The Good (Debt), The Bad (Debt) and The Ugly

We’ve been saying that “debt” is a four-letter word.

We’ve been preaching about paying down your debt. We’ve been scolding you for being IN debt. And we’ve been teaching our students they don’t WANT debt.

We lied. Only SOME debt is bad.

Like an episode from Ripley’s Believe It or Not, some debt actually helps your credit score.

But first, the 15 second rundown: What’s a credit score/credit report?

• A credit report includes your credit score and states when and where you applied for credit, who you borrowed money from, and who you owe money to.
• Creditors and employers use credit reports to evaluate your applications for credit, insurance and employment.
• Good credit is essential for things like qualifying for a loan.
• Bad credit can hinder your ability to borrow money.

(There’s more about credit reports on page 20 of the Money Possible workbook.)

Got it? On to our favorite four-letter word.

Bad debt.
Equifax said it best: Bad debt funds a lifestyle you can’t afford.

In other words, live within in your means. (Fredica has learned to do this…Go Fredica!)

Bad debt is using a high interest credit card and failing to pay it off IN FULL each month. Bad debt is owning store credit cards because you just can’t help yourself in Pottery Barn or Restoration Hardware. Bad debt is falling behind in your payments.

Good debt.
Good debt is investments that create value for you, like school loans and mortgages. Your home’s value will probably increase over time, and your education will likely land you a better job.

(Think your Pottery Barn apothecary cabinet “creates value” for you? It doesn’t, and you need to read “Needs vs. Wants.”)

Since most people can’t pay for hefty tuitions or buy a house with cash, they borrow money, and make monthly payments to pay off the loan. Good debt is debt you pay back ON TIME each month.

One thing to remember: Good debt comes after you have enough cushion in your savings.

The ugly: How does good debt and bad debt affect your credit report?
Your borrowing history, including the type of debt and pay back history, is listed in your credit report and impacts your credit score. In fact, 35 percent of your score is based on your payment history alone.

What does this mean?

• Pay your bills on time and borrow wisely. Period.
• Missing just one payment or paying late can turn your credit score ugly real fast.
• Don’t add a bunch of new debt before paying down old debt. That’s making a mountain out of a molehill.
• Be responsible and show creditors “I got this” by applying for credit only when necessary.

Long story short…not all debt can get you into trouble. Think about why you have debt and use your borrowing power wisely. And just like everything else…it takes time to improve your credit if it’s bad, but it’s doable. Budgeting, saving and living within your means are the keys to a great credit score.

The Freshman $30,000

We took an informal poll last month regarding your grade in financial literacy. The majority of US adults give themselves a C or lower in money smarts. Either smart people took our poll or you think you manage your money better than you do, because the majority of the respondents gave themselves a B. See the poll results.

In light of this being the graduation season, and the fact that we ran across a survey that said students wished they learned more financial management in school, this post will be about how kids (or their parents) can become be money smart at school.

Forget the “Freshman 15.” We need to worry about the “Freshman $30,000.” The average student graduates with close to $30,000 in debt. That’s a lot of financial weight.

Students are screaming for education in how to manage their money. Some states require a class in financial education to graduate, but many do not. And just ONE class? We all know it takes more than that to get through to a teenager!

This is where parents need to step up and teach their kids. Or find somewhere that can…like a credit union or consumer credit counseling service.

Here’s why: First-year college students required to take a financial literacy course in high school are more financially responsible than those students who didn’t take the class, a recent study found. This means they were more likely to pay credit card bills on time and less likely to go over their credit limit. Both of those add up to less debt. But just 17 states require a course. And ongoing education is critical.

Our friends at A Smarter Choice have some good tips to get students started on the right foot. Here is a scaled down version of their blog post Get Started on the Right Financial Footing.

Stay frugal. Be mindful of what you’re spending. Check with your gym, and cellphone and cable providers, to make sure you’re getting the best rates. Pack lunches from home. Have friends over for dinner and movies instead of going out.

Negotiate your pay. Starting out with a higher salary will mean higher earnings over the course of your career.

Build an emergency fund. Prepare for the unexpected by setting up an emergency savings account and have your paycheck directly deposited into that account. You should have three to six months of living expenses saved. For real.

Start saving for retirement now. If your job offers a 401(k) or similar retirement savings accounts, put money into it! Even better is if your employer offers to match a percentage of your contributions. Your 50 year-old-self will think you were super smart for doing that.

Pay down student loan debt. Know what you owe and contact your lender immediately–before the due date–if you’re going to miss a payment. Pay extra if you can.

Use credit appropriately. A strong credit history will pay off when you want to buy a house or purchase other big-ticket items (the new iPhone 6 doesn’t count). Here’s the biggest piece of advice that you don’t really want to hear: Don’t charge more than you can afford to pay off monthly! And please, pay your bill on time. Spending too much and having late payments can get you in a heap of trouble…and fast.

College students are smarter, but have more on their plate than in years past. Make financial education a requirement for them, and maybe as an adult, they’ll be shedding that $30,000 before swimsuit season.

Our Debt is Embarrassing

We know we suck at money management…we just gave ourselves a C or lower in personal finance class. But then we say we are spending more and basically not doing anything about it.

