Ten Financial Observations from My 50th Birthday Road Trip

Ten Financial Observations from My 50th Birthday Road Trip
Eileen St. Pierre, The Everyday Financial Planner

My husband and I just returned from one of our road trips – 10 states in 25 days. For my 50th birthday, I wanted to see where Lewis & Clark ended their journey (I have never been to the Northwest) and visit some national parks. I thought I would share with you a few financial observations we made along the way.

  1. You have no choice – you must get full service gas in Oregon (this is also true in New Jersey). State law does not allow customers to touch the gas pumps.
  2. We saw more foreigners at the national parks we visited than Americans. We made this same observation several years ago when we visited the Grand Canyon.
  3. If you put a convenience store in the middle of nowhere, people will find it.
  4. Hotels really need to have more than one washing machine and dryer available, especially if they are frequented by foreign tour groups.
  5. In-N-Out Burger always has a crowd, but no one was at the McDonald’s across the street.
  6. It’s too hot in Death Valley to have a park ranger man the payment booth so they have self-service kiosks set up. We paid our fee but most people do not.
  7. As my husband and I drove along the Las Vegas strip, we thought about all the employees it takes to run a casino and how big their electric bill must be – you know, the typical stuff tourists think about.
  8. We paid nothing for our hotel rooms. We had lots of reward points saved up.
  9. There is no sales tax in Oregon – boy, I could get used to that! The residents told us their property taxes are pretty high though.
  10. In a week after we returned, this was in my mailbox:AARP

Free Webinar: Annuities

Free Webinar: Annuities
Eileen St. Pierre, The Everyday Financial Planner

Annuities promise a guaranteed income for the rest of your life. This can sound too good to be true. Annuities have a lot of costs associated with them that can hurt your retirement if you do not understand them. Join us for this free 30-minute webinar on Thursday, October 19 at 3:30 Central to learn about these investments and how they can fit into your retirement plan. We will also discuss alternatives to investing in annuities. This webinar is sponsored by the Choctaw Asset Building Program.

Click HERE to register.

For more information and to listen to archived webinars about retirement, visit my Retirement Planning page.

Getting Financially Ready to Buy a House

Getting Financially Ready to Buy a House
Eileen St. Pierre, The Everyday Financial Planner

family-in-front-of-house-600x330Buying a home is a big financial step. A home can be a great way to build wealth. But I have never heard anyone tell me that they look forward to the mortgage application process. If you take the time to get your financial house in order, it can really help alleviate the stress of taking out a mortgage.

Here are some tips to get you financially ready to buy a house.

Determine how much house you can afford.

The general rule of thumb is 2 to 3 years’ of income. If you have student loans or other major debts, you may want to look for a home on the low end of this range.

Another rule of thumb is to put 20% down to avoid paying private mortgage insurance (PMI) and to secure a better interest rate. However, this can be a high hurdle for many, and there are mortgage programs out there that do not require that high of a down payment. Just remember, the more you put down, the more “skin” you have in the game, and the lower the interest rate on your mortgage loan.

Google “mortgage calculator” to find many free sites that will show you what your mortgage payment will be given the following inputs:

Set up a special savings account just for your down payment.

Label the account something like “House Down Payment” so you will always see this when looking at your account. Set up automatic withdrawals to this account when you get paid. For example, if you need to accumulate $9,600 ($7,000 down payment plus a little extra for all the other expenses that come with buying a home), a couple should set up the following automatic payments:

  • To reach their savings goal in 1 year, each should contribute $400/month.
  • To reach their savings goal in 2 years, each should contribute $200/month.
  • If they get any income tax refunds, they should put some of the money into this account to help them achieve this goal faster.

Get your credit in tip-top shape.

