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10 Places You Can Earn Six Figures and Still Feel Broke in 2018

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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A six-figure income may not go as far as you think depending on where you live. After factoring in taxes, debt payment and living expenses like child care and transportation, a family earning $100,000 in certain cities could still find themselves struggling to get by. Last year, MagnifyMoney published “The Best and Worst Cities to Live on Six Figures.” This year, we’re back for the 2018 edition to uncover the metro areas where a household income of $100,000 can still leave you strapped for cash.

For this study, we created a hypothetical, but fairly typical, couple with one child who earns a combined gross income of $100,000 (or $8,333 monthly). We estimated monthly expenses, debt payments and tax obligations to calculate what the family’s disposable income would be in various metro areas based on the average lifestyle of a six-figure earner in the corresponding metro area. Then, we ranked the locations from places where they would have the most and least disposable income.

The order in this year’s ranking has changed from last year due to changes in living costs like housing, transportation and child care. But you’ll notice many usual suspects on the worst list and some familiar faces on the best list.

Places Where You Can Earn 6 Figures and Still Be Broke

How the study — and our findings — evolved in 2018

There are a few changes to the methodology in our 2018 study. We focused on the largest 100 metros this time around as opposed to some 381 metros last year. We also took a more detailed approach to calculating variables that impact a family’s disposable income. Here are the updates we made:

We based our case study on a family earning a gross income of $8,333 per month. Then we subtracted their monthly expenses, debt obligations and savings to come up with an estimate of how much cash they’d have left over at the end of the month.

Savings. We assumed the family contributed $500 monthly to their 401(k). Last year, we assumed the family set aside 5% of their savings in a regular savings account. This year, we changed the savings to 401(k) contributions because it’s something of a bastion of corporate middle-class personal finance, and it offers a tax benefit.

Tax assumptions. Our study assumes the couple will file jointly for 2018. They took the standard federal deduction and received a federal $2,000 credit for their one child. They also took the standard deductions and credits offered by their state, and took advantage of the pretax DCFSA child savings plan to deduct the $5,000 maximum from their taxable income by their employer. The couple had insurance premiums paid from their pretax income by their employer and their 401(k) contributions paid from their pretax income by their employer.

Debt: We assume the family had a monthly student loan payment of $222, which is the median student loan payment according to the Federal Reserve. Housing and auto debt are bundled in with the housing and transportation cost budget line items in monthly expenses.

Monthly expenses. We based monthly expenses — housing, transportation, food, utilities, household operations, child care and entertainment — for each location on data taken from the Bureau of Labor Statistics, the Department of Housing and Urban Development, Care.com, Kaiser Family Foundation and the Federal Reserve. We calculated an average for these expenses taking into account the lifestyle costs of a six-figure earner.

Compared with last year, we beefed up the monthly necessity expenses — although by no means hit them all — by adding costs like household operations costs and utilities to get a more realistic sense of how much people would have left over after paying their basic bills. We also added health insurance since it’s one of the most basic expenses.

Read the full methodology here.

Key takeaways:

  • In San Jose, Calif. (the seat of Silicon Valley), a joint income of $100,000 with a preschool-aged child means a couple would have to run up their credit cards $454 a month just to make monthly bills on the basics (not including compounded interest on that credit card debt)
  • In McAllen, Texas, a couple earning $100,000 can expect to have around $2,267 left over every month after paying bills.
  • In fact, the five places where couples can expect the most in disposable income are in Texas and Tennessee, where there’s no state income tax, and metros in Florida (also without state income tax) tend to have six-figure earners with plenty of money left over.
  • Regionally, with the exception of Minneapolis — a perennial on our list of most prosperous places — the most expensive cities lie on the coasts and Hawaii, and the most affordable cities are in Southern states without a state income tax.

Worst Places to Make Six Figures

1. San Jose/Sunnyvale/Santa Clara, Calif.

San Jose, Calif., moves up to the top spot replacing Washington D.C. from last year’s study. San Jose is the location where a combined income of $100,000 is going to offer the least amount of security for our hypothetical family of three.

To make ends meet, they would need to either dip into savings or rely on credit cards to cover the $454 budget deficit. Housing in this area decreased compared with last year ($2,916 in 2017 versus $2,520 in 2018). However, an 84% increase on child care costs and 30% increase on transportation costs takes the location to the no. 1 spot. This year, we used a different source for child care costs, which could also contribute to the increase in cost.

