There are legitimate ways to stop payday loans and cancel or pay less, depending on your specific situation. Here are some options to consider:
Negotiate with the lender: You can try to negotiate with the lender to work out a payment plan that is more manageable for you. Explain your financial situation and offer to make smaller payments over a longer period of time.
Consider debt settlement: Debt settlement involves negotiating with the lender to settle your debt for less than the full amount owed. This option can be risky and may impact your credit score, but it can provide relief if you’re struggling to repay your payday loans.
Talk to a Debt Pro: Consider talking to Damon Day about your situation. He’s a talented debt coach that gives people custom plans and solutions based on individual circumstances.
Seek credit counseling: Credit counseling can provide education and guidance on budgeting, debt management, and financial planning. A credit counselor can work with you to develop a plan to repay your debts, including payday loans, and provide support and resources along the way.
File for bankruptcy: Bankruptcy can provide legal protection from creditors and may allow you to discharge or reorganize your debts, including payday loans. However, it’s a serious decision with long-lasting consequences and should be considered only after all other options have been exhausted.
It’s important to note that there is no one-size-fits-all solution for payday loan debt, and the best approach will depend on your individual circumstances. Consider consulting with Damon Day or other debt solution providers to help you evaluate your options and determine the best course of action for your situation.
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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Are you tired of having credit card bills? Do you wish you could get out of debt once and for all?
If you want get out of debt permanently, first consider this: Debt is not a financial problem. Hard to believe, but true.
Debt is actually a personal problem that masquerades in financial clothing. That is why so many people have persistent problems with debt. They look outward for financial solutions, when the true solution is found by looking inward.
Planning a Permanent Debt Solution
Defining your debt problem correctly is critical to solving it.
That is where most debtors run into trouble. They mistakenly define debt as a financial problem and develop financial solutions. That is why their debt returns shortly after paying it off. They fail to identify the root cause of debt, opening the door to repeating the vicious cycle.
For a debt solution to be effective your plan of attack needs to be based on principles that actually work. Unfortunately, when you just pay off your balances you relieve the pain, but the underlying condition that put you in debt in the first place still lurks under the surface, ready to return.
Let’s face it, the real causes of overspending are your personal habits and attitudes. In other words, the true solution is personal — not financial. That is a key, and understanding this principle is what will make or break your success in slaying the debt monster for good.
Masking The Problem
When you get a headache what is the logical response? You reach to the medicine cabinet for immediate pain relief. Unfortunately, the various pills do nothing to cure the underlying disease: they merely treat the symptom. The cause could be excessive stress, brain cancer, dehydration, eye strain, or any number of other issues. By taking a pill you’ve treated the symptom — not the underlying cause.
The same is true with debt. Everyone knows they need to make more and spend less to solve their debt problems. So they pursue financially driven solutions to relieve financial symptoms. It seems logical on the surface.
Whether you choose to consolidate your credit card debt to lower interest rates or you choose any of the quick-payoff strategies (inheritance, gift, sell an asset, bankruptcy, home equity line of credit, or refinancing), the reality is you are treating the symptom and not creating a lasting cure.
Your financial problems are merely the accumulated reflection of the many small financial mistakes you are making on a daily basis — often without knowing any better. That’s why teaching a debtor to spend less and earn more is like telling someone to lose weight by eating less and exercising more. Everyone already knows that is the answer. The difficult part is not knowing what to do, but actually getting it done. The solution lies in your daily habits and attitudes.
[Related Article: 3 People Who Dug Out of Deep Debt]
Money Breakthroughs
I first discovered this approach to debt recovery in my work as a money coach. I started out making the same mistakes as everyone else. I thought debt problems were financial, so I coached my clients to financial solutions. The lackluster results proved it was the wrong approach.
The breakthrough came when I noticed my wealthy clients had mirror opposite attitudes and behaviors compared to my get-out-of-debt clients. For example:
My wealthy clients viewed their financial situation from a position of self-responsibility, whereas my debt clients were victims of their finances.
My wealthy clients planned their finances, but my debt clients had no plan.
My wealthy clients organized their plans around delayed gratification, whereas my debt clients pursued instant gratification.
My wealthy clients associated their self-worth with intrinsic values, while my debt clients associated self-worth with extrinsic stuff.
