HOW TO AVOID THE 5 MOST COMMON MONEY MISTAKES

You can save big by doing very little—and sometimes nothing.

This may sound unbelievable or even a little sketchy, but it’s true: You can save money every month by literally doing nothing. The tactics that we’ll discuss in this whitepaper have worked for millions of Americans. We are NOT making this up.

First let’s look one very important number – $83,000,000,000. That’s how much Americans owe on their credit cards. We owe $83 billion to credit card companies. But when a number gets that big, it’s hard to even understand it. So, how much is $83 billion exactly?

It is enough to give everyone living in the two most populous U.S. states $1,000 in cash. That’s everyone living in California and Taxes. Of course, we just keep charging, so soon we’ll be able to add the third most populous state, Florida.

Did you know more than half of all credit cardholders carry a balance each month? With credit card interest rates hovering at around 20 percent, that means many credit users are paying $1 in interest for every $5 they charge.

So, can be very hard to catch up once you get behind. That’s why credit cards can be so dangerous, and it’s why they’re going to come up a lot as we talk about money mistakes.

How to save money on your credit cards in just minutes

Before we talk about how to save money by doing nothing, first let’s talk about how spending a few minutes can help you save money on those hefty credit card interest rates and fees.

Average credit card late fee: $36

If you miss the due date on your credit card by even a day, you get popped with a late fee and it can really add up. But you can easily get rid of it?

How? By asking.

If you’ve had a credit card for many years and you have been a good customer, you can call the number on the back of the card and get some concessions. For example, if you’ve never been late with your payment before, you can often get the first late fee removed as a gesture of goodwill.

You might also be about to shave down your interest rate if you mention that another card has offered you less—and if you spend about five minutes online you can surely find one. Then mention that new card and lower rate to the representative.

You can also move your due date, so it corresponds better with your paychecks and other bills. That way, you never get caught short again.

Money Mistake #1: Not asking!

What we just covered about credit cards is the first money mistake that people make. They simply fail to ask to pay less or save more. But that’s not only with credit cards. It applies to many of the companies and institutions that you might owe money to.

When to ask for a break

• Credit card late fees and deadlines
• Medical bills
• Any debt in collections

Besides calling your credit card companies, you should also call about any debt you’ve incurred for medical procedures. And this isn’t just about hospital bills and doctor’s fees. Even dental work and lab fees can be negotiated. Medical providers are well accustomed to such negotiations. Just contact the billing department and politely inform them that you can’t afford to pay the full bill right now, but you’re a responsible person and want to work something out.

Ask what breaks they offer and remember, always be polite!

Debt collectors can be mean, but you can kill your bills with kindness!

The tactic we describe above also works well with debt collectors. No one likes dealing with debt collectors, but here’s the behind-the-scenes truth that can help you save: Debt collectors often BUY debt from, say, your doctor. THEY pay pennies on the dollar for your debt.

The doctor gets something when he might fear he’d get nothing, and the debt collector then goes after you, making a big profit when you pay in full. But they can still profit even if you don’t pay the full amount. Therefore, many debt collectors will accept less than the full amount—because they’ll still profit on the transaction.

So, if you’re facing a debt collector, ALWAYS negotiate! We can show you how. We have a publication that gives you step-by-step instructions.

Negotiating isn’t just for your debt either!

• Cable and satellite bills
• Cell phone bills
• Newspaper delivery

Before we leave the topic of negotiating, let’s wrap up with this: You can negotiate almost any service.

That goes for your cable or satellite bill. You can often get extra premium channels if your provider is running a special you didn’t know about. You can even negotiate for a lower bill, often saving $5 or more per month. The same tactic works for those complex mobile phone contracts. If you still get a newspaper delivered, you can either get a small price break or an extra day delivered for free.

Why do these businesses cut you these breaks? Because they want to keep your business. And these little savings really add up, especially when you don’t have to do anything.

Money Mistake #2: Ignoring the tech!

Now let’s move to the second biggest money mistake. If not asking is the first mistake, then not embracing technology is a close second.

What does this mean?

There are big advancements that make it easier for you to save money, but not everyone adopts them. Sometimes, it’s out of fear, but mostly, it is just because people don’t know about them. So, let’s allay your fears and fill you in now…

Budgeting is crucial—but boring

Let’s be honest: budgeting isn’t fun.

We all know it’s important. After all, how can you save money if you don’t know how much you’re spending? That’s why a monthly household budget is so important. But it can also be time-consuming to put pen to paper. But what if you didn’t have to?

Budgeting better with tech tools

There are websites, apps, and programs that handle the drudgery of budgeting for you. They do the math for you, and in seconds instead of hours. Many of them cost nothing and the ones that do cost only a few dollars.

Here’s how they work…

Let technology do the dirty work:

• Mint
• Personal Capital
• YNAB
• Mvelopes

One of the most popular budgeting apps is called Mint and another is called Personal Capital. But a lot of banks and credit unions offer similar programs on their websites for their customers.

Basically, you just type in your income and expenses, and these programs do the math for you. You can even project your savings if you eat one less takeout dinner, or if you refinance your mortgage. The software does the heavy lifting for you.

Tiller, Quicken, and more!

If budgeting apps are a little too techy for you, there’s a middle step. Websites like Tiller let you download customized spreadsheets that stay on your computer, and you easily personalize. Quicken has software that’s been around for decades and most of us are familiar with it.

Each solution has its pros and cons, but they all work. So, it’s really up to what makes you feel the most comfortable.

Money Mistake #3: Forgetting your workplace options!

The last place you might look for easy savings is your workplace. However, believe it or not, your employer can help you effortlessly save money, even as you work hard to make it. There are three major ways to do that.

Direct deposit can help you save indirectly

More than 9 in 10 Americans are paid through direct deposit, and almost all of them have access to a neat feature: You can direct some of that money AWAY from your checking account and send it DIRECTLY to a savings account you don’t normally see.

Imagine if you send even $10 a week to a savings account. At the end of the year, you’ll have more than $500! And you literally spent a few minutes setting it up, then did nothing the rest of the year!

TIP: Raise up your savings when you get a raise

This savings shortcut works very well when you get a raise. Just divert that extra money into a savings account. You won’t be tempted to spend it because you never got used to having it, and you don’t constantly see it in your checking account.

To set up multiple direct deposit streams, simply talk to your Human Resources or payroll department. They can walk you through this easy process.

401(k) is more than OK

Make 43 cents on every dollar!

Where you work might offer valuable services that can save you big. One of the most popular is a 401(k), which helps you save for retirement. What’s so special about a 401(k)? Many employers match a portion of your contribution to this retirement account.

According to government research, the average is 4.3 percent. That means for every dollar you sock away for later, you get 43 cents. That may not sound like much, but when you consider a savings account is paying less than one percent in interest, that suddenly seems like a lot.

Also, the IRS gives you some money, too: By not taxing what you contribute. And since this is for your retirement, which is a long way off, those savings will build up over time.

HSAs are a healthy way to save

Another big workplace benefit is called a Health Savings Account, or HSA. It does the same thing by letting you set aside money for healthcare and having it be invisible to the IRS.

We could spend an entire webinar talking about these lucrative benefits, but we suggest you chat up your HR department. Believe it or not, they WANT you to take their money. Why? Because companies that offer these benefits know their employees will appreciate them. They’re more likely to stick around and work hard. So let your bosses help you save!

Money Mistake 4: Not automating your bills!

We’ve already talked about automating your savings. Now let’s talk about automating your spending. Almost every bank and credit union—and even many municipal utilities—offer automatic bill pay.

You can go online and set the day each month when you want a bill to be paid. On that day, the proper amount is automatically deducted from your bank account right then, and not one day sooner. Or more importantly, not one day LATER. This means never paying a late fee ever again.

An autopay warning: You MUST have a budget first

Of course, a danger of automatic bill pay is that if you blow your budget on some debit card purchases you’ve forgotten, you might not notice how low your bank balance is getting. Then your bank or credit union might hit you with fees, either for not keeping a minimum balance or for overdrawing your account. That’s why it’s so important to keep a household budget.

Another autopay warning: Setting it and forgetting it

Another worry about autopay: You might set a bill to be paid and never look at it again. What if it’s for a subscription you no longer need? Or a music streaming service you no longer use? Of course, if you keep that household budget using the easy tech we talked about earlier, you won’t have any of these downsides. It’ll be all upsides.

Money Mistake 5: Falling for financial scams!

The final big money mistake is caused by our desire for easy money. While we’ve just reviewed some proven ways to save more without having to burn a lot of calories, there are also a lot of scams that prey on our urge to find shortcuts. The difference is, you don’t know these people, yet they want you to trust them.

2 types of scams: Greed and fear

Generally speaking, there are two kinds of scams. One appeals to your greed, the other to your fear. If you find yourself talking to someone you don’t know, and you feel one of these emotions welling up inside you, pause for a moment and consider whether it’s a scam. Let’s run through an example or two.

Greed scams: Getting something for nothing (or so you think)

Let’s talk about easy money. The stereotype for these scams is the Nigerian prince who wants to give you thousands of dollars to help him transport money out of his country. But these also include scammers posing as VA managers and calling military veterans to offer extra benefits. Or an IRS agent trying to give you a tax refund you didn’t know you had coming. Or even a government official saying they’ve located some funds you lost.

In all these cases, what the scammers are after is your personal information. They can either use that to break into your accounts and drain them, or they can sell your personal information to other scammers who will do the same thing.

Fear scams: Scaring you into losing money

Ironically, these scams can be from the same alleged sources. The IRS agent who wants to give you that refund? Well, now he’s calling to threaten you with prison if you don’t pay back taxes right away. Never mind that the IRS never calls you, they only send letters. And never mind that there hasn’t been a debtor’s prison in this country for two centuries.

These scams all insist you must ACT NOW or you’ll suffer severe consequences. Why? Because they know if you take a moment and really think about what they’re threatening you with, it doesn’t make a whole lot of sense. How, for example, can a bill collector order the police to arrest you if you don’t wire the balance you owe? Since when do police officers take orders from debt collectors?

How to avoid all scams – by doing nothing

So how do you avoid both kinds of scams? Simple, by doing exactly what we’ve been talking about so far: Almost nothing.

You need to resist the urge to ACT NOW. Ask for the name and title of the person calling you. Ask for a phone number to call them back. They won’t give you one, but on the off chance they do, look it up and see if it’s even from the place they say they’re calling from. Usually, they’ll just hang up on you.

In addition, NEVER reply to emails from people you don’t know. If you want, Google them and look for the legitimate company’s website and contact them that way. But again, doing nothing is your safest bet.

What to know about debt collectors

Now let’s take a moment to talk about a topic no one likes—debt collectors. Who likes people calling them all the time and asking for them to pay bills they can’t afford to right now? No one would answer yes to this question.

Here’s the thing about debt collectors: They can’t just bother you any time of the day, and they’re not allowed to threaten you at any time. That’s important to know, and it’s important to let them know you know.

Federal Debt Collections Practices Act

There’s a federal law called the Fair Debt Collection Practices Act, or FDCPA. The FDCPA bans debt collectors from being abusive.

For instance, it says they can’t call you before 8 in the morning and after 9 at night. They can’t call you at work if you tell them not to. They’re not even allowed to swear at you.

If you’re getting harassing calls from debt collectors, just Google the letters F-D-C-P-A and you’ll get a list of your rights. Then tell those debt collectors you know about your rights—and you know how to report them to the federal authorities. That usually settles them down very quickly.

The bonus mistake: Not asking for professional help!

Before we finish this off, let’s add one bonus mistake that many people make. This one costs them not only money but a lot of time. It’s not asking for professional financial help.

Now, this might sound self-serving since this guide is written by one of those places, but it also happens to be true. You can save both time and money by calling a nonprofit credit counseling agency like Consolidated Credit. Here’s what happens when you do.

Credit counseling: free, easy, short, and rewarding

When you call a certified credit counselor, you receive a free debt analysis. They’re trained to ask you the right questions and study your financial strengths and weaknesses. Front here, they can recommend ways for you to spend less and save more. They can also offer you a powerful tool that you can’t use on your own. It’s called a debt management program.

Debt management program: pay less, pay off faster, get debt-free

A debt management program, or DMP for short, is basically an agreement between you and your credit card companies. They’ll freeze your penalty fees and lower your interest rates if you agree to make regular payments. Those payments go through the credit counseling agency, and you can make one payment that covers any credit cards you put into the DMP. So, you pay less and save time, too.

So, what’s the catch?

DMP has a fee, and you can’t do it yourself

DMPs aren’t free. It costs money for staff to administer them. But—and this is a huge but—that fee is rolled into your monthly payments, and it’s minuscule next to the savings you’ll reap. That’s probably why DMPs have been around for decades, and they’ve saved Americans millions of dollars. But you can’t just sign up for a DMP on your own. The credit card companies work exclusively with nonprofit credit counseling agencies.

Thank you!

How to Tackle Your Student Loans

Don’t let college costs from long ago ruin your future.

In some ways, student loans are the cruelest form of personal debt. You took out these loans so you could get a great education and launch a lucrative career. You just wanted to take care of yourself and your family. Ironically, the cost of that education is now keeping you from the financial independence you were looking for.

The sad truth is, even before the pandemic, student loans were already being called a crisis. Why? Because Americans collectively owe more than one trillion dollars on all the student loans out there. It’s one of the largest forms of debt people owe.

In fact, people owe more on our student loans than they do on all the credit cards out there. Next to mortgages, this is the biggest category of personal debt. And if you think back to the Great Recession, you’ll remember that a mortgage crisis caused that.

Of course, when you talk about a trillion dollars, it’s hard to even grasp the number. So how about these numbers? 40 million American adults owe student loans, with 6 million owing more than $50,000. So basically, almost a fifth of the country is making student loan payments, and millions of them are struggling. Add a pandemic on top of that, and you can see how dire the problem is.

These are the reasons why you’ve been hearing President Biden talk about student loan forgiveness. It’s a complicated topic, but know this: What’s being proposed right now, even if it happens, won’t solve the problem. It’ll just ease some of the symptoms. That would only apply to federal student loans. That accounts for the majority of people’s student loan debt – only 8 percent are from private lenders.

THE TRUTH ABOUT STUDENT LOAN FORGIVENESS

Student loan forgiveness means different things to different people. What most people want it to mean is: No more student loan payments! But of course, nothing financial is that simple.

There are two kinds of student loan forgiveness, broadly speaking.

Small, sudden, and one time

The first is the political kind. You might’ve heard about this in the news. President Biden has been talking about this for a while now — ever since he was on the campaign trail, actually. He’s even signed a couple executive orders to forgive certain, specific kinds of student loans.

Big, slow, and permanent

The second kind of student loan forgiveness is more established. It’s been around for a decade. But it requires some work. Still, the payoff can be huge. There’s no telling what the president and Congress will actually do, and when they’ll actually do it.

Public student loan forgiveness

Can you really get your hefty student loan balances forgiven? The answer is, “Yes, but…”

The Public Service Loan Forgiveness program – PSLF, for short – offers federal student loan forgiveness if you work in a qualified profession. What are those professions? You can work in…

• Public health
• Military service
• Public safety
• Law enforcement
• Public education
• 501(c)(3) tax-exempt organizations

What they all have in common is they do some public good. So if you work for a for-profit business, you don’t qualify, even if you’re doing a lot of noble work in your community.

If you work in one of those professions, you’ve cleared the first hurdle. Unfortunately, there are more. The qualification process is long, complicated and (worst of all) not guaranteed. And you need to make 120 regular qualified payments first – that’s 10 years’ worth. But if you do qualify, you could get out of student loan debt for less than you originally borrowed.

Is it really worth the hassle and the long timeline? Well, depending on your specific circumstances, you can save up to $24,000. There is just one more complicating factor: To qualify for student loan forgiveness from the federal government, you need to enroll in one of their existing student loan relief programs. Many people have heard that the federal government offers help to those struggling to make their payments, but they don’t quite grasp all the details. And no wonder, because it can get a little complicated. So let’s break it down for you.

Federal student loan relief programs

One question Consolidated Credit gets asked a lot is, “What’s the catch? Why would the government help me pay off student loans it saddled me with?” Well, remember the $1 trillion in total student loan debt in this country? Well, the federal government knows that if you can’t pay it back, they’re on the hook for those losses. And besides, if you can’t pay back your student loans, you won’t be able to buy a home and pay property taxes and be a productive member of society.

Unfortunately, these relief programs are as easy to understand as your income taxes. Which means, they can get confusing. Like all government programs, these student loan efforts all have acronyms. Here are ICR, IBR, PAYE, and REPAYE explained.

Income-based repayment (IBR)

If you have federal loans and can demonstrate a financial hardship, you qualify. Like the name implies, an IBR matches monthly payments to your income. It’s the government’s way of acknowledging that the salary you earn after you get a degree usually doesn’t exactly match the expense you incurred to get it.

For example, the program adjusts your monthly payments to your income and family size. If you have a lower income and a larger family, it reduces your student loan payment requirement. In general, enrollees spend between 10 percent to 15 percent of their take-home income to repay student loans under an IBR. This reduces the burden of student loan repayment on your budget.

The federal government isn’t forgiving your loan. You still owe what you owe. You’re just paying less each month on that total loan. But here’s the catch: You pay interest on all your loans, and student loans are no different. So your interest is still accruing, because you’re paying less each month. Even the government acknowledges that this can increase total cost over the life of your loans. Still, it helps you greatly in the short term, so for many folks, it’s worth it.

Income-contingent repayment (ICR)

The same thing goes for another program with a very similar-sounding name. Income-contingent repayment is a little different than income-based. While both an IBC and an ICR adjust your monthly payments based on your income, the ICR has a few important differences.

First of all, you don’t need to show any crushing financial problems to qualify. Remember, for an IBR, you need to show some hardship. In other words, you need to prove to the government that you simply don’t make enough or save enough to meet your obligations. ICRs don’t require this, so it saves you on paperwork and hassle.

But there’s a downside to ICRs. Unlike an IBR, an ICR doesn’t stop your monthly payments from increasing indefinitely along with your income. Also, while an IBR typically reduces your payments to 15 percent of your income, ICRs only go to 20 percent.

Pay as you earn (PAYE) & revised pay as you earn (Repaye)

Pay as You Earn is even better than an IBR at reducing monthly payments. It was updated and expanded a few years ago into yet another option called REPAYE – which stands for Revised Pay as You Earn – but the concepts are still the same. Your monthly payments are reduced to 10 percent of your discretionary income, and after 20 or 25 years, whatever balance is left is forgiven – and forgotten. You pay nothing more.

So what’s the difference between the two? They’re subtle but real. For instance, to qualify for PAYE, you must have a partial financial hardship. REPAYE? Anyone with qualifying student loan is eligible. Your spouse’s income doesn’t count in PAYE if you file separately, but it does in REPAYE. So what does all this mean? Generally speaking, PAYE is a better option for married borrowers when both spouses have an income. REPAYE is usually better for single borrowers and people who don’t qualify for PAYE. But in both cases, just like an ICR, if you get a new high-paying job or a big fat raise, your payments jump up along with that extra income.

Other options

Deciding which program is right for you will take some time. You can start with this website: StudentAid.gov. That’s a federal site that’s written in pretty plain English. There are other money-saving options for student loans: forbearance and deferment. Here’s what they are.

Forbearance

What’s forbearance? You’ll be familiar with the concept if you’ve ever called your credit card company and begged to get a late fee removed. In this case, your student loan servicer wants you to keep making payments, so sometimes they’ll give you a forbearance. That means you can temporarily stop paying your student loans. Basically, it’s like a hold button for your loan payments.

The problem is, you need a good reason for such incredible debt relief. Without one of these reasons applying to you, you can’t get a forbearance. These come in two types: discretionary and mandatory.

• Discretionary: A discretionary forbearance requires your servicer’s permission. It’s totally up to them if you get it. And all of them have specific situations that must apply to you. For instance, if you can’t make your payments due to a change in jobs, a medical expense, or other financial difficulties, your servicer can decide to give you a forbearance.
• Mandatory: This means your servicer can’t deny you the forbearance if you qualify. What’s it take? If you’re on a medical internship or residency program, or if you’re in the National Guard and got activated by the governor, or if your payment is more than 20 percent of your monthly gross income – then you can get a mandatory forbearance. You’ll have to prove that to your servicer, but a little paperwork can save you thousands of dollars.

Whatever forbearance you qualify for, you can get up 12 months of making NO payments. In total, you can get three rounds of 12-month forbearances before you max out. That gives you plenty of time to get your financial life in order– but remember, you still owe the loan amount.

In fact, under a forbearance, your interest charges continue to accrue. And because you’re not making payments, that means your overall loan debt increases. So you get some relief now, but later on, you’ll pay for it. But there’s another option that avoids some of this: deferment.

Deferment

A forbearance and a deferment are more similar than different. In fact, the only major difference is that with a deferment, you might not owe that accrual of interest we just talked about. Like a forbearance, you must have some pretty serious circumstances that prevent you from making those monthly payments – like, say, cancer treatment or a job layoff.

Now, this is just a rough overview of forbearances and deferments. You want to know how detailed it can get? Here’s a quote from the federal Student Aid website…

You may be eligible for a deferment on your federal student loan if you are a parent who received a Direct PLUS Loan or a FFEL PLUS Loan, while the student for whom you obtained the loan is enrolled at least half-time at an eligible college or career school, and for an additional six months after the student ceases to be enrolled at least half-time.

If it sounds complicated, don’t worry – there are a few more options.

Federal direct consolidation loan

If you’ve ever used a debt consolidation loan to take care of credit card debt problems, you might think you understand how a Federal Direct Consolidation Loan works for student loan debt. But you’d be wrong. You use a Federal Direct Consolidation to consolidate federal student loan debt into one easy payment. But the loan structure, interest rate, and how you qualify varies greatly from other types of consolidation loans.

Consolidating debt is generally done to simplify debt repayment. If you have multiple individual debts to repay, it can get complicated to juggle all those bills within your budget. Consolidation reduces that down to just one bill, so debt is easier to manage. However, that’s not the only advantage of Federal Direct Consolidation Loans. In this case, taking out this type of loan provides an additional benefit that can be significant, depending on your situation. Namely, you can make defaulted federal student loan debt current. It’s an amazing benefit, and one worthy of a few minutes of your research.

It’s actually easy to apply. You do it through StudentLoans.gov.