  • Monthly income minus taxes and FICA — $7,087
  • Monthly paycheck minus taxes, FICA, 401(k), health insurance, DCFSA child savings — $5,768

2. Washington/Arlington/Alexandria, DC-VA-MD

Washington D.C. comes in at a close second leaving the family $360 in the hole each month. Housing costs increased to $2,597 compared with $2,274 in 2017. This is the most expensive metro area to find living arrangements. The general rule of thumb is to not spend more than 30% of your gross income on housing, but this recommendation could leave you house poor since it doesn’t consider your net income.

In this case, housing takes up about 31% of the couple’s gross income ($8,333 per month). However, housing takes up 47% of the family’s actual paycheck after subtracting taxes, FICA, 401(k), health insurance and the pre-tax child care saving incentive. Couple the housing costs with the transportation expense ($1,302), and a six-figure earning family can really struggle to live comfortably in and around the nation’s capital.

  • Monthly income minus taxes and FICA — $6,932
  • Monthly paycheck minus taxes, FICA, 401(k), health insurance, DCFSA child savings — $5,560

3. San Francisco/Oakland/Hayward, CA

San Francisco is about 50 miles away from San Jose (no. 1 on the list), but offers slightly lower living costs, which makes the $100,000 income go a bit further. The two cities share almost the exact same monthly expenses. It’s the $320 total saved on housing and transportation that makes San Francisco slightly more affordable than the San Jose metro area. San Francisco made it to no. 4 last year, so it’s no surprise we’re seeing it again this year taking one of the top spots.

  • Monthly income minus taxes and FICA — $7,086
  • Monthly paycheck minus taxes, FICA 401(k), health insurance, DCFSA child savings — $5,768

4. Bridgeport/Stamford/Norwalk, Conn.

The Bridgeport, Conn., area offers some opportunity for savings in food and child care costs, but estimated utilities and transportation costs come in higher than even the top three worst places for six-figure earners. Our hypothetical family would spend almost 29%* of their paycheck on transportation and utilities alone.

  • Monthly income minus taxes and FICA — $7,035
  • Monthly paycheck minus taxes, FICA 401(k), health insurance, DCFSA child savings — $5,678

5. Boston/Cambridge/Newton, MA-NH

Boston has the third highest cost of child care to make the list. Child care could take up a whopping 15%* of a family’s paycheck after subtracting taxes and savings contributions. Just like last year, housing is another budget buster in the Boston area eating away another 37% of their paycheck.

  • Monthly income minus taxes and FICA — $6,932
  • Monthly paycheck minus taxes, FICA 401(k), health insurance, DCFSA child savings — $5,595

6. Oxnard/Thousand Oaks/Ventura, Calif.

Oxnard, Calif., is a new addition to the list this year, and the first metro area that doesn’t leave a $100,000 earning household in the red each month after taxes, investment contributions and expenses.

With that said, disposable income of just $138 isn’t much to write home about. An unexpected expense could easily wipe out their spare cash. Like the other California locales above, housing takes a huge bite out of their budget — almost 38% of net income.

  • Monthly income minus taxes and FICA — $7,086
  • Monthly paycheck minus taxes, FICA 401(k), health insurance, DCFSA child savings— $5,768

7. Urban Honolulu, Hawaii

Honolulu gives the family more disposable income than Oxnard, Calif., but just barely. When all expenses are covered, the family has $140 left over to spare, which is less than last year’s disposable income of $302. Year over year, child care and transportation costs increased by 30% and 23% respectively, but housing decreased by almost 18%.

  • Monthly income minus taxes and FICA — $6,805
  • Monthly paycheck minus taxes, FICA 401(k), health insurance, DCFSA child savings — $5,527

8. Minneapolis/St. Paul/Bloomington, MN-WI**

State income tax is one of several reasons the Minneapolis area makes the list. The estimated state tax here ($506) is higher than the top two worst places — San Jose ($206 state tax) and Washington, D.C. ($366 state tax). Housing takes up about 37% of the family’s paycheck, which isn’t ideal but less than other locations.

  • Monthly income minus taxes and FICA — $6,785
  • Monthly paycheck minus taxes, FICA, 401(k), health insurance, DCFSA child savings — $5,470**

9. Hartford/West Hartford/East Hartford, Conn.

Hartford, Conn., is another new addition to the list. Hartford offers $339 in disposable income which is more than double that of Honolulu. Housing in Hartford is the second lowest of this list taking up just 33% of the family’s paycheck.

