This week: New Year’s Debt Resolutions, Settling Student Loan Debts, Money Mind Hacks, Buying Life Insurance, Are Your Rewards Cards Really Worth it?
The anticipation of 2018 often includes lofty goals and claims of debt resolution. Why not ring in the new year right with some savvy ways to put your money where your mouth is? Here are 4 tricks to keep your new year’s debt resolutions in check:
- Add up the facts to know what you really owe.
A little money mindfulness can go a long way. Take an inventory of your debts and interest. Understand exactly what it will take to pay them down. This gives you a realistic view of your next step and provides you with a vision of being debt-free.
- Create daily debt-tackling tasks.
Break down your quest into smaller chunks and tackle them one at a time. Day 1 could look like figuring out how much you can put towards your debt each month. Day 2 could be choosing how you’ll approach paying off the debt, and day 3 could involve trimming expenses and brainstorming ways to earn additional income in order to find more money for debt paydown.
- Stay focused. Keep yourself accountable.
Updating a friend about your progress each month or using financial apps to help keep you on track are awesome ways to stay focused on your plans for the new year. Find what inspires you to move forward and make those payments on time.
- Don’t forget to have a little fun.
If personal finances become too doom and gloom, it can be difficult to sustain focus. Find little ways to stay encouraged. It could mean building in rewards as you make progress. Just paid off $100? Why not give yourself a little treat like fine chocolate or a top shelf glass of wine to celebrate?
If student loan debt is a subject that makes your skin crawl, you’re not alone. In fact, a whopping 61% of borrowers worry that their student loan stress is completely out of control. A new year is just around the corner and It’s time to shift gears into the right mindset so you can pay off those loans at last. Here are 5 important steps you can take to pay off student loan debts in 2018:
- Go the extra mile with your payments.
If paying off student loan debt within the next year is a serious focal point of yours, consider making extra payments. Since the default payment period is 10 years and the initial balance plus interest will be broken into 120 payments, you’ll want to make payments that are double – even triple your monthly payment.
Pro-tip: Make your payments automatic for extra effectiveness. It’s one less thing to think about (or forget about), and that way you’ll avoid spending money on things that are not on the top of the list. In addition, many student loan services offer an interest rate discount when you set up an autopay.
- Start with high-interest rates first.
Tackling student debt more aggressively begins with paying down high-interest rates first. It’s simple: more of your payments will go towards lowering your balance instead of paying interest. Consider the “debt avalanche” strategy, it’s pretty simple:
Step 1: Order your student loans from highest interest rate to the lowest.
Step 2: Apply extra payments towards the high-interest rate first (this method saves you the most in interest over time.)
- Earn. More. Money.
The more you make, the more you can put towards paying off your debts. Keep it simple. It could be extra income from gifts, tax refunds, bonuses, or even a side gig. Don’t be shy about asking for a raise or even starting a job search for a higher salary. Every action step counts towards more financial freedom and less debt.
- Cut down on major expenses.
In addition to increasing your income, look at where you can trim big expenses like transportation, housing, and food. Compare how much you make to what you spend. A change in transportation, a move to lower cost housing or a change in eating habits may help to increase your student loan payment.
- Find a money mentor.
Psychology studies remind us that those we spend the most time around impact the choices we make – even financially. Choose money mentors wisely. Whether it’s a one-on-one coach or a popular podcast, learn from the best and watch your results carefully.
Buying the right life insurance may seem like a decision you should make once you’ve settled down and started a family, but what if you’re single? Let’s take a look at 3 stellar reasons to start looking for life insurance, regardless of your age or relationship status
- You can use it to retire debt.
Though state laws vary, assets owned at death are often reduced by outstanding liabilities, before they are passed to the heirs. Interestingly enough, having an insurance policy with a death benefit that is equal to the current amount owed (e.g. mortgages, auto loans, credit card debts), can help ensure that your entire estate can be passed to loved ones.
Side note: If your student loan debt is federally sponsored, it can be discharged upon death, however private loans are generally not forgiven upon death and should be included when calculating the amount of life insurance to buy.
- You can get access to accelerated benefits.
Today, most life insurance policies sold will include a provision that accelerates a large percentage of the death benefit during your lifetime upon the diagnosis of a terminal condition. This policy typically defines a terminal condition as one which is expected to result in death within a specific period of time (sometimes 12 months.) Accelerated benefits can give you access to medical procedures and treatments that may not be covered by your health insurance.
- You can guarantee insurability later in life.
Typically, life insurance companies will ask about your medical history and some conditions can increase your premiums, or lead to an insurer declining to issue a policy. If you purchase when you’re younger and healthier, it could lock in access to coverage later. It’s also important to note that older applicants are typically charged higher premiums than younger insurers, so the sooner you start shopping, the sooner you can lock in lower premiums.
