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Student Loan Repayment Infographic
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Excessive Credit Card Debt Infographic
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Borrower and Saver Infographic
Credit Score Infographic
Car Buying Infographic
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Credit and Debt Management Infographic


Use Your Personal Talents to Get Ahead

If you begin to feel overwhelmed by all of the personal finance suggestions you hear, don't give up!  Instead, think of ways you can use your personal talents to achieve the same objectives.

I recently met with "Sharon" who told me that she was never successful following all of the suggestions and rules related to budgeting.  She isn't a highly quantitative or detail-oriented person, so all of the expense tracking requirements were difficult for her. 

Rather than giving up, Sharon thought of ways she could achieve the same objective using different approaches that were a better fit for her.

She loves to create to-do lists, and gets motivated by checking each item off her list.  So Sharon decided to convert her budget into a to-do list with check boxes next to each item.

Her monthly budget now consists of several check boxes that remind her when bills are due, and some additional check boxes that address one or two spending categories that she is trying to manage more carefully.  She also has one check box to review her checking account once per month to make sure she is spending less than she brings in.

Is this a traditional budgeting approach?  No.  But does it satisfy the primary objectives of budgeting and help Sharon stay on track and get ahead?  Absolutely.

So take personal finance suggestions and rules for what they are worth: starting points.  Then apply them in ways that leverage your talents and maximize your chances of success.  Be creative and don't be afraid to try personalized approaches that are a little unorthodox.  Like Sharon, you may discover that reaching your financial objectives can be easy and fun.

Don't Forget Those Periodic Expenses

The first time you establish a household budget, you will discover that some of your expenses are easier to remember and estimate than others.  The ones that are easiest are those that occur every month in the exact same amount, like rent or cell phone bills.  You probably know those expenses by heart.

The ones that can be the most challenging are periodic expenses that occur only a few times per year, or maybe not at all depending on how things go.  Car maintenance is a good example.  You can probably estimate simple routine maintenance, like oil changes, without too much difficulty if you drive the same amount of mileage each year.  But it's tough to anticipate non-routine maintenance.  In some years, you might not need any extra maintenance.  But in other years, you may need a new set of tires, or electrical or exhaust or belt work.  And the timing of these expenses are difficult to predict.

Rather than ignoring these types of periodic expenses, a better approach is to include them in your budget using a reasonable estimate.  Base your estimate on an average that you have spent over the past few years, and then break it down into an equivalent monthly expense.

As an example, say you have spent an average of $900 per year on non-routine car maintenance over the past few years.  You could budget $75 each month and leave the excess in a savings account if it isn't needed in that month.  Over time, these savings will allow you to fund non-routine maintenance expenses as they occur, even though you can't anticipate the timing exactly.

Vacations are another common example of a periodic expense.  Most of us hope that we will take a vacation sometime during the year, but aren't certain about the exact timing or amount of the expense.  You can follow the same approach as with car maintenance: reflect a reasonable amount each month in your budget, and set it aside until it is actually needed.

One way to jog your memory of these types of periodic expenses is to review your checking account or credit card statements for the past year.  It's also helpful to work on your budget for at least 3 months.  By the third month you probably will have remembered and reflected all of the important expenses in your budget, even the periodic ones. 

Want to Improve Your Budget? Start With Your Income

Many people believe budgeting is just about cutting expenses.  That way of thinking not only overlooks a lot of financial opportunities, but it also can be a recipe for failure.  Lots of budgets fail when a person becomes overly focused on cut-cut-cutting their expenses, especially the ones that bring the most enjoyment and value.

Successful budgeting involves managing your household cash flow, which includes your income as well as your expenses.  In fact, income is often a more powerful budgeting lever than expenses, because most households can grow their income by more than they can cut their expenses over time.

There are lots of ways to grow your income, but one of the most straightforward approaches is to secure a raise.  Note that I didn't say it was easy - getting a raise can require performance, timing, courage, tact, and perhaps a bit of good fortune too.  But it requires less time and effort than most other options.

If you are self-employed, you can secure a raise too, by increasing your prices or broadening your customer base or offerings.

