debt

Snowball Method vs. Avalanche Method: What’s the Best Way to Tackle Debt?

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Debt is the ultimate killjoy. It can destroy a budget, make long-term financial planning impossible, and shadow every purchase you make with guilt. No one wants to live with that debt burden. But how do you kiss your debt goodbye?

Woman sitting at table working on Phone and laptop.

Crawling out from under this mountain won’t be easy, but if you’re ready to realign your priorities and do what it takes, you can shake off debt no matter how large.

Let’s take a look at two popular approaches for paying down debt and explore the pros and cons of each.

The debt snowball method

The snowball approach to getting out of debt was popularized by financial guru Dave Ramsey. It involves focusing on paying off the smallest debt first, and then working on the next-smallest debt until they’re all paid off.

Let’s take a look at how this would work using an example scenario. Say you’ve squeezed an extra $500 out of your budget to channel toward paying down debt and you have the following debts:

  • $2,500 personal loan at 9.5% interest; minimum payment $50
  • $10,000 car loan at 3% interest; minimum payment $200
  • $13,000 credit card debt at 18.99% interest; minimum payment $225
  • $18,000 student loan at 4.5% interest; minimum payment $300

In this scenario, the snowball method would have you paying just the minimum payment on all debts except for the smallest. On that, you’d put the extra $500 you have toward quickly paying off the personal loan. Once that’s paid off, you’d take the $550 you were paying toward the personal loan and add it to the $200 you’re paying for the car loan. Now you’re paying $750 toward your car loan and you’ll be kicking it in approximately one year. Keep doing this until you’ve kissed all your debts goodbye!

Pros of the debt snowball method

The most significant draw of the debt snowball method is that it works with behavior modification and not with math. The small but quick wins are excellent motivators to keep you going until you’ve worked through all debts.

Like Ramsey says on his site, “Personal finance is 20% head knowledge and 80% behavior.”

It’s not just a nice theory. A study published by Harvard Business Review proved that starting a journey toward a debt-free life with the smallest debt actually does help keep the motivation going until the job is done.

Cons of the debt snowball method

The primary disadvantage of the debt snowball method is its indifference toward interest rates. Paying off the smallest debt first can mean holding onto the debt with the highest interest rate the longest. This translates into paying more in overall interest, sometimes to the tune of several thousands of dollars.

Debt avalanche method

The debt avalanche method takes the opposite approach of the snowball method and advocates for getting rid of the debt with the largest interest rate first and then moving on to the next-highest. This enables the debt-payer to shed heavy interest rates quicker and to put more of their money toward the principal of their loans.

In the scenario above, the debt avalanche method would involve paying down the credit card debt first, followed by the personal loan, student loan and finally the car loan.

Pros of the debt avalanche method

Paying off the debt with the highest interest rate first can save hundreds, and sometimes thousands, of dollars in interest. Some people also like the idea of kicking their most weighty debt sooner. Finally, in most cases, choosing the debt avalanche route will be shorter than the snowball method.

Cons of the debt avalanche method

The debt avalanche requires self-motivation to keep the debt-payer plugging away at the plan despite seeing little progress. It’s harder to feel like you’re getting somewhere when the numbers are barely moving, but for individuals who are sincerely motivated and believe they can stick with the plan until they see results, it can work.

Which method is right for you?

Factors like your personality and lifestyle play a role in determining which of these methods is the best choice for you. If you think you’d need early motivation to keep going, you may want to choose the debt snowball method. Is your chief concern finding an approach that will cost you less time and money? In that case, you might want to go with the avalanche approach.

Before you make your decision, you may want to run your numbers through a financial calculator to see how much interest you’d be paying by using each method and how long each approach will take.

There’s no reason to think you’ll be stuck with one method once you make your choice. You can always switch approaches down the line, or decide early on to get rid of your debt with the largest interest rate first, as per the debt avalanche method, and then work toward paying off the rest in order from smallest to largest, as per the debt snowball method.

Are you ready to tackle your debt? Choose your approach and get started today. A glorious debt-free life awaits! For information on how Destinations Credit Union can help you reach your short term and long term goals, visit us at our website. Destinations Credit Union

The HOPE Inside model created by financial dignity nonprofit Operation HOPE, provides no-cost one-on-one financial literacy coaching, workshops, and education programming to participants through the support of financial and corporate partners. Destinations is the first credit union in the country to offer this service. Credit and Money Management, a core program of the HOPE Inside adult offering, is provided at this location. The Credit and Money Management Program is designed to transform disabling financial mindsets—teaching people the language of money, how to navigate credit, and make better decisions with the money they have.

Your Turn: Have you paid off a large amount of debt? Tell us how you did it in the comments.

13 Life Hacks to Reduce or Eliminate Medical Debt

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Almost every American faces medical debt at some point in their life. So you’re not aloneiStock_000009697836_Large if you’re scared of the prospect of medical debt damaging your personal credit and causing you to go into a financial crisis when you least expect it.

