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Nearly 1 in 3 Americans expect to take on debt this holiday season. How to not be one of them

Nearly 1 in 3 Americans expect to take on debt this holiday shopping season, a survey from Credit Karma found.

The Covid 19 Pandemic took a toll on many people’s finances, leaving them financially unprepared for the coming holiday season, according to the survey, which polled 1,020 U.S. adults in October.
On top of that, concerns about low inventory this year has shoppers starting early, and potentially missing out on deals.

With supply chain shortages and shipping delays increasing prices for all shoppers this season, it will be important for consumers to be thoughtful about their spending to ensure they don’t start the new year in the red, a chief people officer at Credit Karma, said in a statement.

Here are steps to take to help you set a budget for holiday shopping.

Talk to family and friends
You may not be the only one facing a budget crunch. Instead of buying gifts for everyone on your list, have conversations with family and friends about alternatives. That could mean perhaps picking a name out of a hat so that everyone in each group buys just one gift.
You would be surprised how many people are relieved, it takes someone bringing it up.

Make a list
Sit down and figure out who you want to buy gifts for, what you want to get and put a dollar amount around it.
Seeing it on paper can be a good exercise you really see how much you are going to spend.
After coming up with a total budget, you can make adjustments from there. It may mean spending less per person this year or cutting down your list.
Be honest with friends and family if this is a source of stress, start setting expectations that this might not be the holiday you will be able to provide.

Start saving now
While supply chain concerns have consumers worried about out-of-stock must-haves, if you wait to make purchases you can start socking away some money each week to pay for the gifts.
Let’s just say you’re making a plan over the next six weeks, are there things in your current budget that you can cut out to make room for these purchases?
On the flip side, waiting too long can result in high prices for those hard-to-find gifts. If you see a good deal now, buy it and store it away until the holidays.

Use credit cards wisely
Ideally, you don’t want to rack up debt. Yet it’s a reality for many Americans. Fully 49% of those surveyed by Credit Karma planned to pay for gifts this holiday season with credit cards.
If you need to use a credit card, do so wisely.

You can also use that credit card on apps or browser extensions that have coupons and rewards for shopping, such as Honey or Rakuten.
Only purchase what you need, especially if you are going to be paying this off over time, she added. You want to make sure you’re looking at payments you can pay down as quickly as possible.

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10 Credit Card Rules You Should Know

If you’re like the 40% of credit card holders the American Bankers Association refers to as “revolvers,” you probably carry at least some debt from month to month. And if you’re a typical American, according to Experian, you have an average balance of $5,897 , with an additional $2,044 on a couple of retail credit cards.

Unfortunately, many consumers are uninformed and unprepared for the responsibility of paying with plastic. Nobody makes you take a class before they hand you that first card—or the next one, or the next. But the consequences of getting in over your head can be troublesome.

What else should you know about credit cards? Here are some do’s and don’ts to keep in mind:

Just Because You Can Get Another Credit Card Doesn’t Mean You Should

Once you prove your creditworthiness, you’ll likely receive other credit card offers in the mail. Retail stores you shop in often ask if you’d like to apply for their card, offering things like special discounts, partnerships, and card-holder shopping days to draw you in.
But unless the rewards are high and the annual percentage rate (APR) is low, you may choose to pass. Especially if you’re in a store and won’t have time to focus on the terms and fees in the agreement.
Remember: When you apply for a credit card, it can create a credit inquiry on your report because of the hard pull on your credit report. Unless your credit inquiry qualifies as rate shopping , too many inquiries in a short time period could cause a drop to your credit score.

A Credit Card Can Be Convenient—If You Keep Your Balance In Check
The clock starts ticking whenever you make a purchase using your credit card. Many credit card companies will give you a period of interest-free grace, but if you don’t pay off the balance within the grace period, you’ll start racking up interest.
Of course, using cash instead of credit for purchases is an option, especially for purchases made in person.

Thinking Twice Before Just Paying The Minimum
It’s easy to get into the mindset that you’re on track for the month because you paid the minimum payment due on your credit card statement. But that amount is typically based on a small percentage of your balance, typically between 1% and 3%, or a fixed dollar amount.
Unless you have a 0% credit card rate, letting your balance carry over can rack up additional interest.

Checking Your Statements Every Month
A thorough monthly review of credit card statements makes it possible to find billing mistakes and be sure your purchases and returns are accurately reflected.
It’s worth reviewing your statement for any subscription services you might be making automatic payments or renewals for. You could be paying for a service or app you don’t want anymore.
Reviewing your charges can also help you determine if you’ve been the victim of identity fraud . The faster you move to report any problems , the better off you typically are. The Fair Credit Billing Act (FCBA) instructs consumers to report unauthorized charges within 60 days after the statement was mailed, so making it a habit to check your statements as they come in—or reviewing them online at least once a month—can help you be aware of any issues and report them quickly.

If you’ve made late payments or missed a payment, your interest rate may have gone up—and you could be paying a much higher rate than you thought. Keeping track of this information will give you a more complete picture of the amount you owe.
Credit card statements also include information about how long it will take to pay off the bill if you send only the minimum payment each month, as well as how much you’ll pay in interest. Think of this information like nutrition facts on food packaging—it could be an encouragement to be financially healthier.

Reporting Misplaced, Lost, or Stolen Cards
Under the FCBA , a consumer’s liability for unauthorized use of their credit card is limited to $50. However, the FCBA also says if you report the loss before your credit card is used to make unauthorized purchases, you aren’t responsible for any charges you didn’t authorize.
If your credit card account number is stolen, but not the card, the FCBA also says you won’t be liable for unauthorized use. Credit card companies are generally quick to provide customers with new account numbers, passwords, and cards.

Using a Credit Card To Get Cash
Another piece of information available on a credit card statement is the APR charged for cash advances. Most likely, the interest rate charged for cash advances is several points higher than the rate charged for purchases.
If a credit card is used at an ATM, there may also be an additional fee charged by the machine’s owner.
So unless it’s an unavoidable emergency, it’s probably much better for your wallet to stick to your debit card or go old-school and cash a check.