Here is a checklist of things to do:

  • Get your credit report at www.annualcreditreport.com. Everyone is entitled to get a free copy of their credit reports from each of the three credit reporting agencies (Experian, Equifax, and Transunion) every twelve months. Checking your credit yourself is a soft inquiry and will not hurt your credit score.
  • Make sure there are no errors on the credit reports. Take steps to remove errors (follow directions on screen). Make sure all credit accounts are in good standing.
  • Find out your credit score. There are a number of ways to get free credit scores now. Check at your bank or on your credit card statement. The higher your credit score, the lower the interest rate you will get on your mortgage.
  • Don’t take out any loans (i.e., new car) six months leading up to applying for a mortgage. Too many hard credit inquiries will hurt your credit score.
  • Do some “browsing” for a new home. But when you are ready to buy, try to get pre-approved for a mortgage first. This will make it easier to jump on the house you want if the real estate market gets tight and puts you in a better negotiating position.

Don’t forget about the other costs of home ownership.

Your mortgage payment should not exceed 20 to 30% of your gross income before taxes. Try to shoot for the lower end of this range, because there are other costs to home ownership such as:

  • Homeowners insurance
  • Maintenance
  • Property taxes
  • Furniture

Costs can add up quickly if you are not careful.

Want to learn more? Join me for a free 30-minute webinar Buying a House without a Credit History on November 16 at 3:30 CST. Click HERE to register.

 

Health Care Waste: The Walker Nobody Wants

Health Care Waste: The Walker Nobody Wants
Eileen St. Pierre, The Everyday Financial Planner

While I was recovering in the hospital last December from major spine surgery, a medical equipment representative paid my husband Jeff a visit in my room. I was completely out of it – I had no idea he was there. He showed Jeff all this equipment that he said would greatly aid me in my recovery. Jeff was like “I don’t know what she is going to need.” Most of the stuff was complete overkill that Jeff could probably fashion himself out of stuff around the house. Jeff settled on just getting me a walker because the representative gave him paperwork showing it would be 100% covered by my health insurance.

Walker_Front1The hospital is in on this.

The medical equipment provider was somehow connected with the hospital. The scariest part for me was that this representative had all my information when he came to visit my room. He had all the paperwork ready for my husband to sign. What if Jeff wasn’t there? I was in no condition to give consent.

I guess if we had to do it all over again, we should have just told him no and we’d contact him later if we needed anything. But my husband was put in a rough position and this representative knew it. Do you know that many medical equipment providers now let you rent equipment? It would have save us a lot of grief knowing this.

The walker was not 100% covered.

The first bill I received after I was discharged was for this stupid walker. My insurance company was billed $195.97 (our invoice said it would cost $185.42). It was reduced down to $110.87 and the insurance company paid $88.70. We had to pay $22.17. Yeah, this annoyed the hell out of us but we read the fine print and realized we got screwed. We decided to pay it because I had to go in for a follow-up surgery in January and I did not know if I would need it. It turned out I never needed it. It’s still in its original packaging.

Now we can’t get rid of it.

We tried returning it even though the 30-day window had passed. The representative from the office that originally sold us the walker just laughed at my husband. A rep from another office (same company) was a lot nicer but could not help us. We asked independent medical equipment companies across Oklahoma if they would buy it from us – all we wanted was to recover our $22.17. One offered us $10. All the others said they could not help us.

We tried selling it on eBay, but there are competitors who are selling theirs for less than it costs us to ship it. Not sure how they can afford to do that, but that’s probably another scam I really don’t want to find out about. Now we have it listed on Craig’s List. We’d even be willing to just donate it to someone who really needs it.

For those who really need the walker, Medicare and supplemental insurance covers the full cost. Why buy mine for $22.17? Just get it from that nice representative who takes the time to visit you in the hospital.

It’s all waste.

The cycle just keeps continuing. And I don’t expect Congress to do anything to end it anytime soon. One suggestion would be to give Medicare permission to purchase medical equipment from eBay and Craig’s List. They’d save us taxpayers a whole lot of money.