Fear not! There are ways to avoid having your financial dreams derailed by a medical emergency, an unexpected procedure, or unnecessary medical expenses. Here are some life hacks we came up with that can help you reduce or eliminate medical debt:

  1. Stick to Doctors Within Your Network – If your plan requires that you visit doctors within your network, stick to those doctors so you don’t have to pay out-of-network fees.
  2. Pay Your Medical Bills In Full –Chances are you will receive a discount. Many hospitals offer a 10% discount when you agree to pay your bill in full.
  3. Don’t Switch Plans to Visit a Doctor Out-of-Network Once – You can save money if you only have to visit an out-of-network doctor once a year. Changing your plan for the sake of one service can result in higher health insurance plan premiums over the long term.
  4. Opt For “Minimum Essential Coverage” Instead of Expensive Health Insurance Plans – If you’re cash strapped and healthy, a minimum essential coverage may be your best option. These plan usually only cover preventative care and other basic medical services—not hospitalizations and outpatient surgery.
  5. Utilize Charity Care Programs – Your hospital may offer discounted services to low-income people. It’s a little known secret that you can apply for charity care programs that may reduce or eliminate your entire bill if you qualify. To get started, just call the hospital that has billed you and ask them if you can apply for their “charity care program”.
  6. Find Out What’s Covered by Your Health Insurance Provider – Before you schedule a medical procedure, find out what’s covered and at what rate. If you determine the cost will be high, talk to the referring doctor about lower cost alternatives.
  7. Request a Payment Plan – If you owe a medical bill that you are not able to pay in full, you can usually get on a payment plan with lower minimum payments. As long as you continue to pay the bill monthly, the debt should not show up on your credit report. All you have to do is call to make arrangements before the debt becomes delinquent.
  8. Use Urgent Care Centers – Find out if urgent care centers are included in your health insurance plan network. They often charge a flat fee for labs, therefore you won’t have unexpected bills later on. They can also help with a variety of problems that don’t require hospitalization, which will also save you money in the long run.
  9. Ask for Prescription Samples or Coupons – Some prescriptions are free at pharmacies such as Walmart and Meijer. When filling your prescription, ask the pharmacist if any samples or coupons are available.
  10. Combine Doctor Visits to Save Money – When visiting your doctor, make sure they address multiple issues at once so you don’t have to go back for repeat visits.
  11. Get Refills on Prescriptions from a Family Doctor Instead of a Specialist – For example, if you go to a dermatologist to get a prescription for acne, instead of going back to the dermatologist for a refill on the prescription, it may be cheaper to go to your family doctor or a general practitioner to get a refill.
  12. Research the Costs of Certain Procedures/Appointments – Research the costs of procedures and appointments ahead of time so you can choose the lowest cost provider.
  13. Apply for a Grant from the Healthwell Foundation – You can apply to receive financial assistance with covering your medical bills. If approved, they may cover $6,000 per year in medical insurance premiums (for certain diseases). Visit https://www.healthwellfoundation.org/ for more information.

Courtesy of Accel Financial Counseling, Destinations Credit Union‘s financial counseling partner.

Changes In The VantageScore System

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The VantageScore system is getting an overhaul. Many people wonder what kind ofa1522-credit2breport changes are being made and how will this affect the way their score is calculated.

The VantageScore, which dictates the way credit bureaus — Experian, TransUnion and Equifax — determine your credit score, is going through a shake-up this fall. The company is looking deeper into specific circumstances and what they say about your financial responsibility.

Having a favorable credit score comes into play when you need to qualify for financing on a new car, if you’re opening a new credit card, or you want to take out a loan. In each of these scenarios, your credit score is the most important deciding factor for your approval, and will also influence your terms and interest rates.

It’s important to note that the new system will not impact mortgage loans. This is because few mortgage lenders use VantageScore; most use FICO scores to verify eligibility.

The changes will affect the credit scores of many people, though, for better or for worse. It’s wise to learn all you can about these changes so you can make the necessary adjustments to your credit behavior.

Lucky for you, we’ve made it easy! We’ve broken the changes down into the three main areas they impact, and then we’ve simplified it by telling you what these changes mean for you.

Read on to learn all about it!

1.) Trended data and trajectories

What it means:

Under the modified system, VantageScore won’t just check if you’re meeting your minimum monthly payments; it will consider trended data, too. This means the company will analyze the trajectory of your debts on a month-to-month basis. They want to know the direction in which your finances are going. Are you gradually paying down debt, or are you scraping by with the minimum payments as your balance slowly grows?

What it means for you:

In the past, your score wasn’t affected by growing debt as long as you were making the minimum payments on your cards. Now, if you’re careful about making the monthly payment but your balance is increasing each month, your credit score will take a hit.

Conversely, if you’re working toward actually paying down your debt, your score will likely get a boost. If you don’t fall into this category, it’s time to get serious about doing away with your debt for good. Even small steps toward this goal will be recognized and rewarded.

2.) Large credit lines

What it means:

Having lots of available credit was once considered a mark of good credit. After all, if the companies deemed you responsible enough to merit all that credit, it’s gotta be a good thing, right? Well, not anymore.