If your job performance has been excellent but you haven't gotten a raise in a while, consider asking for one at your next review, especially if your employer is doing well financially and your role is important to their success.

Even a modest raise can greatly improve your budget.  Say you make $5,000 per month and save about $250 of it each month.  If you secure a 5% raise, you may be able to increase your savings by 50% or more, even if you want to spend some of the raise on new things. 

That's powerful leverage: a 5% raise leading to a 50%+ boost in savings.  This is why it's important to focus on both income and expense opportunities when you budget.  Be sure to think "grow-grow-grow" at least as often as you think "cut-cut-cut.

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Take One Step

Are you feeling stuck with your finances?  Try taking just one small step forward this week toward your goals.

Your first step should be SHORT-TERM and EASY to accomplish!  Nobody is grading you, so there's no penalty for easy tasks or extra credit for difficult ones.  The objective is to build some forward momentum, feel a sense of accomplishment, and generate enough positive energy to set a second step once the first one is successfully completed.

Feeling like you are living paycheck-to-paycheck and not getting ahead?  Your one step could be to cut out a single $10 expenditure and deposit the $10 into a savings account.

Concerned that you aren't saving for retirement?  Your one step might be to visit your employer's HR department and gather information on signing up for its 401(k) or 403(b) retirement plan.

Confused by your student loan repayment options?  Your one step might be to read about the options on the Department of Education's web site.

Sometimes get behind on paperwork and miss the deadline to pay bills?  Your one step could be to ask your bank for a tutorial on how to set up auto bill pay.

These steps are all different, they have a couple of things in common.  First, they can be accomplished in less than 30 minutes over the course of one week.  Second, once accomplished, they logically lead to another step that can be completed in a similar timeframe.

And that's how big financial goals are often realized: by taking a series of small, straightforward steps over time until you reach your goal.

Don't wait!  Take a step this week.

Form a Support Team to Help You Achieve Financial Goals

Do you often set financial goals but then struggle to follow through and achieve them?  If so, consider forming a support team to help you stay on track.

A support team is a small number of close friends or family members who are willing to help you stick to your plans.  You can pick anyone you like as long as they will be truly supportive and won't undermine your efforts in any way.

Just the act of communicating your goals to other people can boost your chances of success.  That's because your motivation to succeed automatically increases when one you push your dreams out into the open.  It's easy for secrets to remain unfulfilled, but you won't want public goals to stall.

A support team provides two valuable functions.  The first is accountability.  Your support team should check in with you weekly to see if you are on track and are tackling any roadblocks that come up along the way.  The second is encouragement.  Your team should lift you up when you're down and remind you that you can do it. 

There aren't many financial goals that can't be achieved through your own persistent effort, coupled with timely and caring accountability and encouragement.

Support teams can be as low-tech or high-tech as you want.  A low-tech solution could be a small group of friends who understand your goals and agree to check in with you weekly.  A high-tech solution may be a web-based app that handles some of the communications and check ins for you automatically.  (StickK is one example.)

The specific approach you choose is less important than the people you choose.  Their positive attitude and commitment to your success are the critical factors.

One great thing about support teams is that they are free.  So why not give one a try?  Experiment with one for your next financial goal and see how it improves the outcome. 

Worry Less and Investigate More

I am regularly approached by individuals and couples who express worry over a financial issue that may impact their household.  For some, I can tell that the burden of worry has been weighing on them for some time.  But more often than not, they haven't used worry as a catalyst for investigation and action.  Instead, they just continue to worry!

That's a shame, because it's possible - even likely - that a little research and action can clarify the issue and reduce the worry considerably.

One example that immediately comes to mind is the worry that parents feel over the cost of their child's college education.  A parent recently shared with me her worry that she had prepared too much for her child's education, and the amount she had saved would make her household ineligible for financial aid.  But I learned that she had never researched how a household's expected family contribution (EFC) is determined for financial aid purposes.  I suggested that she take a few simple steps to see if her worries are well grounded.  For example, she could use an EFC calculator to better understand how much her family may be expected to contribute, and could read a good financial aid book to learn more about how financial aid is determined (I like the Princeton Review series). 