Refinancing

Finally, there’s refinancing. If you don’t want to deal with forbearances and deferments, and you’re not interested in the federal relief programs we just talked about, you have another option: refinancing your loans on your own.

When you refinance, you actually take out a new loan at a lower interest rate. This works best if you’re not cash-strapped and want to pay off your loans faster. That’s because you need a credit score high enough to qualify. Basically, you’re consolidating your federal student loans into one private loan for a lower interest rate. You can then plow your savings back into paying off the principal.

While not nearly as complex as the other options, it’s not a walk in the park, either. There are the three first steps you need to take.

1. Determine how much debt you need to refinance.
2. Note the current balance and APR on each loan you include.
3. Shop around and get quotes from lenders.

When you find the best deal, apply. But remember, when you apply for any new loan, that results in a “hard inquiry” on your credit report. That can temporarily drop your credit score. It’s not a huge deal, but it’s worth mentioning – because if you apply for too many loans in too short a time, you could end up paying more. So for instance, you don’t want to refinance your student loans at the same time you apply for a new credit card and secure a new auto loan. All those inquiries, not to mention the new credit, could drop your score and raise your rates.

Is the hassle worth it?

Pursuing any of these options will take a lot of time. Is it worth it? Most definitely yes. Anything is better than defaulting on your student loans, which is what happens when you don’t make payments for 270 days or more. That means your wages can be garnished, your credit score is trashed, and any future tax refunds and other federal benefits payments can be withheld. You don’t want to go down that road.

Here’s a depressing statistic: According to the Government Accountability Office, 51 percent of all federal borrowers were eligible for the IBR program we mentioned earlier – yet, only 13 percent are actually participating in it. And the Department of Education even admits that their efforts to increase awareness about these federal relief programs is “incomplete” and “inconsistent.” That’s why you might consider hiring a professional.

Think of it like your taxes. If your income taxes become too complex, you can hire a CPA or tax preparer who not only saves you the time and aggravation, but can also find ways to save you money – hopefully more than enough to cover the cost of hiring them in the first place. That’s been happening more and more in the student loan world.

Thank you!

Student loan debt holds thousands of Americans back from improving their credit score or even owning a home. This paper was just an overview of all your student loan debt relief options. Learn more about each option and find out which may be the best fit for you. Visit our website at ConsolidatedCredit.org to learn more, or visit StudentAid.gov.

BUY OR REFI: WHICH IS BEST FOR YOU?

This is your biggest financial decision, so listen to the experts.

For most people, a home is the most expensive thing they’ll ever buy. Which means it’s also the most complicated thing they’ll ever buy. And of course, that makes it the most stressful thing they’ll ever buy. While no one can make home-buying a fun and relaxing process, this guide can cut your stress in half.

Owning a home can be both fun and lucrative. Buying it is a mess of stress. A Homes.com poll from 2018 found that a third of homebuyers actually shed tears because they were so frustrated at the process. Most had at least four arguments with their families. The reason for this stress isn’t hard to figure out.

Mortgage debt by the numbers

By far, the biggest form of debt in this country comes from mortgages. We collectively owe 16 trillion dollars on our homes. That’s how much we need to pay before we own our home free and clear. Needless to say, that can easily cause anyone to stress.

It’s especially stressful because mortgage debt is almost four times more than all the other forms of debt we struggle with. That includes credit cards, student loans, auto loans, personal loans, etc. Everything else we owe is dwarfed by what we owe on our homes.

So if you’re feeling stressed, you’re not alone. Not by a long shot. There’s no way to dive deep into every aspect of home buying and refinancing in one guide. So these are the highlights that can point you in the right direction for the best expert advice — and almost all of it is free. But before you can consult the experts, you need to know how to ask the right questions.

What to consider before you buy or refi

You should be taking a deep dive into your finances before you make any decision about financing a home. Here are some of the things you should ask yourself to help you prepare:

The income questions

The very first step isn’t looking for a home. It’s looking at your paycheck. You’ll need to pay for your new home with money you earn, so you need to start there. Ask yourself…

• Do I have a steady source of income?
• Have I been regularly employed for the last 2-3 years?
• Is my current income reliable?

Otherwise, you’ll have trouble getting a mortgage — and even more trouble paying it.

The payment questions

It’s hard to even get a lender to give you a mortgage unless you have a good credit score. We’ll talk more about that in a moment, but for now, you need to ask yourself:

• Do I have a good record of paying my bills?
• Do I owe a lot on my credit cards?
• Do I have a car loan or other big loans?

The savings questions

While you can buy a home without a down payment, that’s rare. You’ll likely owe many thousands right off the bat. Besides that, you need to pay the mortgage, so you need to make sure you can set aside that much aside each month. Last but certainly not least are the miscellaneous expenses and bills that come with home ownership. You need to add those up, from property taxes to insurance and more. Ask yourself…

• Do I have money saved for a down payment?
• Can I pay a mortgage every month?
• Can I afford the maintenance and other house-related bills?

Debt-to-income ratio

Whether you’re buying for the first time or refinancing, one number is important: it’s called debt-to-income ratio, or DTI for short. It’s the fancy way of saying, “We’re going to divide all your monthly debt payments by your gross monthly income.”

Why is DTI so important? Because lenders know it’s a reliable formula for figuring out if you’re going to make your monthly mortgage payments on time — or slip into foreclosure, which no one wants. If you divide what you owe by what you earn, you can give it a percentage.

The highest you want this number to be is 43 percent. That’s because it’s the highest number you can have and still get a qualified mortgage from most lenders. DTI as just one of the many complex numbers you’ll need to master before buying a home for the best deal possible.

Why buy or refi at all?

Some people believe, “Maybe it would just be easier to keep renting” and “Maybe it would just be easier to keep paying the mortgage I have.” Buying a home and refinancing one can certainly be daunting. But done right, both decisions will be among the best financial moves you’ll ever make. And you don’t have to go it alone. Here are tips from some experts.

Shop around

Whether you’re buying your first home or refinancing your existing home, every expert will tell you the same thing: Shop till you drop. There are so many lenders with so many different loan programs. As Wells Fargo consultant Barnaby Robles urges you: “Explore your options. Restrictions that one lender may have, other lenders may not have. The only way to find out is to shop around.” Sure, this will take some time, but remember, it’s the biggest purchase of your life.

When is the best time to buy or refi?

One of the most common questions housing experts hear is, “Is now the right time to buy my home or refinance it?” That’s actually a complicated question. It’s really not about timing, it’s about your preparation. As Realtor Bill Gassett explains, “A significant pitfall for buyers is the fact it is very easy to lose out on a home they absolutely love. Besides getting the most they can for their home, sellers are looking for financially sound buyers who have a solid down payment and a trustworthy pre-approval letter from a reputable lender.”

Basically, trying to time the housing market is like trying to time the stock market. It’s risky. Instead, worry first about your paperwork. As Bill Gassett says, you want to save enough for a down payment and meet with a lender before you go house-hunting. That way, you’ll get a pre-approval letter. What’s that? It’s a document that shows sellers you’re serious, because you already did the legwork and got a lender to say you’re a good risk.

What credit score do I need to buy a home?

People need to work on their finances ahead of buying a home, but especially their credit score. Here’s what Maria Gaitan, Consolidated Credit’s housing counselor director, has to say about that: “To get approved for a traditional mortgage, you generally need a FICO credit score of 720 and above to qualify for a good interest rate. However, as a first-time homebuyer you can find financing options that allow you to qualify, even if you have a score in the 620 to 670 range.”

When to talk to a counselor

If you’re overwhelmed, you might want to start by talking to a housing counselor. You want that to be a HUD-certified counselor, like the ones at Consolidated Credit. They’ll present you with all the options, and that includes refinancing.

“An experienced housing counselor can help a potential buyer to determine if they are mortgage-ready — and what type of loan (and amount) they may be able to qualify for,” says Barry Rothman, a Consolidated Credit certified housing counselor.

Refinancing the right way

Refinancing means you get a new home loan to replace your existing one. Why do that? Because you can profit from the exchange. If you can refinance into a loan that has a lower interest rate than the one you currently have, you can save money on both your monthly payment and overall cost of the loan.

Finding a lower interest rate

Obviously, refinancing only works when you can find a lower-interest mortgage than the one you have right now. Those rates are at historic lows right now, but there are other factors to consider. For one thing, you need to qualify for a new mortgage just like you did for your first, so everything we discussed earlier about DTI still matters. And you want enough equity in your home so you can save even more.

Closing costs

Refinancing a home comes with some of the same costs as buying one. Most fees are rolled into the new loan, so they’re sort of hidden. But they’re there. Other fees must be paid before you close on your new mortgage, like an appraisal. Either way, you’re paying thousands of dollars. It’s hard to say exactly how much, since circumstances vary not just by the cost of your home but where you live. The financial website Bankrate estimated in San Francisco County, a $200,000 refi will cost nearly $5,000 in fees.

When does it make sense to refi?

You need to look at several key factors to decide if you can refinance your home. Those include the value of your property, the loan amount, whether you want a 30-year or 15-year loan, what your credit score is, and even where you live. Thankfully, you don’t need to do this all yourself. There are many online calculators that will add it up for you. Try your bank or credit union for starters.

What to do with your savings

If the numbers work out and a refi is in your favor, the next question is: What will you do with all the money you save? While you might be tempted to spend it, you can save even more. How? By paying off your credit card balances. You could save an extra dollar for every $5 you saved on the refi. Here’s how.

Did you know more than half of all credit card holders carry a balance each month? And did you know that credit card interest rates are hovering around 20 percent? That means many people are paying $1 in interest for every $5 they charge. But they don’t have the money to pay off that stubborn debt. After you refinance, you can get rid of credit card debt and pocket even more savings. That can go into an emergency fund, college fund, car fund, vacation fund or anything else. As long as it’s going into your pocket and not your credit card company’s pocket, that’s good!

How to save for a new home or refi

Saving doesn’t sound like something that’s particularly complicated, does it? But there are ways to do it faster and easier.

Budgeting tech

Sure, you can create a household budget with pen to paper, but there are online programs that will do the mundane work for you. Online budgeting tools are safe and easy. Most are free, too.

One of the most popular programs is called Mint, although many banks and credit unions offer similar programs on their websites for their customers. Basically, you just type in your income and expenses, and these programs do the math for you.

Direct deposit

One you create a budget to save for a new home or a refi, you can start socking away cash. Here’s an easy way to do it: If your employer pays you via direct deposit – and 82 percent of Americans get paid that way – you can ask your company to split your direct deposit. Most employers will let you send some money to one bank account, and some money to another – at no charge to you.

So you can shunt some of your paycheck directly into a separate savings account. You won’t even miss the money, because you’ll never see it in your checking account. This works especially well when you get a raise. Just send the extra cash directly to your savings account.

Thank you!

The Weather and Your Wallet

Don’t let natural disasters destroy your life or finances.

COVID-19 has been the biggest natural disaster in a century, but this paper will discuss the natural disasters that come like clockwork every year. We’re not trying to depress you, but actually raise your spirits. Preparing for natural disasters isn’t hard, and it’s not expensive, either. Once you do it, you have peace of mind. When you have a disaster plan, you worry less and enjoy life a little more – even now, during a pandemic.

2020 natural disasters

Of course, natural disasters aren’t polite. They don’t stand in line and wait their turn. COVID-19 won’t deter wildfires, hurricanes, tornados, earthquakes or floods this year. And if 2021 is anything like 2020, most of the country is in the path of something bad. No matter what the year, no part of the United States is immune from natural disasters. Wherever you are right now, you’re vulnerable to a natural disaster.

According to the federal government, there were 22 “major weather disasters” last year, up from 14 in 2019. They killed 262 people, compared with 44 people the year before. The total cost of those disasters was $322 billion. You might think with that much money on the line, Americans would be on top of their disaster planning. Think again.

Disaster planning

When was the last time 70 percent of people in this country agreed on anything? Well, in a July 2020 Allstate survey, they agreed that they worry about natural disasters. Yet three-quarters of them aren’t doing anything about it. We have enough to worry about these days, so here’s how to ease our fear of natural disasters. How can you do that? By taking just a little time and even less money to prepare in advance.

Plan now

Let’s start by learning about disaster preparation that costs nothing. There are three key things you can do right now: gather all your key documents, organize everything you’ll need to get compensated for any destruction, and design evacuation routes and when you’ll use them. Let’s take a quick look at each.

Documentation

First, gather up all the paperwork you’ll need in case the worst happens. Most importantly, that means insurance policies. Check your policies to make sure you’re properly covered. If not, time to talk to your insurance agent. If so, write down the name, address and claims-reporting telephone number of your insurance company – and remember, this might be different from your agent’s contact information. Also take pictures of everything of value in your house. That’s much easier these days with cameras in almost everyone’s phones. Don’t forget to shoot not only that nice couch but also all your jewelry and other collectibles. If you have documents attesting to their value, gather those, too.

Organization

Having excellent documentation won’t matter if you don’t have it safely in one place. And it needs to be portable, too. If you need to evacuate, you want to grab everything you’ll need and not worry you’ve left something behind. That’s why the worst time to gather up your documentation is right before you need to leave. While some people buy a portable and waterproof metal lockbox for hundreds of dollars, just as many people keep these documents safely stored in cheap Tupperware. Do whatever works for you, as long as it’s protected and at your fingertips.

Evacuation

When people hear the word “evacuation” they think it means, “Get out now!” They don’t often consider, “Where am I going?” An evacuation plan actually answers two questions. First, what’s the safest and quickest route away from the danger? Second, where is the safest and cheapest place to land? That could be the home of a friend or relative, or a government or private shelter. But you want to figure that out now. Otherwise, you’ll get the first part right and get out of danger. But you won’t have a destination to wait out the worst of it.

Disaster tech

Technology doesn’t just make it easier to order stuff online and make our TV sets bigger and brighter. Technology has made it safer to survive natural disasters. And it’s not expensive, either. For instance, you can buy a thermal emergency blanket for around $15. A good solar charger for your smartphone is around $20. Same for a personal water filter. Best of all, these items last a long time, so you don’t have to buy them again. Even the emergency food, while not exactly gourmet, is relatively cheap and lasts for up to a decade.

Disaster prep

Each kind of natural disaster requires different supplies, although some are universal. Here’s the problem: Most disaster supplies are purchased at exactly the wrong time. During hurricane season, for example, most bottled water is sold 48 hours before the storm is scheduled to hit – leading not only to shortages but also price gouging. Shopping for disaster supplies is just like shopping for holiday gifts. It’s best to do it off-season. You’ll save more. Look for deals year-round, not just on the eve of, say, tornado season. Shop for blizzard supplies in the summer. Shop for hurricane supplies in the winter.

Disaster advice

There’s no shortage of excellent advice on exactly what to do to prep for each kind of disaster – from the best masks for a wildfire to how much bottled water you’ll need after a hurricane. If you don’t know where to go first, start with us. We’ve compiled a simple booklet on natural disasters that isn’t the end of the information you’ll need, but it’s a really good beginning.

Hurricanes

Let’s focus on one key fact about each kind of natural disaster that often gets overlooked. For instance, even if you’ve gone through a hurricane before, and even if you prepared for it very well, you might now know this: Flooding kills more people and costs more in property damage than the high winds do. It’s the “storm surge” from the ocean that’s more deadly than the gale-force winds.

Wildfires

In some ways, calling wildfires a “natural disaster” isn’t accurate, since almost all of them are caused by human beings either acting clumsily or maliciously. Thus, more wildfires start in areas where camping is allowed than in remote wilderness areas. Check to see where camping is allowed near you.

Tornadoes

Although tornado season is traditionally March through May in the south, they peak in the summer up north. And they can happen in any state in the country. Only Alaska is spared, although it last had one documented in 2005. So, unless you live in Alaska, don’t ever say it can’t happen here.

Earthquakes

Earthquakes are the most common natural occurrence on this list, except no one feels most of them. Of the half a million that happen each year, human beings feel only 100,000 of them – and only 100 cause any damage to property or claim lives. But earthquakes are among the most damaging natural disasters. In this country, they cause more than $4 billion a year, according to FEMA.

Flooding

Flooding is the one natural disaster that follows other natural disasters. As previously mentioned, hurricanes can cause flooding, but so can tornadoes and earthquakes. So-called “no-name storms” cause flooding, too. Did you know 90 percent of all U.S. natural disasters declared by the President involve some sort of flooding? It’s also the one natural disaster that can happen anywhere – even Alaska.

Disaster recovery

No matter what natural disaster hits you, the recovery process is almost always the same. First, don’t venture outside until you get the all-clear from officials. Second, assess your family’s needs and any property damage. Third, use your disaster supplies for eating, drinking, cleaning, and washing. That’s all basic stuff, but what about financially recovering from a natural disaster?

If you suffer any damage from a natural disaster, and you and your family are safe, the next step is to ensure your finances are safe. Remember when we mentioned putting all your valuable documents in one safe place? Well, now it’s time to consult them. Break out those insurance policies. Call the agents representing you right away. Don’t expect them to get right back to you, since they’re surely slammed with other claims. But the sooner you call, the sooner you’ll hear. Also contact your lenders and ask for grace periods and extensions. That’s everything from your mortgage to your credit cards. If your home is damaged and you can’t stay there, don’t forget to tell your utility companies. They can suspend your service and save you some money.

You’re not alone.

After a natural disaster, you might feel like your world has been turned upside down, and you’re all alone. You might not have cellphone service, only heightening your sense of loneliness. But the fact is, you’re not alone. You have help available to you, and much of it is free. Some of it actually gives you money.

Finding financial aid

Once you can get back online, your first step is to visit consumerfinance.gov/recover. That website offers step-by-step instructions for recovering from every kind of natural disaster. If you’re in a presidentially-declared disaster area, go to disasterassistance.gov to learn how to claim some aid. Go to the homepage of your state’s website to see if you qualify for state aid, even if you’re not in an official disaster area. You can also call the Red Cross at 800-RED-CROSS to see about financial aid, shelter, free meals, free clothing, and even some personal hygiene supplies.

Call a credit counselor

One service Consolidated Credit has long provided is free priority counseling for those affected by natural disasters. For nearly three decades, we’ve offered a free debt analysis from a certified credit counselor. After a natural disaster, we’ve offered even more help.

Here’s who not to call. After a natural disaster, scammers descend upon the area. Some are shady contractors who offer to fix up your property for cheap – but only if you pay in cash, up front, and right away. Never pay up front. Pay as the work gets done. Always get estimates from more than one contractor, and make sure they’re licensed and bonded. You might also get phone calls from official-sounding people demanding you give them your Social Security number and other personal details. Ask for their number so you can call them back, and if they’re reluctant, hang up. In fact, if you’re not sure what to do, the best advice is to do nothing. Like we just said, there’s plenty of free help out there, so you don’t need to fall for any scams to get the assistance you need.

Thank You!

Natural disasters are only fun in the movies. In real life, they’re scary and costly. But with a little planning and just a little money, you can weather the storm. This paper was just an overview, just a starting point. But as you can see, it’s not as daunting as you might think.

Code Red Rx:

How to recover from a financial panic attack – and how to avoid the next one

In many ways, a financial illness is easier to solve than a physical illness. Do you sometimes feel like you’re suffering a financial heart attack? If so, you’re sadly in good company. Turns out 3 in 4 Americans feel like that, according to a CNBC report from February 2021. They rank “financial stress” as the worst kind they face – even more than stress at work or in their own families.

This paper covers simple, proven ways to restore your financial health – no matter how long you’ve been living with your painful financial condition.

1 Financial Stress

If you’re wondering why this paper is called Code Red Rx, it’s not a gimmick – and it’s not melodramatic. Study after study has shown that financial problems cause physical problems. And Consolidated Credit’s certified counselors have repeatedly seen and heard these same reports over the past couple of decades.

The life insurance company John Hancock has a profitable reason to know exactly what kills its customers, so it researches the causes. When the company asked if financial stress affected physical health, the answer came back like as a resounding yes: “It lowers our immune function and ability to fight illness, which can make us less effective at home and work.”

Taking care of your financial health is an important part of taking care of your physical health.

1.1 Debt Stories

Consolidated Credit hears from real people who are suffering from financial stress. It has a huge impact on their lives, and even their physical wellbeing. Here are a few of their stories; maybe they sound like yours.

1.1.1 Maria

There was Maria, who had nearly $8,000 in credit card bills and a credit score in the 400s – she couldn’t even move into a new apartment because her score was so low. She had maxed out her credit cards and was paying a whopping 29.99 percent in interest charges. Like many people, Maria said, “I was embarrassed about my situation and felt unsure where to begin.” But when she finally dug herself out of debt, she told us she’d never felt happier.

1.1.2 Sonya

Then there was Sonya, who ran up $3,000 on a department store credit card at 18 years old. She told us, “I was scared. I hated answering my phone at home because I knew it would be someone asking, ‘When can you send that payment?’ I remember having my hands against the wall, I didn’t know what to do. I was desperate.” When she finally paid off that debt and the other debt she had racked up, she told us, “I felt like someone had taken the shackles off my feet.”

1.1.3 Paula

Finally, Paula, who’s a mental health counselor who ran up big bills caring for her ailing father. When he recovered, her finances didn’t – and then she became sick from the financial stress. She told us: “As a mental health counselor I know what it looks like when people suffer emotionally. And when I became consumed with debt, I was there. I was stressed all the time.”

If you want to know more about these women’s struggles – and how they eventually conquered their debts – you can read all about them on the Consolidated website under Debt Stories.

1.2 Financial Crisis

Maybe you’re thinking, “Thank God I’m not suffering from a financial crisis! This doesn’t apply to me!” If so, know this: Many money woes are caused by small spending problems that just don’t seem like a big deal. Then catastrophe strikes. There are five major ones, and they cause your little money problems to blow up into big ones: accident, divorce, illness, layoff, and natural disaster.

So even if you think your finances are healthy, the real question is: Have you built up your money immunity? During the government shutdown of 2018, one of the big storylines was just how many federal workers didn’t have enough money in the bank to miss even one or two paychecks without having to take out a loan to cover their bills.

2 The Impact of COVID-19

Maybe you’re thinking, “This doesn’t apply to me, I’m not suffering from a financial crisis, and I weathered the COVID-19 shutdown.” In that case, Consolidated Credit is thankful you weren’t affected. But our own polling shows more than half the nation was – and COVID-19 isn’t the only threat out there. Your finances are vulnerable to the Big 5 Catastrophes.