CFPB Disaster Financial Toolkit

CFPB Disaster Financial Toolkit
Eileen St. Pierre, The Everyday Financial Planner

As I am writing this post, my family and friends in Florida are preparing for Hurricane Irma. Family and friends in Houston and Beaumont are cleaning up after Hurricane Harvey. Recently I received an email from the Consumer Financial Protection Bureau (CFPB) about their Hurricane Harvey Financial Toolkit. It contains some great information on securing your finances and your home after a natural disaster – from hurricanes, to tornadoes in my neck of the woods, to wildfires out west.

hurricaneThe CFPB provides direct links to resources you will need immediately after the disaster. They then list five steps to do next:

  1. Contact your insurance company. Ask for an electronic copy of your policy—receiving physical mail may be difficult. That will help you verify your coverage. If possible, take photos and videos of your damaged property. Documenting damage will help you with your insurance claim.
  2. Register for assistance. Registering online at www.DisasterAssistance.gov is the quickest way to register for FEMA assistance. If you are unable to access the internet, you can also call at 1-800-621-3362.
  3. Contact your mortgage servicer. Talk to your mortgage lender right away and tell them about your situation. Damage to your home does not eliminate your responsibility to pay your mortgage, however your lender may be willing to work with you given the circumstances.
  4. Contact your credit card companies and other lenders. If your income is interrupted or your expenses go up, and you don’t think you will be able to pay your credit cards or other loans, be sure to contact your lenders as soon as possible. Ask your creditor to work with you.
  5. Contact your utility companies. If your home is damaged to the point you can’t live in it, ask the utility companies to suspend your service. This could help free up money in your budget for other expenses.

The CFPB also provides other great resources and ways to avoid scams. No need for me to reinvent the wheel here, folks. This website has it all in one place.

Top 10 Things You May Not Know About Medicare

Top 10 Things You May Not Know About Medicare
Eileen St. Pierre, The Everyday Financial Planner

I recently attended a Medicare training given by the Centers for Medicare & Medicaid Services (CMS) and learned a few things. Here is my top ten list of things you may not know about Medicare:

10.  The annual Medicare & You manual is printed specifically for your state. In 2016, only 320,000 of the 56.5 million Medicare beneficiaries got these manuals online. That’s a lot of printing.

9.   While Medicare does cover some skilled and home health care, it does not cover long-term care. I keep repeating this because it’s important.

8.   You need to be admitted to the hospital for Part A coverage to take effect, otherwise Part B kicks in and you will have to pay for 20% of the cost yourself unless you have Medigap insurance. Just because you stay overnight at the hospital does not mean you have been admitted. You may still be in observation status.

7.   10,000 people a day are going on Medicare.

6.   There is a two-year look-back period when your Part B premium is set. This means if you recently retired and earned a high salary, you may pay more for Part B even if your income in retirement is much lower.

5.   The Donut Hole (prescription drug coverage gap) goes away in 2020.

4.   Dates matter! If you don’t sign up when you are first eligible, you will have to pay more for Parts B and D for the rest of your life.

3.   If you don’t enroll in a Medigap policy when you are first eligible, insurance companies can charge you more or deny you coverage if you have pre-existing conditions. In other words, enroll when you are first eligible for guaranteed acceptance.

2.   The #1 claim denied by Medicare is for ambulance services. The #1 source of fraud is in home health care services.

And the #1 thing you may not know about Medicare is:

Starting April 2018, Medicare will start issuing new cards that do not contain your Social Security number (click HERE for more information). Instead they will have a unique number for each Medicare beneficiary – benefits will not change. The goal is to help guard against identity theft. New cards will be sent out randomly. This means my mother may get hers in April 2018 but my father may not get his until December 2018. There is no way you can find out when your cards will be mailed to you.

old-people-616718_1920I started hearing the commercials about the new Medicare card this past week. The new card design will be unveiled in September. Visit www.cms.gov for more information.

Have Your Finances Blown Out of Control?

Have Your Finances Blown Out of Control?
Eileen St. Pierre, The Everyday Financial Planner

This is what was printed on a bottle of bubbles that was hanging on my front door Friday morning:

Bubbles

Well, I give this loan company an A in creativity. Parents will give these bubbles to their kids, see this ad and think “Yeah, my finances have blown out of control. Maybe I should do something about it.”

Bubbles don’t last very long. Neither does the lift you may get from a short-term loan. If you don’t get your spending under control, or you continue to incur more debt, you will find yourself right back where you started.

Setting up a debt reduction plan and establishing a budget can get you started on the right path. Ultimately it is up to you to get your finances in order. It’s a lot harder than blowing a bunch of bubbles, but the impact is more long-lasting.