These are just 4 examples from a long list of opposing traits. They are guidelines or tendencies that generally hold true. While there may be personal variation, on the whole the patterns were unmistakable. These mirror opposite attitudes produced mirror opposite financial results in life.
[Related Article: 7 Ways to Avoid a Debt Relapse]
Amazingly,when I applied these principles, coaching habitudes instead of specific financial actions, the debt problems solved themselves over time.
This is obvious when you think about it. Your daily financial decisions result from your habits and attitudes that drive those decisions. For example, consider the following choices and their obvious financial implications:
Do you buy fancy coffees throughout the day or do you make a pot of your favorite coffee in the morning and bring it with you?
Do you lease a new car every few years or maintain your reliable used car?
Do you dine out frequently or cook healthy meals at home?
Are you a minimalist or do you desire the latest designer fashions?
Do you shop to get what you need or do you shop for pleasure and recreation?
When you focus on financial solutions, you treat the symptom instead of the cause. When you focus on your attitudes and habits, you focus on the cause, and the symptom takes care of itself automatically without any self-discipline.
Let me be clear — this isn’t a quick fix. The results you produce from this approach will occur gradually over time. Just as it took time to accumulate the debt, it takes time to unwind it when you work with root causes.
However, the solutions are as permanent as the new attitudes and habits you adopt — and that makes all the difference.
The truth is the financial results of your life aren’t dependent upon how much money you make. Instead, they depend on how well you manage the money you already have. This article series will show you the easiest way to adopt wealthy habits and attitudes and be smarter with your money so that you can get out of debt — permanently.
[Related Article: 5 Ways to Get Out of Debt: Which Will Work for You?]
Todd Tresidder is a financial coach and consumer advocate. His unconventional take on worn financial topics has appeared in the Wall Street Journal, Investor’s Business Daily, Smart Money magazine, Yahoo Finance, and more. He’s authored 5 financial education books including How Much Money Do I Need To Retire?, Variable Annuity Pros and Cons, and the 4% Rule and Safe Withdrawal Rates In Retirement.
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Last year this time– right around Halloween – my wallet was stolen from my son’s stroller. (Okay I shouldn’t have placed it in the stroller in the first place, but I never imagined anyone would steal it. It was only slightly visible, tucked inside a pouch.)
You can guess the rest.
In a store elevator, while a woman to my right started talking me up and gushing over my then 1 year old son’s shoes (they were really cute), her quiet accomplice (to my left) crept her fingers into my stroller pouch and nabbed the wallet.
An hour later, when I realized the wallet had disappeared, I rushed home to check my bank and credit card accounts. As expected, the thieves had spared no time. They’d racked up over $500 in charges at the very department store where they’d stolen my wallet. They also purchased a number of monthly subway passes on their way out of the crime scene.
Some serious professionals had defrauded me right in my own neighborhood!
Lesson learned: Keep your wallet out of sight and reach.
But, sadly, wallet theft is not the only way or even the most common way fraudsters can get a hold of our financial accounts. Much of it happens online via hacks or breaches. Fraud devices or “skimmers” at ATM machines and card readers can also be sources of fraud.
This Halloween here’s some advice on how to prevent your financial info from getting in the wrong hands and what to do in case you become a victim of fraud.
Double Down on Password Protection
A wise rule of thumb is to use various passwords for various accounts. Don’t just use one universal password for every website since it makes it all too easy for a fraudster to access your bank accounts, payment sites, etc. if he or she gets ahold of your secret alpha-numeric-symbolic code.
But few of us actually follow that rule of thumb. Nearly three out of four consumers use a duplicate password, many of which haven’t been changed in the last five years, according to a recent survey.
If you’re worried about remembering all your passwords, consider using password management tools that provide a secure and virtual “vault” for all your passwords. LastPass and TrueKey offer free basic memberships.
As for how often should you change your passwords? Do better than every five years, but don’t worry about changing them every month. A study by the University of North Carolina at Chapel Hill found it’s better to change passwords infrequently.
While some sites and offices require you to change your password every few months, this can actually backfire, the study found, because when we are forced to change our passwords so many times we don’t get very creative. We may add a “1” or make a slight variation from the last password. And this makes our passwords all the more predictable to hackers.
In fact, for 17% of the accounts in the study, knowing a user’s previous password let researchers to correctly guess their next password in fewer than 5 guesses.
