Category Archives: Reducing Debt and Debt Management Advice

5 Types of Debt – What to Pay Off Now and Later

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debt dollar billYou often hear that there’s good debt and bad debt. That’s probably because it would not sound too great if financial experts went around referring to bad debt and even worse debt.

After all, it’s challenging to live without owing somebody something – right? If you want to buy a house with cash, by the time you save up enough, it may be time to retire. If you’re saving up to buy a car free and clear, you may have to spend a lot of years riding the bus first. Most people get through life by borrowing money.

So sure, there’s good debt (the kind you probably can’t avoid carrying) and there’s bad debt (the kind you should try to get rid of sooner rather than later). One key to determining which debt to pay off now versus later is the interest rate: the lower it is, the longer you can carry the debt without it becoming a burden. Here are some guidelines to help you prioritize your debt.

Mortgage: Pay off later.

If you have a large mortgage and you win the lottery or come into an inheritance that allows you to pay your house off easily, doing it now is probably not a bad idea. But if you make it your main goal to pay off your mortgage, you might end up sacrificing other goals like saving for retirement or your kids’ college education.

Revolving credit card debt: Pay off now.

With the steep interest rates on credit cards, this one’s a no-brainer. Revolving credit card debt is not good, and should be paid off as quickly as you can.

Not only is paying all of that interest expensive, it’s a result of a lifestyle people can’t yet afford. Once you establish a pattern of increasing expenses for your lifestyle, it could be impossible to catch up.

Did you know you can transfer your high-interest credit card balances to First Financial’s Visa Platinum Cash Plus Credit Card, which has a great low rate and no annual fee?*

Student loans: Pay off later.

Let’s just stress that if you have a choice between buying a sports car or retiring that student loan debt, you know what the smart decision is (hopefully you were thinking to pay off the student loan first!).

In most cases, you’ll be just fine if you make the monthly student loan payment and don’t stress over paying it off any faster. Student loans typically tend to have a lower interest rate and an extended payment period. In most cases, if you have an extra thousand dollars, you’re better off using it to pay down your revolving credit card debt than putting it toward student loans (unless this is your only source of debt and your goal is to be debt-free).

Car loans: Pay off sooner rather than later.

If you can buy a perfectly good used car and borrow less, or buy a car without a loan, that’s ideal. But if you’re going to go into debt when you buy an automobile, try not to get stuck in a lengthy loan. Experian Automotive recently reported that in the second quarter of 2014, the average new car loan, for the second quarter in a row, was 66 months. That’s an all-time high. And that’s just the average. Approximately a quarter of new car loans are between 73 and 84 months long. Those are six and seven year car loans.

Historically, the average car loan has been around four to five years, with three years considered to be the sweet spot. Consumers are naturally attracted to an 84 month loan because the monthly payment is far lower than it would be if you took on a 36 month or even 60 month car loan. But you’ll likely pay thousands more with a lengthy loan. You may also find that your warranties will run out long before you make that final payment, and your car may not even last seven years depending upon what you bought.

Did you know at First Financial, our low auto loan rates are the same whether you buy new or used? Be sure to check them out today, and if you like what you see – you can apply for an auto loan online 24/7.**

Car insurance premiums: Pay off now, but only if you can.

This is small potatoes as far as your financial obligations go, and it may not be fair to call it a debt, since you pay as you go with insurance. Still if you have car insurance, it’s a financial obligation that you’re generally stuck paying indefinitely, so it feels like a debt.

If you can pay six or 12 months ahead of time instead of just once a month, you can avoid installment fees, which generally run between $5 and $9 dollars month. These additional costs, although relatively small individually, can add up over a 12 month policy period. Moreover, you’ve not only saved some money – you have one less monthly bill to worry about as you deal with your bigger debt.

On the other hand, if you’re going to have trouble making your car payment because you’re paying for a year’s worth of car insurance, stick with the monthly plan. Paying debt off successfully is really about successfully managing your cash flow.

*APR varies up to 18% for purchases, when you open your account based on your credit worthiness. The APR is 18% APR for balance transfers and cash advances. APRs will vary with the market based on the Prime Rate. Subject to credit approval. Rates quoted assume excellent borrower credit history. Your actual APR may vary based on your state of residence, approved loan amount, applicable discounts and your credit history. No Annual Fee. Other fees that apply: Cash advance fee of $10 or 3% of the total cash advance amount—whichever is greater (no maximum), Balance transfer fee of $10 or 3% of the balance—whichever is greater (no maximum), Late Payment Fee of $29, $10 Card Replacement Fee, and Returned Payment Fee of $29. A First Financial membership is required to obtain a Visa® Credit Card and is available to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties.