Yet, we are embarrassed about our credit card debt…more embarrassed about that than our weight, age, credit report or how much money is in our bank account.

It’s embarrassing and we stress about it. We’d like to say “don’t sweat the small stuff,” but your finances aren’t “small” and maybe sweating it would do you some good.

If you’re this far, the good news is you CAN find the light at the end of the tunnel. It’s called “saving money.” And it can be the answer to all your financial woes.

The bad news? It’s going to take some work. For the rest of your life (or until you don’t have to worry about money anymore). Money management doesn’t just “go away” once you have it in order. It takes lifelong tending and growing.

Go Girl Finance has some ideas to get you started saving money and living stress-free:

Identify the problem. Be serious…what is the real issue? Spending too much on fancy-schmancy stuff? Too much activity on your credit card? Or is there just not enough income coming in? Find out why you are stressed about money, then make a plan and start getting organized.

Stay positive in the present. Nobody likes a Debbie Downer. But it’s easy to become one and jump on the “woe is me” bandwagon. Focus on what you are doing now and give yourself a daily pep talk. Remember what Stuart Smalley used to say: “I’m good enough. I’m smart enough. And doggone it, people like me.”

Put yourself in the power seat and know that you can change your situation. Above, we said you need to make a plan. This is when you put that plan into motion, little by little. Remember, it’s a marathon not a sprint. One small change (like saving $25 a month) can have a snowball effect, and encourage you to do even more.

Exercise! Yes, move your body more than just lifting the remote. Exercise is a great stress buster. Just a regular old walk around the block can put you in a better mood, and relieve stress.

Savvy Money says to track your spending. Maybe not forever, but this is a must for a few months. Here’s how it should pan out:

• 35% for housing
• 15% for transportation
• 15% for debt
• 10% for savings (this is NON-NEGOTIABLE!)
• 25% for any other living expenses

If you feel like housing can be a lesser expense, use it towards another category. It’s your choice! You can borrow from any category EXCEPT savings.

Managing your money smartly takes time, effort and dedication on your part. But we know you can do it…because you’re good enough, you’re smart enough, and doggone it, people like you.

Quick Tip: Smart Uses For a Tax Refund

Destroying your debt doesn’t have to take hours. Watch our 15 second tips and then be on your merry way. These tips also air on KAKE-TV’s (ABC, Wichita, KS) regularly.

View all our quick tips.  Follow along on social media at #moneypossible.

Smart Uses For a Tax Refund

The average tax refund has been around $3,000. Don’t blow it. Pay off credit card debt. Boost your savings. Build your retirement fund. Or even invest in your home.

Poll: Your Financial Literacy Grade

We reported that adults in the United States don’t make the grade in financial literacy. So, we want to conduct our own little poll. To help you out, we’ll even give you the definition of financial literacy…because let’s face it, sounds like you people need all the help you can get.

The President’s Advisory Council on Financial Literacy defines financial literacy as: “the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial wellbeing.”

So in other words, do you know what to do with your money to pay your bills, save for the future and keep yourself out of debt? DO YOU? I guess we’ll find out…

Poll results: What is Your 2014 Financial Goal?

Our informal poll results are in:

More than a quarter (27 percent) of respondents goal is to pay down credit card debt. That’s a biggie…the average household owes more than $7,000 on their cards, and 15 percent of us roll over more than $2,500 in credit card debt per month.

Twenty percent said the goal was to save for a milestone like college, a new baby or retirement. Did you know the average college graduate owes $35,000 in debt in 2013? Or that you’ll spend about $10,000 on a baby in the first year alone? Or that you’ll need eight times the amount of your ending salary to retire? Things to think about…

Only 13 percent are saving for a “big ticket item” like a house, car or much needed vacation.

This is the big one…almost half of you (40 percent) want to build your emergency savings.  You are in good company. Roughly 75 percent of Americans are living paycheck-to-paycheck, with little to no emergency savings, , according to a recent survey released by Bankrate.com.

Fifty percent of those surveyed have less than a three-month cushion and 27 percent had no savings at all. People…this is not good. All households should have at least three months of living expenses saved.

Just Say No.

The word “No” kinda gets a bad rap. Parents of young children grow weary of saying it. “Just say no” was the 1980s ad campaign for the war on drugs. We feel bad sometimes when we say it; like when you are asked to do something you really don’t want to do, or don’t have the time, yet feel obligated to say yes.

Saying no is no fun.

The word yes is much more positive, like that Home Alone Macaulay Culkin fist pump YES!

But when you are talking about your finances, saying “yes” can be much worse than saying “no.”

Just ask Lisa and Bryan. They want to reduce their debt and save for retirement. They are saying “yes” to things, when they should be saying no. Especially to family and friends.

It’s hard to say no to those close to us, or even our co-workers and neighbors. But if you are trying to stick to a budget, save for retirement or whatever, “just say no.”

No to Sonic runs. No to that new movie that just opened today. No to the soda at the ball game. (By the way, if you said no to just those three things, you’d have an extra $20 to save.)

But how do you come across without sounding like a Debbie Downer or a Party Pooper?