With the new system in place, VantageScore will mark a borrower negatively for having excessively large credit card limits. The theory behind this rationale is simple: lots of open credit means the borrower can quickly rack up a huge bill.

What it means for you:

If you enjoy an excellent credit score, you likely have a large line of credit available and will be negatively impacted by this change unless you take action. This change also upends the old advice that the more credit cards you have open, the better. The rationalization behind that maxim was to build your available credit, and thus, improve your score. With the modified system, though, the opposite is true.

Let’s say Bob has $4,000 in credit card debt with a $40,000 limit across several cards. He’s only using 10% of his available credit. In the past, this would net him a higher credit score. Bill, on the other hand, has $1,500 in debt out of an $8,000 limit. In the past, this modest credit limit would lower his score.

With the new changes in place, the realities are shifting. Bob, who has a lot more available credit, will likely score lower than Bill, who only has $6,500 available to borrow.

Aside from those who enjoy prime credit scores and have several open cards, this change will also affect people who enjoy playing the credit card rewards-and-points game.

Whichever category you fall into, it’s best to use less than 30% of your available credit. Also, if you have a large credit line open across several cards, consider closing some of your cards to lower that number. Finally, if you’re thinking of opening a new card in the near future, ask for a smaller credit limit over a larger one.

3.) Medical debt, tax liens and civil judgments

What it means:

Medical debt, tax liens and civil judgments will no longer be factors at play when determining your credit score. These elements are being removed with the rationale that they often harm a credit score prematurely and are later proven erroneous. Civil judgments and tax liens are often inaccurate, and can significantly lower one’s score before the error is corrected. Similarly, medical debt can hurt credit scores before insurance can reimburse the borrower for the payments.

What it means for you:

If you’ve had any of the above dragging down your credit score, you have cause to celebrate. In fact, you might even see a jump of as much as 20 points to your score! On the flip side, if you have negative marks from things like delinquencies and debts that have gone to collection agencies, this new rule won’t help you much.

If you are looking for a way to track your credit score for free, take a look at WalletHub.*

*Please note: WalletHub gives you TransUnion and VantageScore credit scores.  Not all lenders use TransUnion, so your score when you apply for a loan may be different.

Your Turn: Do you think the new system encourages responsible use of credit? Why or why not? Share your thoughts with us in the comments!

SOURCES:
http://onemileatatime.boardingarea.com/2017/04/19/credit-score-changes-2017/  
http://www.cnbc.com/2017/04/19/major-changes-coming-to-how-your-credit-score-is-calculated.html   
https://amp-usatoday-com.cdn.ampproject.org/c/amp.usatoday.com/story/100653342/   
http://www.pressherald.com/2017/04/24/changes-coming-in-the-fall-to-how-major-credit-score-is-calculated/
https://www.thepennyhoarder.com/smart-money/changes-might-raise-your-credit-score/
https://www.nerdwallet.com/blog/finance/vantagescore-fico-score-the-difference/
https://thepointsguy.com/2017/04/changes-credit-score-calculations/ 

What To Do After Getting A Raise

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This is the year you finally got that raise! What should you do with the extra money?

Beyond the money, getting a raise is a rewarding recognition that the work you’re doing for your employer is valued. It means you’re on the right path in your career. This should be one of many such events in your life where your hard work and dedication finally pay off.
 

Let’s not overlook the money, though. This can be a real boon to your financial stability. You could look back a year from now and see how much better off you are with a little more budgetary breathing room. It’s also possible that the money can blow right through your checking account, leaving you worse off than you were before you got the raise.

The difference between these two outcomes is planning. If you don’t have a plan for your new income, it can be difficult to resist the impulse to spend lavishly because you “deserve” it. Making a plan to invest your new bounty responsibly will keep you honest and ensure you spend in ways that match your values. Here are three steps to making a plan for your post-raise finances.

1.) Stay off the treadmill

If you started from the bottom, you probably remember a time when you had little in the way of luxuries. You went to work, came home, ate whatever was cheap and went to bed. As you started to pull yourself up, you might have added the occasional luxury: better food, a nicer car, some entertainment or comfortable furniture. While the added luxury might have been a thrill at first, it probably soon became nothing more than the new normal.

This is what psychologists call the hedonic treadmill. With greater salary comes greater lifestyle expectations. It’s impossible to get ahead if you’re always chasing the life you think you “ought” to have.

In a sense, all you’re doing by getting a raise is turning up the speed on the treadmill. You’re not actually making more progress toward your goals. To do that, at any level of income, you need to spend prudently, not emotionally.

So, when your first paycheck comes in, avoid thinking about things you “deserve.” Try to keep your non-discretionary spending, or the amount of money you have to pay for basic goods and services, the same. If you want to take your family out to dinner to celebrate, that’s fine. If you want to buy a new luxury car to reflect your new status, that’s just running faster on the treadmill.

