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Understanding The Difference Between Saving and Investing









May 28th, 2017

Most of us have heard the terms,“saving” and “investing” at one point or another.  These terms are often referred to in the context of a financial conversation. Much like myself, you may have heard these terms as a child while listening in on adult conversation. As an adult however, I still found myself needing some clarification  on the differences between the two. Over the years, I have learned that they are two uniquely separate concepts.  And furthermore, getting a better understanding of the differences between savings and investing can be extremely valuable in promoting your financial well-being.

The word “saving” often brings to mind the act of putting money aside for the future…which is absolutely correct. By definition it is income not spent or as economic theory refers to it, “deferred consumption.” It is also important to note that “saving” differs from “savings.” Saving refers to the act of increasing one’s assets, whereas “savings” refers to one part of one’s assets (such as a CD or savings account). Some examples of saving methods include bank insured deposit accounts, such as savings and money market accounts, and non-bank insured accounts such as mutual funds. And, of course, there are other types of unconventional saving methods such as, saving or investment clubs.  The key is to find a method that is most suitable to you. One of the key differences between saving and investing is that savings tends to help prepare you for unforeseen and future expenses such as emergencies, college expenses, a down payment on a car or new home. This is primarily why savings needs to be fairly liquid. Many financial experts such as Dave Ramsey, recommend that households have an emergency fund of between 3-6 months worth of household expenses saved to deal with household emergencies.  As we all know – life happens. Having an emergency fund also helps to ensure that you’re not dipping into your general savings or other long term assets.
Click here to access savings tools that can help you acheive your saving objective(s)

The concept of investing involves more than just putting money aside for future expenses. It has direct impact on your long term financial goals. Investing is the step by step strategic process you engage to manage and maximize the assets you have acquired over your life. It takes into consideration a high level of insight and discipline when it comes to debt reduction, retirement planning, tax planning, wealth accumulation and personal interests. In sum, it is a key step in securing your personal legacy. Many experts refer to investing as the vehicle that, “allows your assets to work for you.” Although there are literally hundreds of ways in which to invest, having a clear understanding of your investment goals is critical to any investment strategy. Investing, is not always about money. For example, it can be viewed in the context of managing your time, getting an education, self-development, or even starting a business. The thing to remember is that investing is about maximizing your financial viability for the long haul. That said, learn to be patient and disciplined. Don’t be in a hurry. Follow your strategic plan, and be consistent as you work to achieve your investment goals.

Click here for the 2017 Investment guide from


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Building Savings Through Trust and Community

My wife and I were discussing a recent article. The article shared some of the unique ways families were able to save money. I shared with her one of the ways my grandmother had saved money in the Caribbean island of Trinidad and Tobago. She called it “sou sou” (check out this Essence Magazine article about it). The term and method I’ve learned came from the Yoruba people of western Africa. It was brought to the Caribbean by west African slaves. The method is not widely known in American culture. However, the concept is being practiced by many ethnic communities within the United States. Some practicing groups include Caribbean Americans, Asian Americans and Jewish Americans. Sou-sou is a savings club where each party pays an equal amount of funds into a collective pool. Each person then receives the total amount of the pool on a rotating basis. Payout schedules are set for either a weekly, bi-weekly, or monthly basis.

My wife, a business executive and the great granddaughter of sharecroppers from Louisiana, had a puzzled look on her face. I could sense something going on in her mind. What followed made it very clear of what was happening. She mentioned how deprived she felt that this knowledge was never shared within her ancestry.  She also felt that the knowledge would have made a significant difference in the lives of her family. Considering the large wealth disparity between the majority population and the descendants of slaves, I tend to agree. Our discussion led to a genuine sense of purpose that we should start a savings movement. We scheduled a family conference call and not long after started a family savings plan. A total of 15 individuals are participating.