It’s fine to change your password once or twice a year, as long as it is made of a random variation of text including different cases of letters, numbers and symbols. And stay away from the obvious like your birthdate or a sequence of letters and numbers (e.g. ABC123)
Stick With Credit
You may notice when you go to checkout with a card, you’re now asked to dip instead of swipe. The U.S. recently moved to EMV chip card technology, in an effort to combat counterfeit card fraud. In time paying with a credit card should get safer.
Meantime, if you’re ever wondering whether it’s safer to use a debit or credit card, stick with credit. In the event of fraud, it will be easier to dispute the claims.
According to the Fair Credit Billing Act your maximum liability for fraudulent credit card transactions is $50. But if you report your card lost or stolen prior to fraudulent transactions your liability could even be $0.
With debit card fraud, on the other hand, you’re sometimes at a loss until the claim is resolved. What’s more, if you don’t report your card lost or stolen within sixty days your liability limit is up to $500.
Scan Your Statements
Keep a watchful eye on your accounts. Even if you’re a fan of auto-pay, it’s worth reviewing your bills regularly for unfamiliar charges. Card issuers and banks are getting better at alerting us of suspicious charges, but it’s always helpful to play an active role ourselves, too.
If you suspect your account’s been compromised contact your bank or card company immediately and have them investigate. In the meantime, they may shut off the account and send you a new card with a new account number just to be on the safe side.
Another place to look for red flags is your credit report. You can receive a free credit report from each of the three major credit-reporting agencies – Equifax, Experian and TransUnion – once a year at annualcreditreport.com. If you don’t recognize some of the items on your credit report such as random credit inquiries or unfamiliar card accounts immediately reach out to the credit reporting agency or agencies that’s listing the false information and explain the situation. Here’s a list of their phone numbers:
Experian: 1-888-EXPERIAN or 1-888-397-3742
Equifax: 1-800-525-6285
TransUnion: 1-800-680-7289
You may want to place an extended fraud alert or credit freeze on your account. You can find more information on how to do this on the Federal Trade Commission’s website.
Avoid Random ATM Machines
Fraudsters and ID thieves may secretly install special equipment in credit card readers either at the ATM, gas pump machine or any other card swiping device to capture or “skim” our personal information on our credit or debt card each time we swipe. The reader makes two copies of your credit or debit card information: one to process the transaction and one to later download the information to the ID thieves.
To play it safe, use trusted ATM locations. Your bank branch’s ATM is usually a safe bet, since a security officer or camera often guards it. It’s a lot more difficult for ID thieves to compromise an indoor bank ATM than say, a random ATM on the street corner outside a convenient store.
Trim Down Your Wallet
While it’s not realistic to say, “Don’t carry your credit cards or cash in your wallet,” there are some other sensitive items a few of us DO carry in our wallets that aren’t necessary. The Identity Theft Resource Center recommends five things you should never carry in your wallet including your social security card or even a copy of your social security number, your birth certificate, bank account or routing numbers and password cheat sheets.
It’s best to keep these items tucked away in a safe and hidden place…and by no means in your child’s stroller!
Have a question for Farnoosh? You can submit your questions via Twitter @Farnoosh, Facebook or email at [email protected].
Farnoosh Torabi is America’s leading personal finance authority hooked on helping Americans live their richest, happiest lives. From her early days reporting for Money Magazine to now hosting a primetime series on CNBC and writing monthly for O, The Oprah Magazine, she’s become our favorite go-to money expert and friend.
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As we ring in the New Year, financial resolutions top our to-do lists, from saving more to finding a new, better-paying job and getting out of debt once and for all.
As you map out your next money move, take heed of some of these top market and economic predictions for added guidance.
Higher Borrowing Costs
Looking to open a new credit card or apply for a mortgage this year? It may be wise to act sooner than later.
With the broader economy improving since the financial crisis (e.g. the national unemployment rate is hovering at 5%, down from nearly 10% in 2009), economists, including Janet Yellen, chairwoman of the Federal Reserve, believe it’s time for a tightening of monetary policy (translation: boost interest rates to curb inflation.)
Fortune Magazine’s “Crystal Ball,” says we can expect a three-quarter-point increase by next Thanksgiving to 1.25%.