  • Monthly income minus taxes and FICA — $7,035
  • Monthly paycheck minus taxes, FICA 401(k), health insurance, DCFSA child savings — $5,678

10. New York/Newark/Jersey City/NY-NJ-PA

The New York metro area came in no. 5 last year, but takes spot no. 10 for 2018. It may come as a shock that it’s not closer to the top, but major savings in transportation contributes to a disposable income of $505 after bills and other responsibilities.

For a comparison, the other “worst places to live” have monthly transportation costs ranging from $1,200 to $1,400. The estimate for transportation costs in the New York area is just $997 per month.

  • Monthly income minus taxes and FICA — $6,934
  • Monthly paycheck minus taxes, FICA 401(k), health insurance, DCFSA child savings — $5,629

Best Places to Make Six Figures

100. McAllen/Edinburg/Mission, Texas

It’s no surprise that states without state income tax make the top of the list for best places to make six-figures. McAllen also has a remarkably low monthly housing cost ($889). Last year, housing costs for McAllen were sitting at $1,086 contributing to its no. 5 ranking on the best list.

Here, the family has a nice $2,267 per month in disposable income. This surplus in cash can offer plenty of flexibility to save, invest or tackle lingering debt. Overall, household bills take up just 62%* of the paycheck in McAllen. In comparison, for San Jose, the worst metro area for six-figure earners, bills take up 108%* of the paycheck.

  • Monthly income minus taxes and FICA — $7,300
  • Monthly paycheck minus taxes, FICA 401(k), health insurance, childcare savings — $5,913

99. El Paso, Texas

El Paso, Texas, has a slightly higher housing cost than McAllen ($1,060 versus McAllen’s $889). In El Paso, the hypothetical family gets a disposable income of $2,135, again, enough to comfortably stash some cash away for a rainy day while keeping current on bills.

  • Monthly income minus taxes and FICA — $7,301
  • Monthly paycheck minus taxes, FICA 401(k), health insurance, DCFSA child savings — $5,913

98. Chattanooga, TN-GA

Chattanooga, Tenn., offers low child care and health insurance, but comes in third with a disposable income of $2,048 thanks to the higher housing cost ($1,116) and transportation cost ($1,186) . These two major living expenses are higher than McAllen and El Paso, but when combined still only take up 39% of net income.

  • Monthly income minus taxes and FICA — $7,290
  • Monthly paycheck minus taxes, FICA 401(k), health insurance, DCFSA child savings — $5,894

97. Memphis, TN-MS-AR

Memphis has higher housing costs than the locations above but more affordable child care. Child care ($622 per month) is lower than even the two best metro areas — McAllen and El Paso (both $686 per month). The family gets a disposable income of $1,970, which is a respectable sum.

  • Monthly income minus taxes and FICA — $7,290
  • Monthly paycheck minus taxes, FICA 401(k), health insurance, DCFSA child savings — $5,984

96. Knoxville, Tenn.

Knoxville, Tenn., is yet another southern metro area in a state with no income tax. Housing and child care costs put Knoxville behind Chattanooga and Memphis. But together, housing and child care costs, two big ticket budget line items, only eat up about 31% of the household’s paycheck.

  • Monthly income minus taxes and FICA — $7,290
  • Monthly paycheck minus taxes, FICA 401(k), health insurance, DCFSA child savings — $5,984

95. Lakeland-Winter Haven, Fla.

The monthly disposable income at Lakeland-Winter Haven, Fla., clocks in at $1,850. The health care costs ($525) are considerably higher here when compared with other cities even the most expensive places for six-figure earners. San Jose, Calif., and Washington, D.C., have health care costs of $402 and $456, respectively.

  • Monthly income minus taxes and FICA — $7,306
  • Monthly paycheck minus taxes, FICA 401(k), health insurance, DCFSA child savings — $5,866

94. Jackson, Miss.

Jackson, Miss., is the first locale on the best places to live list that has a state income tax. Jackson offers a disposable income that’s just two dollars shy of Lakeland-Winter Haven, Fla. at $1,848. Despite the state tax, housing ($1,082 per month) and child care ($514 per month), it’s still an affordable place to call home for six-figure earners.

  • Monthly income minus taxes and FICA — $6,993
  • Monthly paycheck minus taxes, FICA 401(k), health insurance, DCFSA child savings — $5,627

93. Youngstown/Warren/Boardman, OH-PA

Youngstown, Pa., is the only location representing the Northeastern states in this list. Child care is high ($694) compared with other states that have affordable living. But housing and transportation costs are comparable with other locales, and health care is noticeably lower at $331 per month.