**APR = Annual Percentage Rate. Not all applicants will qualify, subject to credit approval. Additional terms and conditions may apply. Actual rate may vary based on credit worthiness and term. First Financial FCU maintains the right to not extend credit, after you respond, if we determine you do not meet our guidelines for creditworthiness. A First Financial membership is required to obtain an Auto Loan and is available to anyone who lives, works, worships, volunteers or attends school in Monmouth or Ocean Counties.

Article Source: Geoff Williams of money.usnews.com, http://money.usnews.com/money/personal-finance/articles/2014/12/11/5-debts-you-should-pay-off-now-or-later

3 Ways to Deal with Your Holiday Debt Before it Gets Out of Control

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holiday debtDo you have high credit card balances after all the holiday shopping you did in November and December and still haven’t made a dent in it yet? First, you might want to plug your information into First Financial’s credit card payoff calculator and see how much you need to put toward those bills each month to get debt free within a few months, or whatever your debt-payoff timeline may be.

1. Open a Low Rate Balance Transfer Card

If the debt you’ve accumulated resides on a credit card with a high interest rate, you may want to explore a lower rate financing offer by transferring your balance to another credit card. This strategy requires a little math and firm commitment to your plan.

Make sure you know exactly how much you’ll be paying in fees when you transfer the balance and how long you have this lower rate financing. You can use one of the debt payoff calculators mentioned above to determine how much you need to pay each month in order to eliminate your debt within that period.

During this payoff time, it’s crucial you not add to your balance, because that will only make your goal more difficult (and expensive) to achieve.

First Financial has a great Visa Platinum Cash Plus Card with a really low rate, no balance transfer fees, no annual fee, plus rewards for purchases!* 

2. Get Your Money Back

If for some reason you never gave out all your gifts, you may want to consider returning some.  In the likely event you already distributed your gifts, take a look at your own haul. You don’t want to insensitively get rid of gifts someone thoughtfully picked out for you, but if you find yourself with things you don’t need or gift cards you don’t plan to use, consider selling them to help pay off your debt. Even exchanging an unwanted item for something you need could help you save money, if you were thinking of buying it anyway. Any way you can cut back on spending in the coming months will help you repay your credit card debt faster.

3. Take Out a Personal Loan

If you’re looking at several months or years of debt repayment, you may be better off consolidating the high-interest credit card debt with a personal loan at a lower interest rate. Again, it’s crucial you not add to the debt during or after you’ve repaid it, because that will drag out your debt issues and cost you more money in interest. It’s not always necessary to consolidate credit card debt, but sometimes that’s the best way to make repayment manageable.

First Financial also has personal loan options available, with fixed payments, plus several other great benefits.**

*APR varies up to 18% for purchases, when you open your account based on your credit worthiness. The APR is 18% APR for balance transfers and cash advances. APRs will vary with the market based on the Prime Rate. Subject to credit approval. Rates quoted assume excellent borrower credit history. Your actual APR may vary based on your state of residence, approved loan amount, applicable discounts and your credit history. No Annual Fee. Other fees that apply: Cash advance fee of $10 or 3% of the total cash advance amount—whichever is greater (no maximum), Balance transfer fee of $10 or 3% of the balance—whichever is greater (no maximum), Late Payment Fee of $29, $10 Card Replacement Fee, and Returned Payment Fee of $29. A First Financial membership is required to obtain a Visa® Credit Card and is available to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties.

**APR = Annual Percentage Rate. Actual rate will vary based on creditworthiness and loan term. Subject to credit approval. Personal Loan repayment terms range from 12 to 60 months, and APRs range from 10.24% APR to 18% APR. Minimum loan amount is $500. Loan payment example: A $2,000 Personal Loan financed at 10.24% APR for 24 months, would have a monthly payment amount of $92.51. A First Financial Federal Credit Union membership is required to obtain a Personal Loan or Line of Credit, and is open to anyone who lives, works, worships, volunteers or attends school in Monmouth or Ocean Counties. A $5 deposit in a base savings account is required for credit union membership prior to opening any other account/loan. 

Article Source: Christine DiGangi for http://blog.credit.com/2015/01/3-ways-to-deal-with-your-holiday-debt-before-it-gets-out-of-control-104906/

Help – I spent too much on the holidays and I’m still paying for it months later!