When the Fed raises the overnight bank-lending rate (aka the Fed Funds rate) that typically has a domino effect on interest rates for other mainly short-term financial products like credit cards and car loans.
What this means for us? If you’re in the market to borrow money, I recommend reviewing your credit ahead of any applications to see what improvements (if any) are necessary. The higher your credit score, the better chances you have of achieving the lowest interest rates on the market.
If you’re seeking to refinance or buy a home this year, also aim to lock in a rate as soon as possible. While an increase in the Fed Funds rate isn’t necessarily a precursor to higher mortgage rates, we’re already seeing an uptick on 30-year home loans to above 4%. And Fannie Mae’s National Housing Survey shows that more than 50% of consumers think mortgage rates will continue to elevate over the next year.
Finally, for those of us with adjustable rate loans (e.g. some student loans and mortgages) we may want to pay off our debt more aggressively or refinance to a fixed-rate loan to put a lid on rising monthly payments down the road.
Less Sticker Shock in Housing
With home loan rates expected to track north, home values may see some cooling in 2017. That’s because when mortgage rates jump, demand for housing tends to slowdown, placing pressure on sale prices.
Not to mention, after riding a hot streak in recent years with prices across the country hitting near pre-recession levels, real estate experts at Zillow.com now predict a “normalizing” market with more moderate price growth of 3.6% across the country in 2017, compared to 4.8% last year.
Prepare for more affordability in areas that have experienced the steepest gains. In Los Angeles, for example, home prices have trended considerably higher in recent times (up 7.3% over the past year, alone). In 2017, though, the city can expect a tempering of home values to a growth of just 1.7%, according to real estate website Zillow.com.
As for rentals, after double-digit surges, rents in many large metro areas will also see slower growth in 2017, per Zillow. Rents across the country are expected to rise approximately 1.7 percent this year to about $1,429 per month, down from a 6% appreciation reported last year.
Partly to blame for the cool down in rent is a glut in inventory. Builders were very busy over the last few years, but the demand for new units in some hot neighborhoods like Brooklyn, N.Y. is failing short of supply.
As a result, some landlords at higher end luxury apartment buildings in that borough have been striking sweet deals with renters since last summer, The New York Times reports. For example, at 7 DeKalb, a new high rise in Brooklyn, “the landlord is offering two months of free rent with a 14-month lease, and use of the building’s fitness center and other amenities for a year without charge.”
That’s a good reminder to prospective renters everywhere that it can never hurt to negotiate, especially this year!
Have a question for Farnoosh? You can submit your questions via Twitter @Farnoosh, Facebook or email at [email protected] (please note “Mint Blog” in the subject line).
Farnoosh Torabi is America’s leading personal finance authority hooked on helping Americans live their richest, happiest lives. From her early days reporting for Money Magazine to now hosting a primetime series on CNBC and writing monthly for O, The Oprah Magazine, she’s become our favorite go-to money expert and friend.
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While we don’t yet have flying cars that collapse to the size of a suitcase, pneumatic tubes that transport us from room to room or machines that automatically bathe and clothe us in the morning, every day we’re getting closer to living in a Jetsons-esque future. Thanks to today’s technology, it’s easier than ever to put mundane aspects of your life on autopilot, so you can spend less time stressing out about your tasks and more time doing what you love.
Here are a few easy ways to free up your schedule and start living in the future by having your tasks take care of themselves.
Cook Up Tech Recipes
In a world where many of us carry computers in our pockets and have accounts with dozens of online services, it only makes sense to have these different technologies talk to each other. That’s where IFTTT comes in. An abbreviation for “if this, then that,” IFTTT is a free, easy-to-use service that lets users create “recipes” involving different digital triggers (“this”) and outcomes (“that”). IFTTT supports more than 300 channels (think Instagram, Spotify, Gmail, etc.) and can be used in millions of ways to make life easier. Here are some examples of recipes you can create:
Instantly save your “Liked” Instagram photos to a Dropbox folder.
Receive a text message whenever your favorite sports team scores.
Trigger your air conditioner to turn on when the outside temperature hits 80 degrees, or make your lamp emit purple light when it starts to rain. (RIP, Prince.)
This is just the tip of the iceberg. Spend some time playing around with IFTTT and you’ll be amazed by how you can automate your life.
