Pocono Medical Center celebrated the grand re-opening of its Mattioli Emergency Center with hundreds of community members Thursday near the new entrance of the Mattioli Emergency Center on East Brown Street in East Stroudsburg.“Today’s grand re-opening of the Mattioli Emergency Center signifies a re-dedication of what Pocono Medical Center’s emergency care is truly focused on medical and clinical excellence with a positive patient experience,” said Jeff [...]
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الخميس، 29 سبتمبر 2016
Roth IRA vs. Traditional IRA: Retirement Showdown
An IRA, or individual retirement account, offers a tax-advantaged way to sock away money for retirement. There are actually many types of IRAs, but for most people, the choice boils down to two main options: a Roth IRA or a traditional IRA.
If you’re trying to decide whether to contribute to a Roth IRA or a traditional IRA, the very short answer is that a Roth IRA makes sense if you expect to be in the same or higher tax bracket in retirement. If you’re earning a lot now and expect to have a lower tax rate in retirement, then a traditional IRA would probably make more sense.
However, that answer certainly doesn’t hold true for everyone in every situation. So below we’ll get into the crucial differences between Roth IRAs and traditional IRAs, and explain a few situations where it might make sense to choose one over the other.
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Roth IRA vs. Traditional IRA: Main Differences
Both Roth and traditional IRAs are excellent ways to save for your retirement, especially if you don’t have access to an employer-sponsored retirement plan. However, there are some important differences between these two accounts, and they boil down to four main areas: eligibility, contributions, tax implications, and withdrawal rules.
Difference #1: Eligibility
We’ll start with eligibility, since your ability to choose a Roth IRA vs. a traditional IRA will depend on whether you even qualify.
Most people will be allowed to contribute to a traditional IRA. The only requirements are that a) you have earned taxable income during the year, and b) you must not be older than 70½ by the end of the year.
You must also have earned taxable income during the year to contribute to a Roth IRA, but unlike with traditional IRAs, there is no age limit. However, to contribute to a Roth IRA, your income must fall under a certain threshold. Here are the income restrictions on Roth IRAs, based on your 2016 tax filing status:
- Single: You can contribute the full amount to a Roth IRA if your modified adjusted gross income (MAGI) is $117,000 or less. If your MAGI is $117,001 to $132,000, you can contribute a reduced amount; if it exceeds $132,000, you cannot contribute to a Roth IRA.
- Married filing jointly: You can contribute the full amount if you make $184,000 or less. If your MAGI is between $184,001 and $194,000, you can contribute a reduced amount; if your MAGI exceeds $194,000, you cannot contribute to a Roth IRA.
- Married filing separately: Your MAGI cannot be more than $10,000 to contribute to a Roth IRA. If your MAGI is less than $10,000, you can contribute a reduced amount. Note that if you did not live with your spouse during the year, you can use the limits for single filers.
As you’ll note above, you can never contribute the full amount to a Roth IRA if you’re married filing separately, and the limit to make even a reduced contribution is very low.
Difference #2: Tax Benefits
Traditional IRA: With a traditional IRA, your contributions are tax-deductible the year you make them. However, you’ll pay income taxes on any IRA withdrawals you make in retirement.
This has the potentially beneficial effect of lowering your adjusted gross income during your prime earning years, and delaying your tax obligation until retirement, when you’ll likely be in a lower tax bracket anyway. (Note that you may only be able to deduct part of your traditional IRA contributions — or none at all — if you or your spouse are also covered by an employer-sponsored retirement plan such as a 401(k).)
Roth IRA: A Roth IRA works in almost the opposite way: You pay taxes upfront to avoid paying them in retirement. You contribute after-tax income, meaning your contributions are never tax deductible in the year you make them. However, in retirement, all of your withdrawals are tax-free — including your original contributions and any investment gains.
Difference #3: Contribution Limits
Annual contribution limits are the same for Roth and traditional IRAs — mostly.
If you’re under age 50, you can contribute up to $5,500 a year to your traditional IRA. If you’re 50 or older, you can contribute up to $6,500 a year (sometimes called “catch-up contributions”). Both numbers are regardless of income.
The limits are the same with a Roth IRA, but Roth contribution limits can depend on your income. If you’re under age 50 and are allowed to contribute the full amount (see the “Eligibility” section above), you can contribute up to $5,500 each year. If you’re 50 or older and are allowed to contribute the full amount, you can contribute up to $6,500 a year.
If your income limits what you’re allowed to contribute to a Roth IRA, you’ll need to do some math to figure out your reduced contribution limit.
Difference #4: Withdrawal Rules
There are several rules governing when you can start to withdraw money from your IRA. Here are the crucial differences:
- Early withdrawals: If you’re younger than age 59½, you won’t be able to take money out of your traditional IRA without paying a stiff 10% penalty. With a Roth IRA, you can withdraw contributions penalty-free at any time; however, you cannot withdraw earnings penalty-free before age 59½. You must have also have contributed to your Roth IRA for five years to avoid the penalty, regardless of your age.
- Required minimum distributions: With traditional IRAs, you will be forced to begin taking money out in required minimum distributions once you reach age 70½. That’s not the case with Roth IRAs, which never require withdrawals during your lifetime.
