How to Manage Multiple Sources of Debt

How to Manage Multiple Sources of Debt :: Mint.com/blogIf you are struggling with multiple sources of debt, it can be easy to get bogged down by all the payments you have to make every month.

Your car note, your mortgage payment, student loan payments, and credit card bills can leave you feeling like you’re drowning in debt.

So, how do you manage multiple sources of debt without going under?

This brief guide will help you keep your head above water.

Prioritize

Particularly for those having trouble paying all their debts all the time, it’s important to prioritize.

Prioritize your payments by order of importance. For example, your mortgage loan would probably come first, utilities next, car note third, then student loans followed by high-interest credit cards.

Credit cards and other forms of revolving debt should be prioritized by both their interest rates and amounts. If you have the ability to quickly pay off a low-interest card, do it.

Otherwise, go after the high-interest cards with gusto.

Budget

Look at your monthly budget. What can you cut out and throw at your debt?

Tightening the belt on your budget might hurt now, but in the long term it’s going to make your life a lot easier.

Pay down debt as quickly as you can and reap dividends later. Factor in paying down debt into your monthly spending and have a clear action plan, complete with benchmarks, to get out of debt.

Cutting Costs

It might not just be little things that you have to cut out of your budget: You might have to start considering whether or not your lifestyle matches your means.

For example, you shouldn’t be paying more than 30 percent of your income on housing. The amount that you spend on your debt should ideally be below 20 percent, including credit cards, car loans and student loan debts.

Moving to a smaller place, lowering your student loan payments, or getting a more affordable car might be necessary parts of getting your debt into a more manageable position.

Try to remember that such setbacks are only temporary and part of getting into the debt-free lifestyle that will ultimately be best for your future.

Calendar Management

When you have a lot of different debts, you might get tripped up by the calendar. That can lead to additional penalties and even increased interest rates.

Keep a calendar, either on your computer, smartphone, in the cloud or even on old-fashioned paper.

Better yet, use online bill pay to make sure that your payments all go out on the same day if you know that you’re going to have the same payment every month.

Mint has more than 20 types of alerts to notify you of upcoming payments, fees charged, and budget updates. Every extra reminder will help you stay organized and save you money.

Transfer Debt

If you have multiple credit cards, there’s an easy solution: Transfer everything onto the card with the lowest interest rate. Alternately, you can consider transferring your debt onto a zero-interest card.

Note that most zero-interest credit cards are only temporary rates and that you get hit with all the back interest if you don’t pay the balance off on time.

For the person who thinks they can pay off all his credit card debt in a single year, this can be a very shrewd move on your path toward getting out of debt.

Consolidating and Negotiating

Particularly if you’re playing by the rules and have good credit, consolidating debt or negotiating directly with your creditors can make good sense.

You need to be able to transfer higher interest to lower interest. You also have to be able to make the new consolidated payments if that’s the road that you’re taking.

When it comes to negotiating with creditors directly, ask for a supervisor and don’t be afraid to say that you’re going to take your business elsewhere.

“What to Do When You Have Multiple Sources of Debt” was written by Nicholas Pell.

Federal Student Loan Debt Relief & Repayment Options

recessionIt’s a fact almost universally acknowledged that burgeoning student loan debt is crushing an entire generation, leaving students and parents in a state of financial shock. Defaults on both federal student loans and private loans are on the rise, and in an effort to help student borrowers cope with soaring education costs (and perhaps to brighten the state of public sector employment), the government has created new federal debt repayment programs. If utilized properly, these can help graduates better manage the cost of student loans.