The three things needed for a savings plan to work are trust, consistency and community. Traditionally, groups that used this savings method operated outside of banking systems. In some cases because banking systems were not accessible or available to them. What’s amazing about these groups is that for them, integrity and honor still matter. In these communities no one wants to risk getting a bad name or reputation. The method is a hassle free, cost effective way to not only save money, but raise capital to start a business as well. The savings concept is so rooted in some Asian communities that according to a study by UCLA sociology professor, Ivan Light, “75% of the members of the Korean American Garment Industry Association belonged to or had a family member belonging to a savings club or kye. And more than 36% said that at least part of their start-up capital came from a savings club or kye.”

Why should you take part? I like to think of this as a “NO INTEREST” loan of sorts. Instead of using a credit card or installment loan to borrow money, you have the benefit of receiving a lump sum of money without fees. For instance, if you were trying to save up $3K at the same pace of $250/month. How long would it take you to do so? Well, of course the answer is 12 months. But in this model, if you are the 1st person to receive the pool it will take you 1 month. If you are the 2nd person, it will take you 2 months…and so on. Only the person in last place will take 12 months to collect the pool.

Here’s an example of how it works.

Let’s say there are 12 participants each contributing $250 per month.

Month 1 = $3,000 in the pool

Recipient #1 gets the first $3,000 round (and can place in savings, pay off a bill, or pay cash for something they need, etc.

Recipient #1 (like everyone else) continues to pay $250 per month.

11 months to go…

Month 2 = $3,000 in the pool

Recipient #2 gets the $3,000 and continues to pay $250 per month for another 10 months…. you get the idea.

Saving money aside, one of the key benefits here is being able to build a strong sense of financial trust and community with those closest to you. For our family, we saw it as a great opportunity to reconnect and help each other.

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How to get out of debt and save

For anyone trying to get out of debt and save, finding ways to do both effectively is a major priority. If you’re opting to do it on your own, you must be both disciplined and creative. One do- it- yourself method involves reviewing your budget to create some wiggle room or cost savings which can then be applied towards your debt. The cost savings can help create what is known as a “debt reducer effect” What is a debt reducer effect? A debt reducer effect is simply the systematic application of funds saved from renegotiating your monthly expenses, which will be directed at paying down your debt. Here are a couple steps on how you can get out of debt and save money while on a budget.

Get out of debt and save through budgeting

The first thing you’ll need to do is review your budget by revisiting each line item. Take a critical look at where you may be able to save money. That’s correct, save money. The goal is to squeeze as much cash out of your existing budget to create a reasonable monthly amount you can apply towards your debt. I know this sounds virtually impossible. Keep in mind that everything is negotiable. This is where the rubber meets the road. Consider this scenario: You’re the CEO of “You, Inc.,” and “You, Inc.,” is in trouble. You, Inc., has been operating in the red for a few years and the time has come to make some tough decisions. Ultimately, the company must do some significant cost cutting or risk losing everything. What do you do? Well…you’d take out the hatchet and do what’s necessary to avoid losing everything. Of course, you’d weigh the pros and cons on which items must go, which is easier said than done. The bottom line is it’s not supposed to be easy, but as the CEO you have to make the tough decisions. Much like this CEO scenario, getting out of debt on your own will be one of the toughest things you’ll ever have to do. As the scenario suggested, if you don’t cut expenses you could possibly lose everything. Here are some suggestions on where you can begin to get out of debt and save.  

Renegotiating expenses to get out of debt and save

With the everything is negotiable mindset, begin to look at your monthly expenses. For example, some of your larger monthly expenses include housing expenses, rent or mortgage payments. These are contractual obligations and will not change during the life of the contract, however, upon the expiration of your rental agreement you could consider moving to a less expensive apartment to save money, (until your debt is paid off).  If your mortgage rate and monthly payment are high and you’re able to refinance your mortgage for a lower rate and payment, you’d be able to save on that as well. You can also look at your monthly auto payment to see whether it may be in your best interest to sell your car, trade it in or perhaps refinance your auto loan (if you are able to and, it in fact saves you money). Consider that you could be saving money on monthly auto insurance payments also. Do the math. See whether selling your car and using public transportation—or ride-share services such as Uber or Lyft—may help save you money and free up additional funds which can be re-applied toward getting out of debt and building more savings. You may also want to look deeper at other monthly expenses such as phone or cable plans which you can downgrade or modify to save additional money. And, of course, eliminate activities or unplanned expenses that negatively impact you. Get into the “weeds” of the needs and wants of your household. And when I say household, I mean household. Everyone has to participate.  This is not an overnight process, nor is it easy to accomplish. In fact, it will and should impact your lifestyle for a while. It could be 24-36 months or more depending on the amount of debt you’re in. Here are a few things to remember. First, taking charge of your financial life is one of the most empowering activities you could ever engage. Secondly, speaking from experience, you can live on much less that you believe you can. Thirdly, by instilling the self-discipline now, you are establishing a solid foundation that can help you get out of debt and save.