By doing so, she would see that some parental accounts, like IRA's, may have no impact at all on EFC, while other parental accounts, like taxable investment or savings accounts, may have an impact of only 5% or less of the balance.  Her family's EFC may be considerably less than she imagined.

These simple steps would take her just a couple of weekends to complete, yet could go a long way toward alleviating her worries. 

So if you find yourself burdened with worry over a financial issue, try to redirect that energy toward a simple action plan that can help you clarify the magnitude of the issue.  You may find that you have been worrying needlessly, and that you can proactively manage the issue moving forward.

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Credit Management

Know What Does - and Doesn't - Impact Your Credit Score

Managing your credit is a very important personal finance activity, given the range of influential parties that can access your credit file.  Lenders, current and prospective employers, landlords, utility companies, and insurance providers may all form an opinion of you based on your credit report and score.

Given the stakes involved, it is critical to understand what does - and doesn't - impact your credit score.  You want to focus your credit management efforts on the areas that matter most.

Let's start with the areas that do have an impact.  The information you see in the Accounts, Public Records, and Inquiries sections of your credit report can all influence your score.  In particular, all of the following items flow into your credit score:

  • Open account details, including your balance and payment history, plus some of the key characteristics of the account, such as the type of loan and the credit limit.  The number and mix of open accounts also have an impact.

  • Closed account details, but only if the account had derogatory history, such as late payments or collections.

  • Public records, such as a bankruptcy filing, judgment, or tax lien, whether they are still outstanding or satisfied.

  • "Hard" inquiries that have occurred over the past 12 months.  Hard inquiries are ones where you have asked a lender for credit.


This list explains why it is so important to maintain positive activity on your open accounts, dispute or resolve any accounts that show negative activity, and limit your requests for credit.

Next, let's review the areas that don't have an impact:

  • On-time payments made to a landlord, medical provider, or utility company.  These service providers will generally only report late payments.

  • Closed account details, if the account was in good standing. 

  • Certain open account details, including the monthly payment amount and high balance.

  • Your demographic information, such as your age, gender, ethnicity, education, marital status, address, income, or employer.


This list can help you prioritize your credit building activities.  For example, you need to manage your payments to landlords, medical providers, and utility companies to proactively avoid having any negative information flow onto your credit report.  Also, you need to think twice before closing an account in good standing, since it will no longer have a positive impact on your score.  In some cases it may be more advantageous to keep the account open, or in the case of an installment loan that matures, re-open a comparable account. 

But you don't need to actively manage your demographic information, unless it is clearly wrong.  For example, the name, address, and Social Security number on your credit report should all be correct.  If not, you should notify each of the three national credit bureaus and ask them to correct the information.  You can do this online or in writing.

Credit management should be part of your regular personal finance routine.  To make it as easy as possible, focus your efforts on the activities that will have the greatest impact on your score.

Don't Believe This Credit Card Myth

True or false: carrying over a credit card balance month-to-month is better for your credit score than paying off your balance?

The answer is 'false,' but many people I speak with believe that they need to carry a balance in order to improve their credit score.

Don't believe that myth!  Paying off you balance in full each month is likely to be better for your credit score and will be much cheaper too.

Your credit activity is still reported to the national credit bureaus when you pay off your balance in full.  Your activity will demonstrate that you are using credit responsibly and always paying on time, which are the biggest drivers of a high credit score.

Paying off your balance in full has two other important advantages.  First, it probably means that you are careful with your charges and keep your current month's balance low.  A low balance translates to a higher credit score, because the scoring system (called FICO) penalizes a high balance in relation to your credit card limit.

Second, it saves you a lot of money.  If you pay off your balance in full each month, you will never be charged any interest or other financing charges.  Credit card interest can really hurt you financially over time.  For example, it can cause you to pay 40% or more for an item than if you had paid it off right away.

So don't hesitate to pay off your card balance in full each month.  It will improve your credit score and your finances.  And if you form a habit of saving the money you used to pay in interest, you will steadily get ahead and move toward your financial goals.

Automate Payments to Protect Your Credit

Your payment history is the single most important contributor to your credit score.  Do you always pay on time?  Your credit will increase.  Have you made even a single late payment?  Your credit will fall and the late payment will negatively impact your score for years.  The impact will be more severe if the late payment leads to a collection.