Using a Credit Card For Purchases Just To Get the Rewards Points
Cash back and other perks make some cards more appealing than others. But that probably shouldn’t be an excuse to use a credit card if you’re not in a solid financial position. The trade-off probably isn’t worth it if you carry a balance.
Balance Transfer Cards Can Be Appealing, But…
Again, if you have solid credit, you may be getting offers for 0% balance transfer cards. And they may potentially save you hundreds, even thousands of dollars, if you can realistically pay off that balance in the designated period.
If not, the interest rate will increase after the introductory 0% interest period ends. And moving the remaining amount to yet another balance transfer card could ding your credit record, as every time you apply for a credit card a hard inquiry is pulled.

Negotiating Rates and Fees
Even the most attentive person might sometimes miss a credit card due date. This oversight, however, means a late fee and interest may be added to the account balance. If this happens more than once, you might incur a higher late fee than the first one and the account’s interest rate might increase.
It may be possible, however, to negotiate credit card interest rates and fees. If you’ve only had one late payment, it’s worth a call to customer service asking for the late fee to be waived. If there have been multiple late payments and you’re faced with an increased interest rate, it might take up to six months on-time payments before a credit card issuer is willing to consider lowering the interest rate.

A 2018 poll for CreditCards.com, the latest data on the topic , found that 56% of those who asked got a lower interest rate/APR, and 70% had an annual fee waived or lowered. So it may not hurt to call customer service and ask.

Knowing How Much Credit Is Being Utilized
The amount of debt owed is the second largest factor that makes up a person’s credit score. It accounts for 30% of the total score, and revolving credit accounts like credit cards are important in the calculation of a credit score. Someone who is using a high percentage of their credit card limit might be seen as potentially risky by lenders. But someone who uses a lower percentage of their credit card limit may be considered to be in a favorable financial position.
Credit card companies sometimes raise the credit limit of financially responsible customers. By keeping your account balance low, it can improve the credit utilization rate used to calculate your credit score.

The Takeaway
Credit card debt can feel overwhelming quickly, but a personal loan may help you get things under control.
You can’t just sweep away the debt and forget it, of course. But if your financial history is solid, getting approved for a personal loan interest rate that’s lower than your credit card rates could make your outstanding debt easier to deal with. Using a debt consolidation loan to consolidate multiple credit cards would also mean just one bill to pay each month instead of keeping track of multiple payments and due dates.
A consolidation loan with a respected lender, debt settlement, or debt consolidation can be part of a smart overall money management plan depending on your situation.

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How Often Does Your Credit Score Update?

When you start to use credit cards and take out loans, you build a credit score that demonstrates your creditworthiness. Does that number stay static a day, a week, a month? In truth, it’s changing all the time.

Most of your accounts probably report information to the credit bureaus every 30 to 45 days. One more consistent on-time payment made may barely affect a score, but a missed payment might have a significant effect.

The higher your score is, the better you look to potential lenders because you’re a lower risk.
How often does your credit score update? Let’s find that answer and how to keep an eye on credit history and credit score.

When Do Credit Reports Update?

Whenever consumers take some sort of action relating to their credit, their score, usually a number between 300 and 850, will fluctuate.

For instance, if they apply for a loan or miss a credit card payment, their score could change.
There is no set date for a credit score update because a lender or creditor may send information to the three main credit bureaus at different times: Experian one day, Equifax five days after that, and TransUnion a week later.

An update, though, will occur at least every 45 days.

Rather than constantly checking for updates, it might be better to focus on long-term goals like paying off debt, making sure payments are sent on time, and ensuring that scores are going in an upward direction.

How Credit Scores Size Up

Lenders most often use FICO® Scores, but the credit bureaus introduced the VantageScore® in 2006 to provide a score that was more consistent among the three credit agencies.

FICO
•Exceptional
800-850

•Good
670-739

•Fair
580-669

•Very Poor
300-579

VantageScore
•Excellent
781-850

•Good
661-780

•Fair
601-660

•Poor
500-600

•Very Poor
300-499

This is how the FICO Score 8 and the latest VantageScore models break down above:

People with high scores typically have access to higher lines of credit and lower interest rates. Those with low credit scores may not be approved for certain credit cards and loans, and if approved for, say, a mortgage, will usually pay a much higher mortgage interest rate.

(That said, a conventional mortgage lender is free to set its own requirements when it comes to credit scores. Government-backed loans still have credit score requirements, even if they’re lower.)

How To Check a Credit Report

Under federal law, consumers are entitled to one free copy of their credit report every 12 months from each of the main credit reporting agencies, TransUnion, Experian, and Equifax.

AnnualCreditReport is the only authorized website for free credit reports, according to the Federal Trade Commission.

Consumers can also call 1-877-322-8228 and provide their name, address, Social Security number, and date of birth to verify their identity.

If you want to check your credit history more than once a year, you can ask one or all three credit reporting bureaus, for a small charge, for another copy.

Why check your credit report periodically? Mainly:

• To make sure the information is accurate and up to date before you apply for a car or home loan, buy insurance, or apply for a job.
• To help guard against identity theft.

How To Check a Credit Score

The free annual credit reports do not include your credit score, or more accurately, scores—your credit score from each of the credit bureaus will vary based on the information each has. Lenders also use slightly different credit scores for different kinds of loans.

How to get your credit scores then? Here are a few ways:

• Buy a score directly from the credit reporting companies or from myfico.com.
• Look at a loan statement or a credit card statement. Some financial companies provide credit scores for customers as a perk.
• Use a credit score checker. Some services give consumers access to their credit scores but charge for premium services like checking a score daily. Other sites may require that you sign up for a credit monitoring service with a monthly subscription fee in order to get your “free” score.
• Sign up for an app like SoFi Relay, which provides free weekly updates on your credit score and tracks all of your money in one place.