Pro tip: A good time to purchase a policy is right after an increase in your income, so you can use the new money that has not been allocated to other expenses yet.
Money and psychology play intricate roles in the outcome of our financial lives. It’s a well-documented fact that our thoughts affect our finances. Skip the scarcity mindset and take a look at 12 money mind hacks to get your finances back on track:
- Reframe your thoughts. What we think becomes our reality – especially in finances. Simply focus on becoming debt-free and envision what life would feel and look like with that type of freedom.
- Let go of your fear of debt. Dwelling upon the fear of debt can become a major roadblock in becoming free of it. Rather than run from it, face it. Simply assessing your current account balances is a great action step towards understanding and eliminating your total debt.
- Envision a debt-free life. Actually taking the time to sit and visualize a life without the burden of debt is a useful tool in eliminating it. Imagining yourself paying off the debt gives one a brief taste of what it’s like to actually be debt-free life. Plus your brain’s Reticular Activating System cannot differentiate between something that is vividly imagined or real.
- Let go of limiting beliefs. Limiting beliefs can be described as thoughts that inhibit or interfere with certain behaviors and actions. Being “stuck in debt” is an example of a limiting belief that can become destructive. Even just writing down these types of phrases can help us get rid of them.
- Keep a list of reasons for paying down debt. Whether it’s inspiration to buy a home, or a strong desire to eradicate stress, write down any and all reasons you want to pay down your debt.
- Build momentum: pay down small bills first. Keep it simple and focus on paying off smaller debts first to build momentum. Every little bit paid off is a step closer to living debt-free.
- Don’t let willpower get in the way. Aim to automate your payments so you can systematize the actions that need to be done. It will keep the extra money out of sight and out of mind.
- Track progress. Stay motivated. Simplicity is key: write down each debt and track repayment activities. This also offers an opportunity to look back and see your progress.
- Establish a rewards system to avoid burnout. Each small milestone you reach in your personal finances is deserving of celebration. However, be careful that the reward doesn’t backfire – stick to your budget.
- Find someone to keep you accountable. No need to go this journey alone. Talk to friends, family, or find a mentor. If that person is also working towards a financial goal, even better.
- Identify your emotional spending triggers. Watch your emotions before you spend. Some shop to boost their moods, others overspend when they are happy. Give yourself a waiting period, such as 48 hours, before reacting to an impulse to buy something.
- Stick with cash to avoid impulse spending. A great remedy for impulse buys is to limit credit card use and stick with cash purchases. Physically handing over cash is harder than swiping a card. Also, checking your account balances before you shop can curtail unnecessary purchases.
‘Tis the season to over swipe our credit cards. Even worse, the flashy advertisements touting a long list of presumed benefits are tantalizingly untrue. Considering the fact that by December 31st, credit card debt in the U.S. for 2017 is estimated to reach $905 billion, it’s time to rethink the way we swipe and upgrade spending habits. Are credit card rewards really worth it? Here are 4 ways your credit card could be ripping you off:
Airline credit cards are not what they seem.
The amount you end up charging in addition to your annual fee can make the actual cost of purchasing a ticket without using miles less. Sadly, some miles expire before you even get the chance to use them. Airlines sell miles to banks who then use the miles as a signing bonus to push customers into applying for credit cards. Because there is a great deal of competition for available seats, flights are often unbookable with miles. In addition, the mileage costs for claiming a flight keeps increasing.
Some cash-back cards don’t even give actual cash back.
You literally have to spend thousands on a credit card in order to get even $100 cash back. In many cases, it’s probably just a credit applied to your account, not real “cash” in your pocket. In fact, cash-back cards do not generally even give cash or credit back on every purchase, and they often have a strict limit on the maximum amount they will give back to customers in a billing period or year.
It’s not cheap to break even, on Amazon’s “5 percent back” card.
In order to qualify for Amazon’s new 5 percent back card, you have to be an Amazon Prime member (that’s $99 per year.) You would have to spend $4,950 annually on Amazon to actually break even on the Amazon Prime Rewards Visa Signature Card’s “5 percent back” promise. If you subscribe to Prime anyway, great. If not, review your Amazon orders from last year to see if your spending near the $4,950 minimum.
Store cards can be skimpy on the rewards.
Stores like Gap, Old Navy, and the Banana Republic can offer up to 40% off if you charge your purchases to their store credit card. These cardholders may get free shipping twice a year, or random 20% off coupons, but how much are you actually saving when you have to spend a minimum amount when you shop? And if you aren’t paying the balances in full monthly, the interest rates will exceed the discounts offered.
Pro-tip: Analyze where you’re spending money. If the card is dictating your purchases or where you make them, you’re probably not being smart about its use. You spend more when you use plastic, so try swapping credit for cash.
Photo by Ariel Lustre