With both types of IRAs, there are several exceptions that allow you to tap the money for certain situations without paying an early-withdrawal penalty. One of the most popular is the ability to use up to $10,000 toward purchasing your first home (or any home, regardless of whether it’s your first, as long as you haven’t owned a principal residence in two years).
You can also take penalty-free withdrawals from either kind of IRA to pay for qualified educational expenses or medical expenses, or if you opt for substantially equal periodic payments (SEPP).
Roth vs. Traditional IRA: Which Should I Choose?
Take a look at the chart below for a quick summary of the differences between traditional IRAs vs. Roth IRAs. If you need more help making a decision, we’ll also offer a few common scenarios below to help you choose.
|
Traditional IRA |
Roth IRA |
|
| Age limitations to contribute? |
Yes; must be younger than 70½ |
No |
| Income limitations to contribute? |
No |
Yes, cannot make over a certain amount depending on tax-filing status (see “Eligibility” for current limits) |
| Yearly contribution limit |
$5,500 ($6,500 for age 50 and older) |
$5,500 ($6,500 for age 50 and older); less for some, depending on income |
| Contributions tax deductible? |
Yes, but potential limitations if you or your spouse are covered by employee retirement plan |
No |
| Withdrawals (including contributions and earnings) tax-free? |
No |
Yes |
| Withdraw contributions penalty-free any time? |
No |
Yes |
| Conditions to avoid early-withdrawal penalty |
Must be 59½ before making withdrawals (contributions and earnings) |
Can withdraw contributions anytime, but must be 59½ before withdrawing earnings; must have made contributions for at least five years |
| Required age when you must begin making withdrawals? |
Yes, at 70½ |
No |
Choosing Between a Roth IRA and a Traditional IRA: A Few Case Studies
Assuming you’re eligible to contribute to either a Roth or traditional IRA (you’re younger than 70½, which means you’re eligible for a traditional IRA, and your income is low enough to allow Roth contributions), below are a few situations where one type might make more sense than the other.
Case No. 1: I think my tax rate will be lower (or higher) in retirement.
Assuming you are eligible for both types of IRAs, it’s time to get out your crystal ball. Are you expecting a significant bump in income by the time you retire? Would that increase in income bump you into the next tax bracket? If so, a Roth IRA might be a better choice. While your contributions won’t be tax-deductible now, you’ll be able to make your withdrawals down the road without facing a tax bill that’s made even bigger by your higher tax bracket.
On the flip side, if you’re in a high-income tax bracket now but think you’ll be retiring in a lower tax bracket, a traditional IRA could make more sense. The tax deduction on your contributions might be more valuable to you now, and your tax bill may be more modest in retirement.
Let’s look at a couple of examples using this investment calculator from Scottrade. Assuming moderate growth, putting the maximum $5,500 a year into an IRA for 20 years — or $110,000 in total contributions — would yield $264,000 in retirement savings. How much you ultimately pay in taxes on that money depends on a few factors (not the least of which is whether current tax laws remain unchanged, which we’ve assumed here for simplicity’s sake):
- Jim uses a Roth IRA, so he pays full income taxes on his $110,000 in contributions, but will owe no taxes on the $154,000 in investment earnings. Assuming a 20% effective tax rate during his contribution years, he’ll pay a total of $22,000 in taxes on that $264,000, or 8.3%. Even if the balance continues to grow throughout his retirement, he still won’t owe any more in taxes — lowering his overall tax rate further.
- Jane uses a traditional IRA, thereby deferring any tax obligations until retirement. Let’s assume that when she hits retirement, her effective tax rate drops from 20% to 10%. That means she pays half the rate that Jim did on her contributions — however, she’ll owe that amount on her investment earnings as well. She’ll ultimately pay $26,400 in taxes on the $264,000, or 10%, and will continue to owe taxes on any further investment gains.
Case No. 2: I might need to tap my IRA before age 59½.
Let’s be abundantly clear: Tapping your IRA early, whether it’s a Roth or traditional IRA, is very rarely a good idea. After all, your money can’t grow unless you’re willing to keep your hands off of it.
However, if you fear that you might need to tap your money early, a Roth will probably be a better choice. That’s because you’re allowed to withdraw your contributions (but not your earnings) at any age without paying an early-withdrawal penalty — after all, you’ve already paid taxes on them.
If you’ve been contributing the $5,500 maximum every year for awhile, that means you’ll have access to a significant pile of penalty-free cash. That’s not the case with traditional IRAs until you’re 59½, and even then, you will have to pay taxes on your withdrawals, too.
Case No. 3: I want my money to grow for as long as possible.
Perhaps you’ve diversified your retirement savings enough to know that you won’t need to tap your IRA for a long time, even past the age of 70½. Maybe you have named a beneficiary for your IRA and want to leave behind as much money as possible when you die.
In both cases, a Roth IRA probably is a better choice than a traditional IRA. That’s because traditional IRAs force you to begin taking withdrawals, called required minimum distributions, once you hit age 70½. If you want your money to keep growing, whether for your own benefit or someone else’s, a Roth will allow that to happen.