When signing up for credit score checking websites, it’s important for consumers to look at the terms of service and ensure they’re not being charged for premium services they do not want.

Also, it’s best to avoid an “educational” credit score vs. a score that a lender would use. For some, there will be a meaningful difference, the Consumer Financial Protection Bureau says.

What Makes Up a Credit Score?

Learning about what factors make up a credit score can help consumers raise their scores. Main factors that contribute to the score, in order:
• Payment history (35-40%)
• Credit utilization
• Length of credit history
• New credit
• Credit mix

In terms of payment history, the most important factor when calculating a score, it’s critical to always repay debts on time.

The credit utilization ratio is the amount that is owed in relation to how much credit a person has overall. Keeping your credit utilization ratio below 30% is commonly recommended.

For the length of the credit history, consumers can increase their score by not closing cards. The longer someone’s credit history is, the better.

Applying for new credit cards and loans that require a hard inquiry into a credit report could bring down a score, even if the result is approval. However, if a score does go down, it shouldn’t take long for it to go back up. It’s multiple hard inquiries on a credit report in a short period that can cause damage. Then again, if someone is shopping for a mortgage or auto loan, both FICO and VantageScore account for multiple hard inquiries in a grace period of 14 to 45 days.

Credit mix refers to credit cards, student loans, auto loans, personal loans, and mortgages. By having a mix, consumers show that they can manage all kinds of debt.

Why Credit Scores Matter/

Having a high score can help consumers in a number of scenarios.

They will save money, and potentially a great deal of money if they gain access to lower interest rates.

The higher a score is, the more credit someone will be able to access as well.

Consumers can reach their financial goals quicker and utilize better products. For example, they may get approved for a credit card that offers perks like bonus travel rewards or a high cash-back rewards rate. They might also be able to use a card with a 0% introductory APR or 0% balance transfer rate for a certain period.

People with a high score may be able to rent a better apartment or home since landlords will check prospective tenants’ credit.

They may gain access to better car insurance rates and be able to avoid paying deposits to utility companies and cellphone providers.

Improving a credit score could take time, but it’s worth it because in the long run, consumers will save money and potentially reach their financial goals that much faster.

The Takeaway

How often does your credit score update? All the time, really, but once a month is a good barometer. You can order a free credit report every year, or you can see updates in your credit score for free or for a fee.

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What We Like About The Snowball Method of Paying Down Debt

If the goal is debt reduction, paying off debts in order of the smallest amount due to the largest amount due—gaining momentum as each balance is paid off—can make sense for some people. Once the smallest debt is paid in full, apply the amount that was being paid on that to the next largest debt, and so on. The amount being paid on each of the remaining debts will increase, just like a snowball gets bigger with each layer of snow added.

Building the Snowball
It’s all about changing behavior. Getting rid of the smallest debt first can work wonders because it gives a psychological boost. Try paying down the largest debt first, and it can feel like throwing a pebble into an ocean.
The numbers on that large debt will start to decrease, for sure, but it’s probably not going to give the same feeling of getting rid of the smallest debt first. Paying that small debt first is meeting a goal, which can be empowering.
When it’s time to take on the Big One (the largest debt), there will be more freed-up cash, creating a more stable financial situation to pay it off.

A Word about Paying off High-interest Debt First
But wouldn’t it make more sense to first tackle the debt that comes with higher interest rates and large balances?

While that makes sense from a financial perspective because it means paying less interest over the life of the loans, statistics suggest a different solution. Psychologically, getting rid of the smallest debts first often provides the momentum needed to pay off debt sooner.
A study by Northwestern University’s Kellogg School of Management found that “consumers who tackle small balances first are more likely to eliminate their overall debt” than trying to pay off high-interest-rate balances first.
Even the Harvard Business Review came to the same conclusion. Their research suggests that people are more motivated to get out of debt not only by concentrating on one account but also by beginning with the smallest account.

Making Minimum Payments Doesn’t Equal Minimum Payoff Time
Even if the minimum payments on a person’s credit cards are somewhat manageable, they can be a trap. It’s more than likely that paying only the minimum on the debt will mean paying on it for years to come—and paying substantially more money than the amount originally borrowed. That’s because most credit card companies make their money by charging high interest rates and compounding interest on balances not paid in full each billing cycle.

The Snowball Plan, Step By Step
Following these steps could result in shrinking a debt load, giving someone who is feeling hopeless about their debt a little room to breathe.
1. List all debts from smallest to largest. List them by the total amount owed, not the interest rates. If two debts have similar totals, place the debt with the higher interest rate first.
2. Continue to pay the minimum payment on every debt.
3. Decide how much extra can be paid toward the smallest debt (the first debt on the list).
4. Pay the minimum payment on that smallest debt, but also add in the extra amount from step three. Repeat until the debt is paid off.
5. Once that smallest debt is paid off, add the amount that was being paid on it as an extra amount to the next smallest debt on the list. Now that second debt is on its way to being paid in full.
6. Repeat the steps until all debts are paid off.
A Word About Principal Reduction
It’s a good idea to find out how lenders apply extra payments to a debt (they don’t all do it the same way) before starting this process. Some debt companies that handle mortgages, school loans, or car payments need instruction about how any extra money should be applied (to principal or interest). Credit card companies, though, typically apply the entire payment to the current billing cycle.

Perks of the Snowball Method
The psychological boost from entirely paying off one debt is the main idea behind the snowball method. Seeing the results—sometimes quickly, if the smallest debt is very small—can be a great motivator to press on and continue paying off debt. With fewer debt obligations every month, it’s likely debt will be less of an emotional burden.
Of course, the flip side is that if the smallest debts are being tackled first, high-interest debts may be accruing interest for quite a while. Ultimately, the snowball method may be the most effective psychologically, but it isn’t the most cost effective.

Alternatives to the Snowball Method
There are other ways to pay off debt. Here are just two:

The Avalanche Method
Also known as the “debt-stacking” method, the avalanche method works in contrast to the snowball method. Saving money on high-interest rates is the goal. This method is not as simple as paying off the smallest debt first.