Visit my Debt Management page for free and helpful resources.

Yes, you can teach a finance class in a bowling alley

Yes, you can teach a finance class in a bowling alley
Eileen St. Pierre, The Everyday Financial Planner

I have been teaching finance since 1992, starting off in the typical college classroom but soon yearning for something more. The more off the wall and unpredictable the location, the better. Yeah, sometimes you wonder if you’re getting through – like the time I taught in the basement of military barracks with intermittent electricity and no air conditioning on a 100 degree day. But most of the time it does work, making for a truly memorable experience for both the students and the teacher.

I was recently asked by an Army Captain to teach a financial class to his soldiers at the bowling alley on a Friday afternoon. He wanted the full spread – PowerPoint presentation and everything. We were expecting 80 + soldiers and some family members. Oh boy, this definitely called for a scouting trip down to the bowling alley to figure out where the heck I was going to hold this.

Our only doable option was to take over the pool room:

Bowling Alley Class

As you can see, there were not a lot of chairs. We placed our financial resources on one of the pool tables. The room was packed full. There was no room for a PowerPoint presentation – just me using my teacher voice. The Captain gave a short speech about how important this subject was, and his own experience managing money.

Then an amazing thing happened. For about 90 minutes we covered budgeting, managing credit, deployment financial issues, and saving for retirement (including the military’s new Blended Retirement System ). No one left the room. Almost all the financial resources were taken. There were lots of questions afterwards.

Wow, I felt like I bowled a perfect 300 game.

Holding too many investment funds can hurt you

Holding too many investment funds can hurt you
Eileen St. Pierre, The Everyday Financial Planner

I’ve seen a lot of investors who own way too many mutual funds. Financial advisors never seem to recommend selling funds. That’s because most get paid when you buy in, not when you sell. If they really had your best interests in mind, they would determine if the fund met your investment objectives. If it didn’t, they need to explain to you why it doesn’t and recommend you sell it. There is no shame in selling. Holding too many investment funds can hurt you.

Some funds may not be suitable.

You may not have understood the investment objectives of some of your funds. Perhaps they were not explained properly to you. While I can tell a lot by looking at the fund’s name, at a minimum I always look at the fund’s summary prospectus to determine if it meets my client’s needs.

It is important to update your financial plan. Your investing goals and risk preferences may have changed and a fund may no longer be suitable.

Some funds may not be necessary.

Do you know what securities your funds hold? I like to go to www.morningstar.com, look up the fund’s ticker symbol and get Morningstar’s free reports. If I see a client who has three funds that basically invest in the same securities, I pick one for them and encourage them to sell the others. Here are some factors I consider to help me make my decision:

excessive fees

  • What is the fund’s annual expense ratio? Do you just have to pay a management fee or is there also a 12b-1 fee? A 12b-1 fee is a fancy word for a marketing fee – part of which goes to the advisor who recommended the fund.
  • What is the turnover ratio? If the portfolio manager is constantly buying and selling securities in the fund, this will increase the annual expense ratio. Is there a reason the turnover has to be so high?
  • Is there a redemption fee? In other words, do you have to pay a fee to sell the fund?
  • Even though past performance is not a guarantee of future performance, how well have the funds performed over the past five years?

Diversification can now be achieved with one fund.

Instead of trying to select funds to meet your investment objective, you may be able to find one fund that holds the right mix of individual funds already. The best example here are Target Date and Lifecycle retirement funds. These funds hold a mix of stock and bond funds and gradually re-balance your portfolio towards a safer basket of securities as you approach your retirement date. 

Fees can really add up over time.

If you have to pay sales charges or front-end loads to buy into a fund, that’s less money for you to invest upfront. Let’s say you invest $10,000 in a mutual fund that charges a 5% front-end load. You will only invest $9,500 of that money; your advisor will keep $500. If that money is invested at 8% for 10 years, you will earn $1,080 less than if you had invested the full $10,000.

For more information on investing, visit my Basic Financial Management page.