  • Income Based Repayment Plan: As a part of the College Cost Reduction and Access Act, the IBR (or Income Based Repayment) plan was introduced on July 1st, 2009. This particular plan is capable of significantly reducing the monthly payments of those borrowers carrying heavy debt load relative to their income.(Check out this IBR calculator to see if you qualify & how much your monthly payment would be.) For eligible federal student loan borrowers, IBR lowers your repayment cost to a maximum of 15% of your disposable income, and after 25 years, any remaining debt is forgiven. Plus, the federal government may cover interest rate payments on subsidized Stafford Loans for up to 3 years. Also worth noting: If you work for the government, in education or for a non-profit, your remaining debt will be forgiven after 10 years of IBR payments.
  • Pay As You Earn: Introduced on 21st December, 2012, PAYE is in many ways pretty similar to IBR. However, the PAYE program caps student loan payments at 10% of discretionary income, instead of 15%, making it even more affordable. It will also cover unpaid subsidized interest payments during the first 3 years of repayment, and any remaining loan balance will be forgiven after 20 years (or 10 if you’re in government/non-profit work). However, only borrowers with loans issued entirely after October, 2007 qualify – for everyone else, there’s IBR.
  • Economic Hardship Deferment: The CCRAA re-defined  financial hardship, thereby resulting in changed qualification criteria for Economic Hardship Deferment or EHD. Graduates that previously qualified for this may no longer be eligible, and might instead choose forbearance, which is a more expensive option than EHD. The best alternative to EHD is actually PAYE or IBR, and EHD should be reserved for returns to school or medical residencies.
  • Income-Sensitive/Graduated Repayment: On the surface, income-sensitive repayment seems similar to IBR and PAYE, since it enables you to make lower monthly payments based on your income level. But that’s where the benefits stop. Unlike IBR and PAYE, there is no loan forgiveness or subsidized interest subsidy, so there’s little advantage to choosing this option. Similarly, graduated repayment enables you to make lower monthly payments at the beginning of your re-payment term, possibly extending the term of your loan or ballooning to much larger payments down the road. This plan also doesn’t offer loan forgiveness or interest rate subsidies, so it also doesn’t offer the benefits of IBR/PAYE.

The bottom line is this: Even if you can afford to pay down federal student loan debt on-schedule (or even better – ahead of schedule), IBR and PAYE make more sense than any other federal repayment plan currently on the market. The reason is simple: They provide you with the possibility of loan forgiveness and interest rate subsidies should your earning potential ever decline, and don’t penalize you for early re-payment, should your income and ability to re-pay increase. And of course, if you don’t earn enough to re-pay your loans per a standard re-payment plan, they also save you money over forebearance (or God forbid, default.)


Financial Product Review: CardStar Loyalty Card App

loyalty cardsIf your wallet  or pocketbook is anything like the overstuffed suitcases that Janet and I carry around, it’s probably brimming with loyalty cards and rewards cards from the merchants you frequent. We have cards from grocery stores, pharmacies, hotel chains, airlines and even Amtrak. These cards help us get great discounts over time at the places we shop, so we think of them as important tools for smart spending.

Unfortunately, the number of cards we carry has only grown, and we’ve responded in different ways. Janet has opted to buy increasingly larger pocketbooks as her loyalty cards have split seams and popped pockets. I, on the other hand, have chosen to regularly cull infrequently-used cards from my wallet, but as a consequence, I don’t always have the right card available when I want to use it.

Thankfully, we’ve stumbled on a new app that solves our problems and brings a lot of extra value: CardStar.

cardstar barcode

An Easy-to-Use App to Consolidate Your Cards

CardStar is available for iPhone, Android, Nokia, Blackberry and Windows phone systems and can be downloaded, set up and ready to use in minutes. The interface is simple and its use is generally obvious. Having never used the app before, I downloaded it, explored the app in its entirety and even entered seven cards from our favorite retailers in less than five minutes.

There are two ways to enter cards: snapping a photo of the barcode on the card and manually typing in the serial number of the card. CardStar makes this process even easier by providing a list of participating merchants that you can quickly select and add. If the merchant you want in not on the list though, don’t worry – you’ll find it’s a snap to add.

Adding Cardscardstar merchant list

Just click on the “+” in the top-right corner of the screen and then then scroll through an alphabetized list of participating merchants. Once you find the merchant whose card you want to add, just tap on its name to select it and then tap “Next.” The next screen to appear allows you to enter the card number or capture it by snapping a photo of the card’s barcode using the smartphone camera. Tap “Save” and then you’re all set!

If you don’t see the name listed for the merchant you want, you just need to create your own listing. At the top of their list of merchants is “(Other).” Tap there, click Next and then manually enter or photograph the barcode and then hit “Save.”  On the next screen, simply tap on the name “Other” in order to type in the name of the merchant that you just added. Easy.

How to Use It

Now, when you go to one of your favorite merchants and you want to use one of your cards, you don’t need to reach for your wallet. Just pull out your smartphone, open the CardStar app, and then select the merchant from your list of pre-saved cards. Your barcode and card number will appear on the screen. (The app will automatically create a barcode for you–even if your original card did not have one.) If the merchant has a machine that can scan barcodes, they will be able to scan the barcode on your smartphone screen just like the barcode that is printed on the product being sold. (The machines in your grocery market check-out lane are the perfect scenario for these cards.)