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tighten belt on dollar conceptIf the holidays have left your budget overstretched, there are ways to recover (even if 3 months have passed) … you just need to act as quickly as you can.

While it might be tough to admit it (case in point: you’ve ignored the debt you racked up over the last few months), the first step to reducing your post-holiday debt is realizing and prioritizing it.

Beverly Harzog, author of Confessions of a Credit Junkie, says the best way to start a re-payment plan is to go after the debt on the highest interest rate card first and once that is paid off, go after the next one and so on and so on.

If you overspent this holiday season and know you won’t be able to pay off your credit card bills when they arrive next month, you need to adjust your spending habits ASAP.

Consumers should look at their spending categories and aim to shave small amounts off of each area (even if it’s $5 or $10 to start). Making many small cutbacks will be less painful than trying to find an extra $1,000 all at once to help pay off the credit card balance.

If you put a lot of your holiday gift spending on a high-interest rate credit card, Harzog recommends transferring the balance to a credit card with a lower interest rate. Even if you can reduce the interest rate just a little bit, it will help pay it down faster.

If you are facing significant debt, it might be time to find new ways to generate extra income that is earmarked solely to paying off the debt. If you don’t want to get a traditional part-time job, review your talents and skill set to find alternative ways to make money, whether it’s giving piano lessons, fixing computers, catering, or doing web design.

Ed Gjertsen, Vice President at Mack Investment Securities, recommends the seven-day cash challenge to break an overspending habit. With this challenge, you estimate how much money you spend each week and then take out that amount of cash at the start of the week and see how long it lasts.

“When people do this, by Wednesday or Thursday they are usually out of money,” he says. “They don’t think of all the times they swipe that card. It gives them a reality check of how much they are spending.”

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What’s the Worst Kind of Debt?

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DEBT inscription bright green lettersWhat is the worst kind of debt to carry? Is it student loan debt, credit cards, a mortgage — or something else? Even the experts don’t always agree on which debt is “good debt” and which is “bad,” so imagine how confusing it can be to consumers who are dealing with debt!

Student Loan Debt

Why student loan debt is the worst: The loans are often given to young people with no credit experience and no clue how they will pay them back. Balances are often high, and the jobs borrowers counted on to make payments may be non-existent or take a really long time to acquire. Finally, unlike every other type of consumer debt, it is very difficult to discharge balances in bankruptcy.

And why it may not be: College graduates, on average, still earn significantly more over their lifetime than those without a college degree. In that sense, student loan debt can be considered an investment that pays off in future earning power. In addition, students may be able to defer payments on their student loans during times of economic hardship (usually at a cost), which makes them more flexible than other types of loans. In addition, borrowers may be eligible for reduced payments and loan forgiveness under the Income-Based Repayment Program or other loan forgiveness programs.

How does student debt affect credit scores? Large balances typically don’t hurt credit scores as long as the payments are made on time.

Credit Card Debt

Why credit card debt is the worst: With interest rates hovering around 15 percent on average — and more than 20 percent for some borrowers — credit card debt is often the most expensive kind of debt consumers carry. And with the low minimum monthly payments that issuers offer, cardholders can find themselves in debt for decades if they aren’t careful.

And why it may not be: While making minimum payments on credit cards is not a great idea over the long run, having that option can come in handy in a financial pinch. It can give cardholders time to get back on their feet without ruining their credit.

As far as credit scores are concerned, as long as cardholders keep balances low (usually below 10 to 20 percent of their available credit), and make minimum payments on time, credit card debt should not hurt credit scores.

Mortgage Debt

Why mortgage debt is the worst: If you wonder how bad mortgage debt can be, just ask the owners of some $8.8 million homes that CoreLogic said had negative or near-negative equity as of the second quarter of 2013. That means those owners owe close to, or more than, what the property is worth. That also means they can’t sell those houses without shelling out money to pay off their mortgage or doing a short sale that damages their credit scores. Even for those who aren’t under water, rising taxes and/or insurance premiums, the cost of maintenance and loans that typically take 30 years to pay off can make one’s home feel like a financial prison at times.

And why it may not be: Over time, homeownership remains one of the key ways average Americans build wealth. If you are able to keep up with your home loan payments, eventually the home will be paid off and provide inexpensive housing or rental income. Equity that has built up can be accessed through a reverse mortgage or by selling the house, or it can be passed along to heirs — sometimes tax-free.