Most Americans make ends meet every month, but there’s little margin for error. One serious car accident that keeps you from going to work, a bitter divorce that splits your income while paying attorneys, a chronic illness that costs money to treat and affects your income, or a natural disaster that requires replacing so much of your belongings – all of these can wipe you out. And of course, layoffs were a huge problem during the shutdown, as were furloughs and pay cuts.

So even if you think your finances are healthy, the real question is: Have you built up your money immunity?

3 Emergency Fund

Four in 10 Americans don’t have enough money saved to cover an emergency costing $1,000, according to a depressing Bankrate report January 2020. That makes it hard to stay financially healthy, because just like flu season, money problems are sure to come your way eventually, affecting you or your family.

3.1 Preventative Medicine

This leads us preventative medicine. How can you bolster your money immune system? Well, an emergency fund is the easiest way, but it can be a bitter pill to swallow. Why? Because you need to contribute to it in small ways all the time. When you’re facing debt stress, it’s because you don’t have enough money to go around. So how are you supposed to save? Well, the best place to start is with your pocket change. Seriously, set aside small amounts all the time. Have one less coffee from the drive-through of your favorite coffee shop. Brown-bag it one more day a week.

Once you get into a rhythm of small contributions, you can start building up your emergency fund to cover 3 to 6 months of living expenses. That’s the gold standard of emergency funds. How do you do that? Well, the best way is automatically. For instance, if your employer pays you via direct deposit – like 82 percent of Americans get paid – then you can ask your company to split your direct deposit. That’s right, most employers will let you send some money to one bank account, and some money to another. So you can shunt some of your paycheck directly into a separate emergency savings account. You won’t even miss the money, because you’ll never see in your primary account. This works especially well when you get a raise. Just send the extra cash directly to your emergency fund until you build it up to cover 3 to 6 months of expenses!

3.2 Time for a checkup!

What if you’re feeling a pain in your head or chest from all the debt you’re carrying? Then you need more than preventative medicine. You need a thorough checkup. But be calm. Literally, be CALM. CALM stands for create a plan, automate bill payment, lower spending, and make progress.

3.2.1 Create a Plan

No one likes to hear the words, “make a budget.” But it’s so easy to do it these days. If you don’t relish the idea of putting pen to paper, there are scads of online programs that will do the mundane work for you. Online budgeting tools are safe and they’re easy. You simply type in the amounts you spend in different categories, and these powerful tools do the math for you. They also let you see how much you can save per year by shaving off just a few dollars per week. For instance, if you type in the cost of one less work lunch per week that you buy, you can see how much that will save you per year.

3.2.2 Automate Bill Payment

Here again, embracing technology can help you save more in less time than ever. This technology was mentioned earlier when going over an emergency savings account. But instead of just automating your savings, you can automate your payments. Almost every bank and credit card – and even many municipal utilities – offer automatic bill pay. You set the day when you want a bill to be paid, and that amount is automatically deducted from your bank account right then, and not a day sooner. What’s the advantage, besides the worry of paying bills? You’ll never pay a late fee again.

3.2.3 Lower Spending

Of course, a danger of automatic bill pay is that if you blow your budget on some debit card purchases you’ve forgotten, you might not notice how low your bank balance is getting. That’s why it’s so important to cut your spending.

Sure, you can go on a crash diet and shed a lot of pounds. But that’s also called a yo-yo diet, because you just can’t maintain that forever. Same thing happens with money. If you cut spending so drastically that you suffer through the day, eventually you’ll crack and go on a spending binge.

Instead, just like dieting, make lifestyle changes. Do you clip coupons? Do you search out BOGO deals? Have you looked at all the subscription services you’ve signed up for to make sure you really use them? There’s no shortage of ways to save, and they’re as easy to find as an Internet search.

3.2.4 Make Progress

If you take this advice, you won’t notice a big change right away. Again, this is like dieting and eating right. You don’t wake up a day later weighing less and feeling better. It takes time, and the progress is gradual. But one day, you suddenly notice things: “Hey, my body is lighter and my wallet is heavier!” So the last part of CALM is maybe the most important. Be patient and you’ll see progress.

4 Why Budgeting is so Important

Now, another component that you should keep in mind, which is just as important as having a savings cushion, is the plan of how you are going to get there. Planning your budget should be top of mind. Before you can be save, you need to get your financial house in order and that is why you need is a budget.

It only takes four simple steps.

You also need to make money, not just save it. A budget needs money coming in before it can track money going out. So add up all your income – which is more than just your paycheck. It includes money from any part-time or freelance work, child support you receive, rent you charge, and Social Security and other income from benefits. Once you add all that up, you have your net income.

Even more than hidden income, many people suffer from hidden expenses. To keep track, think of your expenses in three buckets:

Fixed expenses are those you can’t easily change. If you pay rent or a mortgage, those amounts are the very definition of “fixed.” But so are car payments and insurance.

Flexible expenses are those you need but can do something about. So for instance, you need to go grocery shopping, but you can look for BOGOs, clip coupons, and use strategies for getting more food for less money. Same thing with gasoline for your car and your utility bills.

Discretionary expenses are those you can live without if you really had to, like a movie matinee, a nice dinner out, or that fancy hair salon you like.

The total of these categories is your net expenses.

If you have $2,000 a month in expenses and $2,500 a month in income, then you’re “in the black” by $500. If those numbers are reversed, then you “in the red” by $500.

If your income is greater than your expenses, congratulations! You now have the pleasant task of deciding how to best use your savings. But if your expenses outstrip your income, time to set some priorities.

You need to decide what steps you can take to either reduce your monthly expenses or increase your monthly income – or both, if you can.

5 How to Manage Your Budget

Before getting into the nitty gritty of saving secrets, here’s how you’ll track your progress. You just learned how to start your budget, now here’s how to maintain it. It may help to keep a spending diary for a month or two. This means saving your receipts and writing down the items and amounts for everything you spend.

If that sounds like a chore, there are free, secure online tools to help you monitor your spending. One of the most popular is called Mint, but there are many others, sometimes offered through your bank. Check them out.

5.1.1 What is “saving,” anyway?

Sure, you could stuff some cash under your mattress every so often. But that’s not the smartest saving tactic. First you need to be clear about what you want to save for, like buying a house, sending your children to college or just simply going on a vacation. Then, you should establish savings goals with a plan on to hit those goals.

5.1.2 Examples of Saving Goals

Your goals can be serious and major – like saving three months of living expenses for an emergency fund. Anyone who’s followed the recent government shutdown knows how stressful life can be if you miss just a couple of paychecks. So that emergency fund isn’t just a financial goal – it’s also a mental health goal.

But some goals are actually fun. Saving for a vacation can make saving easier because you can think ahead to sun-kissed beaches or powdery ski slopes. And while saving for a down payment on a new home seems daunting, it can be exciting to take those first steps to such a life-changing event.

5.1.3 How to be SMART about Saving

So how do you set your savings goals without consulting an encyclopedia? Just remember the acronym SMART. Here’s what it stands for…

Specific

Measurable

Achievable

Realistic

Timely

Specific is the easiest to do. Think of it like this: Instead of saying, “I want to lose weight,” you’d say, “I want to walk 10,000 steps during breaks at work and after dinner at night.” That specific goal is easier to meet than a vague one.

Measurable means setting targets you can easily track. So take a look back at the goal of losing weight. If you promise to walk 10,000 steps a day, there are apps on your phone that can easily measure that. There are now apps that can help you manage the money coming in and what you are spending on. You’d know every day if you’re living up to your own promises.

Achievable means figuring out how to get where you want to go. You need to develop the attitudes, abilities, skills, and financial capacity to reach them. For example, even a modest goal isn’t achievable if you set too tight a deadline. Losing 20 pounds in a year is achievable – but in one week, it’s dangerous. You can also say, I will stop buying fancy coffee and a pastry every morning in my way to work and save about $7 a day which amounts to over $1,800 at the end of the year.

Realistic means not setting impossibly high goals. If you tell yourself, “I plan to eat only salads every day for a year and never even look at a dessert,” then that’s a specific and measurable goal – but it’s also never going to happen. Using the example of buying your morning coffee, you shouldn’t cut out coffee entirely, just the expensive one in the morning. You can have the coffee at work and then make it a special treat in the weekend… you’ll be saving a lot.

To be realistic, a goal must represent an objective toward which you are both willing and able to work.

Timely means setting a deadline that’s as soon as you can comfortably hit it. Too many goals come with the vague deadline of “soon.” Even a big New Year’s resolution that takes the entire year isn’t as good as smaller goals each month.

5.1.4 How to Save on a Tight Budget

The next time you’re tempted to buy something, ask yourself…

Do I really need this item?

And before you say YES, answer these follow-up questions:

Is this item worth all the time I spent making the money to pay for it? Can I use my money in a better way right now? And of course, the hardest question of all: Do I really need this or do I just want it?

While waiting for sales and using coupons are effective and time-honored techniques, those savings don’t matter if you actually didn’t need the item.

6 8 More Ways to Save Money

Of course, there are more than eight ways to save money. But these eight are the least time-consuming and the easiest to stick with. They work because the small savings add up over time. That’s more lucrative than trying to save big every so often. It’s kind of like dieting: You want to make small lifestyle changes instead of enduring crash diets. Here are your financial lifestyle changes:

6.1.1 Treat yourself, then save yourself.

It’s called “nonessential indulgence-matching.” But that’s a mouthful. It just means every time you treat yourself, you treat your savings account, too. For example, if you splurge on a gourmet coffee during a lunch break, you put the same amount of money into your savings account. Sound weird? Think of it this way: If you can’t afford to save the matching amount, you can’t afford that treat, either.

6.1.2 Think about hours, not dollars.

Time really is money. Calculate a purchase by the hours you worked to get it, instead of the money it cost you. Just divide the price tag by your hourly wage. If it’s a $50 pair of shoes and you make $10 an hour, ask yourself: Were those shoes really worth five long hours at work?

6.1.3 Sleep on it.

Time is money even when you’re not doing anything. It’s called the 24-hour rule. It’s the antidote to impulse buying, and it’s so easy. When you find that non-essential must-have, wait until the next day before buying it. This works especially well online, because shopping websites specialize in luring you into immediate decisions that can cost you.

6.1.4 Don’t think about it.

Hands down, the best way to save is without even worrying about it. That means setting up automatic savings. Most employers will let you deduct a certain amount from your paycheck and transfer it into a retirement or a savings account. Best of all, it costs you nothing in either money or time. You never even notice the money is gone. This is a great way to “spend” any raises you get. Ask your HR representative for more details about setting this up.

6.1.5 Go low-tech

Earlier, high-tech online budgeting tools like Mint were mentioned. But some people do better going old-school. They budget with cash and envelopes. It’s simple: Label an envelope with each monthly expense, and put cold, hard cash into each envelope. Draw from the envelope when you pay those expenses – and once the money is gone, hey, it’s gone. That’s one dramatic way to curb your impulse shopping.

6.1.6 Decide between paper or plastic

You’ve probably heard about credit cards that offer cash back and other rewards. It’s true, you can save big with these rewards. But you can also spend big. These cards compel you to overspend to chase those points, which means you run up balances that charge high interest. You might actually save more money cutting up the plastic and go all-cash. In fact, there’s solid research showing we spend less money when we have to part with paper than swipe plastic.

6.1.7 Be bad at math.

Sounds weird, right? You’re always encouraged to budget better. But you can actually save by being vague. Here’s how: Some financial institutions will round up your debit card purchases. For example, Bank of America will round up to the next dollar amount – and put the change into your savings account!

6.1.8 Loosen up

To bring this back to the beginning, save those pennies. Loose change adds up. Keep it in a jar or piggy bank, and you’ll be amazed by how much it adds up. Get started by checking your car and those seat cushions and kitchen junk drawers. You’ll be surprised how much money you have in the house – and you never knew it!

7 The Storm After the CALM – Coaching!

If you embrace CALM and started to act SMART, but still feel stressed out by your finances, there’s another C to consider. It’s called coaching. Once again, compare this to your health. If you eat right and exercise, you’ll probably be physically fit. But every so often, you’ll get sick, and sometimes, home remedies don’t work. You need to see a medical professional.

Well, sometimes your finances get sick, even when you do everything right. Sometimes, a small bad habit grows into a big money ailment. When that happens, you need to consult a financial expert.

Luckily, you can talk to a financial expert easier than you can consult a doctor. First, you don’t need an appointment. You can call a certified credit counselor at a nonprofit credit counseling agency at almost any time. Second, it’s free – no co-pay. You can receive a free debt analysis that will help you figure out how to get financially healthy.

7.1.1 Coaching Questions

Of course, just like doctors, some financial counselors are better than others. Experts say to look for these things: The agency should be around for many years – decades, hopefully. It should have certified counselors, which means they take a standardized test to ensure they know what they’re talking about – and they have to retake it every two years. They should have the highest rating for the Better Business Bureau. And finally, they should have many excellent reviews from reputable review websites.

Find experts who can help you get out of credit card debt.

Tax advice from the experts

How to worry less about your taxes

Tax season is upon us—which leaves thousands of Americans stressed and overwhelmed. That’s why Consolidated Credit is breaking down everything you need to know, starting with how the IRS works.

Understanding the IRS

The IRS isn’t staffed by heartless government employees. The IRS doesn’t get any joy from upsetting you. In fact, the IRS wants to help you. That may sound contradictory to everything you’ve ever heard, but the truth is, the IRS is just confusing, and that leads to misconceptions.

You’ve also probably heard of IRS forms with names like W2 and 1040. But do you know just how many forms the IRS has? There’s 800 of them. The IRS is one of the most complex government agencies, and it has one of its toughest jobs. Accurately collecting taxes from individuals and businesses isn’t easy. So when you deal with the IRS as just one person, it can be both depressing and daunting. But it doesn’t have to be.

The IRS loves all numbers. And it adores the letter W. But what’s it all mean? Once you know what the forms are for, you can get a better sense of how the entire income tax process works. It’s a lot less intimidating when you understand the reasons behind the numbers and letters.

W2

No one likes paperwork, but this is the best IRS form. Why? Because its sole purpose is to show you how much you earned in the previous calendar year. It also shows how much tax was withheld, which lowers your tax bill or nabs you a refund.

W4

What’s a W4? It’s the form you fill out so you can get a W2 the next year. Basically, a W4 is what you need when you start a full-time job. It lets your employer know how much you want withheld from your paycheck. You can also use it to adjust your withholdings throughout the year.

W9

A W9 is kind of the opposite of a W4. While a W4 is what you fill out for full-time work, a W9 is what you fill out for freelance assignments or a side gig. It tells the IRS how much you’re making as an independent contractor. If you make more than $600 a year from one employer, you need to fill out a W9. Less than that? You don’t need to declare that income at all. It’s too small an amount for the IRS to worry about.

1099

A 1099 is the form you get back from the employer who paid you as an independent contractor. It notes exactly how much you earned on that side gig. So when you file your taxes, you might be sending a W2 with your full-time income and a 1099 with your freelance income. Depending on your withholding, you might have to pay something. Or you might be getting a refund.

Withholding

Whenever you get paid, your employer removes—or withholds—a certain amount of money from your paycheck. This withholding covers some or all of your taxes. Why do that? Well, otherwise you’d owe thousands of dollars on April 15, and not many of us are organized enough to save those thousands all year long and pay them all at once. Therefore, the law says employers in every state must withhold money for federal income taxes. Some states and even cities also require tax withholding.

How withholding works

Here’s the tricky part of withholding: It’s not user-friendly. Sure, it uses simple numbers, from one through four. But it can get really confusing really fast when you try to figure out just what you should declare. Your income and some other factors might give you the opportunity to add additional allowances. You might want to consult a tax pro for this, because they can help you achieve the sweet spot: no refund, no tax bill.

Everyone loves getting tax refund checks, even though that’s not ideal. Steve Rhode, a longtime personal finance expert, laments that many Americans use tax refunds for what he calls “forced savings accounts.” In other words, since we have trouble saving money, we let the IRS do it for us. Problem is, the IRS doesn’t pay us interest. It keeps it. So all tax experts say the best thing to do is keep your refund small and then save your own money through the year, maybe earning a few bucks in interest in a savings account or even investing it in a retirement account where it can make real money. But why let the government hold onto your money for you? It doesn’t make dollars or sense.

Common mistakes

What happens when you can’t pay your taxes or you’ve already fallen behind? Even if you’re current on your taxes right now, it’s helpful to know this. That way, should you or anyone you know get in trouble with the IRS, you’ll realize there are legal ways out of that bind. In fact, here’s a news nugget that surprises most Americans: The IRS wants to help you get out of tax trouble. It’s true. The IRS doesn’t want you to stress out over your taxes. But here’s how Americans often mess that up.

Ignoring the IRS

You might think the major way to anger the IRS would be to not pay your taxes. Actually, that’s not the case. After all, the tax code is complicated, and the IRS knows that. They actually want to work with you to make sure everything is proper and legal. But if you ignore their letters, well, then they get upset. And no one likes being ignored.

Listen to Tom Vastardis, a CPA and tax preparer with three decades of experience. Tom says, “You should never ignore a letter from the IRS. An unopened IRS letter could eventually lead to bank account levies, garnishments on paychecks, loss of appeal rights in tax court, even a tax lien on property.” Always open those letters, and always read them carefully and follow the instructions. It will save you money and huge headaches later on.

Not all IRS letters are bad. In fact, the IRS will even send you a letter if you’re owed a refund, or if the IRS just needs more information about you. Of course, the scariest IRS letters are the ones that say you owe money. While you don’t want to ignore any IRS letter, these are the worst to ignore. As Tom Vastardis says, that can result in the IRS eventually seizing your assets. The sad part is that’s totally avoidable.

How to get out of trouble with the IRS

As Tom Vastardis says, the IRS isn’t trying to scare you or even intimidate you. They just want what they think they’re owed. If you get a letter saying you owe back taxes, Tom recommends, “After opening the letter, you should immediately call an accountant.” Why? Because this is one time that do-it-yourself doesn’t really work.

Respond right away

Regardless of whether you call an expert or go it on your own, the crucial first step is simply taking that first step. Jacob Dayan says, “The IRS will work with you, but not if you ignore them.” Dayan has been a tax attorney for more than a decade, and his firm has helped more than 60,000 clients. He says nothing is more costly than waiting to reply to an IRS letter that’s sent to you. If it’s a simple matter, you might want to handle it yourself. But Jacob agrees with Tom Vastardis and says for more complicated matters, you’ll actually save money hiring a professional.

Don’t be afraid of the IRS

The number-one reason people wait too long to reply to the IRS? They want to figure out all the angles first. But that’s impossible even for the pros. As Jacob Dayan says, the IRS is very secretive about its process. So, the real goal isn’t figuring out why the IRS does what it does. The goal is figuring out what you can do when they’re looking at you.

Understand tax debt

Whenever you owe the IRS, it’s because you have tax debt. You either paid too little or too late. Now the IRS wants you to settle up. First thing to know, though: The IRS can’t send you to jail. Debtor’s prisons haven’t existed in this country since the mid-1800s. As long as you’re not engaged in tax evasion, you’re OK. What’s tax evasion? It’s intentionally not paying or underpaying your taxes. That’s different than making a few honest mistakes or not having enough cash to immediately settle up.

That said, lots of bad things can happen if you don’t work with the IRS to pay back what you owe. The IRS starts a clock on your back taxes, and the longer it takes you to settle up, the more penalties you owe. If you refuse to work with the IRS, the IRS will work you over. The agency can garnish your wages and seize money from your bank account. That’s never pleasant.

Figuring out “compliance”

The IRS cares most about compliance. What’s that? It’s the fancy way of saying you’re talking to the IRS and working out a plan to pay everything off. Of course, the IRS doesn’t take your word for that, so it reviews your records. Basically, as Jacob Dayan says, “the IRS wants to be confident that you will not owe in the future before they agree to a resolution program.”

How long do you have to pay everything back?

This is really where it starts to get tricky. You usually have 72 months to straighten everything out. But the IRS isn’t the cold, heartless agency you’ve heard so much about. If you can prove financial hardship, the IRS will often cut you some slack in various ways. The problem is figuring out how to communicate all that to a large bureaucracy.

IRS terminology

When you owe back taxes, you also get hit with some complex terminology. Here are some definitions:

• Currently Not Collectible (CNC) status: What you get if paying anything toward your tax debt would throw you into a financial crisis.
• Streamlined installment agreement: Installment agreements that don’t require verification of your assets, expenses, debt or income.
• Offer in Compromise (OIC): Where qualified people with tax debt negotiate a settled amount that’s less than what they owed to clear the debt.
• Final Notice of Intent to Levy and Notice of Your Right to Hearing: The IRS may levy your bank account or garnish your wages if you don’t take action soon.

Why you need a tax pro

If you’re financially struggling, CNC status is what you want. But here’s the rub: The IRS just doesn’t tell you, “Hey, here’s something that could help you.” That’s why you need to work with a tax professional who knows all the ways the IRS will give you a break—legally. But there’s a difference between what’s legal and what’s widely known.

Avoiding tax scams

Another benefit to consulting a tax pro is avoiding tax scams. Sadly, there are bad people out there who look for people in tax problems and then try to rip them off. These poor folks don’t know that the IRS would never call your personal residence and threaten to send police to your home. These scammers are preying upon your fear so you give them money or information they can use. The truth is the IRS will send out several notices before anything negative happens.

How to find a reliable tax pro

The best tax pros have a few things in common: they’ve been doing this for years, they have great online reviews, and they’re highly rated by the Better Business Bureau. They’re also quite measured in their promises. As the FTC says, if someone is promising to solve your problems without even reviewing your information, watch out. Better yet, seek out an attorney who works at a firm specializing in tax relief.

Ethical tax pros won’t charge you their entire fee up front. Run from anyone who demands that. Also be leery of anyone who says you qualify for a program without diving into your details. That’s impossible. Also avoid any ads you see online or hear on the radio that purport to give you “secrets the IRS doesn’t want you to know.” If you’ve learned anything today, it’s that the IRS wants you to know everything. The agency might not explain it very well, but the IRS wants its money, and it won’t get that money if it keeps secrets.

Thank you!

That’s all for this paper. If you owe back taxes or fear you’re about to, all is not lost. In fact, you can get professional help and get your life back on track. The IRS might not be your best friend, but it’s not your worst enemy, either. You just need a knowing ally on your side. Speak to a certified credit counselor to see which option may be best for you. Contact us below if you have any questions.