It involves making a list of debts in order of interest rates, with the highest interest rate being first on the list. If some debts have variable interest rates, they might need to be moved around in the list from time to time as their rates change. This method’s focus is on paying down the debt with the highest interest rate with as many extra payments as possible.

The Debt Snowflake Method
The debt snowflake method involves finding extra income through a part-time job or selling items no longer needed or wanted, and sprinkling that extra cash on debt obligations every day. Those extra payments could go a long way to helping someone become debt-free.

The Takeaway
Merging all debt owed into one unsecured personal loan could make it easier to pay down that debt each month. Taking out a personal loan to consolidate multiple high-interest credit card debts means just one payment per month, streamlining the debt repayment process.

If you’re considering this strategy, an unsecured personal loan from SoFi might be right for you. Checking your rate takes just two minutes and you may qualify for rates that will help you get out of debt sooner compared to credit card rates. SoFi personal loans have no fees and low fixed rates.

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Ways to Build Wealth at Any Age

Ways to Build Wealth at Any Age

Whether you want a worry-free retirement or a custom-built home, your financial goals are worthy investments. But they won’t come without careful planning.

When it comes to people’s top financial goals for 2021, Country Financial’s 2020 security index report found that controlling spending, saving for an emergency, paying down credit card debt or student loan debt, and saving for retirement were among top goals. Purchase-oriented goals—such as buying a car and purchasing a home—also made the list.

There are some tried and true ways to save money and build wealth at any age—whether you use those funds for immediate purchases, long-term goals such as retirement, or estate planning for after you’re gone.
The key is to start now, rather than wait until “the right time.” Here are some simple actions you can take today to get started building wealth and cash flow for tomorrow.

Set Short- and Long-Term Goals
The first step in building wealth is to set short and long-term goals you can revisit throughout your journey.
Short-term goals focus on achieving more immediate results, such as funding next summer’s trip or buying a new car. In contrast, long-term goals might require several years or more of preparation. For example, you may want to collect enough to pay off your mortgage or send your kid to college. Creating realistic goals at the start gives you direction, so make them as specific as possible.

Create a Budget
Once you know your goals, drafting a monthly budget becomes more manageable. Document up to three months’ worth of expenses and then break the list down into fixed costs, variable costs, necessary costs and discretionary costs. You can’t stop paying your utilities, but you will likely find places to save in your discretionary category (think restaurant meals, or entertainment expenses). Dedicate a portion of that discretionary spending to your goal’s fund regularly.
Taking stock of your financial situation gives you a clearer understanding of where you are, where you’re going to go, and how you’re going to get there.

Pay Off Deb
To dedicate more money toward building wealth and saving for your goals, you’ll likely need to pay off some debt first. You can use your discretionary income as a tool for minimizing your debt load. If you have multiple debts, consider using a debt repayment method, such as the avalanche method, the snowball method, reaching out to a debt settlement or debt consolidation company to accelerate the process.

Debt Repayment: The Avalanche Method
The avalanche method prioritizes high-interest debts by ranking the interest rates from greatest to least. Then, regularly pay the minimum on each of your debts, and put any leftover funds towards the one with the highest interest rate. Once you pay that off, continue on to the second-highest debt. Follow that pattern to minimize the interest you’re paying as you become debt-free.

Debt Repayment: Snowball Method
Alternatively, the snowball method is another debt repayment strategy. It’s essentially the opposite of the avalanche approach. List your debts from smallest principal to largest, ignoring the interest rates. Then, regularly dedicate enough funds to each to avoid penalties, and put any extra money toward the smallest debt.
After the smallest debt is paid, redirect your attention to the next largest debt, and so on. As the number of individual debts shrink, you’ll have more money to apply towards the larger debts. You may still have interests to worry about but picking off the debts one by one can impart a sense of forward movement and accomplishment.

Debt Settlement
With the Debt settlement method your credit will be affected because in order to settle debt the account need to be delinquent. This method is not right for everyone but if you are facing a mounting load of unmanageable amount of debt Debt Settlement may be the right option.

Debt Consolidation
Debt Consolidation is a method where a company will take all of your accounts under one umbrella, close them all, and pay them off with a reduced interest rate over a period of 5 years or so. This method is typically much more expensive than a debt settlement program.

Begin Investing
If you haven’t already, find out what if any employer-sponsored retirement savings plans are available to you, such as a 401(k). These qualified retirement plans offer tax advantages and typically allow you to direct a portion of your paycheck to your account, putting your savings on autopilot. If your workplace does not offer any retirement accounts, consider opening an IRA or a brokerage account to build an investment portfolio.
Generally, investing for retirement when you’re young means you can take on more risks. While a diversified portfolio is a standard strategy, younger investors might have a portfolio that’s heavier on equities early, since they may help you capitalize on long-term growth. As you get older and closer to retirement, your risk profile may change and your portfolio will need a rebalancing to incorporate more fixed-income investments.

How to Increase Your Income and Save More
You might be getting by on your current income, but if you had the chance to boost it, wouldn’t you? With an extra-positive cash flow, you could tackle debt, save more, and achieve your goals sooner. Here are a few ways to make that happen.

Ask for a Raise
Asking for a salary increase is one solution for improving your cash flow. All it takes is one good conversation, a positive work record—and a bit of courage and confidence. Speak to your peers and read up on how to conduct yourself when asking. Going in with a plan will save you anxiety and help you get your points across clearly.

Seek Other Investment Opportunities
When investment opportunities pop up, take advantage of the ones that speak to you whenever possible. Some may be easier to break into, like real estate, one of the world’s largest asset classes. Other reliable options include gold and silver, which you can invest in physically or through ETFs. For investors willing to take on a higher-risk opportunity, investing in startups may be appealing. It all comes down to what investment will best serve your personal short- and long-term goals.