  • Monthly income minus taxes and FICA — $7,069
  • Monthly paycheck minus taxes, FICA 401(k), health insurance, DCFSA child savings — $5,823

92. Deltona/Daytona Beach/Ormond Beach, Fla.

Daytona Beach, Fla., is in a no-income tax state but has high housing, transportation and food costs, which takes it down a few pegs even below two states that have state taxes. Bills take up 70%* of net income.

  • Monthly income minus taxes and FICA — $7,306
  • Monthly paycheck minus taxes, FICA 401(k), health insurance, DCFSA child savings — $5,866

91. Toledo, Ohio

Toledo, Ohio, rounds out the top ten best places for six-figure income households. Like, Youngstown, Pa., Toledo has high child care costs ($694 per month) when compared with the other affordable locations. Food and entertainment costs can also put some pressure on the purse strings. But overall, the household will pay just 70%* of their paycheck on household expenses.

  • Monthly income minus taxes and FICA — $7,069
  • Monthly paycheck minus taxes, FICA 401(k), health insurance, DCFSA child savings — $5,823

*These numbers have been corrected due to an editing error.

**Due to a data collection error, the health insurance costs for Minneapolis were incorrectly calculated. We have updated the ranking for Minneapolis from #5 to #8. 

Additional Findings:

  • Residents of the New York metro (10th on the list) get a bit of a reprieve, thanks to low cost public transportation. They’ll have $505 left over every month for things like clothes, toys, and co-pays for their kid.
  • Other states with no income tax include Nevada, Vermont and Washington, but expenses there are high enough to eat up most of the savings (Seattle is the 13th brokest metro).

Background & methodology:

The hypothetical family we created is a typical one that earns a combined income of $100,000 (the median income for a married-couple family in 2016 was $81,917, and 39% of such couples earned at least $100,000 that same year).

We were pretty conservative about the couple’s financial and debt obligations by making the following assumptions:

  • Both have corporate-style employers who offer typical benefits.
  • They have one child currently in day care.
  • Between them, they contribute 6% of their income to their 401(k)’s, which is considerably less than the median rate of 5% from an employee in a matching plan (page 40; assumes the employee is contributing half of the 10% median).
  • Only one of them has student loans and is making the median payment of $222 a month.
  • The entire household is on one person’s group insurance plan.
  • The family has average spending habits and expenses for where they live.

To calculate federal and state taxes, we assumed the following:

  • The couple will file jointly for 2018;
  • Took the standard federal deduction;
  • Received a federal $2,000 credit for their one child
  • Took the standard deductions and credits offered by their state;
  • Took advantage of the pre-tax DCFSA child savings plan to deduct the $5,000 maximum from their taxable income by their employer;
  • Had insurance premiums paid from their pre-tax income by their employer;
  • Had their 401(k) contributions paid from their pre-tax income by their employer.

The following variables were used to create their hypothetical expenses (each is the average cost for the geography indicated in parentheses):

  • Federal tax contribution (national, but adjusted for state average health care premiums)
  • State tax contribution (state)
  • FICA contribution (national)
  • 401(k) contribution (national; see notes on assumptions)
  • Insurance premiums (state)
  • Housing costs (MSA)
  • Transportation costs (MSA)
  • Food costs (regional)
  • Utilities cost (regional)
  • Household operations costs (regional)
  • Child care costs (MSAs where available (half of the MSAs), and state averages where not)
  • Student loan payments (national)
  • Entertainment costs (regional)

Sources include the Bureau of Labor Statistics; the Department of Housing and Urban Development; the Tax Foundation; Care.com; the Kaiser Family Foundation; the U.S. Federal Reserve; and the U.S. Census Bureau.

Full ranking:

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Taylor Gordon
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Taylor Gordon is a writer at MagnifyMoney. You can email Taylor here

Kali McFadden
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Kali McFadden is a writer at MagnifyMoney. You can email Kali at [email protected]

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How Fed Rate Hikes Change Borrowing and Savings Rates

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Since late 2015, the Federal Reserve has raised the upper limit of its target federal funds rate by 2.25 percentage points, from 0.25% in December 2015, to 2.50% in 2019.

The Fed is no longer expected to raise rates. Now, the question is whether the Fed will cut the federal funds rate sometime this summer. The market is increasingly confident that at least one rate cut will occur this calendar year.

MagnifyMoney analyzed Federal Reserve rate data to illustrate how the rates consumers pay for loans and earn on deposits have changed since the Fed started raising them two and a half years ago.

