Pay Down My Debt

Introducing FICO 9: What This Means for You

Nick Clements August 12, 2014


Yesterday, FICO announced that it will be releasing FICO Score 9.  If you have unpaid medical bills or other collection items, this change will impact you.

What is FICO?

FICO is the most widely used credit score in the country. 90 percent of all credit decisions (mortgages, cards, credit cards, personal loans and more) use the FICO score in some way.

So, when FICO makes a change to its score, we should listen. This score has a big impact, because lenders use it and others (like CreditKarma) are trying to approximate it.

What are they changing?

This change is huge for people with unpaid medical bills and other collection items.

Unpaid medical bills

According to Experian, 64.3 million Americans have a medical collection record on their bureau. In the current world, this can significantly harm their credit score.

If you have an unpaid medical bill, it can be reported to a credit bureau in two ways:

  • The medical service provider can report to the bureau, or
  • A third party debt collection agency that has purchased the debt, or has been contracted to collect the debt, can report it

99.4 percent of cases have been reported by collection agencies. So, if your doctor is calling you to pay – it probably hasn’t been reported to an agency. But, once a collection agency starts calling you, you probably have a negative item on your credit bureau.

The purpose of a credit score is to help lenders understand the likelihood of someone being responsible and paying back on time. There has been a widespread belief that people have been unfairly punished for medical bills. In fact, the CFPB has proven that people have been unfairly punished, in a May 2014 report.

With the new score, FICO is agreeing with the CFPB. Medical collections will now be differentiated from non-medical collections. And people will be “punished less” for medical collections. This makes sense, for three reasons:

  1. The medical system is complex, and many people have been hit with small medical collections that they didn’t even realize they owed. For example, with a small co-pay that ended up with a collection agency.
  2. Historically, many responsible people could not get insurance because they had a pre-existing condition. And, when medical disaster struck, they had no way to pay the medical bills. They tried to be responsible, but couldn’t.
  3. Even with insurance, multiple emergencies in a family can lead to large deductible payments. Doctors and hospitals can quickly turn over bills to collection agencies, resulting in a negative remark on the credit bureau. Even people who are just paying back their medical bills, responsibly, over time can be punished.

This is a big win for the CFPB. Hats off. A government agency has done the math for the industry, and the industry has agreed. This should result in better access to credit, and lower rates on existing credit – once (and if) the changes are accepted by the industry.

Paid Collection Accounts will now be bypassed

Beyond medical bills, many other types of debt can end up on your credit bureau. For example, failure to pay your utility bill, your phone bill, your overdraft or any other type of debt can result in your account being sold to a collection agency. And the agency will usually report the collection account on your bureau. Having these accounts can seriously harm your score.

But, the older the collection item, the less impact it has on your score. I have regularly met people who felt confused. They have recovered and now had money. Should they pay back that five-year-old collection item, or just let it age. They wanted to pay it back, but would receive advice from some people not to do so. Why? Because activity on a collection item could make it appear more recent.

This change removes all ambiguity. If you pay back your collection items, your score will benefit. This is the way it should be.

When will I see the impact

Unfortunately it will take a while. FICO sells its credit score to banks. Whenever a new score is introduced, a bank has to decide whether or not to upgrade. In order to make this decision, they need to do a lot of analysis.

First, they will perform a “retro” analysis. This means they will look at the past few years of their portfolio history, and they will estimate how the portfolio would have performed if the new score was used.

They will then need to build strategies, which includes the cutoff (above what score will they approve accounts), the pricing and the extra rules that they want to build. In my experience, this takes 12 to 18 months (there are so many committees that need to approve this!).

Banks are very eager to “swap in” new customers. So, if previously rejected customers can now be approved, banks will be keen to proceed.

They are less keen to charge people lower interest rates. So, the CFPB needs to watch the banks closely. If people are truly lower risk, they should pay lower prices. But, banks are not eager to reduce pricing.

In Conclusion 

We fully support the changes. Medical bills are being severely punished. And people should not be afraid to pay off collection accounts.

We are realistic: it will be a while before we feel the impact.

And we are rightly skeptical: banks will be happy to approve more people and give more credit. They will be less excited to reduce interest rates.

Got questions? Get in touch via TwitterFacebook, email or let us know in the comment section below!

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Pay Down My Debt

The Reality of Six-Figure Debt on an Actor’s Salary

Nick Clements August 12, 2014


Stefanie acting_lg

By Stefanie O’Connell,

Freddy Arsenault is a Broadway actor with six figures of student loan debt, thanks to the MFA acting program at NYU’s Tisch School of the Arts. Among actors, Arsenault is one of the “lucky ones”. According to Actors Equity Association, the professional theatre actors union, fewer than 15 percent of due paying members are able to secure work in any given week and only 17,000 of 40,000 members work in a given year. Of those jobs, only a select few carry the prestige and paycheck of a Broadway show.