If they cannot scan barcodes, the check-out person or the merchant should be able to just manually type the card number that’s displayed on your phone into their register in order to give your card account credit for the sale.

cardstar dealsBig Savings and Peace of Mind

CardStar has two other major benefits: coupons and online backup. Some merchants share information about coupons or other discounts with CardStar, so the app allows puts a deals icon next to the name of any of your merchants that is offering extra savings. Just tap on the deals icon next to the name and the screen will switch to a list of those coupons and discounts. When you’re ready to use one, simply show the coupon’s code to the merchant.

Finally, CardStar also knows that sometimes smartphones get lost, damaged or replaced and that CardStar users need to be able to transfer their card accounts from phone to phone. CardStar’s one-touch account back-up provides this feature and is available easily from the app’s main screen.

Now, with CardStar, you can consolidate all your cards into one app, access big savings with an easy-to-use app and have the confidence that you can throw away that stack of cards forever.

Five Ten Twenty Club Rating: 4 of 5 Stars

Note: This is the first in a series of financial product reviews designed to help you select the best free or low-cost products for your needs. We only recommend those products we feel benefit a majority of our readers.

Should Your Age, Neighborhood, or Income Impact Your Car Insurance Rate?

how-much-does-car-insurance-cost-todayNew Yorkers are likely to pay higher premiums on their cars if they live in the Bronx as compared to the Upper East Side. And it may not matter which car they drive — or even how they drive. Across the country, glaring socio-economic pricing contrasts are made obvious when buying auto insurance, leading a number of policymakers to question these practices.

While insurance regulations in several states have suggested that rates should be based exclusively upon the driver’s age, driving history, miles clocked and experience, these are merely suggestions and may not be encoded law everywhere. This means that socioeconomic factors like education, occupation, and zip code (which in some cases may even serve as proxies for ethnicity) have pretty much taken over as the deciding factors of impacting your auto insurance rate. (However, charging customers higher rates based on race has been banned in states such as Florida.)

Does income and education really matter?
Recent studies show that people earning lower incomes are charged higher premiums, as auto insurance companies often assume that those with lower incomes are higher risk.  Such individuals may also have poorer credit scores, leading to lower credibility in the sight of the insurance company.

Generally, individuals with a better education were given a lower quotes than those without. For example, an individual with a master’s degree and working as a manager would be paying a much lower rate than say, a waitress with just a high school education. Surveys conducted last year by the Consumer Federation of America (CFA) show that many insurers discriminate against those earning a lower income, leading many low income individuals to drive either without sufficient coverage or no coverage at all. This puts them and other drivers at greater risk in case of an accident, with damages that can run into thousands of dollars not  covered by insurance.

Why being a good driver may not always be a good thing

Good drivers always finish first, right? Well, this may not entirely be the case when it comes to purchasing auto insurance. More studies by the CFA show that lower-income good drivers are very often charged higher rates by some insurance companies as compared to higher-income accident-causing drivers. This is prompting many consumers to raise their voices against this kind income and educational-level based discrimination.

Policies do vary by insurance company, however. For example, while many auto insurance companies might charge all young drivers (even those who qualify as good students) high premiums, The Hartford makes insurance rates economical for good student drivers, with discounts for full-time students under the age of 25.

The Zip Code says it all

Your identity might very well be hidden in your zip code. Where you live is often directly correlated to how much you pay. Many insurance companies charge higher premiums for those living in poorer neighborhoods due to the high risk associated with cars getting into accidents, being vandalized or stolen. Insurance rates often go down by a few thousand as soon as one changes one’s zipcode to a safer neighborhood.

While this may be considered unfair, insurance companies downplay this widespread practice as it cuts down on high risks associated with the driver. Critics consider this as a ploy for insurance companies to sell better deals to a richer customer base, while ignoring the poorer segments who need the same coverage.

Should auto insurance companies consider the socioeconomic status of individuals before quoting premium rates? Or, should only the driving record of individuals be taken into consideration? While the debate rages on, we’d like to get one going ourselves.

So, what’s your take on this? Has your insurance rate been adversely impacted by socio-economic factors? Discuss it in the comments below or in our Community Forum!

 

Elvis Donnelly is a father of two who works from home and lives with his wife. He is voracious reader and always looks out for happening topics related to personal finance. He specializes on subjects related to insurance and uses his spare time to write on topics related to auto insurance, saving money, etc.