Ditch Your Dining Decisions
Why worry about what to make for dinner, when there’s a free tool that suggests meals based on your unique dietary goals? Eat This Much is a mobile app and online service that provides users with customized meal plans to help them live healthier, happier lives. Simply punch in your desired caloric intake and how many meals you eat each day, and the service delivers a daily diet with step-by-step recipes that align with your eating aspirations. Here are some other perks:
The service can offer suggestions tailored for those with food allergies or who want to avoid eating meat or processed foods.
Eat This Much automatically generates shopping lists each week, so you know exactly what to pick up on your next trip to the store.
The app can be personalized to fit your budget.
In addition to keeping you from experiencing anxiety about what to eat, ETM also prevents you from making less-than-ideal decisions about your diet. Sign up for a free account and see what a difference it could make in your life.
Ship, Don’t Shop
Between driving to the supermarket, fighting for a parking spot, wandering aimlessly down aisles and standing in line to fork over your money, going to the grocery store can be a drag, right? This is especially true if you buy the same stuff month after month. Rather than wasting your time shopping for everyday household goods, eliminate this errand from your life by having consumables delivered to your home on your desired schedule. Amazon’s Subscribe & Save program can free up hours of your life by shipping vitamins, coffee, paper towels and hundreds of other items to your door on whatever day suits you best. Here are a few other perks:
Save 15% off Amazon’s already competitive prices.
Score free shipping on every Subscribe and Save order.
There’s no need to be an Amazon Prime member, and you can cancel at any time.
Setting up your monthly delivery is a breeze. Simply select the products you typically pick up at the store, enter the quantity you’d like delivered and choose the day that’s best for you. Give it a shot and you’ll wonder how you ever lived without it.
Automate Your Life and Say “So Long” to Stress
Life gets busy. With meetings, phone calls with clients and the roll of the dice that is traffic and red lights on the way home, getting to those everyday tasks can seem just a little much at the end of the day. But this is 2016. And it’s a brave new world of magical technology here to help us out!
As our technology grows increasingly sophisticated yet simpler to use, we can benefit from less stress and more peace of mind. And remember, when it comes to managing your money, Mint makes it easy to leave your worries behind by allowing you to manage your finances wherever you are. Our tools not only save you time, but by ensuring that you never miss a payment, you’ll save on late fees, too. Download our free app today, and start living your best life.
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Each year as you await your tax refund, you face the same question – what to do with that money once it arrives? For some, the money immediately goes to cover basic needs, but for others, the money goes to far less-essential items.
According to a 2020 survey by Self Financial, 44% of respondents said not getting a tax refund this year would completely derail their budget for the rest of the year.
So how do you use your tax refund to plan ahead, build your wealth, financial health, and ultimately, your credit?
Here are 5 ways to put your tax refund to work to build your credit.
But first…
Why use your tax refund for credit-building?
Maybe you’re itching to spend your tax refund to treat yourself. While there’s nothing wrong with using a bit of that money for fun, tax refunds are a great opportunity to get ahead with your finances too.
But why, of all things, focus on your credit?
First, bad credit could cost you thousands of dollars more over your lifetime, since you often get charged higher interest rates (if you can get approved at all). Your credit can also impact your ability to rent an apartment, qualify for certain jobs, or even get a cell phone.
Good credit, however, creates a financial safety net to fall back on if you need it. If you have good credit, you may have an easier time qualifying for personal loans, credit cards, or other credit products if you need to borrow money, often at a lower rate.
If you don’t have an emergency savings fund, credit may be your only other option to lean on if you face job loss, an unexpected medical emergency, etc.
You have to build credit before you need it though. Otherwise, you might not be able to access it when you actually do need it.
5 ways to build credit using your tax refund
Once you have your tax refund in hand, here are some ways you can put it to work to help your financial health.
1. Pay down debt
While paying down your mortgage or other personal loans may help your credit score, it may be a good idea to focus on higher-interest, more expensive consumer debt (like credit card debt) first.
Not only could paying down this higher-interest debt save you the most money in the long run, but it could also have a bigger impact on your credit score. That’s because credit usage, or how much of your available credit you use at any given time, counts for 30% of your FICO® credit score.