Made Your Choice? Now It’s Time to Find a Home for Your Money
If you’ve decided whether a Roth or traditional IRA is best for you, the next step is figuring out where you want to open your account. The Simple Dollar offers a guide to the best IRA Accounts that outlines four popular options, as well as more advice on the Roth IRA vs. traditional IRA question.
If you already have an employer-sponsored retirement account such as a 401(k) and are wondering whether it makes sense to open up an IRA as well, see Roth IRA vs. 401k? You May Not Have to Choose. And if you need advice about 401(k)-to-IRA rollovers, check out our step-by-step primer, see How to Do a 401(k) Rollover.
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NCC foundation elects four new members to board
Four new members have been elected to the board of the Northampton Community College Foundation. The foundation has won six national Circle of Excellence awards from the Council for Advancement and Support of Education.The following joined the board on July 1: Andrew A. Forte, president, Stroudsmoor Country Inn; Eric Luftig, vice president, marketing, training and construction services, Victaulic; Richard J. Principato, president & CEO, Tower Products Inc.; and Martin K. Till, [...]
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These 2 Companies are Hiring Tons of Work-From-Home Reps Around the U.S.
Looking for a job that lets you work from home? These two companies are hiring for several customer service jobs around the U.S. — and you can do them without leaving the house.
Like many customer service jobs, your hours will vary, and pay is likely dependent in part on your location. We recommend you ask about these details in your interview.
Convergys is Hiring Work-from-Home Customer Service Reps
Convergys provides customer service agents for a variety of client companies.
“When you call the customer service department for your cell phone or cable provider, you just might be talking to a Convergys home-based customer service and sales agent,” the company points out.
As a work-from-home sales and service rep, you’ll provide customer service and sales over the phone or online for client companies.
Convergys is hiring in 35 states, according to the listing, but note we only see 22 listed on its careers page.
It regularly hires for three work-from-home customer support positions: sales and service (sales focus), customer service (customer focus) and technical support (technical focus).
Requirements
For all positions, applicants must have:
- a high school diploma or GED
- at least one year of customer service experience (plus one year of sales experience if you’re applying for a sales-focused position)
- your own PC and high-speed internet service
- a 17-inch monitor
- quiet, distraction-free environment to work
- an approved headset (upon hire)
Your schedule will vary, but make sure you’re available to work evenings and weekends.
Benefits
You’ll receive company benefits, including:
- Medical, dental and vision insurance
- 401(k)
- Tuition reimbursement
- Attendance-based wage increases
- Performance bonuses
- Sales incentives (depending on position)
To apply: You can see all available positions and apply for your state here.
Sutherland is Hiring Work-From-Home Technical Support Reps
Sutherland Global Services, another outsourcing company, is hiring work-from-home reps to join its CloudSource team to provide customers with technical assistance and general support.
The company is hiring across the contiguous U.S.
Requirements
For these positions, applicants must have:
- a high school diploma or equivalent
- basic typing skills and experience with the Microsoft Office suite
- technical support experience
- home office requirements (upon hire): USB headset with a noise-cancelling microphone and high-speed internet connection
To apply: Fill out the online application for Sutherland here.
Don’t see what you’re looking for here? Check out these Twitter accounts and job sites to follow to find flexible, work-from-home jobs to fit your needs.
You can also follow The Penny Hoarder Jobs on Facebook to be the first to know when we post new opportunities!
Your Turn: Will you apply for one of these work-from-home customer service jobs?
Dana Sitar (@danasitar) is a staff writer at The Penny Hoarder. She’s written for Huffington Post, Entrepreneur.com, Writer’s Digest and more, attempting humor wherever it’s allowed (and sometimes where it’s not).
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Watch TV and Get Paid: This Work-From-Home Job Pays Up to $18/Hour
The ideal workspace for this job goes something like this: You’ll sit on an a comfy, unmade bed in a dark room lit only by a flickering TV screen.
No headsets required. Even better? No talking to humans, either.
Crawford Media Services is hiring work-from-home video cataloguers — no experience required, although some is preferred.
One of its major clients? “The Walking Dead.” In addition to AMC, it also works with other clients, such as The National Archives, PBS and the World Wide Wrestling Association.
Other job perks? You’ll get paid $10-$18 an hour to work 15-20 hours a week for on your own schedule, depending on your work.
Here are all the fleshed-out details you need. Get it? Flesh-eating zombies? No?
Anyway…
What Does a Digital Cataloguer Do?
You’ll be working with metadata, which might sound technical and terrifying, but it’s basically data that describes other data — so meta.
Your job will be to write and review this metadata for quality control, which requires watching TV shows and programs.
Don’t worry: You’ll get the complete low-down when you go through training, which lasts from four to six hours and can be done at home. It’ll cover everything you need to know, and you can even save information for future reference.
Am I Qualified to Be a Digital Cataloguer?
Short answer: probably.
No experience is necessary, but some cataloging, tagging and remote work experience is preferred. You’ll also need to prove you have some copy editing and research skills.
You’ll need some technology on hand, like a “robust” computer with a high-speed internet connection and Google Chrome (an easy download).
You’ll also need some pop culture knowledge (think: musicians, celebs, events, politicians and fashion).
