Monthly Archives

April 2019

The True Cost of Making Minimum Payments Only

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When you’re taking a long, hard look at your finances, it can be tempting to just make the minimum payments on your credit card debt and call it a day. What is the minimum payment, you ask? Well, it’s a calculation of your current balance plus one perfect interest on the principal balance. Credit card companies rely on the fact that you’re going to make minimum payments and not pay in full each month, so one of the best things you can do for your finances is to pay more than the minimum payment every month.

 

When you pay more than the minimum, even if it’s just $10 or $15 each month, you’ll be progressively chipping away at the principal interest, which means you’ll make more progress toward actually paying off the debt. Sometimes the minimum payment is $25 or less each month, and this can look pretty attractive to someone who is paying off student loans or wants to worry about their credit card debt later. When you only make your minimum payments, you’re never actually contributing toward paying off the debt.

 

Paying the minimum amount over time can also lead to paying more in interest over the life of the credit card. It can take even longer to pay off debt, or have a negative effect on your credit score. Carefully monitor your credit cards and make sure not to miss payments, as that can mean you’ll have to pay late fees, too. Paying the minimum toward your credit card can seem like a good idea, but it’ll keep your debt in stasis, never quite propelling you toward the ultimate goal—being debt-free.

Your Credit Report Could Contain These Errors

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Most people aren’t looking too deeply at their credit report. After all, it’s a confusing process and credit bureaus keep many of us in the dark with their policies and calculations. It doesn’t have to be that way, however, if you stay up to date on what’s happening in the personal finance world, and if you watch your credit report closely each month.

 

Many people only pay attention to their credit report when they need to — for example, before they get a hard credit hit when applying for a loan or a credit card. But it’s better for your long term financial health to check your credit report periodically and make sure there are no errors affecting your credit score. Because your credit score is an important factor in getting a loan or renting an apartment, why stay in the dark about how your report is calculated?

 

Common errors on a credit report include things like accounts that don’t actually belong to you, or old accounts you’ve closed that are incorrectly noted as open (and vice versa). Another error could be incorrect personal information, like an old address or phone number. Other more serious errors can happen. For example, your credit report could indicate that you’ve missed a payment or made a late payment when you haven’t, which can quickly send your credit score into a nosedive.

 

Signs that your credit report may be inaccurate can also be things like a wrong name, or signs that someone tried to open or run your credit without your knowledge. Anything like this should be carefully looked into because you may be dealing with identity theft or fraud.

 

Curious about your credit report and how it all comes together? Contact Cain and Daniels today to combat credit report errors today.

Tips for Beginners Looking to Invest

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Investing can feel like a walled garden—it’s hard to know how to get in, or what things mean when you do get inside this very confusing world. But getting started as a beginner investor doesn’t have to be scary. Before you get started, do plenty of research on the markets and types of investments you can make. Diversity in your portfolio is key, but it’s even more important to make decisions for yourself and to not simply go with everything someone tells you.  

 

Another important tip for beginners looking to invest is to make sure you set long-term financial and investing goals that guide your decision-making. If you don’t have a strategy, you’ll never know what kinds of returns you should even be aiming for.

 

Another tip? Ask for help. Financial advisors and investors are experts for a reason. They’re here to look out for your interests and guide you on your investing journey. They’ll help answer your questions like, “Should I invest in individual stocks or mutual funds?” or “How much money should I invest?”

 

The important tip about investing is to know your risk level and understand how comfortable you are with risk. Any advisor will urge a younger person to be riskier with their investments because they have more time to play the market, while a person who is older should be involved in the market in a less risky way to preserve their investments.

 

Curious about more tips for beginner investors? Contact Cain and Daniels today to discover more strategies for effective investing. Knowing is half the battle, and demystifying the investment process is a crucial piece of the puzzle.

Can You Buy a House if You have Student Debt?

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Many people starting their lives post-college suffer from high student loan debts, and the idea of chipping away at your student loans while also making other adult investments can seem daunting. After all, how can you focus on things like retirement savings and your emergency fund when you’re trying to pay off your loans quickly? But for those who are looking to buy a house, having student loan debt can make the process a little harder.

 

One of the critical pieces of buying a house is making sure that your credit score and credit history paint a positive picture of your behavior. If you want to buy a house but you’ve never made an on-time payment to your credit card or your student loans, then how can you expect a creditor to find you reliable enough to pay a mortgage?

 

Just because you have loans like the majority of Americans doesn’t mean that you can’t make steps toward owning your own home. One way to see how much you can afford to put toward a home is to get pre-approved for a mortgage, rather than searching for homes that you think are in your budget. Getting pre-approved means an expert will take a look at your existing loans as well as your assets and debt-to-income ratio to understand what’s possible for you.