Finding the Best Debt Solution

You have several powerful options

There’s only one way to get into debt: You spent more than you could pay back. Now you’re paying interest and maybe even worse: steep penalties and painful fees. Luckily, there are several ways to get OUT of debt, and while each of them has its own pros and cons, there’s a good chance one is a perfect fit for you.

There are four proven ways to get out of debt safely and reliably. They are:

• • Balance transfer cards
• • Debt consolidation loans
• • Debt management
• • Debt settlement
• • Bankruptcy

The first one is the hardest. Then there are the three easiest and most popular solutions. Why are they so popular? Because you have experts helping you, instead of going it alone.

Do it yourself (diy)

If you’re buried under heavy credit card balances that you can never seem to pay off, part of the problem is the steep interest rates most credit cards charge. The national average is almost 20 percent, which means for every $5 you pay to get rid of that big balance, a dollar is being siphoned off and going to your credit card issuer as their profit. That makes it tough to ever catch up. But what if you could get a credit card that would help you pay off your credit cards?

Balance transfer cards

These cards offer you a low interest rate, and in many cases, no interest rate at all. With one of these cards, more of your money goes to paying down your balances instead of lining the pockets of your credit card issuer. Sound too good to be true? They’re not, but there are some drawbacks you need to watch out for.

Specifically, there are three things to watch out for. First, most balance transfer cards charge a fee to move your balances from your other, higher-interest cards. This can total up to 5 percent of every dollar you transfer. While some charge less and a few don’t charge anything, you need to keep your eyes peeled for this annoying fee.

People often ask, “Why would any credit card company give me a card for no interest? Aren’t they giving up a lot of money?” The answer is yes, they ARE giving up a lot of money you’d otherwise pay them. But they’ll make a lot of that back. How? Well, all balance transfer cards have an expiration date, usually at the end of 18 months – but sometimes for only six months. If you use that time to pay off your balance, you come out way ahead.

Unfortunately, research has shown that most Americans who get a balance transfer card don’t pay off their entire balance. Guess what happens then? The interest rate jumps – sometimes to a higher rate than you had on your original cards! So, to really take advantage of balance transfer cards, you need to be disciplined and stick to a deadline.

Finally, balance transfer cards aren’t for everyone. Some folks can’t get them, because the credit card issuers won’t give them one. If your credit score is under 670, you’ll generally struggle to get approved. Why? Because you’ve already proven to be a credit risk, and even though credit card issuers want to make money off you, they also want to get paid. So if your credit score is suffering, this isn’t the option for you.

Debt consolidation loans

This is simply a personal loan you secure and then use to pay off all your credit card bills with steep interest rates. The concept is the same as a balance transfer card: You’re paying off the high interest rates with a lower one. In this case, you might be able to get a personal loan of between 36 and 60 months from your bank or credit union at 6 percent, then use the money to pay off your credit cards that are charging you 20 percent. Then you simply make one monthly payment on the personal loan. Usually, you get out of debt faster AND make a smaller monthly payment, which is the definition of a win-win.

If you get a debt consolidation loan, you’re looking at 3 to 5 years to pay it all off. In the meantime, you need to be careful not to run up more debt. That timeline is pretty close to a debt management program, which we’ll cover later, but in that case, you work with a credit counseling agency that can help keep you on the straight and narrow. With a debt consolidation loan, you’re on your own – if you can even get a loan. If you have too much debt, it’s a classic Catch-22. You need the loan to pay off debts, but you have so much debt, no bank or credit union will give you the loan.

Getting expert help

Not everyone renovates their own bathrooms or overhauls the transmission in their cars. Most of us rely on experts to help us do everything from our taxes to our oil changes. Well, it’s no different with debt.

Just like there are terrible CPAs and auto mechanics out there, so too are there terrible debt experts. Here’s what to look for: First, go to the website for the Better Business Bureau and search the name of the company. If it doesn’t have an A-plus rating, forget about it. Second, go to the agency’s “about” page and see how long it’s been around. The longer the better, because that means they know their stuff backward and forward. Third, check out review sites that have excellent customer reviews for the agency, like Trustpilot.com and ConsumerAffairs.com.

You should consider these options in this order: debt management, debt settlement, then bankruptcy.

Debt management programs

One of the most powerful debt-busting solutions is only available through a credit counseling agency like Consolidated Credit. It’s called a Debt Management Program (DMP). It might be able to cut your monthly payments by up to 30 or even 50 percent. A DMP also freezes late fees. Even better, you only make one payment a month for all the credit cards that are in the program. And unlike the other debt solutions we’ll talk about later, your credit score isn’t irreparably damaged. It might dip temporarily, but it actually improves over time. Unfortunately, credit card companies won’t let you sign up for a DMP yourself.

To qualify for a DMP, you have to work through a credit counseling agency, because the credit card companies trust those nonprofits to follow all the rules they establish. After all, the credit card companies are willing to forgo some of what you owe them to get back the rest. They don’t surrender profits that easily. Luckily, when you work with a reputable credit counseling agency, they take care of the paperwork for you.

DMPs aren’t for impatient people. It often takes years to graduate into financial freedom. One reason for the long timeline is that DMPs are supposed to be relatively painless. Imagine a crash diet compared to gradual lifestyle changes that help you lose weight. That’s how a DMP helps you shed debt. And your credit counselor is there for you the entire way. But if you’re looking for a quick fix, this isn’t it.

Debt settlement

Debt settlement seems like the best option of them all. In a nutshell, you negotiate with your creditors and pay them only a fraction of what you owe. Why would your creditors agree to this? Because they don’t want you going broke and paying nothing. The national average over the past few years is 48 percent – which means most folks in debt settlement don’t pay back 52 percent of their debts. Sounds like a great deal, right? Sadly, it’s not.

Debt settlement starts out with a free debt analysis to see if it’s the right solution for you. If it is, the debt settlement company will set up an escrow account for you. This is a secure account where your funds will be kept until your settlements are reached. That can take a while, and in the meantime, you’re making monthly contributions to the escrow account. The more creditors you have, the longer this process can take. And some creditors might outright refuse to settle. After all that, the debt settlement company will take its fee out of what you’ve paid into escrow.

Debt settlement also ruins your credit score. And why not? You’re telling your creditors you can’t pay them back what you owe. New lenders will be wary of giving you money, because they fear you’ll do the same thing to them. Now, if you’re buried in debt, this might seem like a small price to pay for getting rid of those steep balances. But that negative mark on your credit can stay there for seven years. That means if you want to buy a home or a car, you’ll pay a lot more in interest – if you can even get the loan at all.

The most dangerous part of debt settlement has nothing to do with actual debt settlement. It’s the scammers who try to steal your money. Some try to charge steep fees up front, which is actually illegal. By law, debt settlement companies can’t charge any fees until a settlement is successfully achieved. And those fees should be a small percentage of the original amount you owe. Whether you go for debt settlement or debt management, you’ll pay a fee to the folks who are handling the work for you, but it should be much, much less than what you’re saving. Unscrupulous debt settlement companies don’t care about that, though. Some will even take your money and then not actually help you settle your debts. You should seek out a reputable debt settlement firm using the same techniques we described earlier for credit counseling agencies.

Bankruptcy

Most people know bankruptcy is serious, but they don’t always know why. Bankruptcy can accomplish things no other debt solution can. Bankruptcy can help save your home from foreclosure and get you out of crushing credit card or medical debt. Because bankruptcy is a law, it has powerful advantages over debt settlement. For example, just filing for bankruptcy means you get an “automatic stay.” That prevents creditors from pursuing payment or taking any action against you until your bankruptcy is discharged or a repayment plan has been approved. Also, bankruptcy works for back taxes, something no other debt solution does. In a nutshell, bankruptcy is a debt solution where the power of the legal system is behind you.

Bankruptcy is even more complicated than debt settlement. You’ve probably heard of Chapter 7 and Chapter 13 bankruptcies, but do you know the difference? Chapter 7 is called “liquidation bankruptcy” because it involves selling your assets, although some are protected, like your home and car. Chapter 7 bankruptcy only takes 4-6 months. Chapter 13 is similar to a debt settlement program because it sets up a monthly plan to pay back a percentage of your debts. The biggest difference is that the terms of Chapter 13 bankruptcy are decided by the courts, not negotiated between you and your lender or creditor. Depending on this payment plan, it could take up to 5 years to complete the court-ordered repayment plan. This is commonly called “wage-earner bankruptcy,” and it can be a good option if your creditors don’t want to work with you on debt settlement.

Regardless of which option is best for you, you’re required to go through something called “pre-bankruptcy credit counseling.” It’s up to you to find an agency approved by the Department of Justice, and a typical session can take up to 90 minutes. Bottom line, it takes time and effort.

Just like debt settlement, there’s a black mark on your credit for years to come. For Chapter 7, that bankruptcy will stay on your credit report for a decade. For Chapter 13, it’s less – seven years. That’s because you’re actually paying back some of your debts. Still, that’s a long time to have a low credit score.

If you have student loans – and the national average is around $37,000 – you probably won’t be able to get rid of them in bankruptcy. Bankruptcy law puts the burden of proof on you. You must show that continuing to owe those loans “will impose an undue hardship on you and your dependents.” Proving that is tough. One study shows that only one-tenth of one percent of all bankruptcy filers have enough evidence to even try to meet this threshold – and only 40 percent of them succeed. The bottom line is, while you CAN get student loans discharged, you shouldn’t count on it.

What should you do?

There’s no downside to calling for a free debt analysis. There’s no obligation, and a certified credit counselor can walk you through all your options, which means you have more information to make your debt-busting decision. This webinar is just an overview, not a deep dive into your personal situation. But you can get that with one free phone to a nonprofit agency.

Thank you!

That’s all for this paper. Everyone’s financial situation is different, and your experience with debt settlement or DMPs may be very different from someone else you know who did the exact same thing. Speak to a certified credit counselor to see which option may be best for you. Contact us below if you have any questions.

Rebuilding your finances in 2021

How to have a new year with no debt

Most Americans are entering 2021 with debt. Even in the best of new years, more than half of us don’t pay off our holiday purchases when January’s credit card bills come due. We carry a balance. In fact, many Americans don’t pay off their holiday bills until the summertime. While we don’t have statistics yet for 2020, we do know the average American racked up $1,325 in holiday debt in 2019, according to Magnify Money. That means even before the pandemic, we overspent on gifts, travel, food, and drink.

Ever since the Great Recession, our holiday debt has been creeping up. Only five years ago, we were averaging $986 in holiday debt coming into the new year, according to Magnify Money. As that number grows, it becomes harder and harder to pay it all back.

Last year, according to CNBC, when 28 percent of Americans started their holiday shopping, they still hadn’t paid off their holiday debts from 2019! They had so much holiday debt, they couldn’t get rid of it before the next holiday season! During a pandemic, you can imagine how much more dangerous that would be. While we see light at the end of the tunnel, there’s no telling what will happen to our incomes between now and then. That could still mean furloughs, pay cuts, and layoffs.

How to set smart financial goals

Most Americans don’t get into holiday debt because they’re irresponsible or frivolous. It’s for a far simpler and easily fixable reason: They just didn’t make a plan. The truth is, most of us don’t want to overspend during the holidays. We feel peer pressure to do it. A poll by Lending Tree not only found that more than 6 in 10 Americans dread holiday spending, but almost the same amount report being “stressed about their holiday debt” after the fact. If that describes you, then you’re already motivated to spend less in 2021. You just need a plan.

Learn from the pandemic

While it’s still too early to know for sure, preliminary research shows we spent much less for the 2020 holidays than we did in 2019. Some of those savings are obvious. For instance, we all traveled less. But we also bought fewer, simpler, and cheaper gifts. Why? Because we weren’t gathered to open them, so we had to buy them online and ship them to loved ones. And guess what? The sky didn’t fall and disaster didn’t ensue.

Your first 2021 smart finance goal should be: Resist the peer pressure and buy reasonable gifts once again this year. If this pandemic taught us anything over the holidays, it’s that our relationships are priceless, not our gifts.

Buy sooner

Not only should we keep buying reasonable, personal gifts this year, we should do it even earlier than we just did. So many retailers pre-empted Black Friday by offering deals well before that unofficial holiday. Keep that going.

Everyone knows that the best time to score deals on holiday decorations is in January, when stores are selling off their leftover inventory for cheap. Every month is off-season for something, and that’s the time to snag a discount and hide it in a closet for Holiday Season 2020. You can easily scour the Internet to learn which months are historically buyers’ markets. Believe it or not, many of these individual deals will save you more money than buying those same items during the usual Black Friday sales.

How to pay off 2020 holiday debt

If you want a financially stronger 2021, the first thing you should focus on is getting rid of your holiday debt. Then, you can set yourself up for a debt-free holiday season at the end of this year. Your options include both do-it-yourself tactics and getting free expert advice. It really depends on your financial situation and your own personality.

Credit counseling

If you have steep and stubborn holiday bills, the first thing you need is a debt diagnosis. You don’t go to a doctor, though. Instead, you call a certified credit counselor. These experts work at nonprofit credit counseling agencies. While they’re on the phone with you, a counselor will give you a free debt analysis. They’ll review every dollar you spend and every dollar you earn. From there, they can give you a menu of debt-busting options.

Debt management program

One of the most powerful weapons in a credit counselor’s arsenal is called a Debt Management Program, or DMP for short. It might be able to cut your monthly payments by up to 30 or even 50 percent. How can it do that? Simple. Your credit counselor works directly with your credit card companies. A DMP has several wonderful advantages over trying to get out of debt yourself.

Not only do you save money on interest rates, a DMP also freezes late fees. Even better, you only make one payment a month for all the credit cards that are in the program. You make that payment directly to the credit counseling agency, who pays your creditors on time. No more forgetting to write that check for that one credit card, then getting hit with late fees.

Learn more about DMPs on your own time and at your own speed. Check out ConsolidatedCredit.org for the simplest plain-English explanation of the pros or cons. Or you can call a nonprofit credit counseling agency and not only receive that free debt analysis, but also ask any questions you have about DMPs or anything else financial.

How to budget in 2021

You might think budgets are boring. Who wants to waste time adding up your income and expenses and then figuring out how to best spend it every month? Where’s the fun in that? But budgeting in general has been proven to be the best way to save both money and stress, and an emergency budget is hands down the best way to avoid big problems when the unexpected happens.

Here’s the first rule of personal finance: You can’t save money unless you know how much you’re spending. If you’ve survived 2020 and want to thrive in 2021, you’ll create a monthly budget. And it’s not as difficult, or even as boring, as you think it is. Why? Because technology can do a lot of the work for you.

While you can certainly go old-school and create a budget by putting pen to paper, it’s so much easier if you use secure online tools that require just a few keystrokes. There are websites, apps, and programs that handle the drudgery of budgeting for you. Many are free, and the ones that charge are only a few bucks.

Budgeting tools

Here are the apps and websites we trust and recommend:

• • Mint
• • Tiller
• • YNAB
• • mvelopes

Mint is one of the most popular ones, although many banks and credit unions offer similar programs on their websites for their customers. Basically, you just type in your income and expenses, and these programs do the math for you. You can even project your savings if you eat one less takeout dinner, or if you refinance your mortgage. The software does the heavy lifting for you.

If that’s a little too techy for you, there’s a middle step. Websites like Tiller let you download customized spreadsheets that stay on your computer, and you easily personalize. Each program has its pros and cons, but they all work. It’s really up to what makes you feel the most comfortable.

Why emergency budgets are important

What’s an emergency budget? It’s a stripped-down monthly budget, cutting out every expense that isn’t needed for your basic survival. If this pandemic results in you getting laid off or losing your income for more than a little while, you need to know – in advance – how much it will cost you just to survive these difficult times. Without an emergency budget, you’re flying blind.

Survival expenses

In an emergency budget, you focus only on the expenses that matter most. First, there are your basic needs: food, water, and shelter. Second, there are bills you’ve just got to pay. Mortgage or rent, other loans, utilities, water.

Then there are support functions that you can’t live without. For example, if your car breaks down, you need to fix it – or you can’t get to work and make enough money to survive. Same thing for childcare.

Finally, there are medical expenses. This includes prescriptions and any medical care you’re under – because nothing else matters if you’re so sick you can’t work. Or enjoy your life.

Cut out all luxuries

Once you prioritize the three broad categories (basic needs, bills, and medical expenses), it’s time to cut back to the barest of bones. Since you’re keeping only the necessities, get rid of everything else. That includes pausing or even canceling monthly subscriptions like cable or satellite TV. That’s right – no Netflix. And you’ll scale back your phone plans to the cheapest level available. Ditto with your Wi-Fi. If you can get a cheaper rate for a slower connection, you’ll build that into your emergency budget. Every penny counts here.

While emergency budgets aren’t fun, they don’t have to be miserable, either. Just because you’ve cut out your costliest entertainment options doesn’t mean you can’t enjoy yourself. You and your family can enjoy board games and even go outside and hike, bike, or walk. Your local library has both online and socially distant in-person options to keep you both entertained and educated. Bottom line here: Helping your bottom line doesn’t mean living like a monk.

Defer your debts

During the worst of the pandemic, the federal government offered a slew of debt-delaying plans to ease the economic strain on us all. These included rent freezes and deferrals on paying taxes, student loans, and mortgages. Many private industries did the same, and while the federal CARES Act expired on New Year’s Eve, those private lenders are still offering some help.

If you need to commence your emergency budget, we have some weird advice for you: Don’t pay your debts. At least not before you ask permission to defer or reduce your payments. It sounds odd, but if you call your lenders, they might cut you some big breaks. Why? Because if you go bankrupt, they lose a profitable customer. So they’ll often work with you, temporarily cutting the amount of your payments, deferring them for a short time, or slicing off some of the interest you owe. But you won’t know for sure until you ask.

Emergency funds

During a normal economy, experts recommend you save 3-6 months of bills and other budgeted expenses. This allows you to weather a period of unemployment or cut hours at work without relying on credit cards.

Of course, a pandemic is exactly when you’d dip into an emergency fund. But what if you don’t have one? Well, now is the time to start. That’s right, during a pandemic might be the best time for you to start saving for the next emergency.

If you’re one of the fortunate Americans to not suffer a furlough, pay cut, or layoff, then you still have money coming in. And if you’re practicing safe health practices, you aren’t going out and about as much as you once did. With everyone else cutting back right now, this is the perfect time for you to start socking away a few bucks a week so you can build up an emergency fund.

One easy way to do that: If your employer pays you via direct deposit – and 82 percent of Americans get paid that way – then you can ask your company to split your direct deposit. That’s right, most employers will let you send some money to one bank account, and some money to another. So you can shunt some of your paycheck directly into a separate emergency savings account. You won’t even miss the money, because you’ll never see it in your primary account.

Thank you!

10 Smarter Ways to Save Without Breaking a Sweat

Saving money doesn’t have to be hard. In fact, it can be automatic.

Can you save money during a pandemic? Can you save money when you’re not sure if you’re going to be furloughed or even have a job? Can you save money during a recession? Not only is the answer “yes” to all these questions, but it’s actually more important to save money when times are bad. And interestingly enough, it doesn’t have to be a chore.

Before we start talking about saving, let’s talk first about overspending. The total amount of money every American owes for everything is 14.3 trillion dollars, from mortgages to credit cards to student loans to auto loans to personal loans and more. It’s a huge number, but interestingly, it’s actually been shrinking during the pandemic.

The total debt all of us owe fell by 34 billion dollars earlier this year. That sounds like a lot of money, but compared to 14.3 trillion, it represents only a drop of only .02 percent. Still, it was the largest decrease since early in 2013. What caused that drop? Experts say two things. First, we’re all nervous about the future right now, so we’ve reduced our frivolous spending just in the case the worst happens. Second, lenders are equally nervous, so they’ve tightened their standards. For example, it’s not as easy to get a new credit card these days.

Save money without even knowing you’re saving money!

We know how hard it is to save money even in the best of times. Saving now seems like it’ll be difficult. There are many techniques that require some sacrifice, but let’s start with some small ways that really add up – and they don’t hurt at all.

Automatically pay your bills

Let’s start with an easy one. Almost every bank and credit card – and even many municipal utilities – offer automatic bill pay. You set the day when you want a bill to be paid, and that amount is automatically deducted from your bank account right then, and not a day sooner. What’s the advantage, besides not worrying about paying bills? You’ll never pay a late fee again. That’s a big deal when you consider 1 in 4 Americans regularly owes late fees because they forget one of the many bills they’re juggling. That’s money they’re giving away instead of saving.

Direct – and indirect – deposit

You can also automate your savings just like you automate your bill-paying. More than 9 in 10 Americans are paid through direct deposit according to a 2019 survey from the American Payroll Association. Almost all of them have access to a neat feature: You can direct some of that money AWAY from your checking account. You can send it to a savings account you don’t normally see.

This works very well when you get a raise, because you can divert that extra money into a savings account, and you won’t be tempted to spend it because you constantly see it in your checking account. Of course, these days, more Americans are getting furloughed or laid off than getting raises, but this tactic still works, even if you set aside just a few dollars per paycheck. Soon you’ll have built up an emergency fund that will give you peace of mind as these uncertain times continue.

To set up multiple direct deposit streams, simply talk to your Human Resources or payroll department. They can walk you through this easy process.

Online tools can help you save money painlessly

During this pandemic, we’ve all spent way too much time staring at computer screens. But in this case, using a computer isn’t a waste of time but a great way to save. We’re going to start at the beginning with a topic no one enjoys talking about: budgeting.

How to budget without getting bored

You can’t really save money if you don’t know where it’s going. But let’s be brutally honest: budgeting isn’t fun. So how can you draw up a household budget and keep it without cramping your lifestyle?

While you can certainly go old-school and create a budget by putting pen to paper, it’s so much easier if you use secure online tools that require just a few keystrokes. There are websites, apps and programs that handle the drudgery of budgeting for you. Many are free, and the ones that charge are only a few bucks. Here’s how they work.

A cutting-edge way to cut expenses

One of the most popular is called Mint, although many banks and credit unions offer similar programs on their websites for their customers. Basically, you just type in your income and expenses, and these programs do the math for you. You can even project your savings if you eat one less takeout dinner, or if you refinance your mortgage. The software does the heavy lifting for you.

If that’s a little too techy for you, there’s a middle step. Websites like Tiller let you download customized spreadsheets that stay on your computer, and you easily personalize. Each program has its pros and cons, but they all work. It’s really up to what makes you feel the most comfortable.