To begin, you must fill out an application and pass a test, which should take about three hours. Once you’re in, you’ll begin training.
If you’re interested in becoming a digital cataloguer, visit the job listing for more info and read through the company’s FAQ — before the apocalypse.
If you’re interested in other work-from-home jobs — or jobs in general — then make sure to follow The Penny Hoarder Jobs on Facebook.
Your Turn: Do you watch “The Walking Dead”?
Carson Kohler (@CarsonKohler) is a junior writer at The Penny Hoarder. After recently completing graduate school, she focuses on saving money — and surviving the move back in with her parents.
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Get Paid to Take Care of Dogs and Cats With This Paw-some Side Gig
Ruff month for your bank account?
Or maybe you just want to fluff it up a little? (Ugh, throw me a bone, guys!)
DogVacay is actively seeking dog (and cat!) lovers in the U.S. and Canada. Basically, you can get paid to walk around town and play with your favorite furry friends — and you get to set your own rates.
Sold? Here are the details
What’s DogVacay All About?
DogVacay is an online service similar to Rover and Wag!, two brands you might already know.
Pet owners go online to solicit pet sitters — no cold kennels required. Services range from at-home boarding to training and dog walking. It’s kind of like a rent-a-dog program, but you get paid.
“Whether you‘re retired, a work-at-home professional, a college student, or just a lifelong pet lover, DogVacay makes it easy to earn money watching pups,” the site states.
As a sitter, you set your own pay rate and availability. Can only take dogs for a walk on the weekend? No problem!
Where Do I Sign Up to Walk Dogs?!
As a sitter, you’ll create an online profile, establish your availability and detail your experience with dogs. You’ll also note if you’re down with dogs coming to your house, then answer questions about your place.
After that, you’ll mark which services you’re willing to provide. These include overnight boarding in your home, daycare in your home, sitting (with the dog) at a client’s home overnight, walking, making home visits, training, grooming, bathing (no thanks!) and pick-up/drop-off.
You can then note if you’re interested in a meet-and-greet before accepting bookings, which might be good to get a feel for the pet and the owner.
Oh, and you can decide which dogs you’ll accept, based on size, age and medical needs.
Finally, you’ll complete your listing with a title, a short profile and a beautiful picture of you (nope, not your dog’s face). You also need to take photos of your home (interior and exterior), although professional skills aren’t required.
Sniff around the site to learn more. You can also always check out Rover (hey there, Ashton Kutcher) and Wag, too!
Your Turn: Have you ever gotten paid to be a pet-sitter?
Carson Kohler (@CarsonKohler) is a junior writer at The Penny Hoarder. After recently completing graduate school, she focuses on saving money — and surviving the move back in with her parents. She owns a Boston Terrier and a rescue mutt.
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Would You Get a Tattoo to Earn a Lifetime of Free Burgers?
I don’t know about you, but I really like burgers.
So getting a free burger every day sounds pretty freaking awesome. And it’s not just a fantasy: Melbourne, Australia burger joint Cafe 51 is offering a lifetime, one-a-day supply of delicious, free burgers right now.
There’s just one teeny, tiny catch.
Get Free Burgers for Life… If You’re Willing to Go Under the Needle
To score #freeburgersforlife from this Aussie joint, you’ve gotta prove your devotion beyond the shadow of a doubt… by getting a burger tattooed on your body.
And that’s not the only stipulation.
It’s gotta be one of the burgers on the cafe’s menu (which includes one called “The Meataxe”), it’s gotta be life-size — and it’s subject to a one-tattoo-per-person limit, lest you get overzealous.
There’s also a required application, including an essay of 25 words or fewer on why you’re drawn to the deal. More than 3,000 hopefuls have already submitted, Cafe 51’s Steve Agi told Mashable.
I guess some people are really serious about their beef.
Is It Worth It to Get Tattooed for Freebies?
Although it might be a fun way to score some free eats (if you’ve got the pain tolerance), this deal does leave us with a few questions.
For one thing, what happens if the restaurant goes out of business? About 80% of restaurants shut their doors before their fifth anniversary, estimates CNBC.
Also, with that many applicants, what criteria will Cafe 51 use to decide who wins the prize? You’d better choose your 25 words very carefully.
But if you’re willing to undergo permanent body modifications for a deal (#extremepennyhoarders), you should know Cafe 51’s campaign isn’t the only one of its kind.
Ohio grilled cheese chain Melt Bar and Grilled offers customers 25% off for life to the “very elite group of slightly warped individuals” willing to get a tattoo of one of its logos.
And although the link on its actual website seems to be dead, fashion company Ecko is fabled to offer a lifelong 20% discount to those who etch its rhino into their skin.
Honestly, getting a tattoo is a big enough commitment — and a worthy enough piece of advertising — that you might just ask your own local burger (or pizza, or ice cream) joint if they’d offer freebies if you’re willing to use your body as a billboard.
You never know if you don’t try, right? And if worse comes to worst, well… you can always get a cover-up tattoo.
Maybe of a burger.
Your Turn: Would you get a burger tattoo for a lifelong supply of free burgers?