  • Credit card borrowers are currently paying $113 billion in interest annually, up $34 billion from the annual $79 billion they paid prior to the first Federal Reserve interest rate hike in December 2015, making introductory 0% APR deals all the more attractive.
  • Meanwhile, depositors earned significantly more from savings accounts. In the 12 months ending in June 2018, depositors earned $26.8 billion in interest on their savings accounts, up $16.8 billion from the $10 billion they earned in 2015.
  • According to our analysis, credit card rates are most sensitive to changes in the federal funds rate, almost directly matching the rate change with a 3 percentage point increase since December 2015. Credit card rates will continue to rise in line with the Fed’s rate increases, and if the Fed raises them again, the average household that carries credit card debt month to month will pay over $150 in extra interest per year compared with before the Fed rate hikes began. MagnifyMoney estimates 122 million Americans carry credit card debt month to month.
  • Student loan and auto loan rates have also risen  — but by less than half as much as credit card rates — in part because they are long-term forms of lending that are less reliant on the short-term federal funds rate. Federal student loan rates are set based on the 10-year Treasury note rate each May.
  • Savers at big banks have seen little change, with the average savings and CD account passing through only a fraction of the rate increase. However, that masks a big opportunity for savers who shop around and move deposits to online banks. Online banks have aggressively raised rates, and now often offer rates of more than 2%, versus just 1% in 2015. That’s over 20 times what typical accounts pay.

In addition, MagnifyMoney also looked at the impact on consumer rates the last time the Fed reduced rates in 2007.

 

Generally, unsecured loans like credit cards and personal loans are more rate-change sensitive than secured loans like autos and home mortgage rates, no matter the direction of the rate change. However, savings products like Certificates of Deposit are a stark exception. Even after 3 years of fed funds rate increases, CD rates generally languished at rock-bottom rates until very recently, and then only increased modestly, relative to other financial products. Compare that to 2007, when it was the product most sensitive to interest rate cuts.

 

Let’s take a closer look at how the Fed rate hike impacts different financial products:

Credit cards

Most credit cards have a rate that’s directly based on the prime rate, for example, the prime rate plus 9.99%. As a result, card rates tend to move almost immediately in line with Fed rate changes. In the current cycle, the rates on all credit card accounts tracked by the Federal Reserve have increased 3 points, even more than the Fed’s increase of 2.25 points.

That said, consumers can still find attractive introductory rate offers.

For example, 0% balance transfer offers have continued to have long terms even as the Fed hiked rates, with offers still available for nearly two years at 0%.

Credit card issuers make up for the rate hike with the automatic rise in variable back-end rates, as well as the increasing spread between the prime rate and what consumers pay on new accounts. They can also increase other fees, like late payment fees or balance transfer fees to keep long 0% deals viable.

The Federal Reserve tends to hike up interest rates gradually over time. And people in credit card debt will barely notice the rate increase in their monthly statement. When rates are increased by 0.25%, the monthly minimum due on a credit card will increase $2 for every $10,000 of debt.
The danger of such a small increase in the monthly payment is complacency. Remember that by paying the minimum due, you could be in debt for more than 20 years.

Rates are expected to keep rising, so it makes sense for consumers to lock in a low rate today. The best ways to lock in lower rates are by leveraging long 0% balance transfer deals or by consolidating into fixed rate personal loans.

Savings accounts

On average, savings account rates haven’t changed much since the Fed started raising rates. That’s largely because big banks with the biggest deposits and large branch networks have less incentive to offer higher rates, and this skews national data on rates earned because most savers don’t shop around to find higher rates at online banks and credit unions.

Consumers who shop around can find much higher savings account rates than three years ago, and shopping around for a better rate on your deposits is one of the best ways to make the Fed’s rate hikes work in your favor.

Back in 2015, it was rare to see savings accounts pay 1% interest.

Today, many online banks are competing for deposits by offering savings account rates in excess of 2%, flowing through about half of the Fed’s rate hike into increased rates for depositors. These rates will continue to rise as the Fed hikes rates. The increases are already apparent in the data. Depositors are currently earning more than $26 billion in interest on their savings accounts annually, versus $10 billion in 2015.

CDs

CD rates have moved faster than savings rates, up 0.41 points for 12-month CDs since the Fed started raising rates. That’s in part because they are a more competitive product that forces consumers to rate shop when they expire at the end of their 6-month, 12-month or longer term.

But that rate rise doesn’t fully reflect what some smaller banks are passing through, as the banks with the largest deposits have been slow to raise rates.