Even with his success though, Arsenault doesn’t have the luxury of sitting back and “living the dream”. In fact, to keep up with the cost of New York City living and his student loan payments, Arsenault also works as a real estate agent. By continually supplementing his acting income, Arsenault has been able to contribute $800 a month to his $165,000 student loan bill since graduating in 2008. Thanks to interest, however, his monthly contributions haven’t even made a dent in the amount he owes, which still stands at $165,000.

Arsenault’s story is a powerful reality check for actors, artists, freelancers, and young people everywhere who suffer from the misconception that all of their financial woes will dissolve when they “make it”. Even the “dream job” can’t serve as a panacea for fiscal hardship or erase the need for a well-constructed financial plan.

What Happens When You Don’t Pay Up?

A 2014 poll by American Theatre Magazine revealed that 17 percent of artists are paying nothing towards their student loan bills each month- perhaps operating under the flawed assumption that the big career opportunity, should it ever arrive, will serve as the answer to their five or six figure debt. Unfortunately, this policy of postponement and willful ignorance can prove quite damaging.

If you become delinquent on your loan repayment for more than 90 days, your lender(s) will report your tardiness to the credit bureaus, nose-diving your credit score by as much as 100 points. Letting that delinquency fester will only result in further consequences- like default. At that point your loans are likely to be turned over to a collections agency and your entire balance will become due immediately. If you thought $800 monthly payments were rough, try coming up with 80 grand on the spot!

Taking Back Control

Rather than dealing with debt collectors and struggling to raise five or six figures overnight to repay your student loans like some kind of Mafioso, confront your bills head on by putting a realistic plan in place.

Start by calling each lender and negotiating. Asking for reduced interest rates or lower monthly payments is a far better strategy than letting the bills stack up in the corner and keeping fingers crossed for overnight stardom and millions.

The trouble many artists run into in the construction of a debt repayment plan is finding an amount to contribute towards their debt that will actually fit within their budget. The American Theatre Magazine poll found that 67 percent of the 500 artists surveyed made less than $25,000 (if anything) from theatrical endeavors in 2013. Without a livable or reliable source of income, it’s a struggle for these artists just to get through the month, let alone make a dent in six-figure debt.

For these individuals, the Income Based Repayment program might provide a sustainable solution. The IBR program limits monthly payments to 15 percent of disposable income and extends the repayment term to 20 or 25 years. To qualify for the program, individuals must prove “partial financial hardship”, i.e. evidence that minimum payments on federal loans are more than 15 percent of their income each month- not a problem for most artists. After 20 to 25 years of making payments using the IBR program, any remaining debt is forgiven (though taxes must be paid on that amount).

Unfortunately, the IBR plan is only available for Federal loans and the extended pay back period means paying a lot more in interest over the life of the loan. Artists using IBR payments are likely to find that their contributions barely cover the interest each month and don’t even touch the principal. In other words, despite their payback efforts, the total amount owed will continue to increase each month.

Diversifying Income Streams

As an alternative, artists and other low wage earners might want to consider implementing Arsenault’s approach- diversifying income streams to make more money.

That doesn’t just mean “survival jobbing” as a waiter to get to the next paycheck. It means establishing a substantial and reliable stream of additional income to cover basic living expenses, make significant contributions to debt payoff, and save for future financial goals.

Of 7,093 theatre graduates surveyed by the Strategic National Arts Alumni Project between 2011 and 2013, 10 percent said they left the field because of debt and 26.9 percent left because of higher pay in other fields.

Committing to earning enough money to fund expenses, debt pay off, and savings breaks artists free of the short-term, stress inducing cycle of living paycheck to paycheck and gives them long-term financial sustainability- making “burnout” significantly less likely.

People go into the arts to do what they love, but the strain of student loan debt addressed with short-term, band-aid strategies can quickly turn that joy into depression and resentment. Tackling debt head on with a viable long-term strategy is not only empowering financially, but also freeing artistically in that it allows for the continued pursuit of passion.

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Pay Down My Debt

3 Ridiculously Simple Methods to Pay Off Debt

Nick Clements August 12, 2014

sick credit

By LaTisha Styles,

This year I finally paid off over $22,000 of credit card debt. It took a lot of discipline and sacrifice; more than I thought I had when I started my pay off debt journey. Whenever I see stories of debt payoff, I always wonder, “How did you accumulate that much debt?” You might be thinking the same. Here’s my story.

When I reached the age of 18, I headed off to college, like most high school graduates. It was the first time in a few years that I did not have a job. I started working at the age of 15, at McDonalds, then later at a local grocery store. However, when I went to college, I was under the impression that I could survive on my scholarships and the money my parents promised to send me each month.

I quickly learned that I wanted more. I wanted to be able to go out with my friends, spend money on clothing, and eat more than the three square meals that were offered at my college. As I was thinking about all of the ways I could make more money, I walked by a display table on campus with a stack of free t-shirts. I slowed, listening for the catch, and a representative quickly accosted me. She offered me a free t-shirt if I completed the credit card registration form. I had never owned a credit card before but I thought, “What do I have to lose?” So I signed up and took my free t-shirt.

A few weeks later, I received a credit card in the mail with a $750 limit. Woo hoo! I was shocked. I knew I would need a job to pay the bill so I walked to a local day care and applied for a job. With my experience, I was quickly employed part time as an after hours daycare attendant.