Five Back-to-School Budgeting Tips

Five Back-to-School Budgeting Tips
Eileen St. Pierre, The Everyday Financial Planner

A new school year is fast approaching. Is it time again for back-to-school shopping? Here are five tips to help you keep a handle on your budget.

  1. Know how much you can afford to spend.

First determine what you need to buy and what you can use from last year. Then determine how much you can afford to spend. Also consider how much autonomy you will give each child to pick out his/her own things. By giving them each a set amount of money to spend, you may be amazed at how well they budget their money if it means getting a few more outfits!

Set the money you budgeted aside in a separate savings account. Set up automatic transfers when you get paid. Having a dedicated account for back-to-school shopping creates a “mental accounting” for this money.  After school starts, you can use this account to start saving for Christmas presents.

  1. Take advantage of sales tax holidays.

back to school shoppingnIn my home state of Oklahoma, our tax-free shopping weekend is August 4-6 but only clothing and shoes up to $100 are exempt from sales tax. We can also drive to Texas the next weekend (August 11-13) and take advantage of their tax-free shopping. More is covered – clothing, backpacks, and school supplies up to $100. To get the complete list for all the states, go to www.taxadmin.org/sales-tax-holidays.

  1. Can you wait until after school starts?

There are many reasons to try to hold off buying until after school starts:

  • Your kids can see what the other kids are wearing.
  • You can take advantage of discounts after school starts.
  • There are always Labor Day sales.
  • You can see if you really do need the items on the school’s supplies list.
  • For children starting college, you may want to wait until you see where they will be living. Your daughter may really hit it off with her roommate and they may want to decorate their dorm room together.
  1. Use online shopping to your advantage.

It is quite possible that you can get many items cheaper online. For clothes, have your kids try them on in-store first to make sure of size. Look and see if there are any online coupon codes – many do not work but you never know.

  • Don’t forget about shipping costs.
  • Make sure you know the online vendor’s return policies.
  • Allow yourself enough time to comparison shop.

But be wary. Take steps to avoid identity theft.

  • Make sure the website is a legitimate vendor.
  • Be careful when inputting your credit card information. To avoid giving the vendor your information directly, use PayPal whenever possible.
  • While the new credit cards with embedded chips (i.e., the new “dip” cards) make it difficult for thieves to steal your credit card numbers from physical stores, you do not get those protections online. [Read more HERE.]
  • If you think you are a victim of identity theft, go to identitytheft.gov to report it.
  1. Be prepared to pay your bills.

Pay off your credit cards right away – use them like a debit card. Take cash if you don’t think you have the discipline to stick to your budget. If your child really wants something, set up a payment plan for him/her to pay you back.

I’ll end this post the same way I started it. Remember that savings account you set up earlier? You set the money aside for this, so use it.

Visit my Basic Financial Management page for more information.

Starting July 1, credit reports just got a lot more accurate

Starting July 1, credit reports just got a lot more accurate
Eileen St. Pierre, The Everyday Financial Planner

On July 1, the three credit reporting agencies (Experian, Equifax, and Transunion) started to tighten data reporting requirements for those consumers with civil judgments and tax liens against them. Now these agencies are requiring debt-eraserthe following for these records to be placed on your credit report:

  • A Social Security number or date of birth to go with your address.
  • Records need to be updated every 90 days.

Records that do not meet these new standards will be removed from your credit report.

Why is this happening?

These agencies haven’t been required to do this. They are doing it voluntarily. They just got sick of so many people complaining about these incomplete records hurting their credit scores. These types of records hurt your credit score a whole lot more than carrying a balance on your Visa card.

Who is affected?

Only about 6 or 7% of people with FICO scores will probably be affected – and only by a little bit. It is predicted these people should see their FICO scores rise only by about 10 points. The reason – people who have these types of records on their credit reports typically have other negative information such as collections and past due payments.

What can you do?

If you haven’t done so in a while, check your credit report. You can get a free copy from each of the three credit reporting agencies at www.annualcreditreport.com every 12 months. Check it for any reporting errors. Follow the instructions on the report on how to get them removed, or check out my blog post. Don’t count on errors to be removed for you. You are responsible for your own credit history.

For more help on managing your credit, visit my Debt Management page.