High-tech ways to save for everything

Thankfully, computer technology can be used for more than just budgeting. You can save when you buy things. Before we share those tips, just a word of warning: Use these shopping tools to buy only what you need, not to splurge. It makes no sense saving a few bucks on every purchase just to turn around and buy something frivolous.

Don’t just shop online. Compare…

Everyone knows you can score great deals online rather than in the store. But not everyone knows about these comparison-shopping tech tools. These websites and apps – and many others just like them – let you make a list of your desired items, then tell you when the best deal is being offered. Most of them pegged to Amazon, but BayWatch monitors deals on eBay while The Mac Index does the same for the sale of Apple products.

You can find these price-monitoring programs everywhere, and you don’t need to be tech savvy to take advantage of them. Try one or more and see if you save big.

How to save without changing your current lifestyle

Now let’s talk about saving while changing the way you do things, not what you actually do. For us here at Consolidated Credit, that means credit cards. Why? Because according to CreditCards.com, more than 75 percent of all Americans adults own at least one credit card, and the average American owns three. So, if you can easily save on your credit cards, then you can make a real dent in your debt. And that means savings.

All told, those of us with credit cards are carrying balances of over one trillion dollars. And we’re paying for that privilege. While credit card interest rates fluctuate wildly depending on the card and your circumstances, right now it’s hovering around 20 percent. That means you pay $1 in interest for every $5 you charge. If you could cut or even eliminate those interest payments, you’d have a lot more money in your pocket, and you wouldn’t have to change a thing about how you live.

Balance transfer cards

Let’s start with one of the easy ways to do that. It’s a certain kind of credit card. It’s called a balance transfer card. These cards offer you a low interest rate, and in many cases, no interest rate at all. With one of these cards, more of your money goes to paying down your balances instead of lining the pockets of your credit card issuer. With credit card interest rates hovering around 20 percent right now, that’s big savings for doing nothing different during your day. Sound too good to be true? There are some drawbacks you need to watch out for.

Specifically, there are three things to watch out for. First, most balance transfer cards charge a fee to move your balances from your other, higher-interest cards. This can total up to 5 percent of every dollar you transfer. While some charge less and a few don’t charge anything, you need to keep your eyes peeled for this annoying fee.

Second, all balance transfer cards have an expiration date, usually at the end of 18 months but sometimes for only six months. If you use that time to pay off your balance, you come out way ahead. If you don’t, the interest rate jumps – sometimes to a higher rate than you had on your original cards!

Finally, if your credit score is under 670, you’ll generally struggle to get approved. That might be even more true these days as lenders tighten up.

Debt consolidation loan

Next up on the scale of difficulty is a debt consolidation loan. This is simply a personal loan you secure and then use to pay off all your credit card bills with steep interest rates. The concept is the same as a balance transfer card: You’re paying off the high interest rates with a lower one. In this case, you might be able to get a personal loan of between 36 and 60 months from your bank or credit union at 6 percent, then use the money to pay off your credit cards that are charging you 20 percent. Then you simply make one monthly payment on the personal loan. Usually, you get out of debt faster and make a smaller monthly payment, which is the definition of a win-win. You save money by literally doing nothing different, except who you write a smaller check to.

If you get a debt consolidation loan, you’re looking at 3 to 5 years to pay it all off. In the meantime, you need to be careful not to run up more debt. If you have too much debt, it’s a classic Catch 22. You need the loan to pay off debts, but you have so much debt, no bank or credit union will give you the loan.

Credit counseling

We will admit our bias here. Consolidated Credit is one of the nation’s largest and oldest credit counseling agencies, so we naturally think they’re awesome. The best of these nonprofit agencies will offer you a free debt analysis from a certified credit counselor. With one phone call, a counselor will review every dollar you spend and every dollar you earn. They’ll point you to plain-English educational resources that can help you save big bucks. Even better, they can give you a menu of debt-busting options.

But before we do that, let’s review the only drawback we know of for nonprofit credit counseling agencies. And that is this: Like everything in the world, from doctors to diners, there are good ones and not-so-good ones. How do you find the best? There are three easy ways to figure that out in just a few minutes of Internet searching.

Credit counseling: What to look for

First, go to the website for the Better Business Bureau and search the name of the credit counseling agency. If it doesn’t have an A-plus rating, forget about it. Second, read the agency’s “about” page and see how long it’s been around. The longer the better, because that means they know their stuff backward and forward. Third, check out review sites that have excellent customer reviews for the agency, like Trustpilot.com and ConsumerAffairs.com.

Debt Management Program (DMP)

One of the most powerful debt-busting solutions is only available through a credit counseling agency. It’s called a Debt Management Program, or a DMP for short. It might be able to cut your total payments by up to 30 or even 50 percent. A DMP also freezes late fees. Even better, you only make one payment a month for all the credit cards that are in the program. Unfortunately, credit card companies won’t let you sign up for a DMP yourself.

To qualify for a DMP, you have to work through a credit counseling agency, because the credit card companies trust those nonprofits to follow all the rules they establish. After all, the credit card companies are willing to forgo some of what you owe them to get back the rest. They don’t surrender profits that easily. Luckily, when you work with a reputable credit counseling agency, they take care of the paperwork for you. So, in a way, this con becomes a pro.

Two easy moves…

Let’s end with two niche tactics that require some of your time, but just once. First, did you know you can negotiate lower bills? It’s true. For example, if you’ve had a credit card for many years and you’ve been a good customer, you can often call the number on the back of the card and get some concessions just for asking. For example, you might be able to shave down your interest rate if you mention another card has offered you less. And you can also move your due date to correspond better with your paychecks, so you never get caught short and need to float that balance a little longer.

Same thing goes for your cable bill. You can often get extra premium channels if your provider is running a special you didn’t know about. You can even negotiate for a lower bill, often saving $5 or more per month. The same tactic works for those complex mobile phone contracts. These little savings really add up, especially when you don’t have to do anything.

Finally, let’s end with the last place you might look for easy savings: your work. Earlier, we mentioned direct deposit, but that’s simply diverting your own money to where you won’t easily see it. Now we’re talking about your workplace giving you valuable services that can save you big.

One of the most popular is a 401(k), which helps you save for retirement. What’s so special about a 401(k)? Many employers match a portion of your contribution to this retirement account. According to government research, the average is 4.3 percent. That means for every dollar you sock away for later, you get 43 cents. Doesn’t sound like much, but when you consider a savings account is paying less than 1 percent in interest, that’s suddenly a lot. Also, the IRS gives you some money, too, by not taxing what you contribute.

Another big workplace benefit is called a Health Savings Account, or HSA. It does the same thing by letting you set aside money for healthcare and having it be invisible to the IRS.

We could spend hours discussing these lucrative benefits, but we suggest you chat up you HR department. Believe it or not, they want you to take their money. Why? Because companies that offer these benefits know their employees will appreciate them. They’re more likely to stick around and work hard. Let your bosses help you save!

Thank You!

Credit Cards

The Good, The Sad, & The Costly

Even before the pandemic, millions of Americans were drowning in card debt. But if they just did five simple things, they could be swimming in savings. That’s what this guide will explain. Sadly, we’re very busy here at Consolidated Credit. In February of 2020, CNBC reported that credit card debt was at an all-time-high of $930 billion. We’d love to no longer be needed. But with nearly a trillion dollars in credit card debt in this country, that’s not going to happen anytime soon.

Of course, once you start talking about hundreds of billions of dollars, it’s hard to relate. On average, Americans carry $6,194 in credit card debt, according to the 2019 Experian Consumer Credit Review. While that goes up and down over the months and years, it never goes away. One big reason has nothing to do with running up your credit cards. It has to do with interest rates.

When you carry a balance, you pay for the privilege. Different cards charge different interest rates, and those fluctuate over the course of a year. But right now, you can pay up to 18 percent on your balance. That’s almost one dollar for every five dollars you charge. And you’ll pay that every month!

How to choose the right credit card for your lifestyle

That leads us right into our first big topic today: How to choose the right credit card for your lifestyle. It might sound like a weird concept, since all credit cards basically do the same thing, and they all look alike when you hold them in your hand. But those small pieces of plastic with rounded corners are all very different when you look at the details.

Now, there’s no way we’ll be able to dive deep into this topic and name the best card for you. Our goal is to show you just how many categories of credit cards exist. From there, you can easily find more information. But we also want to warn you about some of these categories. And we’ll start with retail store cards.

Retail store cards

These are almost uniformly terrible. We’re talking about cards that are branded not as a general credit card, but as coming from just one store. Whether it’s Williams-Sonoma, Lane Bryant, or Goodyear, store cards are among the worst – and that’s according to CreditCards.com, which rates these things. Why do they stink? Well, they charge a lot more than the average interest rates, so if you can’t pay off the balance each month, you’ll be paying a lot more. And of course, the rewards they offer are only good at that retailer. Finally, store cards have some of the longest and densest fine print, which makes it hard to figure out if you’re getting a good deal – and easy to get caught paying extra fees.

Retail store credit cards have only a few advantages, and it’s all about the math. Do you shop there often for basic items you definitely need? Then, say, a card dedicated to a grocery store might be worth it. Is there a great initial sign-up bonus? That works if you’re fixing up your house, and the hardware store card will give you a deep discount on the $2,000 you’re spending for the initial purchase. Finally, if you can be diligent about always paying off the monthly balance, you might actually profit from one of these cards.

Rewards cards

Now we get to the most fun part of credit cards: the rewards. Everyone loves to talk about rewards, whether it’s points, cashback, or airline miles. These days, almost every card comes with some kind of reward system. The problem is, few people look at the other side of the equation. Namely, the better the rewards, the more the card will cost you. Which means you need to be more careful to really profit from owning one of these cards.

Besides higher interest rates on rewards cards than other cards, one study showed that nearly 9 in 10 airline cards came with annual fees – something very few other cards have these days. Other studies show that the higher the rewards, the steeper the fees, including late fees. So, if you want to really rack up the rewards, keep one eye on your payment deadlines and remember this: If you carry a balance, you’re handing your rewards to your credit card company.

Low-interest cards

These cards offer only one big perk, which doesn’t sound sexy, but it really is: You get an introductory offer of a really low interest rate – or even none at all. That’s right, you might be charged nothing on your balances for up to 18 months, although some cards offer as little as three months. What’s so great about these cards? Well, if you need to make a big purchase and can pay off the balance within the offer period, it’s like someone loaned you free money for several months. But like everything else, there’s a catch. We’ll address that next.

Balance-transfer cards

A balance-transfer card is a special type of low-interest card. It offers the same introductory rates on low or no interest, but it has another powerful perk. It lets you gather up your balances on your other, higher-interest cards and move them over to one card with a lower rate. You’ll pay a fee for the privilege, usually 3 to 5 percent of the amount you transfer. For example, if you transfer $5,000 to a card with a 3-percent fee, that’ll cost you $150. Most transfers need to be completed within 60 days from account opening, so factor that in. Also, like any low-interest or zero-interest cards, rates go up after a while. That can be a few months or a year and a half. But once that introductory rate ends, the new rate might be higher than the one you just left.

What your credit card statement means

When most people get their credit card statement, they usually don’t look any further than how much they owe. But the rest of it contains vital information that could save you money. How? Because your statement will tell you if you’re really getting the best deal on your card. Sure, the sales pitch touts all sorts of perks, but the statement gives you some crucial numbers you can easily compare to other cards so you can score the best deal.

Annual Percentage Rate (APR)

The most important number on your statement is your current annual percentage rate. APR is what you pay for the privilege of being able to charge on your card, and the higher this number, the more you’re paying just to service your debt.

Minimum Payment Due

The most devious number on your statement is Minimum Payment Due. This is the least you can pay without being hit with a late fee. But don’t fall for this. Your credit card company would love you to pay the minimum, because that means you’ll rack up even more interest charges. Say you have a $2,000 credit balance with an 18 percent annual rate, and the minimum payment is $10. It would take you 30 years to pay it all off.

Payment Due Date

Finally, the easiest number on your statement is the Payment Due Date. But we mention it here for one very important reason: You can often get that changed just for the asking. If moving it a few days later will help you meet your bills, maybe because it aligns better with your paychecks coming in, your credit card issuer will sometimes help you out.

Secured credit cards

Here’s a conundrum: If you have bad credit, you can’t get a credit card. But to get good credit, one of the best ways is responsibility using a credit card. So, what can you do? Fortunately, there’s a special credit card designed specifically for people with bad credit. It’s called a secured credit card, and it can help you rebuild your credit so you can then acquire a standard credit card. But of course, like everything else, there are pros and cons.

How a secured card works

A secured credit card is different from a normal one because you have to make a refundable deposit. The value of your deposit determines your credit limit. So, it’s not really a “credit card” at all. It’s more like a debit card, but it gets reported like a credit card. For example, if you put down a $500 deposit, you’ll have a credit limit of $500. Then you can use your credit to buy things you need and pay that amount off in full every month. On average, it takes six months for secured credit cards to start improving your credit, according to Credit.com. When you decide to give up your secured card, and as long as you’ve paid any balance, you will receive your deposit back when you close the secured credit card account.

The downside of secured credit cards

A secured credit card typically has a higher interest rate than many non-secured cards. You can get around that, however, by paying off your statement balance each month so you don’t pay any interest. Unfortunately, some secured cards are loaded with fees and other unfavorable terms – including annual fees. And if you fail to make a payment, the issuer can take your deposit. You definitely don’t want to be careless with deadlines and payments.

What happens if you’re drowning in credit card debt?

All of this advice might sound good if you have manageable credit card balances, or even none. But what if you’re buried under credit card debt, and you’re maxed out on your credit limits? If it gets that bad, you’ll need professional help.

Thankfully, there are nonprofit credit counseling agencies that can help you. Consolidated Credit is one of the largest and oldest. When you call us, a certified credit counselor gives you a free debt analysis. It comes with no obligation, and by law, any recommendations must be the best for your situation.

What is a Debt Management Program (DMP)?

One of the most powerful debt-busting solutions is only available through a credit counseling agency. It’s called a Debt Management Program, or a DMP for short. It might be able to cut your monthly payments by up to 30 or even 50 percent. A DMP also freezes late fees. Even better, you only make one payment a month for all the credit cards that are in the program. And unlike the other debt solutions like bankruptcy, your credit score isn’t irreparably damaged. It might dip temporarily, but it actually improves over time. Unfortunately, credit card companies won’t let you sign up for a DMP yourself.

To qualify for a DMP, you have to work through an agency like Consolidated Credit because the credit card companies trust those nonprofits to follow all the rules they establish. After all, the credit card companies are willing to forgo some of what you owe them to get back the rest. They don’t surrender profits that easily. Luckily, when you work with a reputable credit counseling agency, they take care of the paperwork for you.

DMPs aren’t for impatient people. It often takes years to graduate into financial freedom. One reason for the long timeline is that DMPs are supposed to be relatively painless. Imagine a crash diet compared to gradual lifestyle changes that help you lose weight. That’s how a DMP helps you shed debt. And your credit counselor is there for you the entire way. But if you’re looking for a quick fix, this isn’t it. However, it’s often the best and most permanent solution.

Thank you!

That’s all for this paper – and we’ve just scratched the surface. Credit cards are as complicated as they are widespread. There are 253 million adults in this country, and 191 million of them have credit cards. Yet not many know everything about those pieces of plastic they use so often. If you have any questions about what we’ve discussed today KOFE can get you the answer.

When a Reverse Mortgage is a Great Idea – And When it’s Not

Senior citizens can save a lot of money with the right reverse mortgage. But there are pitfalls and trapdoors to watch out for. This gets into both sides of that equation.

What is a reverse mortgage?

There’s no shortage of definitions for a reverse mortgage, but let’s start with one from the federal agency that oversees them. The FTC describes a reverse mortgage like this:

“It allows you to convert part of the equity in your home into cash without having to sell your home or pay additional monthly bills.”

You can use a reverse mortgage to pay for home improvements, medical expenses, travel, or anything else you can think of.

How does a reverse mortgage work?

If you have a mortgage now, you remember applying for a mortgage, getting a decent interest rate, paying lots of annoying fees, and then making monthly payments on, first the interest and then the principal of your home loan. Well, a reverse mortgage doesn’t exactly reverse all of that, but it’s close. The concept is clear: As the FTC says, “When you have a regular mortgage, you pay the lender every month to buy your home over time. In a reverse mortgage, you get a loan in which the lender pays you.”

The problem is many people think a reverse mortgage is the complete opposite of a regular mortgage. They think, “Hey, remember all those fees I paid to get my regular mortgage? Well, I don’t have to pay them on a reverse mortgage, right? Because it’s the opposite!”

Not by a long a shot. When we cover the pros and cons of reverse mortgages below, you’ll see that high fees are a definite con. But let’s dispel the notion right now that a reverse mortgage is a 100-percent opposite thing from a regular mortgage. Before reading further, review the minimum requirements for even getting a reverse mortgage:

• You need to be at least 62 years old.
• You need to own your own home.
• It has to be your primary residence.
• You need to have accumulated some equity in that home.

Types of reverse Mortgages

Before the pros and cons, review the kinds of reverse mortgages you can get, because they’re not all the same. Let’s break down these three options.

1. Single-purpose reverse mortgage

A single-purpose reverse mortgage is pretty much what it sounds like. You can only use them for one purpose, and that purpose isn’t up to you. It’s up to the lender. For example, your lender might specify the reverse mortgage can only be used to pay for home repairs or to pay property taxes. But because of that, they’re also the cheapest reverse mortgages you can get – if you can get them.

They’re not offered everywhere for everyone. Some state and local government agencies offer them. So do some non-profit organizations. And it’s quite common that you need to be a low or moderate-income homeowner to qualify.

2. Home Equity Conversion Mortgages (HECMs)

Home Equity Conversion Mortgages, or HECMs, are federally-insured reverse mortgages. They can be used for anything, but they come with many rules. First, you can get one only through a lender approved by the Federal Housing Administration. Second, you must meet with a counselor from an independent, government-approved housing counseling agency. Why? The government wants to make sure you know exactly what you’re getting into, so you don’t make a costly mistake.

3. Proprietary reverse mortgages

A proprietary reverse mortgage is the fancy way of saying it’s a loan from a private company that’s not insured by the FHA. They can make more of their own rules, although they still have to follow federal laws that protect your rights. In fact, some of these private lenders still require you to get counseling before they’ll give you the loan.

Why would you want a proprietary reverse mortgage instead of an HECM? Well, the proprietary ones have no lending limits. Those HECMs cap out at just over $756,000, while proprietaries can run into the millions. So, if you have a small mortgage on an expensive house, you’ll get more bang for your buck with a proprietary reverse mortgage.

That’s just an overview of the three kinds of reverse mortgages, but you should know there are many more rules. Here’s just one example: If you want an HECM, it must be a single-family home unless it’s a four-unit rental property and you live in one of the units. You can also live in a condo as long as it’s HUD-approved or a manufactured home as long as it’s FHA-approved.

Pros and cons of reverse mortgages

Let’s talk about the pros and cons of reverse mortgages, because there are some really big ones, and of course, you don’t hear all about them from companies trying to sell you reverse mortgages.

The cons of reverse mortgages

Now usually, when you hear the term pros and cons, the pros come first. Well, we’re discussing reverse mortgages, so we’re going to reverse that and start with the cons.

Fees

Remember when you got your first mortgage? Remember how shocked you were at all the fees you had to pay – many you didn’t even know existed before you started looking for a home? Well, a reverse mortgage doesn’t reverse those fees. They’re still there.

These fees depend on many factors, including the value of your home and what type of reverse mortgage you’re applying for. But know this: You could spend thousands of dollars before you get thousands of dollars.

Thankfully, you can use the loan itself to pay for these fees, but as the federal CFPB warns:

“If you use your loan proceeds to pay for upfront costs, you won’t have to bring any money to the closing, but the total amount of money you’ll have available from the reverse mortgage loan proceeds will be less.”

At the end of the day, between the interest rate, origination fees, mortgage insurance, appraisal fees, title insurance fees, and other closing costs, the total cost of your reverse mortgage could be as high as $40,000. Then again, consider this: A $300,000 mortgage at 4.5 percent over 30 years costs more than $245,000 in interest and fees. The conclusion here is this: Mortgages cost a lot of money, whether they’re reversed or not.

Possibility of default

Here’s a big problem with reverse mortgages that you don’t see advertised in those enticing offers: If you fail to pay property taxes or even keep up with your homeowner’s insurance, the lender can foreclose on your home. It seems like the crime doesn’t fit the punishment, but it’s true: Don’t make these other payments, and you could lose everything.

There are ways to prevent this, called “set asides,” and you’ll learn all about those when you consult a housing counselor.

Less for your heirs

By definition, when you seek a reverse mortgage, you’re taking out money now and leaving less for your heirs. If you want to leave your home to your heirs, they can still inherit the home, but they’d have to pay a mortgage debt that’s been mounting instead of dwindling. The entire principal – plus accrued interest and service fees – must be paid in full to the lender before your heirs can take possession of the home. This debt might exceed the actual market value of the home. If they can’t pay the debt, the lender has the right to foreclose and sell the property. Goodbye, inheritance.

No moving

Another restriction when you get a reverse mortgage: You can’t move. If you do, you have six months to pay back the loan. This is true even if you need to move from your home to an assisted living facility because you can no longer take care of yourself. If you have a medical condition or illness, you have to repay the mortgage if you’re out of the home for more than 12 months.

The pros of reverse mortgages

After all that negativity, let’s review all the wonderful things a reverse mortgage offers.

Multiple options

You can choose a number of options for taking your funds. You can even mix and match among them, whether it’s one lump sum, a line of credit you can tap as needed, or a steady stream of monthly advances for a set period of time. Again, it gets complicated, but it’s much more fun to figure out the best ways to get money than pay money.

No more monthly mortgage payments

So this is the big difference between taking out a loan against your home and a reverse mortgage. Unlike, say, a home equity loan, a reverse mortgage actually ends your monthly mortgage payments. That’s a sweet deal, right? You receive money without having to pay money. But like we warned earlier, you need to make sure you don’t forget to pay your property taxes, insurance, and maintenance.

Keep government assistance

Seniors often worry about receiving new money because it might affect their Social Security and Medicare benefits. There are exceptions, but you don’t lose your government assistance when you get a reverse mortgage. One of those exceptions is this: If you’re on Medicaid or Supplemental Security Income (SSI), any reverse mortgage proceeds you receive must be used immediately. Otherwise, those funds could be considered an asset, which could impact your eligibility. Confusing, right? Yet another reason to consult a housing counselor before doing anything else.