Jamie Cattanach is a staff writer at The Penny Hoarder who has eight tattoos — none of which are food items. Her writing has also been featured at The Write Life, Word Riot, Nashville Review and elsewhere. Find @JamieCattanach on Twitter to wave hello.
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Dream Job Alert: PopSugar is Hiring Work-From-Home TV Writers (Seriously!)
I cannot tell a lie.
When I saw that PopSugar is seeking writers, I had a total fangirl moment.
I even admitted to my co-workers that when I was looking for a job, PopSugar would have been a dream. (Right after The Penny Hoarder, of course.)
This big-time media brand (100 million monthly visitors a month?!) covers celebrities, fashion, fitness, beauty, love, moms, living, career, food and news — really, it’s everything you need. It even has videos — like this no-bake s’mores pie.
Now that I’m fangirling (yes, a verb in my book) and drooling, let’s talk about the job.
How to Become a Part-Time Writer for PopSugar
PopSugar is in the business of viral content about any of the above subjects. But right now, it’s looking for writers obsessed with #trending topics, TV, movies and current events.
“We’re particularly interested in writers who watch — or are willing to watch — any of the following shows: ‘Game of Thrones,’ ‘Orange Is the New Black,’ ‘Grey’s Anatomy,’ ‘Pretty Little Liars,’ ‘Outlander’ and ‘Supernatural,’” the listing states.
“Willing to watch…” Twist my arm, PopSugar.
You should be able to work a flexible schedule with some evening availability. You also need to be able to quickly turn around clean, witty, clickable words.
How Can I Become a Writer for PopSugar?
All you have to do is send in a short intro about who you are and why you want to write for the site.
You’ll probably want to include a little tidbit about your obsession with any of the above shows.
Think: I’m so obsessed with “Orange Is the New Black” that I watch each newly released season in 24 hours. I don’t leave my bed, basically.
That’s just an example — not me, of course. (*wink*)
You’ll also want to include three samples of your work and details on your availability (evenings, weekends, number of hours per week…).
Check out the full job listing then go on and fill out the application!
Your Turn: What’s your favorite TV show?
Carson Kohler (@CarsonKohler) is a junior writer at The Penny Hoarder. After recently completing graduate school, she focuses on saving money — and surviving the move back in with her parents.
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31 Days to Financial Independence (Day 7): Cutting and Minimizing Debt
“31 Days to Financial Independence” is an ongoing series that appears every Thursday on The Simple Dollar. You might want to start this series from the beginning!
Last time, we talked about something that I referred to as the “big boost“: going through your rarely-used and unused possessions in order to sell them off and use the proceeds to get your bills up to date, build a small emergency fund, and get a head start on your debt repayment plan.
Today, we’re going to talk in detail about that debt repayment plan.
The reality is that 80% of Americans are carrying some form of debt, with the median amount of debt measuring $67,900 spread across mortgages, student loans, car loans, credit cards, and other consumer debts. That’s a lot of debt, no matter how you slice it. It equates to hundreds of dollars a month spent on debt repayment and interest.
Here’s the problem with that picture: when you have hundreds a month vanishing out of your wallet to cover debt repayment and interest, that’s hundreds a month that’s not being spent on building the future that you want. If you recall, most people spend the vast majority of their working hours just earning enough to keep the wheels spinning, and debt repayment is a part of that. If your “true hourly wage” is, say, $10 an hour and you’re spending $800 a month on debt repayments, that means you’re spending literally 20 hours of each workweek doing nothing more than working to pay off debt. Every dime from twenty hours of your workweek is vanishing into the debt repayment black hole. There are 168 hours in a week, which means that you’re literally spending 1/8th of your life working to repay debt.
To me, that’s not living. That’s not freedom.
Instead, it’s far better to be spending those hours working toward establishing financial independence and achieving the big life goals you have for yourself. Clearing out your debt and eliminating those monthly debt payments is a huge step in that direction.
But how do you get from here – a median debt level of $67,900 – to there – a debt level of $0?
The way to do that is by first implementing a debt repayment plan in which you have an organized and sensible plan for eliminating all of your debts, and then walking through each area of your spending to compress and eliminate wasteful expenses, which is the “fuel” you need to make that debt repayment plan run.
Today, we’re going to focus on that first part: the debt repayment plan.
A debt repayment plan is really simple. It’s nothing more than a list of all of your debts, organized by simple criteria (usually interest rate). Each month, you make minimum payments to all of the debts on the list along with the largest possible extra payment on the debt at the top of the list. When that top debt is paid off, you remove it from the list, so now you have a little more to contribute to large extra payments on the new top debt on your list. You just keep repeating this until the list is done, at which point you’re free from debt.
It’s a simple framework, of course, but there are quite a few little things you can do to really make this thing hum. Let’s get started.
Exercise #7: Building a Debt Repayment Plan
By the end of this exercise, you’re going to have a debt repayment plan in place. You will have optimized it so that you’re going to be spending as little money as possible to make debt payments, meaning you have the maximum amount of money available each month to really hammer that top debt. You will have used the money from your “big boost” to get it started, as well.
Let’s roll.
The first step is to simply collect together all of your debts into one place. Go through the last month or two of your mail and get out the most recent statements for all of your debts – your credit cards, your mortgage, your student loans, your car loans, and anything else. Collect all of these items together into one place before you get started.