Each weekday I would go to classes and then to work, and each weekend I would go to the mall. At first I paid each bill in full. It was fun to feel like an adult, managing my own money properly. But after a few months, my shopping got out of hand and I started paying the minimum payment. Fast forward a few years, I had multiple credit cards, all close to the limit, and I was still only paying the minimum payment.

After an ugly phone call with a particularly aggressive creditor left me in tears, I decided to get out of debt and pay everything off. In the meantime, the economy began a downward spiral. I no longer had an income and I was having a hard time just making the minimum payments. I decided to turn to a credit counseling service that helped me set a three-year plan to pay off all of my debt.

While I used a credit counseling service, there may be another way for you to get out of debt. Here are three methods that you can use if you want to pay off your debt:

1) Go with a Credit Counseling Service

I was deep in debt and my credit score was shot after missing consecutive payments. The credit counseling service contacted my creditors, negotiated interest rates, and managed my monthly payments. For this, I paid them a small monthly fee. They negotiated the interest rate to zero percent on the majority of my cards. They also negotiated fee concessions and served as my contact for those creditors. I used a non-profit credit counseling service that was recommended to me by a friend. They had offices in my city and I was able to sit down with a counselor. However, it is important to research the firm before you begin to do business with them. A worthy credit counseling service will be transparent with you. Expect statements from them and monitor statements from your creditors. If you are looking for a reputable credit counseling service, check the reviews at the Better Business Bureau to determine the credibility of the business.

2) Use a Balance Transfer Card

If you have a strong credit score (typically 700 or higher) then why not try a balance transfer?

You can use MagnifyMoney’s balance transfer comparison tool to find the offers that suit you best. Look for upfront balance transfer fees and the details on monthly minimum payments.

Make sure to understand the difference between a 0% promotional offer, like the Chase Slate for 15 months and the PenFed Promise Visa for 48 months at 4.99% with no fee While Chase may seem like a better offer initially, it will likely require you to roll over your debt to another promotional offer at the end of 15 months, unless you can pay it all off before the end of month 15.

Sometimes, a creditor will approve and open a new card for you but only give you a small credit line; enough to cover a portion of your requested balance transfer.

If this happens, you can look to do multiple balance transfers. However, if you use this method, be sure you are determined to pay off your debt. There is no reason to have new cards if you continue to spend beyond your means. And don’t spend on the card you used to complete the balance transfer! In fact, go ahead and lock it away as soon as you complete the transfer so you aren’t even tempted.

Say you have $10,000 of debt with Discover at a 21% interest rate. You apply for the Chase Slate 0% balance transfer offer for 15 months with no fee. Chase approves you, but only for $4,000. You can first call Chase and request a higher line of credit to move the entire balance over. Chase may agree to only raise it by another $2,000 leaving you with $4,000 left at Discover.

Next, you can apply for another balance transfer offer like Santander Sphere Visa at 0% for 24 months with a 4% fee to move the entire debt to a zero percent or low interest rate promotional offer.

Remember to mark your calendar for the month before your promotional period ends. If you haven’t paid down your debt, then shop around for other balance transfer offers to keep the interest rates low and help you save time and money on your debt repayment.

Confused about how to actually complete the balance transfer process? Then read this step-by-step guide.

3) Borrow the Balance from a Peer

Peer-to-Peer lending is an additional way to raise money to pay off your debt. If you have a good to excellent credit score, you can apply and crowdsource your funds. You may have many different lenders willing to lend at different interest rates. But if your current interest rate is higher on your credit cards, and you can get a lower interest rate via a peer-to-peer lending platform like Lending Club or Prosper, then this choice may work for you. The payback terms are typically three years, but each loan is different and will depend on the individual lender. Rates are determined by the proprietary system developed by the lending platform and will vary.

You can compare different personal loan offers here.

Paying down debt is a journey but it doesn’t need to leave you feeling completely hopeless. Reach out for help and figure out the best way to get yourself back to being financially healthy.



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Pay Down My Debt

When to Cut Off Your Boomerang Kid

Nick Clements August 12, 2014


Ah, the Bank of Mom and Dad. An institution that usually requires no formal application, charges little to no interest and doesn’t care about your credit history. Unfortunately, giving out zero percent interest loans to children leaves far too many parents in a financial bind.

During a recent financial empowerment seminar, a woman in the audience asked our team if she should borrow from her IRA to help out her adult kids.

To side step a delicate question, I asked when she planned on retiring instead of her age.

“Maybe five years,” she responded.

“Then I wouldn’t recommend stealing from your retirement fund to support your kids,” I told her. “Just remind them, if you don’t have the money to support yourself in retirement, they’ll need to be supporting you.”

It may sound controversial, because parents want to help their children through all stages of life. Unfortunately, the support needs to move from financial to emotional for many American families.

As a team, we often encounter parents asking how they can support their adult children while saving, paying down debt and prepping for retirement.

For many families, they simply can’t do it all. In fact, they need to evaluate when to cut their kids off.


