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Your Money in the News – July

This month: Why do people stay in debt?, Financial milestones for your 60s, Climbing credit card interest will eat tax cuts and wage increases, Beware student loan repayment scams, Mobile banking replacing bank branches…

Keeping it Real: A Short Q&A on Consumer Debt – KNOE

What is one reason people stay in debt?

They want to keep up appearances or try to keep up with the Jones, but end up damaging their financial security in the process. The fear of feeling broke may be keeping people broke.

Related:  Over 50 Broke and in Debt:  Starting from Ground Zero

Does getting out of debt take sacrifice?

Yes, but practicing frugality to get out of debt can lead people to win with money. The lifestyle changes you make when getting out of debt can also be put to use to accumulate wealth.

Related:  From Frugality to Financial Freedom:  A Path for All

What is another reason people stay in debt?

People are afraid of change. If you have always charged on credit cards, or had a car loan, then you may have become conditioned to believe that paying tons in interest is normal. People know what to expect and it feels comfortable.

Related:  Credit Card Payoff Strategies:  What the Card Companies Don’t Want You to Know

Are some people really addicted to stuff?

Yes. People need to realize that no amount of stuff will make you happy and, at some point, too much stuff can actually cause both financial chaos and stress in your life. (The more stuff you have, the more stuff you have to take care of.)

Related:  Declutter Your Life and Make Money

What is the main reason people stay in debt?

Some people stay in debt because they don’t know how to get out of debt. Financial literacy is not taught in schools but it needs to be. The first step in taking control is becoming informed. 

Once people get interested in their finances, they will understand for themselves how insane it is to carry consumer debt.

Related:  DIY Credit Card Debt:  A Guide to Permanent Debt Relief

In Your 60’s? Focus on These 6 Financial Targets – Motley Fool

We hear a lot about retirement planning when you’re young, but what should you be shooting for when you’re staring retirement in the face? These 6 financial targets may help give you some direction:

1. Have a fully loaded emergency fund

In the years leading up to retirement, having three to six months’ worth of living expenses in the bank will help you avoid debt later in life, and give you a measure of security as you look at letting go of that paycheck.

When you’re at the end of your working career, the last thing you need is for an unplanned bill to disrupt your financial plans.

2. Have 10 times your ending salary in a retirement account

While no one knows how long they will live there is no guarantee that you won’t run out of money. As a general rule, it’s smart to enter your full retirement with a minimum of 10 times your ending salary in an IRA or 401(k).

While Social Security will serve as a steady income source, it’ll only be enough to replace about 40% of the average worker’s pre-retirement earnings.

3. Pay off your mortgage

Once you stop working, you’ll be on a fixed income, so you’re better off not having a mortgage payment around to eat up a substantial chunk of it.

Unfortunately, an estimated 30% of seniors 65 and over continue to carry mortgage debt.

4. Eliminate credit card debt

If you have credit card debt, pay it off before making your retirement official. If you have credit card debt and a mortgage, pay off your credit card first.

Chances are, your credit card is charging at least double the interest rate you’re paying on your mortgage, which means the longer you carry a balance, the more money you stand to throw away.

5. Buy long-term care insurance

We don’t know what is going to happen to our bodies in the future. Medicare won’t cover long-term care. That’s why it pays to secure long-term care insurance during your 60s if you haven’t already. If you wait too long you can risk getting denied, or paying higher premiums.

While most Americans don’t believe they’ll need long term care, in reality, 70% of those turning age 65 can expect to use some form of long-term care during their lives. – AARP

6. Learn how Social Security works

It’s critical to understand how Social Security works so that you can plan a filing strategy ahead of time. The age you choose to file for Social Security could cause your payments change. You need to understand how and why.

Don’t ever file for Social Security before you’ve done your research.

How your Credit Card Interest Will Pay for the Next Recession – The New York Times

The Current Stats

National credit card debt has reached 1 trillion.

  • 70% of Americans carry a credit card balance from month to month.
  • The current average APR is 16.8%.
  • The average credit card balance is $5,700.

Credit card debt is growing at a rate of 4.7% while wages are growing at only 3%.

  • More families than ever have zero or negative wealth, excluding their homes.
  • Household net worth has decreased for all income groups since 2007 — except the top 10%.
  • Net worth for the richest Americans is up 27%.
  • Net worth of the middle class has decreased 20-30%.