Next, make sure that you have something with which you’re comfortable making a simple table. A couple pieces of paper and a pen would work really well. A spreadsheet program, if you’re comfortable with one, works like a champ.
What you’re going to do first is to create a simple table with six columns. The first column is the name of the debt. The second column is the current balance of the debt. The third column is the current interest rate of the debt. The fourth column is your current monthly debt payment. The fifth column is the account number for the debt. The final column is the customer service number for the debt. Leave some space next to the interest rate and the monthly payment on this table because ideally that number is going to change.
The next step? You’re going to contact each of these debt holders and look for a way to lower that interest rate. For each and every debt you have listed, call the customer service number and use your account information to talk to a customer service representative. Your goal at the end of the call is to achieve a lower interest rate on that debt.
Here are some tips for making this process really work well.
First, be polite, no matter what. Never, ever, ever get angry with a customer service representative. The truth is that the vast majority of them want to help you but are unable to do so, not because of their choice, but because of the company’s policies and tools. It’s very rarely the fault of a customer service rep if your situation can’t get resolved. However, if you get angry, all you’re doing is ensuring that the customer service rep that you’re talking to will never go the extra mile to try to find a resolution for you. If you’re polite and kind, you’re going to find that sometimes they will go above and beyond to help you, a result that anger will never achieve. If you get angry, get off the phone and channel that anger elsewhere.
Second, ask the customer service representative whether they have the capacity to change your interest rate or other aspects of your debt. If they do not, ask to speak to their supervisor or to someone who can. Don’t exhaust your breath talking to someone who can’t actually change anything about your situation.
Third, when you are able to talk to someone who can actually change aspects of your debt, emphasize that the reason you are calling is that your current financial situation makes continued steady payment of the debt under current terms difficult. Your financial situation is changing. You’re looking at the future now instead of the present, and you’re also recognizing how perilous your current financial state is. Emphasize the fact that you’re walking a financial tightrope right now and even the tiniest slip is going to cause some problems.
Fourth, be aware that they may reduce the credit limit on one of your credit cards or cancel it entirely. This is how some credit card companies respond to customers that they consider marginal. If you consistently keep a card fully paid off, this may be their response. Similarly, if you consistently stay at your credit limit and sometimes miss payments, they may respond by cutting your credit limit or closing the card. You should never be in a situation where a card closing causes you to be in financial distress, but if you are in such a situation, be aware that it can happen when you’re discussing a rate change with a credit card company.
Finally, focus more on a reduced interest rate, not reduced monthly payments. You might think that such things go hand in hand, but they sometimes do not. A reduced monthly payment will happen if there’s no change in the length of a loan, but if they’re also altering the length of your loan repayment, monthly payments can stay the same or even go up a little. That’s fine. Your goal is to minimize the amount of interest you pay over the long run.
What about refinancing? If you have a mortgage, one option you can consider to reduce your interest rate is mortgage refinancing. In fact, that’s the option that your mortgage holder will likely discuss with you if you call them. Refinancing essentially means that you’re starting over with a new mortgage, one with a new interest rate that reflects current interest rates and your own current financial state (if you have good credit, that means a pretty good rate).
You may want to shop around for refinancing options by talking to several banks that are in the business of refinancing. You should be seeking the lowest interest rate possible, even if that means some fees up front in the process.
Again, this doesn’t necessarily mean that your payments will go down. If you refinance a 30 year mortgage into a 15 year mortgage, you may actually see a small rise in your monthly payments, especially if you’re just a year or two into the mortgage. Don’t worry – it’s fine. It means that even if you make minimum payments, you’ll have the debt paid off much faster than before.
What about student loan consolidation? Again, student loan consolidation is an effective way to reduce the interest rates on your loans. You’ll similarly want to shop around for student loan consolidation options, and, again, you may end up in a situation where your overall payment goes up slightly if you agree to a shorter term with a lower interest rate. Over the long term, that’s a good thing.
As you go through the process of talking to each lender, you may find yourself reducing the interest rate and changing the monthly payment on your various debts. Mark those changes on your sheet by simply crossing out the original numbers and writing in the replacements. We’ll worry about organizing them later – for now, just replace the old data with the new data in the most convenient way possible.
Once you’ve talked to each and every lender and figured out your plans for student loan consolidation and/or home refinancing, you’re ready for the next step, which is converting all of this information into a debt repayment plan.
There are really two main options for doing this.
The first option is what I call the “least payment” model. If you use this route, you are going to be paying the least possible amount in interest payments to your lenders. Over the long term, your total bill is going to be lower than any other plan you might come up with.
So what’s the drawback? The drawback is that you may find yourself hammering away at a single debt for years without ever actually paying any debts off. If the first debt on your list has a big balance, it’s going to take quite a long time to get rid of it, especially if you’re making minimum payments on other debts. This can sometimes cause less persistent people to get frustrated and give up on their debt repayment plan.
The other option is the Dave Ramsey “debt snowball” model. With this model, you’re going to space out the payoffs of your loans so that you get to enjoy the victory of paying off a loan as regularly as possible. Ideally, you’ll experience that success over and over again frequently at first and then the celebrations spread out a little as you start facing your biggest debts.