Maximizing your savings by putting it to work

Once you have made the adjustments needed to realize some savings, you can immediately put those funds to work.  Beginning with the smallest debt account first, you can begin to slowly apply payments toward that debt. Even if you were only able to apply a small amount of funds saved from the review and renegotiation process, that amount applied directly to your debt significantly accelerates debt reduction. Let’s say it was $300 per month.  That’s $3,600 annually or $10,800 in 36 months. In addition, you may also be able to apply additional income such as work bonuses or your annual tax refund to further accelerate paying off your debt. You want to utilize every opportunity to get out of debt and save. The bottom line is, it can be done if you stay on the path. What’s more gratifying than being able to get out of debt on your own. (Ok maybe getting a million-dollar check.) You’d also be saving yourself the cruel irony of borrowing to get out of debt. Once your debt is paid, you can shift priorities on your budget and dedicate funds to build up an emergency fund and or retirement savings.

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4 Key Concepts That Teach Children About Money

Understanding and promoting the importance of financial literacy has been a part of our national dialogue for well over 200 years. Consider this letter written by John Adams to Thomas Jefferson recognizing the need for financial literacy, “All the perplexities, confusions, and distresses in America arise, not from defects in their constitution or confederation, not from a want of honor or virtue, so much as from downright ignorance of the nature of coin, credit, and circulation.” That letter was dated August 23, 1787. Here we are 230 years later—occupying the most sophisticated age the world has ever known—and that statement couldn’t be more relevant. Though it is safe to assume that John Adam’s words related more to the nation than to specific individuals, it is poignant as to the power of his convictions, that solving some of our social ills require a unique understanding of money. The awful truth is that the average household is often ill equipped to sufficiently educate their children about money. In many instances parents themselves may have come from a background where they were not exposed to a conceptual understanding about money.

Having worked in the financial field for over two decades, I saw up close that many individuals do not have financial knowledge that extends beyond owning a savings or checking account. Because money permeates every aspect of our lives, whether it’s shopping, recreating, planning for college, looking for a job, getting married, purchasing a new car, home or retiring, it warrants special focus and attention.Over my career I have observed four key age appropriate concepts that can help guide the parent/child money conversation.

Financial Literacy for Kids –

Concept 1: Budgeting

One of the ways parents can communicate the concept of budgeting to their children is by using the term in conversation. Children are curious and spontaneous by nature and will give parents ample opportunities to talk about money, especially when the conversation begins with, “mom/dad can I have?” By using such opportunities to set expectations with your child that the family is on a budget and will have to plan for purchase, (even if you can afford it) is one way to introduce your child to the concept of budgeting. This is not a no… it’s more of a let’s review this request. Budgeting, as interpreted by your child, can be eventually perceived as a unique family value. Secondly, use the opportunity of providing an allowance to your child to familiarize them with the practice of budgeting. It could be as simple as teaching them how to plan for what they want as well as how to save for longer term goals, such as Mother’s or Father’s Day gifts. Just like any other educational concept, the earlier children are exposed to them, the more likely they become proficient later in life.