Protected against falling home prices

A reverse mortgage is what’s known as “non-recourse loan.” That means neither you nor your heirs are personally liable if the amount of the mortgage exceeds the value of your home when the loan is repaid. To put that in plainer English: A reverse mortgage protects you against falling home prices. So even if the value of your home drops after you get your loan, it won’t affect your loan. Even better, if the value of your home increases, you benefit. If your home increases in value in the future, you can refinance your reverse mortgage to access even more loan proceeds.

That home-value protection extends to your heirs. As the CFPB says, “If your loan balance is more than the value of your home, your heirs won’t have to pay more than 95 percent of the appraised value. The remaining balance of the loan is covered by mortgage insurance.” So you’re not burdening your children. Conversely, after the loan is repaid, any remaining equity belongs to your heirs.

Avoiding scams and rip-offs

Some unscrupulous companies will urge you to take out a reverse mortgage and then invest your newfound funds with them. As the Federal Trade Commission says, “Resist that pressure.” Reputable lenders help you secure a reverse mortgage for whatever you need the money for, not what they want.

Rather than describe all the different scams out there, let’s focus on what they all have in common. Namely, they pressure you to make a decision right away. If anyone tries that with you, it’s a huge warning. Better to ignore these people and consult a housing counselor who has your best interests in mind.

How to find the best reverse mortgage for you

Thankfully, there’s no shortage of reputable online advice about reverse mortgages. Every question you could ever have is probably already answered by an expert. We’ve mentioned the Federal Trade Commission and Consumer Finance Protection Bureau as resources, but there are many more. And of course, there’s us, too.

About Consolidated Credit

Consolidated Credit is one of the nation’s largest and oldest credit counseling agencies. For more than two decades, our nonprofit has literally helped millions of Americans get out of debt and balance their budgets – which means they’ve freed up money for retirement savings. We’ve taught financial tips and to help more than 6 million Americans over the past 26 years.

Student Loans in a Time of Crisis

How to overcome the challenges – and the debt

Even in the best of times, student loans are difficult to navigate. Of course, these are far from the best of times, so this paper explains how to ease your stress about student loans so you can focus your time on your education and your health.

The sad truth is, even before the pandemic, student loans were already being called a crisis. Why? Because we owe more on our student loans than we do on all the credit cards out there. $1.4 trillion dollars – that’s the total we all owe on our student loans. Next to mortgages, this is the biggest category of personal debt.

Of course, when you talk about a trillion dollars, it’s hard to even grasp the number. So how about these numbers? 40 million American adults owe student loans, with 6 million owing more than $50,000. So basically, almost a fifth of the country is making student loan payments, and millions of them are struggling. Add a pandemic on top of that, and you can see how dire the problem is.

The CARES Act and the HEROES Act

During the coronavirus shutdown, the federal government enacted stimulus measures that affected student loans – and they might not be done yet. As of today, the CARES Act is still in effect, and it definitely affects student loans. Congress is still debating a follow-up stimulus package called the HEROES Act. If it passes – and that’s not at all a sure thing – it will extend and broaden student loan relief. Let’s review what’s already happened and what might happen this summer.

The CARES Act

Starting in mid-March and running through the end of September, the CARES Act says interest won’t accrue on your student loans. Basically, your new interest rate is zero percent. In October, though, your interest rate will go back to normal. Since the average student loan interest right now is 5.8 percent, that’s a pretty good chunk of change you save for not having to do anything.

The CARES Act also paused federal loan payments automatically. You don’t need to go to your lender and ask, because it’s already done for you. But if you have a job and have the money, you should still make those payments. Why? Because pausing payments doesn’t mean your debt is going away. The sooner you pay off your loans, the sooner you can save for other things. So, if you still want to work toward paying down your student debt, call your loan servicer and reinstate your monthly payments.

The HEROES Act

While the CARES Act is already the law of the land, the HEROES Act is set for a big Congressional fight this summer. The follow-up stimulus package passed the Democratic House but faces an uphill climb in the Republican Senate. If it passes intact, it’ll do two things of note…

If you have federal student loans – and more than 90 percent of borrowers do – then you get an extra year of not having to make payments. Basically, the HEROES Act extends the CARES Act deadline from this September to September 2021. But what if you have private student loans? The CARES Act had nothing for you, but the HEROES Act is proposing a game-changer.

The most revolutionary part of the HEROES Act is that it lets the federal government pay off your private student loans – up to $10,000 for qualified borrowers. That means you don’t even need to make the payments yourself. The government does that for you. Even better, their on-time payments will be reflected in your credit score!

The broad strokes

That’s just the broad strokes of the CARES and HEROES acts. There’s a lot of fine print and complex rules about who qualifies and terms like “capitalized interest.” These are, after all, government programs. Even without a pandemic, the rules for saving on student loans can make your head spin. We review those below, because this pandemic will end someday, and student loans will still be a huge problem. But as you review them, please keep something important in mind: There’s more help available, and we’ll help you find it for free.

1. Forbearance

Here’s a concept that’s familiar to anyone who’s called their credit card company and begged to get a late fee removed. Yes, sometimes just asking works. Your servicer wants you to keep making payments, so sometimes they’ll give you a forbearance – which means you can temporarily stop paying your student loans. Basically, it’s like a hold button for your loan payments.

Thing is, you need a darn good reason for such incredible debt relief. These so-called “discretionary” forbearances require your servicer’s permission. If you can’t make your payments due to a change in jobs, a medical expense, or other financial difficulties, your servicer can decide to give you a forbearance.

Then there’s mandatory forbearance, which means your servicer can’t deny you the forbearance if you qualify. For example, if you’re on a medical internship or residency program, or if you’re in the National Guard and got activated by the governor, or if your payment is more than 20 percent of your monthly gross income, then you may get a mandatory forbearance.

There are so many other scenarios, you need to spend a few minutes conducting your research and plugging in your own particular circumstances. The few minutes you spend might save you thousands of dollars.

Whatever forbearance you qualify for, you can get up 12 months of making no payments. In total, you can get three rounds of 12-month forbearances before you max out. That gives you plenty of time to get your financial life in order– but remember, you still owe the loan amount.

In fact, under a forbearance, your interest charges continue to accrue. Because you’re not making payments, that means your overall loan debt increases. So, you get some relief now, but later on you’ll pay for it. And of course, the rules are different for private student loans – because the rules are always different for those, which we’ll discuss later. Still, anything is better than defaulting on your student loans, which is what happens when you don’t make payments for 270 days or more. That means your wages can be garnished, your credit score is trashed, and any future tax refunds and other federal benefits payments can be withheld. You don’t want to go down that road.

2. Deferment

As you can already see, student loan jargon can get very particular and difficult. In this instance, a forbearance and a deferment are more similar than different. In fact, the only major difference is that with a deferment, you might not owe that accrual of interest we just talked about. Like a forbearance, you must have some pretty serious circumstances that prevent you from making those monthly payments – like, say, cancer treatment or a job layoff.

Now, this is just a rough overview of forbearances and deferments. You want to know how detailed it can get? Here’s a quote from the Federal Student Aid website…

You may be eligible for a deferment on your federal student loan if you are a parent who received a Direct PLUS Loan or a FFEL PLUS Loan, while the student for whom you obtained the loan is enrolled at least half-time at an eligible college or career school, and for an additional six months after the student ceases to be enrolled at least half-time

But don’t worry, by the time you finish this, we’ll show you a path out of this wilderness.

3. Income-Based Repayment

Now let’s talk about the government. The federal government, that is. It offers a myriad of programs to help you cope with your student loan debt. The first is called the income-based repayment program, or IBR. If you have federal loans and can demonstrate a financial hardship, you qualify. Basically, an IBR matches monthly payments to your income. It’s the government’s way of acknowledging that the salary you earn after you get a degree usually doesn’t exactly match the expense you incurred to get it.

For example, the program adjusts the monthly payments on your Federal Direct student loan debt to your income and family size. If you have lower income and a larger family, it reduces your student loan payment requirement.

In general, enrollees spend between 10 percent to 15 percent of their take-home income to repay student loans under an IBR. This reduces the burden of student loan repayment on your budget. But the government acknowledges that this can increase total cost over the life of your loans. Still, it helps you greatly in the short term.

4. Income-Contingent Repayment

Just to make these programs extra confusing, there’s also one called an income-contingent repayment plan. The ICR is a little different than an IBR. While both adjust your monthly payments based on your income, the ICR has a few important differences.

First, you don’t need to show any crushing financial problems to qualify. On the downside: Unlike IBR, ICR doesn’t stop your monthly payments from increasing indefinitely along with your income.

So how do you choose between them? We’ll answer that a little later – because we’re not even halfway through the complex options available to you. Like I said earlier, once you’ve gone through all of the options, we’ll show you an easy way to navigate the process.

5. Pay-As-You-Earn (PAYE and REPAYE)

There’s a third federal student loan relief program that matches monthly payments to your income. It’s called Pay As You Earn. It’s even better than an IBR at reducing monthly payments. It was updated and expanded a few years ago into yet another option called REPAYE – which stands for Revised Pay As You Earn – but the concepts are still the same. Your monthly payments are reduced to 10 percent of your discretionary income, and after 20 or 25 years, whatever balance is left is forgiven – and forgotten. You pay nothing more.

What’s the difference between the two? They’re subtle but real. For instance, to qualify for PAYE, you must have a partial financial hardship. REPAYE? Anyone with qualifying student loan is eligible.  Your spouse’s income doesn’t count in PAYE if you file separately, but it does in REPAYE. Generally speaking, PAYE is a better option for married borrowers when both spouses have an income. REPAYE is usually better for single borrowers and people who don’t qualify for PAYE.

But in both cases, just like an ICR, if you get a new high-paying job or a big fat raise, your payments jump up along with that extra income. If you want to see if PAYE or REPAYE is right for you, we once again recommend you visit StudentAid.gov.

6. Federal Direct Consolidation Loan

If you’ve ever used a debt consolidation loan to take care of credit card debt problems, you might think you understand how a Federal Direct Consolidation Loan works for student loan debt. But you’d be wrong.

You use a Federal Direct Consolidation Loan to consolidate federal student loan debt into one easy payment. But the loan structure, interest rate and how you qualify varies greatly from other types of consolidation loans.

Consolidating debt is generally done to simplify debt repayment. If you have multiple individual debts to repay, it can get complicated to juggle all those bills within your budget. Consolidation reduces that down to just one bill, so debt is easier to manage.

However, that’s not the only advantage of Federal Direct Consolidation Loans. In this case, taking out this type of loan provides an additional benefit that can be significant, depending on your situation. Namely, you can make defaulted federal student loan debt current. It’s an amazing benefit, and one worthy of a few minutes of your research. Applying is easy. You do it through the federal website StudentAid.gov.

7. Refinancing Student Loans

If you don’t want to deal with forbearances and deferments, and you’re not interested in the federal relief programs, you have another option: refinancing your loans on your own. When you refinance, you actually take out a new loan at a lower interest rate. This works best if you’re not cash-strapped and want to pay off your loans faster. That’s because you need a credit score high enough to qualify. Basically, you’re consolidating your federal student loans into one private loan for a lower interest rate. You can then plow your savings back into paying off the principal.

Here are the five first steps you need to take, starting with the simple step of figuring out how much you want to refinance. Then you need to record the balance and APR on those loans, so you can shop for a better deal. But remember, when you apply for a new loan, that results in a “hard inquiry” on your credit report. That can temporarily drop your credit score. It’s not a huge deal, but it’s worth mentioning, because if you apply for too many loans in too short a time, you could end up paying more. For instance, you don’t want to refinance your student loans at the same time you apply for a new credit card and secure a new auto loan. All those inquiries, not to mention the new credit, could drop your score and raise your rates.

8. Student Loan Forgiveness

Now we get to the most enticing but most complicated part of this master class on student loans. Can you really get your hefty student loan balances forgiven? The answer is, “Yes, but…”

The Public Service Loan Forgiveness program – PSLF, for short – provides a path to federal student loan forgiveness. If you work in a qualified public service profession – and that includes many in the medical profession –  the government might forgive a portion of your federal student loans.

However, the qualification process is long, complicated and (worst of all) not guaranteed. You need to make 120 regular qualified payments first – that’s 10 years’ worth. But if you do qualify, you could get out of student loan debt for less than you originally borrowed. This one is worth spending some extra time o

Remember when we were talking about those federal relief programs like IBR and REPAYE? And how they lower your monthly payments, matching them to your income and family size? Well, we also mentioned that they can cost you more in the long run, because they increase the repayment term for up to 25 years.

Two and a half decades in debt is a long time to be in debt. The fact that PSLF forgives your balances after 10 years is a huge advantage. If you qualify, it’s quite literally worth the hassle.

Here’s one of the catches, though. To qualify, you must first enroll in one of those federal relief programs: IBR, ICR, or REPAYE. And you must recertify your income every year to remain eligible. (As an aside, you can see why some folks choose to refinance their own student loans.)

Finally, you can only take advantage of this program if you work in certain professions that the federal government deems a significant contribution to our society. Luckily, that includes nurses and doctors. It also includes firefighters, police officers, and teachers. There’s a separate but similar program for military veterans.

9. Getting help fast

As you can see, this stuff can get complicated enough to fluster a PhD. It’s one big reason that the Government Accountability Office told Congress that 51 percent of all Federal Direct Loan borrowers were eligible for the IBR program we mentioned earlier – yet, only 13 percent are actually participating in it. And the Department of Education even admits that their efforts to increase awareness about these federal relief programs is “incomplete” and “inconsistent.”

That’s why you might consider hiring a professional. Think of it like your taxes. If your income taxes become too complex, you can hire a CPA or tax preparer who not only saves you the time and aggravation, but can also find ways to save you money – hopefully more than enough to cover the cost of hiring them in the first place. That’s been happening more and more in the student loan world.

First, spend a few minutes looking the professional up online. Have they been doing this for a while? The best firms have at least a few years under their belts. Second, check for online reviews – and that includes personal finance websites that often field questions from confused or irate consumers. Third, if the firm has an excellent rating from the Better Business Bureau, that’s a big plus. Finally, see if these firms are recommended by other sites. Some of those sites actually recommend only those firms that agree to adhere to a code of ethics.

If you want to learn more about this option – and if you’re a busy professional, I recommend exploring it – you can call Kofe’s counselors to learn more.

10. Student loan scams

With this much money on the line, some bad actors are bound to come after you. While new scams pop up all the time, let’s review the big ones. Let’s begin with the advance fee scam. This happens when one of those agencies we talked about insists you pay a “small” up-front fee. This can be up to $1,000.

Unless that money is being held in escrow, you shouldn’t pay money first to save money later. Legitimate third-party companies don’t charge you until they start working for you and getting results.

A version of this same scam charges you a “consolidation fee” or a “processing fee” or an “administrative fee” for consolidating all your federal student loans. The thing is, you can do that on your own for free at StudentAid.gov. If you want someone to do this for you, you can certainly pay for the service; but if the company doesn’t tell you up front about the free DIY option, they’re not being ethical.

Finally, as if lawyers don’t have a bad enough reputation already, there’s the law firm scam. A lawyer (or someone who says they’re a lawyer) claims to be able to settle your student loan debt for pennies on the dollar. All you have to do is send your student loan payment to them instead of your servicer. The law firm will negotiate with your servicer and reduce what you owe.

Except the law firm never makes a payment, keeps your money, and you go into default because your servicer hasn’t heard from you. In the worst cases, the law firm comes back and offers to negotiate with your servicer to get you out of default. Then they don’t actually do it.

If you take nothing else away from this paper on student loans, learn this: Stick to the third-party resources who have been around awhile, who have excellent online reviews, and who have A-plus ratings with the Better Business Bureau.

Private student loan help

So far, almost everything we’ve discussed has involved federal student loans. There’s a good reason for that: Federal loans represent around 94 percent of all student loans. Private loans are only a fraction. What is a private loan? Simple. You go to a bank or other private lender and secure a student loan just like you would an auto loan.

Because these go through private financial institutions that face competition, their customer service is often better than some of the horror stories you read about federal student loan servicers. Then again, you’re not eligible for those federal relief programs. Your options are pretty much to throw yourself at the mercy of your lenders or consolidate your loans like we mentioned earlier.

Many Americans with private student loans also have federal loans. They took out the private loans to cover what their federal loans couldn’t. So, when you call a third-party company to help with your loans, they can offer you some general advice.

General advice

Just some random notes here, since we get asked these questions all the time. First, when you apply for forbearances, deferments, of federal relief programs, your credit score isn’t affected. However, if you try to refinance your loans on your own, your score can be affected. The most common mistake is applying for multiple re-fi loans instead of just asking for quotes. Every time you apply, it triggers a “hard inquiry,” which drops your score a tad.

As you can see from this master class, figuring out how you’ll save on your student loans often involves knowing exactly what you earn and spend now. Now I realize that giving you advice to create a budget is like telling you to floss your teeth. We all know it’s a good idea, but it’s boring. Well, imagine if you could have a robot floss your teeth for you. That’s how you can budget these days. Online tools like My Money through Life Credit Union make budgeting easy. Your bank or credit union probably offers its own suite of tools. Take advantage of these and tap a few keystrokes to create a budget, instead of spending time with pen and paper.

Finally, don’t let all this daunting information depress or discourage you. Yes, it can feel like your head will explode from all the rules and options. But you have help, both free and paid. The bottom line is this: The programs and advice discussed here can greatly enhance your bottom line.

Thank you

So that’s our review of student loans, both during a pandemic and afterward, which we hope comes really soon. If you have more questions or you want more free financial advice, we’re here for you. Just go to your KOFE portal.  Thank you so much for your time today!

The information in this paper was designed to make sure you can get some sleep without always worrying about the finances of your growing small business – during this pandemic and afterward.

Small business faces big challenges

The shutdown has caused a meltdown for many small businesses. How will you survive? Let’s take a moment to acknowledge all the pain out there. But let’s also frame today’s solutions.

First, we’ll talk about getting the most out of the government programs available to you. Then we’ll discuss how you can run a leaner and meaner business, so you can preserve the resources you already have, both now and after life slowly returns to normal.

Small Business Administration

Here’s the worst-kept secret in small business relief: The federal government’s Small Business Administration has been offering money to get you through this shutdown. Some of it has been controversial, but almost all of it has been confusing. Here, we break it down in plain English and point you in the right direction.

Paycheck Protection Program

This is the one you’ve been reading about. The one where major employers like Shake Shack and the owner of Ruth’s Chris Steak House returned tens of millions of dollars in loans. The SBA has $249 billion set aside just for the Payroll Protection Program, but it comes with restrictions.

You can only use the loan for payroll, interest for mortgages, rent, and utilities, and three-fourths must go to payroll. You also must maintain existing salary and full-time employee levels. Do that for eight weeks, and the loans will be forgiven. Even if you don’t follow all these rules, you can still get loan payments deferred for six months.

Economic Injury Disaster Loan Advance

The name is dramatic, but this loan could provide you with a business-changing amount of money. Small businesses can now apply for a loan advance of up to $10,000 to provide relief for plunging revenues. The funds will be accessible within days of the application, and the loan advance doesn’t need to be repaid. Right now, this program has been frozen because it’s spent all its allocation, but it could return at any time. Congress is considering it.

Express Bridge Loan

Another program that expired but could return any time is called an Express Bridge Loan. The loan must be from an SBA Express Lender that you’ve borrowed from before, and the applicant must prove that they can’t receive credit from a non-federal source. The maximum loan term is seven years and it’s capped at $25,000. To apply, you must pay a fee of $250 or 2% of the loan amount – whichever one is greater. Interest can be 6.5% over the prime rate, depending on the lender’s terms.

It was done in mid-March, but we mention it here because, like we’ve been saying, Congress is still considering aid to small businesses, and this could easily come back. These kinds of loans might prove popular during a pandemic recovery, so keep your eyes open for news.

SBA Debt Relief

SBA isn’t just giving you loans – it’s also making it easier to pay them off, too. The SBA is automatically paying the principal, interest, and fees of current 7(a), 504, and microloans for six months. This perk will be available until September 27^th, but it isn’t available for Paycheck Protection Program loans or Economic Injury Disaster loans.

And if you have a current SBA Serviced Disaster Loan that was in “regular servicing” status as of March 1^st, you’re in luck, too. The SBA is giving automatic payment deferments until December 31^st, although interest will still accrue. As of 2021, those who canceled automatic monthly payments will have to sign up for them again as well. To apply, contact your SBA lender.

You should have SBA.gov marked as a favorite in your browser. That’s where you’ll find out what you can apply for now, and you can learn when new funds will become available. It’s well worth a daily visit.

Other government help

The federal government isn’t the only one helping out small businesses. For example, Lakewood Ohio is giving $3,000 grants for rent payments. Hillsboro Oregon is giving $5,000 grants especially for bars and restaurants. And Iowa is giving up to $25,000 in sales and tax deferrals. Who knows what your city, county, or state are doing? Check out their websites now.

Know the SCORE

Finally, there’s SCORE, which a great resource in good times as well as bad. Simply go to the website for SCORE, a nonprofit that was founded in 1964 as the “Service Corps of Retired Executives.” It was basically a bunch of thoughtful and smart retired business leaders giving back by mentoring new business owners. Now it’s just SCORE, much like KFC no longer stands for Kentucky Fried Chicken. Their job is to help YOU.

Play the game

SCORE can’t give you cash relief, but they can help you with a marketing plan. That sounds like the last thing you need, doesn’t it? Marketing during a shutdown! But it’s important to keep whatever business you can, and to set you up for a strong return. As you can see from the ideas above, the best small business owners are using their forced time at home to keep a digital presence and to offer their customers emotional support as much as anything else. For the rest of this shutdown, think of your entire marketing plan as long-range.

Helping yourself

Now let’s talk about what you can do to help yourself. Getting money from customers and relief programs is crucial, but so is keeping as much of it as you can. Let’s talk now about what you can do after the shutdowns are over. Why? Because this will end, and life will get better. When that happens, solid and sound business practices will matter as much as ever.

A business starts with a monthly budget – after you make a personal budget

If you don’t budget in your personal life, start now. We’re deadly serious about this – because there’s no way your business will survive, much less thrive, if you don’t make a budget and stick with it.

A business budget is a little more complicated than a personal budget. If you don’t have a personal budget, you need one for the reasons we just mentioned. But it’s also good practice for making your business budget. You’re flexing some of the same muscles, so if you don’t have a personal budget, I urge you to consult Consolidated Credit’s website for easy-to-follow advice.