A child returning home after college, or not leaving at 18, is an incredibly common phenomenon. But that doesn’t mean it should occur without a discussion. Parents allowing a child back in the home need to sit down and have a serious conversation with each other and then their offspring.

“Communication has to be clear as to what financial support will be provided and for how long,” explains Shannon Ryan, CFP, author and founder of The Heavy Purse.

“In most cases I have seen, parents have allowed the children to become dependent.  When the parents become frustrated with the situation they loose site of the role they played to create this predicament.  It is more painful to sit down and make a plan at this point but that is what needs to be done” says Ryan.

Charge rent

Charging rent not only helps parents cover the increased cost of a boomerang kid, but it teaches little Johnny or Susie how to budget. Knowing rent will be due can also motivate a kid to get a job.

If parents don’t actually need the extra cash to help the family make it through the month, then charging rent can be a parental 401(k). Once it’s time for Johnny or Susie to move out, mom and dad can hand over all the rent as a nice little nest egg to get independent life started.

Rent too harsh? Insistent on some contributions

Once children are capable of getting their own full-time jobs, it’s time for them to begin breaking away from the nest. Parents looking to provide support may offer to allow a child to live at home rent free, but ask the child to only cover the extra groceries and increase cost in utilities bills.

If a child is struggling to find employment, insist he or she help with chores around the house, cook meals and contribute to the home running smoothly.

Try to help a child understand finding a job should be his or her full-time job. Days should be spent filling out applications and going on interviews, not binge watching TV and playing video games. A bachelor’s degree doesn’t mean you’re above working at Starbucks, Target or the local bookshop.

Don’t rob your retirement fund

Men and women nearing retirement shouldn’t feel obligated to rob their savings for the future in order to help an adult child get through a rough patch today.

“Cutting your children financially off can be an incredibly tricky situation and one I believe that should be generally handled on a case by case basis. With that being said, there comes a point where parents need to make sure not to hinder their own retirement plans to help their children,” says John Schmoll Jr, founder of

“That may seem harsh, but will only shortchange you in the end and likely not be the best long-term solution for your children. Instead, look for other ways you can help out your children that won’t require huge financial outlay on your part,” explains Schmoll.

Parents must remember children can take out student loans for college and personal loans or low APR credit cards for emergencies. They have the luxury of time to pay down debt. There are no loans for retirement.

Use their time at home as a financial bootcamp

Instead of just bailing your children out, consider their time at home an opportunity to provide teachable moments about how to handle their finances.

Take the time to assess your child’s situation

Of course there are always exceptions to the rules.

“In the rare case of disability or loss of job when the child is doing everything they can, I would support the parents stepping in if it does not cost them their retirement,” says Ryan. “If the parents are not in a financial place to help then maybe they can help their children find the resources or social programs that could.”

Sometimes, kids need a little bit longer to grow into their adult selves.

Holly Johnson, founder of Club Thrifty, reflects on her own journey to maturity.

“I actually moved out when I was 18 but moved back in from 19 to 22ish,” shares Johnson.  “My parents took me in during that especially hard time in my life and I’m eternally grateful.”

Johnson recalls how she took sometime to grow into her own, but her parents provided a road map by serving as strong role models and continuing to show her love and support.

“I hope to show my kids the same kind of patience if they are slow to grow up once they reach adulthood,” says Johnson.  “Because of my parent’s generosity, I am able to support them now when they need it.”

And sometimes an adult child needs to come after hitting a rough patch. Perhaps it’s job loss, divorce, or another monumental life circumstance, which forces a child in his or her 30s, 40s or 50s to return home. Just remember to have a conversation about expectations before a child of any age sets up camp at home for months or years.

There is no one size fits all advice

Each family needs to assess their own situation both financial and emotional. Parents, just try to find a way to help your child without permanently damaging your ability to retire. The solution may include going to a financial planner to help you navigate through impending financial issues.

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Pay Down My Debt

Avoid Debt by Not Having Children

Nick Clements August 12, 2014


By Kali Hawlk,

Every time someone asks, “so when are you having kids?” I have two reactions. First, I cringe. Second, I feel grateful that I’m a woman living in 2014 where having children feels more like an actual choice than it ever has before.

I’m one of those millennial women who has zero interest in adding children to my family. My husband and I are happy, fulfilled, and satisfied with life in a household that consists of the two of us and some four-legged family members. We don’t feel like anything is missing. Our family is perfect to us.

The Choice to Not Have Children

To those with children, or to those who one day want them, my general response to kids (“no thank you”) often comes across as hostile or aggressive toward their way of life. That’s not my intention in declining to participate, and I feel like this is important to try to explain.

Having children is simply not an experience that appeals to me in any capacity. There has never been a time in my life when I’ve thought, “maybe I’ll give that a try someday.” A mother is not a state of being I’ve ever identified with. That doesn’t mean I spend time questioning the choices of those who do identify with motherhood and are happy to acquire the title of parent.

Far from feeling negatively about children, I just don’t feel anything at all. I don’t spend time thinking about the issue one way or the other (until someone presses me about it and then makes assumptions about me, my relationship, and my quality of life based on my answers). And I don’t hate kids. I like or dislike children on the same basis I like or dislike adults: their individual personalities.