Financial Literacy for Kids –

Concept 2: Credit

Understanding credit, how it works and how it should be managed is currently a priority on the nation’s Financial Literacy agenda. With trillions of dollars in both student loan and credit card debt negatively impacting millions of Americans, it begs the question whether thing’s would be different if people knew more about credit much earlier in life. It is critically important to not only create a foundation of understanding for our children on the management of credit, but to also help them avoid the pitfalls of being in lifelong debt. A simple exercise: use a one dollar coin and several pennies on the kitchen table to demonstrate how one dollar borrowed at 7 percent interest can be visually represented. I have a feeling this exercise will work just as well with chocolate chip cookies.

Financial Literacy for Kids –

Concept 3: Savings

Kids are generally not instinctive about preparing for the future. Such planning comes with insight and maturity. It is the responsibility of parents to teach children how to plan. One of the first steps to take in that regard is to practice what you preach. It is much easier to show your child than to give them a lecture.  Although the lesson here is fairly simple to communicate, it is easier said than done. That said, kids love a challenge, so perhaps you can incent them to save a percentage of their income for a specific reward.  For example, every hundred dollars they save you give an additional twenty to their savings fund. The goal of course is to encourage saving versus indiscriminate spending. Be creative, find ways to engage your children to save at least 10 percent of their income.

Financial Literacy for Kids –

Concept 4: Investing

Before children get old enough to work part-time or assert their independence socially and financially. It would serve them well to be familiar with the key financial principle of investing. Broadly defined investing is expending money with the expectation of achieving a profit or material result by putting it into financial schemes, shares, or property, or by using it to develop a commercial venture. However, in the context of a middle or high schooler for example, investing could be time invested in studies, to secure better academic scholarship opportunities and ultimately better college and career opportunities. Parents must be wise enough to link the concept of investing to matters where children can relate. For example, kids are engaged in the world of social media and mobile technology. Those platforms provide a great segue into an investment discussion as it relates to the producers of those products and services. Talk to them about the unique opportunity to not only be a consumer of great technology but how to also invest in something you use or enjoy by becoming part owner through stock purchasing. Plant the seed that investing can be a great vehicle to goals achievement and financial wellbeing.

These four concepts are constant throughout our entire financial lives. Both adults and children should have a good understanding of these 4 key concepts about money. The goal should be to promote the principles of financial discipline. We all know how critical it is for kids to formulate strong social footing, but we should all recognize the importance of developing strong economic footing as well.

The Community Connection

For many families in the low and moderate income demographic, non-profits and faith-based organizations have become important surrogates in bridging the knowledge divide for both parents and children as it relates to understanding money. One example would be the recent partnership between Operation HOPE, a major international financial literacy organization, and the Church of God in Christ, Inc., a 6-million-member denomination.  Their joint initiative seeks to provide Financial Literacy programing across the nation through their network of local churches. In addition, many local banks in partnership with the Federal Deposit Insurance Company (FDIC) also provide a Financial Literacy Curriculum called Money Smart, a financial education curriculum designed to help low and moderate income households. Parents can seek out these organizations either locally or via the internet to learn more about their financial education programs and how they can be accessed either locally or remotely. The Consumer Financial Protection Bureau is also a great financial education resource for both adults and youth. They provide a host of both printed and webinar content in their resource library.

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There is no such thing as a credit score…Let me explain.

Let’s be honest, many Americans may have some idea of who FICO is, but not everyone fully understands what FICO does or for that matter, how they do it. FICO was founded in 1956, and was originally called Fair, Isaac and Company. They are a data analytics company based in San Jose, California that focuses on credit rating services. FICO scoring models, which measures consumer credit risk, have become a fixture in the  consumer lending arena in the United States. FICO produces several of its general risk and industry specific credit scores each of which is unique to specific credit reporting agencies. For example, in the auto industry you may see up to 10 different credit scores, 3 from Equifax, 4 from Transunion and 3 from Experian. Each credit reporting bureau utilizes multiple FICO formulas or formula generations. (FICO formulas are periodically updated, using new data or algorithms)

To give some scope on the issue, you can have up to 56 different credit scores –which will likely increase to 65 as FICO recently added 12 scores to the total. These multiple scores are reflected across several industries such as, auto loans, mortgages, credit cards, installment loans, and in some cases auto insurance.