2.) Fix the basics

There are three very obvious places to put your newfound money: paying down debt, building an emergency fund and saving for retirement. If you don’t have an immediate plan for your new income, you could do much worse than putting your money in one of these three places. This isn’t a flashy way to spend your money, and it won’t make you happier in the short term. However, it will make your life easier in the long run.

Depending on the timing of your raise, you may need to make some paycheck adjustments. While you’re increasing your 401(k) contributions, you might also want to withhold a little extra in taxes. Your old withholding was done assuming you would earn your old salary all year. If you don’t bump up your withholding a little, you might end up with a nasty surprise at tax time. That’s another reason to make tax-deductible investments in your retirement accounts. You’ll get to keep more of your hard-earned raise!

3.) Save for your values

Getting a raise is a great time to pull out your dream list. What would you do if money was no object? Would you take a trip to Tahiti? Start a small business? Whatever your dream is, you probably need some capital to get it started.

Fortunately, you’re about to get some more capital each month thanks to your hard work. The best way to get to your “money’s no object” goals is to save a little bit each month. You can do that with the nice bonus offered by your raise. In the long run, you’ll be happier with the investment in your future than you will with the little luxuries you might be tempted to splurge on today.

Your Turn: We all want to make more money. What would you do with a little extra money each month? Let us know in the comments!

SOURCES:
http://www.nbcnews.com/business/personal-finance/so-you-just-got-raise-here-s-how-handle-your-n659151
http://www.investopedia.com/terms/h/hedonic-treadmill.asp
http://lifehacker.com/5291389/avoid-the-hedonic-treadmill-trap-if-you-want-to-be-happy
http://www.moneycrashers.com/things-do-when-get-raise/


7 New Year’s Resolutions For A Richer 2017

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The New Year is a great time of renewal. That makes it a good time to make bold, decisive changes in your life. Leave behind the baggage that was 2016 and start fresh with a blank slate in 2017. If you’re looking for some resolutions to improve your personal finances, we’re pleased to offer seven ways to make 2017 the year of the dollar!

1.) Track your spending

If you’re looking to take your first steps toward financial literacy, figuring out where your money goes should be at the top of your list. If you don’t know where your money goes, it’s going to be tough to follow through with any other money plans. You may have a general sense of how much you spend, but after a month where you’ve recorded every dollar, you’ll have a much better picture. Using apps like Mint or Personal Capital can automate the process. You might even find that keeping track of what you do with your money encourages you to spend a little more judiciously.

2.) Make a budget

About 70% of Americans live financially spontaneous lives. They don’t make a plan for spending or saving. When asked why they chose not to do so, the most common response was that the family spent all the money anyway. This is a circular problem. If you don’t have a budget that includes setting aside money for long-term expenses and savings, you’ll end up spending all your money on unplanned things and events. The best way to stop the cycle is to sit down and make a budget that modifies your spending to be more in line with your priorities.

3.) Get out of debt

Easier said than done, right? However, there’s no bigger stumbling block to financial security and wealth building than debt. It’s hard to save for long-term goals when so much of your monthly income gets eaten up by interest and fees. There are a variety of methods you can use to help accelerate your payoffs. For instance, you can add an extra $50 or $100 to your credit card payments. Or, you can focus all your payment resources on the highest interest debt until it’s paid off and then move it all to the next highest for snowballing your way to freedom from debt.

4.) Start an emergency fund

The best way to avoid going into debt is to have some money on hand to handle the occasional, yet inevitable, emergency. Most Americans, though, can’t come up with $500 in such instances. Set a specific goal, like adding $10 per month to a savings account. At the end of the year, you’ll have more than $100 available in case something goes wrong.

5.) Start a retirement account

You can’t save for what you don’t think about. When retirement is years or decades away, it’s difficult to incorporate thinking about it into your daily routine. If you have a retirement account open, you’ll get monthly statements, which serve as reminders. The challenge, though, is taking that first step. Don’t let perfect be the enemy of good. While there are important differences between Roth and Traditional accounts, either one is better than no retirement savings at all. If your job offers a 401(k) matching program, sign up to get at least the full matching funds amount – it’s free money. Do a little bit of research, then open the account that seems like the best idea.

6.) Automate your savings

Saving money takes willpower. Because it’s hard to practice self-denial on a constant basis, that extra $5 you’ve earmarked for savings can very easily turn into a mid-morning coffee. Fighting that impulse is a constant struggle. That’s why it’s easiest to avoid the decision altogether. Change your direct deposit to put some of your paycheck directly into a savings account, where you won’t even think of spending it impulsively.

7.) Get educated

Knowledge is power, and that’s especially true in the world of personal finance. What you know about your money goes a long way toward determining how much of it you get to keep. There’s a lot to learn, but you’ve got a wealth of information at your fingertips. Resolve to read one personal finance article a week (subscribing to this Blog can be a great start). Not only will this give you good ideas for improving your personal financial situation; you’ll also spend more time thinking about your money. That will lead to positive results down the line!

Happy New Year from all of us at Destinations Credit Union. We hope you have a safe, happy, and prosperous 2017!