Start a Side Gig
Additional work is also great to bulk up your resume and create new connections. It seems like everyone is starting up a side hustle these days. From online shops to freelancing, the opportunities are endless. All you have to do is determine your marketable skills and how to advertise them. There might be local opportunities, or you can create a profile online with related websites like Etsy or Hourly Nerd.

Cut Expenses
Sometimes it’s not about finding new currents of money, but about creating a larger pool with the money already coming in. Take a second pass at your list of discretionary expenses to pinpoint a few more areas you could cut back on without feeling the impact in your day-to-day life.
One good example: Automatically renewed subscriptions for streaming services and local businesses, like gyms, are convenient. But think about how frequently you use the service. If the answer is “not often,” you’re not getting your money’s worth—and you may want to negotiate a lower fee, or cut the subscription altogether.

How to Build Wealth at Every Stage of Life
While it’s good to have a general strategy in place for building wealth and increasing cash flow, different stages in your life may require you to focus on different things. Taking advantage of the opportunities each decade brings you will help you financially adjust and build a stable lifestyle.

In Your 20s
You may be right out of school and trying to navigate the job market, but don’t wait to start working towards your long-term financial goals. Future You will only be prepared if Current You starts planning now.

Create an Emergency Fund
Generally, an emergency fund should include about three to six months’ worth of living expenses. Although that sounds like a lot, you’ll be grateful for the cushion if you should lose your job, or crash your car, or have a medical emergency. Unexpected things happen all the time, and an emergency fund will protect you while you get things back up and running. It will also keep you from having to touch other savings accounts, like a retirement account.

Eliminate High-Interest Debt
Your student loans aren’t going anywhere, so pay them off as soon as possible. The same goes for any other high-interest debt you might have incurred, such as with a credit card. Paying off growing interest rates will bog down your ability to save.
However, don’t be afraid to use your credit cards. Your 20s are the perfect time to build credit, which will be vital to certain goals, like purchasing a house. Use them strategically and pay them off immediately to build an upstanding credit history.

In Your 30s
Your 30s may bring some stability into your life, whether it’s regular work, a partner, and/or kids. However, the costs you’re facing are likely growing with you. Focus on money moves that will benefit you long-term.

Plan for College Expenses
If you have children, saving for their education is a big step. Use opportunities like a 529 account to help provide the funding. A 529 plan is a tax-advantaged savings plan you can use to pay for future tuition and related costs. That said, many people who’ve been there, and done that, may advise against prioritizing your kids’ education over your retirement.

Pad the Nest Egg
By some popular estimates, by age 30 you should have at least one year’s worth of your annual salary saved for your retirement—and twice that by 35. Incrementally increasing the amount you put towards your savings will help boost that number as well.

In Your 40s and Beyond
By 40, conventional wisdom holds that you should be well on your way to a growing nest egg with three times your annual salary saved up. At this stage, you may also have other assets to your name, such as property. If you have kids, they might be nearing college age, and retirement might not seem quite as far away as it once did.

Protect Your Wealth
It’s always smart to protect your assets and yourself. Make sure you have insurance covering both your estate and yourself (through health and life insurance). Insurance can take a burden off of your family’s shoulders in case anything happens to you.

Capitalize on Make-Up Contributions
A make-up, or catch-up, contribution, is an additional payment that anyone over age 50 can make to their 401(k) or IRAs retirement savings account. If you’re in a financial position to contribute these extra funds, it can help bulk up those savings to help prepare for retirement.
For 2021, the maximum allowable catch-up contribution to 401(k) plans is $6,500. The IRA annual contribution limit for 2021 is $6,000, with those 50 and above allowed to contribute another $1,000 a year. Total, anyone over 50 can put $7,000 into their IRA annually.

Wait to Take Social Security
Did you know you could receive a higher Social Security benefit if you wait to claim your benefits? Those who hold off collecting Social Security until age 67 get 108% of their benefits, and those who wait until the age of 70 can receive 132% of their monthly benefit. On the other hand, if you begin taking benefits early, at age 62, you’ll receive 25% less in monthly benefits.

Shift Your Asset Allocation
Investors should periodically revisit their portfolio and reassess their investments and risk level. As you get closer to retirement, you may decide to allocate a larger part of your portfolio to safer choices like bonds and other fixed-income.

The Takeaway
Building wealth at any age starts with a frank look at your current income and expenditures, a detailed list of short-term and long-range goals—and a little follow-through based on where you are in life.

It’s never too late to start building your wealth. SoFi Invest® can help put you on the right path to begin saving for your future. With no SoFi management fees, you can focus on building the portfolio fit to your investment style. Whether you prefer being an active investor or would rather automate the process, there’s an option for you.

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May 2021 Newsletter – Beginners Guide to Good and Bad Debt

As anyone who has ever watched their bank account balance decline after paying bills knows, owing money is no fun. But debt often serves an important function in people’s lives, putting things that can cost tens of thousands of dollars or more—a college degree, a starter home—within reach.
Such cases aren’t quite the same as racking up a high credit card balance on restaurant meals and shopping trips, underscoring that when it comes to owing money, there can be good debt and bad debt.

What Is Debt Exactly?

It’s a simple four-letter word, yet debt is often not as straightforward as it may appear. Carrying a credit card balance? That’s debt. Have a student loan or car lease? Also debt.

When individuals owe money, they generally have to pay back more than the amount they borrowed. Most debt is subject to interest, the borrowing cost that is applied based on a percentage of money owed.
Interest accrues over time, so the longer consumers take to pay off their debt, the more it may cost them.

Across people and households, debts add up. According to the Federal Reserve Bank of New York, by the end of 2020, total household debt climbed to $14.56 trillion.
Housing debt—specifically mortgages and mortgage refinancing—accounted for the majority of money owed, more than $10 trillion. Nonhousing debt such as credit card balances and school and car loans composed the rest.

For individuals in mid-2020, average debt amounted to $89,300, according to the credit reporting company Experian. While some types of debt were down—average credit card and home equity line of credit balances shrank by 14% and 7%, respectively, from the year before—other types, including amounts owed on personal loans, car loans, student loans, and mortgages, all increased from the year before, according to Experian.