To sum it all up here: for each credit bureau, take Experian for instance, FICO will generally provide consumer credit risk scores for a specific industry, but because models are constantly being updated, you’re likely to see up to 6 different scores for that one industry on the same credit reporting agency. Now, multiply that number by 3 reporting agencies, not to mention the various industries involved and you should have a sense as to why you don’t just have a singular “credit score,” you actually have multiple credit scores, plural.

That said, it should now make more sense to you that your FICO credit scores do not match and that whenever you apply for credit, depending on what the consumer product is, your scores will be specific to that industry.

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Six Reasons to Purchase Your First Home

Having good credit is one of the best ways to maximize your ability to build a healthy financial future. Home ownership should be a part of that equation. Whether you see owning a home as part of the American dream or not, there are several important factors that make purchasing a home a great financial decision. If you’ve been thinking about becoming a homeowner, here are 6 key reasons for you to consider.

Ownership provides you Tax benefits.

The US Tax code incents home ownership by allowing home owners to receive a tax deduction for their mortgage interest expense, ultimately decreasing your tax liability. The way it works is that at the end of every tax year, home owners receive a copy of IRS Form 1098. Mortgage companies are required to send every mortgage holder, a copy of this form, (1098) which provides the total amount of mortgage interest paid on a particular loan for the tax year. Please note that the tax deduction is only attributed to the mortgage interest not the mortgage principal.

Fixed monthly housing expenses
According to a recent Bloomberg Report, almost 41 million U.S. households spend more than 30 percent of their income on housing. The reality of a growing population creating a higher demand for housing is affecting the cost and the options for housing. Purchasing a home via a conventional mortgage assures you the predictability of a fixed payment for the life of the home loan. In contrast to being a leasee who has less control from year to year in terms of what the monthly housing payment would be, particularly over a period of 2 or 3 decades. This is also a very important consideration in planning your long term financial goals.

Building wealth through asset appreciation
One of the more significant ways families are able to build wealth is through property ownership because home values appreciate over time. According to Zillow economists, “home prices have appreciated at an average annual rate of 3 and 5 %, depending on the index used for the calculation, home value appreciation in different metro areas can appreciate at markedly different rates than the national average.”  Given that some 85% of the home loan market are 30 year fixed rate mortgages, home owners will have three decades of appreciation to look forward to, provided that nothing catastrophic happens.

A home mortgage is the cheapest credit you can purchase
A home mortgage is a loan secured by a home or real property which is in effect used as collateral to make the loan. There are other factors to consider such as creditworthiness and capacity to repay.  As a result secured loans are less of a risk to lenders and are priced lower than unsecured loans, in which case a lender may be relying on the proven track record and capacity to repay of the borrower. Also in the case of a borrower default lenders are able to retain the collateral to offset the debt.

Investing in both the stability of your family and community
Owning a home give families a place and a space to create community with themselves and with those around them. Maybe it’s nostalgia but I’d like to think that everyone needs a north-star, a ground zero, a place to create childhood memories or neighborly camaraderie. Ultimately, stability is such an important component in the fabric of our existence. Whether it’s our immediate families, our communities or just our overall well-being.

Leaving a legacy for the next generation.
A home is more than just a good real estate investment it can become part of a family legacy. It holds both financial and sentimental value. As home owners prepare for retirement, estate or succession planning, ensuring the proper steps are taken to secure the family’s key assets are of tremendous importance. There are several reasons why leaving a home as an inheritance is extremely valuable. It provides the benefactor(s) a sense of stability, as well as a financial spring board from which they can launch their own lives as opposed to starting from scratch.

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4 Steps to Getting out of Debt

A recent report from The Pew Charitable Trust stated that 80% of Americans are in debt. The primary areas of consumer debt are mortgages, student loans and credit cards. These types of debt can generally be thought of as either good debt or bad debt. Borrowing to secure a home or acquire a college education is considered good debt because these assets (yes, an education is an asset) hold significant long-term value. Although credit cards can be extremely useful in cases of emergency and are exceptionally convenient in everyday commerce, they promote a buy now pay later culture. Thus, it is easy to build up sizable credit card balances which may ultimately cause difficulty later. Furthermore, this may also prevent you from addressing other financial obligations which can impact your financial well-being.

