report for ten years. In this case, the closed card will continue to provide some benefits even after you cancel it, with none of the risks.

Simplifies Your Finances

If you struggle to remember what bill is due when or have trouble calculating how much you’ll be paying in interest and want to uncomplicate things, you may benefit from canceling a credit card. Consider trying existing tools that can help you manage your cards and bills and talk with a financial advisor before canceling.

The Cons of Closing a Credit Card

Increases Your Credit Utilization

Your credit utilization ratio is determined by the amount of available credit you are currently using across all lines of credit. If your account has low to no balance and you cancel your card, the credit available to you will decrease. If you have a lot of debt on other cards, this can have a larger negative impact.

Shortens Credit History

The length of your account history may play an important role in establishing your creditworthiness. Even if your accounts are all in good standing and you’ve never missed a payment, having only a short track record of this may not indicate much. Therefore, it can be a bad idea to cancel your oldest account because the shortened credit history may affect your credit score.

Decreases Variety of Credit

There are three main types of credit: revolving credit, installment credit, and open credit. Respectively, these are associated with credit cards, loans, and charge cards. However, most people don’t encounter charge cards, which are cards that cannot carry a balance month to month. Your credit score can be positively impacted by having a combination of installment and revolving credit, so if you cancel your last credit card, you may decrease your variety of credit and credit score.

Terminates Access to Benefits

If you’re a frequent traveler or shopper, the miles and cash back options offered by some cards may be very attractive. While these benefits are usually not a good reason alone to keep a card around, you may want to factor in the value you place on those rewards when considering closing a card.

While it may sometimes be appealing to cut up your cards and cancel your accounts, you should weigh how this may impact your credit score before doing so. If you have a card you’re not using, maintain other types of credit, have a low utilization ratio, and are not planning on applying for any loans soon, it may be a good idea to cancel your card. Understanding the factors that affect your credit score may help you make smarter financial decisions and gain greater control of your finances.

Sources:

USNews | CreditCards | TheNest | BankRate | Experian | Debt.org

7 Steps to Cancel a Credit Card Without Hurting Your Score2018-11-17T16:00:24+00:00

Kaitlin Wants to Buy a Car | TransUnion

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Kaitlin Wants to Buy a Car | TransUnion2018-11-17T16:00:08+00:00
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