The only thing I hate is that to have or not have kids is even a debate. You either want them or you don’t, and the only opinion you should get worked up about is your own. Having children is an intensely personal decision, and it is not a choice that should be judged by others either way.

Now that we’ve clarified that I’m not some sort of kid-hating jerk who thinks everyone with kids is somehow wrong, let’s move on to the more controversial points of the post.

The Financial Issues with Having Children

Because I feel completely unemotional about the idea of having children, the only issue that captures my attention is the practical matters involved. However you may feel about kids and having them for yourself, no one can deny the financial facts: kids don’t come cheap.

The US Department of Agriculture recently released research that indicated raising a child to the age of 18 would cost the average American middle class family $245,000. That’s a quarter of a million dollars just to get a child to the legal start of adulthood; the figure doesn’t even touch higher education costs. And that’s the average, meaning many families are paying far more.

When I ran my own information to calculate the average cost of my family having kids, I nearly fell out of my chair. This calculator from Baby Center says I’ll spend a whopping $319,422 to raise a kid to the age of 18 and pay for that kid’s public college education.

This number is particularly painful to me as it is far, far more than the total gross income I’ve made since I graduated college at 21 and entered the full-time workforce. (I’m approaching my 25th birthday now, and if you feel that’s young for having kids, keep in mind I live in the South and know many people younger than I am with multiple children.)

Combine this financial responsibility with all of the other financial goals Gen Y is working towards, and something becomes immediately, painfully obvious: if you want to avoid debt and save more, skip the kids.

The Cost of Children Makes It Difficult for Average Families to Achieve Financial Success

The average American household’s median income is about $51,000 per year, pre-tax. Even assuming that was post tax, the average yearly cost of raising a child, about $13,000, takes up a quarter of annual income.

That doesn’t leave much room for achieving a number of financial goals that you must hit in order to achieve financial security and independence. It’s difficult to gather up enough money for a down payment on a home, build an emergency fund with three to six months’ worth of expenses at a minimum, contribute a little something to your retirement down the road — all after accounting for the cost of kids.

Note that I said difficult, and not impossible. Many families do manage it — but many more simply can’t because of the financial burden associated with children. It may be enough of a struggle to make it from paycheck to paycheck, let alone add cash to different savings buckets and investments for the future.

[Be sure your savings account is earning more than 0.01% in interest. Compare rates here.]

Without the financial drain of children, my husband and I were able to purchase a home, build up an emergency fund, create a separate savings fund for international travel (what we personally prioritize and find necessary for a fulfilling life), and invest nearly half of our income so we can achieve our financial goal of retiring early to pursue our passions full-time. Adding kids to the mix would have made our version of financial success impossible.

We were able to do all of the above on a comfortable yet firmly lower-middle-class income; we’re above the average of $51,000 but below six figures. We would have not only struggled to get on track for our financial goals, but would’ve flat-out struggled financially.

Just adding one kid-related expense would start straining the cash we have available in our current budget for discretionary spending (which does not include cash available for bills and savings). Daycare for one child in our area is more than the mortgage payment on our home. Adding more costs would mean slashing the amount we could put into savings, and the total cost of kids per month and year would drive us awfully close to not being able to save or invest anything at all.

Should just one thing go wrong, our previously debt-free lives would be completely disrupted. Without money going to savings to handle financial emergencies, we’d be pushed into debt and hard pressed to find a way to dig ourselves out.

Financial Losses Are More Than Just Expenses

Adding children to the mix in my personal situation would also hinder my ability to earn an income and financially contribute to my family. Although I know women who do an amazing job of working stressful jobs from home while caring for multiple children — and am endlessly impressed by their ability to do so — I wouldn’t be able to do the same.

My business is extremely important to me, and I value the freedom and energy I currently have to devote to growing and expanding it. I couldn’t even get passed a pregnancy without losing income: as someone who’s self-employed, I don’t receive employer benefits to cover a stretch of leave. If I don’t work, I don’t get paid.

Many other women are in the same camp as I am, and either unable or unwilling to give up their ability to earn money. Complicating the situation is the fact that the United States is one of the worst countries in the world for providing paid family leave. In fact, we rank right at the bottom of the list with countries like Liberia, Suriname, and Papua New Guinea.

Many companies aren’t obligated to provide paid maternity leave (much less paternity leave), which leaves many working women no choice but to go without an income in the weeks they must spend recovering and caring for a newborn.

Moms are still at an earning disadvantage even after those initial weeks and months. As Erin Lowry explains in a piece for AOL’s Daily Finance, “on the financial side, non-moms have the advantage” because they’re more likely to earn more than women with children. There shouldn’t be a debate around whether that’s fair; it’s obviously not. But it’s another financial strike against choosing to have children, especially when women already struggle to secure equal pay for equal work.

So in counting the financial downsides to children, we must consider not only the expenses but also the opportunity costs to women who value their ability to work and earn income.