Here are a few steps that can put you on the right path to getting out of debt.

Step 1 – List all your all debts from the largest to the smallest. The purpose of doing this is to not only get a visual of your full financial picture, but to organize all your obligations in a comprehensive way so you can effectively implement your debt reduction plan. A debt reduction plan is a personal strategic approach to reducing your overall debt. Once you’ve listed all your obligations, you should note all your regular monthly payments; particularly your credit bureau reporting accounts. You want to make certain that under no circumstances are monthly credit reporting accounts neglected, as that would undoubtedly prompt further action from creditors and negatively impact your credit rating. Always prioritize payments to credit reporting accounts.

Step 2 – Before you create a schedule to start systematically paying off your debt, there are a few things you’ll need to commit to. 1) You cannot add any new debt during the term of your debt reduction schedule. 2) You must review your overall budget and cut all unnecessary spending (focusing on needs vs wants) 3) Given that your income more than likely will not change and monthly obligations will remain the same, you want to ensure that expenses are not out of control, so as to free up as much funds as possible to be used as a “debt reducer.” (The term “debt reducer” simply refers to the amount of funds that you have set aside either by curbing expenses or by paying off your smaller debts) The debt reducer is then systematically applied to paying off your outstanding debt obligations. The amount of your debt reducer should grow with each pay off.

Step 3 – You are seeking to create a snowball effect. Using funds from your debt reducer you are systematically targeting the smallest to the largest accounts on your list until they are paid off.  (The key to your success here is consistency) Once the first debt is fully paid, target the second smallest and so on until each is systematically paid off. The snowball effect kicks in once you begin to apply the extra funds from each of the (old) paid off debts. This will help accelerate paying off your obligations. For example, if you were paying say $75 a month toward your credit card account of $2,000.00 which is now paid in full, you can now use that extra $75 which can be applied directly to the next monthly payment on your list. Adding an extra $75 to your regular monthly payment will help decrease your debt much faster.

Step 4 – If after reviewing your income, expenses and monthly debt obligations you’ve determined that your situation is too overwhelming to handle — or that it’s simply not within your power to resolve – you should seek the advice of a certified financial planner or consumer credit counsellor. Usually counsellors can help guide you through the process of deciding which debt management option would best suit your needs. Options can range from using a debt consolidation loan, to filing for either of two types of bankruptcies (Chapter 7 or Chapter 11).

That said, be your own CEO. You actually can talk to creditors, negotiate with them regarding rates, payment amounts and even balances. Don’t be afraid to engage your creditors in conversation to your benefit. Taking these key steps will not only help you get out of debt, it will help you improve your financial discipline over time.

Here are a few debt Management resources.
Things to look for from a Credit Counselling Agency
Consumer Credit Counselling

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10 Critical Signs You Have A Debt Problem

There is no shortage of dialogue about how challenging debt problems are for many working and middle class Americans. According to a recent article by Money titled, “Americans Have So Much Debt They’re Taking It to The Grave,” 73 percent of the US population are not just in debt they’re literally dying in debt. Millions of families are grappling with the reality of living on the margins of financial freedom. Whether it’s related to wage stagnation, underemployment, college or consumer debt—or simply living beyond their means—many are falling through the financial cracks and are not entirely sure what to make of their debt situation or how to recognize the indicators that could lead to personal financial crisis. Here are 10 warning signs that you may have a debt problem.

1) Receiving frequent bank overdraft notices.
One obvious warning sign that you have a debt problem is receiving frequent overdraft notices from your bank about your account or accounts being overdrawn. You may even be afraid to “check” the balance in your check-ing account (pun intended). This is a telling sign that you’re not in a good place financially.

