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5 Steps to Help Your Parents Get Out of Debt

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.

Senior Couple Talking To Financial Advisor At Home

Does it hurt to watch your parents make one bad financial decision after another? Do you often find yourself wishing that you could do something to open their eyes to the situation they’re in?

If so, you’re not alone. I’ve been there several times. My parents have been struggling with consumer debt my entire life.

While I’m grateful that I was able to learn from the mistakes they made early on, that doesn’t mean I want to stand by and watch them repeat those mistakes!

After a few years of talking with them about financial matters, they’ve finally asked me to help them get their finances in order so that they can pay off their debt once and for all.

I want to tell the story of how it happened, because I’m happy to help my parents dig themselves out of the hole they’ve been in for years, and I know there are others out there who would like to do the same.

While these methods might not work for everyone (personal finance is personal), I think many can benefit from the same steps.

If you want to give your parents a hand when it comes to dealing with debt, here are 5 steps you can take.

First, a Word of Warning

While you may want to help your parents (or even friends and loved ones) with their financial situation, you might have to accept that it’s not possible.

Why? You can only help those that are ready and willing to be helped.

I’ve learned this the hard way as the years have gone on and I’ve become more enthusiastic about personal finance. It’s the old saying – you can lead a horse to water, but you can’t make it drink.

I don’t agree that money should be taboo, but you can’t force someone to budget, to track their spending, or to consider the ramifications their purchases will have months down the road.

Your eyes may be open to what’s going on, but your parents may be burying their heads in the sand because they can’t face the reality of the situation.

Those who have already had their “aha!” moment when it comes to their finances are typically more willing to accept help.

I know it might hurt to step away and keep your mouth closed, but you have to pick your battles. Some aren’t worth trying to fight, especially when the other side isn’t aware there’s a problem.

Step 1: Lead by Example

That’s why my first suggestion is to simply lead by example. I love talking about personal finance, but sometimes talking isn’t effective.

I’ve been tracking my spending for years, and I created a budget when I first moved out on my own. I’ve always been open with my parents about my finances, and I spoke with them regarding any financial decisions I made, as well as asked for their input.

As a result, they’ve always known me to be on top of my finances. They saw first-hand how powerful tracking spending was because I did it.

I admit, I nudged them along a few times, mentioning that since budgeting had been working out well for me, they might want to try it.

Eventually, it worked – my parents got so sick of their debt, they wanted to take action, and the first person they turned to was me.

While my parents did pay extra toward their debt when they could, they didn’t do it in a consistent or effective way, so the first step was getting their statements together to create a debt payoff plan.

Step 2: Gather Financial Information Necessary to Create a Plan

My parents have about 5 creditors they owe, so this step was crucial in being able to create a debt payoff plan. If you or your parents don’t know the particulars of their debt, then you can’t help them.

I recommend getting all their recent statements together and listing all the debt they have. I’m a huge fan of spreadsheets, so I took their information and listed it out accordingly:

Creditor, Balance Owed, Minimum Payment, Interest Rate, Due Date

By doing this, you can easily sort debts by any category you choose, which can be helpful when deciding how to prioritize them.

Also, while going through these statements, my mom noticed she had rewards points on one of their cards. She was able to redeem the points as a statement credit, and knocked out $400 of that particular debt!

It goes to show you it’s worth going through statements to make sure you’re not missing anything like that. My mom was excited they started their “real” debt payoff journey with a bang, and as most of us know, emotions are a huge factor when paying down debt.

However, having all of this information in front of you can be overwhelming, and people don’t always know what to do afterward. Help your parents prioritize their debt and create a plan by telling them what choices they have, without being judgmental.

I explained that the avalanche method (paying off debt according to highest interest) is the mathematical approach which will save them more, but I also understood my parents had been carrying their debt around for years. If going with the snowball method (paying the smallest debts off first and using the psychological momentum to drive you forward) helped them, I was all for it.

promo-balancetransfer-halfIn the end, we decided on a mix, but the important thing was they had a list of their debt that they could easily reference and update at any time. Their total wasn’t a mystery anymore, and I think that was empowering.