 

It’s very rare that you’d be completely denied the ability to buy a home just because you have student debt, but it’s important to have a plan in place to tackle your loans and show creditors that you can also handle a mortgage along the way.

 

Curious about how to make steps toward owning your own home even with student loan debt? Contact Cain and Daniels today for more information.

5 Ways for Couples to Escape Debt

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Whether you’re newly dating or married for years, the reality is most couples have to deal with more debt than ever. Financial discussions with your partner still get a bad rap, but it doesn’t have to be scary to be financially transparent and truthful. When you’re in a couple, it’s important to be up front about the uglier parts of your finances—for example, how much are you putting toward student loans? How much are you contributing toward retirement? If you’re not on the same page about how to aggressively attack your debts, you’re bound to run into complications and fights about finances. Here are five ways to escape debt as a couple:

 

Automate your payments.

If you’re part of the same checking account and have your finances linked together, there’s nothing more important than automating your payments. That way, you’ll never miss a loan payment or a time-sensitive bill, and you’ll never have to ask your SO, “Did you remember to pay that bill?”

 

Table big purchases (for now).

One of the great aspects of having a partner is having someone to keep you accountable. When you’re working to escape debt, it’s important to cut back your spending and find areas where you can slash costs. That means cutting out cable, subscriptions, or that expensive gym membership. That means saying “no” to vacations that must be charged to a credit card, and limiting how often you eat out.

 

Know about the big debts.

Communicate clearly with one another about your student loans, your existing financial struggles, and how you plan to pay them off. If you’re not transparent as a couple about your finances, then making big or small purchases can cause resentment because it takes away from your strategy to pay off debts.

 

Limit credit card use.

If you’re heavily relying on credit cards and making sneaky purchases or shameful purchases behind your partner’s back, it’s time to evaluate your credit card usage. Remember that a credit card can be an incredible asset to building your credit, but when used incorrectly, you can easily tank your credit score.

 

Ask for help.

If you need help managing payments or you’re struggling with paying off your debts, we can help. Contact Cain and Daniels today for more information on how you and your partner can escape de

5 Signs of Financial Trouble

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Financial trouble can sneak up on all of us at different points in our lives. Whether you’re making good money and putting it in the wrong places, or drowning in debt payments, there are always better ways to manage your funds and improve how you approach your finances. Here are 5 warning signs you might be headed for financial trouble:

 

You’re constantly making minimum payments.

Making minimum payments toward your debt should always be a short term tactic, never your main method for paying down your debts or your credit cards. When you only ever pay the minimum payment, you’ll only accrue more interest over time and never chip away at the principal interest.

 

Your savings are stalled or nonexistent.

If you’re stalled out on making any progress toward an emergency fund, or if you’ve completely depleted your savings, it’s time to evaluate both your spending habits and your long-term financial goals.

 

You’re living paycheck to paycheck, or relying on credit cards.

If you don’t have enough money to pay your bills every month and are relying on your credit cards to pay your bills, you’ll quickly run out of money and have nothing to fall back on. When your debts begin to pile up and you can’t afford the basics, you’re in danger of making fiscally reckless decisions just to make ends meet.

 

You’re working constantly.

If you can’t afford to take a day off, or you’re working a part time job in addition to a full-time gig, you might be in worse financial shape than you think. It’s important to take a step back, if you can, and take care of yourself first. Otherwise, you’ll be too burnt out trying to pay your bills to even begin chipping away at your larger debts.

 

You don’t have a budget.

If you think that tracking your spending isn’t important and you’re not making headway on your debts, you’re not going to progress very far toward financial freedom and security. Keeping something as simple as a spreadsheet is crucial so you understand where your dollars are going, and put a stop to pesky habits that eat away at your bottom line.

Debt Avalanche vs Debt Snowball

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There are two popular methods of paying off debts, and different methods work for different kinds of debts and different kinds of people. It all depends on what you’re comfortable with, and which method makes the most sense for your financial situation. The first method is the debt avalanche, where you figure out the interest rates of your debts before making any moves to pay one off. After you know your interest rates from highest to lowest, you’ll figure out the minimum payment for each debt.

 

In a debt avalanche, you tackle the debt with the highest interest rate first, then the debt with the next highest interest rate, and so on. As you pay off debts completely, you avalanche down the hill toward the lowest interest rates, and eventually pay everything off. The main reason people use the avalanche method is to minimize the amount of interest you’re accumulating by paying off high interest rate debts first.

 

Then there’s the debt snowball, which organizes your debts from smallest to largest and pays off the smallest debt first. With this method, you make larger payments toward the smallest debt to aggressively pay it off in a short period of time while simultaneously making the minimum payments toward any other debts. The reason why this method is popular is because people find it helpful to see results quickly; it motivates them to pay off even more debts once the first in the snowball is paid off.