The rates on 1- and 2-year CDs at online banks have been increasing rapidly, and are now well over 2%, reflecting much of the Fed’s rate increases since 2015.

The rates on 5-year CDs have also finally begun to increase, with some banks offering 60-month CDs with rates above 3.50%. As a result, the rate curve has been steepening.

Still, a reasonable strategy would be to invest in short-term (1- and 2-year) CDs. If competition on the short end continues, you can get the benefit in a year on renewal.

Student loans

Federal student loan rates are set based on a May auction of 10-year Treasury notes, plus a defined add-on to the rate. Today, rates for new undergraduate Stafford loans stand at 5.05%, up from 4.30% before the federal funds target rate began to rise.

Since student loan rates are determined by the 10-year Treasury rate, rather than a short-term rate, they are less directly related to changes in the federal funds rate than some shorter-term forms of borrowing like credit cards. Instead, future market views of inflation and economic growth play a role. Federal student loan rates are capped at 8.25% for undergraduates and 9.5% for graduate students.

For private refinancing options, rates depend on secondary markets that tend to follow longer-term rates, rather than the current federal funds rate, but in general, a rising rate environment could mean less attractive refinancing options.

Personal loans

Personal loan rates tend to be driven by many factors, including an individual lender’s view of the lifetime value of a customer, funding availability and credit appetite. Most personal loans offer fixed rates, and in a rising rate environment overall, we expect these rates will go up, making new loans more expensive, so consumers on the fence should consider shopping for a good rate sooner rather than later. Since the end of 2015, rates on 2-year personal loans tracked by the Federal Reserve have increased by 0.61 basis points.

Auto loans

Prime consumers who shop around for an auto loan can still find very low rates, especially when manufacturers are offering special financing deals to move certain car models.

But the overall rates across the credit spectrum have gone up since the Fed raised rates, in part due to the rate hikes and because of recent greater than expected delinquencies in some parts of the auto lending market.

Mortgages

Since the Fed started raising rates in late 2015, the average 30-year fixed mortgage rate has increased from approximately 3.90% to 4.55% as of Dec. 27, 2018. The mortgage market tends to follow trends in longer term bond markets, like the 10-year Treasury, since mortgages are a longer-term form of borrowing. That shields them from the impact of Fed rate hikes, and it’s not unusual for mortgage rates to decline during some periods when the Fed is raising rates.

What can consumers do

Eve if rates are no longer going up, life is still expensive for debtors, and more rewarding for savers than in recent years.

If you are in debt, now is the time to lock in the lowest rate possible. There are still plenty of options at this point in the credit cycle for people to lock in lower interest rates.

If you are a saver, ignore your traditional bank and look online. Take advantage of online savings accounts and CDs to earn 20 times the rate of typical big bank rates.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Nick Clements
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Nick Clements is a writer at MagnifyMoney. You can email Nick at [email protected]

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How to Pay for Transition-Related Expenses Without Going Broke

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Once a trans person has accepted their gender identity and decided to begin transitioning, it’s an exciting and liberating time. Everyone’s transition looks different, and each person may choose varying interventions. But as soon as someone starts looking at the costs, which could include doctor appointments, bloodwork, hormones, legal name and gender marker changes, a whole new wardrobe and potentially, surgeries, the costs can skyrocket quickly.

This is an especially tough pill to swallow for the trans community, which already faces significant financial disadvantages compared to the general population, according to the National Center for Transgender Equality. As revealed in their 2015 report, this is because many trans people face unsupportive families and suffer from discrimination with employment and housing, which results in financial distress and homelessness at higher rates than cisgender people.

“In the trans community, we see the highest amount of unemployment and housing insecurity,” said Emmett Schelling, executive director of Transgender Education Network of Texas. “Most trans people can’t save money because they’re worried about their day-to-day survival.” This makes it difficult to find money for binders, electrolysis or other transition-related needs when just getting by can be a struggle.

While there are some transition-related expenses that are difficult to avoid, many can be reduced or wiped out with the help of certain resources and strategies. Here’s how to save on several of the most common expenses.

How much does it cost to medically transition?

Not every trans person desires hormone therapy or surgeries. But for those who do, the costs can be high and vary greatly depending on the provider and whether you have health insurance that covers it.

For some ballpark figures, below are the costs of some of the most common transition-related surgeries at The Philadelphia Center for Transgender Surgery, including hospital and anesthesia costs. Note that this clinic and others provide a discount when multiple surgeries are done at once.