While installment loan usage (like personal loans, car loans, or home loans) does count somewhat towards this factor in your credit score, revolving account balances (like credit cards or HELOCs) count more, according to credit bureau expert Barry Paperno.
That doesn’t mean you have to pay your credit card debt off completely to see benefits to your credit score. Even paying your balance down 5-10% may have a positive impact.
According to credit scoring agency FICO, people with the highest credit scores tend to have credit utilization between 6-10% on their revolving credit accounts. While that’s a great goal to aim for, start with paying down what you can, no matter how small that amount may seem at first. Small wins can add up to big ones over time.
Aside from credit utilization, the only other factor that impacts your credit score more is your payment history. Which brings me to my next point…
2. Get your current accounts in good standing
If you have late payments or missed payments on your current credit accounts, make up those payments if you can. While many lenders report a late payment to the credit bureaus if it’s more than 15 days late, how late your payments are can impact your credit score in different ways. A payment that is 30 days late affects your score differently than one that is 90 days late.
For example, according to one FICO score simulation, if you have a 793 credit score and miss a payment by 30 days, your score could drop 60-80 points. In that same situation, if you missed a payment by 90 days, your score could drop 100 points or more.
So the sooner you catch up on a late payment, the better. Besides, making those payments could keep more late fees from adding up.
While catching up on payments may not undo the damage of a late or missed payment on your credit (it can take years for just one late payment to fall off your credit report), it could prevent any more damage from being done.
If the late payments were on property, or loans that were secured by property, like a home loan or car loan, catching up on payments could also prevent you from losing your home or car.
3. Open a Credit Builder Account
This next one is for people who either have no credit history, a limited credit history, or need to rebuild credit after financial hardship such as bankruptcy, foreclosure, or identity theft, to name a few examples.
Unlike a traditional personal loan, credit builder loans don’t give you the money upfront.
Instead, the lender holds the loan amount in a bank account. Each month, you pay into this account and the lender reports your payment history to the credit bureaus, which helps you build credit history.
Once you pay off the loan amount, the money inside the account comes back to you, minus the interest charged on the loan. In other words, these loans give you the opportunity to put some money away for savings while you build your credit.
If you have trouble gaining access to other credit products or want to build credit while you build some savings, a Credit Builder Account could be the right option for you.
4. Use it as a deposit on a secured card
For many, a secured credit card may be a good entry point for accessing credit cards. A secured card works just like a regular credit card, except you put down a security deposit that is usually equal to your credit limit.
For example, you may have a secured card with a $100 credit limit and a $100 security deposit. Like a deposit for utilities, a secured card deposit is used to cover your bill if you don’t pay back what you owe.
Some companies (like Self Financial) provide an option for you to build your way slowly towards a secured card through a Credit Builder Account, no extra deposit or hard inquiry needed. Bonus: Self doesn’t deny you if you have a history of bankruptcy or foreclosure, unlike some other credit card issuers.
There are many different secured credit cards to choose from, so shop around to decide which one is right for you.
5. Work with a credit counselor
Not sure where to start when it comes to your credit? Or what product might work best for you? You may want to use some of your tax refund to hire a qualified professional to help you come up with a credit action plan.
Here are a few reputable places to start searching for a credit or financial counselor:
National Foundation for Credit Counseling (NFCC). This nonprofit provides financial counseling services through their member organizations across the US. Visit their website to connect with free or low-cost help in your area.
Association for Financial Counseling and Planning Education (AFCPE). AFCPE has over 3,200 certified financial counselors, planners, educators, and researchers around the world. You can find local or virtual financial counseling through their online tool.
Operation Hope. Operation Hope is a national nonprofit that provides financial coaches to help people “develop customized action plans around building their own businesses, raising their credit scores, buying homes, or simply making better decisions with the money they have.” Their website also has tons of free resources about financial basics.
These organizations provide access to qualified financial counselors who can help you create plans that align with your financial goals, whether that means building your credit, paying down debt, budgeting, or working towards buying a house, to name a few examples.
Depending on your current income and situation, you may also qualify for no-cost or low-cost help, since many financial counselors offer a sliding scale based on financial need.
Be careful when browsing for professional help with your credit though, especially if you search for credit repair. While there are some good players in the space, you have to be really careful to pick the right one. The Federal Trade Commission provides some guidelines to help you find legitimate credit repair help, which you can view here.