Good Debt vs. Bad Debt

The difference between good debt and bad debt usually has to do with the long-term results of borrowing.

When you have debt, not only do you have to repay the money borrowed, but you also usually incur ongoing costs—specifically interest—which increase the amount you have to pay back.
While incurring more debt probably isn’t the most attractive proposition, there are occasions when taking on debt can be necessary or even beneficial in the long term. This is where good debt vs. bad debt comes in.

Though the idea of good vs. bad debt might seem complicated (and is often subject to some misconceptions), as a rule of thumb, the difference between good debt and bad debt usually has to do with the long-term results of borrowing.

Good debt is seen as money owed on expenditures that can build an individual’s finances over time, such as taking out a loan for school in order to increase one’s earning potential, or a mortgage on a house that is expected to appreciate in value.

Bad debt is money owed for expenses that pose no long-term value to a person’s financial standing, or that may even decrease in value by the time the loan is paid off. This can include credit card debt and car loans.

While owing money may not feel great, debt can serve some helpful functions. For starters, your credit score is used by lenders to determine eligibility and risk level when it comes to borrowing money.

Your credit score is based on your history of taking on and paying off debt, and helps to inform a lender about how risky a loan may be to issue. Your credit score can play an important role in determining not only whether a credit card or loan application will be approved but also how much interest will be charged.

With no credit history at all, it may be harder for a lender to assess a loan application. Meanwhile, a solid track record of paying off good debt on time can help inspire confidence.
While there are no guarantees, good debt can also mean short-term pain for long-term gain. That’s because if paid back responsibly, good debt can be an investment in one’s future financial well-being, with the results ultimately outweighing the cost of borrowing.

Conversely, with bad debt, the costs of borrowing add up and may surpass the value of a loan.

What is Considered Good Debt?

Mortgages
Like other lending products, mortgages are subject to annual interest on the principal amount owed.

In the United States, the average rate of a 30-year fixed-rate mortgage has seen a prolonged period of lows, averaging 2.97% nationally in February 2021, according to the Federal Reserve Bank of St. Louis.

Meanwhile, data from the Federal Housing Finance Agency showed that home prices grew 10.8% from the end of 2019 to the fourth quarter of 2020, marking a steady increase since late 2011.
This illustrates how the potential appreciation of a home might outweigh the cost of financing. But it’d be best to not assume that taking on a mortgage to buy a house will increase wealth. Things like neighborhood decline, periods of financial uncertainty, and the individual condition of a home could reduce the value of a given property.

Personal or home equity loans used to improve the condition of a home may also increase its value, and in such instances may also be considered “good” debt.

Student Loans

Forty-three percent of Americans who attended college incurred some kind of education debt, according to the Federal Reserve, with most outstanding loans in a recent year coming in between $20,000 and $25,000. This translates to average monthly payments between $200 and $300.
Cumulative income gains may eclipse the cost of a student loan over time.

But higher education can be linked with greater earnings, and cumulative income gains may eclipse the cost of a student loan over time.

An analysis by Northeastern University found that the median weekly earnings for a bachelor’s degree holder, $1,248, are more than $500 greater than the median weekly pay of someone with a high school diploma only.

Comparing earnings of someone with an associate degree to a bachelor’s degree holder equates to a stark difference—more than $750,000 over the course of 40 years, the analysis found.
But just as taking out a mortgage is not a sure-fire way to boost net worth, student debt is not always guaranteed to result in greater earnings. The type of degree earned and area of focus, unemployment rates, and other factors will also influence an individual’s earnings.
What is Considered Bad Debt?

Credit Card Debt

Credit cards can be useful financial tools, helping people track expenses and align payments with their individual pay periods. They may even provide cash back or other rewards. And because interest is generally not charged on purchases until the statement becomes due, using a credit card to pay for everyday purchases needs not be costly.

However, credit cards are often subject to high interest rates. According to the Federal Reserve, the average annual interest rate for credit cards is 14.65%—but some charge 20% or higher.
This interest adds up, making that takeout dinner or pair of jeans far more costly than the amount shown on its price tag, if a balance is carried over. For example, if you were to charge $500 in takeout food to a credit card with a 20% APR but only pay the $10 minimum each month, it would take nine years to pay off the full balance. The total amount paid—including interest—would be $1,084. That’s more than double the cost of those takeout meals!

Cars famously start to lose value the second you drive them off the lot.
A new vehicle loses 20% of its value in the first year of ownership, according to Carfax. After five years, a car purchased for $40,000 will be worth $16,000, a decrease in value of 60%.

But a car may also be necessary for getting around. For some individuals, owning a car can also help to earn or boost income, reducing or negating depreciation.

The Takeaway

Both good debt and bad debt can be stressful—and both types of debt can be more costly than they need to be if you don’t stay on top of what you owe and pay back loans efficiently. A digital tracker could be the remedy.

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What are the Average Monthly Expenses for One Person?

Everyone has different needs, responsibilities, and spending and saving habits. Still, you may wonder how your spending lines up with everyone else’s.
Or, if you’re in the process of creating a monthly budget, you may be looking to see roughly how much of your take-home income you should be setting aside for various living expenses.
To help you get a better sense of the cost of living for one person, we’ve assembled a list of the most common average monthly expenses.

Housing
We generally all need a roof over our heads, and housing tends to consume the highest portion of monthly income.
Indeed, according to the U.S. Department of Labor, single people living alone (or with others but paying their own) may devote, on average, 35.9 percent of their monthly income to housing.
Government stats also show that the average household (from singles to families) spends about $1,723 per month on housing costs, including rent or mortgage, property taxes, maintenance and insurance fees, where applicable.
Of course, monthly housing costs may be less if you’re single, and can also vary significantly depending on where you live.
A single person living in a studio in New York City, for example, can expect to spend around $1,514 on rent, whereas someone renting a one-bedroom in Roanoke, VI, can expect to pay around $713 on monthly rent.