Additional steps to take during this stage: if the interest rates on your parents’ debt is unbearable, have them call their creditors to see if they can work with them. If they’ve paid on time and have been customers for a while, their creditors may be willing to help.

You can also look into 0% balance transfer offers for them – just make sure they’ll be able to pay back their debt in full before the 0% rate period expires or teach them how to roll it over to another offer.

Step 3: Get Spending Under Control

If your parents are in consumer debt like mine are, they might have some spending problems that need to be addressed.

This can be a sensitive topic to discuss, but if your parents are aware that their debt is an issue, then hopefully they realize some changes are in order when it comes to how they use credit.

I’m thankful my parents realized long ago they couldn’t continue to use credit like they had. They cut up most of their cards, kept a few in case of emergencies and online purchases, and that was it. They were already fairly dedicated to lessening their expenses and getting their spending under control.

However, when I asked my mom how much they were spending on certain things (she primarily handles the finances), she couldn’t give me any numbers. Mental accounting doesn’t work for most people, so I challenged her to track their spending in hopes that it would give them a little reality check.

I set them up with a simple spreadsheet similar to the one I use to budget and track spending (but if your parents are good with technology, try using Mint!). Since they use cash 99% of the time, I told my mom to keep all of their receipts and to record transactions the day they happened so she wouldn’t get behind.

The basic premise for the budget I use looks like this:

Category, Actual Spending, Budgeted Spending, Leftover

I’m happy to report it’s been a few months since they started, and my mom has diligently updated the spreadsheet. She’s very happy she started tracking their spending!

Just a few days ago she commented that she was close to being over-budget on food. Before having a budget, that thought wouldn’t have entered her mind, but because she was updating it, she was conscious of what they had spent.

Additionally, my parents live on a fixed-income as they’re retired (aside from the fact my mom has a part-time retail job). Sticking to a budget ensures they’re not spending more than what they have coming in, which is crucial.

Step 4: Putting It All Together

Okay, now that your parents have created a plan to tackle their debt, and hopefully have their spending under control (or are aware of any issues), you need to put all of these steps together.

I understand that not everyone is going to be able to do this, but I told my parents whenever they have money leftover at the end of the month, they need to put it toward the debt they’re focusing on. This also motivates them to spend less, because they want there to be a positive number in the “leftover” box.

If your parents are open to it, go through their spending line-by-line to see if there are any leaks that can be plugged. Just try to do it in the nicest way possible, and don’t cast judgment.

One method that may work better than simply telling them to cut spending is showing them exactly what their habits are costing them. If your parents are spending $133 a month on their cellphone bill, that adds up to almost $1,600 a year! That’s a decent chunk of change that could be going toward debt.

You can also suggest they try giving things up temporarily, such as dining out, going to the movies, or any other costly activities they partake in on a regular basis.

Lastly, help them figure out what their values are so they can start spending on things that really matter and cut the excess out.

Step 5: Saving and Earning More

Depending on your parents’ situation, it’s worth mentioning the possibility of earning more. My mom likes to keep busy, so she took a job in retirement for that purpose.

However, the added bonus is that her entire paycheck can go straight to their debt, because they’re already living within their means, and their regular living expenses are covered by their fixed income.

The last thing most people want to do in retirement is work, but that’s the reality a surprising amount of baby boomers are facing these days.

If your parents aren’t thrilled at the idea of working retail, see if they can make money from hobbies or their past professions.

My parents live in a 55+ community and know a handful of people that make money on the side from things like woodworking, haircutting, knitting, and teaching classes.

Lastly, I do need to mention the importance of having savings, especially if your parents are close to or in retirement.

The primary reason my parents still have debt today is because they lacked the savings to cover expensive home repairs in the past. Any time something went wrong, they would charge it, and so the cycle continued.

They were finally able to create a savings cushion by selling their house and moving to a lower-cost-of-living area. I know that’s a bit extreme, but the area they wanted to retire to happened to be much cheaper – so much so, they were able to buy a house outright and still have money left in the bank from the sale of their old home.