Sometimes late payments are the result of financial difficulties within a household, but often they are simply due to forgetfulness.  People just get busy and forget to pay their credit card or utility bill.

Lenders and utility companies are not very forgiving when it comes to forgetfulness.  They are becoming more aggressive at reporting late payments to the credit bureaus and assigning an account to a collection agency, even after a short period of time.

You can protect yourself and your credit by automating payments.  This involves using the online bill pay tool provided by your bank to establish a calendar of future payments. 

For your credit cards, automate a payment equal to the minimum payment due.  This will keep you current.  You can then make a second manual payment each month to pay any additional amount you wish on top of the minimum.

For your utility bills, investigate whether your utility companies will charge you a level amount each month.  The electric and gas utilities typically call this a "budget billing" arrangement.  Then automate payments for these level amounts.

And don't forget to automate your cell phone bill payment.  Cell phone providers are especially aggressive at sending your bill to collections, which can cause your credit score to drop over 100 points.

The main challenge with this approach is to make sure that you always have enough money in your checking account to fund the automatic payments.  You can make this easier by spreading the payments out over the course of a month to correspond to the timing of your paycheck deposits.

Taking these simple steps will ensure that you always pay on time, which, in turn, will protect your credit score and help it to steadily increase.

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Debt Management

Do Your Homework Before Consolidating Student Loans

Remember the discipline you established in college to complete research assignments and study for exams?  Be sure to use that same discipline to research the consequences of student loan consolidation before you make a decision.

Consolidation is being offered both by the federal government and private loan consolidators.  It sounds convenient: you need to make fewer payments and keep track of fewer loans. 

But be careful.  Your decision to consolidate may have unintended consequences. 

There are at least 5 potential snags that can result from student loan consolidation.

1. You could lose federal protections.  Federal student loans include valuable protections and benefits, including the following:

  • Deferment and forbearance options.

  • Multiple repayment options, some of which can reduce your monthly payment to $0.

  • Multiple forgiveness options.

  • Ways to rehabilitate defaulted loans.

  • Cancellation benefits if you die or become totally disabled. 


But if you consolidate your federal student loans into a private loan offered by a private loan consolidator, you will lose these protections and benefits.

2. You could lose attractive forgiveness opportunities.  Perkins loans are a particular type of federal loan offered through colleges. They offer special forgiveness opportunities.  For example, 100% of the loan may be forgiven if you have an occupation such as these:

  • Firefighter.

  • Law enforcement or corrections officer.

  • Nurse or medical technician.

  • Librarian or speech pathologist at a school.

  • Attorney at a public defender's office

  • Staff member of a prekindergarten or child care program.

  • Teacher of math, science, foreign language, or special education.


However, you will lose this forgiveness opportunity if you consolidate your Perkins loans.

3. You could become ineligible for some repayment plans.  Federal loans offer multiple repayment options.  Some of the options are called income-driven plans, because your monthly payment is set based on your household income and family size.  Two popular income-driven plans are Income-Based Repayment (IBR) and Pay As You Earn (PAYE).  With IBR and PAYE, your monthly payment won't exceed 10-15% of your discretionary income.

But if you have Parent PLUS loans and consolidate them with other federal loans, you will become ineligible for IBR and PAYE.

4. You could restart the clock on Public Service Loan Forgiveness (PSLF).  The federal government offers several loan forgiveness programs, including PSLF.  PSLF is an attractive opportunity for people working for a wide variety of public service organizations, such as nonprofits, government agencies (federal, state, or local), hospitals, schools, police/fire stations, correctional facilities, and others.  Your remaining loan balance may be forgiven if you work for one of these organizations for 10 years.  There are a couple of stipulations, however:

  •  The loans must be direct loans, which is the latest loan origination method for federal student loans.

  •  You must make qualifying on-time payments through one of several repayment plans.


If your loans aren't direct loans, you should consolidate them into a direct loan in order to qualify for the program.


But if you already have direct loans and make qualifying payments toward PSLF, you should not consolidate them.  Consolidation will wipe out those qualifying payments and restart the clock on PSLF.  In other words, you will need to make 10 more years of qualifying payments on the new consolidation loan!