Your Turn: What resolutions are you making this year? Will 2017 be the year you join a book club, quit smoking or spend more time with your family? Let us know in the comments!.

SOURCES:
https://wallethub.com/blog/financial-new-years-resolutions/9202/
http://www.reviewjournal.com/business/money/13-financial-new-years-resolutions-you-should-make
http://www.practicalmoneyskills.com/personalfinance/savingspending/budgeting/newYearsRes.php
http://www.theblaze.com/stories/2013/07/16/so-what-percentage-of-americans-actually-keep-a-budget-gallup-results-may-surprise-you/


Help! I Overspent On Christmas!

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It’s so easy to go overboard on Christmas. If you have kids, you want everything to be perfect for them. You want to build priceless memories, so spending any amount seems worth it. If you’re just getting started, you want to impress your family with how together you have things. Giving extravagant gifts to your family members seems like a great idea … until you’re staring at a huge credit card bill in January.

However it happened, it’s important to approach this problem rationally. Constantly blaming yourself won’t fix the problem. The important part now is to right yourself financially. You can’t take back gifts and return them at this point. You have to deal with the situation that’s in front of you.

Fortunately, you’re not alone. Destinations Credit Union is here to help. Check out these four ways you can patch up your finances and have things right before summer.

1.) Budgeting advice

It can be very tempting to make only the minimum payments on the credit card you used to buy Christmas. Unfortunately, it’s also the best way to ensure you’re in debt for all the Christmases from here on out.

Making minimum payments on credit cards prolongs the length of time you’re in debt. It also makes the total amount you pay for your debt skyrocket. Making just the minimum payment adds an extra $175 to a $10,000 balance at 21% APR.

What you need is an aggressive debt repayment plan. The question you should be asking yourself isn’t, “What’s the least I can pay on this debt?” Instead, identify the most you can afford to pay. Destinations Credit Union can help with informative guides and worksheets on household budgeting.

Making an extreme budget is usually not a good choice, but in this case, it’s essential until you get yourself out from under that holiday-fueled debt. Make some sacrifices and get ready to tighten your belt for a little while. Yeah, coming up with an extra $35 or $50 a month is tough, but it’s the easiest way to get things moving.

2.) Refinancing major purchases

If you went overboard on one or two major purchases, like a car for a teen, it may not be credit card debt you need help overcoming. Slick dealers offer crazy-sounding incentives like zero down and zero percent financing on cars to entice people to give cars for Christmas. Unfortunately, once you’ve signed on the dotted line, you may see you’re in for more than you can handle with a car payment.

Destinations Credit Union can help. Our auto and other major purchase loans often feature rates that are better than dealerships. You may need to finance over a longer term to manage the monthly expenses, or you may just need to restructure to pay less now. Either way, you’ll find more favorable and flexible terms with us than you will at the dealer. 

3.) Debt counseling 
Does reading those credit card statements fill you with a dizzying sense of despair? Destinations Credit Union can help you make sense of them.

Make an appointment to speak with a debt counselor.  Through our partnership with Accel, Destinations Credit Union offers free unlimited debt counseling. You’ll gain a better understanding of your rights and responsibilities. You can also come up with a realistic plan to pay off your debt and avoid falling into the same trap next year.

4.) Personal loans

Instead of making dozens of minimum payments, wouldn’t it be nice to focus your debt into one manageable plan? A debt consolidation loan can do just that. Best of all, it can save you money in the long run by lowering your interest rate and monthly payment commitment. Rather than paying a credit card APR, you can get the low fixed rate on a personal loan.

Although collateral, or something to secure the loan, can help get you a lower interest rate, it isn’t necessary. All you need is some basic personal information and a willing partner, like Destinations Credit Union. Our loan specialists can help you organize and simplify your payments, working toward a debt-free life.

Your Turn: Feeling buyer’s remorse after a big holiday spending spree? Let us know about it in the comments. If you’ve got a system to stay on budget, help your fellow members and share your wisdom!
SOURCES:
https://www.nerdwallet.com/blog/credit-cards/minimum-payment-credit-card/
https://www.igrad.com/articles/what-to-do-after-you-have-overspent-on-christmas
https://www.debt.org/consolidation/


Good Ideas, Bad For Credit: How Your Responsible Choices Can End Up Hurting Your Credit Score

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I’ve had some trouble with credit in the past, but I’m trying to turn over a new leaf. I think I’m doing everything right, but my credit score still isn’t rising! What gives? 

Credit scores can affect you more than you know. Employers look at credit scores. Landlords look at credit scores. Bill providers look at credit scores, and they might decide to charge you if yours gets too low. With all this pressure, you’ve no doubt started working on some good habits for improving your credit score. You pay your bills on time, are sure to not max out your credit line and work hard not to default on a loan. You might be surprised to find out that some actions you take to improve your credit score are actually hurting it. 

If your credit score isn’t where you want it to be, it might be due to one of these habits. Read on for four good ideas that might actually be hurting your credit score:

1.) Debt settlement

Settling your old debt can seem like an easy way to get out of a sticky situation. You make an agreement with a third party, pay a part of your debt and the owner writes off the rest of it.