Bonus: Build an emergency savings
Okay, so this one isn’t exactly credit-specific, but having an emergency savings fund could help reduce the amount you need to borrow if you ever did need to lean on credit during times of financial hardship.
Research from SaverLife shows that even just $100-$200 in savings could mean the difference between keeping your housing during hard times or having your utilities cut off.
According to the IRS, the average tax refund in 2020 was $2,741, which for people who make about $30,000 is roughly one month’s salary – a pretty healthy cushion if you lose your job and need time to find something new.
The good news is, there are tools that could help you build both your credit and some savings at the same time.
Bottom line
While credit may not usually be top-of-mind when you get a sudden rush of cash, it’s a key building block for your financial health, and can help open doors to your future.
So if you have a little extra money, whether it’s thanks to a tax refund, stimulus check, bonus, raise, inheritance, or even just finding $20 in an old pair of pants, put that money to work for your future self.
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Making your money work for you is an important step on the road to financial security and independence. Earning money by trading your time is important, but it’s just as important to find a way to make money without having to be actively involved. While you might dream of being able to make money while you sleep, there are plenty of steps you can take that will help put your money to work.
Pay Down Your Debt
The most important thing that you can do to make your money work for you is to pay down and eliminate your high-interest debt. This includes things like credit card payments, some auto loans, and other types of consumer debt. You may be paying up to 20% or more in interest — which means that when you put money towards paying off that debt you’re getting a 20% return on your investment. It’s hard to beat that kind of guaranteed return.
Start a budget, figure out your income and expenses and start paying down that debt. The exact debt repayment strategy that you use is less important. What is important is that you make a plan and start sooner rather than later. Once you have eliminated your high-interest debt, you can start with the other suggestions in this article.
Open a High-Yield Savings Account
One place to start can be to open up a high-yield savings account that is separate from your checking account where you keep the money to pay your regular monthly expenses. This is important for two reasons. The first is that keeping your savings separate from the money you use for your regular savings helps keep you from raiding your savings to pay your bills.
The second reason is that a savings account may offer slightly higher interest rates than a checking account. Currently, interest rates are at historical lows. That is great for refinancing or taking out a mortgage, but not great for savings accounts. Still, a high-yield savings account is a great place to put your emergency fund money. For anything more than that, you’ll want to look at investments that offer higher returns.
Grow Your Wealth Through Investing
If inflation hovers around 2-3% every year, any investments you have should make at least that much. Otherwise, while you may have more money, that money will be worth less than it was the year before. If all of your money is in a savings account earning 1% interest or less, then you are actually LOSING money to inflation each year. There are many ways to earn residual income, and you’ll want to pick the one that makes the most sense for you. As one example, Investing in the stock market has historically returned around 7% per year.
Take Advantage of Credit Card Rewards
Another way to make your money work for you is to take advantage of credit card rewards. Many credit cards offer rewards of up to 5% back or more in certain spending categories. There are also several cards that offer initial welcome bonuses that are worth $1000 or more. Taking the time to strategically use credit cards can be a worthwhile investment. Check out our list of the best rewards credit cards to see if one of them might make sense for you.
Start a Passive Income Stream
The holy grail of financial independence is passive income. Passive income is income that continues to make money with little to no day-to-day involvement on your part. There are many different ways to generate passive income. A few passive income ideas might be creating and selling crafts, writing a guide or book, starting a blog, or investing in the stock market.
Investing time and money in real estate can also be a way to earn (relatively) passive income. While rental real estate is not without complications, when it is all working, each month you earn rental income. That helps pay down your mortgage balance, hopefully with some extra left over each month. If you think that becoming a landlord is not for you, another way to invest in real estate is through a Real Estate Investment Trust (REIT). REITs combine some of the best parts of real estate and investing in the stock market.
The Bottom Line
There is an important difference between earning money and having your money work for you. While earning money through a job is important, the real key to financial security is earning passive income. Pay down your debt, start investing and watch the returns come in. You may not make money while you sleep, but following these tips will help set you on the right financial path.
Save more, spend smarter, and make your money go further
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Dan Miller is a freelance writer and founder of PointsWithACrew.com, a site that helps families to travel for free / cheap. His home base is in Cincinnati, but he tries to travel the world as much as possible with his wife and 6 kids. More from Dan Miller
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