5. Your interest rate will remain the same.  Some people think that consolidating student loans is like refinancing a mortgage or auto loan.  When you refinance, you convert an existing loan with a higher interest rate into a new loan with a lower interest rate, thereby reducing your interest payments. 

Federal loan consolidation doesn't work like that.  When you consolidate, your new interest rate is simply the weighted average of the interest rates on your old loans.  This is true even if the current interest rate on new federal student loans is lower than the rates on your loans.


Consolidation is a complicated topic, but I hope this overview can help you avoid the most common unintended consequences.

Student Loan Refinancing Offers: Proceed With Caution

If you have student loans, odds are that you have seen or received an offer to refinance them.  It's a growing industry that is being built up in response to the record amount of debt held by current and former students.

The federal government has offered a basic refinancing option for a while, called consolidation.  It doesn't reduce your interest rate, but can simplify your bill paying process and make you eligible for certain loan forgiveness options.  As I've mentioned before, it's important to carefully consider the consequences of federal loan consolidation before you make any decisions.

What's newer and growing is the industry to provide private loan consolidation and refinancing services.  The firms in this industry take different forms: lending firms that provide new loans themselves, middle-men that connect you with lending firms, and service firms that consolidate federal loans for you, for example.

Regardless of the form they take, you should carefully evaluate what you are getting and giving up.  This may require some digging on your part, since ads typically only highlight what you are getting. 

For example, if you refinance your federal loans into a private loan, you will give up important federal protections and benefits, which may be more valuable to you than a lower interest rate.  You may also pay sizable fees on top of the fees you already paid when you originated your loans.

Also be aware that some practices in this industry are predatory.  I recently encountered a service firm that offered to consolidate federal loans (something you can do for free) and charged $500 per year for the service.  The fees were only revealed in the fine print of the contract.

Don't assume that these firms are student loan experts or have your best interests in mind.  Protect yourself by doing your own independent research and asking lots of questions.  Only proceed once you fully understand the pros and cons.

Manage Your Federal and Private Student Loans Differently

Are your student loans federal or private?  If you aren't sure, you're not alone.  But once you know, you may be able to manage them differently to your advantage.

As background, there are two types of issuers of student loans.  The first is the federal government, which has issued different types of loans over the years, including Stafford loans, Perkins loans, and Direct loans.  The second are private lenders, such as banks and state agencies.

Federal loans have unique benefits that most private loans lack, including forgiveness, cancellation, deferment, forbearance, and multiple repayment plans.  But they also have some unique quirks, such as the inability to refinance within the federal loan system in order to take advantage of lower interest rates.

As a result of these benefits and quirks, it may be advantageous for you to manage your federal and private loans differently.  Here are three examples:

1.  If you currently have a low monthly payment on your federal loans (perhaps because you have entered into an Income-Driven Repayment plan or opted for temporary deferment), you may wish to make extra payments toward your private loans if your budget allows.  Check with your private loan issuer first to ensure that there are no prepayment penalties and that your prepayment can be applied entirely to principal.

2. If interest rates have decreased and your credit score has improved, you may be able to refinance your private loans into a new loan at a lower rate.  (Caveat: if you refinance your federal loans into a private loan, you will lose all of the federal benefits described above.)  Or, if you have access to a low rate loan like a home equity loan, you could consider prepaying either your private or federal loans, whichever has the highest interest rate.

3. If you are considering life insurance, you may wish to include your private loan balance in the amount of insurance you purchase.  Federal loans are cancelled upon your death, but private loans might not be cancelled.  The life insurance can pay off your private loans so that your heirs aren't burdened by your debt.

How can you tell whether a loan is federal or private?  The best way is to log into the National Student Loan Data System, which will list all of your federal loans but none of your private loans.  If other student loans appear on your credit report, then you will know that those loans are private.  You can access your credit report for free by using AnnualCreditReport.

You can't tell whether a loan is federal or private by looking at the servicer.  The same servicer may be handling federal and private loans.

So take a few minutes to distinguish between your federal and private loans.  You may be able to manage them differently to your advantage.