However, unless it’s at least 90 days since the debt was due, it’s always better for your credit score to pay the debt back in full yourself. Settling a debt for less than you owe can take your credit score down as much as a hundred points. This happens because the debtor only took your settlement on the assumption they’d never see the full amount you owed. Future lenders worry that they’ll end up in the same situation, and that makes them hesitant to lend.

2.) Turning down credit

It might seem like a good idea to reject a higher credit limit. If your credit card offers to boost your limit, that might seem to indicate you have more money to spend. If you’ve struggled with responsible credit management in the past, you might want to turn it down in an effort to keep your spending in check. Keeping your credit limit low can give you a budget and a sense of security regarding when you’ll stop yourself from spending.

However, a higher credit limit does come with benefits. To be exact, it can boost your score quite a lot through a something called a credit utilization ratio. That’s the ratio of your credit card balance to your credit card limit. The less you spend relative to what your limit is, the higher your score in terms of this one factor. That means, if you have a higher credit limit, you’ll be using less of it, and therefore increasing your score.

3.) Avoiding credit cards

With all this rigmarole and paperwork, many people might think it’s easier to just not have a credit card at all. While it might make your life simpler at first, it can complicate your relationship with credit in the future. You might not need credit for day-to-day things like buying groceries or gas, but you will need it for a home loan, auto loans and to prove to potential landlords and employers that you can be trusted. So long as you’re paying everything on time and not carrying a high balance, a credit card is much more beneficial in the long run.

4.) Closing paid accounts

Paying off a credit card can be a big struggle. Once it’s over, your instinct might lead you to throw it away, burn it or otherwise have it completely out of your life once and for all. Credit reporting agencies say something different, though. Since 15% of your credit score is the length of your credit history, you want to keep your cards for as long as possible.

Additionally, your credit utilization score is worth 30% of your total score. Closing a credit card account also kills available credit, which lowers that balance-to-limit ratio. You can destroy the card itself and delete its record from online shopping sites to be certain you’ll never accidentally use it, but don’t cancel it. Even after all that, you should keep the account open (provided there’s no annual fee attached to it), just to keep your score up.

Credit scores have never been easy. There’s an endless number of twists, turns and troubles to keep in mind. It may seem like there’s no one on your side in this struggle. Yes, you have to be in charge and be responsible enough to pay everything on time. Destinations Credit Union can help. Call, click, or stop by today to get help with budgeting, credit management or debt consolidation.

You don’t have to go it alone.

Your Turn: Any tips or tricks you use for managing debt and/or improving your credit score? What has seemed to work or not worked?

Plan For The Payoff When You Plan Your Student Loans

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Planning ahead for college is not just a matter of getting good grades and accumulating a list of extracurricular activities and awards. It’s also a process of understanding how to pay for tuition and living expenses during the college years, which often extends beyond the typical four-year period and sometimes also includes graduate school. 

Parents tend to focus on a college degree as the payoff for all the time, effort, money and love they have invested in educating their child. So they invest significant time, money and effort in helping them get accepted by good schools and get situated comfortably when college begins. 

But completing high school and entering college marks the beginning of the rest of your child’s life, which generally involves repaying student loans. The payoff for anyone with student loan debt is budgeting successfully for monthly payments, and having the income to make them on time each month. 

You may have the means to keep your student loan borrowing to a minimum, which is ideal. But many parents are looking for every financial advantage available in scholarships and loans. Working together with your child, begin early by considering all the options for minimizing total student loan debt and the forthcoming monthly payments. Do the math together, calculating future monthly loan payments using a student loan calculator, such as the student loan calculator at Bankrate.com. 

When your student understands the long-term consequences of accumulating student loan debt, with monthly payments larger than her apartment rent or car payments, she’s likely to become more serious about reducing her student loan debt ahead of time. 

Here are some ideas for starting your family conversation about planning for the payoff:

  • Begin your journey by creating an account for both parent and student borrower at  StudentLoans.gov, which provides information on federal student loans, the ones with lower interest rates and more flexible repayment options.
  • Inform your search for student loans at ConsumerFinance.gov, which provides information on private (non-federal) student loans, which have higher interest rates and less flexible repayment options.  Destinations Credit Union works with Sallie Mae to help its members with student loans.
  • Consider studying for a career in public service, which offers student loan forgiveness under the Public Service Loan Forgiveness Program. An initial career in government organizations at any level (federal, state, local or tribal) or not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code can lead to many other opportunities in the future.
  • Explore the possibility of serving in the military prior to entering college. Active service-members and veterans of all branches, including the National Guard and Reserves, have several student loan programs available to them under the GI Bill. A calculator to compare the various program benefits is available at  Vets.gov.
  • Utilize a tax deduction of up to $5,250 on tuition paid by or reimbursed by an employer. It’s possible to get a job and get a college education at the same time, so giving consideration to getting a job first may be surprisingly smart. Both McDonald’s and Starbucks offer employer-paid tuition assistance in certain states.
Many parents and students forget to focus on the reality of a higher-than-average income from technical training, often requiring only two years or less of school. Information technology might be the first type of tech training that comes to mind, but it’s important to remember that plumbers and electricians are often billing more per hour than many attorneys.
Think about it … People will always need to live in structures requiring some form of plumbing. It’s not a profession that can be outsourced overseas and it already pays more than an average wage.
A recent New York Times article reports, “Plumbers and the related trades of pipe fitters and steamfitters, who often work in commercial and industrial settings, earned median pay of about $49,000 a year nationally, well above the $35,000 average for all occupations, according to 2012 data from the Bureau of Labor Statistics. The top 10 percent earn more than $84,000 a year. The average in big markets like Chicago and New York is about $70,000.”
Planning for college should start with reality, yet it often starts with some form of fantasy instead. If you ask a typical class of middle-schoolers what they’d like for a career, you are likely to hear, “to be a YouTube star,” or “to invent new computer games.”
Middle school is not too early to begin talking about a real career, and how to prepare for it, plan for it and pay for it. By high school it’s a necessity. Help your child see and understand the reality of student loans, and the big payoff they’ll achieve by keeping them in line.

SOURCES:

http://www.bankrate.com/calculators/college-planning/loan-calculator.aspx

http://ticas.org/content/posd/top-10-student-loan-tips-recent-graduates

https://studentaid.ed.gov/sa/

http://www.consumerfinance.gov/paying-for-college/choose-a-student-loan/#o1

https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation/public-service#qualifying-employment

https://www.vets.gov/gi-bill-comparison-tool/

http://www.usnews.com/education/best-colleges/paying-for-college

Your Real Net Worth

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For accountants, your personal net worth is one of the simplest calculations they might be asked to perform. Add up your assets in column A, add your debt in column B, then subtract B from A to find your net worth. It’s a number you should know, or at least be able to estimate, and it’s good to check it every year.  Since it’s March, which is the sweet spot between New Year’s resolutions, January credit check-ups and tax time, there might not be a better time to figure out your net worth than right now.  When you do, don’t forget all of the value that might not translate into worth. We’ve got a short breakdown for you, along with a way to maximize the value in your life while minimizing how much it costs you: 

Your education increases your net worth, even though it may not look like it. Very few investments offer the rate of return that continuing education does. Those who finish their college degree earn, on average, about twice as much as those with a high school diploma over the course of their lifetimes, and the gap has been widening for at least 35 years. Still, your future earning potential doesn’t show up on your net worth, even though your student debt does. If you’re trying to decide whether to go back to school, take a few extra classes or get a new certification, the cost may seem intimidating since there’s no immediate benefit. Don’t let that fool you. 

An education can also increase the value you get out of your life, helping you find a job that makes you happier or getting that promotion you’ve been wanting at your current employer.  Outside of work, going back to school can help you learn a new language or skill you’ve always wanted to learn, get you up-to-date on current technology and trends in your field, and model good life choices for your children.  Just wait until they see you doing homework on a Friday night!

It also doesn’t have to cost an arm and a leg, and you don’t have to try for federal financial aid.  We have a variety of products designed to put some money in your pocket now, whether it’s a home equity loan, a personal loan, or any of our other financial plans.  If you’re thinking to yourself, “But I’ll be 40 (or 50, or 60) by the time I finish,” remember, you’ll be 40 (or 50, or 60) anyway.  


Find out information about our loans that could make it happen.

Your kids are a drain on your net worth, but a blessing in your life.  Let’s face it, kids are expensive. The Department of Agriculture estimates that raising a child born this year to the age of 18 will cost about $250,000.  While a quarter of a million dollars is a lot of money, that only gets them to age 18, but with tuition prices skyrocketing and kids staying at home longer than they have historically, the actual figure of raising children today gets much higher much faster.  Financial analysts predict the average four-year tuition for a public university in 2030 will be $250,000, or about the same as it cost to raise that child from birth to dropping them off at the dorm.  If you have two children, you could easily spend one million dollars on them before they leave college.  In your net worth, this is only reflected as a constant drain on your savings, a net negative.

The value of children is probably pretty obvious to you, but there has to be a way to lower the cost of raising them, right?  First, let’s cut down those college costs, because that’s half the battle.  We’ve got a Coverdell IRA college savings programs that offer good returns while also being tax-deductible.  Getting to $250,000 might seem like a pipe dream, but saving even a little every month can add up quickly, thanks to compound interest.

Next, let’s find a way to save money on school while helping your child now. There are a lot of ways to encourage a gifted child, from tennis camp to musical instruments.  If your child wants to stare at the Internet all day, maybe you should talk to them about a new laptop and some software engineering classes for kids.  If they like the outdoors (or you’d like them to go outside occasionally), try a digital camera.  All of these ideas cost money now, but could result in scholarships down the road, all while giving them a head start on a career or passion they can follow their whole life.  If you’re wondering how you can pay for all of that, check out our savings accounts.  You can contribute a little money every month, and you’ll have enough for those classes or that camera before you know it.