Avoid Debt by Not Having Children

I have plenty of personal reasons for not being interested in having children. My husband and I are on the same page, and our goals and our plans just don’t account for kids.

I’m glad this is not a financial issue I need to account for. Without children, we’re financially successful and ahead of most of our peers. We’re on track to achieve all our biggest financial goals — and many of them, like financial independence, in less than 10 years.

Add kids to the mix, and things start going financially bad awfully quick. We’d go from saving and investing the majority of our income to living paycheck to paycheck hoping we never experience an unexpected financial need at best and struggling with growing piles of debt at worst.

Dealing with debt? Consider a personal loan or a balance transfer to slash interest rates.

The ugly financial picture isn’t the only reason we don’t want kids and won’t have them. But it’s a reality that other millennials need to think about and plan carefully for if they do want children. There’s never a “right” time for kids and I’ve been told by grouchy parents that advising others make sure the financial stars are in alignment before reproducing is not realistic.

But, if kids are a part of the long-term plan for you, I still believe it’s worth your time and effort to give the financial issues some thought. If you can’t take care of yourself financially, you aren’t prepared to adequately provide what a child deserves. Ensure you can meet your own basic needs first, then have an emergency fund and at least a little bit invested in retirement accounts for your future before taking on the financial responsibilities associated with having kids.

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Pay Down My Debt

5 Steps to Prepare for a Child While in Debt

Nick Clements August 12, 2014

Young couple calculating their domestic bills

By Matt Becker,

Money was the thing I worried about most before our first son was born, and my work as a financial planner with other parents tells me that I’m not alone. There are a lot of new financial responsibilities that come with starting a family and it can be hard to figure out what needs to be done, how much it will cost, and how to prioritize it all.

If you have debt, all of those questions can be even scarier. Debt can feel suffocating, and many of the parents I work with want to get rid of it as fast as possible.

But while getting to debt-free is a fantastic and admirable goal, I usually encourage new parents to pump the brakes a little bit.

Before you go into full-on debt attack mode, there are a few steps you can take that will not only make it easier to pay off your debt, but will give your family more financial security in the meantime.

Step 1: Find some big wins

Freeing up room in your budget is almost always the first step towards reaching any of your financial goals. Whether you want to pay off debt or save for the future, you’re going to need some free cash in order to make it happen.

The quickest way to do this is to focus on what I like to call “big wins”. A big win is simply a one-time effort that reduces or eliminates a regular bill, saving you money month-after-month without requiring any ongoing effort.

Here are some examples of big wins:

  •  Negotiating your cable bill. Or maybe even cutting it completely.
  •  Finding a lower-cost cell phone plan (check out companies like Republic Wireless and Ting).
  •  Finding a bank that doesn’t charge you ridiculous fees, and maybe even pays a little  interest, such as Internet-only banks Bank of Internet or GE Capital.
  •  If you really want to go big, you could downsize your home or trade in your car for a less  expensive model. Those are the kinds of decisions that could save you hundreds of  thousands of dollars over your lifetime.

With just a few one-time efforts, you could find yourself with a couple hundred dollars extra per month. Then it’s time to put that money to work.

Step 2: Build a cushion

No matter what kind of debt you have and what the interest rates are, it can be a good idea to put at least a small amount of money into a savings account before going into full-on debt attack mode.

The reasoning is pretty simple: having a baby is going to change your life in a lot of ways, and the reality is that it will take you some time to adjust. In the meantime, there are going to be expenses you didn’t plan for and having a little bit of savings will allow you to handle them with cash instead of putting them on a credit card.

That simple habit of handling the unexpected with cash instead of debt is possibly the biggest key to not only getting out of debt, but staying out of debt. And it’s a big mindset change, so the sooner you can start, the better.

The easiest way to build your savings cushion is to take some of the money you’ve saved with your big wins and set up an automatic transfer that sends it from your checking account to a savings account on the same day every month. With that consistent progress, it won’t be long before you have $500 to 1,000 dollars saved up, which should be enough to handle most unexpected expenses that come your way.

Step 3: Protect yourself

One of the best things you can do for your growing family is ensure that they will have the financial resources they need no matter what happens to you. Generally this means getting two things in place: insurance and wills.

I have to admit, I love insurance. No, it’s not the most exciting topic in the world. But when it’s done right it’s the best way I know to protect my family financially from some of life’s worst-case scenarios.

Here are the big types of insurance to consider as you start your family: Health

  •  Life
  •  Disability
  •  Liability

Writing wills is one of the most morbid topics in all of personal finance, but for new parents it’s also one of the most important. More than anything else, a will allows you to name guardians for your children, ensuring that they will be in good hands no matter what.

Step 4: Test drive 

This is a tip I give to all expectant parents, whether they have debt or not, mostly because it can help make sure that having a baby doesn’t send you into even more debt.

A few months before the baby gets here, estimate how much the baby will cost you on a monthly basis (babycenter has a good tool for this) and start putting that amount into a savings account. This will do two big things for you:

It will let you practice living on your baby budget before you actually have to do it.

It will help you build up that savings cushion we talked about in Step 2.