 2) You have difficulty meeting your personal financial obligations.
Another sign that you may have a debt problem is if you’re always playing catch up. Regardless of the extra hours you put in at work or the extra money earned at a second job, it never seems to be enough to cover your obligations. You’re constantly juggling your financial responsibilities and hoping that the juggling act doesn’t become a circus.

 3) You are always borrowing.
Whether it’s from friends, associates or even your retirement account, nothing screams, “I’m having financial difficulty,” than the constant need to borrow. It is another sign that you may have a debt problem.

 4) You are unable to save.
Not being able to save even a small sum of your income, whether it’s for emergencies or longer term financial goals, such as retirement is a definite sign that you could have a debt problem.

5) Your payments are occasionally late.
Because of your financial constraints, it is often difficult to ensure that all your monthly obligations are paid on time. As a result, you may be receiving reminders, or in some cases late notices. Be proactive in taking steps to address the problem once you’ve noticed this particular pattern. Late payments can negatively impact you by costing you late fees or by hurting your credit profile. It also signals that you may have debt problem.

 6) Your debt-to-income is over the top.
Your debt to income ratio is a simple calculation that measures how much debt you can carry comfortably based on your gross income. It is a simplified way lenders determine if credit applicants are financially able to take on more debt. The magic number is usually around 36% or less. If you’re in the 40 percentile and above, you’re carrying too much debt compared to your income.

7) You’re not sure exactly how much debt you have.
This may sound a bid outlandish, but if you’re not consistently budgeting and haven’t taken the time to review your overall financial picture—by assessing your income, expenses, assets and liabilities—you have no way of knowing exactly what type of debt situation you’re in. It may also mean that you also won’t know where to begin addressing it. You’re making a huge mistake if you’re not sure who you owe and how much you owe. Given that you could be in financial purgatory, it really makes sense to be as specific as possible about your debt problem before it gets any worse.

8) Your credit cards are maxed out.
If you’re short on cash and credit is the only way you can consume goods and services or pay bills, you have a debt problem. It is also likely you’ll see your credit card balances increase from month to month. Maxed out credit cards also mean that you’ll be paying much more for what you’ve purchased as credit cards interest rates may kick up; particularly when you carry monthly balances.

 9) You are constantly thinking about filing bankruptcy.
The stress of being unable to meet your personal and financial obligations can be daunting. The pressures can lead to consequential decisions that may impact you for a very long time. Bankruptcy is one such decision. There are other viable alternatives, however, such as talking to an accredited credit counselor. Any thought about the bankruptcy should be explored as a last resort and certainly discussed with the appropriate legal counsel.

 10) Talking about your financial situation is difficult.
You tend to get uncomfortable, embarrassed or perhaps even irritated whenever the conversation enters your financial space. The hyper sensitivity to discussing your financial picture spells that you have a debt problem.


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Debt Consolidation – Is it the right option?

​It is no secret that many Americans today are overwhelmed by some form of debt, whether its student loans, credit cards or mortgages.  In fact, the American philosophy may well be, “in debt we trust.” Many are faced with the challenge and stress of paying monthly debt obligations often on the verge of succumbing to personal financial ruin or eventual bankruptcy. One of the ways in which individuals try to address the issue is by consolidating their monthly debt obligations.

What Exactly Is Debt Consolidation?

Debt consolidation Definition: Debt consolidation is a ‘convenient’ financial tool (often a loan) that combines multiple, individual debt obligations into a single payment plan.

​​​In essence, the process known as “debt consolidation” is an effort to simplify or streamline all your monthly debt payments into one affordable monthly payment. The rationale, of course, is that it is much easier to pay one versus several monthly payments. Although in theory this may seem like a great idea, keep in mind that this ‘simplistic’ logic may not be so simple. In fact, there may be additional costs associated with specific consolidation options. You need to look past the allure of an initially lower payment amount and learn about the types of plans that may be most appropriate for you in both the short-term and long-term. 