The wealthiest 10% now own about 75% of the nation’s total household wealth – up from less than 35% in the 1970s.

  • The nation’s richest 0.1% now own as much wealth as the bottom 90% .
  • For the bottom 90% – the ability to build wealth depends on the ability to save (which is impossible when interest rates are rising and eating into their earnings.)
  • The personal savings rate, at only 2.8 %, is heading in the wrong direction.

The Future Prediction

Ok, keeping the above statistics in mind, consider this – The Fed’s prediction is that the federal interest rate is on target to reach 3.4 percent by the end of 2020 from the current 1.9 percent. This means you’ll be paying more to get a mortgage, a new-car loan, or to carry a balance on your credit card. How much more? Possibly enough to absorb whatever extra income you might be enjoying from lower tax rates or higher wages.

Those who benefited the least from the recent tax cut — wage workers, farmers and anyone else not in the top 10% of earners — will have to pay the most  in interest to mitigate the damage that the tax cuts caused to the economy. This could result in hundreds of dollars in additional interest every year per household for those carrying credit card debt.

Raising rates now, perversely, gives the Fed a monetary tool with which they would be able to fight the next recession — by cutting those rates.

Student Loan Repayment Scams to Watch For – BBB

Massive student loan debt can make you feel desperate. But don’t get scammed. The Federal Trade Commission and Better Business Bureau are warning consumers about an increase in student loan repayment scams.

The FTC recently reached two multimillion dollar settlements with a shady student debt relief company and a law firm that preyed on desperate consumers with student loan debt. They both falsely promised to lower payments through alleged enrollment in student loan forgiveness or other programs – for a fee. They also lied about being able to improve credit scores – for a fee. Some scammers might also claim that they can save you money by consolidating your loans for you – for a fee.

Here’s the thing:  
If you are eligible for loan deferments, forbearance, repayment forgiveness or loan discharges, you can do it yourself without a fee. Same with loan consolidation.  

The FTC and BBB offer some tips to give these scammers a miss:

  • Go to bbb.org to check out companies before working with them.  If you have been a victim of a scam, report it at bbb.org/ScamTracker
  • Go to the FTC page to check out student loan debt relief scams on record as well as tips to avoid them.
  • Never pay a fee upfront for help
  • Never share sensitive information, such as your FSA ID.
  • Scammers often have official-looking names and claim they have special access to certain repayment plans. They don’t.
  • Scammers will rush you saying you could miss qualifying for repayment plans, loan consolidation, or loan forgiveness programs if you don’t sign up right away. You won’t.
  • Legitimate repayment programs such as loan deferments, forbearance, repayment and forgiveness or loan discharges are FREE to access through U.S. Department of Education or your loan servicer at no cost.
  • Check out the Federal Student Loan site for federal student loan repayment options. 

If it seems too good to be true, it probably is. Any company that claims it can erase your student loan debt in minutes is lying.   

These fraudsters commonly promise student debt forgiveness and lower payments. They often demand upfront fees up to thousands of dollars for this “service,” which is illegal. – CNBC

Related:  Know the Wolf:  Credit Card Counseling vs Debt Settlement

Branches Shrink as Banks Embrace Fintech – CNN

The rapid adoption of mobile banking has allowed big banks to shrink the number of expensive branches they operate. Traditional banks are being forced to innovate due to competitive pressure from Silicon Valley as tech pushes into finance. Amazon (AMZN), Apple (AAPL) and Facebook (FB) are all moving into financial technology.

Big banks are even working together on mobile payment systems. Bank of America teamed up with Wells Fargo (CBEAX), JPMorgan Chase, and other big banks to build Zelle, a digital payment service that rivals PayPal(PYPL) and Venmo. More than $25 billion moved through Zelle during the first quarter of 2018.

Big banks have sunk hundreds of millions of dollars into new technology aimed at luring customers online. Bank of America (BAC) stated that deposits made on mobile devices are outpacing those made at branches for the first time. Some day branches may be a thing of the past.

Editor’s Note:  Mobile and online banking are convenient and can help you stay on schedule with set and forget recurring payments. But don’t let this make you lazy. Find out what can happen if you don’t check up on your payment system periodically –  Is Technology Making You Lazy? The Dark Side of Set and Forget Payments.

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