The combination of practice and savings cushion will make the whole adjustment easier, less stressful, and less likely to lead to more debt.

Step 5: Attack that debt!

Finally! After all of that we’re finally ready to start attacking that debt!

With those other pieces in place, you can send extra money towards your debt without the prospect of one financial mishap messing up your progress. You have a little cushion, you have the worst-case scenarios handled, and you have some practice living on a tighter budget. Now you can crush that debt with confidence!

There are two schools of thought when it comes to which debts to pay off first.

One is called the “debt snowball” and encourages you to pay your debts in order of balance, with the lower balance debts being paid first. Proponents of this method say that the motivation of quickly paying off individual debts makes it more likely that you will keep going.

The other is called the “debt avalanche” and encourages you to pay your debts in order of interest rate, with the highest interest rates being paid first. This is the approach that will save you the most money, as long as you stick with it.

No matter which approach you take, make it automatic just like you did with your savings cushion. Putting those extra payments on auto-pay will make sure that you’re attacking that debt consistently month-after-month and getting to debt-free as fast as possible.

Did you have debt when you were starting your family? What did you do to make it easier?

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Pay Down My Debt

4 Biggest Debt Temptations and How to Avoid Them

Nick Clements August 12, 2014


By Kali Hawlk,

Trendy outfits. Stylish furniture. Fancy vacations. Latest and greatest tech tools and gadgets. New cars. Bigger homes. This list of things people want and can’t get enough of could go on and on — because the temptation to spend money we don’t have is everywhere in our consumer-driven society.

We’re tempted to buy ourselves a little happiness with a new shirt, a fun piece of decor for our living space, or a snazzy smartphone case (that we somehow see as better than the other three we own but don’t use).

We treat ourselves with expensive coffee drinks, over-complicated cocktails, and meals that someone else prepared. We work hard, so we deserve it.

We want to keep up with the Joneses, or at least our peers. We don’t like feeling left out and owning less can often feel like amounting to less.

The temptation to spend isn’t difficult to explain, but that doesn’t mean it’s justified or no big deal. Here’s the problem: spending temptations, when left unchecked, lead straight to debt temptations.

When a Little Extra Spending Turns into a Whole Lot of Debt

Will a $4 latte that you buy on occasion after a rough day at work put you in the poorhouse? Unlikely. The problem occurs when you consistently make the mistake of spending just a little too much money — a little too much more than you actually have in your checking account to cover. “A little extra spending” quickly evolves into a financial mess when you charge purchases to your credit card and don’t pay that balance off in full.

“Not paying attention to where your money is going is what leads people into debt,” explains Sam Farrington, founder of SoundMind Financial Planning and member of XY Planning Network. Failing to track your spending or keep a budget leaves you more susceptible to overspending and living above your means.

As the old adage goes, you can’t manage what you don’t measure. Measure your money so you know you’re living in your means and not spending more money than you actually have.

The Number One Debt Temptation

You’d think that saying “don’t spend more money that you have” would be one of the most intuitive personal finance fundamentals out there. But many people find this exceedingly difficult, thanks to the top debt temptation: credit.

Lines of credit — usually associated with credit cards when we talk about debt — enable you to literally spend more money that you have access to via cash (in something like a checking or savings account). “The reality is that the credit card temptation will become your biggest financial snare down the road once the balance becomes unmanageable,” says R. Joseph Ritter, Jr. CFP® of Zacchaeus Financial Counseling, Inc.

It’s incredibly easy to open a credit card account, charge a purchase on the card, and forget about it until about four months later when your balance is steadily accruing interest. And just like that, you’re in debt.

Debt Temptation Intensifies When Credit Card Companies Sweeten the Deal

Credit cards may serve as an even bigger temptation when they’re rewards credit cards. Users may feel like they’re getting an amazing deal by opening up credit cards to get discounts, free items, statement credits, and points for fun and exciting experiences like travel.

According to Dennis M. Breier, president at Fairwater Wealth Management, “one of the biggest debt temptations, especially for young professionals, is putting vacations or large purchases on credit cards in order to get the points.”

While things like travel hacking — which involves taking advantage of credit card signup bonuses to earn massive amounts of reward points to score free airfare and hotel stays — can be beneficial, the temptation to go beyond your normal, everyday spending chasing after those points can be too much for some.

That’s where savvy consumerism abruptly ends and financial trouble begins. It’s tempting to open — and use — more credit cards than you need. It’s justified because you got a free airline ticket, right? Not when you had to spend $3,000 you didn’t have to score a flight that retailed for $300.

“Many young people will book a trip or buy something expensive with their card to get rewards points because it sounds smart. However, they won’t immediately pay this debt back,” says Breier. The temptation to use the card to feel “rewarded” is strong, and it can quickly leave you with a mass of credit card debt if you don’t have a plan to manage and pay your balances in full and on time each month.

Debt Temptations Go Beyond Plastic

Credit cards aren’t the only kind debt temptation out there — although they may be the easiest to give in to. Other types of credit, like auto loans, lure many into financial situations they can’t afford to get out of.