If your parents are still stuck living paycheck-to-paycheck, though, then make sure you emphasize the importance of saving. Having an emergency fund will give them peace of mind, which is worth it, especially if they’re living on a fixed income.

It Isn’t Simple, But It’s Worth It

Helping your parents get out of debt isn’t easy, especially if they’re not willing to hear you out. Be patient, understanding, and lead by example. Don’t try to force your financial beliefs on others – they’ll come around when they want to.

Once they do, then you can start helping them get on the right track by setting them up with a spending plan and a debt payoff plan that works for them. They’ll be thanking you soon enough, and you’ll feel better knowing their financial situation is improving.

Download our Debt Free Forever Guide! It’s FREE and will help get you back on track.

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Erin Millard is a writer at MagnifyMoney. You can email Erin at erinm@magnifymoney.com

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Sample Goodwill Letter to Remove a Late Student Loan Payment from Your Credit Report

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Businessman Holding Document At Desk

If you’ve pulled your credit report recently and discovered that there’s been a late payment reported on your student loans, you might be wondering what you can do to recover. Late payments can damage your credit, especially if you stop paying your loans for an extended period of time.

We’ve already gone over the repercussions of delinquency and default, but now let’s take a look at another method of repairing your credit report — sending a goodwill letter to your creditor.

What is a goodwill letter?

A “goodwill letter” is a simple way to repair your credit report, and it can be used for both federal and private loans. The purpose of a goodwill letter is to restore your credit to good standing by having a lender or servicer erase a lateness on your credit report.

Typically, those who have experienced financial hardship due to unexpected circumstances have the most success with goodwill letters. They allow you to ask if your student loan servicer can empathize with the situation that caused the lateness and erase it from your report.

It can also be used when you think the late payment is an error — for example, if you were in deferment or forbearance during the time of the late payment and weren’t required to make any payments, or if you know you’ve never been late on a payment before.

What makes a convincing goodwill letter?

If you’ve been looking for a goodwill letter that will work well, we have some tips on what you should include in your letter:

1. An appreciative tone

It’s important that the entire tone of your letter comes off as thankful and conscientious. If you were actually late on your payments due to extenuating circumstances, taking an angry tone probably won’t help your case.

2. Take responsibility

You want to be convincing and honest. Take responsibility for the late payment, and explain why it happened. They need to sympathize with you. Saying you just forgot isn’t going to win you any points.

3. A good recent payment history

Besides sympathy, you want to gain their trust that you will continue to make payments. If your lender sees payments being made on time before and after the period of financial hardship, it might be more willing to give you a break. When you have a pattern of late payments, on the other hand, it’s more difficult to convince them that you’re taking this seriously.

4. Proof of any errors and relevant documents

If you’re writing about a mistake that occurred, still be friendly in tone, but back up the errors with documentation. You’ll need proof that what you’re saying is true. Unfortunately, errors are often made on credit reports, and it may have been a clerical error on behalf of your servicer. If you have any written correspondence with them, you’ll want to include it.

5. Simple and to the point

The last thing to keep in mind is to craft a short and simple letter. Get straight to the point while telling your story. The people reviewing your letter don’t want to read an essay, and the easier you make their lives, the better.

Sample goodwill letter No. 1

Below is a sample goodwill letter for student loans to give you an idea of how to structure your own:

To whom It may concern:

Thank you for taking the time out of your day to read this letter. I just pulled my credit report, and discovered that a late payment was reported on [date] for my account [loan account number].

During that time, my mother fell terminally ill, and I was the only one left to care for her. As such, I had to leave my job, and my savings went toward her health care expenses. I fell on very rough times after she passed away, and was unable to make my student loan payments.

I realize I made a mistake in falling behind, but up until that point, my payment history with you had been spotless. When I was able to gain employment once again, I quickly resumed paying my student loans, making them a priority.

I’m not proud of this black mark on my record, but it’s the only one I have, and I would be extremely grateful if you could honor this request to remove the lateness from my credit report. It would help me immensely in securing other lines of credit so that I can further improve my credit score.

If the lateness cannot be removed entirely, I would still be appreciative if you could make a goodwill adjustment.