When it comes to credit scores, this type of loan will generally help, as long as payments are made on time. Even large mortgages shouldn’t depress credit scores, unless there are multiple mortgages with balances. That’s usually a problem that affects real estate investors however, not homeowners with one or two homes.

Tax Debt

Why tax debt is the worst: If you owe the Internal Revenue Service or your state taxing authority for taxes you can’t pay, you can suffer a variety of painful consequences. If a tax lien is filed, your credit scores will likely plummet. In addition, these government agencies usually have strong collection powers, including the ability to seize money in bank accounts or other property, or to intercept future tax refunds.

And why it may not be: The IRS offers repayment options that may allow a tax debt to be paid off over time at a fairly low rate. (Similar programs are available for state tax debt in many states). And unlike applying for a loan, you don’t have to have good credit to get approved for an installment agreement.

The good news when it comes to credit scores is that tax debt itself isn’t reported to credit reporting agencies; a tax lien is the only way that it may show up. By entering into an installment agreement, you may be able to get a tax lien removed from your credit reports, even before you’ve paid off what you owe.

Auto Loan Debt

Why auto debt is the worst: The average auto loan now lasts five and a half years, and some 12 percent last six to seven years, according to Edmunds.com. That means payments will last long after that new car smell has worn off and well into the years when maintenance and repair costs start creeping up. Even more troubling, these borrowers may be stuck if they need to sell their vehicles since they may be “upside down,” owing more than what they can sell their car or truck for.

And why it may not be: Many consumers budget for a car payment, and as long as they aren’t hit with unexpected expenses, they are able to make this payment a priority. In addition, borrowers may be able to refinance their auto loans and lower their monthly payments. Plus, cars often get people to work, where they can earn the money they need to pay off debt.

Vehicle loans that are paid on time can help credit scores, and are rarely a problem unless someone has several car loans outstanding at once or misses a payment.

The Worst Kind Of Debt

When it comes down to it, the worst type of debt is … (drumroll please), the one you can’t pay back on time. If that happens, your credit scores will suffer, your balances may grow larger due to fees and interest, and you may find yourself borrowing even more as you try to keep up with your payments.

Article Source: http://www.huffingtonpost.com/creditcom/whats-the-worst-kind-of-d_b_4220046.html 

3 Money Mistakes that Can Land You in Debt

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ccdebtWe’ve all heard the following personal finance advice:

  • “Don’t spend more than you make.”
  • “Pay your credit card off at the end of every month.”
  • “If it sounds too good to be true, it probably is.”

While it’s all good advice, following these basic budget rules is easier said than done. Incurring debt can happen quickly (unexpected medical bills) or gradually over time (spending more than you make each week), and hurt your credit score and your financial future.

Here are three major money mistakes to be avoided at all costs.

Money Mistake #1: Making Money Decisions Not Based on Facts

It can be alluring to transfer outstanding credit card debt to a card offering a 0% annual percentage rate (APR) to help lower the payments and make it easier to pay off the balance. However, experts warn 0% cards often come with added and fees and charges that make the process even more costly.

“There’s also an excellent chance the APR going forward, after a particular grace period, is going to be at least as high as it was before,” says Mike Sullivan, chief education officer at Take Charge America.

“People need to be honest with themselves,” he adds. Before transferring any debt, take the time to read all the fees, rate hikes and charges and then do the math to determine if transferring balances will actually save money.

Money Mistake #2: Not Having the Right Credit Card

Making rash decisions without taking into account the long-term monetary implications is also a source of trouble.

We’ve all been on an airplane when the flight attendants come down the aisle with a stack of credit card applications that promise enough miles for a free flight just for signing up today, right this minute. The same thing happens when you’re at the checkout counter at any retailer and you’re offered a discount and “loyalty rewards” if you sign up for the company card. Sounds good enough—both offers will save you money, right? That is the wrong assumption, says Sullivan.

“There’s a psychological factor that explains this behavior,” he says. “The less people know about a given topic, the more they assume they understand it fully. It’s human nature, and it could end up costing you a fortune if you’re not careful.”

Having the right credit card for your situation is critical to your financial success. For instance, if you are an avid traveler, you might want a card that doesn’t add foreign exchange fees, or if you drive a lot, look for one that offers bonus points for fill ups.

Experts say the best way to get the right card is to compare rates, benefits and services that best fit your needs. There are a variety of websites that help compare credit cards and don’t be scared to call a company and ask about certain cards if you have questions.