The Snowball Effect on Debt

The Snowball Effect on Debt
Eileen St. Pierre, The Everyday Financial Planner

In last week’s post Which Bill Should I Pay First?, we discussed debt reduction strategies. A very effective strategy is called the Snowball Effect that starts with paying off the lowest balances first.

Here’s an example:

Debt

Balance Interest

Rate

 Monthly

Payment

Credit Card 1 $200 18% $50
Credit Card 2 $500 19% $25
Car Loan $20,000 10% $370.52

You decide to focus on paying off credit card 1 first, then move to credit card 2, and finally knock off your car loan.

  • You have a 6-year car loan so you have 72 monthly payments.
  • Your total monthly debt payments are $445.52 – this is how much you are budgeting towards debt repayment.

Here’s the payoff:

Using an accelerated debt payoff calculator like those at Calculators.org or PowerPay.org, we get the following payoff schedule after selecting to pay off the lowest balance first:  

Payment Credit Card 1 Credit Card 2 Car Loan
1 $50 $25 $370.52
2 $50 $25 $370.52
3 $50 $25 $370.52
4 $50 $25 $370.52
5 $7.84 $67.16 $370.52
6   $75 $370.52
7   $75 $370.52
11   $13.03 $432.44
12     $445.52
60     $50.75

During the 5th month, the first credit card bill is paid off. You then can devote the freed up $42.16 to credit card 2. In month 6, you now have $75 to put towards credit card 2. Just make sure you don’t start using credit card 1 again! Keep making your car loan payment.

During month 11, you will have credit card 2 paid off. You now have extra money to put towards your car loan. From month 12 on, you can now put your entire $445.52 budget towards your car loan. Doing this, you will have your car loan paid off during month 60.

Giant_snowball_OxfordHere are the results of this strategy:

  • You will save $1,154 in interest.
  • You will pay off your car one year early.

Visit my Debt Management page for more information.

Which Bill Should I Pay First?

Which Bill Should I Pay First?
Eileen St. Pierre, The Everyday Financial Planner

It’s easy to become overwhelmed when you are in debt. The first step is to realize that getting out of debt is not going to happen overnight. You need to develop a plan. Here are three simple steps:

Step 1 – Look at the timing of your bills.

How often do you get paid – weekly, bi-weekly, or monthly? List all your bills and your due dates. Is it possible to change any of the due dates?

  • If you get paid twice a month, you want to pay roughly half your bills at the beginning of the month and half at the end.
  • This way you smooth your cash outflow.
  • I’ve never heard of a creditor being unwilling to change the due date – you just have to ask.

Take another look at your W-4 at work. Do you have the proper number of withholding allowances (claimed exemptions)? The higher that number, the less money is deducted for taxes. Many people list 0 so they get the maximum tax refund.

Step 2 – Determine your payment priorities.

Help and support signpostWhat do you really need?

  • A roof over your head
  • A way to get to work
  • Food
  • Clothing
  • Utilities turned on

You have to be able to pay for your needs.

Where can you cut your expenses?

  • Cell phone/cable plans
  • Eating out/entertainment expenses
  • Car insurance coverage/deductibles
  • Travel
  • Personal expenses

Ask yourself – Do I really need this or do I just want it?

  • For example, you need to have car insurance coverage, but do you really need to have a $250 deductible?
  • If you increase your deductible to $1000, your insurance premiums will go down and you can use the freed up money to pay down other debts. Or better yet, you can put the money you saved into an emergency fund to avoid taking on more debt in the future.

 Step 3 – Determine how much money you have to put towards your bills.

Let say after paying your rent, your car loan, and your other essential needs, you only have $200 a month to put towards paying down your credit cards. Focus on paying down the debt with the lowest balance. Just make the minimum payments on the other credit cards.

  • By reducing the total number of debts you have, you’ll get an emotional boost.
  • Some financial advisors recommend you pay down the highest interest rate debt first, but if it takes you 5 years to do it, you may lose hope and give up.
  • Once you pay off the first card, take the money you had been paying on that card and put it towards the next credit card balance. Remember, you have already budgeted this money to pay bills. So you should be used to not having this money to spend on other things.
  • Keep repeating this cycle until you have paid off all of your credit cards.