For trans women seeking hair removal, electrolysis and laser hair removal are used because they’re the most permanent methods. However, costs may vary drastically, since the number of sessions required to achieve results is unique to each individual and the amount providers charge can differ significantly.

Male-to-female confirmation surgeries and procedures

Breast augmentation

$9,000

Vaginoplasty

$25,600

Rhinoplasty

$9,000

Thyroid cartilage reduction (trachea shave)

$5,400

Female-to-male confirmation surgeries and procedures

Basic chest masculinization

$7,800

Phalloplasty

$24,900

How to finance your transition

Apply for grants

If you want a surgery or procedure that’s still beyond what you can afford, consider applying for a grant. There are several specifically for people who need assistance while transitioning.

“There are a few different nonprofit organizations out there that provide financial assistance for people seeking gender affirming surgery or electrolysis or binders,” said Ryan Sallans, a transgender author, public speaker and diversity trainer. He is also a volunteer vice president of The Jim Collins Foundation, which has an annual grant cycle that awards financial grants for gender-affirming surgery to a limited number of applicants. They offer one type of grant that pays for 100% of surgical fees.

“It makes us a unique organization,” Sallans added. “Being able to tell people that 100% of surgical fees are covered is completely life changing, because a lot of people aren’t able to even put down $1,000 or $2,000 for a surgery.”

Through a legacy donation by a trans woman, they also have a grant available that provides 50% of funding and requires the individual to put down the other 50%. “I actually really love that grant — sadly it’ll be gone in two years — because there are many people who may have most of the money,” he said. “They just don’t have that last piece.”

According to Sallans said each year, they typically receive 400 to 500 applications, and in the past, they were only able to award one to three grants annually. For the last two years in a row, they’ve been able to provide three grants that covered surgeries at 100% and two that covered 50%. The amount they can give out each year depends on how much they’re able to fundraise.

The nonprofit Point of Pride also started offering surgical grants for the trans community a few years ago, and they’ve given out more than $103,000 total in grants. They also have a program to help with the costs of electrolysis for permanent hair removal.

Get creative with fundraising

If you’re struggling to piece together enough money for transition-related expenses, you may turn to credit cards or a loan. But rather than getting into debt, consider fundraising first. Many trans people turn to GoFundMe, Schelling said, which allows them to raise money from their friends and family.

Some people also organize fundraisers; for example, working with local LGBTQ bars to have a percent of one night’s proceeds go toward their surgery. Schelling said he’s seen people in Texas do “plate sales,” where they hold an event and make food, like homemade enchiladas, and sell plates of it to raise money for their surgery. If you get creative with fundraising, he said, and combine it with any savings you do have, you can meet your goals a lot faster.

Explore your insurance

If you have health insurance, read your policy carefully to determine what types of transition-related care is and isn’t covered. If you’re not able to figure it out, call your insurer or ask your job’s human resources team to help you understand your coverage.

Be aware that under the Affordable Care Act, health insurers and medical providers are not allowed to discriminate against you because you’re trans. While this doesn’t mean they have to cover every procedure, an insurer cannot categorically exclude transition-related care, and providers aren’t allowed to deny you care simply because you’re trans — though unfortunately it sometimes still happens.

If you have faced discrimination from an insurer or medical professional, you can file a complaint with the U.S. Department of Health and Human Services. If you need assistance, contact The Transgender Law Center Legal Helpline or call (415) 865-0176 x306.

If you’re on Medicare, know that transition-related care that’s deemed “medically necessary” is supposed to be covered. However, attempts to get surgeries covered by Medicare are not always successful, so ask your doctor about their history with the program and whether or not previous claims have been accepted.

Consider borrowing to help cover the costs

If you’re not able to pay for transition-related costs with savings, you might be able to finance them with one of these options.

Credit cards. Credit cards offer an easy way to borrow funds. Your credit limit might not be enough to pay for an entire major surgery, but it could cover smaller procedures or miscellaneous costs. If your credit card’s interest rate is high, many credit cards offer 0% interest rates for a year or longer, giving you time to make a dent in your debt. If you go that route, just make sure that if you carry a balance, you can handle the payments once the regular APR kicks in. Also keep a lookout for annual fees, and be aware that carrying a high balance can hurt your credit score since it increases your credit utilization ratio.

Personal loans. Another option to pay for transition-related costs or surgery is taking out a personal loan, which gives a lump sum that’s then repaid with interest in fixed payments. You can take out a personal loan from a traditional financial institution, like a bank or a credit union, or from an online lender. Personal loans are typically available anywhere from $1,000 to $50,000, and interest rates vary significantly depending on credit history.