The drawback here is that you might end up paying off debts in such a way that your total overall payments are a bit higher than they would be with the other plan. In other words, you might spend a little more with this plan over the long haul, but it’s better designed for the psychological benefits of success in paying off individual debts.
Both plans are perfectly fine. Both will get you to your destination and, honestly, unless your situation is extreme, the plans will likely end up being fairly similar in execution anyway.
So, pick one strategy and go with it.
Once you’ve decided on your strategy, you’re actually going to make your debt repayment plan.
Take that second sheet of paper (or a new spreadsheet document) and make the same columns – debt name, interest rate, current balance, monthly payment, account number, and customer service number. Except now you’re going to copy over data from the first table, but in a new order.
If you decided to use the “least payment” model, copy the debts over by interest rate, with the highest interest rate first. Write down the info for whatever debt has the highest interest rate in the first row, then cross it off the other page. Then, write down the info for the debt that now has the highest interest rate in the second row, and then cross it off the other page. Keep doing this until you’ve listed all your debts ordered by interest rate with the highest interest rate on top.
If you decided to use the Dave Ramsey “debt snowball” model, copy the debts over by remaining balance, with the lowest remaining balance first. Write down the info for whatever debt has the lowest remaining balance in the first row, then cross it off the other page. Then, write down the info for the debt that now has the lowest remaining balance in the second row, and then cross it off the other page. Keep doing this until you’ve listed all your debts ordered by remaining balance with the lowest remaining balance on top.
Regardless of the model you chose, this is now your debt repayment plan. Here’s how you use it.
Each month, you’re going to make a minimum monthly payment on every debt except for the one in the very first row. You need to do this to keep from accruing late fees and damaging your credit.
What about that debt in the very first row? Each month, you’re going to make the biggest possible payment you can on that debt. Throw every spare dime you can at it. Ideally, you can sometimes pay off the full debt with one payment, but many months that won’t quite work, so just make the biggest payment you can.
Whenever new bills come in, update the remaining balance and the monthly payment for each of your debts, then repeat this entire practice. Make minimum payments on each debt, then make a giant payment on the first debt on the list.
When the top debt is paid off, feel free to celebrate in some non-financial way! It’s a great step on your road to financial independence! The next step, then, is to move on to the next debt on the list. It now becomes the “first debt” in your plan, so you’ll make minimum payments on the rest of the debts and you’ll make a giant payment on that new “first debt.”
What you’ll find is that when you start paying off debts, it becomes easier and easier to make really big debt payments each month because you have one less minimum monthly payment to worry about. Instead, you can channel the money that used to go to that minimum monthly payment into a giant overpayment on the current top debt. You’ll find that the whole thing accelerates over time!
There are a few little caveats worth thinking about, though.
First of all, if you have any remaining money from your “big boost“, use it to make a giant initial payment on the first debt on your list. Perhaps you can pay the whole thing off… or even pay off the first couple debts. That’s a great way to get started on this whole plan.
Second, avoid adding any new debt unless you absolutely have to. If you find that you’re on the verge of putting things on the credit card because there’s no money left after your giant extra payment, don’t do it. Instead, next month, make your giant extra payment a little bit smaller and keep giving yourself breathing room in your day-to-day life.
Third, if an emergency causes you to pull money out of your emergency fund, slow down with your extra payments and refill the fund. Yes, sometimes things are going to happen that cause you to tap that emergency fund that we created last time. That’s okay. Just make sure that you refill the emergency fund. While you’re refilling, just make minimum payments on all of your debts and put a big lump of money into your emergency fund.
Finally, you’ll find that frugality amplifies this whole thing. Finding smart ways to cut your spending, even if it’s in a subtle way like reducing your electricity bill by $5 a month, ends up having an impact on this debt repayment plan. A $5 cut on your electricity bill means $5 more toward your debt repayment plan each month without any change in your lifestyle, which is an amazing thing!
That’s why, over the next several stops on this road to financial independence, we’re going to look at the pieces of the typical American budget, one by one, and look for ways to reduce those costs. The purpose isn’t to cause you to live a miserable life of austerity, but instead to “empty out the shallows,” a concept we talked about earlier in this series. You’re shooting to minimize the spending in the areas of your life that you care less about so that you can live the life you want to live in the handful of areas that you do really care about.
That means that throughout those entries, you should focus on cutting back mostly on the areas that don’t seem overly painful. Don’t get focused on the ideas that seem like they would really detract from your life – cutting there isn’t worth your time. Instead, focus on the other tactics, the ones that don’t interfere at all with the parts of your life that you want to go “deep” on.
See you next time!
Related Articles:
- Debt Payoff Calculator
- 40 Ways to Save Money on Monthly Expenses
- Debt Diaries: Real-Life Stories of Debt, Bankruptcy, and Recovery
The post 31 Days to Financial Independence (Day 7): Cutting and Minimizing Debt appeared first on The Simple Dollar.
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Act now to get 6% on your savings - First Direct and HSBC to cut rates tomorrow
Customers of First Direct and HSBC should act fast if they want to earn 6% on their savings as the banks are cutting the rates on their market-leading regular savings accounts tomorrow.