It’s simple. Tell people you are trying to stick to a budget, save money, save for retirement, whatever. People who care about you, won’t put you through the ringer for wanting save for a rainy day.

You’ve got to stand your ground. And don’t you dare feel guilty about saying no. It’s like peer pressure for adults. It’s like keeping up with the Joneses. There will also be someone with the newest gadgets, eating at the fanciest restaurant, taking the coolest vacations. Get over it. Just say no.

Here are three ways to say no:

1. Keep it simple.
   You don’t need to explain the heck out of why you can’t (or don’t want to) go the latest flick. Just say “another time.” Or “I’m busy that night.” Even a casual “It’s not in the budget this week” should do the trick.
2. Offer something else.
   “Instead of going out to a movie, let’s rent that one we’ve been wanting to see, and have a movie night at my house.” You are still spending time with them, just in a different way.
3. Say “I don’t” instead of “I can’t.”
   “I don’t go to movies in the theater,” is different than “I can’t go to movies in the theater.” A change in terminology can be the difference between staying within your budget, and blowing it to bits.

A couple of good hardy “nos” and you’ll be a pro at it. You’ll feel better about your decision, and your budget will be saying YES!

POLL: What’s Your Financial Goal?

We all have goals. Career goals. Exercise goals. Home improvement goals. Get to bed at a “reasonable hour” goals.

We also have financial goals. Pay off one credit card. Cushion an emergency savings account. Save for something big…like retirement, a house…or an 84″ HD 3D TV complete with four pairs of 3D glasses. (Which costs $39,999 at Best Buy, in case you were wondering).

We want to know. What’s your financial goal this year? And if you say to purchase a $39,999 TV, well, you made need to revisit that goal.

It’s America Saves Week!

America Saves week (February 24-March 1, 2014) is an annual event promoting good savings behavior and a chance for individuals to assess their own saving status.

Although the week focuses on saving, it’s a good reminder for you to take a long hard look at your financial plan (or lack of) and determine a game plan for you or your family.

According to a recent survey by America Saves, most Americans still face savings challenges. Only 35 percent of respondents were making “good” or ‘excellent” progress in their savings goals. That means two in three adults are making no progress or “fair” progress in their savings needs. Come on people…we need to switch those around!

Saving money is essential for your financial health. You can’t pay down debt if you don’t have any money left over at the end of the month. You can’t build up a solid cushion of money if you are constantly trying to manage your bills. It’s  like the hamster in the little hamster wheel…spinning around but not going anywhere.

Start with this post: 54 Ways to Save Money. Surely you can find something you can do…there’s more than 50 tips!

Here’s two of our favorites:

• Reduce credit card debt by $1,000. That $1,000 debt reduction will probably save you $150-200 a year, and much more if you’re paying penalty rates of 20-30%. (Read more about credit card debt and the amount of money people throw away on interest fees)
• Take the amount the item costs and divide it into your hourly wage. If it’s a $50 pair of shoes and you make $10 an hour, ask yourself, are those shoes really worth five long hours of work? It helps keep things in perspective. Maybe retail stores should start putting that information on price tags?

Credit unions are another good place to start. Many have financial counselors at your beck and call, who can put you in the driver’s seat of a good financial plan, and definitely not one that will have you running in circles. Credit unions focus on financial literacy and people, not making money. As not-for-profit organizations, any profit they make goes back to the people who use the credit union. Here is more information about credit unions.

In the meantime, stay tuned because we’ll be unveiling our participants next week.

How Your Tax Refund Can Help Your Financial Goals

Nobody likes taxes. Have you seen the new commercial for tax software or tax preparers? They make it sound all fun and easy…like some kind of party: ”You did so much crazy, awesome stuff. So, we’re pretty sure you can answer questions about those things and file your taxes on your own.” Another claims: “Get Your Billion Back!”

Well, for one thing, you won’t get a billion dollars back, and did you really do some crazy, awesome stuff?

Maybe you used to…and are thankful every day that phones with cameras and social media did not exist back then…but last year? Not so much.

Worrying about taxes is an adult thing, and definitely not a party. Taxes are that dreadful thing that rears its ugly head. Every. Single. Year.

Some people can’t wait to get that tax refund. In fact, many count on it. According to a Fidelity survey, most Americans (75% of you) will get a refund…to the tune of $2,700 (See? Definitely not a billion dollars).

The good news is that most people say they will save or pay down debt with their tax refund.

Wait…save it? Pay off some debt? Psshhh…that’s not fun at all. Sounds like something Sandra Dee would do.

In fact, 33% said they intend to pay off debts and 46% plan to use the money for some kind of savings (retirement, college, etc). Such a responsible bunch…you know the type…Teacher’s pet. Goody-two shoes. Responsible citizen.

Yes, people want to be responsible financially…no one wants to be debt. These statistics are the light at the end of the tunnel. Individuals and families want control of their financial situation. They want financial health.

Start the ball rolling with your tax refund. According to creditcard.com, the average credit card debt per U.S. adult is $4,878. With your $2,700, you could cut away good chunk of that debt…and be on your way to that billion dollars…all on your own.