We call this accelerated debt payoff scheme “The Snowball Effect.” I’ll provide a more detailed example of it in next week’s blog post.

Visit my Debt Management page for more information.

 

What is Your Debt-to-Income Ratio?

What is Your Debt-to-Income Ratio?
Eileen St. Pierre, The Everyday Financial Planner

family vacationAh, those lazy summer days. There are vacations to plan, theme parks to visit, summer sales to check out at the mall. All these activities cost money. It’s real easy to get in over your head. This spending can have a snowball effect, leading to a debt spiral that is hard to stop. The first step is to recognize if you have a debt problem.

Here are some warning signs:

  • You are stressing over money.
  • You have depleted or neglected your savings.
  • You are thinking about tapping accounts like your 401(k) that you have always considered off-limits.
  • You are starting to pay bills late each month.
  • You are making debt payments with your rent money.
  • Creditors are starting to call and send you threatening notices.
  • You are transferring balances from one credit card to another.
  • Every year you have to use your tax refund to pay your bills.

Calculate your debt-to-income (DTI) ratio:

  • Calculate the amount of debt you owe each month, including your mortgage or rent, car payment, and minimum credit card payments.
  • Divide this amount by your monthly income.

Here are some calculators that do the math for you:

If your DTI is 20% or less, you are doing an excellent job managing your debt! According to Gerri Detweiler, Director of Consumer Education at Credit.com, a DTI ≤ 36% is a healthy debt load to carry for most people. If your DTI is

  • 37% – 42%, that’s not bad but you should start focusing on reducing debt now before you get in real trouble.
  • 43%-49%, you need to take immediate action to avoid serious financial difficulties.
  • 50% or more, you have a debt problem. You need to seek professional help to aggressively reduce debt.

If you need professional help, check out these organizations:

Please read my column Choosing a Credit Counselor to make sure you do not choose an organization that will take advantage of you in your moment of need.

Visit my Debt Management page for more information.

The Pros and Cons of Using SoFi to Refinance Your Student Loans

The Pros and Cons of Using SoFi to Refinance Your Student Loans

Eileen St. Pierre, The Everyday Financial Planner

A friend of mine recently asked my thoughts about using SoFi to refinance student loans. SoFi was started in 2011 by four Stanford graduates to provide more affordable options to repaying student loans. Everything is pretty much done online. They have since expanded to mortgages and financial advisory services to keep their customers as clients as they move through life.

Here are my pros and cons of using SoFi to refinance your student loans.

money-case-163495_1280Pros

Like all things digital, it’s quick and you can submit an application anytime and in your pajamas. They do offer lower interest rates than their competitors and a 0.25% discount if you set up automatic payments. Humans are available if you need them.

Bottom Line: If you have very good credit (credit score above 700) and a high income (over $100,000), and your case is straightforward, you may have a good experience.

Cons

One of the advantages of having federal student loans (versus private loans) is that you get many protections with them. If you refinance at SoFi, you will lose these protections. SoFi is a private company. To keep your federal protections, you need to follow the federal student loan consolidation process.

If you lose your job or have a hard time paying your loan, SoFi only offers up to 12 months of forbearance. Their competitors offer longer periods.

Your credit score matters!

They perform a soft inquiry first based on the information you submit to them (which does not hurt your credit score) and give you an estimate.

  • After you fill out the application and formally apply, they perform a hard credit inquiry (which does affect your credit score) and verify all your information.
  • What they actually give can be much different from what they originally quoted.
  • This has led to a lot of negative reviews. Of course, these people may not have been upfront about their information.

Bottom Line: Like all lenders, they will verify your information. If you are considered a risk, you will pay more. Many applicants have complained about their documents getting lost, not handled properly, or not interpreted properly. This is what can happen when you do things digitally.

Remember, SoFi was created by Stanford graduates. It’s not for those borrowers who need the help most – those who never finished their college degrees, are saddled with high levels of private loans, have screwed up paperwork, and are un- or underemployed. If we can find a way to help these student loan borrowers, then our society will really be better off.

 Get more info!