 

There’s no one “right” way to pay off your debts. Take a look at your debts, your interest rates, and what you’re able to put toward monthly payments, and one method may stand out as the right one for you. Contact Cain and Daniels today to talk with us about different debt management methods.

4 Bad Ways to Pay Off Debt

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You might think that there’s no wrong way to pay off debt because it’s, well, paying off debt. But there are methods that can tank your credit score, make you look unreliable in the eyes of loan providers and creditors, and can simply make your life more stressful. Here are 4 bad ways to pay off debt:

 

Using your 401k to pay off debt

This might seem like a smart solution, but it rarely ever pays off the way you think. For instance, when you take money out of retirement, you’ll be taxed on it. Taking money out of retirement almost always comes with penalties and fees, so it might not make a huge debt in your debt when all that’s said and done. Plus, that’s years of compound interest on your 401k that you’ll never get back, which only lengthens the amount of time you’ll need to work in order to retire.

 

Taking out a high interest rate loan

Using what’s called a “payday” loan usually has too high of interest rates to make it worth it as a debt payment method. Interest rates can balloon up and quickly make it much harder to pay the loan off quickly than anticipated. Avoid this route if you can.

 

Refinancing your mortgage

Using your mortgage to try to pay off your debts is not a helpful strategy because, if it goes badly, you could lose your home and still owe your debts, plus it can decimate even the best credit score when you can’t make your payments.

 

Ignoring your debts

They aren’t going to go away, especially if you ignore what you owe or stop making payments altogether. This simply makes things worse. You may think you can outrun your debts and make a big payment when you come into money again, but the damage to your credit score and the way this behavior looks to creditors will make it difficult for you to ever take out a loan or open a credit card again.

5 Tips for Spouses to Save Together

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There should be an old adage that says something like, “couples who save together stay together,” because being on the same page about financial goals is really important for couples and spouses of all ages and economic backgrounds. If you’re unsure where to start when you’re looking to save money alongside your spouse, there are plenty of tips on how to start. Here are 5 tips for spouses who want to save together:

 

Have a clear budget.

It seems too simple, but a budget is your relationship’s best friend. It’s the only way you’ll get a full picture on how much you’re spending, how much your spouse is spending, and how much you both have to put toward debt to pay them off. Without a budget, you’re going to be in limbo because you won’t understand where your dollars are going, and that can lead to confusion and resentment when you look at your shared checking account.

 

Develop goals and a reward system.

If your goal with your spouse is to save $10,000 in a year, you should develop incentives to help you get there, especially if you’re making sacrifices along the way—like waiting until next year to get a new car, or saying “no” to attending an expensive out-of-town wedding. However, you should still think about ways to reward yourself for meeting your goals, like going out on a date night when you save $1,000 toward your goal, or pay off a debt.

 

Drag your skeletons out of the closet.

Have old debts from college, or a looming credit card bill? Your spouse needs to know about that, and financial secrets help no one. The only way to make progress toward saving is to be completely clear and transparent with your finances, your debts, and what steps you’re taking to tackle them.

 

Set yourself up for success.

Do you love to eat out or buy expensive wine, clothing, or vacations? Tell your spouse, “This is what I have trouble giving up” and see if there is wiggle room on an item or two. For example, if they are willing to cut out their morning drive-thru coffee, maybe those funds can be allocated for an occasional fancy Friday-night bottle of wine.

 

Get unbiased help.

If you need help saving and doubling down on your financial goals, then it’s always okay to ask someone for their expertise, like a financial planner or an accountant. Cain and Daniels is here to help spouses save, too.

What Happens When You Cancel a Credit Card

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Canceling a credit card is part of the process of having credit, but it can be tricky to cancel a card and not mess up your credit score. If you don’t need to cancel a card, it’s recommended that you don’t, because sometimes leaving a card with little to no balance on it can be helpful in a pinch.

 

You should cancel a credit card when you can’t stop yourself from spending or racking up transactions on the card. Another reason to cancel a card if you’re paying fees on the card but don’t actually use it. Before you cancel a credit card, it’s important to think about what could happen to your credit score. A closed account with no balance will stay on your credit report for up to a decade. Any information on late payments or missed payments will remain on your credit report for seven years.

 

Even if you do things correctly, you may see a dip in your credit score when you cancel a credit card. If you do end up canceling a card, make sure it’s not the oldest account in your report, because that’s a huge part of how your score is calculated. Credit history is very important to lenders and creditors.

 

When you do decide to cancel one of your credit cards, don’t forget to redeem any points or perks you’ve accumulated in the process. You should also always pay your balance in full before canceling a card. Be sure to check in a few months on your credit report to make sure the account is closed.

 

Curious about what else can happen when you cancel a credit card? Contact Cain and Daniels today for more information.