First Direct will cut the rate on its regular saver from 6% to 5% at 6am tomorrow, while HSBC will cut the rate on its regular saver from 6% to 5% for Premier and Advance customers at 00.01 tomorrow.
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Broadband and mobile complaints fall
Complaints about home phone, broadband, pay monthly mobile, and paid-for TV companies fell between April and June compared to the first three months of the year, according to the latest data from regulator Ofcom.
Moneywise breaks down the complaints by service below.
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Investors flock to protect lifetime allowance
Pension savers are rushing to protect their lifetime allowance, following its reduction in April this year.
The lifetime allowance is the maximum amount you can save in a pension over your lifetime. Any amount saved in excess of this is taxed at a rate of 55% (or 25% if taken as income). It currently stands at £1 million following a reduction from £1.25 million in April.
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Five Legitimate Passive Income Ideas
If someone gave you a million dollars, you’d never have to work again – but not for the reasons you think. The big leg up that a stack of cash provides isn’t the means to buy stuff with it now. It’s the ability to invest it so that your money works for you, while you potentially do nothing at all. This is called passive income, and you could argue that it’s new American dream.
Of course, no one is going to give you a million bucks so that you can quit your day job(s) and become a full-time margarita taste-tester. But you can get a tiny piece of that passive-income action, to the tune of an extra couple of hundred or thousand dollars a year, if you’re willing to invest a little time up front.
But First: A Note About Scams
No advice about generating passive income would be complete without this caveat: When you’re considering potential revenue ideas, if it seems too good to be true, it probably is.
Nothing in life is truly free: To make money, you have to sell something. If your regular job is like most, you’re selling your labor and time. If you adopt one of these ideas, often you’ll be selling your data.
That’s not necessarily as scary as it sounds: If you use Facebook, for example, you’re doing the same thing, but for free. But it’s worth noting, especially since there’s a lot of fraud out there. If someone promises you money for nothing – or asks for your banking information, Social Security number, or other essential info – run. The real way they make money is by selling your identity.
The best way to evaluate potential frauds is to ask yourself what they get out of the exchange. If that’s not clear, think twice.
Five Legitimate Ways to Earn Passive Income
1. Share Your Mobile Browsing Habits
Google and Nielsen want to know which websites people like you visit, and for how long, and they’ll pay for the privilege of finding out. We’re not talking big money here – mostly between $50 and $150 a year – but if you have the storage space to download a few tracking apps at once, you could make an extra few hundred bucks a year just by sharing your data. The Penny Hoarder has a good roundup of these apps, including options for both iOS and Android devices.
2. Add Affiliate Links to Your Blog
If you’re already a blogger or have a topic you’re passionate about and want to share with a wider audience, adding affiliate links to blog posts is a great way to generate passive income. Affiliate programs like Amazon Associates or Commission Junction will pay you a commission on any sales generated through ads or links placed on your site.
Just remember that you’re legally required to make it clear that these links are advertising – and realize that you’re not going to make a dime if readers don’t trust you, so resist the urge to push shoddy products.
3. Use a Shopping Portal
Sites like Swagbucks and Ebates offer gift cards or points redeemable for purchases to users who search the web, answer surveys, or shop online using the portal as a starting point. That means you can buy what you were going to buy anyway, and generate a bit of extra revenue by doing your usual online shopping.
4. Make Your Car Into a Moving Billboard
If you don’t mind covering the family car in advertising, you could make as much as $400 a month to drive a moving billboard around town. Free Car Media covers participants’ cars in vinyl wraps featuring ads from various companies, and then pays the owners to drive their own wrapped car.
AOL reports that drivers are also expected to act as spokespeople for the product if anyone asks you questions about your ad-plastered car, so if you’re shy, this gig might not be for you.
5. Rent Your Driveway
Services such as JustPark and SPOT allow you to rent out your driveway or prime parking space for a few bucks at a time (about $30, by one account). If you live near a sports arena, concert venue, downtown area, or other popular destination, and don’t need your driveway, you could make extra money with very little effort through these services.
Related Articles
- 10 Companies That Will Pay You Just to Use the Internet
- How to Make Money
- The Reality – and Commitment – of Passive Income
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Comparison websites to be probed by competition watchdog
Price comparison websites, mobile apps and other digital tools that enable consumers to compare products and services are to be probed by the competition watchdog.
The Competition and Markets Authority (CMA) says it will consider “how to maximise the potential benefits of digital comparison tools for consumers, and reduce any barriers to how they work”.
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Take easy steps to big rewards with October’s Moneywise out now
Grab the October issue of Moneywise from WH Smith stores now for easy steps to big rewards, including tips on how to cut your energy and food bills, boost your savings, and start investing.
For just £3.95, you can also find out how to find a good accountant, be a financially savvy singleton, and get the lowdown on the new inheritance tax rules.
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How to Find Work-At-Home Jobs Faster
By Kimi Clark Many people want to work at home these days, but they’re unsure how to go about it. One thing is for sure – you’ll need to find a job faster if you’re considering quitting your day job to pursue your dream of working at home. It can be challenging; it’s not for […]
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