Transportation
Transportation costs can vary depending on your mode of transport (i.e., car vs. bus vs train), as well as what region of the country you live in.
But one thing that holds true for many of us–transportation often accounts for the second-largest budget item, after housing.
The average household shells out around $813 per month on transportation, including car or public transportation, gas, insurance and other related expenses.
Other transportation expenses to note:
• Americans spend an average of $550 per month on new car payments.
• Gas and fuel run around $176 per month on average.
• Car insurance payments average $119 monthly.

Health Care
Health care expenses can vary depending on each individual’s circumstances, and can also rise and fall from one month to the next.
For example, there may be some months where unexpected medical costs crop up (such as emergency care), and other months where you only need to cover insurance premiums and preventive care appointments.
Cost also varies by location.
For instance, a single adult living in New York City can expect to pay about $425 a month on health care (including insurance premiums for the lowest tier plan, as well as out-of-pocket costs).
A single adult living in Boise, Idaho, on the other hand, can anticipate shelling out roughly $342 per month for those costs.
Food
Everyone’s gotta eat–and the average single person spends about $198 per month in groceries and $172 per month outside the home, for a total average of $370 per month.
This figure can range, however, anywhere from under $200 to over $700, depending on your age, income, gender, eating habits, and where you live.

The wide variability in spending in this category shows that food can be an area where consumers can find savings if they need to reduce monthly spending (such as eating out less, meal planning, and choosing lower cost brands at the supermarket).

Cell Phone
Average monthly wireless fees run between $35 and $140 for a family plan.
The good news? If your budget is particularly tight, you could spend as little as $10 a month for basic service with no data.
Utility Bills
After you’ve saved up and carefully budgeted to buy a home, you probably don’t want to be surprised by a higher-than-expected utility bill.
A number of factors go into utility costs, including home size, where you set the thermostat, type of insulation you have, the climate, as well as what part of the country you live in (since rates vary across the country).
New Mexico residents, for example, pay the least for natural gas (on average, $50 per month) and electricity (an average of $79.16 per month), while Hawaiians pay the most–due to the remote nature of the islands, electricity averages $149.33 per month and natural gas averages $223.07 monthly.

Clothing
The average adult aged 25 to 34 spends about $161 on clothing per month. Adults aged 35 to 44 spend a bit more, averaging $209 per month.
If your budget is tight, this is one category where you can often pare back spending–whether by shopping your closet, hitting the sales racks, or bringing older clothes that need repairs or fit adjustments to the tailor.
Gym Memberships
The average gym membership runs $58 per person, which could be a good deal if you use it regularly.
But weighing in at $696 per year, it’s a hefty price to pay if you rarely see the inside of that gym.
There are some great options for exercising on a budget, such as going outside and hitting the pavement, joining an exercise meetup group, watching YouTube videos, and/or picking up some dumbbells and exercise bands to workout at home.

Getting Your Monthly Expenses in Check
Knowing the average cost of living can be helpful when you’re trying to determine how much of your budget you may need to allocate to different spending categories.
However these average monthly expenses are just that — averages.
To fine-tune your budget, and make sure your spending is in line with both your income and your goals, it’s a good idea to track your own spending (which means every cash/debit card/credit card payment and every bill you pay) for a month or two.
There are a few options for tracking spending. One easy method is to make all purchases for the month on one debit card or credit card, then, at the end of the month, taking note of all the purchases made.
Another option is to log expenses as you pay them–you can carry around a notebook or keep all your receipts and list them later on paper or in a computer spreadsheet.
At the end of the month, you can then tally up everything you spent, as well as allocate each expense into key categories, such as housing, transportation, food, health care, etc.
You can then see how your spending compares to national averages, as well as where you might want to tweak things.
For instance, if you don’t have enough at the end of the month to put any money away into your retirement fund and/or an emergency fund or other savings goal, you may want to re-examine your nonessential spending (such as restaurants, clothing, gym memberships) and finds some ways to pare back.

The Takeaway
Whether you’re creating a new budget or refreshing an old one, you’ve probably noticed how important–and tricky–it is to get your monthly expenses right.
Knowing the average amount people spend to live can help you figure out how your spending stacks up and, if you’re just starting out, help to ensure you’re budgeting enough for each category.
To see how your actual spending compares to national averages, you may want to track your daily spending for a month (or more), and then put all your expenses into categories.
You may then decide to set up certain spending limits to keep your spending in line with your income, as well as your savings goals.

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IRS Form 982 is Your Friend if You Got a 1099-C

Written by Steve Rhode

Find the original article here – getoutofdebt.org

Just because you got a 1099-C form from forgiven debt is not a reason to immediately panic and think you will automatically owe a lot of taxes on the forgiven debt.
In the debt world, a point of contention is the chronic misinformation about forgiven debt from Debt Settlement or a debt determined to be uncollectible.
You will often see this misinformation used by credit counselors as a way to scare people into enrolling in their program.
A forgiven debt of $600 or more will indeed generate a 1099-C. This is a form reported to both the Internal Revenue Service (IRS) and the consumer.
The instructions on the 1099-C form say:
“You received this form because a Federal Government agency or an applicable financial entity (a lender) has discharged (canceled or forgiven) a debt you owed, or because an identifiable event has occurred that either is or is deemed to be a discharge of a debt of $600 or more. If a creditor has discharged a debt you owed, you are required to include the discharged amount in your income, even if it is less than $600, on the “Other income” line of your Form 1040. However, you may not have to include all of the canceled debt in your income. There are exceptions and exclusions, such as bankruptcy and insolvency.”
If you received a 1099-C many years after a debt became uncollectible, you need to know about little known IRS Form 4598.

But that’s where may run of the rails with their message all income is taxable if it is forgiven. They miss the point “There are exceptions and exclusions, such as bankruptcy and insolvency.”
In fact, there is a code for the 1099-C that appears to be tailor-made for debt settlement reporting:
Code F — By agreement.
“Code F is used to identify cancellation of debt as a result of an agreement between the creditor and the debtor to cancel the debt at less than full consideration.”