Thank you.

Sample goodwill letter No. 2

If you’re writing a letter because the lateness on your credit report is inaccurate, then try something similar to this:

To whom it may concern:

Thank you for taking the time to read this letter. I recently pulled my credit report and found that [Loan servicer] reported a late payment regarding my account [loan account number].

I am requesting that this late payment be assessed for accuracy.

I believe this reporting is incorrect because [list the supporting facts you have]. I have included the documentation to prove that [I made payments during this time / that my loans were in forbearance/deferment and didn’t require any payments].

Please investigate this matter, and if it is found to be inaccurate, remove the lateness from my credit report.

Thank you.

Make sure you provide as many personal details as possible — without making the letter too long, of course. You should also include your name, address and phone number at the top of the letter in case your loan servicer needs to reach you immediately.

Where to send your goodwill letter

Now that your letter is written, it’s time to send it. This can be done either by fax or by mail. Most student loan servicers have their contact information on their website, but you can also look on your billing statements to see if they specify a different address.

Additionally, you can try calling the credit bureau where the lateness was reported to see if they can give you the contact information you need.

It’s important to mention that goodwill letters are not a means to immediate success. Unfortunately, it often takes several attempts to correspond with servicers and lenders to get them to acknowledge that they received a letter from you.

Your best bet is to get a personal contact at the company who has the power to erase the late payment from your credit report.

If all else fails, try as many different communication methods as possible. Phone, mail, fax, live chat (if your servicer offers it) and email them. Several people who have tried this report that it’s possible to wear your servicer down with a decent amount of requests.

Addresses and fax numbers to try

Here are some addresses and fax numbers for several of the larger servicers, as listed on their websites. Again, it may also be worth phoning your servicer to get the name of someone there that can help you. If you have federal student loans, you can also check this Federal Student Aid page for more contact information.

Nelnet

Documents related to deferment, forbearance, repayment plans or enrollment status changes:

Attn: Enrollment Processing

P.O. Box 82565

Lincoln, NE 68501-2565

Fax: 877-402-5816

Great Lakes

Great Lakes

P.O. Box 7860

Madison, WI 53707-7860

Fax: 800-375-5288

Sallie Mae

Sallie Mae

P.O. Box 3229

Wilmington DE 19804-0229

Fax: 855-756-0011

Navient

For anything other than federal loans, check here

Navient – U.S. Department of Education Loan Servicing

P.O. Box 9635

Wilkes-Barre, PA 18773-9635

Fax: 866-266-0178

Cornerstone

P.O. Box 145122

Salt Lake City, UT

84114-5122

Fax: 801-366-8400

FedLoan

For letters and correspondence

FedLoan Servicing

P.O. Box 69184

Harrisburg, PA 17106-9184

Fax: 717-720-1628

EdFinancial

For FFELP and private loans, check here

Edfinancial Services

P.O. Box 36008

Knoxville, TN 37930-6008

Fax: 800-887-6130

Documents to include with your goodwill letter

Don’t let your efforts go to waste by forgetting to send documentation with your letter. Here’s a quick checklist of what you should include:

  • The account number for your loan
  • Your name, address, phone number and email
  • Statements showing proof that you paid (if you’re disputing a late payment)
  • Documentation showing that you’ve paid on time at all other points aside from when you experienced financial hardship (if that’s the case)
  • Identifying documentation so your servicer knows you sent the request

Also note that if you’re mailing anything, you should send it by certified mail with a receipt requested. This way you’ll know whether your letter made it to the servicer.

What to expect after submitting your goodwill letter

Once you submit your goodwill letter, you should hear back from your creditor with a decision in a few weeks. If two to three weeks have passed without word, follow up via email or phone call.

As you know, there’s no guarantee that your goodwill letter will work. The decision to remove a negative mark from your credit report is entirely in the hands of your creditor.

If your creditor rejects your petition, you’ll have to accept the ding on your credit report and take other steps to boost your credit. But if they agree to repair your credit, you should see the delinquency removed from your report and your credit score increase as a result.