“Two of the biggest temptations include relying on credit cards and buying a car,” says Ritter. “Although the monthly payment makes a new car seem affordable and the new car smell is tempting, in the long run you will spend a lot less money on cars by buying a car that is several years old.”

Mark and Lauren Greutman, money management experts at, agree and also suggest buying used. “New cars depreciate by 20 percent right after driving off the lot,” they explain. “If you want a new looking car, I suggest buying a two year old car that was previously leased. You will get that new car feeling, but without that hefty depreciation.”

Avoiding Debt Temptation by Using Credit Cards the Right Way

Buying a used car instead of a brand new one is a simple and easy fix when it comes to avoiding debt temptation in our vehicles. Figuring out how to use and manage credit cards properly, however, is a bigger challenge for many.

Michelle Black, author and credit expert at, believes that improper attitudes towards credit card usage serve as the biggest trigger to overwhelming debt. She suggests that, even though you may have a larger line of credit than you do cash balance in the bank, you need to think of your credit in the same way you would cash.

“Credit cards should be treated just like your bank account: if you don’t have the money to pay off the bill right that moment then you should not use your credit card to make the purchase,” explains Black. “Resolve to never revolve a credit card balance from month to month,” she advises consumers. “Your wallet and your credit scores will thank you.”

Black also wisely points out that just because credit cards can lead us into debt temptation, we shouldn’t label all credit cards as “bad.”

“The cash and carry crowd will lead you to believe that the only way to achieve true freedom from debt is to avoid credit cards all together,” she says. “However, that is not only bad advice it is also insulting. If you develop true financial discipline then it is no harder to avoid overspending on a credit card than it is to avoid overspending the funds in your bank account.”

This is where financial education and literacy become critical. Credit cards — and other financial products that allow us to borrow money for a period of time — can be useful tools when we understand how they work and how to use them to our advantage.

It’s important that we can identify our debt temptations. But it’s just as important to realize that we’re not fated to give in to them. With the right knowledge and information, we can make empowered financial decisions to avoid temptation while making the most of powerful financial tools available to us.



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Pay Down My Debt

How to Win the Debt Repayment Game

Nick Clements August 12, 2014


Debt: one of the most vulgar of four letter words. Okay, maybe your parents wouldn’t wash your mouth out with soap for uttering it, but here at MagnifyMoney it’s a word we hope is prefaced with “I used to have” or “I don’t have any.”

Except this isn’t the case for nearly half of Americans.

According to our recent survey, 42.4% of Americans carry credit card debt with the average amount being a startling $10,902. This equates to average payments of $408 per month towards credit card debt.

You’d think with those steep monthly payments, the debt would be paid off in about two years. Unfortunately, that isn’t how debt repayments work. Monthly payments end up being primarily put towards interest with just a tiny amount of the principle debt being chipped away. 75.7% of those surveyed were paying higher than 15% interest rates on their debt meaning it could take years to decades of making minimum payments for them to crawl out of the red.

Fortunately, there are ways to leverage your existing credit card debt to your advantage.

That’s right. You can use debt to make the banks fight over you. Just think about it as being on any reality TV show where contestants compete for love. Except you aren’t elbowing other indebted individuals in the face, the banks are brawling for you to give them a rose.

In financial terms, it’s called a balance transfer.

With a balance transfer, you move your debt from Bank A to get an offer from Bank B. Bank B might give you a 0% interest rate for 18 months, which means all your payments are paying down the principle debt you owe. This can not only take years off your repayment strategy, but save you hundreds to thousands of dollars.

Why does Bank B want your debt? Because they’re counting on you tripping up and falling into one of their traps, so you’ll end up paying interest. If you follow our rules and stay strategic, then you can beat them at their own game.

There is one caveat: you need excellent credit. If you have a credit score of 750 or above, then you can use our Balance Transfer tool to see which option is best fit for your debt. Remember: you can’t transfer debt from one card to another with the same financial institution. If your original debt is with Chase, then you’ll need to find another option for your balance transfer.

What if you don’t have excellent credit?

Balance transfers are often exclusively reserved for people with credit scores in the 700s. If you haven’t quite reached that level of financial health, you can still utilize a personal loan to borrow money or help refinance existing debt.

Personal loans have far less traps and temptations than borrowing on a credit card. They also provide fixed interest rates, which means you don’t have to worry about your interest rate suddenly getting hiked up like you do with a credit card.

You can go through the process of seeing if a personal loan is the right fit for you without a hard inquiry on your credit score (hard inquiries make your score drop a few points).

Explore your personal loan options here.

Dealing with a credit score below 600?

You can try applying for a personal loan with One Main if your score is at least 550, but you should focus on taking steps for increasing your credit score.

Never fear, we’ve laid out six simple steps for building credit here.

What happens after debt repayment?

Once you fight your way into the black, it’s important that you assess the behaviors that put you in the red to begin with. Sometimes extenuating circumstances, such as medical emergencies, suddenly flip our lives upside down. Other times, an innate need to keep up with the Jonses can push us to live outside of our means. Identifying your road to debt and learning how to stay out of the red can be just as important as the process of paying it down.

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