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Preparing for Emergencies

An Emergency Fund and Insurance Play Different Roles In Your Emergency Plan

​In order to prepare for financial emergencies, you will want to have a smart solution to respond to all sorts of unexpected events - both large and small.

Your solution will probably involve more than an emergency fund alone.  An emergency fund is a dedicated source of funds that you can use if something unexpected occurs.  Examples might include unexpected car repairs, medical bills, tax bills, a reduction in work hours, or even a short job layoff.  Having an emergency fund allows you to pay for these unexpected events in a timely manner without having to resort to credit cards or other savings.  This enables you to get through the event without increasing your debt, hurting your credit score, or compromising other important financial goals in your life.

But an emergency fund has limitations.  Most people can't afford to save indefinitely into an emergency fund because they must also make progress on other goals, like a home purchase, college education, or retirement. 

This means that an emergency fund might be big enough to handle small to medium-sized emergencies, like the examples listed above, but not big enough to handle large emergencies.  Examples of large emergencies might include the disability or death of the main breadwinner in a household, the injury to others in a car accident, or a major medical procedure and recovery period.

This is where insurance can play its own role to help you prepare for emergencies.  It can help you handle financial emergencies that are too big for a typical emergency fund.

Insurance companies are generally able to protect you from large losses while charging you a relatively small amount.  They can do this because they insure many people, and only a few will actually experience a big loss.  They use the profits from many customers to fund the losses of a few.

Common insurance policies that protect you from big losses include property and casualty insurance (auto, renters, and homeowners policies, for instance), disability insurance, life insurance, and health insurance.  The cost and complexity of these policies can vary greatly, so it is important to do research, understand the terms and conditions, and get multiple quotes before you buy.

Many people have only partially prepared for emergencies.  They may have an emergency fund but no insurance.  Or they may have insurance but no emergency fund.  Or they may have both, but in insufficient amounts.  In all of these cases, they don't have a complete solution to respond to emergencies large and small.


So if you have a goal to become better prepared for financial emergencies, consider the ways that an emergency fund and insurance can work together to form a more complete solution.  Each one plays an important but unique role in your ability to respond to unexpected events.

Ways to Stretch Your Emergency Fund Dollars

One common and effective way to prepare for emergencies is to create an emergency fund.  An emergency fund provides cash when the unexpected occurs, so that you don't have to tap into more costly resources like a credit card or retirement plan balance.

Emergencies, by their very nature, can be expensive.  You often have to make quick decisions without the benefit of much research or information.  And monitoring the cost isn't usually a top concern.

But you can reduce the cost of emergencies, and stretch your emergency fund dollars, by anticipating certain types of emergencies and identifying affordable solutions ahead of time.

An example is a trip to the emergency room.  Over the past few years, many health plans have dramatically increased the cost of an emergency room visit by imposing large co-payments and deductible requirements.  You could speak to your primary care physician and plan provider beforehand to identify lower cost alternatives.  For instance, a local urgent care facility may be able to handle routine emergencies for the cost of a non-preventative trip to the doctor's office.  You could identify local facilities that are in your network and check them out to see if you are comfortable with them.  Then, if a routine emergency like a sprain or broken bone occurs, you already have a plan in place to respond to the situation quickly and affordably.

Another example is an emergency car repair.  Fewer people have a trusted mechanic these days, since cars are more reliable and require less maintenance.  But if your car breaks down, a trip to the dealer or an unknown mechanic might prove to be very expensive.  Instead, you could look for a local shop ahead of time, read online reviews, visit the shop, and even ask for referrals.  You could also try them out on a simple repair like an oil change, tire rotation, or new battery.  Then you will have a qualified and affordable mechanic in your contact list if a breakdown occurs.

Other examples that are similar to a car repair are emergency home repairs.  It's a good idea to identify a trusted and affordable plumber, electrician, and carpenter before you encounter a home emergency.

Even a major emergency like a job layoff can be made more affordable by identifying acceptable backups to some of the large costs in your budget.  If the unexpected occurs, you can shift to these backup options more quickly than if you hadn't done any planning in advance.

So if your goal is to establish an emergency fund, think beyond the fund itself.  Also consider how you can respond to common emergencies in ways that are both appropriate and affo