A higher credit score can make life a lot easier, whether you want to take out a loan, open a credit card or, in some cases, even rent an apartment. For student loan borrowers, a strong credit score also opens the door to student loan refinancing, a savvy strategy that lets you restructure your debt, possibly changing your monthly payment and potentially saving money on interest.

If your credit score rebounds and you want to take proactive steps to conquer your student debt, refinancing could be the answer you’ve been looking for, so long as you no longer need the protections that come with federal loans.

Either way, though, make sure to keep up with student loan payments so you don’t end up with a delinquent account dragging down your newly repaired credit score.

Resources

If you’re interested in exploring goodwill letters further — and the results that others have had — check out these websites:

  • Ed.gov: They cover disputes, what to do about them and how to go about rectifying them here.
  • ConsumerFinance.gov: If you have loans with a private lender, and your lender had reported you as late when you weren’t, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) to see if they can help you.
  • myFico Forums: The forums on myFico are populated with helpful individuals that might be able to give you contact information for certain servicers. There are some people reporting success with goodwill letters, and they may be willing to share their letters with others upon request.

It’s worth the time to write a goodwill letter

If you’ve discovered that a late payment has been reported on your credit, and it’s because you fell on hard times or is inaccurate, it’s worth trying to get it erased. These dings on your credit are there to stay for seven to 10 years. That’s a long time, especially if you’re young and hoping to buy a house or a car in the near future. It’s a battle worth fighting.

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Debt, Its Emotional Toll and How to Tackle It

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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Debt can feel overwhelming, and studies are increasingly showing that it can lead to a decrease in happiness and life satisfaction, anxiety and even physical symptoms like headaches or loss of sleep.

A study of more than 1,000 student loan borrowers — conducted by Student Loan Hero, which, like MagnifyMoney, is owned by LendingTree — found that:

  • More than 61% of respondents admitted that they’re afraid that their student loan debt worries are spiraling out of their control.
  • More than 70% said they suffer from headaches because of their debt concerns.
  • Some 64.5% of respondents have lost sleep over their debt.
  • 67% reported physical symptoms of anxiety that stemmed from the stress of their student loans.

The study showed a direct correlation between having debt and detracting from happiness. In fact, results revealed that carrying student loan debt is nearly as significant as income when it comes down to predicting financial concern and evaluating life satisfaction.

What studies show about how debt affects your health

Indeed, money can buy happiness, but how much debt one has also weighs heavily into the equation, according to a study from Purdue University. An online college alumni sample of 2,781 individuals from the United States revealed that student debt could take a significant toll on one’s life satisfaction over the long term.

Another survey conducted by the Harris Poll on behalf of the American Institute of Certified Public Accountants (AICPA) showed that 56% of Americans with debt admitted that it negatively impacted their lives. Twenty-eight percent of the 1,004 American adults surveyed said their debt caused stress about their everyday financial decisions, and 21% said it caused tension with their partner.

It may be that such accomplishments as a promotion at work may be marred by knowing your debt is eating up your higher earnings. High debt may also be such a financial burden that borrowers are unable to save for retirement, for emergencies or even such pleasures as a vacation.

High-rate debt can be particularly difficult to carry. Seeing your monthly payments largely going toward fees can make you feel as though you’ll be trapped in debt forever. And if that debt isn’t allowing you to save money, your stress may only grow if you’re suddenly struck with a financial emergency that causes you to take on new debt.

6 tips to dealing with your debt

If you’re dealing with debt and it’s taking a toll on your health, what can you do?

“The first thing a person needs to do is take a close look at how they got into debt in the first place,” advised Carolyn McClanahan, M.D., CFP, who began her career as a physician and is now founder of a financial planning group called Life Planning Partners LLC, based in Jacksonville, Fla. “They should identify what triggered the situation or any bad habits that might have led to their debt, so that they don’t repeat those things going forward. Then, they need to make an actionable plan to figure out how to get out of debt.”

Consider these tips that could help you better handle your debt.