Money Mistake #3: You Don’t Take Out Responsible Loans

Certain purchases tend to require taking out a loan: college, a home and a car. And not all debt is considered bad debt, unless of course, you take out an irresponsible loan.   

According to Sullivan, a major mistake many people make is financing their auto loan through a car dealer.

“In all likelihood, you’re not getting the best deal through the dealer,” he says. “People tend to skip the research and just go with whatever the car dealer says is the best deal. You’ll likely end up spending a lot of extra money paying for even more money.”

The same goes when taking out a mortgage. This lending process can be long and complex, and oftentimes people don’t understand the terminology or the lending terms.  Many people aren’t entirely aware of what a “point” is, says Sullivan, and this can hurt them. When it comes to mortgages, “discount points” are a type of pre-paid interest in which one point is equivalent to one percent of the total loan amount. The idea is to reduce the interest rate on a loan and get a lower monthly payment in exchange for an up-front payment. But in reality, you could end up paying more than you would for a loan with a higher interest rate.”

The goal is to be completely aware of your financial situation, and to make decisions based on facts about what you can and can’t spend. Do your homework and know all of the available options before selecting one option over another. And don’t forget to agree to a loan that you understand and can afford.

The article source was written by Ann Hynek, published on September 6, 2013 for FOXBusiness.

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4 Tips to Help 20-Somethings Manage Their Debt

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Debt can be a heavy burden on anyone, no matter what their age, but increasingly, young adults are starting out deeper in the hole. A recent report from credit-score provider FICO shows that student loan debt has climbed dramatically for those ages 18 to 29, with average debt rising by almost $5,000 over the course of five years.

The good news, though, is that young adults are taking steps to get their overall debt under control, reducing their balances on credit cards and their debt levels for mortgages, auto loans, and other types of debt. With 16% of 18 to 29-year-olds having no credit cards, young adults are getting the message that managing debt early on is essential to overall financial health.

With the goal of managing debt levels firmly in mind, let’s take a look at four things you should do to manage your debt prudently and successfully.

1. Get a Handle On What You Owe.

In managing debt, the first challenge is figuring out all of what you owe. By pulling a free copy of your credit report you’ll get a list of loans and credit card accounts that major credit bureaus think you have outstanding, along with contact information to track down any unexpected creditors that might appear on the list.

Once you know what you owe, you also have to know the terms of each loan. By making a list of amounts due, monthly or minimum payment obligations, rates, and other fees, you can prioritize your debt and get the most onerous loans paid down first. Usually, that’ll involve getting your credit card debt zeroed out, along with any high rate debt like private student loans before turning to lower rate debt like mortgages and government subsidized student loans. With your list in hand, you’ll know where to concentrate any extra cash that you can put toward paying down debt ahead of schedule.

2. Look for Ways to Establish a Strong Credit History.

Having too much debt is always a mistake, but going too far in the other direction can also hurt you financially. If you don’t use debt at all, then you run the risk of never building up a credit history, and that can make it much more difficult for you to get loans when you finally do want to borrow money. The better course is to use credit sparingly and wisely, perhaps with a credit card that you pay off every month and use only often enough to establish a payment record and solid credit score.

First Financial hosts free budgeting, credit management, and debt reduction seminars throughout the year, so be sure to check our online event calendar or subscribe to receive upcoming seminar alerts on your mobile phone by signing up here.*

3. Build Up Some Emergency Savings.

Diverting money away from paying down long term loans in order to create a rainy day emergency fund might sound counterintuitive in trying to manage your overall debt. But especially if your outstanding debt is of the relatively good variety — such as a low rate mortgage or government subsidized student loan debt — having an emergency fund is very useful in avoiding the need to put a surprise expense on a credit card. Once you have your credit cards paid down, keeping them paid off every month is the best way to handle debt, and an emergency fund will make it a lot easier to handle even substantial unanticipated costs without backsliding on your progress on the credit card front.

4. Get On a Budget.

Regardless of whether you have debt or how much you have, establishing a smart budget is the best way to keep your finances under control. By balancing your income against your expenses, you’ll know whether you have the flexibility to handle changes in spending patterns or whether you need to keep a firm grip on your spending. Moreover, budgeting will often reveal wasteful spending that will show you the best places to cut back on expenses, freeing up more money to put toward paying down debt and minimizing interest charges along the way.

Click here to view the article source, from The Daily Finance.

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