Medical financing. There are also certain financing options specifically for medical expenses. One is CareCredit, a medical credit card accepted by some healthcare providers. CareCredit often offers 0% interest for certain time periods, but if you don’t pay off your balance by the end of that predetermined “promotional period,” you will owe interest retroactively, and at a very high rate. CareCredit should only be used if you know you can pay off your balance in full before interest kicks in. Another option is Prosper — the company known for peer-to-peer lending also offers a special type of healthcare loan in partnership with some doctors. If your doctor uses their system and you’re approved, you can get a loan for up to $35,000 with no retroactive interest.

Find extra work

Another way to help pay for transition-related expenses is to supplement your income. Consider turning to the gig economy, where you can give rides, deliver groceries, charge scooters and a number of other flexible jobs.

Schelling said he’s even encountered many trans people who work at Starbucks for several years. This offers a unique opportunity, he said, since it not only brings supplemental income, but Starbucks also offers extremely trans-inclusive health insurance, even to part-time employees.

3 ways to save on transition-related expenses

Find free clothing

Some trans people slowly start building their new wardrobe over time, but others don’t start purchasing attire that matches their gender identity until they begin socially transitioning. This can get expensive quickly — not to mention, many transitioning people are uncomfortable shopping in public, Schelling said.

One way to get around this is to participate in or start a clothing swap with other members of the trans community. Some organizations put these together, but if there’s nothing in your area, try to organize one yourself. Have everyone bring some clothes they no longer wear, and swap them with those who are now looking for those types of clothes. People can also bring shoes, jewelry, bags, makeup and other items they no longer need.

“In the city next to me, there was a group of trans people who were doing that,” Sallans noted. “They were collecting binders and clothes and giving it out to people when they had a social group meeting or peer support meeting.” Beyond the immediate need, he added that it also helps build a sense of community.

If a clothing swap isn’t an option for you, consider visiting local thrift stores or online marketplaces like Thredup or Poshmark to find gently used clothes at a huge discount.

Schelling added that some organizations and businesses offer free chest binders for trans people who can’t afford one. For example, Point of Pride offers a free binder program.

Look for LGBTQ-friendly healthcare

Many trans people seek out hormone replacement therapy, but if you don’t have health insurance, accessing HRT and any other basic healthcare needs can be extremely expensive. Fortunately, more and more LGBT-focused clinics are currently opening up around the nation, according to Sallans.

“There are different non-profit organizations that can subsidize costs, whether you need access to hormone therapy or general prevention care, like reproductive and sexuality care,” he said. Planned Parenthood is one such organization, he also noted; while not every location offers hormone replacement therapy, many do.

There are also individual clinics, like Kind Clinic in Austin, Texas, that focus specifically on healthcare for the LGBTQ+ community and offer discounted services.

Schelling’s organization has also observed the increase in clinics that offer trans healthcare.

“A lot of times, the upside is there’s access to competent medical care, and some of those clinics assist you with the costs of your medications,” he said. “The downside is that usually there’s a limited amount of days or evenings these clinics are open, so once people find out, the wait list can be two to three months out.” However, he noted that if you’re looking for hormone therapy, once you have your initial blood work completed, you typically only have to go in every few months.

Access free or discounted legal assistance

If you want to legally change your name and/or gender marker, you’ll have to go through your legal system to get new IDs. “Having people who are knowledgeable in this process is extremely important since it can be extremely overwhelming and expensive,” Sallans said. While using a lawyer for this is optimal, especially since laws vary by state, it can be expensive. Sallans said he did his all himself, which was much cheaper, but it was also very daunting.

Across the country, there are law clinics that offer free legal services for name and gender marker changes. For example, in San Antonio, Texas, the local LGBTQ center, The Pride Center, provides free legal gender and name changes through a legal clinic with a local law school. If there’s a law school near where you live, find out if there are any law clinics or programs available to help.

Some individual lawyers also offer free or discounted services for transr members of their community who have these legal needs. If you’re not sure where to start, and your city has an LGBTQ chamber of commerce, see if any lawyers are members. If there are any LGBTQ publications in your city, see if any lawyers advertise in them. Sallans says some nonprofits also offer these legal services for free in various areas.

Transitioning can be an expensive endeavor, but there is an ever-increasing number of resources and organizations available to help make the process more within reach.

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Emily Starbuck Gerson
Emily Starbuck Gerson |

Emily Starbuck Gerson is a writer at MagnifyMoney. You can email Emily here

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