And this one is used when a debt becomes uncollectible:
Code G — Decision or policy to discon¬tinue collection.
“Code G is used to identify cancellation of debt because of a decision or a defined policy of the creditor to discontinue collection activity and cancel the debt. For purposes of this identifiable event, a defined policy includes both a written policy and the creditor’s established business practice.”

If you have forgiven debt, IRS Form 982 will be your best friend.

There is no tax liability for all of the forgiven debt for those that eliminate their debt in bankruptcy. It’s just a simple checkbox on IRS Form 982. See Part I, line 1a.
For those that have forgiven debt from debt settlement, then you need to check 1b.
The forgiven debt is taxable above the amount where you become solvent. Here is what the IRS says:
Check the box on line 1b if the discharge of indebtedness occurred while you were insolvent.
You were insolvent to the extent that your liabilities exceeded the fair market value (FMV) of your assets immediately before the discharge. For details and a worksheet to help calculate insolvency, see Pub. 4681.
Example. You were released from your obligation to pay your credit card debt for $5,000. The FMV of your total assets immediately before the discharge was $7,000 and your liabilities were $10,000. You were insolvent to the extent of $3,000 ($10,000 of total liabilities minus $7,000 of total assets). Check the box on line 1b and include $3,000 on line 2.
The IRS even provides a worksheet to help figure out if you are insolvent.
In most cases I’ve seen, the majority of people with a 1099-C were insolvent or mostly insolvent when their debt was forgiven. They have plenty of other obligations that weigh them down.
By filling out IRS Form 982, you can avoid any income tax due on the forgiven debt.
And as the example above shows, they only have to pay income on the forgiven debt above the point they become solvent, meaning their assets are more than their liabilities.
For specific tax advice about how all of this applies to your situation, see a qualified tax adviser.

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No Coronavirus Break for Consumer Credit Scores

Credit industry persuaded Congress it would protect people who miss payments due to virus; consumer groups push back

Missed or late payments on car loans and other borrowing will be recorded during the coronavirus outbreak, but the credit-reporting industry will give them a special code.

WASHINGTON—The financial industry persuaded Congress to reject a moratorium on recording missed and late payments on credit reports during the coronavirus outbreak, raising concerns that people who lose their jobs will take a lasting hit to their credit scores.
Legislation that would have prevented credit bureaus from reporting negative credit information for four months was shelved in the lobbying frenzy ahead of last week’s passage of the roughly $2 Trillion economic stimulus bill, lawmakers said.

The credit industry argued that it already has adequate measures to protect people’s credit during disasters, and that incomplete reporting would lead to lasting problems in determining people’s creditworthiness.
Democratic Sens. Sherrod Brown of Ohio and Brian Schatz of Hawaii have pledged to keep pressing for their moratorium proposal. The National Consumer Law Center said trusting creditors to help consumers “is just not acceptable.”

“While our bill didn’t make it into the final package, this issue isn’t going away,” Mr. Brown wrote on Twitter last week. “I’ll keep fighting with @brianschatz to make sure families don’t take an unfair hit to their credit during this crisis.”

A person’s three-digit credit score is based on payment history, amount of outstanding debt, length of credit history and new accounts. Payment history includes things such as mortgages, auto loans and credit card payments.
Creditors say they will use a natural-disaster code during the pandemic for missed or late payments, which they will flag to future lenders that the borrower isn’t at fault and won’t harm credit scores.

“Reporting negative information with a code doesn’t work because that negative information is still in the system,” said Ed Mierzwinski, who oversees the federal consumer program for U.S. PIRG, a consumer advocacy group. “We are bracing for a flood of late and missed payments because of the crisis. The only way to truly help people is to shut off the spigot of negative information from the credit bureaus.”

Messrs. Brown and Schatz introduced their negative credit reporting moratorium proposal on March 18. Three days later, the U.S. Chamber of Commerce and associations representing banking, financial services companies and credit unions delivered a letter to Senate and House leadership assuring them that they don’t need to step in.

“As you consider options to protect consumers from harm, please be aware that blanket suppression of all adverse information in credit reports could disrupt consumer access to credit in the future,” the letter says.
When it came time to finalize the stimulus package last week the strict proposal was gone, replaced by a provision drafted by Republican Sen. Mike Crapo of Idaho, chairman of the Senate Banking Committee, that leaves it up to creditors to help consumers through pandemic-induced economic hardship. Mr. Crapo’s office didn’t respond to a request for comment.

“Where is the political willpower to protect consumers?” asked Chi Chi Wu, a staff attorney with the National Consumer Law Center. “This is one of the few things that the federal government can do to truly help people that doesn’t cost the federal government any money.”

The credit-reporting industry says its three main companies will abide by reporting restrictions Congress puts in place, but argues that limiting negative information will only make it harder for lenders to decide which borrowers to approve for loans and mortgages.

The push to suppress negative credit information comes after a series of reforms that limited the information on credit reports to protect consumer privacy, said Francis Creighton, chief executive of the Consumer Data Industry Association, which represents credit bureaus.

Credit reports no longer include certain negative information like most tax liens and judgments, meaning lenders don’t see that information when reviewing loan applicants’ likelihood of repaying their debts. Lenders can access these records in other ways.

“The lender needs to understand what a person’s ability to repay is,” Mr. Creighton said. “Taking information away from them is going to make that problem worse for consumers” through more reluctance to issue credit or through higher interest rates on loans or credit lines.

Mr. Creighton’s group is urging people affected by the economic slowdown to contact creditors directly to seek delayed payment agreements or forgiveness of some debts, under existing protocols for disasters and financial crises.
Consumer advocates said that while some creditors might work to help people, the absence of a congressional mandate to do so means that others won’t.
They listed potential problems such as larger companies not having enough customer service and training capacity to handle the deluge of concerned borrowers while smaller lenders—whose clients tend to be among the most financially vulnerable—could fail to code troubled accounts for the natural disaster.