A business budget in 6 easy steps…

Once you’ve mastered the budgeting basics in your personal life, it’s easy to do a business budget. Let’s start at the beginning.

1.      Add up your revenue

First, you add up your monthly revenue sources – and remember, we said revenue. Not profit. You want to include all the ways you make money before expenses are deducted.

Ideally, you’ve been in business for at least a few months, possibly a year. Why? Because you want to do this same calculation for several months, then take an average. Few businesses earn exactly the same each month, so coming up with a monthly average is important.

2.      Subtract fixed costs

Now you want to do the same thing with your fixed costs, which is defined as any cost that doesn’t change with the output of your business. That includes line items like rent, taxes, and equipment. Depending on your business, you might have more or less fixed costs.

Sometimes, new small business owners confuse this term to mean, “Costs that I can’t negotiate.” That’s not true, since you can obviously negotiate your rent. But these costs remain whether your business is doing well or poorly. For example, if you leased a widget machine and business is slow, you’re still making payments on the widget machine.

3.      Determine variable expenses

Variable expenses are the opposite of fixed expenses. Here, we’re talking about things like wages, supplies, and utilities. Why are these variable? Let’s go back to the widget machine. You need to keep making payments on it, but if business is slow, you’re using it less, which means your electric bill is cheaper. You can also save on the wages of the widget machine operator.

Conversely, if business is booming, you might pay for an extra shift and run the widget machine night and day, driving up your wages and utilities but earning you more revenue.

In other words, variable costs can fluctuate with business activity. Just like you did with revenue, estimate these costs over a series of months. While most variable costs are monthly (like utilities), others can be charged quarterly or annually (like marketing costs).

4.      Set up a contingency fund

A contingency fund for a small business is like an emergency fund for a family. Here again, if you handle your personal finances according to established principles, you’ll find doing the same for your business will be a breeze.

If you don’t have an emergency fund – and more than a quarter of Americans don’t – you need to start one pronto. Again, Consolidated Credit can show you how. Just go to ConsolidatedCredit.org and search for “emergency fund.” No amount is too small to start with, and you’ll learn some principles of a contingency fund.

So, what are those principles? Well, a contingency fund is all about “unforeseen circumstances.” Your personal emergency fund can cover the financial costs of a sudden illness or job loss. But for a small business, a contingency fund is often used for more than just emergencies.

For example, it can be used to replace that widget machine if it suddenly breaks down beyond all repair, or it can be used to upgrade the technology of the widget machine. While you’d use the contingency fund if, say, a natural disaster damaged your office, you’d also use it to generally repair or improve your business.

The trick is to make sure you don’t dip into your contingency fund for typical business expenses. In other words, you don’t use this fund to cover your payroll. Your budget should already account for your fixed and variable expenses. We’re talking about big, one-time costs that either keep your business humming or can dramatically improve it.

5.      Make a P&L statement – this is your business budget

Now that you’ve created a monthly budget you can stick to, and a contingency plan for unexpected catastrophes and opportunities, it’s time for a profit and loss statement. If you’ve done the previous steps well, a profit & loss statement, or P&L, is simply addition and subtraction. This is your actual budget.

Once you add up all your income and subtract all your expenses, you’re hopefully left with a positive number. If not, don’t panic. Many small businesses take a while to become profitable, and they’re not always profitable every month. But if you have a negative number, make sure it’s not a deal-breaker or a heart-stopper. Otherwise, you might need to rethink your business model.

6.      Create your projections

This is the strategic part of budgeting, and also the fun part. It requires more than just some basic math skills, because once you have all your business numbers in one place, you can make big plans. In which months do you conduct the most business? Which months are slow? What can you do to deftly handle the busy times? What can you do to boost business during the lulls? Now you can devise a real business strategy supported by hard data.

3 financial statements you need

Now that you’ve done your budget, you have the tools to create three key financial statements. One you’ve just done. That’s the P&L. Now you just need two other documents.

A balance sheet is simply a financial snapshot of your business. It’s an equation that looks like this: your liabilities + your equity = all your assets. As the U.S. Small Business Administration says, “The two sides of the equation must equal out.” Confusing? Hold that thought for a moment.

A cash flow statement is simpler. This highlights how much money is coming in (called cash inflows) and going out (cash outflows, of course). Cash inflows include not only cash sales but also accounts receivables you collected and loans and other investments. Meanwhile, cash outflows include equipment you bought, expenses you paid, and your inventory.

Overcoming cash-flow problems

While solidly-built budgets and financial statements are required to be truly successful, they can’t prevent the inevitable cash-flow problems many small businesses face at one time or another.

There are several common causes for cash-flow issues. First and foremost is the obvious: You’re not selling enough of your product or service. This doesn’t mean your business is failing. Many businesses have a slow season where they’re just scraping by.

Many businesses also have a collections conundrum: Sometimes your best or newest customers are late with their payments, and you need to decide how hard to push. Sadly, that often means pushing very hard, because those payments simply never come.

Finally, there’s a situation much more within your control: Your own expenses. Are you buying items you don’t need, or can you get items you do need for cheaper?

Fortunately, cash-flow problems have more solutions than they have causes. Some are easier to implement than others. Let’s review your options.

Seven ways to solve cash-flow problems

1.      Have a “flash sale”

In the old days, you had a sale. These days, you can host a “flash sale.” These are defined as ultra-brief sales that you advertise mostly through social media. They typically last for only a day. If your financial statements are otherwise sound but you need a cash injection, a flash sale might be an easy way to do that quickly.

2.      Hike your prices

This might seem to contradict the first point we just made. However, if your sales are strong but you still have trouble with cash flow, it might be that you’re charging too little for a valuable product or service. Experts who study pricing say you might lose your most price-conscious customers, but the majority will stick around if your business model is sound. That will not only make up the difference, but it could also establish you as a quality product or service worthy of paying a little more for.

3.      Crack down on collections

Ask most small business owners, and they have at least one horror story about a client who owes them and pays late. Just like trying to figure out the perfect price, small business owners have to balance pushing their late payers without pushing them to their competitors.

If you need cash now, you need them to pay up. But you don’t have to harass them. Consider offering your customers incentives. If they pay early, perhaps they receive a 10 percent discount. Sure, you lose 10 percent, but you gain 90 percent. Do the math to make sure the tradeoff is worth the cost, but you might want to consider this carrot instead of just a stick.

4.      Accelerate your invoicing

Many small businesses invoice all at once on a single day of the month. It’s easier for a harried owner to set aside that one block of time. But it’s not always the best practice if you have a cash-flow problem. Instead, invoice immediately following the delivery of your goods or services. The sooner you send that invoice, the sooner you get paid.

5.      Delay payments to your vendors, or negotiate with them

While you’re trying to speed up your customer’s payments, try slowing down your own. Figure out how late you can go without incurring a late fee or the wrath of your best vendors. Coupled with speedier invoicing, this might cover your cash-flow discrepancies.

If not, you can always call your vendors and explain your situation. Trust me, you won’t be the first customer who’s told them they’re suffering a temporary cash-flow situation. For reliable and long-term customers, they’ll often cut you some slack.

6.      Slash expenses

If following all these steps doesn’t help, it may be time to look inward. You need to consider cutting costs. That could mean layoffs. It could mean selling assets that aren’t making you money. It could even mean selling equipment and leasing the same equipment, to free up money in the short term – even if it costs you in the long term.

7.      Get a loan

Finally, you have the option of using other people’s money. From small business loans to small business credit cards to complex procedures with names like “invoice factoring,” there’s probably a financing solution that suits your situation and comfort level. Let’s start looking at those now.

The ins and out of small business loans

Qualifying for a small business loan requires preparation, and there are so many variables, it’s difficult to spell them all out here. Whether it’s the amount of the loan, its length, or its interest rate, you really need to do your homework to make sure you get the best terms. So let’s cover the basics. We’ll start with SBA loans, which are backed by the federal government.

SBA loans: good news and bad news

The U.S. Small Business Administration’s loan program has been a savior for many small businesses in this country. Think of SBA loans like federal student loans. In both cases, the government doesn’t actually lend you money. Instead, a bank gives you a loan, which the government backs. In both cases, this allows banks to take a bigger risk on someone than it might otherwise.

This is good news for a small business owner who might not qualify for a traditional bank loan. But of course, there’s a catch. A few, actually. First, there are several kinds of loans, all with unenlightening names like 7(a) and (CDC)504. Second, deciphering how to apply can be a chore. And third, most banks won’t issue one to a brand-new business.

SBA loans: Where to start

Unlike many other government agencies, the Small Business Administration has a website where you can shop for lenders and learn the crazy details. Check out sba.gov/funding-programs/loans. Better yet, peruse the entire SBA site for helpful tips, and to get an understanding how the SBA works – and what it can do for you.

Traditional business loans: 5 steps to success

1. Build up your credit score
2. Learn the requirements
3. Collect your documents and data
4. Write up a business plan
5. List collateral

To land a traditional bank loan, you need to do many of the same things you’d do for a personal loan. For instance, focus on your credit score. For small businesses, that means checking with the three business credit bureaus: Experian, Equifax and Dun & Bradstreet. If your score is high enough to apply for a loan, shop around. Just like a personal loan, banks offer many different products at different rates.

Once you’ve found one or more banks to target, assemble all your financial data – because they will ask. This includes everything from your articles of incorporation to your financial statements (which we just talked about). Include a resume showing your relevant business experience and your financial projections if you don’t have much of a financial history. Again, we recommend you consult SCORE or the SBA websites for more details on this. Ditto on writing your business plan.

While it’s true that many small businesses start without a business plan and can succeed, that’s often because of the sheer willpower of the owner. If you want financing, you need that business plan so lenders can gain some insight into what you plan to do with their money.

Finally, you need to list any collateral you have. Collateral is just a fancy word for assets, and that can include your widget machine, any real estate you own, and even your inventory – basically, anything the lender can seize and sell should you fail to make your payments. If you don’t have enough collateral, you probably won’t get the loan. If that happens, you still have some options. And that’s what we’ll discuss next.

6 alternative small business funding solutions

1.      Finance your business with credit cards

This sounds like a recipe for disaster, doesn’t it? Who in their right mind would fund their business with credit cards? But there’s a method to the madness. The secret is to secure the right credit cards. There are several that offer zero-percent APR for up to 15 months, because they’re intentionally designed for small business owners with irregular cash flow.

Why would these cards forgo interest payments for so long? Because they want your business when you’re no longer a small business. The most popular cards are American Express Plum, Discover it Business, and Capital One Spark.

Obviously, there’s a dangerous side to these cards. If you don’t pay off your balances within the zero-percent time period, you’ll face steep interest rates. But if you’re looking for an easy way to generate cash flow, study this.

2.      Lines of credit from OnDeck and Kabbage

What the heck are OnDeck and Kabbage? They’re the cutting edge in short-term financing. These are online companies that provide short-term funding through automated lending platforms. They’re competitors in this space, which is good, because it means more choice for you.

You can borrow between $2,000 and $500,000 in just one to three business days. To qualify for Kabbage, you need a minimum credit score of 560, at least one year in business, and annual revenue of at least $50,000. For OnDeck, you need to have been in business for at least one year, earn a minimum of $100,000 in annual revenue, have a personal credit score of 500 or better, and have had no personal bankruptcies within the past two years.

While it’s easier to get a loan through these platforms than from banks, you’ll pay more for the privilege. Check out their websites and do your research before applying.

3.      Merchant cash advance (MCA)

Now we’re getting into even more dangerous territory. A merchant cash advance isn’t a loan, although it resembles one. It’s an advance on your future earnings. A lender basically gives you a sum of money and then recoups that advance by sharing a percentage of your daily sales –  plus, of course, steep interest. So, the amount you repay fluctuates with your daily sales, which makes planning your payments nearly impossible.

You can see already there are massive downsides to this. The upside? If you can’t qualify for more traditional financing, you can often get an MCA immediately.

4.      Invoice factoring

In this variation, you don’t repay short-term loans with a percentage of your invoicing – you actually sell your invoices. A third party, called a “factor,” buys your accounts receivable for, say, 80 percent of their value. You get immediate cash, while the factor’s profit is the other 20 percent. The downsides here are obvious, starting with the fact that you no longer control your own collections process. The factor does. Two of the more popular factors are Fundbox and BlueVine, but there are others, each with their own peculiarities. So shop around.

5.      Crowdfunding

Now we’re back in more familiar territory. Most folks have heard about crowdfunding sites like GoFundMe and Kickstarter, most likely for charitable causes. But those sites are even more popular for raising equity for business ventures. There are so many to explore that might suit your particular business, including Indiegogo and Kiva. If you have a compelling story or product, this is a low-risk way to raise money.

6.      Personal loans

Finally, we end where many small business owners start. It’s common for new owners to finance their own businesses in the beginning. If their personal credit score and credit history are more established than their business’s, they can apply for a personal loan. You can often secure a better interest rate if you’ve done what we said in the beginning of this presentation and improved your personal finances so you can focus on your business. Here’s a perfect example why that’s so important. You can access additional financing for traditional risk, instead of delving into MCA and factoring.

Small business loan scams: 5 red flags to look out for

So far, we’ve talked about all the productive things you can do to help your business thrive. Now we’ll warn you about things not to do. There are many unsavory characters out there trying to separate your small business from its capital. They’ve devised a handful of clever schemes that you need to watch out for. Luckily, knowledge is power, so here’s how to identify those schemes – and avoid them.

1.      Advance fee scams

This popular scam is typically aimed at not only small businesses, but also individuals facing huge debts. It’s a simple premise: We’ll give your business access to low-cost loans – or we’ll personally help you settle your credit debt – and all you have do is pay us a small fee up front.

It can be called an application fee or a processing fee or even a special one-time fee. But once you pay that fee, you receive nothing. It succeeds because these scammers throw around such big numbers – “We’ll give you $100,000 in loans,” “We’ll settle $50,000 of your credit card debt” – that it seems ludicrous they’d run off with your $100 or $500 up-front fee. But they deal in volume, so the more people they rip off quickly, the more they make.

Here’s what you need to know: No reputable lender charges you an upfront fee. Neither does any reputable credit counseling agency. For example, Consolidated Credit never charges you upfront, and in fact, your debt analysis is free.

2.      Peer lending scams

When you start a small business, scammers somehow find you online. You’ve probably received unsolicited emails like this: “Get a low-interest rate loan for up to $100K! Low credit score and bankruptcy not a problem. All borrowers eligible. Peer loans available, apply NOW!”

Those emails – which can also be found on Facebook Messenger and sites like Reddit and Craigslist – usually explain that they’re a “peer-to-peer lending platform.” There are some legitimate ones out there, like Lending Club and Prosper. These are websites that gather thousands of small investors who can decide to buy a portion of a loan if they earn a good rate of return.

But the sites scammers share with you in emails and messages are phony, and if they don’t charge you an upfront fee, they ask you to fill out a form with all your personal information – which they’ll then use to steal your identity and run up big bills in your name. Never reveal personal data until you thoroughly research who’s asking for it.

3.      Funding kit scams

Here’s another kind of email you’re likely to get. It usually goes something like this…

“You have been selected to receive an INTEREST-FREE Government Grant. This Grant Kit could put thousands of dollars in your pocket. Many grants go unclaimed every year – because most people don’t know about these programs. Don’t let this happen to you!”

Basically, this scam plays upon your suspicion that securing a business loan is so complicated, there must be a shortcut. Maybe you’ve heard the federal government is somehow involved in small business loans. So yeah, this makes sense, right? But as we said earlier, the federal government backs SBA loans, it doesn’t make them. Never respond to such emails.

4.      Broker scam

Here’s another email to ignore…

“Starting a small business? Need a Consultant or Agent to work for YOU? We can help! Best fees in the industry!”

Again, this plays upon your fear that you need to hire an expert to find you the best small business loans out there. And indeed, there are reputable loan brokers. But they seldom solicit you via email, and they never charge an upfront fee like these scammers are sure to do. Of course, they’ll also require all your personal info.

If you want to find a loan broker, consult your local SBA office or SCORE office for advice on how to do it the right way.

5.      Investor scam

Here’s one more shady email…

“We have a potential investor lined up for your business. Over $1 million of funding, in your bank account within 24 hours! No need to give up ownership! Just send in your $1,000 transaction fee!”

By now, you can recognize the variations on the theme. This one is particularly alluring because it seems to answer all your prayers. But think it through: What investor is willing to put up their money for someone they’ve never even met? Resist the temptation and ignore these emails.

Small business success!

We reviewed some depressing topics in this paper, as well as some complicated ones. But if you heed this simple advice, you have all the tools you need to be successful. This is really the hardest part, because you know your business and customers, and you work hard.

Obviously, we’ve just scratched the surface here. Running a small business is a full-time job on top of a full-time life. So, while Money Never Sleeps, we hope we’ve put your mind at rest and given you the tools to explore all your options. Of you have questions, don’t hesitate to ask us. We’re here to help.

Thank You!

About Consolidated Credit

Consolidated Credit is one of the nation’s largest and oldest credit counseling agencies. For more than two decades, our nonprofit has literally helped millions of Americans get out of debt and balance their budgets – which means they’ve freed up money for retirement savings. We’ve taught financial tips and to help more than 6 million Americans over the past 26 years.

Predatory Lenders: Don’t be their prey.

How to hunt down a good loan

In this paper, we’re going to talk about one of the few financial terms that’s as horrible as it sounds. Predatory lending comes from the word “predator,” and who wants to be a predator’s dinner? Unfortunately, there are lenders out there who don’t look at you as a valued client – they only see you as their next meal.

What is “predatory lending?”

So, what is “predatory lending” anyway? The federal government admits, “there is no universally accepted definition.” But we like this one from the U.S. State Attorney’s Office in Pennsylvania:

“Predatory lending practices, broadly defined, are the fraudulent, deceptive, and unfair tactics some people use to dupe us into mortgage loans that we can’t afford.”

U.S. State Attorney’s Office

This pretty much sums up the problem. Of course, predatory lending isn’t just for buying a home. It happens whenever borrowers are hit with unfair or even abusive tactics that end up costing you more money than you planned for.

Here are some examples of common predatory lenders:

• • Balloon mortgages
• • Buy-here-pay-here car dealerships and furniture stores
• • Paycheck-advance storefronts and payday loan companies.

Now, it’s true that not all balloon mortgages are predatory, and neither are all pay-here retailers. And the payday loan industry wouldn’t like us saying every one of those businesses is predatory. What really makes a lender a predator is about what they do, more than who they are.

3 tactics of predatory lenders

We’ll go over the specific ways predatory lenders take your hard-earned money, but first, let’s review their psychological tactics. If you can recognize these tactics, you can avoid predatory lenders before things go too far.

Too good to be true

Almost all predatory lenders lure you into their jaws by promising you the world. You’ll often hear terms like “get cash fast” and “you’re already approved.” If they mention an interest rate you’ll be charged, it’s often a fraction of what everyone else is charging. Think about it: If this is legitimate, why is a lender you’ve never heard of offering you a deal no one else can?

Too hard to tell terms

We all joke about all the fine print when we buy something or take out a loan, but that fine print is also your best protection. It tells you the rules. And the best lenders don’t even rely on the fine print. They spell out, in big letters and in plain English, just what the exact terms and exact cost of the loan will be. In fact, the law says a lender must tell you the loan’s annual percentage rate, or APR. So, if the lender doesn’t even do that, you know you need to walk away. In fact, you need to RUN.

Impossible to get straight answers

Good lenders LOVE to answer your questions. Predatory lenders make it difficult or even impossible, and they make you feel stupid for asking. They also imply you have a limited time to lock in this unbelievable loan, so your questions could jeopardize the whole deal. Many times, they’ll promise you on the phone, “Don’t worry about a thing! I personally guarantee this will turn out just fine!” You know what that’s worth? Nothing!

5 red flags of predatory lenders

Now that we’ve quickly reviewed how predatory lenders try to market to you, let’s talk about the ways they try to separate you from your money. These aren’t all of them, but they’re the big ones, and if you can recognize them up front, you can avoid them.

1. Balloon payment loans

Balloon payments aren’t necessarily a bad idea, but in the hands of a predatory lender, they’re deadly. A balloon payment is simply a loan that starts with a lower interest rate and easier terms, but then “balloons” later on into much bigger payments and tougher terms. If the loan balloons too much, most borrowers will default – which is exactly what predatory lenders want. Why would a lender not want you to pay back what they lent you? Because they often pressure you into taking out ANOTHER loan to cover the original loan payments, and those terms are especially oppressive.

2. “Negative” loans

This refers to a term called “negative amortization.” That’s a fancy way of saying your monthly loan payments are so small, they don’t even cover the loan’s interest. You know how if you make minimum payments on your credit card, it will take many years to pay off the balance? Well, imagine that but 10 times worse. Some predatory loans are actually impossible to pay back. You could be making payments for the rest of your life.

3. Packing

This one is simple. Predatory lenders “pack” their loans with as many hidden fees as they can fit into one offer. We’re talking charges for “processing” the application, unnecessary “insurance” on the loan, and anything else they can dream up.

4. Stacking

We alluded to this earlier. Basically, you’re pressured into not just one loan, but multiple loans. Reputable lenders don’t want you taking out multiple loans at the same time, because that just makes it more likely you’ll default. But predatory lenders love this because they don’t care about you.

5. Payday loans

These are the most common predatory loans out there right now, and they’ve become so popular, most folks don’t realize how bad they are. Payday loans are marketed right at the people who can least afford them. Basically, you borrow against your next paycheck at exorbitant interest rates. While payday loans might have a good purpose in the narrowest of situations, beyond that they result in the loan stacking we were just talking about. You end up taking more payday loans to pay off your last one.

How to report a predatory lender

If you run across a predatory lender, you can file a complaint with the federal government. Specifically, you can contact the Federal Deposit Insurance Corporation. This is the first step in hopefully shutting down these shady businesses.

File a complaint with the federal government:

Federal Deposit Insurance Corporation

Toll-free: 1- 877-275-3342 (1-877-275-ASK-FDIC)

Mail: Consumer Response Center

1100 Walnut St, Box #11

Kansas City, MO 64106

Online: https://ask.fdic.gov/FDICCustomerAssistanceForm/

How to avoid predatory lenders

Speaking of complaints, you can log onto the complaint databases for the Consumer Finance Protection Bureau, Federal Trade Commission, and Better Business Bureau. If the lender has no complaints against it, that’s not a guarantee, but it’s a good sign.