1. Thoroughly research your options

When tackling your debt, it pays off to research your options for dealing with debt. For example, federal student loans come with borrower protections that may help you if you’re struggling with money. You may be eligible for an income-driven repayment plan, which would adjust your monthly payments based on your income. You may also qualify for student loan forgiveness or have the opportunity to defer payments for a period of time.

If you have a mortgage, you could extend your repayment term without refinancing. This is known as mortgage recasting. By extending your repayment term, you could lower your monthly payments, freeing up cash to deal with debts that are a higher priority.

Credit card debt doesn’t have to be such a burden, either. If you lost your job, it may be beneficial to call up your credit card issuer. You may be able to get on a hardship program that reduces your payments for a time. Or, if you have decent credit, you may qualify for a balance transfer credit card with a promotional 0% APR. For a fee, you could move your credit card debt onto your new card to avoid interest charges for a period of time. Pay off that debt before the promotional period ends and you could save a lot of money on interest.

2. Don’t be afraid to negotiate

Many people fail to recognize that there are many instances where you can negotiate and in turn, lower your debt. Take medical bills, for example.

“It can really help to negotiate with the medical provider,” said McClanahan. “If you’re willing to pay them real money over time, you can end up paying pennies on the dollar of what you own,” she said. In addition to negotiating, McClanahan suggested asking hospitals or health centers whether they have any financial assistance programs that you might qualify for.

Furthermore, if you’re accepting a new job offer, don’t be afraid to negotiate a higher starting salary, which in turn could help you windle your way out of debt faster. Research the job market and consider making a compelling case as to why you deserve a higher salary.

3. Take it one debt at a time

If your debt is stretched across multiple credit cards or loans, you may be overwhelmed just by the thought of them. But if you can focus your attention on making extra payments on just one debt, it could help you see some quick wins.

“You ideally want to start by paying off the debt with the highest interest rates first,” McClanahan said. Repaying the debt with the highest rate helps you reduce how much interest you pay over time. Often, this means you’ll focus extra payments toward a credit card balance. Once that debt is paid off, you start making extra payments on your debt with the next-highest rate.

However, you may instead choose to pay off your debt with the lowest balance. This would result in a fast win that will motivate you to keep making extra payments on your debt.

4. Consider therapy

Seek the help of a psychologist or another mental health expert if your concerns about debt are negatively impacting your day-to-day life. A licensed health expert can help you confront your anxieties head on and offer strategies for dealing with them effectively. Also, reach out to your personal network and let those close to you know that you could use their support. It helps to know that you’re not in it alone.

Low-income individuals may want to seek the help of a sliding scale therapist, who will adjust their fees to make therapy more affordable. This can be found on mental health directories like GoodTherapy.org. There are also clinics that provide low-fee or free mental health services. To find a clinic near you, visit MentalHealth.gov.

5. Enlist the help of a credit counselor or financial planner

Sometimes, it helps to get an outside perspective on your debt, or at least talk to someone who can reveal your options. A credit counselor or financial planner can help you take steps toward getting your finances in order or develop a game plan for getting back on track, McClanahan said.

The National Foundation for Credit Counseling is a nonprofit financial counseling organization that provides a variety of free services, including counseling on credit and debt, bankruptcy and student loans. If you’re interested in hiring a financial planner, you could use the National Association of Personal Financial Advisors to find one.

Outside help could help you better weigh the pros and cons of your options and guide you as you work on your debt.

6. Focus on improving your credit score

Take steps to rebuild your credit and improve your credit score, which in turn, could give you access to more credit in the future. For starters, focus on implementing a plan for paying off debt, and work to keep your balances low on credit cards. Keep in mind that improving your credit score requires small, responsible actions over time, so be patient and set long-term objectives. For more tips on how to improve your FICO score, take a look here.

Indeed, accumulating debt can certainly take an emotional toll and negatively impact your overall life satisfaction. However, you can take simple steps to pay down debt and turn your financial situation around. No financial situation is permanent, and with some patience, persistence and implementing of best practices, you can find yourself back on the path to financial recovery. So take a deep breath, keep your emotions at bay and work on tackling your debt in a practical manner.

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.

Renee Morad
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Renee Morad is a writer at MagnifyMoney. You can email Renee here

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