Option one: Debt consolidation payment plan

A debt consolidation payment plan is a plan designed and administered by a third party such as a credit counseling agency,  whom you would authorize to negotiate with creditors to help reduce and pay off your debt. The plan allows you to make a singular monthly electronic payment to the credit counseling agency who in turn takes those funds and makes the various monthly payments to your creditors.  Some agencies charge a nominal fee for the service while others do not. This type of debt consolidation payment plan is not debt consolidation loan. Note: you may also hear this referred to as a “debt management” or “debt repayment plan.”

Option two: Debt consolidation loan

A debt consolidation loan, as the name suggests, is a loan designed to consolidate your existing debts by paying them in full with the proceeds of the debt consolidation loan.  You are basically transferring the debt into a new loan with one monthly payment. Because debt consolidation loans offer short-term affordability, it often means payments will be lower but loan terms will be longer and perhaps more costly. You should also take careful note of the interest rates being offered as they could be higher than the rates currently offered on your existing debt.

Things to keep in mind before using a debt consolidation loan

Borrowing your way out of debt is counter intuitive. As a matter of common sense we generally don’t use fire to put out a fire. Why then would we try to borrow our way out of debt?

Address the underlying problem
Being in debt does not occur overnight. It is often preceded by a number of factors which may include job loss or prolonged illness, but more often than not, poor financial habits. It is critical that you address the underlying problems which led to the path of overwhelming indebtedness. Developing discipline and the savings strategy necessary to avoid a financial crisis should be a major priority. Whether it is done individually or with a professional, building a financial action plan to help address the core issues will be key.

You may end up paying more $ over time
There is big difference between a consolidation payment plan and a debt consolidation loan. By consolidating all or part of your debt obligations into one payment, makes it much easier to afford and manage. However, you must clearly understand the overall financial consequences of borrowing to pay off debt. Loans consist of principal and interest. The longer the loan the more interest you pay. Again, you may feel a sense of relief in the beginning by lowering your monthly payments, but when it all said and done if you’re already in debt, borrowing is the last thing you should be thinking about.

For anyone struggling with debt, the good news is that there are options available to you, just make sure your consolidation option doesn’t lead to more indebtedness.

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Credit Card Debt Reduction

According to a recent report from, 35% of consumers use credit cards as their preferred method of payment; For online shopping it is 48%. In addition, it stated that credit is the preferred payment method for most people at department stores. Given the convenience that credit cards offer it is no wonder that credit card debt have grown into a major financial hindrance for many credit card users. Here are couple things to remember in order to reduce your credit card debt.

Credit card Interest Rates will hurt you
The national average for credit card interest rates is 15.18%. What this means in the simplest terms is that for every dollar that is spent via credit card, consumers pay on average .15 cents (rounded) on the dollar.  Then there’s the Annual Percentage Rate or (APR) which factors in the small amounts of interest that is compounded on account balances daily ultimately increasing the overall cost of credit. If you don’t manage your account effectively you’ll feel like you’re not making any progress reducing your credit card debt. 

Pay off your balance(s)

To reduce your credit card debt you have to minimize the amount of interest you pay on your card. For instance if you carry a monthly balance on your account, in addition to your regular scheduled monthly payment you’re also going to be paying interest on the full outstanding balance. The interest rate on your rolling balance is normally much higher as well. To avoid paying a higher rate of interest try to pay off your balance every month or pay more than your scheduled monthly payment. This will reduce your credit card debt and minimize the amount of interest you’ll have to pay. 

Avoid Cash Advances
One area to avoid as it relates to reducing your credit card debt is “credit card cash advances.” Cash-advance interest rates can range from 9.99 percent to 36 percent, with a median rate of 23.53%. Can you even imagine paying 23 or 36 cents on every dollar? (see 2015 Cash Advance Survey: Convenient cash will cost you plenty.) The bottom line is credit card cash advances are very costly and should only be utilized as a last resort if at all. 

Finally, credit card debt can have a negative impact on you financially, especially if you carry balances over from month to month. It is possible however to mitigate some of those negative factors and reduce your credit card debt by paying attention to interest rates, paying off balances and minimizing cash advances. 

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