Also check out the lender’s website. Read the “About” page. Have they been around for a decade or a day? That matters. Do they offer clear explanations of their financial products? Does it sound salesy or educational? When you call, does a real person answer the phone?

What’s the opposite of predatory lending?

So, we just spoke a lot about how to avoid predatory lenders. But what if you still need a loan to pay off your debts? Thankfully, you have lots of options that are proven, safe, and cost-effective. Let’s look at a couple, and then wrap up with a way to avoid getting into debt in the first place.

Explore a consolidation loan

One proven way to pay down your debts is with a debt consolidation loan. That’s really just a personal loan from a credit union or bank, but you use it to pay off those credit card balances. With the average credit card interest rate hovering around 20 percent, and with personal loans available for less than 8 percent, you can instantly save more than two-thirds. Of course, the trick is to have a high enough credit score so you can get that low interest rate on a personal loan.

Compare balance-transfer offers

If you have stubborn credit card balances that aren’t too high, here’s another DIY solution that really works – if you’re disciplined enough. You can transfer your high-rate balances to another credit card that offers low or even zero interest for a year or even 18 months. These specialty cards are designed to lure business from their competitors by offering you this amazing gift. Of course, these credit card issuers know that many Americans fail to pay off their debts during the introductory period, which means they’re now trapped paying high interest rates all over again. But if you’re strict enough with yourself to make sure you pay off those balances before time expires, you can save thousands of dollars.

Embrace budgeting

Of course, the best way to avoid predatory lending is to not need any lending that isn’t for a home or a car. You do that by effective budgeting. Budgeting isn’t the most fun you’ll ever have. Neither is brushing your teeth. But you do it because you know it’s good for you. Same thing with budgeting.

And in fact, just like brushing your teeth is easier these days with an electric toothbrush, you can save time budgeting with the latest online tools. There are secure online programs like Mint, Tiller, and You Need a Budget. They let you type in a few numbers, and they do the math for you. It’s easy to figure out where your money is going – and more importantly, how to use it better. Additionally, many credit unions offer online calculators and other tools to help you figure out how to stretch your dollar. If predatory lenders are using technology to steal your money, use technology to save yourself some money!

Thank you!

Of course, we’ve just scratched the surface of predatory lending. But you now grasp the basics of how it works — and how you can avoid it. Your best bet is start with the people you already trust with your money, like your credit union. If you need a loan, the best advice is: Don’t go far. Look right here.

There’s a war going on. On one side are the thieves trying to steal your identity – and your money. On the other side are government and private agencies doing their very best to protect you. But the key to staying protected is you. The only sure-fire way not be become a victim is to become your own educated advocate. We’ll show you how.

To start, you need to learn about identity theft. It’s one of the most pervasive crimes in the country. The federal government estimates that more than 17 million Americans were victims of some form of identity theft. That’s 7 percent of the country. Over the past six years, identity thieves have stolen more than $100 billion. How much is that? Enough to pay every single American $300. Why don’t more Americans know this and call for action? Probably because this is one crime where you don’t find out you’ve been a victim for a long time – or if ever. Let’s look at just what kinds of activities qualify as identity theft.

By far, the biggest headlines about identity theft involve data breaches. This happens when identity thieves break into the computers of big companies and gain access to the personal information of literally millions of Americans. In 2017, one of the biggest breaches was also the most ironic.

The hackers accessed names, SSN, birth dates, addresses and driver’s license numbers. They also stole credit card numbers from about 209,000 people. Equifax is one of the Big Three credit bureaus that help shape your credit score. And Equifax sells an identity-theft protection service called ID Patrol for $16.95 a month! Identity thieves can hit you almost anywhere and almost anytime.

We just mentioned one of the biggest data breaches ever, but smaller ones are happening all the time. USA Today reported in 2018, data breaches affected “765 people million in the months of April, May and June alone” at businesses as diverse as Dunkin Donuts and the website Quora. Marriott might have been hacked for 500 million records, although the final tally is still not known – and might never be.

Email offers don’t grab the same big headlines, but they’re also dangerous. You’ve probably seen these before. Emails that say you’ve won money, or you’ve been left money by someone you don’t know who lives in a foreign country. They ask you to wire them money to set up the transfer, and then they will deposit a much larger sum into your account.

ID thieves also send emails posing as a representative from a foreign government. They ask you to help move money from one account to another. Sounds fishy, right? Who falls for this stuff? Well. it’s been reported that this scam nets these criminals $100 million every year. These offers account for about 12% of the scams people say they’ve received, according to a National Consumers League poll. There are many versions of this scam, so it’s important to not respond to any email if you don’t know (or cannot verify) the sender.

Phishing is a type of email and website scam. The ID thief simply creates a website using the name of a legitimate company, but adds a word like “accounts” or “secure” in the domain name. This is supposed to fool you into thinking an email is coming from a reputable company you might do business with – Amazon, Bank of America, you name it. The ID thieves then send millions of emails asking consumers to verify their account information and Social Security Number. So instead of hacking your personal information, they compel you to just hand it over.
Ransomware is much like it sounds. It’s a malicious program that can lock up your computer or block your access to your computer. Once you inadvertently download it in an email or through other means, the ID thief threatens to publish your data or maybe just keep you from ever accessing it – unless you pay a ransom. That can be a few hundred dollars for an individual or thousands of dollars for a company.

Identity thieves have gotten so skilled at their evil craft, they’ve started to specialize. Besides the email scams we just talked about – which hit up to 100 million people every year – there are many others. This reviews the many ways thieves attack your credit and debit cards, your Social Security information, driver’s license information, your tax returns, medical information, and even your unemployment benefits. Let’s drill down on these and then review how to protect yourself from them all.

This theft can happen online or in person. If you use an ATM or insert your credit card into a gas pump, you might fall victim to skimmers. Instead of hacking the Internet, they hack machines. They take over the ATM or gas pump and read your card’s data.

With a credit card, you have excellent fraud protection. Simply call the number on the back of your card if you notice charges on your statement you didn’t make. Many times, your credit card issuer might call you to ask if you made suspicious charges.

Your debit card is protected as well, but not nearly as much. You need to act fast. Your loss is limited to $50 if you notify your financial institution within two business days after learning you lost your card or had its data hacked. If it’s outside that two-day window, you’re now responsible for up to $500 in damages. So if your ID is stolen on a Monday and $200 is spent, and you discover it and report it on a Tuesday, you’ll only be responsible for $50 of that damage. But if you don’t report it until Friday and the thieves spend an additional $200 on your card, you could be responsible for all $400 worth of charges!

And if you don’t report an unauthorized transfer that appears on your statement within 60 days after the statement is mailed to you, you risk unlimited loss on transfers made after that 60-day period. That means you could lose all the money in your account, plus your maximum overdraft line of credit. So if you lose your debit card, call and cancel it immediately!

One thing to remember: If you report an ATM or debit card missing before someone uses it, you’re not responsible for any unauthorized transactions. Even if your card isn’t stolen and you think you lost it, report it the moment you realize it’s gone. You can prevent any damage simply by calling your bank. Check your statements regularly to see if there are any mysterious charges and report them.

A Social Security Number is coveted by identity thieves because it’s a portal to discovering all other kinds of information. That means thieves will go to great lengths to get your number.

Thieves use your SSN to gain employment or to report income under your name. They’ll use the tried-and-true tactics like phishing, but they’ll also call you unsolicited with various stories to get you to give up your Social Security Number. The most insidious scheme involves calling as hospital employees and saying a relative has been in an accident and is near death. They need your SSN to guarantee treatment.

Your number is so valuable, thieves aren’t beyond going old-school to get it. They’ll steal mail from your mailbox, lift your purse or wallet when you’re not looking, and even rifle through your trash in search of personal records. They’re relentless, which means you need to be, too. Shred your personal info before throwing it in the trash, guard your personal possessions, and never respond to email offers or threats from people you don’t know.

A tax return is a lucrative prize for an identity thief – because they literally file a tax return in your name and redirect any refunds to themselves! To get this, they’ll use your Social Security number, so you can already see how these scams fit together.

Generally, an identity thief will use your SSN to file a false return early in the year. You might not even be aware you’re a victim until you try to file your taxes a little later and learn one already has been filed using your SSN.

Another popular scam involves phone phishing. Sophisticated-sounding agents call you or leave “urgent messages” giving fake badge numbers. They mention real IRS center locations to sound as legitimate as possible. Then they insist you owe money to the IRS – and they demand an immediate wire transfer. If you hesitate, they threaten you with big fines or even arrest.

Avoiding these scams is easy if you know just one crucial fact: The IRS will NEVER contact you by phone, only through certified mail. If anyone calls you saying they are with the IRS, hang up immediately! You can also file a report with the local police and a complaint with the Federal Trade Commission. The IRS also has a page on its website that explains what you can do.

This should come as no surprise, but identity thieves are usually career criminals, which means they might have a record preventing them from getting their own driver’s license. So what do they do? Simple. Steal yours. How?

If the thief looks like you and has some skill at fake IDs, that’s easier. Or they could simply steal yours and use it outright. But what if the thief has now pretended to be you at either a traffic stop or during a criminal arrest? You now have a court date to appear for a crime you didn’t commit. When you don’t show up to the court date that you were completely unaware of, a warrant is issued for your arrest. You can see why this is one of the most serious and traumatic forms of identity theft.

If this happens to you, hopefully you’ll figure out that your license has been stolen soon enough to prevent these terrible situations. You’re first call needs to be to your local law enforcement. By filing a report, you create a paper trail. That way, if crimes are committed in your name, they know you called it in. Next, go to the DMV immediately to get a new license.

If someone can steal your driver’s license and mimic you, why stop there? Identity thieves also use your driver’s license and Social Security Number in conjunction with your health insurance information. They can either seek medical care themselves or sell the privilege to others who stick you with the bill.

This can include everything from ordinary checkups to prescription drugs to expensive surgery. It can also happen in the workplace if an employee creates fake records to submit false bills to an insurance company. Medical fraud has gone up by over 20% due to so many medical records becoming digital.

Check for these warning signs: Being billed for medical services you didn’t get, getting called by a debt collector about medical bills you had nothing to do with, and reaching the limits of your benefits when you know you didn’t have that many expenses.

How do you prevent medical fraud? Get copies of your medical records and check them for errors. It’s no different than checking your credit card statements for the same thing. If you think you’ve been a victim, contact each doctor, clinic, hospital, pharmacy, laboratory, health plan, and location where a thief may have used your information. For example, if a thief got a prescription in your name, ask for records from the health care provider who wrote the prescription and the pharmacy that filled it.

More than anything, protect your medical information like you would your Social Security Number. Be wary if someone offers you “free” health services or products but requires you to provide your health plan ID number. Medical identity thieves may pretend to work for an insurance company, doctors’ office, clinic, or pharmacy to try to trick you into revealing sensitive information. Instead, thank them and say you’ll call back your provider directly.
And of course, shred outdated health insurance forms, prescription and physician statements, and the labels from prescription bottles before you throw them out.

Unemployment fraud is becoming a huge trend, and even though it’s been growing for the past few years, everyone hasn’t caught onto it yet. Thieves are filing for unemployment benefits and being awarded government money. Over $4 billion was paid out to unemployment fraud back in 2014 – and oddly, a very large majority of victims are actually still employed. Despite its name, this isn’t a crime that typically targets Americans actually receiving unemployment.

Why? Because the thief simply files for unemployment benefits in your name and starts collecting checks from your employer. It’s clever because you might not realize it for a long time, since the money isn’t coming out of your pocket. But it’s still very dangerous, because these thieves need a lot of your personal information to pull this off – like your Social Security Number and address. If you think they won’t use that personal information for the other kinds of theft mentioned here, you don’t know how greedy these thieves are.

If you suspect this has happened to you, call the unemployment office in your state as soon as you find out. This can put a quick end to the problem. Even if your HR department tells you they’ve contacted the unemployment office, it’s important that the office receives a verbal statement from you as the victim. That greatly helps their investigation.

Before we talk about solutions, let’s discuss the warning signs that apply to almost every kind of fraud we’ve discussed today. One big tip off is getting denied for new credit if you know you have a decent credit score – because someone else has already abused it. Ditto if you’re getting calls from bill collectors for bills that aren’t yours.

Another easy red flag to spot are errors on your bank or credit card statements, which is why it’s so important to spend a few minutes reviewing them each month.
Harder to spot are mistakes on your credit reports. But there’s a free and easy way to do that, which we cover next.

Now that we’ve scared you to death, let’s talk about solutions. We’ve mentioned a few as we’ve gone along, but you have some powerful, blanket weapons at your disposal.

You might already know that your credit reports can get saddled with accidental mistakes that can drag down your credit score. But those reports can also tip you off to suspicious activity. Federal law mandates that you can check your credit reports FREE once a year – and not just one, but three. That’s because there are three major credit bureaus: Equifax, Experian, and TransUnion. You get one free report from each. Here’s a tip: request one from each bureau every four months. That way, you can spot fraud much sooner than just once a year.

These three national credit reporting companies also offer free fraud alerts. What’s that? It’s a layer of protection that comes in two levels.

An initial fraud alert can make it harder for an identity thief to open more accounts in your name. When you have this alert on your report, a business must verify your identity before it issues credit, so it may try to contact you. Be sure the credit reporting companies have your current contact information so they can get in touch with you.
An initial alert stays on your credit report for at least 90 days and can be renewed. An initial alert is appropriate if your wallet has been stolen or if you’ve been taken in by a phishing scam. When you place an initial fraud alert on your credit report, you’re entitled to one free credit report from each of the three nationwide consumer reporting companies.
An extended fraud alert stays on your credit report for seven years. When you place an extended alert on your credit report, you’re entitled to two free credit reports within twelve months from each of the three credit bureaus. Potential creditors must contact you in person or by phone or other methods you have provided before they issue credit in your name. The consumer reporting companies must remove your name from marketing lists for pre-screened credit offers for five years unless you ask them to put your name back on the list.
Unlike requesting your credit report, you don’t need to contact all three bureaus to initiate a fraud alert. Contacting just one is enough, because they’re all legally obligated to notify the others.

A credit freeze allows you to restrict access to all your credit reports. Potential creditors can’t get access to your credit information unless you lift the freeze temporarily or permanently. Your current creditors can still access your records, though.

These freezes are also free. Unlike a fraud alert, you need to contact all three credit bureaus if you want them each to freeze your credit. The biggest drawback of a credit freeze is the sheer hassle you’ll endure. When you want to “thaw” your credit, you’ll have a PIN from each bureau that will be required by phone or mail. But it might just be worth it for the protection and peace of mind.

We’ve talked a lot about protecting your Social Security information. If you think your information has been compromised, you can contact the Social Security Administration’s fraud hotline. You have several methods of reaching the SSA.

Once it’s out there, it may not be possible to retrieve or erase it. Don’t post your address, Social Security Number, or other very personal information on social networking sites. Use the privacy settings on social networks to limit who you want to be able to see the information you post and be wary of strangers who want to be your friends, since they may be fraudsters instead. Only provide your personal information when it is absolutely necessary for something – if you’re not sure why someone wants it, ask. Shred all of your old documents.

Using passwords can be annoying, but any barriers you put in front of ID thieves make you a less attractive target. Can’t remember your passwords? It’s OK to write them down as long as you store them somewhere safe. Create passwords that aren’t easy to guess – not your birthday or your pet’s name! And not words that are in the dictionary, since crooks can use programs to run through the dictionary in minutes.

They may contain malware. If you receive something like that out of the blue and it looks like it’s from someone you know, contact that person to check whether it’s legitimate. If you don’t recognize the sender, just delete it.

Downloading “free” games or toolbars that you are not familiar with can install spyware or keyloggers on your computer. These programs can track what you do and what you type, including passwords, Social Security Numbers, and the like.

If a company unexpectedly asks you for personal information unprovoked by phone or email, odds are it is a phishing attempt. Scammers have gotten very good at disguising their emails to look like they are major corporations. If it seems suspicious, it probably is. If you are a customer of the company it is best to contact them immediately to find out if they are really trying to reach you.

Many computers and smartphones come with them built in, and you can also find this software for free or for sale on the Internet. Look for reviews from tech magazines and other independent sources.

It’s convenient, but public Wi-Fi is usually not secure. Crooks can use various high-tech means to “eavesdrop” on your email or communications on social networks and read what you’re typing. If you’re banking or shopping with your device, your account numbers could be exposed.

Before we dive deeper into governmental protections, let’s look at a nonprofit’s offerings. Consolidated Credit offers financial education tools that can help you prevent fraud. Consolidated Credit makes learning about your money painless and fun. Whether you prefer to learn from printed booklets or through interactive calculators, we can help you learn the basics that can help protect you.

While it’s up to you to protect yourself, you don’t have to go it alone. You have allies. The federal government, has two agencies that really have your back. The newer one is called the Consumer Financial Protection Bureau, or CFPB. The one that’s been around a lot longer is called the Federal Trade Commission. How are they different? Let’s take a quick look.

The CFPB was created in 2011. It’s not focused on identity thieves and that kind of crime. Instead, it focuses on protecting Americans from shady business practices of the providers of mortgages, credit cards, and student loans. Its mission is to “promote fairness and transparency” in these financial products and services. If you feel you’ve been taken advantage of in any of these areas, you can file a complaint with the CFPB. Based on those complains, the CFPB has sent warning letters to some of these providers. The agency has also filed court documents and even issued new regulations that businesses must follow.

The Federal Trade Commission’s mission is less controversial than the CFPB. First, it’s been around since 1914. Because this is the government, it can get confusing to tell the difference between the CFPB and the FTC. Why? Because the FTC has a wing called the Bureau of Consumer Protection – which sounds a lot like the Consumer Financial Protection Bureau. But they’re actually very different things. The FTC’s bureau safeguards consumers by telling businesses what they can and can’t do. For instance, it enforces the nation’s truth-in-advertising laws. The FTC can actually enforce civil contempt actions and collect financial penalties from companies who do bad things.

While many Americans of all political persuasions like to make jokes about Congress, the truth is, there have been some bipartisan bills that have passed to protect consumers over the years. They also have some confusing, similar-sounding names, but it’s worth quickly reviewing them.

Let’s look at one of those good laws. CROA regulates credit repair companies. Credit repair is a legitimate tool for fixing errors on your credit report which, left unchecked, could drag down your credit score. But like everything else in the world, a few bad actors hurt the entire industry. So CROA protects you from unscrupulous credit repair agencies that try to steal from you. Just one example: CROA prevents credit repair companies from making you pay in advance for their services, and it gives you a chance to cancel the service without any penalty within three days.

It can be tough enough to get credit at a decent interest rate – or at all. The Equal Credit Opportunity Act makes it illegal to discriminate against anyone applying for credit based on their race, their religion, their age, their marital status, and even if they receive public assistance. It also dictates that your creditors notify you about actions they take on your credit applications.

Dating all the way back to 1970, the Fair Credit Reporting Act regulates the way credit reporting agencies use the information they receive about your credit history. FCRA is mostly aimed at what are called the Big Three credit bureaus: Equifax, Experian, and TransUnion. It keeps misinformation from being used against you. FCRA has very specific guidelines for how your personal information can be gathered and released.

Not to get too confusing, but the FACT Act is actually an amendment to the Fair Credit Reporting Act we just covered. It dates back to 2003 and it allows you to pull your credit report for FREE from AnnualCreditReport.com. Given how many mistakes are on credit reports, this is something you should do every year. Take advantage of the power you now have.

The FCBA has two provisions that are pretty powerful. First, you have 60 days from the time you receive your credit card bill to dispute a charge with your card issuer. And if your card is lost or stolen, you have the right to dispute charges on the phone, instead of sending a letter.

Debt collectors aren’t beloved by many people. They have a job to do like everyone else, and let’s face it, theirs is not a pleasant career. Because of that, Congress wanted to make sure debt collectors didn’t go to extremes to collect money that’s owed to them and others. So the FDCPA sets strict limits on debt collectors. For example, they can’t call you before 8 a.m. or after 9 p.m., and they can’t call you at your workplace. If debt collectors violate these rules, you can file a complaint with the FTC.

Remember how the Equal Credit Opportunity Act outlawed discrimination in credit transactions? This does the same for housing. No one can use your race, age, gender, marital status, disability, religion or other factors against you – and not only when it comes to buying a house. This applies to renting, too.
It sounds awful, but in the past, some unscrupulous creditors would take advantage of our military personnel when they were serving our country. This act prevents that. It regulates how active duty personnel can be charged credit card interest rates, how their auto and apartment leases can be terminated, and even how evictions are proceeded. It can get a little complicated, but it’s something every military member needs to know.

Anyone with a smartphone knows how annoying it is to get sales calls you never wanted or asked for. Well, it could be worse if not for this act – which predates smartphones. It passed in 1991 and bans solicitors from calling your home before 8 am or after 9 pm, and they must maintain a Do Not Call list. Of course, these days, technology has poked holes in this act, so consumer groups are lobbying Congress to tighten the rules for this new era.

This act very specifically bans telemarketers from collecting fees for services until a debt has been settled and sets time limits on when they can call you, among other things. While it might never apply to you, it’s just another example of how the government is aware of these financial problems and tries to deal with them.

Think of the Truth in Lending Act as a comparison-shopping act. Ever try to figure out if a can of soup is a better deal than another can of soup? One is cheaper, but the other is bigger. It can be draining to figure out which is more economical. Well, the same thing happens when you apply for credit. TILA requires lenders to offer clear, uniform disclosures. That’s one reason why when you apply for a credit card, the terms, fees, and condition are all listed roughly the same way so you can comparison-shop more intelligently.

This act, passed in 2005, changed how an individual can declare bankruptcy. For example, it requires a pre-filing and pre-discharge credit counseling course – which is a good change, since the last thing you want is to keep the bad habits that drove you into bankruptcy in the first place. But the act also limits how often you can declare bankruptcy and uses what’s called a “means test” to determine if you’re even eligible.

The debt management and debt settlement industries need to register, and they must disclose their services and their fees so you can make sure you’re getting the right service at the right price. Again, it gets kind of technical – it’s the government, after all – but the philosophy is the same. Namely, that transparency helps you make the right choice, and it keeps businesses honest and competitive.

Besides these government actions, you can also get help from private nonprofit agencies like Consolidated Credit.

Thank you very much for listening today. I hope this helps you protect yourself, and gives you peace of mind that you have allies in this fight.