Your home is your biggest investment.  When was the last time you checked up on it?  When you bought your house, it might have been the best available house in the neighborhood for the price. After all, if it weren’t, you would have bought some other house, right?  Is it still the best in the neighborhood for the price?  Is the neighborhood still regarded the same way by home buyers?  How do you know? This weekend, it’s time for window shopping. Take the value of your home from your last appraisal and check the Internet for houses in your area in the same price range.  How does your house stack up? Make a list so you can compare between houses.  Next, check your decor. When you moved in, did the house feel a little dated?  Did you do anything about it? How many of the houses you saw online seemed newer or more fashionable? 

After you finish your house hunting, you’ve got three options:  If you saw a house that you like as much as the one you’re in now, but it’s going for less money, you could think about moving there.  After all, mortgage rates are incredibly low for the time being, and if you could be just as happy in a less expensive house, then that’s money you could use on something else.  If your house is as good or better as the others in the neighborhood, but could use a facelift, you might want to think about remodeling.  Remodeling your home can increase its value and make it easier to find a buyer, so part of what you spend now may come back to you when you sell, with the added benefit of living in a nicer house in the meantime. Finally, if your house is still the best around, think about refinancing while rates are low.  You’re probably not going to find fixed rates this low for a long time (if ever), so locking in that lower rate now can save you tons of money going forward, while cashing out some equity can help knock down any pesky credit card debt you need to take care of, so you only need to write one check every month, while paying far less in interest.

Brought to you by Destinations Credit Union

New Year’s Resolutions

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By the end of January, many of us will have forgotten all about our New Year’s resolutions. It can be difficult to change our lives, even when it’s for the better. Knowing this, we want you to know that, in your financial life, there are changes you can make today that will last the entire year. Here are three resolutions you can set today and some follow-up goals for the rest of the year. 

Today:  Save money automatically.  If you want to improve your net worth, build financial security or make a big purchase at this time next year, the easiest way to do so is simply to automate your savings. You can set up an automatic transfer to savings so you won’t be tempted to spend it. With many of our savings products, you can even access the money if an emergency arises. 

Later:  Set up an emergency fund.  How much do you have set aside for a rainy day or to cover the unexpected?  If an emergency came up, would you have to sell investments, cash in your retirement or borrow from family?  Make this the year for setting up your emergency fund.  You’ll eventually want to have at least six months of income put aside where you can get to it. for now, start with $1,000, a month’s income, or whatever feels realistic.  It might be difficult to get in the habit of saving money, but this is the resolution you’ll be really happy you kept if something unexpected happens. 

Today:  Pay down your debt.  If you’re struggling with debt, there are three basic solutions for paying it down, getting your payments under control and getting ahead of debt.  You can make more frequent payments, pay more each month or lower your interest rates. 

Paying more frequently makes sense if you get paid every two weeks: You might already know about the advantage of bi-weekly payments, which let you make the equivalent of an extra monthly payment every year.  If you’re already doing that or you don’t get paid on a weekly schedule, you can also increase the amount you pay every month. Even an extra $25 per month is $300 per year, and you can set up those payments automatically. Make sure you increase your payments the most on the bills with the highest interest rates first, even if they don’t have the largest balances. 

Finally, you can get ahead of your debt by lowering your interest rates. You can call the creditors who are charging you the highest interest rates and pay the bill, transfer the balanceto a credit card or loan with a lower interest rate, or see if they’ll offer you a lower rate due to improved credit. One way to make this work is to arrange a home equity loan at a lower fixed rate, then move your balances with the highest interest rates to the loan. 

Later:  Get control of your spending. It’s time to make a budget and stick to it. Build rewards into the budget so you’ll actually be happy to follow it. Take a look at what you use your credit cards to buy, then budget at least some money for those items or activities. You’ll never keep a resolution like “stop eating out,” but you have a good chance of keeping a resolution like “don’t go over the eating out budget.” This also gives you 12 chances to succeed: Every month you can do better than the month before. 

Today:  Make a drawer.  Many of us who have had the misfortune to act as the executor on a loved one’s estate have had the terrible task of finding all the savings, debts, insurance policies and other financial parts of their lives.  Don’t do this to whomever is taking over your life. Empty a drawer in your kitchen or study and put as many relevant documents in it as you can find.  Make a list of everything in the drawer and everything that’s missing. Put a copy in the drawer and another with your will so it’s as easy as possible for the grieving individual in charge. As with any sensitive, personal data, keep this information in a safe place that only you and the likely executor(s) of your estate will have knowledge. 

Later:  Fill the drawer. What’s missing from the drawer? Do you have a will? How much life insurance do you have?  Do you have enough savings to take care of your children? What about a plan for how they will receive that money? 
Talk to a financial planner and insurance specialist to make sure you’re set. With any luck, 2016 won’t be the year you need it, but if it is, it’ll be better for everyone involved if there’s a plan.
And that’s it … three things to do today and three projects to complete during the year.  None of them are out of reach, so you’re setting yourself up for success by making resolutions you can keep.